(ii) In the previous year 2007 - 2008 the Company has prepared the financial statements for the 15 months unlikely the financial statements prepared in the earlier years. However, the change in accounting policy has not affected materially to the financial statements of the Company. Further, the results for both the financial years i.e., ended as at 31.03.2008 and 31.12.2006 are not comparable.

(iii) Due to poor financial position of the Company and other related factors, the company was not been able to repay the amounts due in respect of term loans as well as working capital loans & overdrafts obtained from Scheduled Banks & other Financial Institutions as a result of which whole of the Fixed Assets has been acquired by the IFCI Ltd vide panchnama dated 13.03.2008.

(iv) During the year company has credited the profit and loss account with the total amount of Rs.6452 thousand as prior period items on account of following error/omission incurred in the previous year:

i. Rs.6226 thousand on account of Service tax liability created in the earlier year as prior period adjustment on account of non interpretation of law.

ii. Rs. 226 thousand on account of commission charges created in the provision

(v) Depreciation on Fixed Assets has been charged on Straight line method basis upto 13.03.2008 as whole of the Fixed Assets has been compulsory acquired by the IFCI Ltd as a result of non payment of dues.

(vi) No provision for taxation has been made in the annexed accounts, as there is no liability in respect of the same. The company has not adopted AS-22 "Accounting for Taxes on Income" issued by the ICAI as the company has carried forward business losses & unabsorbed depreciation from previous years and according to the information & explanations given by the management of the company there is no certainty as to whether in future the company will be able to generate profits. Therefore following the concept of prudence & virtual certainty as envisaged by the aforesaid AS-22, provisions for DTA/DTL have not been made in the annexed accounts.

(vii) Due to overall sluggish market conditions, poor financial position of the Company and various other factors, it has not been able to repay term loans as well as working capital loans & overdrafts obtained from scheduled banks & Financial Institutions as per the repayment schedule. The management has dispensed the provision of providing interest, interest on interest, overdue interest, penal interest and liquidated damages on Term loan and all the working capital loans from all the Scheduled Banks/Financial Institutions the aggregate amount has not been ascertained. As in the opinion of management providing such huge amount of interest, which is merely based on management estimation in the absence of non-availability of any documentary evidences to support the amount, is not relevant at this stage.

(viii) Company has not deposited the statutory dues towards employer provident fund, employee state insurance, Central Sales Tax (incl of 7027 thousand and 3625 thousand.)

(ix) During the period covered under audit the company had adjusted security deposits made with Madhya Pradesh electricity board of Rs 8678 thousands on account of electricity dues.

As per the information available with the company none of the creditors have confirmed that they are registered under the Micro and Small Enterprises Development Act, 2006.

(x) INVESTMENTS

(a) The instruments are held in the name of Company except to the extent exempt under section 49 of the Companies Act, 1956.

(b) Investments held are fully paid-up unless otherwise stated.

(c) Aggregate Book value of Investments as at the year-end is 16456.12 thousand (Previous Year 266 thousand). Market value of quoted investments (to the extent stock exchanges quotations are available) is Rs. 1.40 thousands (previous year Rs. 59.44 thousand). The aggregate book value of unquoted investment is 16454.72 thousand (Previous Year 204.66 thousand).

(xi) Sundry debtors, Loans and advances, creditors, balance in Current Account, Packing Credit Account with banks and Rupee Term Loan Accounts with Financial Institutions / Banks are subject to confirmation and reconciliation with respective Parties / Banks/ Financial Institutions.

(xii) As per the information and explanations given to us by the management of the company, the unpaid/unclaimed dividend lying idle in UCO Bank account for Rs.892 thousands has not been transferred to the general revenue account of the Central Government in accordance with the provisions of section 205-A of the Companies Act, 1956 because of the following reasons:

(a) No intimation for transfer of the amount by UCO bank has ever been received by the company.

(b) Despite being repeated efforts made by the company to collect information regarding these accounts, no information . has been received by the company so that the legal requirements regarding the transfer of the amount could have been complied with.

The management has filed an application with UCO Bank under the Right to Information Act, 2005 to collect the reconciliation statement in order to ascertain exactly how much amount is remaining after settling the claims of shareholders that has to be transferred u/s 205-A of the Companies Act, 1956.

(xiii) Contingent Liabilities not provided for        Year ended as on
                                                       31st March 2008

A total demand of Rs. 1698 thousand for excise duty & penalty in 1698 thousand relation to the waste sales without payment of appropriate duty was earlier pending before the Honorable supreme court which during the year referred back to CESTAT for re-consideration by the honorable apex court. Based on recent judicial pronouncements, the Companys claim is likely to be accepted by appellate authorities.

A total amount of Rs. 13699 thousand is pending before different 13699 thousand appellate Authorities under M.RCommercial Act, 1994 in different stages. Based on recent Judicial pronouncements, the Companys claim is likely to be accepted by Appellate authorities.

The Company has filled an appeal with Commissioner of Income Tax 90000 thousand (Appeal) for the assessment year 2003 - 2004 which involves an amount of Rs. 90000 thousand.

The company has filed appeal to CESTAT against order of Commissioner 1851 thousand (Appeals), Customs & Central Excise, Indore ordering payment of Import Duty of Rs. 1851 thousand for the Tata Murata Auto Corner, Other Contingent Liabilities not provided for Include:

(a) Excise Duty (On account of excess OTA removal) for Rs. 2090 thousands.

(b) Custom/Excise Duty (On account of removal of Diesel Generator sets) for Rs. 2494 thousands.

(c) Excise Duty demanded through SCN on account of search & seizure took place at both Plant & Head office- Excise duty on Polyester Yarn for Rs. 32300 thousands

Excise duty on Cotton Yarn for Rs.18565 thousands

Excise duty on DTA sales for Rs. 25428 thousands

Excise duty for charging lower rate of duty for Rs. 1259 thousands

Excise duty on account of foregoing duty on PSF for Rs.1240 thousands

Custom Duty on account of foregoing duty on HSD/LDO Import for Rs.9122 thousands.

(d) The Asst.Commissioner Commercial, Gwalior in his order dated 29th January 2007, has imposed demand of sales tax inclusive of interest & penalty on the company for an amount of Rs. 15635 thousands.

(e) A demand of Rs. 6356 thousands had been raised by the electricity department, Gwalior as Electricity duty chargeable on production of electricity generated through Diesel generator in earlier period. However the management of the company considers it contingent that since the company is a sick company and the application is already pending in AAIFR for its final decision, than only the exact liability will be known.

However in the opinion of the management all the above-mentioned liabilities are contingent in nature, as company will contest the demand by filing appeals to the respective departments.

In view of the above the same have not been considered in the financial results up to the reporting period.

(xiv)Security Deposit worth Rs. 13,793 thousand standing with MPSEB (Madhya Pradesh State Electricity Board) on account of Electricity has been adjusted with the Dues for the Electricity Expenses for the years.

(xv) Segment Reporting

Since the company primarily operates in,one segment-Cotton & Polyester Staple Fibre (PSF). Segment reporting as required under AS-17 "Segment Reporting" issued by the ICAI is not applicable to the company.

(xvi) The Company still this year has consumption of 5.45 electricity unit per kg. of yarn production. As compared to the industry average of 4 unit per kg. of yarn production. The same is due to low productivity.

(xvii) The Company had filed a reference with the Honorable Board for Industrial & Financial Reconstruction (BIFR) on 2nd January 2001 The same was accepted by the Honorable BIFR vide case no. 30/2001 on 12th January 2001 The Honorable BIFR vide its order dated 18th August 2005 ordered for the winding up of the Company. Being aggrieved by this order the Company went into appeal with Honorable Appellate Authority for Industrial & Financial Reconstruction (AAIFR) on 4th October 2005 and the same was admitted by the AAIFR vide appeal no. 115/2005.The reference made by the Company has been abated by the AAIFR in its last hearing held in the Month of May 2007.

In calculating EPS, No.of shares used are 18705956 which have been arrived at after deducting 16044 equity shares (relating to calls in arrears of Rs. 160442 divided by Rs. 10 face value per share) from the originally issued 18722000 shares.

(xviii) Trading of the shares of the company has been suspended by the Bombay Stock Exchange w.e.f 18th February 2002.The company had filed an application for the revocation of suspension of trading of securities of the company on which final decision of the BSE is still pending till the date of this report.

The company has also applied for the de-listing of its securities vide resolution passed by the shareholders in the AGM held as on 13th June 2006 as in the opinion of management since the company is a sick industrial company getting the securities listed on more than one stock exchange is a financial burden to the company. However no de-listing order has yet been received by the company.