ASIAN STAR COMPANY LIMITED TWELFTH ANNUAL REPORT … · TWELFTH ANNUAL REPORT 2005-2006 ASIAN STAR COMPANY LIMITED NOTICE Notice is hereby given that the TWELFTH ANNUAL GENERAL MEETING

TWELFTH ANNUAL REPORT 2005-2006 ASIAN STAR COMPANY LIMITED

ASIAN STAR COMPANY LIMITED TWELFTH ANNUAL REPORT 2005-2006

Board of Directors Shri Dinesh T. Shah Chairman Shri Arvind T. Shah CEO & Managing Director Shri Dharmesh D. Shah CFO & Jt. Managing Director Shri Priyanshu A. Shah Executive Director Shri Vipul P. Shah Director Shri Rajendra J. Shah Director (ceased to be Director, expired on 25/4/2006) Shri Bhupendra K. Shroff Director Shri K. Mohanram Pai Director

Shri Apurva R. Shah Director Shri Hasmukh B. Gandhi Director

Company Secretary Smt. Anuradha A. Banerjee

Bankers

Bank of India Canara Bank Corporation Bank State Bank of Hyderabad Central Bank of India IndusInd Bank Ltd. Syndicate Bank State Bank of Patiala State Bank of Indore ING Vysya Bank Ltd. State Bank of Travancore Andhra Bank Bank of Baroda Bank of Maharashtra

Auditors

V.A. Parikh & Associates Chartered Accountants

Registered Office

114-C, Mittal Court, Nariman Point, Mumbai 400 021

Registrar & Transfer Agents Bigshare Services Pvt. Ltd. E-2/3, Ansa Indl. Estate, Sakivihar Road, Sakinaka, Andheri (E), Mumbai 400 072. Tel : 2847 3474 Fax : 2847 5207


NOTICE Notice is hereby given that the TWELFTH ANNUAL GENERAL MEETING of the members of ASIAN STAR COMPANY LIMITED will be held on Tuesday, 12th September, 2006 at 4.00 p.m. at Utsav Banquet Hall, Samrat Restaurant, J. Tata Road, Churchgate, Mumbai – 400 020 to transact the following business: ORDINARY BUSINESS 1. To receive and adopt Audited Profit & Loss Account for the year ended 31st March 2006 and Balance

Sheet as on that date together with the reports of Directors and the Auditors thereon. 2. To declare dividend on Preference Shares and Equity Shares. 3. To appoint a Director in place of Shri K Mohanram Pai who retires by rotation and being eligible offers

himself for re-appointment. 4. To appoint a Director in place of Shri Apurva R. Shah who retires by rotation and being eligible offers

himself for re-appointment. 5. To appoint a Director in place of Shri Hasmukh B. Gandhi who retires by rotation and being eligible

offers himself for re-appointment. 6. To appoint V.A.Parikh & Associates, Chartered Accountants, the retiring auditors of the company as

auditors who shall hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting at such remuneration as may be fixed by the Board of Directors.

SPECIAL BUSINESS 7. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as

Ordinary Resolution : "RESOLVED in accordance with the provision of section 293(1)(e) and all other applicable provision of the Companies Act, 1956, the consent of the company be and is hereby accorded to the Board of Directors of the company to contribute to any institute, body, trust, society, association or person, funds for any charitable purpose, not directly relating to the business of the company or the welfare of its employees, upto an amount not exceeding Rs. 1.50 crores per annum or 5% of average net profits of previous three financial years whichever is higher, notwithstanding that the said amount may exceed the limits laid down in section 293 (1)(e) of the Companies Act 1956."

NOTES A. A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend and vote instead

of himself and the proxy need not be a member of the Company. The instrument appointing proxy should, however, be deposited at the Registered Office of the Company not less than forty eight hours before the commencement of the meeting.

B. Shareholders are requested to bring their copies of the Annual Report to the Meeting. C. Members/Proxies should bring the Attendance Slip duly filled in for attending the meeting. D. In case of Joint holders attending the meeting, only such joint holder who is higher in the order of

names will be entitled to vote. E. Members who hold shares in dematerialized form are requested to write their Client ID and DP ID

numbers and those who hold shares in physical form are requested to write their Folio Number in the attendance slip for attending the meeting.

F. The Register of Members and Register of Transfers both for preference and equity shares will remain closed from 08/09/2006 to 12/09/2006 (Both Days inclusive) for payment of dividend on preference and equity shares. The dividend as recommended by the Board of Directors, if declared at this Annual General Meeting, will be paid on or after 12/09/2006 to those shareholders whose names appear on the Company’s Register of Members on 08/09/2006. In respect of shares held in electronic mode, the dividend will be paid on the basis of beneficial ownership as per details furnished by National Securities Depository Limited and Central Depository Services (India) Limited as at end of business on Thursday 7/09/2006 for this purpose.

G. Consequent upon the introduction of Section 109A of the Companies Act, 1956, shareholders are entitled to make nomination in respect of shares held by them in Physical form. Shareholders desirous


of making nomination are requested to send their requests in Form 2B (which will be made available on request) to the Registrar and Transfer Agent, Big Share Services Private Limited.

H. Re-appointment of Directors at the ensuing Annual General Meeting : Shri K Mohanram Pai, Shri Apurva R. Shah and Shri Hasmukh B. Gandhi retire by rotation and being eligible offer themselves for re-appointment. The information or details pertaining to these Directors to be provided in terms of Clause 49 of the Listing Agreement with the Stock Exchange is furnished in the statement attached herewith.

I. Explanatory Statement as required under Section 173(2) of the Companies Act, 1956 is annexed hereto. J. The company’s equity shares are listed on the Stock Exchange, Mumbai. The Company has paid listing

fees to the exchange for the year 2006-07. K. The shareholders are requested to claim the unclaimed dividend for the below mentioned financial years

before the same are due for transfer to Investor Protection Fund U/s 205C of the Companies Act, 1956 :

Financial Year Dividend declared date

Date when due for transfer

2001-02 18/09/2002 17/09/2009 2002-03 11/09/2003 10/09/2010 2004-05 19/09/2005 18/09/2012

Shareholders who have not encashed their dividend are reminded by post to their address registered

with the company. Place : Mumbai By Order of the Board Dated : June 20, 2006 Registered Office Anuradha A Banerjee 114-C, Mittal Court, Company Secretary Nariman Point, Mumbai 400 021 Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956 Item 7: The Directors feel that it is the Company’s social obligation to participate and donate funds for public cause wherever situation arises for the relief of public at large. Your Directors recommend the resolution for your approval. None of the Directors are interested in the resolution. Place : Mumbai By Order of the Board Dated : June 20, 2006 Registered Office Anuradha A Banerjee 114-C, Mittal Court, Company Secretary Nariman Point, Mumbai 400 021


Details of the Directors seeking re-appointment in Annual General Meeting to be held on 12th September, 2006 (In pursuance of Clause 49 of the Listing Agreement)

Name of Director Shri K Mohanram Pai

Shri Apurva R. Shah Shri Hasmukh B. Gandhi

Date of Birth 14/02/1937 05/01/1970 07/01/1931

Date of Appointment 18/03/1995 24/09/1999 20/10/2003

Expertise in specific functional areas

Banking & Finance Taxation, Accounting, Financial Reconstruction & Management of Cost.

Legal

Qualifications

B.A., CAIIB FCA, Grad CWA, MSc. (Economics) International Accounting & Finance (U.K.)

B.A. (Hons.), LLB

List of Companies in which outside Directorship held as on 31st March, 2006.

Phoenix Lamps Ltd. Sukentendra Credit Co-operative Society Ltd. Sovereign Diamonds Ltd.

Shantivijay Jewels Ltd. Rightangles.com (I) Ltd. Steelcast Ltd. G Jewelcraft Ltd.

Hardcastle & Waud Mfg. Co. Ltd. Glance Finance Ltd. Detriv Instrumentation Electronics Ltd. ASE Western Traders Pvt. Ltd. CeeBee Trading Co. Pvt. Ltd.

Chairman/Member of the Committees of the Board of Directors of this/other companies in which he is Director. a) Audit Committee b) Shareholders Committee

c) Remuneration Committee d) Corporate Governance Committee

Chairman Phoenix Lamps Ltd. Member 1. Asian Star Co. Ltd. 2. Sovereign Diamonds

Ltd. Member 1. Asian Star Co. Ltd. 2. Phoenix Lamps Ltd.

Member 1. Phoenix Lamps Ltd. Member 1. Asian Star Co. Ltd.

Member 1.Asian Star Co. Ltd. 2.Shantivijay Jewels Ltd. 3. Steelcast Ltd. - Alternate Chairman Member 1. Asian Star Co. Ltd.

Member 1. Asian Star Co. Ltd. 2. Shantivijay Jewels Ltd. 3. Steelcast Ltd.

-

-

- Chairman 1. Asian Star Co. Ltd. Member 1. Asian Star Co. Ltd.


DIRECTORS' REPORT To the members, ASIAN STAR COMPANY LIMITED MUMBAI Your Directors have pleasure in presenting the Twelfth Annual Report together with the Audited Statement of Accounts for the year ended March 31, 2006. Financial Results The performance of the company for the financial year ended 31st March 2006 is summarized below :

(Rs. in Crores) March March 31, 2006 31, 2005

Financial Results Total Sales 1206.67 1062.04 Add : Other Income 1.37 0.96 Total Income 1208.04 1063.00 Less : Total Expenditure 1135.64 1010.74 Operating Profit (PBDIT) 72.40 52.26 Less : Interest and Depreciation 30.18 17.77 Profit before Tax 42.22 34.49 Provision for Tax 11.74 11.05 Provision for Deferred Tax 2.47 1.39 Provision for Fringe Benefit Tax 0.20 - Profit after Tax 27.81 22.05 Add : Balance in Profit and Loss Account Brought forward 47.29 29.67 Less : Prior Year Adjustments 0.14 - Profit available for appropriation 74.96 51.72 Appropriation Dividend on Preference Shares 0.01 - Proposed Dividend on Equity Shares 2.13 2.13 Tax on Dividend 0.30 0.30 Transferred to General Reserve 2.00 2.00 Balance Carried forward to Balance Sheet 70.52 47.29 74.96 51.72 Performance and Prospects During the FY 2005-06, your company has registered a growth of 13.6% in turnover with sales of Rs.1206.67 crores against the corresponding total sales of Rs.1062.04 crores during the FY 2004-05. The company’s jewellery division has performed exceedingly well and has achieved turnover of Rs. 38.71 crores. The Indian gem & jewellery industry had a good year surpassing its exports targets of 2007 (US$ 17b) in calendar year 2005. This is certainly a commendable performance despite difficult global market conditions. Experts caution that the current year will not be the same for the industry due to slow down in global demand, more particularly in United States, India’s largest market by far and margins getting slimmer with constant price pressure. Dividend The Directors have recommended a dividend of Rs.2 per Equity Share on 1,06,71,200 Equity Shares of Rs.10 each for the financial year ended 31st March 2006, which if approved at the forthcoming Annual General Meeting, will be paid to i) all those Equity Shareholders whose name appear in the Register of Members and ii) all those beneficial owners whose names are furnished by National Securities Depository Limited and Central Depository Services (India) Limited as on 08/09/2006. Directors have recommended dividend of Re. 0.30 per


share on Redeemable Cumulative Preference Shares of Rs. 10 each on pro-rata basis and will be paid to those preference shareholders whose names appear in the Register of Members as on 08/09/2006. Increase of Authorised Share Capital During the FY 2005-06, the company increased its authorized share capital from Rs. 15 crores to Rs. 65 crores by creation of 5,00,00,000 Redeemable Cumulative Preference Shares of Rs. 10 each. Issue of Redeemable Cumulative Preference Shares During the year 2005-06, the company issued Redeemable Cumulative Preference Shares to meet additional financial requirements. The company issued Redeemable Cumulative Preference Shares to a foreign legal entity, as permitted under FEMA Regulations on the following terms & conditions :

1) the said shares shall carry a rate of fixed cumulative dividend at 3% p.a. 2) the said shares shall be redeemed at par or premium before 20 years or earlier but not before 1 (one)

year as may be decided by the Board of Directors at the time of redemption 3) the rights of the said shares as to dividend, voting, repayment shall be in accordance with the provisions

of the Companies Act, 1956 Wind Energy During the year 2005-06, the company has purchased and installed windmills and has commenced generation of power. The company has entered into long-term contractual arrangement with Maharashtra State Electricity Distribution Company Limited for sale of power generated by it. Subsidiary Companies As required under Section 212 of the Companies Act, 1956, the audited statements of accounts of subsidiary overseas companies : Asian Star Company Limited, New York (U.S.A.) & Intergem Inc., Los Angeles (U.S.A.) and the Auditors Report thereon for the year ended March 31, 2006 are annexed. Consolidated Financial Statement In accordance with the Accounting Standard 21, issued by The Institute of Chartered Accountants of India, your Directors have pleasure in attaching the audited Consolidated Financial Statements for the year ended March 31, 2006. Directors’ Responsibility Statement On the basis of compliance certificates received from the executives of the company, subject to disclosures in Annual Accounts, and also on the basis of discussion with the Statutory Auditors of the Company from time to time, we state as under:

• That in the preparation of the annual accounts, the applicable accounting standards have been followed alongwith proper explanation relating to material departures, if any;

• That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2006 and of the Profit and Loss account of the Company for the year ended on that date;

• That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

• That the Directors have prepared the annual accounts of the company on a going concern basis. • Your Company has received certificate under section 274(1)(g) of the Companies Act, 1956 and none

of the Directors are disqualified to act as Director.


Corporate Governance Pursuant to Clause 49 of the listing agreement with The Stock Exchange, Mumbai, a report on Corporate Governance, along with the Auditors’ certificate regarding compliance of conditions of Corporate Governance and Management Discussion and Analysis is separately given in this Report. Listing Arrangements The Equity Shares of the Company are listed on Bombay Stock Exchange Limited. The Company has paid listing fees for the year 2006-07. Dematerialisation of Shares In terms of the listing agreement the company has tripartite agreements with the RTA i.e. Bigshare Services Private Limited and National Securities Depository Limited and Central Depository Services Limited respectively. Directors Pursuant to the provisions of Section 256 of the Companies Act, 1956 and article 154(a) of the Articles of Association of the Company Shri K Mohanram Pai, Shri Apurva R. Shah and Shri Hasmukh B. Gandhi retire by rotation and being eligible offer themselves for reappointment. Your Directors regret to note the sad demise of Shri Rajendra J. Shah a Director of the company. He was Director of the Company since its inception and has contributed substantially towards the company’s growth and progress. Your Directors pray for the peace of noble soul and placed on record their deep appreciation. Finance The Company is availing Working Capital requirements from the Consortium of Bankers and has obtained adequate finance during the year under review. The debt is secured by stock-in-trade, book debts, office premises and fixed deposits. Fixed Deposit The Company has not accepted any deposits within the meaning of Section 58 - A of the Companies Act, 1956 and the Companies (Acceptance of Deposit) Rules, 1975. There are no deposits which are outstanding and / or which is claimed and not paid or unclaimed for which information is required to be given in the report. Insurance The Properties and Assets of the Company are adequately insured. Cash Flow Analysis In conformity with the provision of Clause 32 of the listing Agreement, the Cash Flow Statement for the year ended 31st March, 2006 is annexed hereto. Particulars of Employees The company has not paid any remuneration above Rs. 2,00,000 per month to any of its employees and as such no information is required to be annexed to this report. Notes on Accounts Notes forming part of Accounts are self-explanatory.


Particulars under Companies (Disclosure of particulars to the report of Board of Directors) Rules, 1988 :- Conservation of Energy The activity of the company does not require large-scale consumption of energy and the company is not covered in the list of industries required to furnish information in Form - A relating to conservation of energy. Technology Absorption The Directors are in constant touch with ongoing research in the World to upgrade and absorb improved technology for better line of products and to yield better quality, cost reduction and worldwide acceptability of its range of products. Foreign Exchange The Company has earned Rs.115,178.37 lacs in foreign exchange by way of exports and dividend and has spend Rs.84,732.12 lacs in foreign exchange, for the imports of materials & consumables, foreign traveling, advertisement and sales expenses. The Directors are working out marketing strategies to earn more foreign exchange. Auditors V. A. Parikh & Associates, Chartered Accountants, the retiring Auditors of the Company, hold office up to the conclusion of the ensuing Annual General Meeting. The Company has received a certificate from the said firm to the effect that their appointment if made at Annual General Meeting, would be within the limits mentioned under Section 224 (1-B) of the Companies Act, 1956. You are requested to appoint the Auditors and fix their remuneration. Appreciation The Directors thank the Company’s Customers, Contractors, Shareholders, Bankers, Financial Institutions and Central & State Governments for their consistent support to the Company. The Directors also sincerely acknowledge the significant contributions made by all the employees for their dedicated services to the Company. Place : Mumbai For and on behalf of the Board Dated : June 20, 2006 Registered Office Dinesh T. Shah 114-C, Mittal Court, Chairman Nariman Point, Mumbai 400021.


Annexure to Directors Report Management Discussion and Analysis Report Industry Structure & Development The Indian economy has done exceptionally well in past few years and is growing at consistent rate. The Gem & Jewellery Industry has made a significant contribution to the economic growth over the years. Industry marks the year 2005-06 as ‘year of consolidation’ and the country is in process of being transformed and establish itself as trading hub for gem & jewellery globally. The next phase of the Indian industry is not necessarily about growing numbers, but becoming more efficient and developing the skills. The Finance Minister has announced to set up an expert committee to consider the recommendation by the Gem & Jewellery Industry. Further the recently announced foreign trade policy has given immense support, boost and confidence to the industry to perform and emerge as the global hub for gem & jewellery industry. Financial Review (Rs. in Crores)

March March 31, 2006 31, 2005

Sales 1206.67 1062.04 Other Income 1.37 0.96 Total Income 1208.04 1063.00 Operating Profit (PBDIT) 72.40 52.26 Interest 28.46 16.49 Depreciation 1.72 1.28 Profit before Tax 42.22 34.49 Taxation 14.41 12.44 Net Profit 27.81 22.05 Earnings per share in Rs. 25.93 20.66

1. During the year, sales grew by 13.62% i.e. from Rs. 1062.04 crores to Rs. 1206.67 crores. 2. Operating profit increased from Rs. 52.26 crores to Rs. 72.40 crores as compared to last year. 3. Profit before tax increased to Rs. 42.22 crores from Rs. 34.49 crores last year.

Business Analysis & Outlook The year 2006-07 so far has been slow for the gem & jewellery industry and experts caution that it will not be same as years in recent past. Concerns over global economic growth, changing consumer habits, increasing interest rates and rough prices has affected the export this year. With the constant thrust on infrastructure development, liberalized export-import policies and high GDP growth rates projected for the economy, Indian Gem and Jewellery Industry will successfully overcome the difficult global market conditions. Opportunities & Threats Demand in US market, which is the largest market for Indian Gem & Jewellery Industry, has slowed down. This coupled with increasing raw material prices has resulted in pressure on margins. It has become imperative to identify and tap new markets and to be extremely competitive both in terms of quality and pricing to overcome the difficult phase. Asia-Arabia and Asia-Pacific have emerged as rapidly growing markets with increasing consumption in countries like UAE, India and China. With its global presence, strong marketing network and competitive & efficient manufacturing abilities, your company will be able to perform successfully.


Risks, Concerns & Internal Control Systems

• The company is potentially exposed to risk in exchange rate fluctuations. Company has sound policy to hedge against volatility in exchange rates and it is closely monitored and controlled by adequately experienced and professional staff. Company’s foreign exchange exposure is adequately covered.

• Increasing price of rough diamonds can affect the profit margins. Company cannot control the increasing prices but it is constantly thriving to increase the yield through improved production efficiency and adoption of latest technologies.

• Increasing interest cost at global level is another area of concern. The company is trying to control interest cost by efficient working capital management on constant basis and borrowing funds at lowest possible cost. The company has also raised funds by way of issue of 3% Redeemable Cumulative Preference Shares to reduce interest cost.

• The company has proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly complying applicable statues.

• The company is holder of ISO 9001 : 2000 certification from RWTUV, since 1998 for its established quality systems of processing of diamonds. The top management & audit committee of the Board review the findings and recommendation of the internal auditors.

Human Resources, Safety, Environment & Pollution Control The Company views its relationship with its employees to be its most important asset and also focuses on development of employees’ skill at all levels and supports with all employment benefits and favourable working conditions. The Company is committed to adhere DTC’s Best Practice Principles to encourage consumer confidence. The company has also made necessary arrangement along with proper infrastructure to provide safe and pollution free work environment at its administrative offices as well as at its processing centers. Cautionary Statement Statements in this Management Discussion and Analysis describing the Company’s objectives, projections, estimates and expectations may constitute “forward looking statements” within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.


DECLARATION REGARDING COMPLIANCE BY THE BOARD MEMBERS AND SENIOR MANAGEMENT PERSONNEL WITH THE COMPANY’S CODE OF CONDUCT

In accordance with Clause 49 sub clause I(D) of the listing agreement with the Stock Exchange, I confirm that, all the Directors and the Senior Management personnel of the Company have affirmed compliance to the company’s Code of Conduct, as applicable to them for the Financial Year ended March 31, 2006.

For Asian Star Company Limited

Place : Mumbai Dharmesh D. Shah Date : June 20, 2006 CFO & Jt. Managing Director

AUDITOR’S CERTIFICATE ON CORPORATE GOVERNANCE To The Members Asian Star Company Limited We have examined the compliance of conditions of Corporate Governance by Asian Star Company Limited, for the year ended on 31st March, 2006 as stipulated in clause 49 of the Listing Agreement of the said Company with Mumbai Stock Exchange. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above-mentioned Listing Agreement, for the year ended 31st March 2006. We are given to understand that the Company has not received any investor grievances nor any complaint is pending against the Company for the year ended 31st March 2006. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.

For V. A. Parikh & Associates Chartered Accountants Jinesh J .Shah Place : Mumbai Partner Date: June 20, 2006 Membership No. 111155


Corporate Governance I Company’s Philosophy The company believes that good corporate governance practices should be enshrined in all activities of the

Company. This would ensure efficient conduct of the affairs of the Company and help the Company achieve its goal of maximizing value for all its shareholders. The Company has complied with the requirements of the revised guidelines on corporate governance stipulated under clause 49 of the Listing Agreement with the BSE. With the adoption of a Code of Conduct for Board of Directors and Senior Management personnel and the implementation of a Whistle Blower Policy the Company has moved further in its pursuit of excellence in corporate governance.

II Board of Directors

The Company has a Non-Executive Chairman and 4 Independent Directors i.e. more than one-third of the total number of Directors on its Board. Composition of the Board of Directors includes 3 Executive Directors and 6 Non-Executive Directors. Board has also formed the following committees in terms of Clause 49 of the Listing Agreement. None of the Directors is a member on the board committees of more than ten companies or acting as Chairman of more than five companies in which he is a Director. During the year 2005-06, the Board of Directors met eight times (28/04/2005, 30/06/2005, 26/07/2005, 25/10/2005, 30/1/2006, 23/02/2006, 25/03/2006, 28/03/2006) with clearly defined agenda of the meetings sent in advance with suitable notes to the Directors. The details of the Directors on the Board of your company for the year 2005-2006 are :

Name Category / Designation No. of Board

meetings attended

Last AGM

Attendance

No. of outside

Directorship held in public

companies

No. of Board

Committee(s) of which he is a member

No. of Board

Committee(s) of which he is a

Chairperson

Dinesh T Shah Promoter – Non Executive Chairman 7 Yes - - -

Arvind T Shah Promoter – CEO Managing Director 7 Yes - - -

Dharmesh D Shah Promoter – CFO Jt. Managing Director 7 No 1 - -

Vipul P Shah Promoter Director 8 Yes 1 - - *Rajendra J Shah Non-Executive Director 4 Yes 4 3 4 K Mohanram Pai Non-Executive Director 7 Yes 3 6 1 Bhupendra K Shroff Non-Executive Director 8 Yes 3 4 2 Apurva R Shah Non-Executive Director 7 Yes 4 7 - Hasmukh B Gandhi Non-Executive Director 7 Yes 5 1 1 Priyanshu A Shah Promoter – Executive

Director 6 No 1 - -

*Ceased to be Director of the Company expired on 25/4/2006. III Audit Committee

The Composition of the Committee and the attendance of each member of the Committee are given below :

Name Designation Category of Directorship Profession Committee Meetings

Attendance Bhupendra K Shroff Chairman Non-Executive Director Company Law Advisor 6 Apurva R Shah Member Non-Executive Director Chartered Accountant 5 K Mohanram Pai Member Non-Executive Director Banking Professional 5 Arvind T Shah Member Executive Director Business 5


During the year 2005-06, the Audit Committee met six times (30/06/05, 26/07/05, 25/10/05, 30/01/06, 23/02/2006, 28/03/2006) with clearly defined agenda of the meetings. The role and terms of reference of the Audit Committee cover the matters specified for Audit Committee under Clause 49 of the Listing Agreement with the BSE read with Section 292A of the Companies Act, 1956. The previous Annual General Meeting of the Company was held on September 19, 2005 and it was attended by Shri Bhupendra K. Shroff, the Chairman of the Audit Committee.

IV Remuneration committee(non-mandatory)

The Committee was reconstituted and following are the members : 1) Hasmukh B. Gandhi (Chairman) 2) Bhupendra K. Shroff 3) Apurva R. Shah Payment of remuneration to Managing Director, Jt. Managing Director and Executive Director are recommended by the Remuneration Committee reviewing the abilities and contribution of the individual Directors. The remuneration is approved by shareholders. Non-Executive Directors were paid sitting fees within the limits prescribed under the Act. The details of actual payments made during the financial year 2005-06 to the Executive Directors of the Company are given below :

Name Designation Gross Salary (Rs) Arvind T Shah CEO & Managing Director 720,000 Dharmesh D Shah CFO & Jt. Managing Director 720,000 Priyanshu A Shah Executive Director 600,000

V Shareholders Committee The Committee was reconstituted and following are the members :

1) Bhupendra K Shroff (Chairman) 2) Apurva R Shah 3) K Mohanram Pai 4) Arvind T Shah

The committee reviews redressing of shareholders & investors complaints like non-receipt of Balance Sheet, non-receipt of declared dividend, etc. The committee also reviews the functioning & activities of Registrar & Transfer Agent & related investor grievances. The Company obtained & filed with BSE, Secretarial Audit Report required under SEBI for each quarter as to reconciliation of total shares held in depository & physical form from a Practicing Chartered Accountant.

No. of queries/complaints Received Redressed Unresolved Letters from Shareholders 8 8 Nil

Compliance Officer and Address for Correspondence

Name & Designation Telephone

Number Email Id Fax No.

Vishal M. Shah - Secretarial Executive 2282 1886 [email protected] 22043747

VI Corporate Governance Committee The Committee was reconstituted and following are the members :

1) Bhupendra K. Shroff (Chairman) 2) Hasmukh B. Gandhi 3) K Mohanram Pai 4) Arvind T. Shah During the year the committee formulated policy relating to Code of Conduct for Board of Directors and Prevention of Insider Trading (Code).


The Company has obtained a certificate from the Auditors of the company regarding compliance of conditions of corporate governance as stipulated in clause 49 of the listing agreement of the BSE and the same has been annexed to Director’s Report.

VII Finance Committee

The members of Finance Committee met eight times (28/6/05, 18/7/05, 15/9/05, 18/10/05, 18/11/05, 30/11/05, 14/1/06, 29/3/06). This committee sits regularly to decide on matters pertaining to banking, finance and working capital requirements. The following are the committee members : 1. Dinesh T Shah 2. Arvind T Shah 3. Vipul P Shah 4. Dharmesh D Shah 5. Priyanshu A. Shah

VIIIGeneral Body Meetings

i) Details on Annual General Meetings (AGM) : Location and time, where last three AGMs were held :

Year Location Date Time 2002-03 Senate Hall, Mumbai September 11, 2003 11.30 am 2003-04 Senate Hall, Mumbai September 27, 2004 12 noon 2004-05 Garware Club, Mumbai September 19, 2005 4.00 pm

ii) Whether any special resolutions passed in the previous 3 AGMs ? Yes iii) Whether special resolutions were put through postal ballot last year ? Yes

a) 19/09/2005 (Monday) Result declared at S. S. Hall, Wankhede Stadium, ‘D’ Road, Churchgate, Mumbai 400 020 at 4.00 p.m. regarding special resolution – amendment of object clause by adding thereto commencing of activities relating to power generation.

Voting Pattern In Favour Against Invalid Total No. of Equity Shares comprising votes cast 6583041 Nil 400 6583441

b) 25/3/2006 (Saturday) Result declared at Green Room, Wankhede Stadium, ‘D’ Road, Churchgate, Mumbai 400 020 at 4.30 p.m. regarding special resolution - alteration of equity shareholders rights.

Voting Pattern In Favour Against Invalid Total No. of Equity Shares comprising votes cast 6403302 1 1300 6404603

iv) Person who conducted postal ballot exercise – Mr. Pranav K. Kapadia, Chartered Accountant. iv) Whether any special resolution is proposed to be conducted through postal ballot ? Nil v) Procedure for postal ballot ?

The procedure for postal ballot is as per the provisions contained in this behalf in the Companies Act, 1956 and rules made thereunder namely Companies (Passing of the Resolution by Postal Ballot) Rules, 2001.

IX Disclosures

i) All materially significant related party transactions are detailed out in note no. 4 of Schedule L (II) attached to the Balance Sheet.


ii) Details of non-compliance by the company, penalties, strictures imposed on the company by the Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last three years ? None.

iii) Whistle Blower Policy : The Company has formulated a mechanism for employees to report about unethical behaviour,

actual or suspected fraud or violation of the company’s code of conduct or ethics policy. The Compliance Officer and Audit Committee acts upon any reporting under whistle blower policy.

X Means of Communication Quarterly results are taken on record by the Board of Directors and submitted to the Bombay Stock

Exchange Limited in terms of the requirements of Clause 41 of the Listing Agreement. Quarterly results are published in The Financial Express and Mumbai Lakshadeep. The Company posts its financial results on SEBI website for all quarters.

XI General Shareholders Information

The Company has entered into an agreement with M/s. Big Share Services Pvt. Ltd. for processing of dematerialisation (physical form) and transfer of equity shares.

S. no. Information

1 Annual General Meeting - Date and Time 12th September, 2006 at 4.00 p.m. - Venue Utsav Banquet Hall, Samrat Restaurant, J. Tata Road, Churchgate, Mumbai 400 020.

2. Financial Calendar (Tentative Schedule) - Financial reporting for the first quarter Second fortnight of July 2006 - Financial reporting for the second quarter Second fortnight of Oct 2006 - Financial reporting for the third quarter Second fortnight of Jan 2007 - Financial reporting for the fourth quarter Second fortnight of April 2007

3. Book Closure Date (Both days inclusive) 08/09/2006 to 12/09/2006

4. Dividend Payment Date Dividend as recommended by the Board of Directors, if declared at the meeting, will be paid within prescribed time, subject to deduction of tax if any.

5. Listing on Stock Exchange at : The Stock Exchange, Mumbai

Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai 400 023

6. Stock Code : ASAN.BO

The Stock Exchange, Mumbai

7. Stock Market Data :

Month Price in BSE during each month

High Low April’05 1180.00 987.15 May’05 983.90 937.80 June’05 983.00 888.00 July’05 1529.00 815.00 Aug’05 1525.00 1076.00


Sep’05 1450.00 1000.00 Oct’05 1290.00 1011.00 Nov’05 1329.90 1155.00 Dec’05 1680.00 1201.00 Jan’06 1680.00 1350.00 Feb’06 1400.00 1204.00 Mar’06 1290.00 1060.00

0100020003000400050006000700080009000

10000

AprMayJun Ju

lAugSepOct

NovDecJanFe

bMar

FY 2005-06

BSE

SEN

SEX

020040060080010001200140016001800

ASC

L SH

AR

E PR

ICE

Sensex ASCL

8. Registrar & Share : Bigshare Services Pvt. Ltd. Transfer Agents E-2/3 Ansa Indl. Estate, Saki Vihar Road, Saki Naka,Andheri (East), Mumbai 400 072. Tel : 2847 3474 Fax : 2847 5207 9. Share Transfer System : The share transfer are approved by Shareholders Committee.

Share transfers are registered within a period of 15 days from the date of receipt, if the documents are complete in all respect. During the year under review, the company has followed the guidelines issued by SEBI for dematerialisation of shares sent for transfer by the investors.

10. Distribution of equity shareholding as on March 31, 2006 :

Category No. of shareholders Percentage No. of shares Percentage

1-500 701 95.63 68514 0.64 501-1000 5 0.68 4447 0.04 1001-2000 4 0.55 6172 0.06 2001-3000 0 0.00 0 0.00 3001-4000 1 0.14 3538 0.04 4001-5000 1 0.14 4700 0.04 5001-10000 2 0.27 20000 0.19 Above 10001 19 2.59 10563829 98.99 Total 733 100.00 10671200 100.00


11. Categories of equity shareholding as on March 31, 2006 :

Category No. of Shares Percentage of Shareholding

Indian Promoters 8000000 74.97

Private Corporate Bodies 1742801 16.33

Indian Public 118699 1.11

OCBs 809700 7.59

12. Dematerialisation of Shares and Liquidity : 9790899 equity shares i.e 91.75% of equity shares have been dematerialized upto March 31, 2006.

13. Manufacturing Facilities : Cut & Polished Diamonds

8-1269/70/71, Rangildas Mehta’s Street, Opp. Terapanthi Bhavan, Gopipura, Kaji Maidan, Surat, Gujarat –395 001. Diamond Studded Jewellery Plot No.5, F-11/12, WICEL Opp. SEEPZ, MIDC (Marol) Central Road, Andheri (East), Mumbai 400 093.

Wind Energy Sangli, Maharashtra.

14. Members can contact us at our : Asian Star Company Limited registered office 114-C, Mittal Court,

Nariman Point, Mumbai 400 021. Email : [email protected] Tel.: 022- 2282 1886 Fax : 022- 2204 3747.

Some of the points referred in non-mandatory requirements under Annexure ID of Clause 49 of the Listing Agreement are being pursued by the company.


AUDITOR’ S REPORT To, The Members of Asian Star Company Limited

1. We have audited the attached Balance Sheet of Asian Star Company Limited as at 31st March, 2006, Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto. These Financial Statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these Financial Statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards

require that we plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall Financial Statements. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, issued by the Central Government of India

in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of said order.

4. Further to our comments in the Annexure referred to above, we state that:

a) 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.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books.

c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of Account.

d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in the sub-section (3C) of Section 211 of the Companies Act, 1956.

e) On the basis of written representations received from the Directors, as on 31st March 2006 and taken on record by the Board of Directors, we report that none of the Directors of the Company is disqualified as on 31st March, 2006 from being appointed as a Director in terms of clause (g) of subsection (1) of section 274 of Companies Act, 1956.

f) In our opinion and to the best of our information and according to the explanation given to us, the said accounts read together with the notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state of the Company’s affairs as at 31st March, 2006 ;

ii) in the case of Profit and Loss Account, of the profit for the year ended on that date ; and

iii) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

For V. A. Parikh & Associates Chartered Accountants Jinesh J .Shah Place : Mumbai Partner Date: June 20, 2006 Membership No. 111155


ANNEXURE TO AUDITOR’S REPORT Re: Asian Star Company Limited Referred to in paragraph 3 of our report of even date:

1. a. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.

b. As explained to us, all the assets have been physically verified by the Management at the end of the

accounting year and no material discrepancies were noticed on physical verification as compared to the book records.

c. The assets disposed off during the year are not significant and therefore do not affect the going concern

assumption. 2. a. The stock of finished goods and raw-materials have been physically verified by the management at the end

of the accounting year. b. In our opinion, and according to the information and explanations given to us, the procedures of physical

verifications of stocks followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

c. In our opinion the Company has maintained proper records of inventory. No discrepancies were noticed on

physical verification as compared to the book records. 3. a. The Company has not granted any loan (secured or unsecured) to companies, firms or other parties covered

in the register maintained under Section 301 of the Act. In view of this sub clause (b), (c) and (d) of this clause are not applicable.

b. The Company has not taken any loan (secured or unsecured) from companies, firms or other parties

covered in the register maintained under Section 301 of the Act. In view of this sub clause (f) and (g) of this clause are not applicable.

4. In our opinion and according to the information and explanations given to us, the company has an adequate

internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and also for sale of goods and services. During the course of our audit, no major weaknesses were noticed in the internal control system.

5. a. In our opinion and according to the information and explanations given to us, we are of the opinion that

the contracts or arrangements that need to be entered into the register maintained under Section 301 have been properly entered in the said register.

b. In our opinion and according to the information and explanations given to us, the transactions entered in

the register maintained under Section 301 in respect of each party have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time and as per the Company’s business need and exigencies.

6. In our opinion and according to the information and explanations given to us the Company has not

accepted any deposits from the public within the meaning of the directives issued by the Reserve Bank of India and provisions of Section 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and rules framed there under.

7. In our opinion coverage of internal audit carried out by a firm of Chartered Accountants is commensurate

with the size of the Company and the nature of its business.


8. The Central Government has not prescribed maintenance of Cost records under Section 209 (1) (d) of the Companies Act, 1956 as explained by the management.

9. a. According to the records of the Company and as per information and explanation given to us, the

Company is generally regular in depositing with appropriate authorities undisputed amount of Provident Fund, Investor Education and Protection Fund, Employee’s State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and other statutory dues applicable to it and there were no undisputed dues outstanding as on 31st March, 2006 for a period of more than six months from the date they become payable.

b. In our opinion and according to the information and explanation given to us, there are no dues in respect

of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Service Tax, Excise Duty, and Cess that have not been deposited on account of any dispute.

10. The Company neither has any accumulated losses at the end of the financial year nor it has incurred any

cash loss during the financial year or immediately preceding financial year.

11. In our opinion and according to the information and explanations given to us the Company has not defaulted in repayment of dues to any Financial Institution or Bank.

12. In our opinion and according to the information and explanations given to us the Company has not granted

any loans and advances on the basis of security by way of pledge of shares, debentures or other securities.

13. The Company is not a chit/nidhi/mutual benefit fund/society and hence clause (xiii ) of the Order is not applicable.

14. In our opinion, the Company has maintained proper records of transactions and contracts in respect of

dealing or trading in shares, securities and other investments and timely entries have been made therein. All shares and other investments have been held by the Company in its own name.

15. In our opinion and according to the information and explanations given to us the Company has not given

any guarantee for any loans taken by others from bank or financial institution.

16. According to the information and explanations given to us, the term loan have been applied for the purpose for which they were raised.

17. In our opinion and according to the information and explanations given to us the short term funds raised by

the Company have not been used for long term investment.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

19. The Company has not issued any debentures during the financial year.

20. The Company has not raised any money by public issue during the year.

21. In our opinion and according to the information and explanations given to us no fraud on or by the

Company has been reported during the year. For V. A. Parikh & Associates

Chartered Accountants Jinesh J. Shah Place : Mumbai Partner Date : June 20, 2006 Membership No. 111155


BALANCE SHEET AS AT MARCH 31, 2006

Sche March 31, 2006 March 31, 2005dule (Rs. in lacs) (Rs. in lacs)

SOURCES OF FUNDS

Shareholders Funds Share Capital A 3,587.12 1,067.12 Reserves and Surplus B 22,989.67 26,576.79 20,466.17 21,533.29

Loan Funds Secured Loans C 59,978.51 60,100.85

Deferred Tax Liability 477.56 230.89

87,032.86 81,865.03

APPLICATION OF FUNDS

Fixed Assets D Gross Block 5,628.37 3,268.72 Less : Depreciation 542.35 5,086.02 377.04 2,891.68

Investments E 563.39 1,664.47

Current Assets, Loans & Advances F Inventories 27,562.51 30,497.50 Sundry Debtors 47,719.88 42,579.17 Cash & Bank Balances 8,696.69 5,345.52 Loans & Advances 5,457.82 5,042.58

89,436.90 83,464.77

Less: Current Liabilities and Provisions G Liabilities 3,924.26 3,230.77 Provisions 4,129.19 2,929.38

8,053.45 6,160.15 Net Current Assets 81,383.45 77,304.62

Miscellaneous Expenditure (to the extent not writtern off or adjusted) Preliminary Expenses - 4.26 87,032.86 81,865.03 Significant Accounting Policies and Notes forming part of Accounts L

As per our report of even dateFOR V. A. PARIKH & ASSOCIATES For and on behalf of the Board

JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAHPartner Company Secretary Chairman CFO & Jt Managing Director

Mumbai Mumbai Dated: June 20, 2006 Dated: June 20, 2006


PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006


INCOME

Sales & Services H 120,666.88 106,204.48 Other Income I 137.07 120,803.95 95.74 106,300.22

EXPENDITURE

Material Cost J 104,670.83 92,680.01 Purchase of Finished Goods 717.43 1,558.67 Manufacturing and Other Expenses K 8,171.01 6,827.08 Interest 2,846.45 1,649.38 Depreciation 171.94 127.87 Preliminary Expenses Written Off 4.26 116,581.92 7.91 102,850.92

PROFIT

Profit Before Tax 4,222.03 3,449.30 Provision for Tax 1,174.20 1,104.97 Provision for Deferred Tax 246.67 138.79 Provision for Fringe Benefit Tax 19.87 - Profit After Tax 2,781.29 2,205.54 Prior Year Adjustments (13.49) (0.55) Balance Brought forward 4,728.33 2,966.69 Balance Available for Appropriation 7,496.13 5,171.68

APPROPRIATION Dividend on Preference Shares 0.83 - Proposed Dividend on Equity Shares 213.42 213.42 Tax on Dividend 30.05 29.93 Transfer to General Reserve 200.00 200.00 Balance Carried to Balance Sheet 7,051.83 4,728.33 7,496.13 5,171.68

Earning Per Share (Basic and Diluted) 25.93 20.66 Significant Accounting Policies and Notes forming part of Accounts L

As per our report of even date

FOR V. A. PARIKH & ASSOCIATES For and on behalf of the BoardChartered Accountants

JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAHPartner Company Secretary Chairman CFO & Jt Managing Director



SCHEDULES

'A' to 'L' Annexed to and Forming Part of The Accountsfor the year ended March 31, 2006

SCHEDULE ' A '

SHARE CAPITAL March 31, 2006 March 31, 2005 (Rs. in lacs) (Rs. in lacs)

Authorised 1,50,00,000 (1,50,00,000) Equity shares 1,500.00 1,500.00 of Rs.10 each 5,00,00,000 (Nil) Redeemable Cumulative 5,000.00 - Preference shares of Rs.10 each

6,500.00 1,500.00

Issued, Subscribed and Paid-up

1,06,71,200 (1,06,71,200) Equity Shares 1,067.12 1,067.12 of Rs. 10 each

2,52,00,000 (Nil) Redeemable Cumulative 2,520.00 - Preference Shares of Rs. 10 each (Note 1)

3,587.12 1,067.12

SCHEDULE ' B '

RESERVES AND SURPLUS

Capital Reserves

As per Last Balance Sheet 0.16 0.16

Share Premium

As per Last Balance Sheet 1,736.28 1,736.28

General Reserve

As per Last Balance Sheet 14,001.40 13,801.40 Transfer from Profit and Loss Account 200.00 200.00 14,201.40 14,001.40 Surplus as per Profit and Loss Account 7,051.83 4,728.33

22,989.67 20,466.17


SCHEDULE ' C '

March 31, 2006 March 31, 2005 (Rs. in lacs) (Rs. in lacs)

SECURED LOANS

Working Capital Loan from Banks 58,977.91 60,100.85 (Repayable within one year) Secured bya. Hypothecation of Stock in Trade and Book Debtsb. Hypothecation of Premises at Mumbai and Suratc. Fixed Depositsd. Guaranteed by some of the Directors in their personal capacity

Term Loan from Bank 1,000.60 - Secured bya. Fixed Depositsb. Guaranteed by some of the Directors in their personal capacity

59,978.51 60,100.85

SCHEDULE ' D '

FIXED ASSETS (Rs. in lacs)

Description of Assets As at Additions Deduction As at As at For the Deductions As at As at As at April 1, March 31, April 1, Year March 31, March 31, March 31,

2005 2006 2005 2006 2006 2005

Goodwill 50.00 - - 50.00 - - - - 50.00 50.00

Land - 634.81 - 634.81 - - - - 634.81 -

Office Premises 681.78 - - 681.78 60.07 11.11 - 71.18 610.60 621.71

Factory Building 608.70 - - 608.70 21.03 20.33 - 41.36 567.34 587.67

Plant & Machinery 1,477.73 1,674.77 - 3,152.50 186.56 104.31 - 290.87 2,861.63 1,291.17

Vehicles 216.87 52.17 11.68 257.36 52.93 21.14 6.63 67.44 189.92 163.94

Furniture & Fixtures 233.64 9.58 - 243.22 56.45 15.05 - 71.50 171.72 177.19

CURRENT YEAR 3,268.72 2,371.33 11.68 5,628.37 377.04 171.94 6.63 542.35 5,086.02 2,891.68

PREVIOUS YEAR 2,176.26 1,111.56 19.10 3,268.72 257.03 127.87 7.86 377.04 2,891.68 1,919.23

GROSS BLOCK (AT COST) DEPRECIATION NET BLOCK


SCHEDULE ' E '

INVESTMENT March 31, 2006 March 31, 2005 (Rs. in lacs) (Rs. in lacs)

In Shares Long Term Investments: Unquoted: Wholly owned subsidiary- Asian Star Co.Ltd., USA 178.75 178.75 5(5) Shares of US$ 100000 each.

Wholly owned subsidiary - Intergems Inc., USA 46.94 46.94 1000(1000) Shares of US$ 100 each.

Star Holdings Ltd. 11.31 11.31 250 (250) Shares of US$ 100 each

Carbon Accessories Ltd. 200.00 200.00 20,00,000 (20,00,000) Shares of Rs. 10 each

437.00 437.00 Current Investments: Quoted: Bharati Tele Venture Ltd. - 21.93 Nil (10,000) Shares of Rs. 10 each

Divi's Laboratories Ltd. - 172.50 Nil (14,519) Shares of Rs.10 each

Glaxo Smithkline Pharmaceuticals Ltd. - 36.43 Nil (5,000) Shares of Rs. 10 each

Petron Engineering Construction Ltd. - 13.22 Nil (10,000) Shares of Rs. 10 each

Punjab National Bank - 116.04 Nil (29,715) Shares of Rs. 10 each

Reliance Energy Ltd. - 279.62 Nil (50,000) Shares of Rs. 10 each

Tata Steel - 498.28 Nil (1,20,000) Shares of Rs. 10 each Market Value (Current Year Rs. Nil) (Previous Year Rs. 1076.78 lacs)

- 1,138.02

LESS : Provision for diminution in value of investments - (61.24)

- 1,076.78 In Partnership Firm Jewel Art 126.39 150.69

563.39 1,664.47


SCHEDULE ' F '

CURRENT ASSETS, LOANS AND March 31, 2006 March 31, 2005ADVANCES (Rs. in lacs) (Rs. in lacs)

CURRENT ASSETS

Inventories (As verified, valued and certified by a Director) Raw Materials 17,067.40 22,581.45 Work in Process 438.76 188.22 Finished Goods 10,050.09 7,715.91 Consumables 6.26 11.92

27,562.51 30,497.50 Sundry Debtors (Unsecured, Considered good) For a period more than six months 3,387.59 1,812.49 Others 44,332.29 40,766.68

47,719.88 42,579.17

Cash and Bank Balances Cash on Hand 15.07 5.04

Balances with Scheduled Bank In Current Accounts 2,672.33 571.32 In Fixed Deposits 6,009.29 4,769.16

8,696.69 5,345.52 LOANS AND ADVANCES (Unsecured, Considered good)

Advance Income Taxes 4,251.19 2,737.60 Other Advances 990.94 2,100.52 Staff Loans 4.17 4.46

5,246.29 4,842.58 Deposits

For Office Premises 179.06 169.06 With Others 32.47 30.94 211.53 200.00

5,457.82 5,042.58

89,436.90 83,464.77


SCHEDULE ' G '

March 31, 2006 March 31, 2005CURRENT LIABILITIES (Rs. in lacs) (Rs. in lacs)

Current Liabilities

Creditors for Goods 1,945.53 2,349.53 Creditors for Processing 921.19 773.27 Creditors for Others 167.43 107.94

3,034.15 3,230.74 Temporary Overdraft 0.02 0.01 Unclaimed Dividend 0.03 0.02 Creditors for Capital Goods 890.06 -

3,924.26 3,230.77 Provision

Proposed Dividend 214.25 213.42 Tax on Dividend 30.05 29.93 Taxation 3,884.89 2,686.03

4,129.19 2,929.38

8,053.45 6,160.15

PRELIMINARY EXPENSES

At the beginning 4.26 12.17 Less: Written off during the year 4.26 7.91

- 4.26


SCHEDULE ' H '

March 31, 2006 March 31, 2005SALES & SERVICES (Rs. in lacs) (Rs.in lacs)

Sales - Diamonds 116,792.13 104,986.34 Sales - Jewellery 3,808.07 1,201.41 Sales of Silver Model - 4.36 Sales of Platinum Mounting 15.29 2.82 Jewellery Making Charges 47.78 9.55 Sales of Power-Windmill 3.61 -

120,666.88 106,204.48

SCHEDULE ' I '

March 31, 2006 March 31, 2005OTHER INCOME (Rs. in lacs) (Rs. in lacs)

Dividend Received 25.13 11.28 Profit on Sale of Shares / Derivatives - 19.42 Provision for diminution in 61.24 - value of investment written back Share of Profit from Partnership Firm 50.70 65.04

137.07 95.74

SCHEDULE ' J '

MATERIALS COST

Stock at the Commencement 22,581.45 16,030.00 Purchases during the year 101,741.50 103,622.29

124,322.95 119,652.29

Less : Stock at the Close (17,067.40) (22,581.45)

Variation in Stock of Work in Process Stock at the Commencement 188.22 - Less: Stock at the Close 438.76 188.22 (250.54) (188.22)

Variation in Stock of Finished Goods Stock at the Commencement 7,715.91 3,513.30 Less: Stock at the Close 10,050.09 7,715.91 (2,334.18) (4,202.61)

104,670.83 92,680.01


SCHEDULE 'K'

March 31, 2006 March 31, 2005MANUFACTURING & (Rs. in lacs) (Rs. in lacs)OTHER EXPENSES

Manufacturing Expenses

Processing Expenses 5,082.18 4,516.26 Wages 60.31 32.90 Contribution to E.S.I.C. 1.83 1.22 Contribution to Provident Fund 3.97 1.78 Electrical Charges 39.97 20.53 Factory expenses 23.59 13.99 Consumables 386.28 376.67

5,598.13 4,963.35

Employee's Emoluments

Director's Remuneration 20.40 15.70 Salary & Bonus 547.19 465.24 Ex-Gratia, Leave Encashment 16.07 20.57 Gratuity 38.19 4.16 Contribution to Provident Fund 37.86 34.81 Group Insurance 5.33 4.83 Contribution to E.S.I.C. 5.72 5.70 M.L.W.F. Charges 0.32 0.25 Staff Welfare Expenses 27.53 698.61 20.18 571.44

Administrative Expenses

Bank Comission & Charges 117.47 124.30 Electrical Charges 40.16 33.67 Telephone and Fax Charges 48.08 44.80 Local Travelling and Conveyance 11.03 10.92 Legal & Professional fees 28.65 23.13 Printing & Stationery 17.23 15.20 Repairs & Maintenance (Building) 4.14 5.50 Repairs & Maintenance (Machinery) 9.10 3.23 Repairs & Maintenance (Others) 33.40 51.80 Postage and Courier 17.95 8.31 Motor Car Expenses 17.34 17.38 Insurance Premium 109.52 112.41 Rent & Compensation 29.59 27.77


Document Stamp Charges 0.53 11.95 Donation 70.77 110.57 Audit Fees 2.01 1.98 Office Canteen Expenses 20.71 15.52 Office Expenses 8.00 9.04 Director's Sitting Fees 0.94 0.83 Provision for diminution in - 61.24 value of investment Registration & filing fees 35.22 0.93 Sundry Expenses 8.85 7.81 Security Service Expenses 14.72 11.48 Loss on Sale of Assets 3.80 4.94 Loss on Sale of Shares / Derivatives 23.73 - Income Tax 21.18 - Membership and Subscription 6.44 700.56 1.58 716.29

Selling & Distribution Expenses

Advertisement 36.15 20.32 Sales Expenses 567.89 47.25 Sales Tax 0.04 0.03 Entertainment Expenses 11.69 4.07 Foreign Travelling 125.50 119.41 Commission on Sales 78.41 67.45 Re-Assortment Charges 14.15 10.14 Freight & Clearing Charges 71.81 65.48 Agency Charges 2.25 1.81 Diamond Grading Charges 33.00 1.55 E.C.G.C. Premium 225.74 231.60 Packing Expenses 7.08 1,173.71 6.89 576.00

8,171.01 6,827.08


SCHEDULE ‘ L ’ Notes annexed to and forming part of the Balance Sheet as at 31st March, 2006 and Profit & Loss Account for the year ended on that date. I-SIGNIFICANT ACCOUNTING POLICIES A. General

The financial statements have been prepared using mercantile system of accounting under the historical cost convention. It recognises significant items of income and expenditure on accrual basis.

B. Sales

Income from the sale of diamonds / studded jewellery is recognised when the sale has been completed with the passing of the title. Income from sale of wind energy is recognised on its transmission and delivery.

C. Other Income Interest

Interest income is recognised on accrual basis. Insurance claim

Insurance claim on loss by theft of diamonds is recognised on the basis of acceptance of claim by the Insurance Company.

Income from Investments Income from investment is accounted in the year in which the unconditional right to

receive such income is established. D. Depreciation

Depreciation on fixed assets has been provided at the rates and in the manner prescribed in schedule XIV to the Companies Act, 1956 on straight line basis.

E. Foreign Currency Transactions

E.1 Transactions denominated in foreign currencies are normally recorded at the Exchange rate prevailing at the time of the transaction.

E.2 Monetary items denominated in foreign currencies at the year-end are translated at year-

end rate.

E.3 In case of forward contracts, the difference between the year end rate and rate on the date of contract is recognised as exchange difference. The proportionate difference between the forward rate and the exchange rate on the date of transaction is recognised over the life of the contract.

E.4 Non monetary foreign currency items are carried at cost.

E.5 Any income or expense on account of exchange difference either on settlement or on

translation is adjusted to the profit and loss account except in cases where they relate to acquisition of fixed assets in which case they are adjusted to the carrying cost of such assets.

F. Fixed Assets

Cost of Fixed Assets comprises of purchase price, duties, levies and any cost directly attributable to bringing the asset to its working condition for the intended use. Fixed Assets are stated at cost less accumulated depreciation.

G. Borrowing Costs

All borrowing costs, which are of revenue nature, are charged to Profit and Loss Account.


H. Investment

Investment is valued at cost. Provision for diminution in value is made only if such diminution is otherwise than temporary in the opinion of the management. Current Investments are valued at cost or market value, whichever is lower. Investment in Partnership firm is accounted after including share of profit thereon as per last available audited information.

I. Inventories

I.1 Raw Materials:

Stock of rough diamonds is stated at weighted average cost or net realizable value whichever is lower. Stock of gold is valued at cost on FIFO basis or net realizable value whichever is lower. Stock of polished diamonds (for jewellery operations) is valued at technically evaluated cost or net realizable value whichever is lower. Specific items of cost are allocated and assigned to inventory wherever practicable.

I.2 Work in Process is valued at technically evaluated cost. Finished goods are valued at

technically evaluated cost or estimated net realizable value, whichever is lower. Cost includes cost of material and related conversion cost. In view of the nature of variation in the values of individual diamonds and the differential in their processing costs, it is not practicable to compute the cost of polished diamonds using either FIFO or weighted average cost. In view of the numerous grades, it is not practicable to use specific costs. The method of valuation is therefore in compliance with “AS2”issued by the Institute of Chartered Accountants of India to the extent practicable.

I.3 Consumables are valued at cost.

J. Retirement Benefits J.1 Provident Fund

The contribution to provident fund is made at a pre-determined rate to the provident fund and charged to the profit and loss account on an accrual basis.

J.2 Gratuity

Contribution towards gratuity is made to Gratuity Trust created under the group gratuity scheme entered with Life Insurance Corporation of India (LIC). The contribution is as per the actuarial valuation by LIC.

K. Taxation Current Tax is determined as the amount of tax payable in respect of taxable income for the year after considering various reliefs admissible under provisions of the Income Tax Act, 1961. The deferred tax for timing difference between the book and tax profit for the year is accounted for using tax rates and tax laws that have been enacted or substantially enacted at the Balance Sheet date. Deferred tax asset arising from timing difference are recognised to the extent that there is virtual certainty that sufficient future taxable income will be available.

L. Amortization

Preliminary expenses and expenses incurred on issue of shares are amortized over a period of ten years from year in which it became payable.

M. Contingent Liability

All known liabilities, wherever material, are provided for. Contingent Liabilities are usually not provided for, unless it is probable that the future outcome may be materially detrimental to the Company.


II-NOTES FORMING PART OF THE ACCOUNTS

1. The Company has issued 2,52,00,000 Redeemable Cumulative Preference Shares of Rs.10 each during the year with right to 3% fixed dividend, redeemable at any time before 20 years from the date of allotment but not before 1 year from the date of allotment.

2. Surplus on account of exchange difference on outstanding forward exchange contracts to be recognised in profit and loss account of subsequent accounting period aggregate to Rs 133.72 lacs.(For F.Y. 2004-05 it was Rs. 138.78 lacs).

3. There is no amount due to registered small scale industrial undertaking according to the information

available with the Company. 4. Related Party Disclosure

Name Relationship Nature of Transaction Volume

(Rs in lacs)

Amount Out

standing as on

31.03.2006 (Rs in lacs)

Asian Star Co. Ltd. (USA) Wholly Owned Subsidiary

Export of Polished Diamonds Import of Diamonds Dividend Received

8,159.20

11.59 6.69

3209.84

Nil 5.69

Intergems Inc. Wholly Owned Subsidiary

Export of Polished Diamonds Import of Diamonds

1579.95

110.49

1014.83

Nil

Carbon Accessories Ltd. Asian Star has Substantial interest in the Capital of Company and some of the Directors are Common.

• Sale of Jewellery 544.50 567.70

Shah Enterprise Some of the Directors are Partners

• Premises taken on lease

- Lease Deposit - Rent

10.00 1.50

10.00 Nil

Shah Manufacturers One of the Director is Partner

• Contract for Processing diamonds

722.05 72.68

Rahil Agencies

Some of the Directors are Partner



50.00 0.36

50.00 Nil

Jewel Art Company and some of the directors are partners

• Capital Withdrawn • Profit earned • Deemed export

of Polished Diamonds

75.00

52.24

1,909.82

126.39

705.03


• Purchase of Studded Jewellery

• Sale of Platinum Mountings

• Jewellery Making Charges

• Purchase of assets • Purchase of Raw

Materials

2.63

15.44

0.65

8.14 9.76

Nil

Nil

Nil

Nil Nil

Arvind T. Shah

Director • Directors Remuneration



7.20

Nil 0.96

Nil

30.00 Nil

Dinesh T. Shah

Director • Premises taken on lease


Nil 0.96

30.00 Nil

Dharmesh D. Shah

Director • Directors Remuneration



7.20

Nil 0.72

Nil

20.00 Nil

Vipul P. Shah

Director • Premises taken on lease


Nil 0.96

30.00 Nil

Priyanshu A. Shah Director • Directors Remuneration

6.00

Nil

5. Details of investment :

Particulars of Investment in Partnership Firm : Name of the Firm : Jewel Art Total Capital of the Firm : Rs 1,679.01 lacs Name of the Partner Share of Balance as Profit on 31.3.06 ( Rs. in lacs ) 1. Dinesh T. Shah 15 % 447.55 2. Arvind T. Shah 15 % 309.55 3. Dharmesh D. Shah 15 % 159.55 4. Vipul P. Shah 30 % 511.76 5. Asian Star Co. Ltd. 10 % 126.39 6. Priyanshu A Shah 15 % 124.21


Particulars of investments purchased and sold during the year :

Script Name No of Equity Face Purchase Cost

Shares Value Rs. in lacs

ABB Ltd 166 10.00 3.14

Aftek Infosys Ltd 10000 2.00 11.92

Andhra Bank 45048 10.00 40.54

Aptech Ltd 20000 10.00 27.87

Associated Cement Companies Ltd 1852 10.00 9.87

Bajaj Auto Ltd 1021 10.00 21.13

Bank of Baroda 28823 10.00 66.29

Bank of Punjab Ltd 2303667 10.00 836.34

Bharat Heavy Electricals Ltd 1714 10.00 23.96

Bharat Petroleum Corporation Ltd 1178 10.00 4.86

Bharti Tele Ventures Ltd 23223 10.00 68.07

Centurion Bank of Punjab Ltd 2547950 10.00 474.59

Cipla Ltd 2760 2.00 11.76

Dabur India Ltd 1125 1.00 2.10

Divis Laboratories Ltd 15019 10.00 177.90

Dr Reddys Laboratories Ltd 806 5.00 7.48

Eskay KnIT India Ltd 200000 1.00 23.59

Gail India Ltd 3319 10.00 8.90

Glaxo SmithKline Pharmaceuticals Ltd 5333 10.00 40.06

Grasim Industries Ltd 1006 10.00 13.74

Gujarat Ambuja Cements Ltd 14237 2.00 11.45

HCL Technologies Ltd 1256 2.00 6.55

Hdfc bank Ltd 3424 10.00 23.80

Hero Honda Motors Ltd 1663 2.00 13.92

Himachal Futristic Communications Ltd 100000 10.00 27.36

Hindalco Industries Ltd 12210 1.00 16.21

Hindustan Lever Ltd 18331 10.00 34.18

Hindustan Petroleum Corporation Ltd 1331 10.00 4.21

Housing Development Finance Corporation Ltd 2955 10.00 34.44

ICICI Bank Ltd 9434 10.00 52.61

Indian Petrochemicals Corporation Ltd 974 10.00 2.13

Infosys Technologies Ltd 3974 5.00 114.99

Ispat Industries Ltd 400000 10.00 91.03


ITC Ltd 37882 1.00 52.47

Jet Airways India Ltd 339 10.00 4.25

Jhagadia Copper Ltd (Swilldm) 200000 10.00 52.70

Larsen & Turbo Ltd. 1496 2.00 25.60

Mahanagar Telephone Nigam Ltd 2472 10.00 3.08

Mahindra & Mahindra Ltd 10910 10.00 59.96

Maruti Udyog Ltd. 1897 5.00 12.03

National Aluminium Company Ltd 2529 10.00 5.26

National Thermal Power Corporation Ltd 10892 10.00 11.57

NIIT Ltd 10200 10.00 22.10

Oil & Natural Gas Corporation Ltd 7330 10.00 80.08

Oriental Bank of Commerce 983 10.00 2.35

Petron Engineering Construction Ltd 10000 10.00 13.22

Punjab National Bank 30953 10.00 121.30

Ranbaxy Laboratories Ltd 3593 5.00 13.87

Reliance Energy Ltd 101682 10.00 540.90

Reliance Industries Ltd. 13630 10.00 115.08

Satyam Computer Services Ltd 3817 2.00 26.66

Shipping Corporation of India Ltd 1108 10.00 1.81

State Bank of India 24152 10.00 173.03

Steel Authority of India Ltd. 16211 10.00 8.05

Sun Pharmaceutical Industries Ltd 728 5.00 4.90

Tata Chemicals Ltd 844 10.00 1.85

Tata Consultancy Services Ltd 2730 10.00 44.60

Tata Motors Ltd (Tata Engineering) 3464 10.00 20.43

Tata Power Company Ltd 1996 10.00 8.81

Tata Tea Ltd 220 10.00 1.99

Tata Teleservices Maharashtra Ltd 100000 10.00 29.78

Tisco Ltd 125830 10.00 519.40

Videsh Sanchar Nigam Ltd 1119 10.00 4.35

Wipro Ltd 8032 2.00 34.68

Zee Telefilms Ltd 1619 10.00 2.62

GRAND TOTAL 4325.78


6. Deferred Tax Liability

• Break up of Deferred Tax Liability as on 31st March, 2006 is as given below; Deferred Tax Liability Rs in lacs Rs in lacs Deferred Tax Liability as on 1.4.2005 252.43 Add: Provision for Deferred Tax made during the year arising on account of timing difference in Depreciation 225.13 477.56

=======

Less: Deferred Tax Asset as on 1.4.2005 21.54 Less: Diminution in value of investment (20.62)

Less: Disallowance under Income Tax Act of last year allowed in current year (0.92) Nil

======== ========

Deferred Tax Liability (Net) as on 31.3.2006 477.56 ========

7. Contingent Liability

All known liabilities, wherever material, are provided for. Contingent Liabilities are usually not provided for, unless it is probable that the future outcome may be materially detrimental to the Group. Asian Star Co. Ltd. has paid Rs 254.76 lacs to Income Tax Department against the demands raised by them on completion of tax assessment. The company is of the opinion that the disallowances made by Income Tax Department are not tenable and has filed appeals against these demands. The same shall be charged to Profit & Loss account, if required, on disposal of appeals.

8. Segment reporting

Primary Segment Company has only one primary reportable segment viz. Cut & Polished Diamonds. Secondary Segment Details as per Geographic Region

REGION Region wise

Sales & Services

Rs in lacs

Direct Segment Assets (Debtors)

Rs. in lacs

1. Exports

ASIA 73,850.82 27,696.41 USA 25392.35 11,356.05 EUROPE 14,505.99 5,551.04

EXCHANGE GAIN / (LOSS) ON ABOVE 1,540.30 215.60

2. Local 1,502.67 490.20 TOTAL 1,16,792.13 45,309.30


Segment Reporting and Related Information requires that an enterprise report a measure of total assets for each reportable segment. The fixed assets and inventories used in the company’s business are not identifiable to any particular reportable segment and can be used interchangeably among geographical segments. Consequently, management believes that it is not practical to provide segment disclosures relating to total assets since a realistic analysis among the various geographic segments is not possible. Therefore, information has been restricted to direct debtors of each geographical segment.

9. Earning Per Share :-

2005-2006 2004-2005 2,781.29 2,205.54

(13.49) (0.55) 1,06,71,200 1,06,71,200

10 10

Profit After Tax (Rs. in lacs) Prior Year Adjustments Number Of Equity Shares Nominal Value Per Equity Share (Rs.) Earning Per Share(Basic) (Rs.) 25.93 20.66

10. Licenced and installed capacity : - N.A.

A. Information in respect of goods manufactured :

POLISHED DIAMONDS UNITS 2005-2006 2004-2005 Licenced Capacity Carats N.A. N.A. Installed Capacity Carats N.A. N.A. *Production Carats 8,23,446.81 7,02,357.89 (*Including Manufactured by others on job work basis)

STUDDED JEWELLERY UNITS 2005-2006 2004-2005

Licenced Capacity Pcs. 60,000 60,000 Installed Capacity Pcs. 60,000 60,000 *Production Pcs. 42,409 17,761 (*Including Manufactured by others on job work basis)

WINDMILL UNITS 2005-2006 2004-2005 Installed Capacity KW 2500 N.A.

B. Particulars of Purchase, Sales, Manufacture and Stock of finished goods.

POLISHED DIAMONDS 2005-2006 2004-2005 Quantity in

carats Rupees in

lacs Quantity in

carats Rupees in

lacs Opening Stock 55,540.00 7,283.09 58,390.00 3,513.30 Purchase 3,495.30 710.61 6,912.36 1,096.09 Manufactured* 8,23,446.81 1,11,228.81 7,02,357.89 1,00,796.40 Sales 7,94,610.48 1,16,060.70 7,11,986.15 1,04,512.91 Transfer to Jewellery Division 15,878.45 2,421.47 Nil Nil Weight Loss 108.18 134.10 Closing Stock 71,885.00 9,163.76 55,540.00 7,283.09


STUDDED JEWELLERY 2005-2006 2004-2005 Quantity in

Pcs. Rupees in lacs Quantity in

Pcs. Rupees in

lacs Opening Stock 2,808.00 432.82 Nil Nil Purchase 51.00 6.83 3,310.00 462.59 Manufactured 42,409.00 3,741.79 17,761.00 1,171.64 Sales 39,636.00 3,808.06 18,263.00 1,201.41 Closing Stock 5,632.00 886.63 2808.00 432.82

WINDMILL 2005-2006 2004-2005 Quantity in

Kwh Rupees in lacs Quantity in

Kwh Rupees in

lacs Sales of Power 99120.45 3.61 N.A. N.A.

C. Analysis of Material Consumed

ROUGH DIAMONDS 2005-2006 2004-2005 Quantity in

carats Rupees in lacs Quantity in

carats Rupees in

lacs Consumption 16,28,467.29 1,05,803.59 15,07,234.37 95,936.92 Sales 23,196.23 731.43 34,148.70 473.43

RAW GOLD 2005-2006 2004-2005 Quantity in

Gms. Rupees in

lacs Quantity in

Gms. Rupees in

lacs Consumption 1,69,000 1,155.47 60,442.55 374.09 Sales Nil Nil Nil Nil

POLISHED DIAMONDS (for Jewellery Manufacturing)

2005-2006 2004-2005

Quantity in Cts.

Rupees in lacs

Quantity in Cts.

Rupees in lacs

Consumption 16,658.40 2,533.03 5,099.02 717.62 Sales Nil Nil Nil Nil

2005-2006 (Rs in lacs)

2004-2005 (Rs in lacs)

11A. Value of imported and indigenous consumption (Polished Diamonds)

Imported Raw material Indigenous Raw material

82,501.70 77.98%

23,301.89

22.02%

65,689.46 68.47%

30,247.46

31.53% TOTAL 1,05,803.59 95,936.92 11B. Value of imported and indigenous consumption (For Jewellery Manufacturing)

Imported Raw material Indigenous Raw material

5.70 0.15%

3,682.80 99.85%

72.48 6.39%

1,061.89 93.61%

TOTAL 3,688.50 1,134.37


12. Interest Charged to profit & loss account is net of Interest received

306.24 268.13

Tax Deducted at source 63.38 52.33 13. Expenses (Income) in respect of previous years debited / Credited during the year.

13.48 Nil

14. Value of Import on CIF Basis Raw Materials (Rough Diamonds)

83834.10

69,965.13

15. Expenditure in Foreign Currency Foreign Traveling 44.06 35.06 Advertisement & Sales Expenses 37.42 11.93 Consumables 337.23 359.63 Value Added Service fees 479.31 Nil 16. Earning in Foreign exchanges a. FOB value of Diamonds exported 1,15,167.63 1,03,375.43 b. FOB value of Studded Jewellery exported 4.05 2.32 c. Dividend Received 6.69 4.38 17. Breakup of remuneration paid to Managing/Wholetime

Directors

a. Salary 20.40 15.70 b. Contribution to Provident & other Fund 0.29 0.23 The Company has been advised that the computation of net profit pursuant to section 349 of the Companies Act, 1956 need not be enumerated since no commission has been paid to directors.

18. Auditors Remuneration

Audit Fees 1.68 1.68 Tax Audit 0.34 0.31 Other matters 0.11 0.24 Total 2.13 2.23 19. Estimated amount of contracts remaining to be executed on capital account not provided for (Net of advances)

Nil Nil

20. The figures of Previous year have been regrouped / reclassified wherever necessary and possible so as to confirm with the figures of the current year.

21. Additional Information as required under Part IV of Schedule VI to the Companies Act, 1956. Balance Sheet Abstract and Company's General Business Profiles.

Registration No.

State Code

1 Registration Details 86017 11 Balance Sheet Date 31 03 2006 2

Capital raised during the year (Amount in Rs.'000)

Public Issue Right Issue Nil Nil

Bonus Issue

Private Placement

Nil 2,52,000 3

Position of Mobilization and Deployment of Funds (Amount in Rs.'000)

Total Liabilities

Total Assets

87,03,290 87,03,290


Sources of Funds

Paid up Capital

Reserves & Surplus

3,58,712 22,98,970

Secured Loans

Unsecured Loans

59,97,851 Nil Deferred Tax

Liability

47,757

Application of Funds

Net Fixed Assets

Investments

5,08,602 56,339

Net Current Assets

Miscellaneous Expenditure

81,38,349 Nil

Accumulated Losses

Nil 4

Performance of Company (Amount in Rs.'000)

Turnover

Total Expenditure

1,20,80,397 1,16,58,192

Profit Before Tax

Profit After Tax

4,22,205 2,78,131

Earning Per Share

Dividend Rate %

Rs. 25.93 20% 5

Generic names of principal products, Services of the Company

Item Code No.

Product Description

710239.01 Cut & Polished Diamonds

As per our report of even date attached For V.A. PARIKH & ASSOCIATES For and on behalf of the Board Chartered Accountants JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAH Partner Company Secretary Chairman CFO & Jt. Managing Director



CASH FLOW STATEMENT FOR THE YEAR ENDED ON 31ST MARCH, 2006

March 31, 2006 March 31, 2005( Rs. in lacs) ( Rs. in lacs)

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax & extraordinary items 4,222.03 3,449.33 Adjustment for - Depreciation 171.94 127.87 - Interest 2,846.45 1,649.38 - Unrealised Foreign Exchange (Gain) / Loss (381.43) (249.53) - Dividend Received (25.13) (11.29) - Profit From Partnership firm (50.70) (65.04) - Gratuity 38.19 4.16 - Preliminary Expenses 4.26 7.91 - (Profit)/Loss on sale of fixed assets 3.80 4.94 - (Profit)/Loss on sale of investments 23.73 (19.42) - Diminution in value of Investment written off / (written back) (61.24) 61.24 Operating profit before working capital changes 6,791.90 4,959.55 Adjustment for- Receivables (4,925.11) (2,801.26) - Inventories 2,934.99 (10,954.21) - Loans & Advances (415.24) (2,436.10) - Current Liabilities 1,894.18 898.06 Cash generated from / (used in) operations 6,280.72 (10,333.96) - Taxation (1,194.07) (1,104.97) - Gratuity (38.19) (4.16) - Prior year Adjustments (13.49) (0.55) Cash flow before extraordinary items 5,034.97 (11,443.64) - Extraordinary items - - Net cash from / (used in) operating activities 5,034.97 (11,443.64)

B. CASH FLOW FROM INVESTING ACTIVITIES- Purchase of fixed assets (2,371.33) (1,111.55) - Sale of fixed assets 1.25 6.30 - Purchase of Investments - (1,338.02) - Dividend Received 25.13 11.29 - Sale of Investments 1,189.29 629.32 Net Cash from / (used in) investing activities (1,155.66) (1,802.66)


C. CASH FLOW FROM FINANCING ACTIVITIES - Preference Share Capital raised 2,520.00 - - Secured Loans 42.61 14,133.13 - Interest (2,846.45) (1,649.38) - Proposed Dividend (214.25) (213.42) - Tax on Dividend (30.05) (29.93) Net cash from / (used in) financing activities (528.14) 12,240.40 Net increase / (decrease) in cash & cash equivalents 3,351.17 (1,005.90) Unrealised Foreign Exchange Gain /( Loss) - (0.11) Cash & cash equivalants as at 1st April (Opening) 5,345.52 6,351.53 Cash & cash equivalants as at 31st March (Closing) 8,696.69 5,345.52

For and on behalf of the Board.

Anuradha Banerjee Dinesh T. Shah Dharmesh D. ShahMumbai Company Secretary Chairman CFO & Jt. Managing DirectorDated: June 20, 2006

AUDITORS' REPORT

We have verified the attached Cash Flow Statement of Asian Star Company Limited, derived from audited financial statements and the books and records maintaIned by the company for the year ended March 31, 2006 and March 31,2005 and found the same in agreement therewith.

FOR V.A. PARIKH & ASSOCIATESChartered Accountants

JINESH J. SHAHMumbai PartnerDated: June 20, 2006


Statement pursuant to Section 212 of the Companies Act, 1956 relating to Company’s interest in the Subsidiary

A. Name of the Subsidiary Company Asian Star Company Limited (New York)

Intergem, Inc. (Los Angeles)

B. Date from which it became Subsidiary September 27,1996 June 25, 2001 C. Number of Shares held by Asian Star Company Limited

with its nominee in the subsidiary as at 31/3/2006 5 Equity Shares of US $100,000 fully paid

1000 Equity Shares of US $ 100 fully paid

D. Extent of interest of Holding Company 100% 100% in the Subsidiary as at 31/03/2006 E. Net aggregate amount of profits/(losses) of the Subsidiary Company as far as it concerns the members of the company

a. Dealt with in the company’s account

i. for the financial year of the subsidiary Nil Nil

ii. for the previous year of the subsidiary US $ 70,000 Nil since it become the subsidiary of the company (Rs. 31.23 lacs)

b. Not dealt with in the company’s account

i. for the financial year of the subsidiary US $ 31,729 US $ (3,271)

(Rs. 14.15 lacs) (Rs. –1.46 lacs)

ii. for the previous years of the subsidiary US $ 205,020 US $ 56,494 since it became the subsidiary of the company (Rs. 91.46 lacs) (Rs. 25.20 lacs) Note : Converted at the rate of exchange US$ 1= Rs. 44.61 prevailing on 31/03/2006

For and on behalf of the Board DINESH T. SHAH DHARMESH D. SHAH ANURADHA BANERJEE Chairman CFO & Jt. Managing Director Company Secretary Mumbai Dated: June 20, 2006


ASIAN STAR COMPANY LIMITED (New York) (A Subsidiary Company) Independent Auditors’ Report The Board of Directors ASIAN STAR COMPANY LIMITED 551 Fifth Avenue, Suite # 3502 New York, N.Y. 10176-0001 Gentlemen, We have examined the Balance Sheet of Asian Star Company Limited, New York, as of March 31, 2006 and Related Statement of Income, Retained Earning, Supporting Schedules and Cash Flow for the year then ended. Our examination was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures, as we considered necessary in the circumstances. In our opinion, the financial statements indicated above present fairly the financial position of Asian Star Company Limited, New York, as at March 31, 2006 and the results of operations for the year then ended, in conformity with generally accepted accounting principles. May 19, 2006 Ervin Friedman, CPA New York


ASIAN STAR COMPANY LIMITED (NEW YORK)BALANCE SHEET AS AT MARCH 31, 2006

(Amount in US$)ASSETS March 31,2005

Current Assets Cash Assets 695,987 670,716 Accounts Receivable 7,004,405 6,948,134 Inventory 1,600,240 3,208,985 Loan Receivable 99,927 9,400,559 184,476 11,012,311 Property and Equipments Furniture & Fixtures 82,413 82,413 Less : Accumulated Depreciation 66,576 15,837 62,293 20,120 Other Assets Security Deposits 18,814 18,814 TOTAL ASSETS 9,435,210 11,051,245

LIABILITIES

Current Liabilities Accounts Payable 8,643,097 10,274,652 Accrued Expenses & Taxes Payable 39,189 46,573 Loans Payable 1,175 - Cash Dividend Payable 15,000 8,698,461 10,000 10,331,225

Stockholders' Equity Capital Stock 500,000 500,000 Retained Earnings 236,749 220,020 Total Stockholders' Equity 736,749 720,020 Total Liabilities & Stockholders' Equity 9,435,210 11,051,245

STATEMENT OF INCOME FOR THE YEAR ENDED MARCH 31, 2006

Sales - Operating Revenue - Schedule A 26,254,223 24,242,211 Cost of Sales - Schedule B 25,803,579 23,822,986 Gross Operating Profit 450,644 419,225

General & Administrative Expenses - Schedule C 407,275 392,549 Operating Profit 43,369 26,676 Other Income - Schedule D 268 27,258 Income Before Taxes Based on Income 43,637 53,934 Federal Corporate Income Tax 5,599 6,290 New York State Corporate Tax 2,790 5,584 New York City Corporate Tax 3,519 6,417 Total Corporate Tax 11,908 18,291 Net Income 31,729 35,643

March 31,2006


STATEMENT OF RETAINED EARNING FOR THE YEAR ENDED MARCH 31, 2006

Opening Balance 220,020 194,377 Add : Net Income for the year 31,729 35,643 Total 251,749 230,020 Less : Cash Dividend payable 15,000 10,000 Balance carried forward to Balance Sheet 236,749 220,020

SUPPORTING SCHEDULES FOR THE YEAR ENDED MARCH 31, 2006

Schedules 'A'Operating Revenues Sales 26,254,223 24,242,211 Total Operating Revenues 26,254,223 24,242,211

Schedules 'B'Cost of Sales Inventory at the beginning 3,208,985 2,838,970 Purchases 24,123,436 24,130,711 Freight, Duty & Customs 71,398 62,290 Cost of Goods available for sale 27,403,819 27,031,971 Less : Inventory at the end 1,600,240 3,208,985 Total Cost of Sales 25,803,579 23,822,986

Schedules 'C'General & Administrative Expenses Salaries - Officers 74,350 63,200 Salaries - Others 26,300 22,579 Advertising 31,686 33,477 Alarm 1,741 3,948 Bad Debts 11,720 2,187 Depreciation 4,283 6,839 Contributions 1,311 2,400 Dues & Subscriptions 3,343 5,852 Insurance 82,180 71,033 Interest, Discount & Bank Charges 12,596 16,580 Professional Fees 9,768 20,260 Rent 95,033 86,102 Repairs - 8,047 Stationery & Printing 12,759 9,364 Travel 12,254 14,580 Payroll Taxes 10,141 6,817 Telephone 9,584 12,912 Packing Supplies 5,886 3,202 Outside Services 2,340 3,170 Total General & Administrative Expenses 407,275 392,549


Schedules 'D'Other Income Interest Income 268 27,258 Total Other Income 268 27,258

Notes to Financial Statements for the year ended March 31, 2006

1. Significant Accounting Policies Revenue Recognition Sales of Goods are recorded based on Shipment of Goods.

Inventories Inventories are priced at the lower of Cost or Market

Property and Depreciation The Cost of Property, Furniture, Fixtures and Improvements are recorded at cost and generally the straight line method of computing depreciation has been applied for both income tax and financial reporting purposes.

2. Purchases include merchandise received from ASIAN STAR COMPANY LIMITED, Mumbai, India in the in the amount of US$ 18,467,834

3. Accounts payable includes the amount of US$ 7,195,330 owed to ASIAN STAR COMPANY LIMITED, Mumbai, India for merchandise received


INTERGEM INC. (Los Angeles) (A Subsidiary Company) The Board of Directors INTERGEM, INC. 550 South Hill Street #1256 Los Angeles, California 90013-2289 We have examined the accompanying Balance Sheet, Income Statements, Retained Earnings and all related schedules and notes of Intergem, Inc. of Los Angeles, California, U.S.A for the year ended March 31, 2006 in accordance with standards established by the American Institute of Certified Public Accountants. Our examination was made in accordance with Generally Accepted Auditing Standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the Financial Statements indicated above present fairly the financial position of Intergem, Inc. of Los Angeles, California, U.S.A as of March 31, 2006 and the results of its operations for the year then ended in conformity with Generally Accepted Accounting Principles. June 8, 2006 Jimmy Colabavala

Los Angeles


INTERGEM INC. (LOS ANGELES)BALANCE SHEET AS AT MARCH 31, 2006

ASSETS March 31,2006 March 31,2005Current Assets Cash Assets 45,467 72,642 Accounts Receivable 3,975,502 5,741,106 Prepaid Expenses 827 - Inventory 2,462,404 6,484,200 3,136,539 8,950,287

Property & Equipments Leasehold Improvements 5,262 5,262 Less : Accumulated Depreciation (702) 4,560 (351) 4,911

Equipment 9,741 9,741 Less : Accumulated Depreciation (8,918) 823 (8,209) 1,532

Furniture & Fixtures 15,629 15,629 Less : Accumulated Depreciation (7,656) 7,973 (3,828) 11,801

Other Assets Utility Deposits 4,902 4,902 Other Assets 3,004 7,906 3,004 7,906

TOTAL ASSETS 6,505,462 8,976,437

LIABILITIES

Current Liabilities Accounts Payable 2,449,975 3,785,207 Trade Accounts 3,849,000 4,974,000 Accrued Taxes - 150 Payroll Taxes Payable 1,564 1,229 Other Accrued Expenses - 6,300,539 7,657 8,768,243

Notes Payable - Officer 51,700 51,700

Stockholders' Equity Capital Stock 100,000 100,000 Retained Earnings 53,223 56,494 Total Stockholders' Equity 153,223 156,494 Total Liabilities & Stockholders' Equity 6,505,462 8,976,437

STATEMENT OF INCOME FOR THE YEAR ENDED MARCH 31, 2006

Sales - Operating Revenue - Schedule A 5,212,540 8,465,958 Cost of Sales - Schedule B 4,970,854 8,165,709 Gross Operating Profit 241,686 300,249

General & Administrative Expenses - Schedule C 223,958 246,367 Operating Profit 17,728 53,882 Selling Expenses - Schedule D 20,999 34,806 Net Income (3,271) 19,076


STATEMENT OF RETAINED EARNING FOR THE YEAR ENDED MARCH 31, 2006

Opening Balance 56,494 37,418 Add : Net Income for the year (3,271) 19,076 Total 53,223 56,494 Less : Cash Dividends payable - - Balance carried forward to Balance Sheet 53,223 56,494

SUPPORTING SCHEDULES FOR THE YEAR ENDED MARCH 31, 2006

Schedules 'A'Operating Revenues Sales 5,212,540 8,465,958 Total Operating Revenues 5,212,540 8,465,958

Schedules 'B'Cost of Sales Purchases 4,296,719 7,177,706 Increase/Decrease in inventory 674,135 988,003 Total Cost of Sales 4,970,854 8,165,709

Schedules 'C'General & Administrative Expenses Salaries 64,800 59,700 Alarm 1,200 1,197 Auto Expense 2,264 2,455 Auto Lease 3,896 4,231 Bank Service Charges 1,364 2,083 Bad Debts - 54,143 Contribution 510 200 Depreciation 4,888 5,200 Dues & Subscriptions 1,189 1,040 Insurance - Employee Group 7,633 4,824 Insurance - General 31,979 39,376 Interest Expense 1,844 - Outside Services 3,355 - Office Expense 10,216 11,441 Other Taxes 4,134 9,461 Parking 2,866 2,508 Payroll Taxes 5,811 5,169 Postage - 192 Professional Fees 10,465 2,500 Rent 37,183 34,359 Loss from Robbery 20,587 - Telephone 7,774 6,287 Total General & Administrative Expenses 223,958 246,367

Schedules 'D'Selling Expenses Advertising - 10,000 Freight & Delivery 10,093 19,887 Travel 10,906 4,919 Total Selling Expenses 20,999 34,806


Notes to Financial Statements for the year ended March 31, 2006

1. Significant Accounting Policies Revenue Recognition Sales of goods are recorded based upon total sales made by the Company during the fiscal year & includes accounts receivables as of March 31,2006. These were based upon shipment of goods which is representation of the management of Intergem, Inc. 2. Inventory Closing Inventory is valued by using the method Lower of Cost or Market value as described in Regulations section 1.4741-4

3. Property & Depreciation The basis used for Fixed Assets including Furniture & Fixtures and Equipment is at Cost. Depreciation is taken by using the method 200% Declining Balance on Half Year convention as required by the Internal Revenue Code. This method is used for both Accounting and Tax purposes.

4. Purchases from Asian Star Company Limited, Mumbai, India Total Purchases from Asian Star Company Ltd., Mumbai, India was $ 14,12,416.16 for the fiscal year ended March 31, 2006.

5. Accounts Payable to Asian Star Company Limited, Mumbai, India Accounts Payable amount includes $ 22,74,898.44 to Asian Star Company L:td., Mumbai, India for the fiscal year ended March 31, 2006.


AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS ASIAN STAR COMPANY LIMITED We have examined the attached consolidated Balance Sheet of ASIAN STAR COMPANY LIMITED, (“The Company”) and its subsidiaries as at March 31, 2006, the Consolidated Profit and Loss Account and Consolidated Cash Flow Statement for the year ended on that date. These Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Financial Statements. We believe that our audit provides a reasonable basis for our opinion. We did not audit the Financial Statements of subsidiaries. These Financial Statements have been audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included in respect of the subsidiaries, is based solely on the reports of the other auditors. We report that the consolidated Financial Statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India and on the basis of the separate audited Financial Statements of the company and its subsidiaries included in the consolidated Financial Statements. On the basis of the information and explanations given to us and on the consideration of the separate audit reports on individual audited Financial Statements of the Company and its subsidiaries, we are of the opinion that the said consolidated Financial Statements give a true and fair view in conformity with the accounting principles generally accepted in India, i) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of the Company and its

subsidiaries as at March 31, 2006, ii) in the case of the Consolidated Profit and Loss Account, of the consolidated results of operations of the

Company and its subsidiaries for the year ended on that date and iii) in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows of the Company and

its subsidiaries for the year ended on that date.

For V.A. Parikh & Associates Chartered Accountants

Place : Mumbai Jinesh J . Shah Date : June 20, 2006 Partner Membership No: 111155


CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006


SOURCES OF FUNDSShareholders Funds Share Capital A 3,587.12 1,067.12 Reserves & Surplus B 23,142.57 26,729.69 20,614.61 21,681.73

Loan Funds Secured Loans C 59,978.51 60,100.85

Deferred Tax Liability 477.56 230.89

87,185.76 82,013.47

APPLICATION OF FUNDSFixed Assets D Gross Block 5,677.84 3,318.19 Less : Depreciation 579.06 5,098.78 409.69 2,908.50

Investments E 319.54 1,429.40

Current Assets, Loans & Advances F Inventories 29,374.86 33,273.67 Sundry Debtors 48,393.33 42,882.92 Cash & Bank Balances 9,027.46 5,670.74 Loans & Advances 5,508.00 5,130.60

92,303.65 86,957.93

Less : Current Liabilities & Provisions G Liabilities 6,407.02 6,357.24 Provisions 4,129.19 2,929.38

10,536.21 9,286.62 Net Current Assets 81,767.44 77,671.31

Miscellaneous Expenditure (to the extent not written off or adjusted) Preliminary Expenses - 4.26 87,185.76 82,013.47 Significant Accounting Policies & Notes forming part of Accounts L



JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAHPartner Company Secretary Chairman CFO & Jt. Managing Director



CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006


INCOME Sales & Services H 124,743.80 109,486.14 Other Income I 121.61 124,865.41 81.99 109,568.13

EXPENDITURE Material Cost J 105,512.56 92,695.01 Purchase of Polished Diamonds 3,579.44 4,466.20 Manufacturing & Other Expenses K 8,510.79 7,115.92 Interest 2,852.73 1,644.58 Depreciation 176.00 133.28 Preliminary Expenses Written Off 4.26 120,635.78 7.91 106,062.90

PROFIT Profit Before Tax 4,229.63 3,505.23 Provision for Tax 1,179.48 1,113.20 Provision for Deferred Tax 246.67 138.79 Provision for Fringe Benefit Tax 19.87 - Profit After Tax 2,783.61 2,253.24 Prior year Adjustments (13.49) (0.55) Balance Brought Forward 4,884.54 3,075.20 Balance Available for Appropriation 7,654.66 5,327.89

APPROPRIATION Dividend on Preference Shares 0.83 - Proposed Dividend 213.42 213.42 Tax on Dividend 30.05 29.93 Transfer to General Reserve 200.00 200.00 Balance Carried to Balance Sheet 7,210.36 4,884.54 7,654.66 5,327.89

Significant Accounting Policies &Notes forming part of Accounts L



JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAHPartner Company Secretary Chairman CFO & Jt. Managing Director



SCHEDULES 'A' to 'L' annexed to & forming part of the Consolidated Accounts for the year ended March 31, 2006

SCHEDULE ' A ' March 31, 2006 March 31, 2005SHARE CAPITAL (Rs. in lacs) (Rs. in lacs)

Authorised 1,50,00,000 (1,50,00,000) Equity shares 1,500.00 1,500.00 of Rs.10 each 5,00,00,000 (Nil) Redeemable Cumulative 5,000.00 - Preference shares of Rs.10 each

6,500.00 1,500.00

Issued, Subscribed & Paid-up 1,06,71,200 (1,06,71,200) equity shares 1,067.12 1,067.12 of Rs. 10 each

2,52,00,000 (Nil) Redeemable Cumulative Preference Share of Rs. 10 each 2,520.00 - (Note 1)

3,587.12 1,067.12

SCHEDULE ' B '

RESERVES & SURPLUSCapital Reserves As per Last Balance Sheet 0.16 0.16

Share Premium As per Last Balance Sheet 1,736.28 1,736.28

General Reserve As per Last Balance Sheet 14,001.40 13,801.40 Transfer from Profit & Loss Account 200.00 200.00 14,201.40 14,001.40 Surplus as per Profit & Loss Account 7,210.36 4,884.54

Translation Reserve (5.63) (7.77)

23,142.57 20,614.61


SCHEDULE ' C ' March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

SECURED LOANS

Working Capital Loan from Banks 58,977.91 60,100.85 (Repayable within one year) Secured bya. Hypothecation of Stock in Trade & Book Debtsb. Hypothecation of Premises at Mumbai & Suratc. Fixed Depositsd. Guaranteed by some of the Directors in their personal capacity

Term Loan From Bank 1,000.60 - Secured bya. Fixed Depositsb. Guaranteed by some of the Directors in their personal capacity

59,978.51 60,100.85

SCHEDULE ' D '

FIXED ASSETS (Rs. in lacs)

Description of Assets As at Additions Deduction As at As at For the Deductions As at As at As at April 1, March 31, April 1, March 31, March 31, March 31,

2005 2006 2005 2006 2006 2005

Goodwill 50.00 - - 50.00 - - - - 50.00 50.00

Land - 634.81 - 634.81 - - - - 634.81 -

Office Premises 681.77 - - 681.77 60.07 11.11 - 71.18 610.59 621.70

Factory Building 608.70 - - 608.70 21.02 20.33 - 41.35 567.35 587.68

Plant & Machinery 1,482.00 1,674.77 - 3,156.77 190.14 104.62 - 294.76 2,862.01 1,291.86

Vehicles 216.87 52.17 11.68 257.36 52.93 21.14 6.63 67.44 189.92 163.94

Furniture & Fixtures 278.85 9.58 - 288.43 85.53 18.80 - 104.33 184.10 193.32

CURRENT YEAR 3,318.19 2,371.33 11.68 5,677.84 409.69 176.00 6.63 579.06 5,098.78 2,908.50

PREVIOUS YEAR 2,213.53 1,124.05 19.39 3,318.19 281.19 133.28 4.78 409.69 2,908.50 1,932.34

GROSS BLOCK (AT COST) DEPRECIATION NET BLOCK


SCHEDULE ' E '

INVESTMENT March 31, 2006 March 31, 2005 (Rs. in lacs) (Rs. in lacs)

In Shares Long Term Investments: Unquoted: Star Holdings Ltd. 11.31 11.31 250 (250) Shares of US$ 100 each

Carbon Accessories Ltd. 181.84 190.62 20,00,000 (20,00,000) Shares of Rs. 10 each

193.15 201.93 Current Investments: Quoted: Bharati Tele Ventures Ltd. - 21.93 Nil (10,000) Shares of Rs. 10 each

Divi's Laboratories Ltd. - 172.50 Nil (14,519) Shares of Rs.10 each

GlaxoSmithkline Pharmaceuticals Ltd. - 36.43 Nil (5,000) Shares of Rs. 10 each

Petron Engineering Construction Ltd. - 13.22 Nil (10000) Shares of Rs. 10 each

Punjab National Bank - 116.04 Nil (29,715) Shares of Rs. 10 each

Reliance Energy Ltd. - 279.62 Nil (50,000) Shares of Rs. 10 each

Tata Steel - 498.28 Nil (1,20,000) Shares of Rs. 10 each

Market Value (Current Year Nil) (Previous Year Rs. 1,076.78 lacs)

- 1,138.02

LESS : Provision for diminution in value of investments - (61.24)

- 1,076.78 In Partnership Firm Jewel Art 126.39 150.69

319.54 1,429.40


SCHEDULE ' F 'March 31, 2006 March 31, 2005

CURRENT ASSETS, LOANS & (Rs. in lacs) (Rs. in lacs)ADVANCES

CURRENT ASSETSInventories (As verified, valued & certified by a Director) Raw Materials 17,067.40 22,581.45 Work in Progress 438.76 188.22 Finished Goods 11,862.44 10,492.08 Consumables 6.26 29,374.86 11.92 33,273.67

Sundry Debtors (Unsecured, Considered Good)) For a period more than six months 4,250.89 2,751.88 Others 44,142.44 40,131.04

48,393.33 42,882.92

Cash & Bank Balances Cash on Hand 15.99 6.46 Balances with Scheduled Bank In Current Accounts 3,002.18 895.13 In Fixed Deposits 6,009.29 9,027.46 4,769.15 5,670.74

LOANS & ADVANCES (Unsecured, Considered Good) Advance Income Taxes 4,250.18 2,736.94 Other Advances 1,031.54 2,178.82 Staff Loans 4.17 4.46

5,285.89 4,920.22 Deposits with Others For Office Premises 179.06 169.06 With Others 43.05 41.32

222.11 210.38 5,508.00 5,130.60

92,303.65 86,957.93


SCHEDULE ' G ' March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

CURRENT LIABILITIES

Current Liabilities Creditors for Goods 2,669.48 3,252.92 Creditors for Processing 921.19 773.27 Creditors for Others 1,926.24 5,516.91 2,331.02 6,357.21

Temporary overdraft 0.02 0.01 Unclaimed Dividend 0.03 0.02 Creditors for Capital Goods 890.06 -

6,407.02 6,357.24

Provision Proposed Dividend 214.25 213.42 Tax on Dividend 30.05 29.93 Taxation 3,884.89 4,129.19 2,686.03 2,929.38

10,536.21 9,286.62

PRELIMINARY EXPENSES

At the beginning 4.26 12.17 Written Off during the year 4.26 7.91

- 4.26


March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

SCHEDULE ' H '

SALES & SERVICES Sales - Diamonds 120,869.05 108,268.00 Sales - Jewellery 3,808.07 1,201.41 Sales of Silver Model - 4.36 Sales of Platinum Mounting 15.29 2.82 Sales of Power- Windmill 3.61 - Jewellery Making Charges 47.78 9.55

124,743.80 109,486.14

SCHEDULE ' I '

OTHER INCOME

Dividend Received 18.44 6.91 Profit on Sale of Shares / Derivatives - 19.42 Provision for diminution in value of investment 61.24 - written back Share of profit/(loss) from Carbon Accessories Ltd. (8.77) (9.38) Share of profit/(loss) from Partnership Firm 50.70 65.04

121.61 81.99

SCHEDULE ' J '

MATERIALS COST

Stock at the Commencement 22,581.45 16,030.00 Purchases during the year 101,619.41 124,200.86 103,391.99 119,421.99

Less : Stock at the Close (17,067.40) (22,581.45)

Variation in Stock of Work in Progress Stock at the Commencement 188.22 - Less : Stock at the Close 438.76 (250.54) 188.22 (188.22)

Variation in Stock of Finished Goods Stock at the Commencement 10,492.08 6,534.77 Less : Stock at the Close 11,862.44 (1,370.36) 10,492.08 (3,957.31)

105,512.56 92,695.01


SCHEDULE 'K' March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

MANUFACTURING &OTHER EXPENSES

Manufacturing Expenses Processing Expenses 5,082.18 4,516.26 Wages 60.31 32.90 Contribution to E.S.I.C. 1.83 1.22 Contribution to Provident Fund 3.97 1.78 Electrical Charges 39.97 20.53 Factory Expenses 23.59 13.99 Consumables 386.28 5,598.13 376.67 4,963.35

Employee's Emoluments Director's Remuneration 20.40 15.70 Salary & Bonus 627.55 536.07 Ex-Gratia, Leave Encashment 16.07 20.57 Gratuity 38.19 4.16 Contribution to Provident Fund 37.86 34.81 Group Insurance 5.33 14.78 Contribution to E.S.I.C. 5.72 5.70 M.L.W.F Charges 0.32 0.25 Staff Welfare Expenses 27.53 778.97 20.18 652.22


SCHEDULE 'K' March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

Administrative Expenses

Bank Commission & Charges 118.07 125.24 Electrical Charges 40.16 33.67 Telephone & Fax Charges 55.77 53.44 Local Travelling & Conveyance 21.29 19.69 Legal & Professional Fees 37.61 33.36 Printing & Stationery 22.89 19.41 Repairs & Maintenance (Building) 4.14 5.50 Repairs & Maintenance (Machinery) 9.10 3.23 Repairs & Maintenance (Others) 33.40 55.42 Postage & Courier 17.95 8.40 Motor Car Expenses 21.34 21.51 Insurance Premium 163.47 154.29 Rent, Compensation 88.16 81.96 Document Stamp Charges 0.53 11.95 Donation 70.77 110.57 Audit Fees 2.01 1.98 Office Canteen Expenses 20.71 15.52 Office Expenses 12.53 14.18 Director's Sitting Fees 0.94 0.83 Provision for diminution in value of investment - 61.24 Registration & filing fees 35.22 0.93 Sundry Expenses 27.52 38.79 Security Service Expenses 16.02 13.79 Loss on sale of Assets 3.80 4.94 Loss on Sales of Shares/Derivatives 23.73 - Exchange loss/(gain) on Consolidation 61.31 (1.29) Income Tax 21.18 - Membership & Subscription 9.25 938.87 5.85 894.40

Selling & Distribution Expenses

Advertisement 50.18 39.88 Sales Expenses 567.89 48.80 Sales Tax 0.04 0.03 Entertainment Expenses 11.69 4.07 Foreign Travelling 125.50 119.41 Commission on Sales 78.41 67.45 Assortment Charges 14.15 10.14 Freight & Clearing Charges 76.28 74.43 Agency Charges 2.25 1.81 Diamond Grading Charges 33.00 - E.C.G.C. Premium 225.74 231.60 Packing Expenses 9.69 1,194.82 8.33 605.95

8,510.79 7,115.92


SCHEDULE “ L ” NOTES annexed to and forming part of the Consolidated Balance Sheet as at 31st March, 2006 and Consolidated Profit & Loss Account for the year ended on that date. I-SIGNIFICANT ACCOUNTING POLICIES A. General

The financial statements have been prepared using mercantile system of accounting under the historical cost convention. It recognises significant items of income and expenditure on accrual basis.

B. Sales

Income from the sale of diamonds / studded jewellery is recognised when the sale has been completed with the passing of the title. Income from sale of wind energy is recoginsed on its transmission and delivery.

C. Other Income Interest Interest income is recognised on accrual basis.

Insurance claim

Insurance claim on loss by theft of diamonds is recognised on the basis of acceptance of claim by the Insurance Company.

Income from Investments Income from investment is accounted in the year in which the unconditional right to receive

such income is established. D. Depreciation

Depreciation on fixed assets has been provided at the rates and in the manner prescribed in schedule XIV to the Companies Act, 1956 on straight line basis. Depreciation of subsidiaries has been provided on Straight Line Basis except Intergem Inc. where it is provided on declining balance method.

E. Foreign Currency Transactions

E.1 Transactions denominated in foreign currencies are normally recorded at the Exchange rate

prevailing at the time of the transaction.

E.2 Monetary items denominated in foreign currencies at the year-end are translated at year-end rate.

E.3 In case of forward contracts, the difference between the year end rate and rate on the date of

contract is recognised as exchange difference. The proportionate difference between the forward rate and the exchange rate on the date of transaction is recognised over the life of the contract.

E.4 Non monetary foreign currency items are carried at cost.

E.5 Any income or expense on account of exchange difference either on settlement or on

translation is adjusted to the profit and loss account except in cases where they relate to acquisition of fixed assets in which case they are adjusted to the carrying cost of such assets.


F. Fixed Assets Cost of Fixed Assets comprises of purchase price, duties, levies and any cost directly attributable to bringing the asset to its working condition for the intended use. Fixed Assets are stated at cost less accumulated depreciation.

G. Borrowing Costs:

All borrowing costs, which are of revenue nature, are charged to Profit and Loss Account.

H. Investment

Investment is valued at cost. Provision for diminution in value is made only if such diminution is otherwise than temporary in the opinion of the management. Current Investments are valued at cost or market value, whichever is lower. Investment in Partnership firm is accounted after including share of profit thereon as per last available audited information.

I. Inventories I.1 Raw Materials:

Stock of rough diamonds is stated at weighted average cost or net realizable value whichever is lower. Stock of gold is valued at cost on FIFO basis or net realizable value whichever is lower. Stock of polished diamonds (for jewellery operations) is valued at technically evaluated cost or net realizable value whichever is lower. Specific items of cost are allocated and assigned to inventory wherever practicable.

I.2 Work in Process is valued at technically evaluated cost. Finished goods are valued at

technically evaluated cost or estimated net realizable value, whichever is lower. Cost includes cost of material and related conversion cost. In view of the nature of variation in the values of individual diamonds and the differential in their processing costs, it is not practicable to compute the cost of polished diamonds using either FIFO or weighted average cost. In view of the numerous grades, it is not practicable to use specific costs. The method of valuation is therefore in compliance with “AS2”issued by the Institute of Chartered Accountants of India to the extent practicable.

I.3 Consumables are valued at cost.

J. Retirement Benefits J.1 Provident Fund

The contribution to provident fund is made at a pre-determined rate to the provident fund and charged to the profit and loss account on an accrual basis.

J.2 Gratuity

Contribution towards gratuity is made to Gratuity Trust created under the group gratuity scheme entered with Life Insurance Corporation of India (LIC). The contribution is as per the actuarial valuation by LIC.

K. Taxation Current Tax is determined as the amount of tax payable in respect of taxable income for the year after considering various reliefs admissible under provisions of the Income Tax Act, 1961. The deferred tax for timing difference between the book and tax profit for the year is accounted for using tax rates and tax laws that have been enacted or substantially enacted at the Balance Sheet date. Deferred tax asset arising from timing difference are recognised to the extent that there is virtual certainty that sufficient future taxable income will be available.


L. Amortization

Preliminary expenses and expenses incurred on issue of shares are amortized over a period of ten years from year in which it became payable.

M. Contingent Liability

All known liabilities, wherever material, are provided for. Contingent Liabilities are usually not provided for, unless it is probable that the future outcome may be materially detrimental to the Company.

N. (i) In order to comply with Accounting Standard 21 issued by Institute of Chartered Accountants of

India, the Company has prepared the accompanying consolidated financial statements, which include the financial statements of the Company along with its subsidiaries. Details of subsidiaries are as under.

Name of Subsidiary Country of Percentage of Incorporation ownership (Previous Year) ________________________________________________________________________ 1) Asian Star Co. Ltd. USA 100 (100) 2) Intergem Inc. USA 100 (100)

(ii) The consolidated financial statements of the group have been based on a line by line consolidation of Profit & Loss Account and Balance Sheet of the Company and its subsidiaries.

(iii) The effects of inter-company transactions between consolidated companies are eliminated in

consolidation. O. The Company’s share in its associate, Carbon Accessories Ltd. has been accounted based on equity

method as per latest available audited financial statements.

II-NOTES FORMING PART OF THE ACCOUNTS

1. The Company has issued 2,52,00,000 Redeemable Cumulative Preference Shares of Rs 10 each during the year with right to 3% fixed dividend, redeemable at any time before 20 years from the date of allotment but not before 1 year from the date of allotment.

2. Surplus on account of exchange difference on outstanding forward exchange contracts to be

recognised in profit and loss account of subsequent accounting period aggregate to Rs 133.72 lacs.(For F.Y. 2004-05 it was Rs. 138.78 lacs).

3. There is no amount due to registered small scale industrial undertaking according to the information

available with the Company.


4. Deferred Tax Liability

• Break up of Deferred Tax Liability as on 31st March, 2006 is as given below;

Deferred Tax Liability Rs in lacs Rs in lacs Deferred Tax Liability as on 1.4.2005 252.43 Add: Provision for Deferred Tax made during the year arising on account of timing difference in Depreciation 225.13 477.56

======= Less: Deferred Tax Asset as on 1.4.2005 21.54 Add: Diminution in value of investment (20.62) Add: Disallowance under Income Tax Act ( 0.92) Nil of last year allowed in current year ======= ======= Deferred Tax Liability (Net) as on 31.3.2006 477.56 =======

5. Segment reporting

(Rs in lacs) Particulars

Cut & Polished Diamonds

Others

Unallocable

Sub-Total

Eliminations

Total

2005-2006 2005-2006 2005-2006 2005-2006 2005-2006 2005-2006 1. Segment Revenue External Turnover 120,818.34 3,925.46 - 124,743.80 - 124,743.80 Inter Segment Turnover / Transfer 2,421.47 - - 2421.47 (2421.47) - Gross/Net Turnover 123239.81 3,925.46 - 127165.27 - 124,743.80 2. Segment Result before Interest and Taxes Less: Interest Expense (Net) 2,852.73 - - 2,852.73 - 2,852.73 Profit Before Tax 3,960.19 269.44 - 4,229.63 - 4,229.63 Current Tax - - 1,179.48 1,179.48 - 1,179.48 Deferred Tax - - 246.67 246.67 - 246.67 Fringe Benefit Tax - - 19.87 19.87 - 19.87 Net Profit after Tax 2,783.61 2,783.61 3. Other information Segment Assets 95963.83 6,614.02 - 102,577.85 (4,855.89) 97,721.96 Segment Liabilities 70,011.38 5,836.79 - 75,848.17 (4,855.89) 70,992.28 Capital Expenditure (Net) 1,062.78 1,296.87 - 2,359.65 - 2,359.65 Depreciation 124.51 51.49 - 176.00 - 176.00 Non Cash Expenses 4.26 - - 4.26 - 4.26 other than depreciation

(a) As per Accounting Standard on Segment Reporting (AS-17), issued by the Institute of Chartered

Accountant of India, the company has reported segments information on consolidated basis including business conducted by its subsidiaries.

(b) The company has only one reportable business segment viz., cut & polished diamonds. The

businesses, which were not reportable during the year, have been grouped under 'Others' segment. This comprises of Jewellery and wind energy generation.


(c) The previous year’s figures are not reportable and hence have not been given.

6. Contingent Liability

All known liabilities, wherever material, are provided for. Contingent Liabilities are usually not provided for, unless it is probable that the future outcome may be materially detrimental to the Group.

Asian Star Co. Ltd. has paid Rs 254.76 lacs to Income Tax Department against the demands raised by them on completion of tax assessment. The company is of the opinion that the disallowances made by Income Tax Department are not tenable and has filed appeals against these demands. The same shall be charged to Profit & Loss account, if required, on disposal of appeals.

. As per our report of even date Attached

For V.A. PARIKH & ASSOCIATES For and on behalf of the Board Chartered Accountants JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAH Partner Company Secretary Chairman CFO & Jt. Managing Director



CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED ON MARCH 31, 2006

March 31, 2006 March 31, 2005(Rs. in lacs) (Rs. in lacs)

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax & extraordinary items 4,229.63 3,505.23 Adjustment for - Depreciation 176.00 133.28 - Interest 2,852.73 1,644.58 - Unrealised Foreign Exchange (Gain) / Loss (381.43) (249.53) - Dividend Received (18.44) (6.91) - (Profit)/Loss from Partnership firm (50.70) (65.04) - (Profit)/Loss from Carbon Accessories Ltd 8.77 9.38 - Gratuity 38.19 4.16 - Preliminary Expenses 4.26 7.91 - (Profit)/Loss on sale of fixed assets 3.80 4.94 - (Profit)/Loss on sale of investments 23.73 (19.42) - Diminution in value of Investment written off / written back (61.24) 61.24 Operating profit before working capital changes 6,825.30 5,029.82 Adjustment for- Receivables (5,294.81) (3,219.72) - Inventories 3,898.81 (10,708.90) - Loans & Advances (377.40) (2,422.41) - Current Liabilities 1,250.48 1,303.25 Cash generated from / (used in) operations 6,302.38 (10,017.96) - Taxation (1,199.35) (1,113.20) - Gratuity (38.19) (4.16) - Prior year expenses (13.49) (0.55) Cash flow before extraordinary items 5,051.35 (11,135.87) - Extraordinary items - - Net cash from / (used in) operating activities 5,051.35 (11,135.87)

B. CASH FLOW FROM INVESTING ACTIVITIES- Purchase of fixed assets (2,371.33) (1,124.05) - Sale of fixed assets 1.25 9.67 - Purchase of Investments - (1,338.02) - Dividend Received 18.44 6.91 - Sale of Investments 1,189.29 629.33 Net Cash from / (used in) investing activities (1,162.35) (1,816.16)

C. CASH FLOW FROM FINANCING ACTIVITIES - Preference Share Capital raised 2,520.00 - - Secured Loans 42.61 14,133.13 - Interest (2,852.73) (1,644.58) - Proposed Dividend (214.25) (213.42) - Tax on Dividend (30.05) (29.93) Net cash from / (used in) financing activities (534.42) 12,245.20 Exchange Difference on Translation 2.14 (34.77) Net increase / (decrease) in cash & cash equivalents 3,356.72 (741.60) Unrealised Foreign Exchange Gain /( Loss) - (0.11) Cash & cash equivalants as at 1st April (Opening) 5,670.74 6,412.45 Cash & cash equivalants as at 31st March (Closing) 9,027.46 5,670.74

FOR V. A. PARIKH & ASSOCIATES For and on behalf of the Board

Chartered Accountants

JINESH J. SHAH ANURADHA BANERJEE DINESH T. SHAH DHARMESH D. SHAH Partner Company Secretary Chairman CFO & Jt. Managing Director

Mumbai Mumbai Dated : June 20, 2006 Dated : June 20, 2006

ASIAN STAR COMPANY LIMITED TWELFTH ANNUAL REPORT … · TWELFTH ANNUAL REPORT 2005-2006 ASIAN STAR COMPANY LIMITED NOTICE Notice is hereby given that the TWELFTH ANNUAL GENERAL MEETING

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