Innovative Foods Ltd

The Directors have the pleasure of presenting the Management Discussion and AnalysisReport for the year ended 31st March 2010.

A. THE BUSINESS:

M/s. Innovative Foods Limited (IFL) [Formerly M/s. Innovative Marine Foods Limited] wasincorporated on 1st September 1989 in the State of Kerala with its Registered Office atAmalgam House, Bristow Road, Willingdon Island, Cochin - 682 003, which was changed toChakolas Habitat, A Block, 1C, Thevara Ferry Road, Cochin - 682013, Kerala with effectfrom 17th May 2010. The Company was promoted by M/ s. Amalgam Foods Limited (AFL), theparent Company of Amalgam Group, Cochin in association with multinationals like M/s.Mitsubishi Corporation, M/s. Saudi Fisheries Company, M/s. Gourmet Club Corporation, M/s.Ristic GmbH, Germany, M/s. Sea products SRL, Italy who are among the leaders in theSeafood Industry in the respective countries. In the early 90's the Amalgam Groupidentified new opportunities in the wake of changes in the Seafood Industry with theshifting of production base from developed countries and for moving up the value chaininto more profitable retail segments.

However, a combination of following events totally beyond the control of the Companyseriously affected its performance.

• Set back of Shrimp aquaculture in India

• Detention of Cooked Shrimp by the United States Food and Drug Authorities (USFDA)

• Unilateral ban on the import of seafood from India by the European Union

• Loss of benefit due to change in Exim Policy.

• Levy of Anti-dumping Duties on the import of Frozen Shrimp from India by theUnited States

The combination of the all the above factors resulted in the total erosion of theCompany's net worth during 1999 and the Company was referred to BIFR for determination ofsuitable measures for its rehabilitation.

The Company had accordingly submitted the original Rehabilitation Scheme to the Hon'bleBIFR through the Operating Agency in 2004. The Hon'ble BIFR by its Order dated 31/05/2004approved the Scheme of Rehabilitation in two stages. The Company implemented Stage I andas per the approved Scheme, the Company fully settled the dues of all the financialinstitutions who were holding the first charge on the Company's immovable properties.However, there was some delay in implementing the Stage II of the Rehabilitation Schemeand the BIFR declared the sanctioned Scheme 2004 as failed.

Subsequently, the Promoters identified the new Strategic Investor, M/s. Residency Foods& Beverages Limited, an Associate Company of Indian Hotels Company Limited. Based onthe understanding arrived with the new Strategic Investor, the Company submitted ModifiedDraft Rehabilitation Scheme (MDRS) to the BIFR for approval. The BIFR by its Order dated8th December 2006, approved the Modified Scheme of Rehabilitation. The salient features ofthe approved modified scheme are as under:

1) IFL will be reorganized in the following lines:

(i) IFL will settle its liability under One Time Settlement arrangement with all thethree Banks

(ii) The Share Capital of IFL would be written down by 90% from the existing level ofpaid-up capital

(iii) The Strategic Investor, RFBL would invest Rs.2400 Lakhs in the following manner:

a. Rs.1500 Lakhs would be raised in the form of equity in the Share Capital of AmalgamFoods & Beverages Limited

b. RFBL would arrange for a loan fund of Rs.900 Lakhs consisting of Rs.356 Lakhs asinterest free unsecured loan and balance Rs.544 Lakhs to be raised as commercial loan atthe prevailing rates.

(iv) AFBL would be reverse merged into IFL

The Board of Directors are pleased to inform that the Company has generally carried outthe above terms as per the BIFR Order and the rehabilitation of IFL is progressing well.

As per the approved scheme of the BIFR the Strategic Investor, RFBL would hold 67.93%of the Capital of the merged Company, Amalgam group will hold 26% and the balance by theGeneral Public. The management is confident that with the induction of capital and themerger of Amalgam Foods & Beverages Limited with IFL would significantly improve thenetworth and also strengthen the Company's Balance Sheet.

B. INDIAN FOOD INDUSTRY STRUCTURE AND DEVELOPMENTS:

In the last few years, India's potential to emerge as a food-processing destination ofthe world has been recognized. The key inputs for creating the food-processing baseavailability of quality raw materials, requisite infrastructure, skilled labour, andquality and hygiene culture have been targeted for structural improvements. Severalstudies have identified a large market for processed foods within India itself; forinstance, a study by Rabobank reports that organized food retailing in India has immensepotential for growth, as it taps hardly 1% of the market due to low quality of productsand lack of distribution.

This apart, some important developments occurring in the global food industry arereshaping the supply chains and creating new opportunities. One such development isevolving consumer interest towards Indian ethnic food in many developed countries. Thistrend has been confirmed by many studies by food research entities. Another visible trendis the growth of private labels in food sector that are collapsing the supply chain andmoving in the direction of collaborative procurement process.

It is also widely acknowledged that in India, changing lifestyles have been promptingpeople to look to convenience foods; that food consumers are now better educated andinformed; and that consumer behaviours are shifting in ways that translate toopportunities for processed food industry.

The eating culture in India and other Asian Countries and the perception of frozenprocessed foods are slowly changing. Longer working women and western influence on dietand culture have increased consumer demand for frozen food in many urban centres. Moreliberal economic policies, rising living standards and improved manufacturing anddistribution networks have also contributed to a rise in consumer purchasing power intowns and cities across the country.

The demand for affordable, easy-to-prepare meals such as frozen ready-meals willcontinue to attract a potentially large number of consumers in the ever dynamic and fastpaced lifestyle. Urban living has also been driving sales of convenient frozen ready mealsand easy-to-prepare, convenient-to-store products.

This gives tremendous opportunity for companies that are well versed with theInternational standards of food processing to translate their expertise to reap thebenefits for their efforts in developing such products.

Opportunities

• Enormous and relatively untapped market in India, and abroad for Indian ethnicfood

• Brand growth across all categories

• Your management has identified various areas which will drive the Company'sgrowth to reach its vision.

• Your company is revamping its food services strategy to cater to as manyinstitutions, restaurants as feasible through increased penetration and reach.

Threats

• Aggressive price competition in future from large multinationals intent onmarket share once the proposed market in India matures

• Slow reforms in Food Laws by the government for food processing sector.

• Rising input prices of commodities, fuel costs and food inflation.

• Cascading indirect taxes.

D. SEGMENTWISEOR PRODUCTWISE PERFORMANCE:

The Company has only one single primary business segment i.e food and hence theprofitability of each segment of business are not applicable to the Company.

E. OUTLOOK:

The Company has identified the tremendous opportunity in the food industry some yearsago and initiated steps to tap the same. The basic plan envisages to leverage theCompany's core competence in food process to create infrastructure, develop products thatmeets consumer expectation and set up infrastructure to create a sustainable foodbusiness. We will endeavour to maximize customer satisfaction by first identifying productattributes that are important to the customers and then optimizing them through productresearch.

F. RISK & CONCERNS:

Your company is in the process of framing risk management policy which would lay downthe process for identification and mitigation of risk.

G. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your Company has reviewed internal controls and effectiveness. The Company is mainlyplanning to focus on the following issues:

1) Identify weaknesses and areas of improvements.

2) Compliance with defined policies and processes

3) Safe guarding the tangible and intangible assets.

4) Management of business and operational risk

5) Compliance with applicable statutes.

The Audit Committee of the Board will oversee the adequacy of the internal controlenvironment through the regular reviews of the audit findings.

H. FINANCIAL PERFORMANCE:

The accounts that you find alongwith the Audit Report have been presented on theaccrual system of accounting. For instance, revenue is recognised as income as soon as thetransaction is recorded in the Company's books even though the actual receipt transpireslater. The format of accounting corresponds to the Generally Accepted AccountingPrinciples in the country.

Results of Operations

The total income of the company stood at Rs.31.98 Crores for the year 2009 - 2010. Thenet loss before taxation stood at Rs.3.47 Crores. The company is planning to increase itscapacity utilization and also making efforts to rationalize the costs so that the cost canbe reduced substantially.

With regard to the Balance Sheet position the networth of the Company is negative.

I. HUMAN RESOURCES/INDUSTRIAL RELATIONS

Your Company has during the previous year continued its unstinted record of goodIndustrial Relations with its employees. The manpower employed in your Company for 2009 -2010 was 486 Nos., which included executives, staff, probationers, trainees and contractemployees.

J. CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Company'sobjectives, projections and expectations may be a "forward looking statement"within the meaning of applicable laws and regulations. Actual results might differmaterially from those either expressed or implied.