We have audited the attached Balance Sheet of Asian Electronics Limited
 (''the Company'') as at March 31, 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.  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.
 
 1.  As required by the Companies (Auditor''s Report) Order, 2003 (as
 amended) 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.
 
 2.  Further to our comments in the Annexure referred to in Paragraph 1
 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 purposes of our audit.
 
 b.  In our opinion, proper books of account as required by law have
 been kept by the Company so far as appears from our examination of
 those books and proper returns adequate for the purposes of our audit
 have been received from the branches / divisions not visited by us,
 except for the financial statements of PA L Technology Division which
 have not been audited by branch auditors.
 
 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, except AS – 2 Valuation of Inventories and AS –
 13 Accounting for Investments
 
 e.  On the basis of the written representations received from the
 Directors, as on March 31, 2011, and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 March 31, 2011 from being appointed as a Director in terms of clause
 (g) of sub-section (1) of Section 274 of the Companies Act, 1956.
 
 f .  Attention is invited to the following:
 
 i. Note No. 2 of Schedule 21(III) regarding transfer of related loans
 and debentures of ESCO and Project Division aggregating to Rs.
 13,871.24 Lacs to two wholly owned subsidiaries. The Lenders have
 refused to give their approval and have informed the company not to
 proceed with hiving off of the Assets and not to transfer the Loans /
 Debentures to the two subsidiaries. Although the Loans / Debentures
 aggregating to Rs.13,871.24 Lacs granted by Banks/ Financial
 Institutions to the Company are not reflected in the Books of Account,
 the Company continues to be liable to the lenders for the Loans /
 Debentures transferred to the subsidiary companies. Also, the Company
 has not provided interest on the above Loans / Debentures for the year
 under review. On the basis of information available to us, we are
 unable to form an opinion in this matter and unable to opine on the
 fall in the value of Investments in the subsidiary companies amounting
 to Rs. 6303.49 Lacs shown under Investment Suspense in Schedule 6.
 
 ii. Note Nos. 4 to 7 of Schedule 21(III) regarding Stock Options
 granted to Directors and Employees. Since the Company has not
 ascertained the fair value of the Options granted, impact of the same
 on the Proforma Loss, Proforma basic earnings per share and Proforma
 diluted earnings per share is not ascertainable.
 
 iii. Note No.9 of Schedule 21(III),wherein as explained, LIC Mutual
 Fund has filed a petition in The Bombay High Court for winding up of
 the company for non-payment of its dues. The matter is sub judice and
 outcome of the same cannot be currently ascertained. Also Bank of India
 has served upon the Company a Notice under Section 13(2) of the
 Securitization and Reconstruction of Financial Assets and Enforcement
 of Security Act, 2002 for repayment of dues and other Banks have also
 asked the Company for repayment of their dues.
 
 iv. Note No. 11 of Schedule 21(III), wherein consequent to review made
 by the management the following are the observations:
 
 1.  Diminution in the value of Investments in certain companies of Rs.
 4367.97 Lacs not reflected in the Financial Statements (AS-13)
 
 2.  Old/Unusable Stocks mainly for discontinued product lines amounting
 to Rs. 3000 Lacs included in Inventories which may no longer be
 realizable (AS-2)
 
 3.  Sundry Debtors considered good includes Rs. 4,216.23 Lacs of old
 Outstanding''s which may not be recoverable.
 
 4.  Old Debit Balances of Rs. 2926.51 Lacs included in Loans and
 Advances and Rs.192.67 Lacs on account of Unreconciled Bank Balances
 which may not be recoverable / realizable. Consequently, although the
 above have been shown as Considered Good, no provision has been made
 for the same.  In view of the above, we are unable to express an
 opinion on the recoverability / realisablility of the above mentioned
 items, the impact of the same on the Loss for the year as well as the
 future viability of the Company as a ''going concern''.
 
 g. Subject to our remarks mentioned in Paragraph (f) above and our
 comments in the Annexure referred to in Paragraph 1, in our opinion and
 to the best of our information and according to the explanations given
 to us, the said accounts read together with the 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 March 31, 2011 ;
 
 (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 Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT Referred to in paragraph 1 of our
 Report of even date.
 
 i. a. The Company has maintained proper records showing full
 particulars including quantitative details and situation of its fixed
 assets.
 
 b.  All the assets have not been physically verified by the management
 during the year but there is a regular programme of verification which,
 in our opinion, is reasonable having regard to the size of the Company
 and the nature of its assets. No material discrepancies were noticed on
 such verification.
 
 c.  According to the information and explanations given to us, the
 Company has not disposed off a substantial part of its fixed assets
 during the year.
 
 ii. a. The inventory has been physically verified during the year by
 the Management. In our opinion, the frequency of verification is
 reasonable.
 
 b.  In our opinion and according to the information and explanations
 given to us, 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.  On the basis of our examination of the records of inventory,
 material discrepancies were noticed between book records and physical
 verification of inventories. However, the same have been dealt with in
 the books of account.
 
 iii. a. to g. As no entries have been made in the Register required to
 be maintained under Section 301 of the Companies Act, 1956, we are
 unable to opine whether the Company has granted or taken any Loans,
 secured or unsecured to / from Companies, firms or other parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956.
 
 iv. On the basis of the audit procedures and our examination of the
 books of Account, we are of the opinion that internal control system is
 not adequate and requires strengthening in order to make it
 commensurate with the size of the Company and the nature of its
 business for the purchases of inventory and fixed assets and for the
 sale of goods and services. During the course of our audit we have
 observed failures to correct major weaknesses in the internal controls
 in certain areas. Attention is invited to the matters stated in Note 12
 of Schedule 21 (III).
 
 v. No entries have been made in the Register of Contracts /
 Arrangements as required under Section 301 of the Companies Act, 1956.
 Accordingly, the provisions of clause 4 (v) (b) of the Order are not
 applicable to the Company.
 
 vi. In our opinion and according to the information and explanations
 given to us, the Company has not complied with certain provisions of
 Section 58A, 58AA and other relevant provisions of Companies Act 1956
 and the rules framed there under. Deposits matured and claimed, but
 unpaid as on 31.3.2011 are Rs 127.89 Lacs. No interest has been
 provided on the same after the date of maturity. No intimation to
 Tribunal regarding default in repayment of deposits has been made.
 Public deposits amounting to Rs.  20.66 Lacs are matured but not
 claimed.
 
 vii. In our opinion and according to the information and explanations
 given to us, the Company''s internal audit system is not adequate and
 requires strengthening to be commensurate with the size and nature of
 its business.
 
 viii. We are informed that the maintenance of cost records has not been
 prescribed by the Central Government under Section 209 (1) (d) of the
 Companies Act, 1956, for any of the Company''s products.
 
 ix. a. According to the information and explanations given to us and on
 the basis of our examination of the records of the Company, undisputed
 statutory dues including Provident Fund, Investor Education and
 Protection Fund, Employees'' State Insurance, Sales Tax, Income Tax,
 Custom Duty, Excise Duty, Wealth Tax, Service Tax and other statutory
 dues have not been regularly deposited with the appropriate
 authorities.
 
 There are no dues on account of Cess under Section 441A of the
 Companies Act, 1956 since the aforesaid section has not yet been made
 effective by the Central Government of India.
 
 According to the information and explanations given to us, the
 undisputed amounts payable in respect of Provident Fund, Investor
 Education and Protection Fund, Employees'' State Insurance, Sales Tax,
 Income Tax, Custom Duty, Excise Duty, Wealth Tax, Service Tax and other
 statutory dues which were in arrears as at 31st March, 2011 for a
 period of more than six months from the date they became payable are as
 under:
 
 Statutory Dues                Rs.in Lacs
 
 Provident Fund                   10.14
 
 ESIC                              0.36
 
 Custom Duty                      10.32
 
 Profession Tax                    1.16
 
 Service Tax                       0.96
 
 TDS                               2.06
 
 b. According to the information and explanations given to us and on the
 basis of our examination of the records of the Company, details of dues
 of income tax which have not been deposited on account of any dispute
 are given below:
 
 Name of      Nature of     Amount       Period to       Forum where
 the statute     Dues     (Rs. In lacs ) which amount    dispute is 
                                                         pending
                                         relates
 
 Income Tax 
               Income       10.81        Assessment    Honorable High
 Act,1961       Tax                      Year 1994-95  Court of Mumbai
 
               Income Tax   38.01        Assessment    Honorable High
                                         Year 1995-96  Court of Mumbai
 
               Income Tax   69.85        Assessment    Honorable High
                                         Year 1996-97  Court of Mumbai
 
               Income Tax  114.20        Assessment    Honorable High
                                         Year 1997-98  Court of Mumbai
 
               Income Tax  1282.38       Assessment    Commissioner of
                                         Year 2007-2008  Income Tax
                                                        (Appeals)
 
               Income Tax 1,458.32       Assessment    Commissioner of
                                         Year 2008-2009  Income Tax
                                                       (Appeals)
 
 x. The Company does not have accumulated losses of more than fifty per
 cent of its net worth at the end of the financial year.  The Company
 has incurred cash losses during the financial year covered by our audit
 but has not incurred cash losses in the immediately preceding financial
 year.
 
 ii. As per the information and explanations given by the management,
 the Company has defaulted in repayment of its dues to various banks and
 Financial Institutions amounting to Rs. 5580.51 Lacs during the period
 covered by our audit.
 
 iii. In our opinion and according to the information and explanations
 given by the management, the Company has not granted any loans and
 advances on the basis of security by way of pledge of shares,
 Debentures or any other securities.
 
 iv. In our opinion, the Company is not a chit fund or a nidhi / mutual
 benefit fund / society. Therefore, the provisions of clause 4 (xiii) of
 the Order are not applicable to the Company.
 
 v. In our opinion, the Company is not dealing in or trading in shares,
 securities, Debentures and any other investments. Therefore, the
 provisions of clause 4 (xiv) of the Order are not applicable to the
 Company.
 
 vi. In our opinion and according to the information and explanations
 given by the management, the Company has given a corporate guarantee
 for a loan taken by a third party from a bank. The terms and conditions
 of the said guarantee are prima facie, not prejudicial to the interest
 of the Company.
 
 vii. On the basis of the records examined by us, and relying on the
 information compiled by the Company for co-relating the funds raised to
 the end use of term loans, we state that the Company has, prima facie,
 applied the term loans for the purpose for which they were obtained.
 
 viii. According to the information and explanations given to us and on
 an overall examination of the financial statements and after placing
 reliance on the reasonable assumptions made by the Company for
 classification of Short-term and Long-term usage of the funds, we are
 of the opinion that, prima facie, no funds raised on short-term basis
 have been utilized for long-term investment.
 
 ix. According to the information and explanations given to us, during
 the period covered by our audit report, 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, 1956
 except for allotment of 33,20,549 Equity shares to the Chairman of the
 Company, under Chairman''s Stock Option Scheme, 2009.
 
 x. According to the information and explanations given to us, during
 the year covered by our audit report, the Company has not issued any
 secured debentures.
 
 xi. According to the information and explanations given to us, the
 Company has not made any public issues during the year.
 
 xii. Based upon the audit procedures performed and information and
 explanations given by the management, we report that no fraud on or by
 the Company has been noticed or reported during the year.
 
                                      For SORAB S. ENGINEER & CO.
 
                                           Chartered Accountants
 
                                  Firm Registration No.: 110417W
 
                                             CA N. D. ANKLESARIA
 
                                                         Partner
 
                                            Membership No. 10250
 
 Place: Mumbai
 
 Date: 7th June, 2011.