We have audited the attached Balance Sheet of SMZS CHEMICALS LIMITED as
 at 31st March, 2007, the Profit and Loss Account for the period ended
 on that date annexed thereto and the Cash Flow Statement for the period
 ended on that date. 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 a 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 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 (Auditors Report) Order 2003, as
 amended by the Companies (AuditorsReport) (Amended) Order 2004,
 (together the Order1) 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 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, we report that: -
 
 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
 those books;
 
 c) the Balance Sheet, Profit and Loss Account and Cash Flow statement
 dealt with by this report are in agreement with the books of account;
 
 d) in our opinion the Balance Sheet, Profit & Loss Account and Cash
 Flow statement dealt with by this report comply with the accounting
 
 standards referred in sub-section (3C) of section 211 of the Companies
 Act, 1956.
 
 e) on the basis of written representation received from the directors
 as on 31st March, 2007 and taken on record by the Board of Directors we
 report that, none of the directors of the Company are qualified as on
 31st March, 2007 from being appointed as a director of the other
 company in terms of clause g of Sub-section (1) of section 274 of the
 Companies Act, 1956.
 
 f) the Companys net worth is negative due to losses incurred and its
 liabilities are in excess of assets. The Company has prepared its
 accounts on Going Concern Basis, as explained in Note No. 3 Part B of
 Schedule T.  As there is considerable uncertainly for the Company to
 continue as a Going Concern in foreseeable future, we are unable to
 express our view on the above,
 
 g) subject to the comments made in Para (e) and (f) above, 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
 significant accounting policies and other notes thereon, give the
 information required by the Companies Act, 1956 in the manner so
 required, and present a true and fair .view, in conformity with \he
 accounting principles generally accepted in India: -
 
 (i) in so far as it relates to the Balance Sheet, of the state of
 affairs of the Company as on 31st March, 2007;
 
 (ii) in so far as it relates to the Profit and Loss Account, of the
 Profit of the Company for the period ended on that date; and
 
 (iii) in so far as it relates to the Cash Flow Statement, of the Cash
 Flows of the Company for the period ended on that date.
 
 ANNEXURE TO AUDITORS REPORT
 
 (i) There were no fixed assets & inventories at the beginning as well as
 closing of the year.  Hence clause 4 (i) & 4 (ii) of the Companies
 (Auditors Report) Order 2003, are not applicable to the Company.
 
 (ii) During the period Company has not granted/ taken any
 secured/unsecured loan to/from Companies, firms or other parties
 covered in the register maintained under section 301 of the Companies
 Act, 1956.
 
 (iii) In our opinion and according to the information and explanations
 given 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 stores, raw materials including
 components, plant and machinery, equipment and other assets and.for the
 sale of goods.  During the course of our audit, we have not observed
 any major weaknesses in internal controls.
 
 (iv) In respect of particulars of contracts or arrangements and
 transactions entered in the register maintained in pursuance of section
 301 of the Companies Act, 1956: -
 
 (a) In our opinion and according to the information and explanations
 given to us, the particulars of contracts or arrangements that needed
 to be entered into the register maintained under Section 301 of the
 Companies Act, 1956 have been so entered.
 
 (b) In our opinion and according to the information and explanations
 give to us, no transactions of purchase of goods & materials and sale
 of goods, materials & services made in pursuance of contracts or
 arrangement required to be entered into the register maintained under
 Section 301 of the Companies Act, 1956 aggregating
 
 during the period to Rs.5,00,0007- or more in respect of each party,
 have been made at prices which are reasonable having regard to
 prevailing market prices at the relevant time.
 
 (v) The Company has not accepted any deposits from the public within
 the meaning of Section 58A and 58AA or any other relevant provisions of
 the Companies Act, 1956 and the rules framed there under.
 
 (vi) There is no internal audit system commensurate with the size of
 the Company and the nature of its business.
 
 (vii) We are informed that the Central Government has not prescribed
 maintenance of cost records under section 209(1) (d) of the Companies
 Act, 1956 for any of the products of the Company.
 
 (viii) (a) The Company is regular in depositing with appropriate
 authorities undisputed statutory dues in respect of Investor Education
 & Protection Fund, Wealth Tax, Service Tax, Custom Duty, Excise Duty,
 Cess and any other statutory dues except Provident Fund, Sales Tax,
 Income Tax and few cases of Employees State Insurance.
 
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of the aforesaid dues were
 outstanding as on 31st March, 2007 for a period of more than six months
 from the date of becoming payable except as mentioned below: -
 
 Sr.      Name of the statute   Nature of              Amount
 No.                            the Dues         (Rs. in thousands)
 
 1        Bombay Sales Tax 
          Act, 1959             Sales Tax                408
 
 2.    Central Sales Tax 
          Act, 1956         Deferral Sales Tax          3772
 
 3.    Bombay Sales Tax 
          Act, 1959          Deferral Sales Tax         1181
 
 (ix) The accumulated loss of the Company is more than fifty percent of
 its net worth. The Company has incurred cash losses during the
 financial period covered by our audit and also incurred cash losses in
 the immediately preceding financial year.
 
 (x) The Company has not defaulted in repayment of dues to financial
 institutions banks & debenture holders.
 
 (xi) In our opinion and according to the information and explanation
 given to us, no loans and advances have been granted by the Company on
 the basis of security by way of pledge of shares, debentures and other
 securities.
 
 (xii) In our opinion, the Company is not a chit fund or a nidhi /
 mutual benefit fund / society.Therefore, clause 4 (xiii) of the
 Companies (Auditors Report) Order 2003, is not applicable to the
 Company.
 
 (xiii) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly, the
 provisions of clause 4 (xiv) of the Companies (Auditors Report) Order
 2003 are not applicable to the Company.
 
 (xiv) The Company has not given any guarantees for loans taken by
 others from banks or financial institutions.
 
 (xv) No term loans were raised by the Company during the period.
 
 (xvi) According to information and explanation given to us and on an
 overall examination of the Balance Sheet of the Company, we are of the
 opinion that the entire net worth of the Company is eroded due to
 losses incurred. Consequently short term fund amounting to Rs. 18910
 thousands used for long term purposes.
 
 (xvii) During the period, the Company has not made any preferential
 allotment of shares to parties and Companies covered in the Register
 maintained under Section 301 of the Companies Act, 1956.
 
 (xviii)The Company has not issued any debentures, so the question of
 creation of securities in respect of debentures issued does not arise.
 
 (xix) No public issue was made by the Company during the year.
 
 (xx) In our opinion and according to the information and explanations
 given to us, no fraud on or by the company has been noticed or reported
 during the year that can have a material bearing on the financial
 position of the Company.
 
                                                  For CHATURVEDI & SHAH
                                                  Chartered Accountants
 
                                                     LALIT R. MHALSEKAR
                                                         PARTNER
                                                  Membership No. 103418
 
 Place : Mumbai
 Dated  : 7th May, 2007