1.  We have audited the attached Balance Sheet of Spanco Limited (the
 Company) as at March 31,2010 and also the Profit and Loss Account and
 the Cash Flow Statement for the year ended on that date annexed thereto
 (all together referred to as the financial statements). 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.
 
 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 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.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 (as
 amended) (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.
 
 4.  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 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 the written representations received from the
 directors, as on March 31, 2010, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31,2010 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 the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2010;
 
 b) in the case of the Profit and Loss Account, of the profit for the
 year ended on that date; and
 
 c) in the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 
 
 Annexure referred to in paragraph 3 of our report of even date Re:
 Spanco Limited (the Company)
 
 (i) a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 b) Certain fixed assets were physically verified by the management
 during the year in accordance with a planned programme of verification
 which, in our opinion, is reasonable having regard to the size of the
 Company and the nature of its assets. As informed, no material
 discrepancies were noticed on such verification.
 
 c) During the year, the Company has disposed off a substantial part of
 the fixed asset leased to its subsidiary. Based on the information and
 explanation given by the management and on the basis of audit procedure
 performed by us, we are of the opinion that the sale of the said part
 of fixed assets has not affected the going concern status of the
 Company.
 
 (ii) a) The management has conducted physical verification of inventory
 at reasonable intervals during the year.
 
 b) The procedures of physical verification of inventory followed by the
 management are reasonable and adequate in relation to the size of the
 Company and the nature of its business.
 
 c) The Company is maintaining proper records of inventory and no
 material discrepancies were noticed on physical verification carried
 out during the year.
 
 (iii) a) The Company has granted loan to one company covered in the
 register maintained under section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs. 40,237,112 and the
 year- end balance is Rs. Nil.
 
 b) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loan is prima facie not prejudicial to the interest of the
 Company.
 
 c) The loan granted was re-payable on demand.  As informed, the Company
 has not demanded repayment of any such loan during the year, thus,
 there has been no default on the part of the party to whom the money
 has been lent.
 
 d) The outstanding balance of the loan granted to Company covered in
 the register maintained under section 301 of the Companies Act, 1956 is
 Nil and therefore the question of overdue does not arise.
 
 e) The Company has taken interest free loan from one company covered in
 the register maintained under section 301 of the Companies Act, 1956.
 The maximum amount involved during the year was Rs.  48,18,602 and the
 year- end balance is Rs. 4,818,602.
 
 f) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 such loan are prima facie not prejudicial to the interest of the
 Company.
 
 g) The loan taken is repayable on demand. As informed, the lender has
 not demanded repayment of such loan during the year, thus, there has
 been no default on the part of the Company.
 
 (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, for the
 purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of our audit, no major weakness has been
 noticed in the internal control system in respect of these areas.
 
 (v) a) According to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in section 301 of the Companies Act, 1956 that
 need to be entered into the register maintained under section 301 have
 been so entered.
 
 b) According to the information and explanation provided by the
 management, we are of the opinion that the transactions made in
 pursuance of contracts or arrangements entered in the register
 maintained under section 301 of the Companies Act, 1956 aggregating
 during the year to 5.00 lacs (Rupees Five Lacs only) or more in respect
 of a party has been made at price which is reasonable having regard to
 the prevailing market prices at the relevant time.
 
 (vi) The Company has not accepted any deposits from the public.
 
 (vii) The Company has an internal audit system, the scope and coverage
 of which, in our opinion, requires to be enlarged to be commensurate
 with the size and nature of its business.
 
 (viii)To the best of our knowledge and as explained, the Central
 Government has not prescribed maintenance of cost records under clause
 (d) of sub-section (1) of section 209 of the Companies Act, 1956 for
 the products of the Company.
 
 (ix) a) 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 have generally been
 regularly deposited with the appropriate authorities. Delays in few
 cases are observed in the deposit of income tax, sales tax and service
 tax.
 
 b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, investor
 education and protection fund, employees state insurance, income-tax,
 wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and
 other undisputed statutory dues were outstanding, at the year end, for
 a period of more than six months from the date they became payable.
 
 c) According to the information and explanation given to us, there are
 no dues of income tax, sales-tax, wealth tax, service tax, customs
 duty, excise duty and cess which have not been deposited on account of
 any dispute.
 
 (x) The Company has no accumulated losses at the end of the financial
 year and it has not incurred cash losses in the current and immediately
 preceding financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, we are of the opinion that the
 Company has defaulted in repayment of dues (principal and interest) to
 financial institutions, banks or debenture holders. The summary of the
 same is as given below;
 
 Name of the financial                      Maximum          Maximum
 
 institution, bank or                     amount of           period
 
 debenture holder                           default       of default
 
                                             (Rs.)         (in days)
 
 LIC Mutual Fund                         52,723,288               59
 
 HDFC Bank                               23,617,834               65
 
 Allahabad Bank                         100,000,000               56
 
 State Bank of Hyderabad                  2,800,000               55
 
 HSBC Bank                               15,000,000               88
 
 ICICI Bank                              20,500,155               51
 
 Lakshmi Vilas Bank                       3,325,847               24
 
 STPBI                                  30,884,0001               53
 
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced 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 or a nidhi /
 mutual benefit fund / society. Therefore, the provisions of clause
 4(xiii) of the Order 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.  Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantees for loans taken by others from bank or
 financial institutions, the terms and conditions whereof in our opinion
 are not prima-facie prejudicial to the interest of the Company.
 
 (xvi) Based on information and explanations given to us by the
 management, term loans were applied for the purpose for which the loans
 were obtained.
 
 (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 no funds raised on short- term basis have been used for long-term
 investment.
 
 (xviii) The Company has made preferential allotment of shares to
 parties covered in the register maintained under section 301 of the
 Companies Act, 1956. The price at which shares have been issued is not
 prejudicial to the interest of the Company.
 
 (xix) The Company has not issued any debentures during the year under
 audit. The Company has created security or charge in respect of
 debentures issued in previous years.
 
 (xx) During the year the Company has not raised money by way of public
 issue. However the Company has issued shares on preferential basis and
 the proceeds are utilized for the purpose for which the money has been
 raised.
 
 (xxi) Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given 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 KHANDELWAL JAIN & CO.
 
 Chartered Accountants
 
 Firm Registration No. 105049W
 
 
 (SHIVRATAN AGARWAL)
 
 PARTNER
 
 Membership No. 104180
 
 
 Place: Mumbai
 
 Date : August 27, 2010.