KOTA FIBRES LTD.

Ms. Pundir, the managing director and principal owner of Kota Fibres, Ltd., discovered the

problem when she arrived at the parking lot of the company’s plant one morning in early January

2001. Trucks filled with rolls of fiber yarns were being unloaded, but they had been loaded just the

night before and had been ready to depart that morning. The fiber was intended for customers who had been badgering Pundir to fill their orders in a timely manner. The government tax inspector, who was stationed at the company’s warehouse, would not clear the trucks for departure because the

excise tax had not been paid. The tax inspector required a cash payment, but in seeking to draw

funds for the excise tax that morning, Mr. Mehta, the bookkeeper, discovered that the company had

overdrawn its bank account again—the third time in as many weeks. The truck drivers were

independent contractors who refused to wait while the company and government settled their

accounts. They cursed loudly as they unloaded the trucks.

This shipment would not leave for at least another two days, and angry customers would no

doubt require an explanation. Before granting a loan with which to pay the excise tax, the branch

manager of the All-India Bank & Trust Company had requested a meeting with Pundir for the next

day to discuss Kota’s financial condition and its plans for restoring the firm’s liquidity.

Pundir told Mehta, “This cash problem is most vexing. I don’t understand it. We’re a very

profitable enterprise, yet we seem to have to depend increasingly on the bank. Why do we need more

loans just as our heavy selling season begins? We can’t repeat this blunder.”

Company Background

Kota Fibres, Ltd., was founded in 1962 to produce nylon fiber at its only plant in Kota, India,

about 100 kilometers (km) south of New Delhi. By using new technology and domestic raw

materials, the firm had developed a steady franchise among dozens of small, local textile weavers. It

supplied synthetic fiber yarns used to weave colorful cloths for making saris, the traditional

women’s dress of India. On average, each sari required eight yards of cloth. An Indian woman

typically would buy three saris a year. With India’s female population at around 500 million, the

demand for saris accounted for more than 12 billion yards of fabric. This demand was currently

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being supplied entirely from domestic textile mills that, in turn, filled their yarn requirements from

suppliers such as Kota Fibres.

Synthetic-Textile Market

The demand for synthetic textiles was stable with year-to-year growth and

predictable seasonal fluctuations. Unit demand increased with both population and

national income. In addition, India’s population celebrated hundreds of festivals each

year, in deference to a host of deities, at which saris were traditionally worn. The most

important festival, the Diwali celebration in mid-autumn, caused a seasonal peak in the

demand for new saris, which in turn caused a seasonal peak in demand for nylon textiles

in late summer and early fall. Thus, the seasonal demand for nylon yarn would peak in

mid-summer. Unit growth in the industry was expected to be 15% per year.

Consumers purchased saris and textiles from cloth merchants located in the

villages around the country. A cloth merchant was an important local figure usually well

known to area residents; the merchant generally granted credit to support consumer

purchases. Merchants maintained relatively low levels of inventory and built stocks of

goods only shortly in advance of and during the peak selling season.

Competition among suppliers (the many small textile-weaving mills) to those

merchants was keen and was affected by price, service, and the credit that the mills could

grant to the merchants. The mills essentially produced to order, building their inventories of

woven cloth shortly in advance of the peak selling season and keeping only maintenance

stocks at other times of the year.

The yarn manufacturers competed for the business of the mills through responsive

service and credit. The suppliers to the yarn manufacturers provided little or no trade credit.

Being near the origin of the textile chain in India, the yarn manufacturers essentially banked

the downstream activities of the industry.

Production and Distribution System Thin profit margins had prompted Pundir to adopt policies against overproduction and

overstocking, which would require Kota to carry inventories through the slack selling season.

She had adopted a plan of seasonal production, which meant that the yarn plant would operate at peak capacity for two months of the year and at modest levels the rest of the year.

That policy imposed an annual ritual of hirings and layoffs.

To help ensure prompt service, Kota Fibres maintained two distribution warehouses,

but getting the finished yarn quickly from the factory in Kota to the customers was a

challenge. The roads were narrow and mostly in poor repair. A truck could take 10 to 15 days

to negotiate the trip between Calcutta and Kota, a distance of about 1,100 km, and except

when they passed through cities and highways had only one lane. When two cars or trucks

met, they had to slow down and squeeze past each other or else stop and wait for traffic to pass.

Journeys were slow and dangerous, and accidents were frequent.

Company Performance

Kota Fibres had been consistently profitable. Moreover, sales had grown at an

annual rate of 18% in the year 2000. Gross sales were projected to reach (Indian rupees)

INR90.9 million in the fiscal year that ended December 31, 2001 (see Exhibit 1).1 Net

profits reached INR2.6 million in 2000. Exhibits 2 and 3 present recent financial

statements for the firm.

Reassessment

After the episode in the parking lot, Pundir and her bookkeeper went to her office to

analyse the situation. She pushed aside the several items on her desk to which she had intended

to devote her morning: a letter from a field sales manager requesting permission to grant

favorable credit terms to a new customer (see Exhibit 4); a note from the transportation manager

regarding a possible change in the inventory policy (Exhibit 5); a proposal from the purchasing

agent regarding the delivery lead times of certain supplies (Exhibit 6); and a proposal from the

operations manager for a scheme of level annual production (Exhibit 7).

To prepare a forecast on a business-as-usual basis, Pundir and Mehta agreed on

various parameters. Cost of goods sold would run at 73.7% of gross sales—a figure that

was up from recent years because of increasing price competition. Operating expenses

would be about 6% of sales— also up from recent years to include the addition of a

quality-control department, two new sales agents, and three young nephews with whom she

hoped to build an allegiance to the Pundir family business. The company’s income tax rate was

30% and, although accrued monthly, was actually paid quarterly in March, June, September, and

December. The excise tax (at 15% of sales) was different from the income tax and was collected at the factory gate as trucks left to make deliveries to customers and the regional warehouses.

Pundir proposed to pay dividends of INR500,000 per quarter to the 11 members of her extended

family who held the entire equity of the firm. For years Kota had paid high dividends. The Pundir

family believed that excess funds left in the firm were at greater risk than if the funds were returned to shareholders.

Mehta observed that sales collections in any given month had been running

steadily at the rate of 40% of the last month’s sales plus 60% of the sales from the month

before last. The value of the raw materials purchased in any month represented on

average 55% of the value of sales expected to be made two months later. Wages and

other expenses in a given month were equivalent to about 34% of purchases in the

previous month. As a matter of policy, Pundir wanted to see a cash balance of no less

than INR750,000.

1 At the time, the rupee was pegged to the U.S. dollar at the rate of 46.5 rupees per dollar.

Kota Fibres had a line of credit at the All-India Bank & Trust Company, where it also

maintained its cash balances. All-India’s short-term interest rate was currently 14.5%, but Mehta

was worried that inflation and interest rates might rise in the coming year. The seasonal line of

credit had to be cleaned up for at least 30 days each year. The usual cleanup month had been

October,2 but Kota Fibres had failed to make a full repayment at that time. Only after strong

assurances by Pundir that she would clean up the loan in November or December had the bank

lending officer reluctantly agreed to waive the cleanup requirement in October. Unfortunately,

the credit needs of Kota Fibres did not abate as rapidly as expected in November and December,

and although his protests increased each month, the lending officer agreed to meet Kota’s cash

requirements with loans. Now he was refusing to extend any more seasonal credit until Pundir

presented a reasonable financial plan for the company that demonstrated its ability to clean up

the loan by the end of 2001.

Financial Forecast Mehta hurriedly developed a monthly forecast of financial statements using the current operating

assumptions (see Exhibit 8). As an alternative way of looking at the forecasted fund flows, Mehta also prepared a forecast of cash receipts and disbursements (Exhibit 9). The monthly T-accounts underlying the forecasts are given in Exhibit 10, and a summary of the forecast assumptions is in Exhibit 11.

Mehta handed over the forecast to Pundir with a graph showing projected sales and

month-end debt outstanding (Exhibit 12). After studying the forecasts for a few moments,

Pundir expostulated:

This is worse than I expected. The numbers show that we can’t repay All- India’s loan by

the end of December. The loan officer will not accept this forecast as a basis for more credit. We

need a new plan, and fast. We need those loans in order to scale up for the most important part of

our business season. Let’s go over these assumptions in detail and look for any opportunities to

improve our debt position. Then, casting her gaze toward the stack of memos she had pushed aside earlier, she muttered,

“Perhaps some of these proposals will help.” 2 The selection of October as the loan-cleanup month was imposed by the bank on the grounds of tradition. Seasonal

loans of any type made by the bank were to be cleaned up in October. Pundir had seen no reason previously to

challenge the bank’s tradition.

January February March April May June July August September October November December

Year

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Exhibit 1

KOTA FIBRES, LTD.

Summary of Monthly Sales,

Actual for 2000 and Forecast for

2001 (in rupees)

2000 2001

(historical) (forecast)

2,012,400 2,616,120 2,314,260 2,892,825 3,421,080 4,447,404 7,043,400 8,804,250

12,074,400 13,885,560 15,294,240 17,588,376 14,187,420 16,315,533

7,144,020 8,572,824 4,024,800 5,031,000 3,421,080 4,447,404 2,716,740 3,531,762 2,213,640 2,767,050

75,867,480 90,900,108

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Exhibit 2

KOTA FIBRES, LTD.

Historical and Forecast Annual Income Statements

(in rupees)

1999 2000 2001 (Actual) (Actual) (Forecast)

Gross Sales 64,487,358 75,867,480 90,900,108 Excise Tax 9,673,104 11,380,122 13,635,016 Net Sales 54,814,254 64,487,358 77,265,092 Cost of Goods 44,496,277 53,865,911 66,993,380 Gross Profits 10,317,978 10,621,447 10,271,712 Operating Expenses 3,497,305 4,828,721 5,454,006

Depreciation 769,103 908,608 1,073,731

Interest Expense 910,048 1,240,066 1,835,620 Profit Before Tax 5,141,521 3,644,052 1,908,355 Income Tax 1,542,456 1,093,216 572,506 Net Profit 3,599,065 2,550,837 1,335,848

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Exhibit 3

KOTA FIBRES, LTD.

Historical and Forecast Balance Sheets

(in rupees)

2000 2001

(Actual) (Forecast) Cash 762,323 750,000 Accounts Receivable 2,672,729 3,715,152 Inventories 1,249,185 2,225,373

Total Current Assets 4,684,237 6,690,525 Gross PP&E 10,095,646 11,495,646 Accumulated Depreciation 1,484,278 2,558,009

Net PP&E 8,611,368 8,937,637 Total Assets 13,295,604 15,628,161

Accounts Payable 759,535 1,157,298 Notes to Bank (Deposits at Bank) 684,102 3,463,701 Accrued Taxes 0 (180,654)

Total Current Liabilities 1,443,637 4,440,345 Owners' Equity 11,851,967 11,187,816

Total Liabilities and Equity 13,295,604 15,628,161

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Exhibit 4

KOTA FIBRES, LTD.

Memo from Field Sales Manager

To: G. Pundir

From: A. Bajpai

January 7, 2001

As you know, Pondicherry Textiles is considering making us their prime yarn

supplier for this year. Purchases would be in the neighborhood of INR 6 million and are

not reflected in our current sales forecast. Pondicherry would be one of our largest

accounts. They have accepted our terms on price, but have asked for credit terms of 80

days, net. Unless we extend our credit terms, Pondicherry will not do business with us.

We can expect that Pondicherry will purchase our yarn across the year in about the same

pattern as our other customers.

If you approve this exception to our standard terms (45 days), the Pondicherry district

sales office will meet its quarterly sales quota immediately. Please indicate your approval

below.

Approved:

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Exhibit 5

KOTA FIBRES, LTD.

Memo from Transportation Manager

To: G. Pundir

From: R. Sikh

January 2, 2001

As you asked me to, I have been tracking our supply shipments in the last six

months. The new road between Kota and New Delhi has improved reliability of the

shipments significantly. Our supplier’s new manufacturing equipment is now running

consistently, and they have been meeting their shipment dates consistently. As a result,

I would propose that we reduce our raw-material inventory requirement from 60 days

to 30 days. This would reduce the amount of inventory we are carrying by one month,

and should free up a lot of space in the warehouse. I am not sure if that will affect any

other department since we will be buying the same amount of material, but it would

make inventory tracking a lot easier for me. Please let me know so we can implement

this in January.

-10-

Exhibit 6

KOTA FIBRES, LTD.

Memo from Purchasing Agent

To: G. Pundir

From: R. Mohan

January 5, 2001

Hibachi Chemicals of Yokohama has approached us with a proposal to supply us with polyester

pellets on a “just-in-time” basis from their plant in Majala (20 km away). Those pellets account

for 35% of our raw - material purchases. I am looking into the feasibility of this scheme—in

particular, whether Hibachi can actually perform on that basis—and will report back in two

weeks . If the proposal is feasible, it would reduce our inventory of pellets from 60 days

outstanding to only 2 or 3 days

-11-

Exhibit 7

KOTA FIBRES, LTD.

Memo from Operations Manager

To: G. Pundir

From: L. Gupta

January 7, 2001

You asked me to estimate the production efficiencies arising from a scheme of level annual

production. In essence, there are significant advantages to be gained:

• Gross profit margin would rise by 2% or 3%, reflecting labor savings and production

efficiencies gained from a stable work force and the absence of certain seasonal training

and setup costs.

• Seasonal hirings and layoffs would no longer be necessary, permitting us to cultivate a

stronger work force and, perhaps, to suppress labor unrest. You will recall that the unions

have indicated that reducing seasonal layoffs will be one of their major negotiating

objectives this year.

• Level production entails lower manufacturing risk. With the load spread throughout the

year, we would suffer less from equipment breakdowns and could better match the routine

maintenance with the demand on the plant and equipment.

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Exhibit 8

KOTA FIBRES, LTD.

Monthly Forecast of Income Statements and Balance Sheets for 2001

(in rupees)

January February

March

April May

June

July

August September October November December

Gross Sales 2,616,120 2,892,825 4,447,404 8,804,250 13,885,560 17,588,376 16,315,533 8,572,824 5,031,000 4,447,404 3,531,762 2,767,050

Excise Taxes 392,418 433,924 667,111 1,320,638 2,082,834 2,638,256 2,447,330 1,285,924 754,650 667,111 529,764 415,058 Net Sales 2,223,702 2,458,901 3,780,293 7,483,613 11,802,726 14,950,120 13,868,203 7,286,900 4,276,350 3,780,293 3,001,998 2,351,993 Cost of Goods Sold 1,928,080 2,132,012 3,277,737 6,488,732 10,233,658 12,962,633 12,024,548 6,318,171 3,707,847 3,277,737 2,602,909 2,039,316 Gross Profit 295,622 326,889 502,557 994,880 1,569,068 1,987,486 1,843,655 968,729 568,503 502,557 399,089 312,677 Operating Expenses 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501

Depreciation 84,130 84,130 87,047 87,047 87,047 89,964 89,964 89,964 92,880 92,880 92,880 95,797 Interest Expense (Income) (1) 11,058 24,825 70,867 158,210 268,352 362,187 363,212 259,568 145,898 80,686 50,025 40,731 Profit Before Taxes (254,068) (236,566) (109,858) 295,123 759,168 1,080,835 935,979 164,697 (124,776) (125,510) (198,317) (278,352)

Income Taxes (76,220) (70,970) (32,957) 88,537 227,751 324,251 280,794 49,409 (37,433) (37,653) (59,495) (83,506) Net Profit (177,847) (165,596) (76,900) 206,586 531,418 756,585 655,185 115,288 (87,343) (87,857) (138,822) (194,847)

(1) Interest expense = Notes Payable * 14.5%/12 months.

June

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Exhibit 8 (continued)

January February March April May June July August September October November December

Assetsis

Cash (1) 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000

Accounts Receivable (2) 2,773,349 3,291,542 5,012,144 10,301,737 17,997,155 24,748,757 25,697,603 17,191,189 9,003,739 6,295,049 5,029,249 3,715,152

Inventories (3) 2,308,135 5,850,125 11,855,841 17,637,315 19,666,227 14,469,652 6,815,272 3,883,970 2,950,257 1,854,837 1,639,892 2,225,373

Not

Total Current Assets 5,831,484 9,891,667 17,617,985 28,689,052 38,413,382 39,968,409 33,262,875 21,825,159 12,703,996 8,899,886 7,419,142 6,690,525

NetforProp. Plant & Equip. (4) 8,527,237 8,443,107 8,706,060 8,619,013 8,531,966 8,792,002 8,702,038 8,612,075 8,869,194 8,776,314 8,683,434 8,937,637

Total Assets

14,358,721 18,334,774 26,324,045 37,308,065 46,945,348 48,760,411 41,964,914 30,437,233 21,573,190 17,676,200 16,102,575 15,628,161

.

Liabilities and Owners' Equity

Accounts Payable (5) 1,614,553 4,010,818 6,805,539 8,842,088 8,142,024 3,883,534 1,935,531 1,614,553 1,110,950 690,358 1,039,007 1,157,298

Note Payable- Bank (6) 1,146,268 2,962,622 8,767,030 17,419,379 26,997,556 32,950,665 27,167,192 15,795,793 8,352,899 5,002,010 3,278,054 3,463,701

Accrued Taxes (7) (76,220) (147,190) (180,148) (91,611) 136,140 0 280,794 330,203 0 (37,653) (97,148) (180,654)

Total Current Liabilities 2,684,601 6,826,250 15,392,421 26,169,856 35,275,720 36,834,199 29,383,517 17,740,548 9,463,849 5,654,715 4,219,913 4,440,345

Shareholders' Equity (8) 11,674,120 11,508,524 10,931,623 11,138,209 11,669,627 11,926,212 12,581,397 12,696,685 12,109,341 12,021,484 11,882,662 11,187,816

Total Liabilities & Equity 14,358,721 18,334,774 26,324,045 37,308,065 46,945,348 48,760,411 41,964,914 30,437,233 21,573,190 17,676,200 16,102,575 15,628,161 .

.

(1) See Exhibit 9.

(2) See panel 1, Exhibit 10. (3) See panel 2, Exhibit 10. (4) See panel 6, Exhibit 10.

(5) See panel 3, Exhibit 10. (6) Plug figure. (7) See panel 5, Exhibit 10.

(8) See panel 4, Exhibit 10.

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Exhibit 9

KOTA FIBRES, LTD.

Schedule of Cash Receipts and Disbursements for 2001

(in rupees)

January February March April May June July August September October November December

Assume: Sales 2,616,120 2,892,825 4,447,404 8,804,250 13,885,560 17,588,376 16,315,533 8,572,824 5,031,000 4,447,404 3,531,762 2,767,050

Purchases (1) 2,446,072 4,842,338 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 2,446,072 1,942,469 1,521,878 1,870,526 1,988,817

Debt Outstanding 1,146,268 2,962,622 8,767,030 17,419,379 26,997,556 32,950,665 27,167,192 15,795,793 8,352,899 5,002,010 3,278,054 3,463,701

Receipts: Accts Rcvble Collected 2,515,500 2,374,632 2,726,802 3,514,657 6,190,142 10,836,774 15,366,686 17,079,239 13,218,449 7,156,094 4,797,562 4,081,147

New Borrowings (Repayments) 462,166 1,816,354 5,804,408 8,652,349 9,578,178 5,953,108 (5,783,473) (11,371,400) (7,442,894) (3,350,889) (1,723,956) 185,647

Disburs.: Accounts Paid (2) 1,591,054 2,446,072 4,842,338 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 2,446,072 1,942,469 1,521,878 1,870,526

Capital Expenditures 0 0 350,000 0 0 350,000 0 0 350,000 0 0 350,000

Interest Payments 11,058 24,825 70,867 158,210 268,352 362,187

363,212 259,568 145,898 80,686 50,025 40,731

Excise Tax Paid 392,418 433,924 667,111 1,320,638 2,082,834 2,638,256 2,447,330 1,285,924 754,650 667,111 529,764 415,058

Operating Expenses 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501 454,501

Accrued Income Tax Paid 0 0 0 0 0 460,390 0 0 292,770 0 0 0

Wages 540,958 831,665 1,646,395 2,596,600 3,289,026 3,051,005 1,603,118 940,797 831,665 660,439 517,438 635,979

Dividends 0 0 500,000 0 0 500,000

0 0 500,000 0 0 500,000

Subtotal: Disbursements 2,989,989 4,190,986 8,531,210 12,167,005 15,768,320 16,789,882 9,583,214 5,707,839 5,775,555 3,805,206 3,073,606 4,266,794

Receipts - Disbursements

(12,323) 0 0 0 0 0 0 0 0 0 0 0

BOP Cash Balance 762,323 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000

EOP Cash Balance 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000

(1) Equal to 55 percent of sales in period (T+2).

(2) Equal to purchases in period (T-1).

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Exhibit 10

KOTA FIBRES, LTD. Forecast T-Accounts Supporting Financial Statements

(in rupees)

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

1. Schedule of Accounts receivables

Beginning of Period 2,672,729 2,773,349 3,291,542 5,012,144 10,307,737 17,997,155 24,748,757 25,697,603 17,191,189 9,,003,739 6,295,049 5,029,249

+ Sales 2,616,120 2,892,825 4,447,404 8,804,250 13,885,560 17,588,376 16,315,533 8,572,824 5,031,000 4,447,404 3,531,762 2,767,050

Less Collection Last Month (1) 885,456 1,046,448 1,157,130 1,778,962 3,521,700 5,554,224 7,035,350 6,526,213 3,429,130 2,012,400 1,778,962 1,412,705

Less Collection Month before

last (2)

1,630,044 1,328,184 1,569,672 1,735,695 2,668,442 5,282,550 8,331,336 10,553,026 9,789,320 5,143,694 3,018,600 2,668,442

End of period 2,773,349 3,291,542 5,012,144 10,301,737 17,997,155 24,748,757 25,697,603 17,191,189 9,003,739 6,295,049 5,029,249 3,715,152

2. Schedule of Inventories

Beginning of Period 1,249,185 2,308,135 5,850,125 11,855,841 17,637,315 19,666,227 14,469,652 6,815,272 3,883,970 2,950,257 1,854,837 1,639,892

+ purchases (3) 2,446,072 4,842,338 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 2,446,072 1,942,469 1,521,878 1,870,526 1,988,817

+ Labour 540,958 831,665 1,646,395 2,596,600 3,289,026 3,051,005 1,603,118 940,797 831,665 660,439 517,438 635,979

Less: Shipments (COGS) 1,928,080 2,132,012 3,277,737 6,488,732 10,233,658 12,962,633 12,022,548 6,318,171 3,707,847 3,277,737 2,602,909 2,039,316

End of period 2,308,135 5,850,125 11,855,841 17,637,315 19,666,227 14,469,652 6,815,272 3,883,970 2,950,257 1,854,837 1,639,892 2,225,373

3. Schedule of Accounts Payable

Beginning of Period 759,535 1,614,553 4,010,818 6,805,539 8,842,088 8,142,024 3,885,534 1,935,531 1,614,553 1,110,950 690,358 1,039,007

+ Purchases (4) 2,446,072 4,842,338 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 2,446,072 1,942,469 1,521,878 1,870,526 1,988,817

Less Payments (5) 1,591,054 2,446,072 4,842,338 7,637,058 9,673,607 8,973,543 4,715,053 2,767,050 2,446,072 1,942,469 1,521,878 1,870,526

End of Period 1,614,553 4,010,818 6,805,539 8,842,088 8,142,024 3,883,534 1,935,531 1,614,553 1,110,950 690,538 1,039,007 1,157,298

(1) 40% of sales in period (T-1) (2) 60% of Sales in period (T-2)

(3) Equal to 55% of sales in period (T+2) (4) Equal to 55% of sales in period (T+2) (5) Equal to purchases in period (T-1)

-16-

Exhibit 10 (continued)

January February March April May June July August September October November December

4. Schedule of Shareholders’ Equity

Beginning of Period 11,851,967 11,674,120 11,508,524 10,931,623 11,138,209 11,669,627 11,926,212 12,581,397 12,696,685 12,109,341 12,021,484 11,882,662

+ Net Profit (177,847) (165,596) (76,900) 206,586 531,418 756,585 655,185 115,288 (87,343) (87,857) (138,822) (194,847)

Less: Dividend 00 00 500,000 00 00 500,000 00 00 500,000 00 00 500,000

End of Period 11,674,120 11,508,524 10,931,623 11,138,209 11,669,627 11,926,212 12,581,397 12,696,685 12,109,341 12,021,484 11,882,662 11,187,816

5. Schedule of Accrued Taxes

Beginning of Period 00 (76,220) (147,190) (180,148) (91,611) 136,140 00 280,794 330,203 00 (37,653) (97,148)

+ Monthly Tax Exp. @30% (76,220) (70,970) (32,957) 88,537 227,751 324,251 280,794 49,409 (37,433) (37,653) (59,495) (83,506)

Less: Quarterly Tax Payments 00 00 00 00 00 460,390 00 00 292,770 00 00 00

End of Period (76,220) (147,190) (180,148) (91,611) 136,140 00 280,794 330,203 00 (37,653) (97,148) (180,654)

6. Schedule of Property, Plant & Equipments

Beginning Gross PP&E 10,095,646 10,095,646 10,095,646 10,445,646 10,445,646 10,445,646 10,795,646 10,795,646 10,795,646 11,145,646 11,145,646 11,145,646

+ capital Expenditure 00 00 350,000 00 00 350,000 00 00 350,000 00 00 350,000

Ending Gross PP&E 10,095,646 10,095,646 10,445,646 10,445,646 10,445,646 10,795,646 10,795,646 10,795,646 11,145,646 11,145,646 11,145,646 11,494,646

Monthly dep. Exp. 84,130 84,130 87,047 87,047 87,047 89,964 89,964 89,964 92,880 92,880 92,880 95,797

Less Cumulative Dep. 1,568,408 1,652,339 1,739,586 1,826,633 1,913,680 2,003,643 2,093,607 2,183,571 2,276,451 2,369,332 2,462,212 2,558,009

Ending Net PP&E 8,527,237 8,443,107 8,706,060 8,619,013 8,531,966 8,792,002 8,702,038 8,612,075 8,869,194 8,776,314 8,683,434 8,937,637

-17-

Exhibit 11

KOTA FIBRES, LTD.

Forecast Assumptions

Ratio of:

Income Tax/Profit Before Tax

Excise Tax/Sales

This Month Collections of Last Month's Sales

This Month Collections of Month-before-Last Sales

Purchases/ Sales two months later

Wages/Purchases

Annual Operating Expenses/Annual Sales

Capital Expenditures (every third month)

Interest Rate on Borrowings (and deposits)

Minimum Cash Balance

Depreciation/Gross PP&E (per year)

(per month)

Dividends Paid (every third month)

30% 15% 40% 60% 55% 34% 6.00% 350,000 14.5% 750,000 10% 0.83% 500,000

-18-

Exhibit 12

KOTA FIBRES, LTD.

Trend of Certain Financial Accounts by Month

(in millions of rupees)