REVIEW OF THE GROUP OPERATING PERFORMANCE

Total revenue increased by 34.6% or $2million compared with the previous corresponding period. The Group continued to make significant improvement during the period with Operating Loss before tax after minority interest of $1.7million compared with $6.1million in the previous corresponding period, representing a 72% decline.

Loss per share based on weighted average number of shares in issue during the period of 384,744,468 of $0.01 each fell from 1.8cents to 0.4cents or 78%.

Operating expenses was reduced by 55%. General Administration and other operating expenses was pared by 57% compared with the previous corresponding period.


REVIEW & ANALYSIS OF THE GROUP’S ACTIVITIES

Shakey’s, Incorporated

Shakey’s, Incorporated is an indirect subsidiary of Inno-Pacific which is the owner of the Shakey’s (pizza) trademark and systems and restaurant franchise in the United States of America.

A group of franchisees sued Shakey’s in December 2002 in the Los Angeles Superior court alleging. Inter alia, breach of contract, fraud and misrepresentation. The allegations are similar to those of two former franchisees filed in early 2001 that were settled in May 2002. In January 2003, the plaintiffs filed a First Amended Complaint and dropped one of the named plaintiffs, John J. McNulty from the action. McNulty, a former franchisee, was one of the plaintiffs in the 2001 action and he is the President of the Shakey’s Franchised Dealers Association. Shakey’s demurrer to the First Amended Complaint was sustained, resulting in the filing of a Second Amended Complaint by the plaintiffs. In September 2003, the plaintiffs added Shakey’s Chief Executive Officer, Chin Yong Wong, as a Doe defendant. Mr. Wong’s demurrer to the Second Amended Complaint was sustained and the plaintiffs were given 10 days to refile their Complaint, resulting in the filing of the Third Amended Complaint by the plaintiffs. Mr. Wong’s demurrer to the Third Amended Complaint was sustained and he was dismissed from the litigation in February 2004. Shakey’s believes that the franchisees’ allegations have no merit and will vigorously defend the the present lawsuits. Shakey’s has filed a motion for summary judgment which is pending and set for trial in May 2004.

Since the Company acquired Shakey’s in 1990, the lawyer representing the plaintiffs in the current franchisee litigation has represented almost every franchisee litigation against Shakey’s. Shakey’s is positioning itself to eliminate any future potential lawsuits and/or tortuous interference of its business by this lawyer or any franchisee.

Despite, the distraction of the litigation, FY2003 saw the opening of two new franchised restaurants in Chino, CA and West Covina, CA. Total system food & beverage sales was about US$54 million or 1.4% increase and average annual same store sales was about US$890,000 or 1% increase. January 2004 system food and beverage sales increased by 13.5% (month on month). There were 63 Shakey’s restaurants at end of December 2003 mostly in Southern California.

*Figures are estimated because most plaintiffs and John J. McNulty did not submit their sales reports regularly..


Telecommunication Services

On 31 January 2003, the Company’s wholly-owned subsidiary, Inno-Pacific Technologies Pte Ltd (“IPT”) formalized and signed a shareholders agreement with Zenith Management Inc., (Zenith) to form a 50-50 joint venture company, Zenith Member Singapore Pte Ltd (“ZMS”), to provide value-added telecommunication services in Singapore. Concurrently, ZMS also signed a License and Service Agreement with Zenith for the use of Zenith’s marks and inter-connectivity/terminations network world-wide. On 31 December 2003, IPT’s shareholding in ZMS was increased by 1% to 51% for a nominal consideration of $1.00 from Zenith. ZMS currently market, distribute and sell international prepaid calling cards.

For the FY2003, this business contributed 28.7% of the Group total sales and a loss after minority interest of $218,000. ZMS’s main product was international prepaid calling cards which is a highly rates competitive and low margin business with termination cost accounted for a significant amount of operating cost. ZMS is evaluating several products that are not solely dependent on rates competition.


RR Industrial Packaging & Design Services Pte Ltd

In October 2003, Inno-Pacific acquired 51% of the issued and paid-up share capital of RR Industrial Packaging & Design Services Pte Ltd (“RRI”). RRI is in the business of designing, manufacturing and marketing of Corrugated Paper Pallets and other paper packaging material. RRI also owns proprietary designs and manufacturing techniques for Corrugated Paper Pallets.

The vendor of the 51% shares of RRI has warranted and guaranteed Inno-Pacific that the net after tax profit of RRI will not be less than $1,200,000 for a continuous period of 12 months. RRI leases a factory in Jakarta, Indonesia to manufacture it products which are currently marketed and sold locally.


Company

On 19 June 2003, Inno-Pacific completed a private placement of 69,450,000 new ordinary shares of $0.01 each for cash at the price of $0.033 each. The net cash proceeds of $2,279,932 was used as working capital.

On 22 April 2003, the Company announced the Auditors’ Report for the year ended 31 December 2002. It was reported that the Company has tax suspense of $4,931,905 arising from tax assessed by the Comptroller of Income Tax ("CIT") for years of assessment 1988 to 2000. Though the Company has raised an objection against the CIT's assessments and the Directors of the Company are of the opinion that these assessments can be successfully resisted, the auditors have expressed the opinion that they were unable to satisfy themselves as to the final determination of these assessments. In the event that the Company is unable to obtain the agreement with the CIT in discharging these tax liabilities, the amount will be charged to the profit and loss account. This would have increased the net current liabilities position of the Company drastically and resulted in the going concern issue as explained in Note 1 to the financial statements for the year ended 31 December 2002.

On 29th April 2003 and 6 October 2003, the CIT amended its assessments and discharged a total of $1,500,599.95 and $236,511.08 tax and penalties for the years of assessment 1990 to 1994 and 1996. Accordingly, the Company's tax liability for the years of assessments 1988 and 1990 to 2000 is approximately $3.3 million, including penalties. The Company continues to object to the assessments and has appealed to the CIT to keep all the years of assessment open pending the outcome of the Board of Review's decision of a court case by another taxpayer. The Company has also appealed to the CIT to hold off the collection of these taxes until the final determination of its tax liability. The CIT has agreed to an installment plan by the Company.

In the same Auditors' Report, the auditors also drew attention to Note 1 to the financial statements for the year ended 31 December 2002. In Note 1, it was reported that, included in sundry debtors is an amount totaling $1.58 million, which represents the proceeds from the sale of shares in Links Island Holdings Ltd. This sum of money was encumbered by the Commercial Affairs Department ("CAD") pending the conclusion of its investiga tion on the Links Island Holdings Ltd matter.

On 7 July 2003, the Company was informed by the CAD confirming the release of said proceeds to its respective subsidiary companies and on 15 July 2003, the said proceeds were received.

The Directors of the Company as of 1st March, 2004 are:

Dato’ Moehamad Izat Emir

Lim Kok Hui
Ong Kah Hock
Phang Ian Cher Shen
Quek Chek Lan
Wong Chin Yong

By Order of the Board

Wong Chin Yong
Managing Director & CEO