AUDITORS REPORT TO THE SHAREHOLDERS OF M/S PRAGATI FASHIONS PRIVATE LIMITED 1.

We have audited the attached Balance Sheet of M/S PRAGATI FASHIONS PVT. LTD. as on 31st March 2009 and the Profit and Loss Account of the Company 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. 2. We have 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 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 issued by the Central Government of India in terms of sub-section (4A) of section 227 of The Companies Act 1956 of India (the Act) and on the basis of such checks of the books and records as we considered appropriate and according to the information and explanations given to us, we set out in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order, to the extent applicable. 4. Further to our comments 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 purpose of our audit; (b) In our opinion proper books of accounts as required by law have been kept by the Company so far as appears from our examination of books; (c) The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of accounts; (d) In our opinion, the accounts have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of section 211 of the Act except Accounting Standard 15 relating to provision for retirement benefits to the employees. (e) On the basis of the written representations received from the Directors as on March 31, 2009 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2009 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of Companies Act, 1956. (f) Attention is invited to Significant Accounting Policy I (E) of Schedule 13 relating to non provision of accruing gratuity and leave encashment liability as required under AS 15. The impact of the same on the profits, reserves, assets and liabilities of the company is not ascertained and hence not quantifiable. Subject to the same, in our opinion, and to the best of our information and according to the explanation given to us the said accounts together with the notes thereon and attached thereto give in the prescribed manner information required by the Act and also give, a true and fair view in conformity with the accounting principles generally accepted in India: (i) Company as at 31stMarch 2009. (ii) for the year ended on that date. In the case of Balance Sheet of the State of Affairs of the

In case of Profit and Loss Account of the Profit of the Company

For M. A. Shah & Co. Chartered Accountants

Mayur Makadia Partner Membership 107769 Place: Mumbai Date: 9th September 2009 Annexure referred to in paragraph 3 of the report of the Auditors for the year ended 31st March,2009 (i) Fixed Assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) It is informed to us that the fixed assets of the company are physically verified by the management at regular intervals and no material discrepancies were noticed on such verification. (c) As the company has not disposed of a substantial part of its fixed assets, this clause is not applicable. (ii) Inventories: (a) As explained to us the inventories of ready made garments have been physically verified at the end of the year by the Management. In our opinion, considering the nature of business verification is reasonable. (b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of stocks followed by the Management are reasonable and adequate in relation to the size of the Company and nature of its business; (c) We are informed that as the company is dealing in a large variety of western outfits and the total sale value of each different type of tops/ kurtis/jeans is less than 1 % of the total turnover it is not practicable to maintain inventory records. The company has therefore not maintained day to day book records of its inventories; (iii) Loans and Advances: (a) The Company has taken unsecured loans from parties listed in register maintained u/s. 301 the Companies Act, 1956. The number of such parties from whom the company has taken unsecured loans is 37. The maximum amount involved is Rs. 6,09,60,302. and the year-end balance of such unsecured loans taken by the company is Rs. 5,33,44,296. (b) given In our opinion and according to the information and explanations to us the No.

terms

and conditions governing the unsecured loans taken by the Company from parties listed in register maintained u/s. 301 are not prima facie prejudicial to the interest of the company. (c) The company is generally regular in the repayment of the principal amount (wherever applicable) of the unsecured loans. (d) None of the unsecured loans taken by the Company from parties listed in register maintained u/s. 301 the Companies Act, 1956, are overdue for payment and as such this clause is not applicable. (iv) Internal Controls

In our opinion and according to the information and explanation given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods. (v) Companies Act, 1956: Transactions with parties under section 301 of the

(a) To the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. (b) In our opinion and having regard to our comments in paragraph (iv) above and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act 1956 and exceeding the value of rupees five lakhs in respect of any party during the year have been made at prices which are reasonable, having regard to prevailing market prices at the relevant time where such market prices are available. (vi) Fixed Deposits:

The Company has not accepted any deposits from the public hence, the provisions of section 58A of the Companies Act 1956 are not applicable; (vii) Internal Audit: The Company does not have any formal internal audit system;

(viii)

Cost Records:

We are informed that the Central Government has not prescribed maintenance of any cost records under clause (d) of sub section (1) of section 209 of the act.

(ix)

Statutory Dues: (a) According to the information and explanations given to us, the provisions of Employees Provident Funds and Miscellaneous Provident Act, 1952 and Employees State Insurance Act, 1948 are not applicable to the Company. The company is generally regular in depositing the undisputed statutory dues including income-tax, sales-tax and any other statutory dues with the appropriate authorities. (b) According to the information and explanations given to us, no undisputed amounts payable in respect of income-tax, wealth-tax, sales-tax, customs duty, excise duty and cess were in arrears as at 31st March 2009 for a period of more than six months from the date they became payable.

(x)

Losses:

The company does not have any accumulated losses. The company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year. (xi) Default in repayment of loans:

According to the information and explanations given to us, the company has not defaulted in repayment of dues to the banks. (xii) Documentation in respect of loans granted by companies

According to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities and as such the provisions of this clause are not applicable. (xiii) The provisions applicable to chit funds, nidhi/ mutual benefit funds/societies are not applicable to the Company and as such the provisions of this clause are not applicable. (xiv) The Company has not dealt with or traded in shares, securities, debentures and other investments and as such the provisions of this clause are not applicable.; (xv) Guarantees:

According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions and as such the provisions of this clause are not applicable. (xvi) which they were raised. In our opinion, the term loans have been applied for the purpose for

(xvii) According to the information and explanations given to us and on an overall examination of the Balance Sheet of the company, we report that no funds raised on short term basis have been used for long term assets. No long term funds have been used to finance short-term assets. (xviii) The Company has not made any preferential allotment of shares and as such the provisions of this clause are not applicable.

(xix) The Company has not issued any debentures and as such the provisions of this clause are not applicable. (xx) The Company has not raised any money by way of public issues and as such the provisions of this clause are not applicable. (xxi) From the information and explanations given to us no fraud on or by the Company has been noticed or reported during the year. For M. A. Shah & Co. Chartered Accountants

Mayur Makadia Partner Membership 107769 Place: Mumbai Dated: 9th September,2009. M/S. PRAGATI FASHIONS PRIVATE LIMITED SCHEDULE 13 NOTES FORMING PART OF THE ACCOUNTS I) A) SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation: The financial statements of the company are prepared under historical cost convention and all incomes and expenses have been booked on accrual basis in accordance with Generally Accepted Accounting Principles (GAAP) applicable in India and the provisions of the Indian Companies Act 1956 except gratuity, which is accounted for on payment basis. Fixed Assets: All fixed assets are stated at cost less depreciation. All costs relating to acquisition and installation of fixed assets are capitalized. Depreciation: Depreciation on Fixed Assets is provided as per the rates prescribed in Schedule XIV of the Companies Act, 1956 on Written down value method. Valuation of Stock: The Stock of Western outfits is valued at cost or market value whichever is lower. No.

B)

C)

D)

E) Employees Retirement Benefits No provision has been made for the accruing gratuity liability & leave encashment liability to the company.

F)

Taxes on Income: Tax on income for the current period is determined on the basis of taxable income and other tax credits computed in accordance with the provisions of the Income Tax Act, 1961. Deferred tax is recognized on timing differences between the accounting income and the taxable income for the year and quantified

using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date. II) OTHER NOTES: a) Having regard to the internal control procedures prevailing, the company feels that internal audit is not required. b) Previous years figures have been regrouped / restated wherever necessary to make them comparable with current years figures. c) The company is dealing in a large variety of readymade dresses and churidars and the total sale value of each different type of dress / churidar is less than 1 % of the total turnover. Therefore it is not practicable to maintain inventory records and as such no inventory records are maintained. In view thereof the information required to be given in pursuance of Part II of Schedule VI of the Companys Act 1956 pertaining to disclosure of quantitative details of items traded are not given d) a. b. Audit Fees Other Services Auditors Remuneration (Inclusive of Service Tax) charged in the Accounts: Rs.66,180 /-(P. Y. Rs 22,472) Rs.11,030 /-(P. Y. Rs 11,236)

AS PER OUR REPORT OF EVEN DATE For M. A. Shah & Co. Ltd. Chartered Accountants For M/s. Pragati Fashions (P)

Mayur Makadia Partner Director Place: Mumbai Date: 9th September,2009 Director

M/S. PRAGATI FASHIONS PRIVATE LIMITED

Statement pursuant to Part-IV of ScheduleVI to the Companies Act, 1956 Balance Sheet Abstract and Companys General Business Profile:

I.

Registration Details: Registration No. State Code Balance Sheet Date 11-84480 11 31.03.2009

II.

Capital raised During the Year Public Issue Right Issue Bonus Issue Private Placement NIL NIL NIL NIL

III.

Position of Mobilisation and Development of Funds (Amount in Rs.000) Total Liabilities Total Assets 134339 134339

Source of Funds Paid up Capital Reserves and Surplus Secured Loans Unsecured Loans 10 000 7057 63794 53344

Application of Funds Net Fixed Assets Investments Net Current Assets 3218 100 130893

Misc. Expenditure Accumulated Losses

127 NIL

IV.

Performance of Company Turnover Total Expenditure Profit Before Tax Profit After Tax Earning Per Share Rs. Dividend (%) 489999 63575 7687 5096 50.96 -

V.

Generic Names of Three Principal Products/Services of Company (as per monetary terms) Item Code No. (ITC Code) Product Description Kurtis, jeans, tops & westerns Outfits.