Kinetic Motor Company Ltd Merged Auditor Reports

to the Members of KINETIC MOTOR COMPANY LIMITED

1. We have audited the attached Balance Sheet of KINETIC MOTOR COMPANY LIMITED (the Company) as at 31st December 2011, the Profit and Loss Account and also the Cash Flow Statement for the fifteen months 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 the auditing standards generally accepted in India. Those 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 as amended by the Companies (Auditors Report) (Amendment) Order, 2004 (together the Order) issued by the Central Government of India in terms of sub section (4A) of section 227 of the Companies Act, 1956 (the act) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. We draw attention to Note 20 - Schedule 13 regarding certain transactions of purchase of components which require approval of the Central Government under Section 297 of the companies Act, 1956.

5. We draw attention to Note 19 - Schedule 13 regarding the appropriateness of the going concern basis used for the preparation of these financial statements, as the validity of the going concern basis depends upon undertaking the new business and the financial support from the promoters of the Company. Based on the undertaking of the new business subsequent to the period end and financial support from promoters, these financial statements have been prepared on a going concern basis.

6. We draw attention to Note 23 - Schedule 13 regarding the resolution passed by the board of directors in respect of proposed scheme of amalgamation of the Company with the Kinetic Engineering Limited w.e.f the appointed date being 1st January, 2012, subject to the sanction by the High Court.

7. Further to our comments in the paragraphs 4, 5 & 6 and Annexure referred to in paragraph 3 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 purposes 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;

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

(d) In our opinion, the Balance Sheet, the 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;

(e) On the basis of written representations received from the directors, as on 31st December 2011 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st December 2011 from being appointed as a director 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 financial statements read together with the notes thereon and attached thereto 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:

(i) in the case of the Balance Sheet, of the state of affairs of the company as at 31st December 2011;

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

(iii) In the case of the Cash Flow Statement, of the cash flows for the period ended on that date.

	For Lakhani & Co.
	Chartered Accountants
Firm Regn	No.:105524W
	(Parag Modi)
	Partner
Pune : February 29, 2012	M.No.114105

ANNEXURE TO THE AUDITOR’S REPORT

(Referred to in paragraph 3 of our report of even date to the members of KINETIC MOTOR COMPANY LIMITED on the financial statements for the fifteen months period ended 31st December, 2011)

(i) (a) The company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.

(b) According to the information and explanations given to us, all the fixed assets have been physically verified, at regular intervals by the management during the period, which in our opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) The Company has disposed off substantial part of its Fixed Asset during the period. However, as per the information and explanations provided to us, the Company is exploring the avenues for undertaking new business and after considering the financial support from the promoters of the Company, in our opinion the risk of going concern is mitigated.

(ii) (a) As per the information furnished, the inventories have been physically verified during the period by the management. In our opinion, having regard to the nature and location of inventory, the frequency of verification is reasonable. However, there is no inventory at the end of the period.

(b) In our opinion and according to the information and explanations given to us, 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 has maintained proper records of inventory. In our opinion the discrepancies noticed on verification of physical stocks and the book records were not material and have been properly dealt with the books of account.

(iii) (a) According to information and explanation given to us, the company has not granted any loans secured or unsecured to companies, firms or other parties covered in register maintained under Section 301 of Companies Act, 1956. Accordingly, Sub-Clauses (b), (c) and (d) are not applicable

(b) The Company has taken interest free unsecured loans during the period from two companies covered in register maintained under section 301 of Companies Act, 1956.The Maximum amount outstanding during the period was . 2459.77 lakhs and the period end balance was . 2416.77 Lakhs.

(c) In our opinion, the other terms and conditions in respect of interest free unsecured loans taken by the Company from parties (referred to in (e) above) is not prima-facie prejudicial to the interest of the Company.

(d) In respect of the aforesaid loans taken, there are no stipulations as regards repayment of loans.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for purchase of fixed assets and inventory. In respect of sale of goods, the internal control is generally adequate. During the course of our audit no major weaknesses has been noticed in internal control system.

(v) (a) On the basis of audit procedures performed by us and according to the information and explanations given to us, we are of the opinion that the contracts and arrangements that needed to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered in the register.

(b) In our opinion and according to explanations given to us, the transactions i.e. purchases made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 have been made in pursuance of contracts or arrangements entered in register maintained under section 301 of Companies Act, 1956. Most of items purchased are of special nature and alternative quotations are not available and hence we are unable to comment whether these were at the market prices then prevailing.

(vi) The company has not accepted any deposits from public to which the provisions of sections 58A, 58AA, or any other provisions of the companies Act, 1956 and the companies (Acceptance of Deposits) Rules, 1975 apply.

(vii) The Company has an internal audit system, which is commensurate with the size and nature of its business have formal internal audit system.

(viii) According to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 with regard to the nature of the business/activity of the Company.

(ix) a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is not regular in depositing the undisputed statutory dues including protection fund, state value added tax & Service tax and Tax Deducted at Source (TDS), wherein the periods of delays ranged from 1 days to 275 days . However the Company is generally regular in depositing the undisputed statutory dues including investor education and protection fund, employees state insurance, income tax, custom duty, excise duty, cess and other material statutory dues as applicable, with the appropriate authorities.

Based on our audit procedure and according to the information and explanations given to us, undisputed dues payable in respect of provident fund (Companys contribution amounting to . 732,600/-,Employees provident fund amounting to . 732,600/-) and Tax Deducted at Source amounting to . 583,571/- were in arrears, as at 31st December, 2011 for the period more than six months from the date they became payable. However there are no undisputed dues payable in respect of employees state insurance, income tax, state value added tax, service tax, customs duty, excise duty and cess which are in arrears for a period of more than six months from the date they become payable.

b) According to the information and explanations given to us, there are no dues other than below in respect of income tax, wealth tax, service tax, state value added tax, customs duty, excise duty and cess which have not been deposited on account of any dispute.

Nature of the dues	Amounts involved (dues to the extent not deposited)	Forum where dispute is pending
	(Rs. In lakhs.)
Central Sales Tax ( Assessment years 1994-1995, 1999-2000, 2000-2001)	39.74	Appellate Deputy Commissioner, Commercial Tax, Indore
Central Sales Tax ( Assessment years 2001-2002)	20.57	Madhya Pradesh Commercial Tax Tribunal, Bhopal
Central Sales Tax ( Assessment years 1998-1999)	5.34	Madhya Pradesh Commercial Tax Tribunal, Bhopal
Central Sales Tax ( Assessment years 2002-2003)	13.52	Appellate Deputy Commissioner, Commercial Tax, Indore
Central Sales Tax ( Assessment years 2003-2004)	27.70	Appellate Deputy Commissioner, Commercial Tax, Indore
Central Sales Tax ( Assessment years 2008-2009)	0.89	Appellate Deputy Commissioner, Commercial Tax, Indore
Sales Tax Kolkatta ( Assessment years 2001-2002)	0.60	Sales Tax Tribunal, Kolkatta
Sales Tax Behrampur (Assessment years 1999-2000, 2000-2001, 2001-2002)	4.50	Special Additional Commissioner Commercial Tax, Behrampur
Entry Tax (Assessment years 1994-1995, 1995-1996)	0.64	Deputy Commissioner Commercial Tax, Indore
Entry Tax ( Assessment years 2007-08)	7.77	Appellate Deputy Commissioner, Commercial Tax, Indore
Madhya Pradesh Commercial Tax ( Assessment years 1998-1999)	1.88	Madhya Pradesh Commercial Tax Tribunal, Bhopal
Madhya Pradesh Commercial Tax ( Assessment years 1999-2000)	0.78	Appellate Deputy Commissioner, Commercial Tax, Indore
Madhya Pradesh Commercial Tax ( Assessment years 2007-08, 2008-09)	13.34	Appellate Deputy Commissioner, Commercial Tax, Indore
Excise Duty 2000 to 2003	50.47	Supreme Court
Excise Duty 1987 to 1991	42.10	High Court Madhya Pradesh - Indore Branch
Excise Duty 1995	8.04	High Court Madhya Pradesh - Indore Branch
Excise Duty 1986 to 1988	10.18	Commissioner Appellate Tribunal, Delhi
Excise Duty 2004 to 2007	156.19	Commissioner Appellate Tribunal

(x) Based on our audit procedures and on the information and explanations given by the management, we are of the opinion that, the accumulated losses of the company exceeds fifty percent of its net worth. Further, the Company has incurred cash losses in the current financial period and in the immediately preceding financial year.

(xi) In accordance with the terms of Debentures issued and based on the information and explanations given by the management, we are of the opinion that the company had not defaulted in the repayment of dues debentures holder. Further, the Company has no loans from the Banks and financial institution.

(xii) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4(xii) of the Order is not applicable.

(xiii) The Company is not a chit fund, nidhi or mutual fund or a society. Accordingly, clause 4(xiii) of the Order is not applicable.

(xiv) The Company has maintained proper records of transactions and contracts in respect of dealing in securities and that timely entries have been made therein. Based on the information and explanations given by the management, all securities have been held by the company in its own name.

(xv) According to the information and explanation given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions. Accordingly clause 4(xv) of the Order is not applicable.

(xvi) There were no term loans taken during the period.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, in our opinion, no funds raised on short term basis have been used for long term investment.

(xviii)According to the information and explanations given to us, the company has made preferential allotment of shares to a company covered in the register maintained under section 301 of the Act and the price at which the shares have been issued is prima facie not prejudicial to the interest of the Company.

(xix) The Company has not created a pledge on 90,00,000 Equity shares of Mahindra Two Wheeler Limited which was required as per debenture subscription Agreement dated 12th July 2011 with Debenture holders in respect of 90,000 non convertible debentures issued during the period.

(xx) The company has not raised any money by public issue during the period. Accordingly clause 4(xx) of the Order is not applicable.

(xxi) During the course of our 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 us, we have neither come across any instance of material fraud on or by the Company, noticed or reported during the period, nor have we been informed of such case by the management.

	For Lakhani & Co.
	Chartered Accountants
	Firm Regn No.:105524W
	Parag Modi
	Partner
Pune : February 29, 2012	M.No.114105