1.  We have audited the attached Balance Sheet of M/s. XL Telecom &
 Energy Limited (Formerly XL Telecom Limited), C2, Pooja plaza,
 Vikrampuri, Secunderabad - 500 009 as at 31st December2009, and Profit
 and Loss Account and Cash Flow Statement for the period ended on that
 date annexed thereto. 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. These 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 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 the above, our comments are as under:
 
 a) There are no dues to small, medium and micro enterprises and
 reference is invited to Note No. B-20 under Schedule 14.
 
 b) Reference is invited to Note No. B-21 under Schedule 14.
 
 c) The company has not determined and provided for the amount of the
 gratuity liability for the employees on an accrual basis as at 31st
 December2009 which is required to be determined and provided for as
 per the requirements of the Accounting Standard-15 on Employee Benefits
 issued by the Institute of Chartered Accountants of India and also as
 per the provisions of the section 209 of the Companies Acf 1956
 relating to preparation of books of account on accrual basis. In the
 absence of the value of such provision for gratuity, we are unable to
 determine quantum of such non provision and its impact on the
 understate- ment of the loss for the period ended 31st December2009.
 
 d) The balances appearing under secured loans (other than the hire
 purchase loans) are arrived at after providing for interest at a lower
 rate than the original contracted rates. The interest for the period is
 calculated based on the concessional rates of interest that are to be
 charged as per the Corporate Debt Restructuring (CDR) Scheme approved
 by the lenders to the company on 30* December2009. However the said
 CDR package is yet to be implemented and the secured lenders have not
 restated the interest rates as per the CDR package as on date. The
 provision of interest as per the rates approved under CDR as against
 original contacted rates has an impact of reduction in secured loan by
 Rs.2197.11 lakhs and understatement of loss to the same extent
 
 e) We are unable to comment on the carrying value of the investment in
 one of the subsidiary companies viz. Khandoba Distilleries Limited in
 view of the non implementation of the project being executed in the
 said company and also the stipulations made by the secured lenders of
 the company as part of the Corporate Debt Restructuring Scheme
 requiring the company to dispose of the said project being implemented.
 
 f) The balances appearing under sundry debtors and loans and advances
 are subject to confirmation and reconciliation. We find no provision
 has been made in books for doubtful debts.
 
 5.  Subject to our qualifications mentioned Paragraphs (3) and (4)
 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 purpose 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 excepting in relation to the Accounting Standard-14 on Employee
 Benefits.
 
 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 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, excepting in relation to Accounting Standard 15 on
 Employee Benefits.
 
 e) On the basis of written representations received from the directors,
 as on 31st December 2009 and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st
 December 2009 from being appointed as Directors in terms of clause (g)
 of sub-section (1) of section 274 of the companies Act, 1956.
 
 f) 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 excepting in relation to Accounting
 Standard 15 on Employee Benefits.
 
 (i) in the case of Balance Sheet, of the state of affairs of the
 Company as at 31st December 2009,
 
 (ii) in the case of the Profit and Loss Account, of the loss for the
 period ended on that date and
 
 (iii) in case of the Cash Flow Statement, of the cash flows for the
 period ended on that date.
 
 Annexure referred to in paragraph (3) 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) The process of physical verification of fixed assets has been
 started by the Company during the year and it is in progress.
 
 (c) During the year, the company has not disposed off any fixed assets
 except some old vehicles.
 
 (ii) (a) The inventory has been physically verified by the management
 during the year. In our opinion, the frequency of verification is
 reasonable.
 
 (b) 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) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 the book records were not material. Reference is invited to Note No. 18
 under Notes to accounts under Schedule 14.
 
 (iii) According to the information and explanations given to us, the
 Company has not taken any loans, secured or unsecured from/to
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. However, reference is
 invited to note no B-17 of Schedule 14 regarding monies advanced /
 equity invested.
 
 (iv) In our opinion and according to the information and explanations
 given to us, the internal control procedures needs to be strengthened
 and streamlined so as to be commensurate with the size of the company
 and the nature of its business with regard to purchases of inventory,
 fixed assets and with regard to the sale of goods.
 
 (v) According to the information and explanation given to us, we are of
 the opinion that the transaction that need to be entered into the
 register maintained under section 301 of the Companies Act1956 have
 been so entered.
 
 (vi) The company has not accepted any deposits from the public.
 
 (vii) In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account relating to
 materials, labour and other items of cost maintained by the company
 pursuant to the Rules made by the Central Government for the
 maintenance of cost records under section 209(1) (d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained.
 
 (ix) (a) The company is not regular in depositing with appropriate
 authorities the undisputed statutory dues including provident fund,
 investor education protection fund, employees state insurance, income
 tax, sales tax, wealth tax, customs duty, excise duty, cess and other
 material statutory dues applicable to it excepting income tax dues for
 the Asst. year 2007-08, 2008-09 amounting to Rs.1486 lakhs, provident
 fund dues to the tune of Rs.15.31 lakhs and the tax deducted at source
 of Rs.119.53 lakhs.
 
 (b) According to the information and explanation given to us, there are
 no dues of sales tax, income tax, customs duty, wealth tax, excise duty
 and cess which have not been deposited on account of any dispute.
 
 (x) In our opinion the, the accumulated losses of the company are more
 than fifty percent of its net worth. The company incurred a cash loss
 of Rs.28343.19 lakh during the current accounting year. There are no
 cash losses during the immediately preceding accounting year.
 
 (xi) The company has defaulted in the repayment of the dues to Banks
 and financial institutions. Subsequently the company approached for the
 restructuring of the payment of interest and principle dues under
 Corporate Debt Restructuring Scneme. The working capital banker and
 term lenders have approved a package of restructuring under CDR scheme
 on 30* December2009. As per the terms of restructuring detailed in
 schedulel 4, paragraph B.1 to notes on accounts, the interest and
 principle dues the company are either funded or deferred as at 31st
 December2009.
 
 (xii) In our opinion and according to information and explanation given
 to us ,the Company has not granted any loans and advances against
 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 clause 4(xiii) is not
 applicable to the company.
 
 (xiv) In our opinion and according to the information and explanation
 given to us , the company is not dealing in or trading in shares and
 securities.  In the case of the investments held by the company, the
 same are in the name of the company.
 
 (xv) According to the information and explanation given to us, trie
 company has not given guarantees for the loans taken by others to Banks
 or Financial Institutions excepting corporate guarantee to
 M/s.Softprojex (India) Ltd.
 
 (xvi) In our opinion and according to the information and explanation
 given to us the term loans have been applied for the purpose for which
 they were raised.
 
 (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.  However, the borrowings made by the company for the
 working capital purposes is converted into long term loans by the
 lenders under Corporate Debt Restructuring Package granted considering
 the losses suffered by the company.
 
 (xviii) The company has converted part of the FCCBs into equity snares
 during the year.  Further an amount of Rs.5,38,65,000 received as money
 towards the warrants from the parties covered in trie register
 maintained under section 301 of the Companies Act1956 during the
 earlier period is forfeited during the year.  Reference is invited to
 note no. B-4 and B-5 under Schedule 14 of the Annual Accounts.
 
 (xix) The clause 4(xix) of the Companies (Audit Report) Order 2003
 relating to the creation of the security for the Debentures is not
 applicable to the company as no debentures are raised by the company.
 
 (xx) The company nas not raised any money by way of public issue during
 the year.
 
 (xxi) 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 caused the financial statements to be materially misstated.
 
                                       For Satyanarayana & Co.
                                         Chartered Accountants
 
                                             J. Jagannadha Rao
 Place: Secunderabad                                   Partner
 
 Date:  31-03-2010                                 (M. No 6239)