Advance Lifestyles Ltd

THE AHMEDABAD ADVANCE MILLS LIMITED

1. We have audited the attached Balance Sheet of The Ahmedabad Advance Mills Limitedas at March 31, 2010 and also the Profit and Loss account and the Cash Flow statement forthe year ended on that date annexed thereto. These financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted inIndia. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. As required by the Companies (Auditors' Report) Order, 2003 (as amended) issued bythe Central Government of India in terms of sub-section (4A) of Section 227 of theCompanies Act, 1956, we enclose in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order to the extent applicable to the Company.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat:

(a) The company has made the provision of Rs. 4, 73, 83,235/- for retrenchmentcompensation and salary for the closure period of employees during the year.

The provisions of Rs. 4, 73, 83,235/- relate to previous year and therefore, the profitfor the year under report has been understated by that amount.

(b) During the year, the Company has given Inter Corporate Deposits (ICDs) to oneCompany (in which a director of the Company is interested) aggregating to Rs.3,07,50,000/-. Approval of the Central Government in respect of the ICD given has not beenobtained as required by Section 295 of the Companies Act 1956. Out of the aforesaid ICDwhole amount is repaid during the year, (as indicated in Note 2 of Schedule 18). Noapplication has been made by the Company to the Central Government under Section 295.

(c) The management has represented that the market value of its freehold land isadequate to meet its contingent and ascertained liabilities. The Company has also receivedan undertaking from its promoters to support the Company to meet its obligations. Howeverin view of suspension of operations as described in note 1-B on Schedule 18, provision forretrenchment compensation as described in 4(a) above and in the absence of any formalbusiness plan (as during the year the Company has carried out activity of trading ofcloths only), we are unable to state whether the Company will be able to continue inoperation as a going concern in the foreseeable future.

5. Subject to the matters referred to in paragraph (4) above:

a. we have obtained all the information and explanations, which to the best of ourknowledge 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 theCompany 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 thisreport are in agreement with the books of account;

d. in our opinion, and to the best of our information and according to the explanationsgiven to us, the Balance Sheet, Profit and Loss Account and Cash Flow Statement, exceptfor prior year's provision of retrenchment compensation in paragraph 4(a) above and forour comments on the appropriateness of the going concern assumption under AccountingStandard 1 in paragraph 4(c) above, dealt with by this report comply with the AccountingStandards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

e. in our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act, 1956,in the manner so required except for prior year's provision of retrenchment compensationin paragraph 4(a) above and our inability to assess if the going concern assumption hasbeen followed appropriately as stated in paragraph 4(c) above, and its impact on theseaccounts, if any, not ascertainable and read together with other notes, the financialstatements give a true and fair view in conformity with the accounting principlesgenerally accepted in India:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at March31, 2010;

ii) in the case of the Profit and Loss Account, of the profit for the year ended onthat date; and

iii) in the case of Cash Flow Statement, of the cash flows for the year ended on thatdate.

6. We further report that, on the basis of the written representations received fromthe directors, as on March 31, 2010, and taken on record by the Board of Directors, wereport that none of the directors is disqualified as on March 31, 2010 from beingappointed as a director in terms of clause (g) of sub-section (1) of section 274 of theCompanies Act, 1956.

For, DHIREN SHAH & CO.

Chartered Accountants

Proprietor Membership No. 35824

Firm Reg. No. 114633W

Place: Ahmedabad

Date: 31-05-2010

ANNEXURE TO THE AUDITORS' REPORT

Annexure referred to in paragraph 3 of our report of even date to the members of TheAhmedabad Advance Mills Limited on the financial statements for the year ended March 31,2010.

(i) (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) Fixed assets have been physically verified by the management during the year and inour opinion the frequency of verification is reasonable having regard to the size of theCompany and the nature of its assets. No material discrepancies were noticed on suchphysical verification.

(c) During the year, the Company has disposed off 7931.69 sq. mtrs. of land which hasthe approval of BIFR under the revival scheme. According to the information andexplanations given to us, we are of the opinion that the sale of said part of land hasaffected the going concern status of the Company.

(ii) (a) The inventories have been physically verified during the year by themanagement. In our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the managementare reasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) In our opinion and according to the information and explanations given to us, theCompany is maintaining proper records of inventories and there were no discrepanciesnoticed on physical verification.

(iii) (a) As per information and explanations given to us, the Company has grantedunsecured loans aggregating Rs. 3,07,50,000/- to one party covered in the registermaintained under section 301 of the Companies Act, 1956. The maximum amount involvedduring the period was Rs. 2.43,00,000 and the year end balance of such loans was Rs.21,08,751/- (Cr.).

(b) As per the information and explanations given to us, the rate of interest and otherterms and conditions at which the loans have been given to the Company covered in theregister maintained under section 301 of the Companies Act, 1956 are not prima facieprejudicial to the interest of the Company having regard to the market yields.

(c) As per information and explanations given to us. the Company is regular in receiptof the principal amount and interest thereon.

(d) As per the information and explanations given to us, the Company lias takenreasonable steps for the recovery of the principal amount and interest thereon.

(e) The Company has taken unsecured loans aggregating to Rs. 12,43,62,491/-from twocompanies covered in the register maintained under section 301 of the Companies Act, 1956,which were repaid in full and only interest portion is outstanding at the year end. Themaximum amount involved during the year was Rs. 13, 21, 60,220 and the year end creditbalance is Rs. 40,92,492/-.

(1) As per the information and explanation given to us, the rate of interest and otherterms and conditions on which loans have been taken from companies, covered in theregister maintained under section 301 of the Companies Act, 1956 are prima facie notprejudicial to the interest of the Company having regard to the market yields.

(g) As per the information and explanation given to us, the Company is regular inpayment of the principal amount and interest thereon.

(iv) In our opinion and according to the information and explanations given to us,there are generally adequate internal control systems commensurate with the size of theCompany and the nature of its business with regard to purchases of inventory, fixed assetsand with regard to the sale of goods and services. During the course of our audit, we havenot observed any continuing failure to correct major weakness in internal control systems.

(v) According to the information and explanation given to us. company has not carriedout any contract or arrangements referred to in Section 301 of the Act, hence Clause 4(v)of the Order is not applicable to the company.

(vi) The Company has not accepted any deposits from the public to which the provisionsof section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and theCompanies (Acceptance of Deposits) Rules, 1975 apply.

(vii) Company's internal audit is carried out by a Chartered Accountant. In our opinionand according to the information and explanations given to us, the Company has an internalaudit system commensurate with its size and nature of its business.

(viii) In our opinion and according to the information and explanations given to us.she cost records as prescribed under clause (d) of sub- section (I) of section 209 of theAct. have not been maintained by the Company during the period, as there was nomanufacturing activity except trading of cloth.

(ix) (a) According to the records of the Company and information and explanations givento us, statutory dues including provident fund, employees state insurance (E.S.l.C),income tax, sales tax. service tax, cess and other material statutory dues as applicableto it have generally been regularly deposited during the year under audit with theappropriate authorities. As explained to us. the Company did not have any dues on accountof investor education and protection fund, customs duty, excise duty and wealth tax.

(b) According to the information and explanations given to us, no undisputed amountspayable in respect of provident fund, employees state insurance (E.S.l.C), income tax,sales tax, service tax, cess and other material statutory dues as applicable were inarrears, as at March 31, 2010 for a period of more than six months from the date theybecame payable.

(c) According to the information and explanations given to us, there are no dues ofIncome Tax/ Sales Tax/ Service Tax/ Customs Duty/ Wealth Tax/ Excise Duty or Cess thathave not been deposited on account of any dispute, except the amount & details shownas per chart given below:

(x) In our opinion, there are no accumulated losses at the end of the financial year.The Company has not incurred cash losses during the financial year covered by our audit.The Company had incurred cash losses during the immediately preceding financial year.

(xi) The company has not taken loan from bank or financial institution and has also notissued debentures. Hence, clause 4(xi) of the order is not applicable to the company.

(xii) Based on the examination of our records and the information and explanationsgiven to us, the Company has not granted any loans and advances on the basis of securityby 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 tothe 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 theOrder are not applicable to the Company.

(xv) According to information and explanations given to us. the Company has not givenguarantee for loans taken by others from banks or financial institutions. Accordingly, theprovisions of clause 4 (xv) of the Order are not applicable to the Company.

(xvi) The Company has not taken any term loans during the year under audit.Accordingly, the provisions of clause 4 (xvi) of the Order are not applicable to theCompany.

(xvii) According to the information and explanations given to us and on an overallexamination of the Balance Sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investment.

(xviii) According to the information and explanations given to us, the Company has notmade any preferential allotment of shares to parties and Companies covered in the registermaintained under Section 301 of the Companies Act, 1956.

(xix) The Company has not issued any debentures. Accordingly, the provisions of clause4 (xix) of the Order are not applicable to the Company.

(xx) The Company has not raised any money by way of public issues. Accordingly, theprovisions of clause 4 (xx) of the Order are not applicable to the Company.

(xxi) According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the course of our audit.

For, DHIREN SHAH & CO.,

Chartered Accountants

(Dhiren Shah)

Proprietor

Membership No. 35824

Firm Reg. No. 114633W

Place: Ahmedabad

Date : 31-05-2010