(1) BACKGROUND
 
 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.