1.  I have audited the attached Balance Sheet of SRI JAYALAKSHMI
 SPINNING MILLS LIMITED as at 30th June, 2006 and also the Profit & Loss
 Account for the year ended on that date annexed thereto.  These
 financial statements are the responsibility of the Companys
 management.  My responsibility is to express an opinion on these
 financial statements based on my audit.
 
 2.  I conducted my audit in accordance with auditing standards
 generally accepted in India. Those standards require that I 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. I believe that my audit provides a reasonable basis for
 my opinion.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 issued
 by the Central Government of India in terms of Section 227(4A) of
 Companies Act, 1956 , I enclose in the annexure a statement on the
 matters specified in paragraphs 4 and 5 of the said order.
 
 4.  Further to my comments in the annexure referred to in paragraph (3)
 above, I report that:
 
 a) I have obtained all the information and explanations which to the
 best of my knowledge and belief were necessary for the purpose of my
 audit;
 
 b) In my opinion, proper books of account as required by law have been
 kept by the Company, so far as appears from my examination of these
 books of the Company;
 
 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 of
 the Company;
 
 d) In my opinion the Balance Sheet, Profit and Loss Account and Cash
 Flow statement dealt with by this report comply with the mandatory
 Accounting Standards referred in section 211(3C) of the Companies Act.
 1956:
 
 e) In my opinion, as per the information provided by the company, none
 of the Directors are disqualified as on 30th June 2006 from being
 appointed as Director under clause (g) of sub-section (1) of section
 274 of the Companies Act, 1956;
 
 f) Attention is drawn to item No 9 of Schedule 19- Notes on Accounts
 regarding non provision of interest on loans and write off of excess
 liability on loans written back in earlier years.
 
 g) In my opinion and to the best of my information and according to the
 explanation given to me, the said accounts, read together with the
 schedules, accounting policies and notes thereon give the information
 required by the Companies Act, 1956, in the manner so required and give
 a true and fair view:
 
 (i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 30th June,2006;
 
 (ii) in the case of the Profit and Loss Account, of the Loss of the
 Company 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 AUDIT REPORT
 
 Referred to in paragraph (3) of my report of even date.
 
 1.  The Company has maintained proper records showing full particulars
 including quantitative details and situation of fixed assets.
 
 2.  The fixed assets have been physically verified by the management at
 reasonable intervals of time during the year on a periodical basis,
 which in my opinion is reasonable, having regard to the size of the
 company and nature of its assets. No material discrepancies were
 noticed on such physical verification.
 
 3.  According to the information and explanations given to me, a
 substantial /major part of Fixed Assets has not been disposed off by
 the company during the year.
 
 4.  The stock of goods has been physically verified by the management
 at reasonable intervals of time.
 
 5.  In my opinion and according to the information and explanations
 given to me the procedures of physical verification of stocks followed
 by the Management are reasonable and adequate, considering the size of
 the company and nature of its business.
 
 6.  In my opinion and according to the information and explanations
 given to me and on the basis of my examination of records , the company
 is maintaining proper records of inventory and no material
 discrepancies have been noticed on physical verification of stocks as
 compared to book balance in so far as appears from my examination of
 the books.
 
 7.  According to the information and explanations given to me, the
 company has not taken any loans from the Companies, Firms or Other
 parties listed in the register maintained under Section 301 of the
 Companies Act, 1956.
 
 8.  According to the information and explanations given to me, the
 company has not granted any loans to the Companies, Firms or Other
 parties listed in the register maintained under Section 301 of the
 Companies Act, 1956.
 
 9.  The company has not given any loans or advances in the nature of
 loans.
 
 10.  According to the information and explanations given to me, there
 are adequate internal control procedures commensurate with the size of
 the company and the nature of its business for the purchase of
 inventory, fixed assets and for the sale of goods. During the course of
 my audit, no major weakness has been noticed in the internal controls
 
 11.  According to the information explanations given to me, the
 transactions made in pursuance of contracts or arrangements that need
 to be entered in the register maintained under Section 301 of the
 Companies Act, 1956 have been so entered.
 
 12.  According to the information explanations given to me , the
 transactions made in pursuance of contracts or arrangements entered
 into the register in pursuance of Section 301 of Companies Act, 1956,
 and exceeding the value of Rs. 5,00,000 /- in respect of each party
 during the year , have been made at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 13.  The Company has not accepted any deposit from the public within
 the meaning of Section 58A and 58AA of the Companies Act, 1956 and the
 Rules made hereunder.
 
 14.  I have broadly reviewed the books of accounts maintained by the
 company pursuant to the order made by the Central Government for the
 maintenance of cost records under Section 209 (1) (d) of the Companies
 Act, 1956, and am of the opinion that, prima facie, the prescribed
 accounts and records have been maintained. (I have not carried out a
 detailed examination of the same).
 
 15.  According to the information and explanations given to me and the
 records of the company examined by me, the company is generally regular
 in depositing with the appropriate authorities undisputed statutory
 dues including Provident Fund, income Tax, Sales Tax, Customs Duty,
 Excise Duty and other material statutory dues as applicable with the
 appropriate authorities.  According to the information and explanations
 given to me, no undisputed amounts payable in respect of the aforesaid
 dues were outstanding as at 30th June 2006, for a period of more than
 six months from the date of becoming payable.
 
 16.  The accumulated loss of the company at the end of 30th June 2006
 is more than 100% of its networth and it has incurred cash losses in
 the financial year ended on that date and in the immediately preceding
 financial years.
 
 17.  According to the information and explanations given to me and the
 records of the company examined by me, the company has defaulted in
 repayment of dues to financial institutions and banks.
 
 18.  According to the information and explanations given to me, the
 company has not granted any loans and advances on the basis of security
 by way of pledge of shares, debentures and other securities.
 
 19.  The provisions of any special statute applicable to chit fund
 /mutual benefit fund / societies are not applicable to this company.
 
 20.  In my opinion, the company is not a dealer or trader in shares,
 securities, debentures and other investments. As the company is not
 dealing or trading in shares, securities, debenture and other
 investments, paragraph (xiv) • of the Companies (Auditors Report)
 Order, 2003 is not applicable to the company for the year.
 
 21.  According to the information and explanations given to me, the
 company has not given any guarantee for loans taken by others from
 banks or financial institutions.
 
 22.  The company has not raised any new term loans during the year. The
 term loans outstanding at the beginning of the year have been applied
 for the purposes for which they were raised.
 
 23.  According to the information and explanations given to me and
 overall examination of the Balance Sheet of the company , I report that
 no funds raised on a short term basis which have been used for long
 term investment and vice versa .
 
 24.  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 during the year and therefore paragraph 4
 (xvii) of the order is not applicable .
 
 25.  The company has not issued any debentures during the year and
 therefore paragraph 4 (xix ) of the order is not applicable .
 
 26.  The company has not raised any money by public issues during the
 year and therefore paragraph 4 (xx ) of the order is not applicable .
 
 27.  During the course of. my examination of the books and records of
 the company, carried out in accordance with the generally accepted
 auditing practices in India and according to the information and
 explanations given to me, I have neither come across any instance of
 fraud on or by the company, noticed or reported during the year, nor
 have I been informed of such case by the management.
 
 Place : Guntur                       G .V. SURYANARAYANA MURTHI
 
 Date : 05 .12 .2006                             Sd/-  
                                         CHARTERED ACCOUNTANT