We have audited the attached Balance Sheet of Kernex Microsystems
 (India) Limited, as at 31st March, 2011 and also the Profit and Loss
 Account and 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.
 
 As required by the Companies (Auditor''s Report) Order,2003, (the Order)
 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.
 
 Further to our comments in the Annexure referred to 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
 those books;
 
 (iii) The Balance Sheet, Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 accounts;
 
 (iv) 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 ;
 
 (v) On the basis of written representations received from the directors
 as on 31st March, 2011 and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st March,
 2011 from being appointed as a director in terms of Clause (g) of
 sub-section (1) of Section 274 of the Companies Act,1956;
 
 (vi) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts 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 Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2011;
 
 (b) In the case of Profit and Loss Account, of the Profit for the year
 ended on that date; and
 
 (c) In the case of Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 Annexure to the Auditor''s report of even date to the Members of Kernex
 Microsystems (India) Limited
 
 (I) (a) The Company is in the process of updating the records showing
 full particulars including Quantitative details and the situation of
 its fixed assets.
 
 (b) As per the explanations given to us by the management, physical
 verification of Fixed Assets has not been carried out during the year.
 
 (c) None of the major fixed assets of the Company are disposed off
 during the year.
 
 (II) (a) The Inventory has been physically verified by the management
 at reasonable intervals.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedures for physical verification of inventory
 followed by the management were 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 inventory records, in our
 opinion, the company has maintained proper records of inventory.  The
 discrepancies noticed on physical verification of inventory as compared
 to book records were not material.
 
 (III) (a) During the year, the Company has not granted any loans,
 secured or unsecured, to the companies, firms or other parties covered
 in the register maintained under Section 301 of the Companies Act,1956.
 Hence Clauses (iii) (b), (c) & (d) of the Order are not applicable.
 
 (b) The Company has not taken any loans, secured or unsecured, from
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956.  Hence Clauses (iii) (f)
 & (g) of the Order are not applicable.
 
 (IV) In our opinion and according to the information and explanations
 provided to us there are adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory, fixed assets and for sale of goods and
 services. During the course of our audit, no major weakness has been
 noticed in the internal control.
 
 (V) Based on the audit procedures applied by us and according to the
 information and explanations provided by the management, we are of the
 opinion that there have been no transactions that need to be entered
 into the register maintained under Section 301;
 
 (VI) The Company has not accepted any deposits from the public during
 the year under review falls under section 58A and 58AA of the Companies
 Act 1956;
 
 (VII) The Company has an in-house internal audit department, which, in
 our opinion the scope is commensurate with the size and nature of the
 business of the company;
 
 (VIII) We have broadly reviewed the books of account maintained by the
 Company in respect of the products where, pursuant to the Rules made by
 the Central Government of India, the maintenance of cost records has
 been prescribed under clause (d) of Section 209 of the Act and are of
 the opinion that prima facie, the prescribed accounts and records have
 been made and maintained. We have not, however, made a detailed
 examination of the records with a view to determine whether they are
 accurate or complete.
 
 (IX) (a) There have been minor delays in depositing undisputed
 statutory dues including Provident Fund, Employees State Insurance,
 Income Tax and Service Tax with appropriate authorities during the
 year. According to the records, information and explanations provided
 to us, there are no undisputed amounts payable in respect of Provident
 Fund, Investor Education and Protection Fund, Employee''s State
 Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service Tax, Customs
 Duty, Excise Duty, Cess and other statutory dues which were outstanding
 at the year end for a period of more than six months from the date they
 became payable ;
 
 (b) According to the information and explanations provided to us,
 particulars of out standing dues of Income tax and Sales tax have not
 been deposited on account of any dispute are given below:
 
 Name of Statute  Nature of the   Period to     Amount    Forum where
                  Dues            which the    (Rupees 
                                             in Lakhs)    dispute is
                                  amount
                                  relates                 pending
 
 Income Tax Act   Income Tax      A.Y 1998-99    8.00     High Court
 
 APGST            Sales Tax       A.Y 2003-04    4.13     STAT
 
 (X) The Company has no accumulated losses at the end of the financial
 year ended 31.03.2011 and it has not incurred cash loss during the year
 covered by our audit. However the company has incurred a cash loss of
 Rs.9,17,54,483/- in the immediately preceding financial year ;
 
 (XI) Based on our audit procedures and on the information and
 explanations given by the management, the Company has not defaulted in
 repayment of dues to any financial institution or bank;
 
 (XII) Based on our examination and according to the information and
 explanations given to us, the Company has not granted loans and
 advances on the basis of security by way of pledge of shares,
 debentures and other securities ;
 
 (XIII) In our opinion, the Company is not a Chit Fund / Nidhi / Mutual
 Benefit Fund/ Society and Clause 4 (xiii) of the Order are not
 applicable to this company.
 
 (XIV) In our opinion, the Company is not dealing or trading in shares,
 securities, debentures and other investments.  Accordingly, the
 provisions of Clause 4(xiv) of the Order not applicable to the Company.
 
 (XV) On the basis of our examination of the books of accounts and the
 information and explanation given to us the Company has not given any
 guarantee for loans by others from bank or financial institutions ;
 
 (XVI) According to the information and explanations given to us, the
 company has not availed any term loans during the year under review.
 
 (XVII) On the basis of our examinations of the books of accounts and
 the information and explanation given to us, in our opinion, the funds
 raised on short-term basis have not been used for long-term investment.
 
 (XVIII)During the year, the Company has not made any preferential
 allotment of shares to parties and companies covered in the Register
 maintained under Section 301 of the Act ;
 
 (XIX) The Company has not made any issue of debentures during the year;
 
 (XX) During the year covered by our audit report the Company has not
 raised any money by way of Public Issue.
 
 (XXI) Based on the audit procedures performed and information and
 explanations given to us by the management, we report that no fraud on
 or by the Company has been noticed or reported during the course of our
 audit.
 
 
                                                For GMK ASSOCIATES.,
 
                                               Chartered Accountants
 
                                           (Registration No.006945S)
 
                                               G Satyanarayana Murty
 
 Place: Hyderabad                                            Partner
 
 Date : 13th August, 2011.                      Membership No.:29919