We have audited the attached Balance Sheet of DESIGN AUTO SYSTEMS
 LIMITED as at 31st March 2007 Profit & Loss Account and also the Cash
 Flow Statement for the period from 01.07.2006 to 31.03.2007 annexed
 there to. These financial statements are the responsibility of the
 Companys management. Our responsibility is to express an opinion on
 these financial statements based on our audit..
 
 We conducted our audit in accordance with Auditing Standards generally
 accepted in India. Those standards require that we plan and perform the
 audit to obtain reasonable assurance about whether the Financial
 statements are free of material misstatements.  An audit includes
 examining on test basis, evidence supporting the amounts and
 disclosures in financial statements. An audit also includes assessing
 the accounting principles used and significant estimates made by
 management, as well as evaluating the overall financial statements
 presentation. We believe that our Audit provides a reasonable basis for
 our opinion.
 
 1.  As required by the Companies (Auditors Report) (Amendment) Order,
 2004, issued by the Company Law Board in terms of Section 227(4A) of
 the Companies Act, 1956, we annex hereto 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:
 
 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 accounts as required by law have
 been kept by the Company so far as it appears from our examination of
 these books;
 
 c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of accounts;
 
 d) In our opinion the said Profit & Loss Account, the Balance Sheet and
 Cash Flow Statement comply with the accounting standards referred to in
 Section 211 (3C) of the Companies Act, 1956 except in case of
 Accounting Standard-15 regarding accounting of retirement benefits;
 (Refer note 1(vi) of Sch.18) & Accounting Standard-13 regarding
 accounting of investments; (Refer note 1(iv) of Sch.18), the decline in
 value of investments, other than temporary, if any, could not be
 ascertained in respect of quoted non-trade and unquoted non trade
 equity shares for want of quotations/ desired information.
 
 e) On the basis of written representations received from the Directors
 of the Company as at 31 st March 2007 & taken on record by the Board of
 Directors, we report that no Director is disqualified from being
 appointed as Director of the Company under clause (g) of sub-section
 (1) of Section 274 of the Companies Act, 1956; and
 
 f) The balances of Sundry Debtors, Sundry Creditors and Loans and
 Advances are subject to confirmation from the respective parties (refer
 note No. 12 of schedule 18 of Notes on Accounts). In our opinion
 sundry Debtors amounting to Rs. 9257748 and Advances of Rs. 2042171 are
 doubtful of recovery. Hence loss for the year is understated by Rs
 11299919 and the Sundry Debtors are overstated by Rs. 9257748 and
 Advances are overstated by Rs.2042171.
 
 g) The company is continuing its corporate guarantee of Rs. 150 Lacs to
 Bank of Baroda against loans to Design Auto Distributions Ltd., without
 obtaining prior permission from Central Government as per the
 provisions of section 295 of Companies Act, 1956.
 
 The Company is continuing advances to Sterling Auto Pvt. Ltd.
 outstanding at the year end of Rs. 1957038/-, in which Mr.
 
 Sarvesh Garg is a Director, without obtaining prior approval from
 Central Government as per the provisions of section 295 of Companies
 Act, 1956.  h) As per terms and conditions of CDR Package the company
 is liable for payment of interest sacrifice amount, the payment of
 which will due at the end of CDR period (Refer Note No 6 of Notes on
 Accounts in Schedule 18). In our opinion the liability is
 crystallised on year to year basis within the CDR period.
 
 The company has not made provision for interest sacrifice amount for
 the period of Rs. 144.00 Lacs in the accounts and total amount remains
 unprovided Rs. 804.74 Lacs.
 
 Therefore the Loss for the year is understated by Rs 144.00 Lacs and
 Secured Loans are understated by Rs. 804.74
 
 Lacs i) As per the modified CDR package, the provision for differential
 interest of IDBI portion of FITL II loan was required to be
 made but not made by the company. (Refer note no. 7 of notes on
 accounts of schedule 18). The company has estimated
 the amount of provision at Rs. 3548311/-, therefore the loss for the
 year & secured loans are understated by Rs. 3548311/-
 
 j) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read with the notes
 thereon in Schedule No. 18 give the information required by the
 Companies Act, 1956, in the manner so required and subject to the
 remarks in para (f) to (i) 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
 2007, and; ii) In the case of Profit & Loss Account, of the Loss for
 the period ended on that date, iii) In the case of Cash Flow Statement,
 of the cash flows for the period ended on that date.
 
 ANNEXURE TO AUDITORS REPORT
 
 1.  (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of its fixed
 assets. However it has not been updated properly.
 
 (b) We have been informed that the fixed assets of the Company are
 physically verified by the Management according to a phased program
 designed to cover all the items at reasonable interval, which in our
 opinion, is reasonable having regard to the size of company and the
 nature of its assets, and no material discrepancies were noticed on
 such verification.
 
 (c) During the period no substantial parts of fixed assets have been
 disposed off by the company.
 
 2.  (a) The inventory has been physically verified during the period by
 the management. In our opinion the frequency of verification is
 reasonable.
 
 (b) In our opinion, the procedures of physical verification of
 inventory followed by the Management are reasonable and adequate in
 relation to the size of the Company and nature of its business.
 
 (c) The Company is maintaining proper records of inventory. The
 discrepancies in the physical stocks and the book stock noticed on
 physical verification as mentioned in paragraph 2(a) above were not
 material.
 
 3.  (a) As per the information & explanation given to us and the
 records produced to us for our verification the company has granted
 unsecured loan to a company covered in the register maintained under
 section 301 of the Companies Act, 1956. The maximum amount involved
 during the period was Rs.  1957038/- and closing balance was same.
 
 (b) In our opinion, the rate of interest and other terms and conditions
 on which loan have been granted to Companies, Firms or other parties
 listed in the register maintained U/s 301 of the Companies Act, 1956
 are not prima facie prejudicial to the interest of the company except
 the loan of Rs. 1957038/- given as above.
 
 (c) In respect of the aforesaid loans, the company is regular in
 receiving the principal amount as stipulated and has been regular in
 receiving interest, wherever applicable.
 
 (d) In respect of the aforesaid loans, there is no overdue amount more
 than Rupees One Lakh from the parties listed in register maintained U/s
 301 of the Companies Act, 1956 except in case of one company mentioned
 above.
 
 (e) As per the information & explanation given to us, and the records
 produced to us for our verification the Company has taken interest free
 unsecured loan from two Companies & one other party covered in the
 register maintained under Section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs. 211214427- and the
 year-end balance was Rs.20760192/-.
 
 (f) In our opinion, other terms and conditions on which unsecured loans
 have been taken from Companies, Firms or other parties listed in the
 register maintained U/s 301 of the Companies Act, 1956 are not prima
 facie prejudicial to the interest of the company.
 
 (g) In respect of the aforesaid loans, the company is regular in
 repaying the principal amounts as stipulated and has been regular in
 payment of interest, where applicable. The parties are repaying the
 principal amounts as stipulated and are also regular in payment of
 interest, where applicable.
 
 4.  In our opinion, and according to the information and explanations
 given to us there are internal control procedures with regard to
 purchase of inventory, fixed assets and with regard to the sale of
 goods and services and the same needs to be further strengthened to
 make them commensurate with the size of the Company and nature of its
 business.
 
 5.  (a) According to the information & explanation given to us, we are
 of the opinion that the provisions of Section 58A of the Companies Act,
 1956 and the Companies (Acceptance of Deposits) Rules 1975, were
 applicable with regard to the deposits accepted by it from the public.
 Since the Company has not defaulted in repayments of deposits,
 compliance of Section 58AA or obtaining any order from the National
 Company Law Tribunal, does not arise.
 
 6.  In our opinion, the Company has an internal audit system but the
 same needs to be improved further to make them commensurate with its
 increasing size and nature of its business.
 
 7.  As per the information and explanation given to us, maintenance of
 cost records has not been prescribed by the Central Government under
 Section 209 (1)(d) of the Companies Act, 1956 for the products
 manufactured by the Company.
 
 8.  According to the books and records as produced and examined by us
 in accordance with generally accepted auditing practices in India and
 also based on Management representations, undisputed statutory dues in
 respect of Provident Fund, Employees State Insurance, Investor
 Education Protection Fund, Income Tax, Wealth Tax, Sales Tax, Excise
 Duty, Custom Duty, Cess and other material statutory dues have
 generally been regularly deposited by the Company during the year with
 the appropriate authorities in India except following Dues:
 
 Statutes         Nature of demand     Amount (In Rs.)        Period
 Sales tax        Tax/interest/penalty        947404/-       2001-02
 Provident Fund   Employer & Employee 
                  Contribution               3488891/-       2006-07
 FBT              Tax Provision               362000/-       2005-06
 VAT              Taxes on Sales             3725621/-       2005-07
 
 9.  According to the records of the Company and the information and
 explanation given to us upon our enquiries in this regards, disputed
 dues in respect of Sales tax, Company Law and Income tax unpaid as at
 the last day of the period, are as follows:
 
 S. No.    Statutes            Nature of demand
 (i)       Sales tax           Tax/I nterest/Penalty
                               Tax /Interest/Penalty 
 (ii)      Company             Additional fees
           Law 
 (iii) Income Tax              Tax
 
 Forums              Amount (In Rs.)          Period
 Tribunal            3214200/-                1998-99
 Tribunal             627300/-                1999-00 
 ROC,
 M.P.                2688944/-                2001-02
 ITAT                 128290/-                1994-95
 
 10.  In our opinion the accumulated losses of the company are not more
 than 50% of its net worth The Company has incurred the cash losses
 during the period amounting to Rs.6294884/- and it has also incurred
 cash loss of Rs. 41714299/- in the immediately preceding financial
 period.
 
 11.  According to the records of the company it has not defaulted in
 repayment of its dues to any financial institution or bank during the
 period except the dues of IIBI amounting Rs. 14.69 Lacs.
 
 12.  The Company has not granted any loans or advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 13.  In our opinion, considering the nature of activities carried on by
 the Company during the period, the provisions of any special statute
 applicable to chit fund/ nidhi /mutual benefit fund/ societies are not
 applicable to it.
 
 14.  The Company has not dealt or traded in shares , securities,
 debentures or other investments during the period but sold certain
 Shares held as investment.
 
 15.  In our opinion, and according to the information and explanations
 given to us the Company has given Corporate guarantee for Working
 Capital loans taken by Design Auto Distributions Limited from banks,
 terms and conditions whereof are not prejudicial to the interest of the
 company.
 
 16.  According to the information & explanation given to us the Company
 has not obtained any term loan during the year under review.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the Company, short term
 funds amounting Rs. 133.74 Lacs, have been invested in creation of
 Fixed Assets.
 
 18.  The Company has not raised any money by public issue during the
 period.
 
 19.  As per the information and explanations given to us and on the
 basis of examination of records, no material fraud on or by the Company
 was noticed or reported during the period.
 
                                              For S. N. KABRA & CO,
                                              Chartered Accountants,
 
 Place : Indore                                        S.N. KABRA
 Date : 12th September, 2007                           Proprietor