Kinetic Motor Company Ltd (Merged)

To

The Members,

Your Directors present their Report on the business and operations of your Company forthe year ended 31st, December, 2011.

FINANCIAL RESULTS

After transfering its 2-wheeler business related assets to a Mahindra group company(Mahindra Two Wheelers Limited) as part of its business restructuring, in November, 2008,Kinetic Motor Company Limited (KMCL) has been in discussions with Kinetic EngineeringLimited (KEL) management for a proposal to amalgamate KMCL into KEL. Your Board ofDirectors also, in their meeting held on 9th December, 2011 have passed the resolution andapproved the Scheme of Amalgamation for merging KMCL with the KEL.

Both, KEL and KMCL are engaged in the Automotives Business. The amalgamation willenable achievement of the potential of Automotive Business including participation ofinvestors, strategic partners, lenders and other stakeholders in such Business.

The Merger will also help streamlining of the activities of the respective companiesand reduce managerial overlaps; and augmenting shareholders' value besides aligninginterests of shareholders in a single entity.

Business Restructuring

After transfering its 2-wheeler business related assets to a Mahindra group company(Mahindra Two Wheelers Limited) as part of its business restructuring, in November, 2008,the Company has been evaluating different avenues for newer businesses. However , Companyhas also been in discussions with KEL for a possible Amalgamation with KEL and Board ofDirectors of both the Companies have approved the Scheme of Amalgamation of KMCL with KEL.The appointed date for Amalgamation is fixed as 1st January, 2012. The Companies have madethe applications to Stock Exchanges for approval to the Scheme of Amalgamation , which isawaited till the date of this report. Post Stock Exchange approvals, the Scheme would befiled with the honourable Bombay High Court for its sanction.

Financial Restructuring

After utilizing the funds available from the sale of two-wheeler business relatedassets, for settling secured lenders and various other liabilities, Company had continuedthe process of settlement of unsecured creditors to the maximum extent during the periodunder review.

During the period under review, the Company had converted 38 lac Optionally ConvertibleCumulative Preference Shares (OCCPS) of . 14.20 each into equity shares of . 10 each, at apremium of . 4.20 each.

Further during the period , 50,09,090 Optionally Convertible Cumulative PreferenceShares of . 22 each were issued on 23.08.2011 and 1,03,00000 New Redeemable PreferenceShares of . 10/- were issued on 23.08.2012 and allotted by the Board on 14.11.2011.

Research & Development And Technology Absorption

During the period under review, the Company has not acquired new technology, and therewere no research and development activities undertaken by the Company.

Industry Overview

The Company has made a strategic investment in the 20% equity of Mahindra Two WheelersLimited (MTWL). MTWL operates in the area of two wheelers and manufactures two wheelers atthe well established Pithampur factory. After launching new models and variants ofscooters in last two years, MTWL has recently entered the large-potential market segmentof motor-cycles. In scooters segment, MTWL has reached a monthly sales level of 20000nos., as reported in SIAM.

Opportunities, threats, risks and concerns

The Company, having sold its assets relating to two wheeler business in November, 2008,as mentioned above, is cautiously optimistic regarding the future prospects andopportunities for its associate- MTWL- in the long term.

Outlook

After having sold its assets relating to two wheeler business in November, 2008, andafter paying off its secured debts and substantially reducing its other liabilities,Company has now planned to get it merged with Kinetic Engineering Limited and to generatesizable wealth for its shareholders. Company remains optimistic that the investment madein Mahindra Two Wheelers Limited, in terms of 20% equity stake will appreciate in comingyears and create value for the shareholders of the Company.

Sales and Other Income

Sales and other income in the period under review were . 5.69 crores as against . 7.62crores in the previous period, due to discontinuance of two-wheeler business.

Margin

The company reported a net loss of . 1.48 crores in the period under review as againstnet loss of . 6.05 crores in the previous period.

Interest Cost

Interest cost in the period under review was . 0.07 crores as against . 0.12 crores inthe previous period.

Inventory

Inventory for the period under review was . 0.04 crores as against . 0.60 crores in theprevious period.

Debtors

Debtors for the period under review were . 0.58 Crores as against . 1.34 crores in theprevious period

Internal Control System

Your Company has adequate internal control system commensurate with its size and natureof business for ensuring efficiency of operations and protection of company's assets. Witha view to ensure better internal control systems, the company's Audit Committeeperiodically reviews compliance with Company's policies, procedures and laws.

Human Resource Development

Most of the employees were transferred to Mahindra Two Wheelers Limited. Relationshipwith the remaining employees has been cordial, during the period under review.

Cautionary Statement

This 'Management & Discussion Analysis Report' contains 'forward lookingstatements, based on Company's projections, estimates and perceptions about socio-economicconditions, government policies etc. The Company does not guarantee their accuracy, andcautions that circumstance beyond control of the Management may affect the actual working.

FOREIGN EXCHANGE EARNINGS AND OUTGO

There are no foreign exchange earnings and outgo during the period.

CONSERVATION OF ENERGY

The present level of energy consumption of the Company is very insignificant.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, your Directors confirm that :

1. In preparation of the accounts for the period under review, your company hasfollowed the applicable accounting standards.

2. Appropriate accounting policies have been selected and applied consistently and havemade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31st December, 2011 and of the loss ofthe Company for the period ended on that date.

3. Proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act, 1956 for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities.

4. The Annual Accounts for the period under review have been prepared on a 'GoingConcern' basis.

CORPORATE GOVERNANCE

The Company is implementing Corporate Governance code as per the Listing Agreement withStock Exchanges. A separate Report on Corporate Governance is given as Annexure to theDirectors' Report.

PARTICULARS OF EMPLOYEES

Particulars of Employees as required under Section 217 (2A) of the Companies Act, 1956read with Companies (Particulars of Employees) Rules, 1975 are contained in a Statementforming part of this Report. However, as per the provisions of Section 219(1)(b)(vi) ofthe Companies Act, 1956, the Report and Annual Accounts are being sent to the shareholdersof the Company, excluding the particulars of employees. Any shareholder interested inobtaining a copy of the said Statement may write to the Company.

DIRECTORS

Mr. R. J. Kabra & Mr. S. R. Kotecha are liable for retirement by rotation at theensuing AGM of the Company, and they are eligible for reappointment. Information asrequired under Clause 49 of the Listing Agreement, is provided in the annexure to thisreport.

AUDITORS

The Auditors M/s Lakhani & Co, Chartered Accountants, hold their office until theconclusion of the ensuing AGM, and have furnished a certificate in terms of Sec. 224(1) ofthe Companies Act, 1956, about their eligibility.

FIXED DEPOSITS

The company has not accepted any fixed deposit from public during the period underreview.