Talwalkars Better value Fitness Ltd

TO THE MEMBERS OF TALWALKARS BETTER VALUE FITNESS LIMITED

1. We have audited the attached Balance Sheet of TALWALKARS BETTER VALUE FITNESSLIMITED as at 31 st March, 2011, the Profit and Loss Account and the Cash FlowStatement of the Company for the year ended on that date, both annexed thereto. Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility 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 inIndia. These 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 (Auditor's Report) Order, 2003 issued by the CentralGovernment 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 and5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph (3) above, wereport that:

(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 the books;

(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealtwith by this Report are in agreement with the books of account;

(d) In our opinion the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement dealt with by this report are in compliance with the Accounting Standardsreferred to in sub-section (3C) of Section 211 ofthe Companies Act, 1956.

(e) On the basis of written representations received from the directors as on 31^stMarch, 2011 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31^st March, 2011 from being appointed as adirector 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 explanationsgiven to us, the said accounts, together with the other notes appearing thereon, give theinformation required by the Companies Act, 1956, in the manner so required and give a trueand fair view:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 stMarch, 2011; and

ii) in the case of the Profit and Loss Account, of the profit of the Company for theyear ended on that date; and

iii) in the case of the Cash Flow Statement, of the cash flows of the Company for theyear ended on that date.

ANNEXURE TO THE AUDITOR'S REPORT OF EVEN DATE ON THE ACCOUNTS OF TALWALKARS

BETTER VALUE FITNESS LIMITED FOR THE YEAR ENDED 31^st MARCH 2011

1. Fixed Assets :

(a) The Company is in the process of re-compiling its fixed asset register with a viewtowards reflecting full particulars including quantitative details and situation of itsfixed assets.

(b) As explained to us, physical verification of fixed assets has been carried out bythe Management at most of the branches in accordance with a program of verification which,in our opinion, provides for physical verification of all the fixed assets at reasonableintervals. No material discrepancies were noticed on such physical verification asinformed by the management. In view of the fact that the fixed asset register is in theprocess of re-compilation, the management has informed us that discrepancies, if any,arising between the assets verified and the books and records would be dealt with in theyear in which such re- compilation of the register is completed

(c) The fixed assets disposed off during the year, in our opinion, do not constitutesubstantial part of the fixed assets of the Company and such disposal has, in our opinion,not affected the going concern status of the Company.

2. The Company is a service Company primarily rendering services in respect of healthand fitness centres. Accordingly it does not hold any inventory. Thus, the provisions ofClause 4{ii) are not applicable to the company for the year under review.

3. Loans:

(a) The Company has granted loans to its subsidiary Company listed in the registermaintained under Section 301 of the Companies Act 1956. The maximum amount involved duringthe year in respect of the said loans was Rs 75 Lacs and at the year end the balanceoutstanding of the said loans taken was Rs. 16.17 Lacs. Other than the above, the Companyhas not granted any loans, secured or unsecured to companies, parties or firms covered inthe register maintained u/s.301 of the Act.

(b) In our opinion, prima facie, the interest and other terms and conditions of theaforesaid loan granted are not prejudicial to the interest of the Company.

(c) In case of the loan granted to the subsidiary Company listed in the registermaintained u/s.301, the borrower has been regular in the payment of interest asstipulated. The terms of arrangement do not stipulate any repayment schedule and the loanis repayable on demand. Accordingly paragraph 4(iii)(c) of the Order is not applicable tothe Company in respect of repayment of the principal amount.

(d) There are no overdue amounts of more than rupees one lacs in respect of the loangranted to the subsidiary Company.

(e) The Company has taken unsecured loans from 9 companies listed in the registermaintained under Section 301 of the Companies Act, 1956. The maximum amount involvedduring the year in respect of the said loans was Rs 2663.72 Lacs and at the year end thebalance outstanding of the said loans taken was Rs. 530.83 Lacs. Other than the above, theCompany has not taken any loans, secured or unsecured to companies, parties or firmscovered in the register maintained u/s.301 of the Act.

(f) In our opinion, prima facie, the interest and other terms and conditions of theaforesaid loan taken from the Companies listed in the register maintained under Section301 are not prejudicial to the interest of the Company.

(g) As per the information and explanations furnished to us, for loans taken as above,repayment terms of principal amount has not been stipulated /fixed as yet and the loansare repayable on demand. The Company has been regular in the payment of interest.Accordingly paragraph 4(iii}( g ) of the Order is not applicable to the Company in respectof repayment of the principal amount.

4. In our opinion and based on the information and explanations given to us, theinternal control procedures need to be strengthened to be commensurate with the size ofthe Company and the nature of its business with regard to purchases of fixed assets andsale of services. The activities of the Company do not involve purchase of inventory andthe sale of goods. We have not observed any major weakness in the internal control systemduring the course of the audit.

5. Transactions:

(a) In our opinion and according to the information and explanations given to us, thetransactions that need to be entered in the register maintained under Section 301 of theCompanies Act, 1956 have been so entered.

(b) Based on the information and explanations given to us, in our opinion thesetransactions have been made at reasonable prices having regard to the prevailing marketprices at the relevant time of transactions.

6. The Company has not accepted any deposits from public within the meaning of Section58A and 58AA of the Companies Act, 1956 and the rules made under Companies (Acceptance ofDeposits) Rules, 1975. Therefore, the provisions of clause (vi) of paragraph 4 of theaforesaid Order, in our opinion are not applicable to the Company for the year underreview.

7. In our opinion, the scope and coverage of internal audit system need to be increasedto make it commensurate with the size and nature of business of the company.

8. According to the information and explanations given to us, the Central Governmenthas not prescribed the maintenance of cost records under clause (d) of sub-clause (1) ofsection 209 of the Companies Act, 1956 in respect of services carried out by the Company.

9. Statutory Dues:

(a) According to the records of the Company, Provident Fund, Employees State Insurance,Income tax, Sales tax, Customs Duty, Service Tax, Excise Duty, Cess and other statutorydues to the extent applicable to the Company, have been generally regularly depositedduring the year with the appropriate authorities.

(b) According to the information and explanations given to us, there are no undisputedamounts payable in respect of Income tax, Customs Duty, Service Tax, Excise Duty, Cess andother statutory dues outstanding as at 31^st March 2011, for a period more thansix months from the date they become payable.

According to the information and explanations given to us, the following dues ofIncome-tax have not been deposited by the Company on account of disputes

17. According to the information and explanations given to us and on the overallexamination of the Balance sheet of the Company, we report that the Company has not usedfunds raised on short term basis for

long term investment.

18. According to the information and explanations given to us, the Company has not madeany preferential allotment of shares to parties and companies / firms covered in theregister maintained under Section 301 of the Companies Act, 1956 during the year.

19. In our opinion and according to the information and explanations given to us, theCompany has created security or charge in respect of the secured debentures issued duringthe year.

20. The Management has disclosed the end use of money raised by public issue at note 21of Schedule H (B). We have verified the same to the extent of utilization by the Company.

21. According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the year under review.