The Shareholders,
 
 We submit the Fifty-ninth Annual Report and Statement of Accounts for
 the period ended 31st May, 2000.
 
 In order to ensure that benefits of the first phase of the
 restructuring proposals are available to the Company within a financial
 year, the financial year of the Company has been extended upto 31st
 May, 2000.
 
 FINANCIAL RESULTS
 
                                                         (Rs. in million)
 
 Gross Profit/(Loss)                                       (269.722)
 
 Less : Depreciation                                         29.502
 
                                                           (299.224)
 
 Add : Transfer from Investment Allowance Reserve             1.654
 
 Transfer from Revaluation Reserve                            8.056
 
 Profit/(Loss) for the year                                (289.514)
 
 Add : Profit/(Loss) of the previous year                   (64.755)
 
 Loss carried to Balance Sheet                             (354.269)
 
 OPERATIONS
 
 During the period under report, sales of the Company were Rs.855.56
 million as compared to the sales of Rs.1146.50 million for the previous
 year.
 
 Apart from continuing severe recession in the market, due to poor off
 take by 600 Lathes Limited, U.K., sales at Harihar was affected very
 badly. Further due to shifting of operations from Hubli Unit to
 Harihar, there has been complete loss of production for a period of 8
 months at Hubli. Hence, sales of the Company for the period under
 report has been reduced.
 
 Market conditions has still not improved. Performance of key sectors
 like automobiles, engineering has been severely affected and the
 overall indicators are that it will take some more time before the
 economy turns around. However the Company is putting all its efforts
 to improve the order book position and also the sales.
 
 In view of the current economic circumstances, in order to ensure the
 viability and improvement in the operational efficiency and also
 improve profits in the years to come, the Company has already taken
 steps to completely restructure its operations. The Company will be
 implementing further restructuring proposals.
 
 As a part of restructuring plan, the operations of the Company at its
 Hubli Unit has been transferred to Harihar with effect from 26th
 January, 2000. In the process, out of 591 employees at Hubli Unit, 457
 employees have opted for Voluntary Retirement Scheme and 134 employees
 have opted for transfer to Harihar. Shifting of machines from Hubli to
 Harihar has been completed successfully and production of the products
 manufactured at the erstwhile Hubli Unit has been stabilised at Harihar
 with the existing man power. This has also helped the Company to
 centralise all its operations in one place.
 
 In order to concentrate in core areas of business of the Company, it
 has been decided to discontinue the operations of Medical Equipment
 Division of the Company with effect from 16th June, 2000.
 
 The Auditors of the Company have made some remarks in their Report
 regarding non-payment of statutory dues by the Company on time. Due to
 the prevailing difficult market conditions and the losses incurred by
 the Company, financial position of the Company has come under severe
 strain. Hence, the Company was not in a position to pay statutory dues
 on time. However, the Company has been requesting concerned statutory
 authorities to grant some more time such that the Company can clear the
 statutory dues as early as possible.
 
 BIFR STATUS
 
 On the basis of the audited financial results for the period ended 31st
 May, 2000, your Company became a sick industrial company within the
 meaning of Section 3(1)(o) of the Sick Industrial Companies (Special
 Provisions) Act, 1985. In terms of the proviso to Section 15(1) of the
 said Act, the Board of Directors, at their meeting held on 6th October,
 2000, had formed an opinion, that your Company had become a Sick
 Company.  Accordingly, a reference to the Board for Industrial and
 Financial Reconstruction (BIFR) has been made by the Company.
 
 EXPORTS
 
 Exports during the period under report is Rs. 120.21 million as
 compared to Rs.159.97 million during the previous year. The lower
 exports is mainly attributable to the poor off take by 600 Lathes
 Limited, U.K.
 
 DIVIDEND
 
 In view of the loss incurred during the period, the Directors regret
 their inability to recommend dividend.
 
 DISPOSAL OF FIXED ASSETS
 
 Lands, admeasuring 57 Acres and 5 Guntas, together with buildings
 thereon, situated at Unit II and Unit III of your Company at Sattur
 Village, Dharwad District, which were lying un-utilised, have been
 disposed of on 7th January. 2000.
 
 INCREASE IN AUTHORISED SHARE CAPITAL
 
 At the Extraordinary General Meeting of the Company held on 6th June,
 2000, the Authorised Capital of the Company was increased from Rs.190
 million to Rs.250 million. Now the Authorised Capital is comprised of
 14,000,000 Equity Shares of Rs.10/- each and 11,000,000 Preference
 Shares of Rs.10/- each.
 
 DIRECTORS
 
 Dr. C. A. Phalnikar resigned as the Chairman and also as a Director of
 the Company with effect from 28th July, 1999. The Directors place on
 record their appreciation of the valuable services rendered to the
 Company by Dr. C. A. Phalnikar.
 
 Consequent upon the resignation of Dr. C. A. Phalnikar, Sri Vikram S.
 Kirloskar, Vice Chairman & Managing Director, was appointed as the
 Chairman of the Company and also of the Board of Directors with effect
 from 28th July, 1999.
 
 Subsequently, Sri Vikram S. Kirloskar resigned as the Managing Director
 of the Company with effect from 6th October, 2000, but continues to be
 the Chairman of the Board of Directors and also of the Company.
 Consequent upon his resignation as the Managing Director, Sri Vikram S.
 Kirloskar is liable to retire by rotation. Hence, he retires by
 rotation at the ensuing Annual General Meeting and being eligible
 offers himself for reappointment.
 
 To ensure full time attention to the affairs of the Company, at the
 Board Meeting held on 6th October, 2000, Sri Sham S. Kirloskar has been
 appointed as an Additional Director and also the Managing Director of
 the Company with effect from 6th October, 2000.
 
 Sri Sham S. Kirloskar vacates his office as an Additional Director at
 this meeting. A notice has been received from a member of the Company
 notifying his intention to propose the candidature of Sri Sham S.
 Kirloskar as a Director. Necessary Resolution has been proposed seeking
 Members' approval for the appointment of Sri Sham S. Kirloskar as a
 Director of the Company.
 
 The nomination of Sri V. S. V. Ramana, representing Life Insurance
 Corporation of India, has been withdrawn and in his place Sri V.
 Ramanan has been nominated with effect from 28th October, 1999. The
 nomination of Sri G. V. Nageswara Rao, representing Industrial
 Development Bank of India, has been withdrawn and in his place nobody
 has been nominated. The Directors place on record their appreciation of
 the valuable services rendered to the Company by Sri V. S. V. Ramana
 and Sri G. V. Nageswara Rao.
 
 Three of the Directors of the Company, namely, Sri Pratap Bhogilal, Sri
 Atul C. Kirloskar and Sri K.J.George retire by rotation at the ensuing
 Annual General Meeting and being eligible offer themselves for
 reappointment.
 
 SUBSIDIARY
 
 Financial Year of the subsidiary. Precision Tooling Systems Limited,
 has been extended upto 31st May, 2000.  During the said period, your
 subsidiary has incurred a loss of Rs.21.14 million as against a loss of
 Rs.10.43 million for the previous year. In view of the loss incurred
 during the period, it could not declare any dividend.
 
 PARTICULARS OF EMPLOYEES
 
 In accordance with the provisions of Section 217(2A) of the Companies
 Act, 1956 read with the Companies (Particulars of Employees) Rules,
 1975 as amended, the particulars of employees covered under these rules
 are annexed forming part of the Report.
 
 CONSERVATION OF ENERGY
 
 In order to conserve and minimise power utilisation at foundry, steps
 have been taken to avoid warm holding of molten metal in the furnace
 and also running of compressors at prescribed timings. There are
 further proposals which include reduction of wastage of liquid metal in
 the form of spillages. With these energy conservation measures, there
 will be improvement in the yield.
 
 RESEARCH & DEVELOPMENT
 
 In order to cater to the change in customer preference and also to suit
 current market conditions, new products have been developed for
 machining heavy engineering components, mass production lines and also
 high speed auto components. Development of these new products will
 result in reduced floor areas of machines, reduction in capital
 investment at customer's end, improvement in productivity and reduced
 operator dependability and fatigue.
 
 In Foundry, improvements have been made for reduction in machining
 allowances such that product accuracy could be maintained at the
 customer's end while reducing metal consumption at Company's end.  This
 has also resulted in lower rejection at customer end.
 
 The Company has incurred recurring expenditure of Rs.30.605 million
 towards R & D and there has been no capital expenditure. The total
 expenditure towards R & D is 3.58% of the turnover of the Company.
 
 TECHNOLOGY ABSORPTION
 
 No technology has been imported during the period under report and the
 technology which were imported in the previous years were fully
 absorbed and assimilated.
 
 FOREIGN EXCHANGE EARNINGS & OUTGO
 
 Foreign exchange earnings & outgo is Rs.149.72 million and Rs.75.58
 million respectively.
 
 CONTRIBUTION TO EXCHEQUER
 
 During the period under report, the Company has contributed a sum of
 Rs.221.94 million to the exchequer by way of Excise Duty, Customs Duty,
 Sales Tax and various other taxes.
 
 AUDITORS                                                    ;
 
 The Company's accounts have been audited by Messrs. S. R. Mandre & Co.,
 Chartered Accountants, Bangalore, and Messrs. R G. Bhagwat, Chartered
 Accountants, Mumbai, who will hold office till the conclusion of the
 ensuing Annual General Meeting and are eligible for reappointment.