Auditor Report of Kerala Rubber & Reclaims Ltd.

Mar 31, 2009

We have audited the attached Balance Sheet of KERALA RUBBER AND RECLAIMS LIMITED. COCHIN as at 31 st March 2009, and annexed Profit and Loss account for the year ended on that date. 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.

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.

As required by the Companies (Auditors Report) Order 2003, issued by the Central Government in terms of section 227 (4A) of the Companies Act, 1956 we attach in Annexure a statement on the matters specified in paragraph 4 and 5 of the said Order.

Further to our comments in Annexure referred to above, we report that;

1. We state that 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.

2. 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 such books.

3. The Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of account,

4. In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with the Accounting Standards referred to in Section 211 (3C) of the Companies Act, 1956 to the except AS-15 regarding not ascertaining the leave encashment liability on actuarial basis.

5. On the basis of written representations received from the directors, as on 31.03.2009 none of the directors is disqualified from being appointed as directors in terms of section 274(1) (g) of the Companies Act 1956.

6. In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the schedules and notes thereon, give the information required by the Companies Act, 1956 in the manner so required, give a true and fair view in conformity with the accounting principles generally accepted in India.

a) In the case of the Balance Sheet, of the state of affairs of the company as at 31st March, 2009 and

b) In the case of Profit and Loss Account, of the Loss for the year ended on that date.

ANNEXURE TO THE AUDITORS REPORT REFERRED TO IN PARAGRAPH 1 OF OUR REPORT OF EVEN DATE

1. Fixed Assets,

The company has maintained proper records showing full particulars including quantitative details and location of fixed assets. The fixed assets have been physically verified by the management during the year and no material discrepancies have been noticed on such physical verification. According to the information and explanation given to us, the company has not disposed of substantial part of the fixed assets during the year.

2. Inventories

The inventories have been physically verified by the management during the year (other than scrap rubber) at reasonable intervals. The procedures of physical verification of the inventories followed by the management is reasonable and adequate in relation to the size of the company and the nature of its business. The company is maintaining proper records of inventories except for consumable stores, scrap rubber and customer materials received for processing.

3. Loans and Advances

(a) The company has granted advances in the nature of loans to two companies and a firm in which directors are interested. The balance outstanding as on 31st march 2009 from these companies/firm was Rs. 17.36 (Rs. 17.36 lakhs]. There are no terms and conditions regarding repayment of loans and charging of interest. In the absence of terms and conditions we are unable to ascertain whether they are prima facie prejudicial to the interest of the company and whether they are overdue.

(b) The company had taken loans from three directors covered in the register maintained under section 301 of the Companies Act, 1956. The amount outstanding as on 31/03/ 2009 is Rs. 22,27,500/-. There are not terms and conditions regarding repayment of the same and rate of interest, Hence we are unable to comment whether the terms and conditions are prejudicial to the interest of the company.

4. Internal Control System

In our opinion and as per the information and explanations given to us, there are adequate internal control systems commensurate to the size of the company and nature of business with regard to purchase of inventories, fixed assets and for sale of goods and services.

5. Interested Parties.

(b) In our opinion and according to the Information and explanations given to us, there are no contracts or arrangements referred to in Section 301 of the Companies Act, 1956 that need to be entered into the register maintained under that section.

6. Fixed Deposits

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

7. Internal Audit

The company has an internal audit system, which in our opinion is commensurate with size and nature of the business.

8. Cost Records

As per the information and explanation given to us, the Central Government has not prescribed the maintenance of cost records, under section 209(1) (d) of the Act, in respect to the company.

9. Statutory Dues

(a) The company was regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Employees State Insurance. Income Tax, Sales Tax and Customs Duty. In respect of Sales Tax an Undisuted amount of Rs.6894/- is outstanding at 31.03.2009 for more than six months from the date of becoming payable.

(b) According to the records of the Company, there are no other undisputed dues payable in respect of Income tax, Wealth tax, Customs duty, ED and cess.

According to the records of the Company the following disputed sales tax dues have not been deposited as at the close of the year.

Name of the Forum where Amount Statue Nature of dues dispute is Rs.(in lakhs) pending

Kerala Sales Assessment Sales Tax Tax Act dues KGST Appellate 4.07 2000-01 Tribunal

10. Accumulated Losses

The Company has accumulated losses of Rs. 105.56 lakhs at the end of financial year as against Paid up Capital and free reserve of Rs. 101.13 lakhs. The company has incurred any loss during the current financial year but there was cash loss during the immediately preceeding financial year.

11. Repayment of Loans

In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of interest and principal to banks and financial institutions.

12. Others

a) The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other investments.

b) The company is not a Chit Fund or a Nidhi/ Mutual Benefit Fund/Society.

c) The company is not dealing in shares, securities, debentures and other investments.

d) The company has not given guarantees for loans taken by others from banks or financial institutions.

e) To the best of our information and according to the explanations given to us the company has not utilized any short term funds for long term investment.

f) The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act 1956 during the year,

g) The Company had not issued debentures during the year.

h) The Company has not made any public issues during the financial year. i) According to the information and explanations given to us, not fraud, on or by the Company, has been noticed or reported during the year.

For R.G.N. PRICE & CO. CHARTERED ACCOUNTANTS (Sd/-) 24-09-2009 P.M.VEERAMANI

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