We have audited the attached Balance Sheet of KINETIC ENGINEERING
 LIMITED, as at 31st March 2011, the Profit and Loss account and also
 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 the 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 by Companies (Auditor''s Report) (Amendment) Order, 2004] 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 para 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 purposes 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
 account;
 
 (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, read together with the
 notes thereon, give the information required by the Companies Act,
 1956, in the manner so required and subject to approval from Central
 Government, which is awaited, for managerial remuneration paid as
 mentioned in Note No.5 under Notes forming part of the accounts 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 31 st March 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 AUDITOR''S 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 fixed
 assets.
 
 (b) As informed to us, the fixed assets have been physically verified
 by the management at reasonable intervals and no material discrepancies
 were noticed on such verification.
 
 (c) In our opinion, the Company has not disposed off a substantial part
 of its Fixed Assets during the period and the going concern status of
 the Company is not affected.
 
 (ii) (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 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, we are
 of the opinion that the Company is maintaining proper records of
 inventory. No material discrepancies were noticed on verification
 between the physical stocks and the book records.
 
 (iii) (a) The Company has not granted any loans to companies, firms or
 other parties covered in the register maintained under section 301 of
 the Companies Act, 1956.
 
 (b) Clause (iii) (b) is not applicable as no loans have been granted to
 the parties covered under (iii) (a).
 
 (c) Clause (iii) (c) is not applicable as no loans have been granted to
 the parties covered under (iii) (a).
 
 (d) Clause (iii) (d) is not applicable as no loans have been granted to
 the parties covered under (iii) (a).
 
 (e) The Company has taken interest free unsecured loans from two
 companies and two parties covered in the register maintained under
 section 301 of The Companies Act 1956. The details of the unsecured
 loans taken are as under:
 
                                                          (Rs. Lakhs.)
 
 Opening Balance  Accepted during  Repaid during 
                                   the period/        Closing balance
                  the period       Adjusted during 
                                   the year.
 
 1933                   50              123                 1860
 
 (f) During the year no interest is paid on any of the unsecured loans
 taken by the Company. In our opinion, the other terms and conditions of
 the unsecured loans taken by the Company from the companies and other
 parties covered in the register maintained under Section 301 of the
 Companies Act, 1956 are not, prima facie, prejudicial to the interest
 of the company.
 
 (g) In respect of the above unsecured loans, we were informed that
 there are no specific stipulations for repayment of the principal
 amount.
 
 (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 with regard
 to purchase of inventory, fixed assets and for the sale of goods and
 services. We have not observed any continuing failure to correct major
 weaknesses in internal control system.
 
 (v) (a) According to the information and explanations given to us and
 on the basis of our examination, we are of the opinion that the
 particulars of contracts or arrangements referred to in section 301 of
 the Companies Act 1956 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 or
 arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956, and exceeding the value of rupees five lakh in
 respect of any party during the period have been made at prices which
 are reasonable having regard to the prevailing market prices at the
 relevant time.
 
 (vi) According to the information and explanations given to us, during
 the period, the Company has not accepted any deposits from the public
 to which the provisions of section 58A and 58AA or any other provisions
 of the Companies Act, 1956 and the Companies (Acceptance of Deposits)
 Rules, 1975 apply. As informed to us, no order has been passed by the
 Company Law Board, National Company Law Tribunal, RBI, any court or any
 other Tribunal.
 
 (vii) In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) As informed to us, the Central Government has prescribed
 maintenance of cost records under section 209(1 )(d) of the Companies
 Act, 1956 in respect of manufacturing activities of the company. We
 were informed that the maintenance of cost records is in process.
 
 (ix) (a) According to the records of the company, there are delays in
 depositing undisputed statutory dues of Provident Fund, Employees''
 State Insurance and Income-tax with the appropriate authority and as
 such the company is not regular in depositing the same. According to
 the information and explanations given to us, undisputed statutory dues
 in respect of Income Tax deducted at source amounting to Rs.9.60 Lakhs,
 Profession Tax Rs. 35.19 Lakhs and Provident Fund dues amounting to Rs.
 0.39 Lakhs were in arrears as at 31.03.2011 for a period of more than
 six months from the date they became payable.
 
 (b) According to information and explanations given to us, following
 are the details of disputed dues of, income tax, sales tax, service
 tax, custom duty and excise duty, which have not been deposited and the
 forum where such dispute is pending.
 
 Statement of disputed dues:                               ( Rs. Lakhs)
 
 Nature of dues                   Amount Forum where dispute is pending.
 
 Income Tax, AY 2000-2001           1.29 Income Tax Appellate Tribunal,
                                         Pune
 
 West Bengal Sales Tax, Central     6.92 Deputy Commissioner of Sales 
                                         Tax, Kolkata.
 Sales Tax AY 2001 -02, 2002-03.     
 
 Entry Tax, Behrampur.             26.76 Asst. Commissioner Sales Tax,
                                         Behrampur.
 1999-2000,2000-01,2001 -02.            
 
 CST (Supa Unit) 2006-07           31.46 Asst. Commissioner Sales Tax 
                                         A.Nagar
 
 CST(Pune) 2005-06                 67.91 Sales Tax Tribunal (Mumbai)
 
 CST (Supa Unit) 2002-03           83.21 Commissioner sales Tax, Nashik
 
 CST (Supa Unit) 2003-04           32.96 Commissioner sales Tax, Nashik
 
 CST (Supa Unit) 2004-05           21.46 Commissioner sales Tax, Nashik
 
 Sales Tax 2001 -02                92.54 Jt. Commissioner sales Tax, 
                                         Pune
 
 Excise Duty                      286.27 CESTAT Mumbai
 
 Service Tax                       57.02 CESTAT Mumbai.
 
 Custom Duty                        6.32 CESTAT Mumbai.
 
 (x) The accumulated losses of the company as at the end of the
 financial year are not less than 50% of its net worth.  The company has
 incurred cash losses during the financial year covered by our audit.
 The company has not incurred cash losses in the immediately preceding
 financial year.
 
 (xi) During the period the company has not defaulted in repayment of
 dues to financial institutions and banks. As informed to us, in respect
 of repayment to debenture holders, two installments amounting to Rs. 10
 Crores were due up to 31st March, 2011 which was not paid as the
 restructuring of repayment schedule with the debenture holders was
 under negotiation.
 
 (xii) 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 or a nidhi /
 mutual benefit fund / society. Therefore, the provisions of clause
 4(xiii) of the Companies (Auditor''s Report) Order, 2003 are not
 applicable to the company.
 
 (xiv) In our opinion, the company is not dealing in or trading in
 shares, securities, debentures and other investments.  Therefore the
 provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order,
 2003 are not applicable to the company.
 
 (xv) According to the information and explanations given to us, the
 company has not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 (xvi) The company has not raised any Term Loan during the period.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the Balance Sheet we are of the opinion that
 there are no funds raised on short term basis which have been used for
 long term investments.
 
 (xviii) The company has not made preferential allotment of shares
 during the year.
 
 (xix) During the period covered by our audit report, the company has
 not issued any debentures. As informed to us, the company has created
 security in respect of debentures issued in the earlier accounting
 year.
 
 (xx) The company has not raised any money by public issues during the
 period.
 
 (xxi) According to the information and explanations given to us, we
 report that no fraud on or by the company has been noticed or reported
 during the course of our audit.
 
                                                For M/S P.GLBhagwat,
 
                                              Chartered Accountants,
 
                                                        Sandeep Rao
 
                                                            Partner
 
                                               Membership No. 47235
 
 Pune: 30th May, 2011                 Firm Registration No. 101118W