We have audited the attached Balance Sheet of Himachal Fibres Limited
 as at 31.03.2011 and also Profit & Loss Account for 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.
 
 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 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.
 
 1.  As required by the Companies (Auditor’s Report) Order, 2003 issued
 by the Central Government in terms of Section 227 (4A) of the Companies
 Act, 1956, we give in the Annexure, a statement on the matters
 specified in paragraph 4 and 5 of the said Order.
 
 2.  Further to our comments in the annexure referred to in paragraph
 (1) above, we report that:
 
 (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 such
 books.
 
 (iii) The Balance Sheet and Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the Books of
 Account.
 
 (iv) In our opinion and to the best of our information and according to
 the explanations give to us, the said account, read together with
 Significant Accounting Polices and Notes on Account thereon, comply
 with accounting standards referred to in section 211(3C) of Companies
 Act, 1956.
 
 (v) On the basis of the written representation received from the
 directors and taken on record by the company, we report that none of
 the directors is disqualified, as on the balance sheet date, from being
 appointed as a director in terms of section 274 (I) (g) of the
 Companies Act, 1956.
 
 (vi) We further report that in our opinion and to the best of our
 information and according to explanations given to us, the said account
 subject to non compliance of provisions of section 297 in respect of
 purchases made from contractee parties in excess of the approved limits
 and read together with notes on account ( As per Schedule- XiX) 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 generally accepted in India:- i) In the case of Balance
 Sheet, of the state of affairs of the Company as at 31st March, 2011.
 ii) In the case of Profit & Loss Account , of the loss for the year
 ended on that date and iii) In the case of Cash Flow Statement, of the
 Cash flows for the year ended on that date.
 
 ANNEXURE TO AUDITOR’S REPORT (REFER TO PARA ONE OF OUR REPORT OF EVEN
 DATE)
 
 1.  (a) The company is maintaining proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) According to the information and explanations give to us, a portion
 of fixed assets has been physically verified by the management during
 the year in accordance with a phased program of verification adopted by
 the Company. In our opinion, the frequency of verification is
 reasonable having regard to the size of the company and the nature of
 its fixed assets. The discrepancies noticed on such verification were
 not material and have been properly dealt with in the books of account.
 
 (c) In our opinion and according to information and explanations given
 to us, a substantial part of the fixed assets has not been disposed off
 by the Company during the year.
 
 2.  a) According to the information and explanations given to us, the
 inventories have been physically verified by the management during the
 year. However, in respect of certain items, the inventories were
 verified by the management on a visual estimation which has been relied
 upon by us. 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 inventories, we
 are of the opinion that the company is maintaining proper records of
 inventories. The discrepancies noticed on physical verification of
 inventories is compared to book records were not material and have been
 properly dealt with in the books of account.
 
 3.  (a) According to the information and explanations given to us, the
 company has not granted unsecured loan to companies, firms or other
 parties covered in the register maintained under section 301 of the
 Act.
 
 (b) According to the information and explanation provided to us and on
 basis of examination of the books of the account. We are of the opinion
 that the company has taken unsecured loans of Rs.150 Lacs during the
 year under review from two parties (Rs.1150 Lacs Outstanding as on
 31.03.2011 from two parties) covered in the register maintained under
 section 301 of the Act.
 
 (c) According to information and explanation given to us and on the
 basis of examination of the books of the account, we are of the opinion
 that the abovesaid unsecured loans are interest free and other terms
 and conditions of such loans given were not prima facie prejudicial to
 the interest of the company.
 
 (d) According to information and explanation give to us and on the
 basis of the examination of the books of account, we are of the opinion
 that the repayment of principal amount are regular in respect of loans
 taken by the company as when they fall due.
 
 3. In our opinion and according to the information and explanations
 give to us, there are adequate internal control procedures commensurate
 with the size of the company and the nature of its business with regard
 to purchase of inventory and fixed assets and also with regard to sale
 of goods and services .Further , on the basis of our examination of the
 books & records of the company, carried out in accordance with the
 generally accepted auditing practices in India, we have neither come
 across nor have been informed of any instances of major weaknesses in
 the aforesaid internal control systems.
 
 5.  (a) According to the information and explanations given to us,
 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.
 
 (b) In our opinion and according to the information and explanations
 given to us , the transactions made in pursuance of contracts on
 arrangements entered in the register maintained under section 301 of
 the Act and exceeding the value of Rs. Five lacs in respect of any
 party during the year have been made at prices which are reasonable
 having regard to prevailing market prices at the relevant time.
 
 6.  The company had accepted deposits from the public in earlier year
 and has complied the provisions of section 58A and 58AA of the
 Companies Act, 1956 and the Companies (Acceptances of Deposit) Rules,
 1975 except non filing of fixed deposit return and non maintenance of
 liquid assets as required by Rule 3A of the aforesaid Rules.
 
 7.  In our opinion and according to the information and explanations
 given to us, the company has an internal audit system commensurate with
 its size and the nature of its business.
 
 8.  We have broadly reviewed the books of account maintained by the
 Company in respect of products where, pursuant to the Rules made by the
 Central Government, the maintenance of cost records has been prescribed
 under section 209(1) (d) of the Companies Act, 1956 and are of the
 opinion that, prima facie, the prescribed accounts and records have
 been made and maintained. We have however not made a detailed
 examination of the records with a view to determining whether they are
 accurate or not.
 
 9.  (a) According to the information and explanations given to us and
 records of the company examined by us, the company is not regular in
 depositing the undisputed statutory dues, including, provident fund,
 investor education and protection fund, employees state insurance,
 income tax , sales tax, wealth tax, service tax, custom duty, and other
 material statutory dues applicable to it.  On the basis of examination
 of books, there are following undisputed statutory dues as at the year
 end outstanding for a period of more than six months from the date they
 became payable:-
 
 S.No.  Statute                Nature                  Amount
 
 1. Himachal Pradesh 
    Sales Tax Act        Works Contract Tax Payable    136008/-
 
 2. Income Tax Act, 1961 Fringe Benefit Tax            103040/-
 
 (b) According to the information and explanations given to us, no
 disputed amounts payable in respect of income tax, wealth tax, service
 tax, sales tax, custom duty and cess matters.
 
 10.  The company has been registered for a period more than five years,
 it has accumulated losses of Rs. 1792.34 Lacs at the end of the year
 which are more than fifty percent of its net worth. However it has not
 incurred any cash losses during the current and immediately preceding
 financial year.
 
 11.  According to the information and explanation given to us and as
 per the books and records examined by us, the company has not defaulted
 in repayment of dues to financial institutions and banks.
 
 12.  According to 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.
 
 13.  The company does not fall with in the category of Chit
 fund/Nidhi/Mutual Benefit fund/Society, therefore clauses (xiii) of
 paragraph 4 of the Companies (Auditor''s Report) Order, 2003 is not
 applicable to the company for the year under audit.
 
 14.  According to the information and explanations given to us, the
 company is not dealing or trading in shares, securities, debentures and
 other investments, therefore clauses (xiv) of paragraph 4 of the
 Companies (Auditor''s Report) Order, 2003 is not applicable to the
 company for the year under audit.
 
 15.  On the basis of our examination of records and as per the
 explanations given to us, we are of the opinion that the company has
 not given any guarantee for loan taken by others from bank or financial
 institution.
 
 16.  On the basis of our examination of records and as per the
 explanations given to us, we are of the opinion that the term loans
 taken during the period under review were applied for the purpose for
 which these were obtained.
 
 17.  According to information and explanations given to us and as per
 the records examined by us, as on the date of balance sheet, the funds
 raised by the Company on short term basis have not been applied for
 long term investments.
 
 18.  As to information and explanations given to us and as per the
 records examined by us, the company has not made any allotment of
 shares during the period under review.
 
 19.  The company has not issued any debentures during the year.
 
 20.  The company has not raised any money by way of public issue during
 the year.
 
 21.  During the course of our examination of the books and records of
 the company carried out in accordance with the generally accepted
 auditing practices in India we have neither come across any instance of
 fraud on or by the company, noticed and reported during the year, nor
 have we been informed of such case by the management.
 
                                         FOR SUMAT GUPTA & CO.
 
                                         CHARTERED ACCOUNTANTS
 
                                           FIRM REG.NO.010288N
 
                                                          Sd/-
                                                   SUMAT GUPTA
 DATED: 28-05-2011                                     PARTNER
 
 PLACE: LUDHIANA                                 (M.NO. 86000)