1.  We have audited the attached Balance Sheet of FOODS AND INNS
 LIMITED, as at March 31, 2012 and the Profit and Loss Account and the
 Cash Flow Statement of the Company for the Eighteen Months 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. 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 amount 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, as
 amended by the Companies (Auditor''s Report) (Amendment) Order, 2004,
 issued by the Central Government in terms of Section 227 (4A) of the
 Companies Act, 1956, we enclose in the Annexure a statement on the
 matters specified in the paragraph 4 of the said Order.
 
 4.  Hitherto, the company was following October to September as its
 Financial Year. During the year, the Company has decided to follow
 April to March as its Financial Year, accordingly, the financial
 statements for the current Financial Year are to be prepared for the
 period of Eighteen Months from October 1, 2010 to March 31, 2012. The
 notification issued by the Ministry of Corporate Affairs relating to
 the presentation of Financial Statements as per the Revised Schedule VI
 is made applicable for the accounting year commencing on or after April
 1, 2011 and therefore, the said notification is not applicable to the
 Company. Accordingly the Financial Statements of the Company for the
 Eighteen Months Period are pre-revised Schedule VI only.
 
 5.  Further to our comments in the Annexure referred to in paragraph 3
 above:
 
 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 such
 books.
 
 c.  The Balance Sheet and Profit and Loss Account and Cash Flow
 Statement dealt with by the report are in agreement with the books of
 account.
 
 d.  In our opinion, the attached Profit and Loss Account and Balance
 Sheet and Cash Flow Statement comply with the applicable Accounting
 Standards referred to in sub-section (3C) of Section 211 of the
 Companies Act, 1956.
 
 e.  On the basis of the written representations received from the
 Directors and taken on record by the Board of Directors, we report that
 none of the Directors is disqualified as on March 31, 2012 from being
 appointed as a Director 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, read with 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 the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2012;
 
 ii.  In the case of the 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
 period ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 (Referred to in paragraph (3) of our Report of even date)
 
 On the basis of such checks as we considered appropriate and in terms
 of information and explanations given to us, we state that:
 
 i.  a. The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 b.  No physical verification of fixed assets has been conducted by the
 management since 2003. Hence, we are unable to comment on material
 discrepancy, if any, about fixed assets.
 
 c.  During the period, the Company has not disposed off any substantial
 part of its fixed assets so as to affect its going concern.
 
 ii.  a. Inventories (including stocks with third parties, except stocks
 lying in overseas godowns) have been physically verified by the
 management during the period. In case of inventories at the year end
 lying with third parties and the overseas godowns, certificates
 confirming the same have been received in respect of a substantial
 portion thereof. 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.  In our opinion and according to the information and explanations
 given to us, the Company is maintaining proper records of inventory.
 The discrepancies noticed on verification between the physical stocks
 and the book records were not material having regard to the size of the
 operations of the Company.
 
 iii. a. The Company has granted an 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 1,70,00,000
 and the year end balance of the loan given to such company was Rs
 1,70,00,000. The Company has not granted any other loans to companies,
 firms or other parties covered in the register maintained under Section
 301 of the Act.
 
 b.  In our opinion, the rate of interest and other terms and conditions
 on which such loan has been granted are not, prima facie, prejudicial
 to the interest of the Company.
 
 c.  As the terms of repayment of the above loan are not stipulated, we
 are unable to comment on the regularity of receipt; accordingly, Clause
 (iii)(d) relating to steps for recovery of overdue amount of more than
 rupees one lakh is also not commented upon.
 
 d.  The Company has taken unsecured loans from three individuals
 covered in the register maintained under Section 301 of the Companies
 Act, 1956. The maximum amount involved during the period was Rs
 5,38,78,000 and the year end balance of loans taken from such parties
 was Rs 3,95,35,000. During the period, the Company has repaid loan to
 one of such individuals. The Company has not taken any other loan from
 companies, firms or any other parties covered in the register
 maintained under Section 301 of the Act.
 
 e.  In our opinion the rate of interest and other terms and conditions
 on which such loans have been taken are not, prima facie, prejudicial
 to the interest of the Company.
 
 f.  As the terms of repayment of above loans are not stipulated, we are
 unable to comment on the regularity of repayment.
 
 iv.  In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business through
 personal supervision of management of the Company for the purchase of
 inventory, fixed assets and for the sale of goods. As informed to us,
 the Company is not engaged in the sale of any service. During the
 course of our audit, we have not observed any continuing failure to
 correct major weaknesses in the aforesaid areas of internal control
 system.
 
 v.  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 Act have been entered in the register required to
 be maintained under that Section; and
 
 b.  In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts and
 arrangements referred in (v) (a) above and exceeding the value of
 rupees five lakhs with any party during the period have been made at
 prices which are reasonable, having regard to prevailing market prices
 at the relevant time, wherever applicable.
 
 vi.  In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of Section
 58A, 58AA and other relevant provisions of the Companies Act, 1956 and
 the Companies (Acceptance of Deposits) Rules, 1975 with regard to the
 deposit accepted from public.
 
 vii. During the period, internal audit was carried out only for
 manufacturing units at Bulsar, Chembur and Nashik but not at its
 Corporate Office; in case of the manufacturing unit at Chittor only
 compliance audit of statutory dues and inventory was carried out.
 Therefore, in our opinion, considering the size of the Company and the
 nature of its business operations, the extent and scope of internal
 audit requires to be increased.
 
 viii.  Since the present accounting year of the Company is from October
 1, 2010, the Companies (Cost Accounting Records) Rules, 2011 prescribed
 by the Central Government under Section 209(1)(d) of the Companies Act,
 1956 are not applicable to the Company for maintenance of cost records,
 otherwise also the Central Government has not prescribed maintenance of
 cost records for any product manufactured by the Company. Accordingly,
 Clause 4 (viii) of the order is not applicable to the Company.
 
 ix.  a. According to the information and explanations given to us and
 the records examined by us, except in respect of the Tax Deducted at
 Source for which there were delays, the Company is regular in
 depositing undisputed statutory dues including Provident Fund, Investor
 Education and Protection Fund, Employees'' State Insurance,
 Income-Tax, Sales-Tax, Wealth-Tax, Service-tax, Customs Duty, Excise
 Duty, Cess and other material Statutory dues applicable to it. However,
 there were no arrears of any statutory dues as at March 31, 2012 for a
 period of more than six months from the date they became payable.
 
 b.  According to the information and explanations given to us, as may
 be applicable, given herein below are the details of dues of
 Income-tax, Sales-tax, Wealth tax, Service-tax, Customs duty, Excise
 duty and Cess which have not been deposited with appropriate
 authorities on account of any dispute and the forum where the dispute
 is pending:
 
 Nature of the 
 Dues               Amount        Period to which 
                                  the amount         Forum where dispute
                                                     is pending
                    (Rs)          relates
 
 Income Tax        4,29,643       2006-2007          Commissioner of 
                                                     Income Tax (Appeals)
 
 Income Tax        3,36,600       2007-2008          Commissioner of 
                                                     Income Tax (Appeals)
 
 Income Tax        6,25,557       2008-2009          Commissioner of
                                                     Income Tax (Appeals)
 
 Income Tax     7,66,88,596       2009-2010          Commissioner of 
                                                     Income Tax (Appeals)
 
 Service Tax       3,96,978       2004-2005 to 
                                  2007-2008          Commissioner of 
                                                     Central Excise 
                                                    (Appeals)
 
 x.  The Company has incurred losses as at March 31, 2012, the said
 amount is Rs 2,83,50,088. However, it has not incurred any cash losses
 during the Eighteen Months period ended on that date or in the
 immediately preceding financial year.
 
 xi.  Based on our audit procedures and according to the information and
 explanations given to us, the Company has not defaulted in repayment of
 dues, if any, to financial institutions, banks or debenture holders as
 at balance sheet date.
 
 xii. According to the information and explanations given to us, as also
 on the basis of the books and records examine by us, as the Company has
 not granted any loans and advances on the basis of security by way of
 pledge of shares, debentures and other securities, Clause 4(xii) of the
 Order relating to maintenance of adequate documents and records in this
 regard is not applicable.
 
 xiii.  As the Company is not a chit fund, Nidhi, mutual benefit fund or
 a society, Clause 4 (xiii) of the Order is not applicable.
 
 xiv. According to the information and explanations given to us, as the
 Company is not dealing or trading in shares, securities, debentures and
 other investments, the requirements of Clause 4(xiv) of the Order
 relating to the maintenance of the proper records of the transactions
 and contracts and making of timely entries therein are not applicable.
 
 xv.  In our opinion and according to the information and explanations
 given to us, in the previous year, the Company had given a Corporate
 Guarantee for loan taken by one Company from bank, the terms and
 conditions of which, are not prima facie prejudicial to the interest of
 the Company
 
 xvi. According to the information and explanations given to us, the
 term loans have been applied for the purpose for which they were raised
 other than amounts temporarily placed pending utilisation of the funds
 for the intended use.
 
 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 the funds raised on short term basis have been utilized for
 long-term investments to the extent of Rs 5,87,82,590 (Including Rs
 1,22,64,113 have been utilised during the period).
 
 xviii.  According to the information and explanations given to us,
 during the Eighteen Months period, the Company has allotted 1,22,220
 equity shares of Rs 10 each against the conversion of preferential
 convertible warrants issued in an earlier year to parties and a company
 covered under register maintained under Section 301 of the Companies
 Act, 1956. According to the information and explanations given to us,
 those warrants were issued in terms of Securities and Exchange Board of
 India (Disclosure And Investor Protection) Guidelines, 2000 and
 accordingly, the price at which those warrants were issued is not,
 prima facie, prejudicial to the interest of the Company.
 
 xix. According to the information and explanations given to us, as the
 Company has not issued any debentures, the question of creating
 security or charges in respect thereof does not arise.
 
 xx.  As the Company has not raised any money by public issues during
 the period, Clause 4 (xx) of the Order requiring to disclose the end
 use of money raised and verifying the same is not applicable.
 
 xxi. Based on the audit procedures performed and the information and
 explanations given to us by the management, we report that no fraud
 (i.e. intentional material misstatements resultant from fraudulent
 financial reporting and misappropriation of assets) on or by the
 Company has been noticed or reported during the course of our audit.
 
 
 
                                            For B. S. MEHTA & CO.
 
                                            Chartered Accountants 
 
                                       Firm Registration No.-106190W
 
 PLACE : MUMBAI                                  PARESH H.CLERK
 
 DATED : May 22, 2012                                Partner
 
                                                 Membership No.36148