We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.An audit includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statement. An audit also includes accessing the accounting principals used and significant estimates made by the management as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion and report that:-

1. As required by the Manufacturing and Other Companies (Auditors Report) order, 1988 issued by Government of India in terms of sub section (4A) of section 227 of the Companies Act, 1958, we enclose in the Annexure-I, a statement on the matters specified in paragraph 4 & 5 of the said order.

2. Our observations on the statement of accounts referred to above, are given in Annexure II to this report.

3. Further to our comments in the Annexure I & II referred to above we state that:

(i) we have obtained all the information and explanations, which to the best of our knowledge and behalf were necessary for the purpose of our audit;

(ii) In our opinion, proper books of accounts as required by law have been kept by the company so far as it appears from our examination of such books;

(iii) The Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of accounts;

(iv) In our opinion the Balance Sheet and Profit and Loss account dealt with by this report comply with the Accounting Standards referred to in sub section (3C) of section 211 of the Companies Act, 1956;

(v) On basis of written representation received from the Directors as on 31st March 2002, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March 2002 from being appointed as a director in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information and according to the explanations given to us, the said Balance Sheet and Profit & Loss account read together with the Significant Accounting Policies and Notes on Accounts as referred in schedule-15 thereto and further subject to our observation in Annexure I and II of this report, 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:-

a) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March 2002; and

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

                                                     FOR S.BHANDARI&CO.
                                                  CHARTERED ACCOUNTANTS

Place: Bhiwadi                                             (P. D. BAID)
Date: 25th June, 2002.                                          PARTNER

REFERRED TO IN PARA 1 OF OUR REPORT OF EVEN DATE (OF M/S FILAMENTS INDIA LIMITED FOR THE YEAR 2001-2002)

1. The company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets. Current Years additions are still to be recorded in Fixed Assets Register. As explained to us, Fixed Assets of the company are physically verified according to a phased program designed to cover all items over a period of three years which, in our opinion, is reasonable. Pursuant to the program, physical verification of the Fixed Assets was carried out during the year by the management and discrepancies noticed were not material.

2. None of the Fixed Assets have been revalued during the year.

3. As explained to us, physical verification of stocks of Finished Goods, Stores, Spares and Raw Materials at all its locations was conducted by the management at reasonable intervals.

4. 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 6 reasonable and adequate in relation to the size of the Company and nature of its business.

5. The discrepancies noticed on verification of stocks as compared to book records were not material and have been properly dealt with in the books of accounts.

6. In our opinion the valuation of stocks of Finished Goods, Stores and Spares and Raw Materials has been fair and proper and is in accordance with the normally accepted accounting principles. The valuation is on the same basis as in the previous year.

7. In our opinion, the rate of interest and other terms & conditions on which unsecured loans have been taken from the Companies, firms or other parties listed in the Register maintained u/s 301 of the Companies Act, 1956 and from the Companies under the same Management as defined under sub-section (1B) of Section 370 of the Companies Act, 1956, are not prima facie prejudicial to the interest of the company.

8. As per information and explanations given to us, the rate of interest and other terms & conditions, on which unsecured loans have been given to Companies, firms or other parties listed in the Register maintained u/s 301 and to the Companies under the same management as defined under sub-section (1B) of Section 370 of the Companies Act, 1956, are not prima-facie prejudicial to the interest of the company.

9. The parties and employees to whom the loans or advances in nature of loans have been given with or without interest are generally paying principal and interest as per stipulations.

10. In our opinion and according to the information and explanations given to us, the internal control procedures over purchases of Stores, Raw Materials, including Components, Plant & Machinery, Equipment and other assets should be further strengthened. 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 the sale of goods.

11. In our opinion & according to the information and explanations given to us, where transactions have been made for sale of goods, material & services in pursuance of contracts and arrangements required to be entered in the Register maintained u/s 301 of the Companies Act, 1956, as aggregating during the year to Rs.50,000/- or more in respect of each party, same have been made at prices which are reasonable having regard to the prevailing market prices for such goods, material or services where such market prices are available or prices at which transactions for similar goods or materials have been made with other parties. However, no transactions of purchase of goods and materials from such parties aggregating to Rs.50,000/- or more in respect of each party has been made.

12. As explained to us, the Company has procedure for the determination of unserviceable or damaged stores, raw materials and finished goods. Adequate provisions have been made in the Accounts for the loss arising and the items so determined.

13. As per information and explanations given to us, the Company has not accepted any deposits from public and consequently the provisions of Section 58A of the Companies Act, 1956, and the Companies (Acceptance of Deposits) Rules, 1975 are not applicable.

14. In our opinion, reasonable records have been maintained by the Company for the sale and disposal of realisable scraps and waste. As explained to us, the Companys operations do not generate any by-products.

15. In our opinion, the Company has an Internal Audit System commensurate with the size and nature of its business.

16. As explained to us, the Central Government has not prescribed for maintenance of cost records under Section 209(1) (d) of the Companies Act, 1956, hence, this clause is not applicable.

17. The Company has been generally regular in depositing the Provident Fund and Employees State Insurance dues with the appropriate authorities.

18. According to the information and explanations given to us, no undisputed amounts payable in respect of Income Tax, Wealth Tax, Sales Tax, Customs Duty and Excise Duty were outstanding as at 31st March 2002 for a period of more than six months from the date they become payable.

19. According to the information and explanations given to us, no personal expenses including Employees or Directors have been charged to Revenue Account, other than those payable under the contractual obligations or in accordance with generally accepted business practice.

20. The Company is not sick industrial company within the meaning of Clause (o) of the Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985.

21. Damaged goods, if any, has been determined and adequate provision has been made in the accounts for the items so determined.

22. In respect of Service Activities:

a) The company has a reasonable system of recording receipts, issues and consumption of material and stores for job work.

b) The system of allocating man-hour utilized to the relative job is not yet formalized.

c) There is a proper system of authorisation at proper level and an adequate system of internal control commensurate with the size of the Company and the nature of its business, on issue and allocation of stores to job.

                                                    FOR S.BHANDARI & CO
                                                  Chartered Accountants

Place: Bhiwadi                                               (P.D.BAID)
Dated: 25th June, 2002.                                         PARTNER

REFERRED TO IN PARA 2 OF OUR REPORT OF EVEN DATE (OF M/S FILAMENTS INDIA LIMITED FOR THE YEAR 2001-2002)

Our report is subject to significant accounting policies and notes on the statement of accounts as contained in Schedule 15 and more specifically referred hereunder:

(i) Balances of Sundry Debtors, Sundry Creditors and Loan & Advances are subject to confirmation and reconciliation. [Para 2 (vl)]

(ii) Flats purchased at Calcutta for Rs 8.49 lacs is yet to be registered in the name of company. [(Para 2 (xiv)]

(iii) No segregation of amount payable to SSI suppliers and also bifurcation in 30 days and more than 30 days of the same has been done and also no provision for interest due, if any, as per "The Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking Act, 1993" has been made. [(Para 2 (iv)]

In absence of complete detail, quantum of above and impact of the same on loss could not be ascertained.

(iv) Due to Insufficient reserves and losses, the company has not provided for the Deferred Tax Liability (Net) amounting to Rs 54.72 lacs as on 31.3.2001 and Rs.16.83 lacs as on 31.3.2002 In terms of Accounting Standard (A.S.)-22 on `Accounting for Taxes on Income Issued by the Institute of Chartered Accountants of lndla. [Para 2 (xii)]

                                                    FOR S.BHANDARI & CO
                                                  Chartered Accountants

Place: Bhiwadi                                               (P.D.BAID)
Dated: 25th June, 2002.                                         PARTNER