APS-STAR Industries Limited (the Company) was incorporated in India on September 24, 1957. Subsequent to the acquisition by amalgamation of the erstwhile Star Industrial & Textile Enterprises (SITEL), the Company's units are located at Baroda, Dharwad, Dombivli and Nasik. The Company is principally engaged in manufacturing textile machinery drafting system components like top Arms, Top Rollers, Spindles, Inserts, Cradles and Spindles for ring frames, twisters, doublers and Spindle-Inserts, Antifriction Jockey Pulleys, High Drafting Equipments, modernisation equipments for Ring and Speed Frames for cotton and worsted spinning, high temperature high pressure Jet Dyeing machines, Rotary and Flatbed Screen printing machines and Screens and Nickel Perforated Screens, together with antifriction assemblies for water pumps for automobiles. The operations of the Dombivli unit of the company has suspended as from 1st March 1996 due to liquidity crunch/non release of working capital funds by the banks in accordance with the approved BIFR amalgamation scheme for SITEL of the Board for Industrial and Financial Reconstruction (BIFR).

(i) Secured by hypothecation by way of first charge over all tangible movable plant & machinery both present and future and joint equitable mortgage on all tangible, immovable properties at Baroda, both present and future.

(ii) Secured by way of second charge on immovable properties at Dharwad.

(iii) Secured by hypothecation by way of first charge over all tangible movable assets including inventories, both present and future and book debts and second charge on tangible immovable properties at Baroda, both present and future. Moreover also collaterally secured by way of second charge on immovable properties at Dharwad.

(iv) Secured by hypothecation by way of first charge of present and future inventories, book debts and movable assets; and joint equitable mortgage of tangible immovable properties at Baroda, both present and future and first charge on certain specific assets, also collaterally secured by way of second charge of immovable properties at Dharwad.

(v) Secured by extension of all book debts and joint equitable mortgage of tangible immovable properties at Baroda, both present and future and also collaterally secured by way of second charge on the immovable properties at Dharwad.

(vi) Secured by a first charge by way of hypothecation of company movable assets including fixed plant and machinery at Dharwad and also guaranteed by some directors.

(vii) Secured by hypothecation of specific assets whether fixed or movable at Dharwad and first charge on the immovable properties of the company at Dharwad.

(viii) Loans from the banks and institutions viz. Bank of Baroda, Canara Bank, Syndicate Bank and IDBI, ICICI, IRBI, LIC for Dombivli and Nasik units are secured by first charge on the assets at Dombivli.

(i) Leasehold land includes -

(a) Land at Dharwad, Rs. 6,573 acquired under a sub-lease cum sale agreement from a partnership firm in which Directors are partners.

The lease period was 10 years from January 19, 1982 at the end of which period the property would have passed to the company.

However, pursuant to the disposal of the appeal by the High Court of Karnataka in favour of the plaintiffs, the sale deed is expected to be executed shortly. The necessary provision for the increased rate of compensation solatium amounting Rs. 4,778 has been made and is included in the above amount.

(b) Land leased from the Gujarat Industrial Development Corporation (GIDC) Rs. 224 on a 99 year lease commencing February 15, 1974. In 1980 GIDc issued a `showcause notice on the company for eviction for not utilising land. The company has applied to GIDC for fixing a hearing in this regard. No reply has been received from GIDC.

(ii) Plant & machinery includes machinery acquired under the finance lease Rs. 270,924 and under hire purchase agreement Rs. 40,105. Motor vehicles include Rs. 1,298 for vehicles acquired under hire purchase agreements and Rs. 1,473 under finance lease office equipment includes Rs. 3,300 under finance leases. The property acquired under hire purchase agreements shall pass to the company at the end of the respective terms.

Subsequent to 30th June `96 the machines and equipments, the original cost of which is aggregating to Rs.45939 have been repossesed by three leasing companies on account of failure of payment of lease instalments and charges by the Company.

(iii) Plant & machinery include machinery costing Rs. 187 installed on the premises of the subsidiary SOGTM to enable job work to be carried out for the company and Rs. 694 lent to SOGTM and Rs. 112 installed at M/s. Star Spin & Twist Machineries Ltd.'s premises for product development work.

(iv) Buildings include Rs. 260 being the cost of property which includes the amount paid for shares to be acquired in the intended co-operative society.

(vi) During the year the company has disposed off its R&D plant for Rs. 11,000 subject to NOC u/s 230A from the Income Tax department and the proceeds are being utilised for the rehabilitation of the amalgamated units.

(a) 1) The shares in SOGTM of Rs. 10,500 have been pledged with a bank as security for a loan given by that bank to SOGTM. Upon an order passed by BIFR for winding up of SOGTM, an appeal has been filed with the appellate authority by the said company. In view of the market value of realisable fixed assets including the land of the said company which would cover all its liabilities, no provision for any reduction in the value of investments is envisaged.

StarWorld Technologies & Trade Ltd. (SWTT-UK) and its wholly owned subsidiary, Star-World,USA Inc; (SW-USA)

2) The Company has set up a wholly owned subsidiary (WOS) under the name of StarWorld-Technologies & Trade Ltd. (SWTT) registered in England with a total capital of 2 million US$ to be contributed by way of cash remittance of US$ 500,000 and supplies for 1,5,000,000. The requisite approval from Government of India/Reserve Bank of India had been obtained. The WOS was specifically incorporated to promote and market world wide the products of our Company and associates to provide after sales service. For the U.S market, APS had however already earlier set up firstly its representative office and which later was converted into APS branch. However, in the course of time in the context of the potential customers of the textile industry of USA, prevailing upon us for the formation of a US Company, as this has been a usual practice and also to avail of the other advantages of being an American entity as well as to inspire confidence in the American customers, it was decided that SWTT-UK incorporate its own subsidiary, SW-USA. Thus as from 3rd July, 1995 SW-USA came into existence.

Consequent to the above, APS-Star branch is not in operation in USA as of 30th June 1995. Also on incorporation of SW-USA, the closing stock and other assets of APS-USA was taken over by SW-USA

The first Accounting year of SW-USA ends as on 31-12-1996 and its accounts as provided under the accounting year are in the process of being consolidated with those of SWTT-UK as per the accounting practice of UK. The accounts of APS's subsidiary SWTT- UK are currently under finalisation being subject to UK audit. We are informed that the consolidated accounts of SWTT-UK would be ready within the course of the next three months. They would be presented to the Board in due course.

APS-Star held 3,13,605 Equity shares of 1 Pound each fully paid in SWTT-UK as at 31-12-95 which is 99.99% of the Equity Capital. It held 3,18,608 Equity shares of 1 Pound each fully paid in SWTT-UK as at 30th June, 1996 which is 99.99% of the Equity Capital.

APS-Star have no direct investment in SW-USA, but SWT-UK is holding 34,785 Equity shares of US $ 1.00 each fully paid in SW-USA as at 31-12-1995 as well as 30th June, 1996 which is 100% of its Equity Capital.

SWTT-UK was specifically incorporated in order to promote the exports of APS-Star to the OEM's of the textile machinery in Europe. Accordingly the sole selling agency was given to M/s. GTT in Germany which was valid upto 1998 was prematurely terminated after negotiation with GTT.

Investments are recorded at cost.

(21) The Income Tax assessments have been completed up to assessment year 1993-94. The company does not expect any liability in respect of Income Tax for incomplete assessments in view of carry forward losses. Subsequent to 30-06-96 the Assessing Officer has passed order u/s.271B levying penalty of Rs.100 for A.Y.1995-96 and have issued notice asking the Company to make good the deficiency for A.Y.1995- 96 u/s.44B for A.Y.1996-97. The Company is preferring an appeal against the order passed and is in the process of complying the notice.

(22) Regarding acquisition of property of the amalgamating company at Fergusson Road, Lower Parel, Mumbai, in 1972, consent order has been passed by the Bombay High Court awarding a sum of Rs. 81,100 as additional compensation under the provisions of the amended Land Acquisition Act, 1984, subject to the bank guarantee furnished by the company.

As per the judgment passed by the Bombay High Court, the said guarantee has already expired and Government of Maharashtra has no claim against the same. Since the State Government has also moved the Supreme Court in the light of this judgment passed by the High Court.

The company has been legally advised that the bank guarantee is no more valid and the margin held by the bank against the same therefore should be released immediately. Accordingly, after persistent follow up by the company with the Banks, Bank of Baroda has released 50% of the margin money held and adjusted against Cash Credit account, while the balance 50% with the other two Banks viz. Canara Bank & Syndicate Bank is pending release.

(23) The figures for the previous year have been rearranged and regrouped wherever necessary. The previous period figures are for a period of 15 months