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KOHINOOR LOOMS LIMITED

8TH ANNUAL REPORT 1997

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

1. Mian M.JAVAID SAIGOL

Chairman & Chief Executive

2. Mrs. KATHLEEN MEGAN SAIGOL

3. Miss. MEHREEN SAIGOL

4. Mrs. TARFA SAIGOL

5. Miss. LINA SAIGOL

6. Mr. A. SALEEM GHAURI

7. Mr. KHALID MAHMOOD SHEIKH

8. Mr. TASLIM HAlDER

Nominee Director NDFC

SECRETARY

Mr. A. Saleem Ghauri

AUDITORS

M/S S.M.MASOOD & CO.,

Chartered Accountants

LEGAL ADVISOR

Mr. SHAHID MAQBOOL SHEIKH

BANKERS

1. ALLIED BANK OF PAKISTAN LIMITED

2. MUSLIM COMMERCIAL BANK LIMITED

3. NATIONAL DEVELOPMENT FINANCE CORPORATION

4. DEUTSCHE BANK

5. NATIONAL BANK OF PAKISTAN

6. HABIB BANK LIMITED

7. STANDARD CHARTERED BANK

REGISTERED OFFICE

111-E/6 MODEL TOWN, LAHORE

TEL: 5867368, 5867085

TEI,EX: 47685 KLLTD PK

FAX: 5835590

MILLS

8 K.M MANGA RAIWIND ROAD,

MAUZA ROSA BHAIL

TEH & DISTT KASUR

TEL: (04951) 383699 - 700.

NOTICE AND AGENDA OF ANNUAL GENERAL MEETING

Notice is hereby given that the 8th Annual General Meeting of the members of Kohinoor Looms Limited

will be held on Thursday the April 30, 1998 at 11:00 AM at the Registered Office of the Company at

111/E-6, Model Town, Lahore to transact the following business.

1. To confirm the minutes of the 7th Annual General Meeting of the Members held on

Saturday May 31, 1997.

2. To receive and adopt the audited accounts of the Company for the year ended

September 30, 1997 comprising Balance Sheet, Profit & Loss Account and the Reports of the

Auditors and Directors thereon.

3. To appoint Auditors and fix their remuneration.

4. Any other matter with the permission of the Chairman.

NOTES:

i) The Share Transfer Books of the Company will remain closed from 23-04-1998 to

30-04-1998 (both days inclusive). Transfers received in order on the close of business on

April 22, 1998 will be in time for the purpose of effecting voting rights.

ii) A member entitled to attend and vote at the meeting may appoint another member as

his/her proxy to attend and vote. Votes may be given either personally or by proxy or by

attorney and in case of a corporation by a representative duly authorized. The form of

Proxy duly completed should reach the Registered Office of the Company at least 48

hours before the time of meeting. The signature on the form of proxy should tally with the

signature on the record of the company.

iii) The share holders are requested to notify the Company of the change in their address, if

any.

DIRECTORS' REPORT

On behalf of the Board of Directors I feel pleasure to welcome you to the 8th Annual General Meeting and

present to you the audited accounts together with Auditors Report thereon for the year ended

30-09-1997.

OPERATION

During the year under review your company after providing for all operational expenses including

depreciation of Rs.23,650,737 and after charging heavy financial expenses of Rs.71,880,330 made

operating loss of Rs.14,754,746 (1996: Rs.26,070,431). The continued international recession in the

Textile Industry and increase in costs of other in puts made the circumstances more difficult to cope with.

FUTURE OUT LOOK

There are signs of improvement in the market in the near future with new package declared by the

Government. The Company has started its production on conversion basis which is more feasible in the

current situation. In this manner the company will be in a position to re-pay loans of the banks

Due to delay in disbursement of loan by NDFC, L/Cs could not be established in time and hence there

has been considerable increase in the cost of civil works, Pre-operating expenses, interest, Plant &

Machinery due to~urrency fluctuation and escalation of rates. Due to these factors rescheduling of loan

was requested to NDFC from time to time which was always deferred by them, therefore we had no

option but to file a suit of Rs.381 million as damages against non completion of their commitment to meet

the agreed terms of loan. Afterwards NDFC also filed a counter suit against the company for winding up

and got an order passed from the Honourable Lahore High Court dated 03-11-1997 that the company

may be wound up on a motion by NDFC. The Company filed an appeal in the Honourable Supreme Court

and the Court has stayed the judgement of the Honourable Lahore High Court.

As per State Bank of Pakistan circular, the Committee was set up for the revival of sick units by the

Chamber of Commerce and Industry Karachi. We got the feasibility prepared by the approved

Consultants of the State Bank of Pakistan, who recommended that loan may be appropriately

restructured as per recommendation of the Consultants but no action so far has been taken by the NDFC.

As for ATLAS LEASE LIMITED is concerned we may state that case with the Leasing Company is being

finalised for restructuring of outstanding amount. As agreed the company has started repayment of loan

instalments on monthly basis.

AUDITORS

The retiring auditors M/S S.M.Masood & Co., Chartered Accountants retire and being eligible they have

indicated their willingness to continue for the ensuing period and the Directors recommend their re-

appointment.

PATTERN OF SHARE HOLDING

The pattern of shareholding is given in the Annual Report separately.

STAFF AND ORGANIZATION

The directors wish to place on record their deep appreciation for the Co-operation and devoted hard work

of the officers, staff and workers of the company.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of KOHINOOR LOOMS LIMITED as at

September 30, 1997 and the related Profit & Loss Account and Statement of Changes in Financial

Position, together with the Notes forming part thereof, for the year then ended and we state that:

The company during the year has suffered an after tax loss of Rs.92,152,059 resulting in an accumulated

loss of Rs.342,643,140 and its current liabilities exceed its current assets by Rs.356,081,168. The

company generated net cash of Rs.6,340,809 from its operating activities, whereas its current liabilities

include Rs.106,441,549 as payable in next 12 months in respect of its long term liabilities. On account of

default in making payment to the banks and financial institutions, liquidation and recoveries suits, as

detailed in note 5.3, 6.2 & 8.4 to the accounts have been filed against it. These factors raise doubt as to

"Going Concern" assumption, the basis on which financial statements have been prepared.

Subject to the above, we have~ obtained all the information and explanations which to the best of our

knowledge and belief were necessary for the purposes of our audit and, after due verification thereof, we

report that:

(a) in our opinion, proper books of account have been kept by the Company as required by the

Companies Ordinance, 1984;

(b) in our opinion -

(i) the Balance Sheet and Profit & Loss Account together with the Notes thereon have been

drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with

the books of account and are further in accordance with accounting policies consistently

applied;

(ii) the expenditure incurred during the year was for the purpose of the Company's business;

and

(iii) the business conducted, investments made and expenditure incurred during the year

were in accordance with the objects of the Company;

the Balance Sheet, Profit & Loss Account and Statement of Changes in Financial Position,

together with the notes forming part thereof, give the information required by the Companies

Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state

of the Company's affairs as at September 30, 1997 and of the LOSS and the Changes in

Financial Position for the year then ended; and

(d) in our opinion, no Zakat was deductible at source under the Zakat & Ushr Ordinance, 1980

Date: April 01, 1998

S.M. MASOOD& CO.

Place: LAHORE

Chartered Accountants

BALANCE SHEET AS AT SEPTEMBER 30, 1997

NOTE

1997

1996

(Rupees)

CAPITAL & LIABILITIES

SHARE CAPITAL & RESERVES

Share Capital

108,267,000

Accumulated Loss

(342,643,140)

(250,491,081)

----------

(234,376,140)

(142,224,081)

Revaluation Surplus

65,111,015

LONG TERM LIABILITIES

----------

Long Term Loan

43,417,055

64,425,136

Liabilities Against Assets Subject

to Finance Lease

15,482,121

12,600,679

----------

58,899,176

77,025,815

CURRENT LIABILITIES

Current Maturity of Long Term Liabilities

106,441,549

83,695,019

Short Term Running Finances

29,641,028

31,487,975

Creditors, Accrued and Other Liabilities

243,150,062

181,781,110

----------

379,232,639

296,964,104

----------

268,866,690

296,876,853

==========

The annexed notes 1 to 27 form an integral part of these accounts.

PROPERTY AND ASSETS

TANGIBLE FIXED ASSETS

Operating Fixed Assets

219,137,890

240,383,921

Fixed Assets Subject to Finance Lease

24,461,529

27,453,969

----------

243,599,419

267,837,890

PRELIMINARY EXPENSES

867,479

LONG TERM DEPOSITS

2,115,800

2,173,980

CURRENT ASSETS

----------

Stores & Spares

7,240,434

4,323,512

Stock in Trade

5,034,305

7,933,520

Trade Debtors

3,027,287

2,245,517

Advances, Deposits, Prepayments

and Other Receivables

5,309,666

10,574,648

Cash & Bank Balances

2,539,779

920,307

----------

23,151,471

25,997,504

----------

268,866,690

296,876,853

==========

PROFIT & LOSS ACCOUNT

FOR THE YEAR ENDED SEPTEMBER 30, 1997

NOTE

1997

1996

(Rupees)

SALES

96,433,411

146,328,479

COST OF GOODS SOLD

98,944,463

156,840,262

----------

GROSS PROFIT

(2,511,052)

(10,511,783)

OPERATING EXPENSES

----------

Administrative Expenses

11,160,522

9,651,883

Selling & Distribution Expenses

1,083,172

5,906,765

----------

12,243,694

15,558,648

----------

OPERATING LOSS

(14,754,746)

(26,070,431)

FINANCIAL CHARGES

71,880,330

53,704,097

----------

(86,635,076)

(79,774,528)

OTHER INCOME

714,421

28,213

PRIOR YEARS' ADJUSTMENT

5,745,350

2,070,127

----------

LOSS BEFORE TAXATION

(91,666,005)

(81,816,442)

TAXATION

486,054

614,308

----------

(LOSS) AFTER TAXATION

(92,152,059)

(82,430,750)

ACCUMULATED LOSS BROUGHT FORWARD

(250,491,081)

(168,060,331)

ACCUMULATED LOSS TRANSFERRED

----------

TO BALANCE SHEET

(342,643,140)

(250,491,081)

==========

The annexed notes 1 to 27 form an integral part of these accounts.

STATEMENT OF CHANGES IN FINANCIAL POSITION

FOR THE YEAR ENDED SEPTEMBER 30, 1997

1997

1996

(Rupees)

CASH FLOW STATEMENT

Cash Flow From Operating Activities

Net Profit/(Loss) Before Taxation

(85,920,655)

(79,746,315)

Adjustments For:

Depreciation

23,650,737

22,255,321

Amortization

2,787,637

3,165,996

Prior Year Adjustment

(5,745,350)

(2,070,127)

Preliminary Expenses Amortized

867,479

867,456

Interest Expenses

71,880,330

53,704,097

Income on Disposal of Assets

(372,910)

(27,278)

----------

Operating Profit Before Working Capital Changes

7,147,268

(1,850,850)

(Increase) / Decrease in Stores and Spares

(2,916,922)

(20,857)

(Increase) / Decrease in Stock in Trade

2,899,215

13,214,099

(Increase) / Decrease in Trade Debts

(781,770)

3,079,008

(Increase) / Decrease in Advances, Deposits,

Prepayments & Other Receivables

5,264,982

(5,094,558)

Increase / (Decrease) in Creditors, Accrued Expenses

and Other Liabilities

(5,271,964)

(3,440,827)

----------

Cash Generated From Operations

6,340,809

5,886,015

Interest Paid

(5,672,962)

(3,927,471)

Tax Paid

(52,506)

(758,266)

----------

615,341

1,200,278

Cash Flow From Investing Activities

Addition to Fixed Assets

(3,651,796)

(401,579)

(Increase) / Decrease in Long Term Security Deposits

58,180

28,340

Disposal of Assets

1,824,803

346,599

----------

Net Cash Used in Investing Activities

(1,768,813)

(26,640)

Cash Flow From Financing Activities

Increase / (Decrease) in Lease Liabilities

4,619,891

(449,671)

Increase / (Decrease) in Short Term Finances

(1,846,947)

80,789

----------

Net Cash Used in Financing Activities

2,772,944

(368,882)

Net Increase in Cash & Cash Equivalents

1,619,472

804,756

Cash & Cash Equivalents at Beginning of the Period

920,307

115,551

----------

Cash & Cash Equivalents at Close of the Period

2,539,779

920,307

==========

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED SEPTEMBER 30, 1997

1. THE COMPANY

The company was incorporated as public limited company on October 12, 1989 in Pakistan and is

listed on Karachi and Lahore stock exchanges. The principle activity of the company is

manufacturing and sale of grey cloth.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting Convention:

These accounts have been prepared under the historical cost convention as modified by

revaluation of land and plant & machinery by adjustment of exchange rate fluctuations as

referred to in Note No. 2.2 & 2.4.

2.2 Tangible Fixed Assets:

All fixed assets are shown at purchase cost together with any incidental expenses of

acquisition.

Operating fixed assets except land, capital work in progress and plant & machinery are

stated at cost less accumulated depreciation. Cost includes purchase price, financial

charges on borrowed funds and other incidental expenses incurred upto the date of

operation.

Capital work in progress is valued at cost, where land and plant & machinery have been

valued on the basis of revaluation carried out on 31st March, 1996 (see note 4).

Depreciation on operating fixed assets is charged to profit on reducing balance method

over their estimated useful lives so as to write off the historical cost of assets at the rates

specified in note 10.

The full annual rate of depreciation is applied on the cost of additions, except for major

additions enhancing the production capacity of the company, on which depreciation is

charged on. the basis of proportionate number of days worked during the year. No

depreciation is charged on assets disposed off during the year. Minor renewals,

replacements are charged to current year's income. Major renewals and improvements

are capitalized.

Gain or loss on disposal of assets is included in the income year the asset is disposed

off.

2.3 Assets Subject to Finance Lease:

Assets under finance lease are stated at the fair value. The aggregate amount of

obligations relating to assets subject to finance lease are accounted for at net present

value of the commitments. The assets so acquired are amortized over their useful lives.

The financial charges have been allocated to periods during the lease term so as to

produce a constant periodic rate of interest taking into consideration the remaining

balance of the liability for each period.

The amortization and financial charges on leased assets are charged to current year's

income.

2.4 Foreign Exchange Conversions:

Assets and liabilities in foreign currencies except for foreign currency balances covered

by forward exchange risk cover are translated in Pak Rupees at the exchange rate

prevailing at the balance sheet date. Exchange differences on export sales are included

in current year's income.

2.5 Retirement Benefits:

The company operates an unfunded gratuity scheme for its permanent employees and

the same is accounted for on payment basis.

2.6 Deferred Cost

Preliminary expenses are amortized over the period of five years.

2.7 Stocks And Stores:

These are stated at lower of cost or net realisable value, the cost is determined as

follows:-

Stores & Spares

- At moving average method.

Raw Material & Packing Material

- At annual average cost.

Work in Process

- At estimated factory cost.

Finished Goods

- Prime cost plus factory overheads determined

on annual average basis.

Net realisable value signifies the estimated selling price in the ordinary course of the

business less costs necessary to be incurred in order to make the sale.

2.8 Taxation:

The charge for taxation for the year is provided after taking into account tax credits, tax

rebates and other allowances available for set off, if any. The company is exempt from :

tax under clause 118-E of the Income Tax Ordinance, 1979. Therefore provision for

turnover tax under section 80 d of the Income Tax Ordinance, 1979 has been made in

the accounts.

The company accounts for deferred taxation, using the liability method, on all major

timing differences excluding tax effects on those timing differences which are not likely to

reverse in the foreseeable future.

2.9 Revenue Recognition:

Revenue from local sales of goods is recognized on despatch of goods to customers.

Export sales are recognized on receipt of Bill of Lading.

2.10 Contingencies & Commitments:

These are recognized only when they become due.

3. SHARE CAPITAL

1997

1996

(Rupees)

Authorised:

12,500,000 Ordinary Shares of Rs. 10/- each

125,000,000

==========

Issued, Subscribed & Paid-up:

10,826,700 Ordinary Shares of Rs. 10/- each

issued for cash

108,267,000

----------

108,267,000

==========

The Corporate Law Authority has vide Letter No. CLA/CI/71/91-5 dated January 18, 1995,

consented for the right issue of 2,165,300 ordinary shares of Rs. 10 each at par in the ratio of one

right share for every four shares held. The permission was subject to the condition that the public

portion of right issue was to be taken up by the directors and they were to disinvest the same to

the share holders of the company at par as and when the share price of the company in the stock

market reach Rs.12 per share, but such condition was valid for three years period which has

expired on 17-01-1998.

4. REVALUATION SURPLUS

The land and plant & machinery have been revalued as on March 31, 1996 by Sidat Hyder

Qamar Maqbool & Co., Chartered Accountants on the basis of current market value of land and