MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. Industry Structure and Development

A. Water Soluble Film (WSF):

Arrow Coated Products Ltd, an ISO 9001:2008 certified company, is one of the leading manufacturers of cast water soluble film in the world, having world class manufacturing facilities in Ankleshwar, Gujarat & has one of the best in class, totally automated machine, functioning brsently. Expansion plans for increasing capacity exponentially are already finalized and going forward, new orders for digitally controllable casting machines for deliveries in forth coming years are being approved. This will almost triple the capacity of the WSF production, in coming years. This Wonder Product has got varied applications in industries ranging from Agrochemicals, Construction, Chemical, Embroidery, Health& hygiene to Water transfer printing (3D printing). WSF provides an instant solution to the various problems faced in handling of hazardous material by industries today. The top line and bottom line are different depending on the quality of the film produced. Film Quality in production is divided into different classes for different applications in their field. This new production process will help us achieve a greater market share.

As informed before, many high tech agrochemical industries are turning to WSF as their primary packaging product. WSF is environmentally friendly and is proven to be harmless the three basic elements of nature - Land, Air and water. Saving Ganga, from dirt and pollution will be a project very near to the heart of all Arrow Team Members.

Our Company has developed a wide range of water soluble films especially for the agrochemical industry which dissolves completely in water & meets WHO standards (solubility standards) as per CIPAC method without damaging the environment or causing any harm to humans and has no health hazards. WHO has mandated that all Vector Control actives (like DDT, Lambda, Pyrethrins etc), weedicides, herbicides, insecticides etc must be packed in WSF. This increases the scope of WSF market in India and neighboring countries. India has just scratched the surface of this end use. Two years ago, only one weedicide for wheat was approved by CIB for WSF packaging. Internationally many agrochemicals are banned unless packed in WSF, thereby forcing Indian manufacturers supplying agrochemical in finished form to those companies to pack their product in WSF. As Indian companies focus on exports of their chemicals, the demand for WSF as compulsory packaging, mandated by WHO, will come to fore, and applications to CIB will increase and thereby increasing the demand for Indian WSF.

Various NGOs and our own efforts are on for propagating the use of WSF in packaging of hazardous chemicals like Fungicides, Herbicides and Weedicides, which are exceptionally potent pesticides and the proper disposal of packaging materials, after the chemicals are dispensed with. The failure would result in serious health problems to flora, fauna, animals and human beings are now being acknowledged by this Industry. This has also led to the realization to follow international rules of - packing these chemicals in WSF in future. WHO standards recommends certain agrochemicals to be packed in WSF packaging only. Presently, only one of them - has been made to follow the standards in India as laid down in WHO Manual.

B. Mouth Melting Strip (MMS):

This technology and patent was monetized after strategic allicance with Tsukioka Pharma Film, Japan. First, Arrow started with market acceptability of MMS method of drug delivery, using placebo mint flavoured edible film, aptly named Meltz. Once that is accepted, Arrow Pharma, a new division will focus on paediatric and geriatric actives, alongwith some OTC drugs and nutritional actives. FSSAI license for the same has been applied by Arrow, under their newly formed division named Arrow Rx, on a separate plot in Ankleshwar.

This technology is a relatively new development, but broadly based on WSF technology, which allows small quantities of active ingredients to be delivered in a user-friendly format. Adapting existing products such as oral sprays, liquids or tablets, or exploiting entirely new opportunities, Arrow MMS Division works closely with clients to create the most effective thin film product and process solutions. Arrow has now mastered the technology of edible water soluble film, and have made agreements with at least one company for out-licensing this patent in India. Coming year shall bring good results to the revenue stream, as many active ingredients belonging to health and hygiene shall be the brferred drug delivery system via this technology. As you may be aware, that this patent has now been granted in several countries, including Australia, South Africa, Europe and India. This patent is still being prosecuted in the USA.

C. Security Products:

Amongst several granted Patents, Arrow has a cluster of patents in security field. This relates to patents used for brand protection and goes well up to high end security products like Passports, Bank Notes and security paper. Presently, Arrow is in the process of forming strategic alliances with some of the worlds best in the field. Buidling strategic alliances and going to market, which is well protected by cluster of IP, is the strategy that Arrow has successfully executed in the past and intends to continue doing the same in the future.

This SBU has been divided into two separate divisions. Brand protection division shall handle medium end security products and Govt. Business division shall handle high end security products. As IPR becomes important to Indian FMCG products and grey market diversion may become rampant, brand protection will gain importance and Arrow will have to be in the forefront to offer sharp solutions. Arrow has several patents in this security cluster and intends to create revenues in the coming years. Your company has secured at least one major order, from a leading company in India, for this technology and its related product. Track and trace solutions embedded in Printed WSF for detergent pods is a product which Arrow will be looking at for commercializing this patent. This year we hope to add more companies to ensure that their brands are protected while using our patented product as an exclusive supply chain vigilance system.

D. Arrow Care Division:

Arrow Care Division mainly comprises of products based on Health and Hygiene. This year Arrow successfully introduced at least 3 Products Via this division. Arrow Carez, a soap and shampoo strip, which totally dissolves in water, Arrow Klenz, an innovative "Sausage" shaped WSF capsule containing brcise quantities of active ingredients in liquid form. Arrow made a strategic alliance with Carelli, Spain and plans to have about 99 Variants of Klenz products in the market within next 5 years. R&D results, using compatible WSF is being ongoing since the agreement with Carelli was signed. Arrow has also designed India Specific products like room freshners, water based deodorants and all-in-one capsules for washing machines and dishwashers. The container bottles (which were hitherto dispensed away, creating an environmental challenge) will be re­used about 20 times. It's a simple innovation, which brings down the prices of cleaning liquids and makes it affordable for even rural India to use and clean their table tops, glass windows, kitchens, cooking vessels, floors, toilets etc. In the near future, more products will be added on the same platform technology. Arrow has appointed at least five exclusive franchisees for promoting this technology. It is expected to cover 30% of the Indian market in the coming 2 years, using modern trade as well as e-commerce routes.

With thrust on "Swachh Bharat " , hygiene and sanitation, as per our PM's speech, these products will find their way into rural India, as we intend to make them most affordable and cost efficient products.

E. Patents and IPR SBU:

IPR is an important revenue stream for any Company. Arrow has spent reasonably heavy amounts of money in R&D and filing of patents in the last couple of years. This year, Advance IP Technologies, a subsidiary of Arrow UK, has been granted a patent in India, for a Drug Delivery Device ( controlled delivery) has been successfully prosecuted and a grant has been secured. Arrow have received 3 patent grants in Australia, United States of America and Europe. In all we now have 31 granted patents nationally and internationally. Some of these patents have changed the way many Detergents, Pharma and Agro chemical products are being packaged and delivered. For example the Self Destructive Irreversible Security Packaging Water Soluble Film launched last year has captured the interest of the Agrochemical Industry. This patent is now being show cased to major laundry detergent pods manufacturers to protect their brands.

We are in continuous discussions with Companies on various patent revenue models.

Intellectual property is one of the most important intangible assets that differentiate your Company from other smaller competition; with protected core technology in the form of patents one has nuggets of wealth at the centre of the business. The patents are value creators for the Companies as they can be licensed, sold, assigned or cross licensed, so having a strong patent portfolio enables a Company to be royalty earner than royalty payer. Patents protect company's own product lines against infringers and sometimes create a windfall profit, when the law suits are successfully prosecuted. This then results in continous royalty income, besides one time fees as granted by the Courts. Your company has proposed to DSIR (Department of Sciences and Research), department of TDB (Technical Development Board), for assisting us in creating pilot production for these families of patents. This patent incubation centre, to be based in Ankleshwar, will be mainly focusing in creating proof of concept and pilot production centre. Scale up of these pilot projects will then allow your company to compete in the International arena, as our management is convinced that IP is the only way to leap forward in this globally interconnected world. Products produced by these patented processes are protected against infringements/duplication for 15 to 20 years.

The patent rights are territorial in nature, so one has to file and seek patent grant in all the countries separately where one wants to protect the invention. The filing of patent applications all over the world is an expensive task but once the patent is granted then various revenue generation streams come in to effect, which will create a WIN-WIN situation and long term incomes for your Company. Patents are granted for period of more than 15 years, but not more than 20 years, as per laws in most of the countries. Indian Patent office, since joining the TRIPS agreement and being a WTO signatory, has started granting (and protecting inventions) product and process patents, after 2005..

F. Arrow UK Activities:

Arrow UK increased further stake in Advance IP Technologies Limited (AIPT), a UK based Company. Arrow UK is a majority share holder of AIPT. This Company was formed as a jointly owned company by Arrow and Israel based promoters, being joint inventors in a Bio-digestible Drug Delivery Device (controlled delivery) Patent. This patent was being prosecuted by UK based patent attorneys and it received a grant to operate in India in this year. Advance IP specializes in generating revenues from various IPR (Patent) created by both the partners. Arrow is a Joint Patent holder of a block buster Patent in health and hygiene and the same has been assigned to Advance IP (AIPT). This Patent has been granted in UK and is being prosecuted in Europe, USA, Australia, China and India. UK laws allow all IP related income to be taxed at a lower rate bracket, so Arrow UK will gain monetary advantage in this process. Arrow UK and AIPT have made profits this year and we expect, going forward, this trend to continue in the coming years.

G. Export Division SBU:

Arrow's quality of WSF has opened various export markets, including Brazil, Latin America, Europe, and Asian markets. We expect better revenues from Export of Agrochemical and detergent based WSF to add to top line and bottom line, going forward. Exports of our products have increased but there is a potentially unlimited and untapped market worldwide. There are only 3 major players in cast water soluble films and Arrow is one of them. All of us have unique methods of production of these films and have earned patent protection. The solubility of the film is related to the product being packed, so custom based WSF and ageing period is needed to fully certify the package. Arrow's experience in coatings chemistry, earned them a patent for a unique multilayered barrier coated WSF. This invention helps in proposing the right product to the clients and entering their permanent supply chain. This year should give a positive impetus to our export sales this year. With new investments in automated technology, Arrow is now geared to produce International quality of films as well as increase the quantum to satisfy the ever increasing hunger for WSF (water soluble films). World wide WSF market is increasing by a healthy 9% YOY, and at the final count it was about $ 505 Million

H. Arrow Pharma Foray:

Taking advantage of the patented technology, our Company is in the process of securing partner(s) in the field of Pharmaceuticals and Nutraceuticals for entering into this highly lucrative and IPR sensitive field of saving human and animal lives. In future, Arrow proposes to enter crop protection using a different version of this patented process and patented product. As India starts it's vision into providing food grains for the world population, the need for low pesticides residue will be very important. These are long term revenue generating fields that your Company is targeting using our Patents and knowledge acquired over the years. Both these ventures will mean additional Capital expenditures and your Company is planning this ahead of time. Arrow's Pharma foray will be limited to the use of its patented drug (Active) delivery system, using edible Water Soluble Film, while the crop protection technology uses non edible WSF, and may take the out licensing route to market.

2. Opportunities:

The report of Intergovernmental Panel on Climate change, released recently in Spain, said that India would become the third largest carbon emitter in the world by 2015. That would be a major slippage from its brsent slot of the sixth largest. One thing is clear, despite the fact that the developed world has conventionally been much more serious offender in polluting the planet, countries like China and India cannot wish away the unpleasant reality coming out of such reports.

A recent Accenture survey found that 97% of respondents in emerging countries, including in India, that Consumers are even brpared to reward the providers of green products and services by paying a higher price to benefit from products and services that help reduce the level of carbon emissions. 64% of the respondents said they would be willing to pay a higher price - a brmium of 11%, on an average-for products and services that produce lower greenhouse gas emissions. This is in comparison to 73% of respondents in Europe!!.

Need for non-soluble Bio Compostable Plastics is gaining attention now. The threat of flooding has resulted in the realization that Bio-Compostable Films as brferred material to save the cities from flooding. The need for Bio-Compostable film and Bio-

Degradable film to save the environment is now brsent universally and environmentally conscious people of planet earth are looking at various ways to improve the quality of life. We expect to cash in on this opportunity by promoting and leveraging our venture with Sphere, France.

Bio Compostable Products:

Increase in oil prices, has naturally resulted in acceptance of our Bio compostable materials are made from renewable resources likepotatoes.100% Compostable, 100 % Degradable & 100% Eco Friendly.

Arrow has offered the environmentally responsible packaging solution to eradicate the toxic waste of plastics. Arrow products are high performance, completely degradable with unparalleled performance characteristics. Conventional plastic has brought convenience to human life for decades; however, that convenience has come at grave cost to our environment, pollution and toxic emissions and a depletion of our natural resources. Our products are manufactured from potato starch. If our products are placed in an open or turned landfill they will decompose at the rate similar to the other biodegradable materials in the same manner. The sewages and pipelines which were clogged due to Petro Plastic films will get composted and breakdown due to action of the organisms brsent in the sewerages.

With new restrictions of maximum ceiling on exports of garments on China being imposed by EU and USA, along with anti-dumping duties this business is bound to come to India and neighboring countries. With recent shutdowns in Bangladesh and cost revisions in China, the demand for garments will go up. India meanwhile has built huge capacities in composite garment manufacturing units and the demand for our Embroidery film (WSF) will show an uptrend in the future. Distribution channels for exports have been further widened by appointment of agents in Sri Lanka, Bangladesh, Thailand, Malaysia, Indonesia, Cambodia, Vietnam and Myanmar. These are the emerging garment business hubs along with traditional markets like Africa, UAE and Turkey. Arrow's embroidery specific Water Soluble Films save time, money and environment.

Introduction of Schiffli embroidery film will replace the chemical lace fabrics (which are environmentally harmful) and will result in more demand for our WSF.

3. Threats:

Threats include non-specified materials (like blown films) from China, compelling us to keep our prices low and resulting in inability to make higher margins. Illegal Imports of our patented products, like Soap Film, MMS etc, from China, and the inaction or delayed action by various government, judicial and non-judicial departments in our country, to stop these imports.

4. Internal control system and their adequacy:

Our Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from misuse or disposition and that transaction are authorized, recorded and reported correctly.

Audit Committee continuously reviews the adequacy and efficacy of the internal controls. The internal control is designed to ensure that the financial and other records are reliable for brparing financial statements and other data, and for maintaining accountability of assets.

5. Material developments in human resources/industrial relations front, including number of people employed:

It is envisioned that human resources will play a very important part in the growth of the Company as all the products, patents and product application are Niche in themselves. Therefore the quest for building a dedicated team is on which will foster the growth of the Company at an exponential rate. The human resources required are not readily available for the basket of niche products of the Company and hence they need to be moulded overtime so that not only the individuals grow but it is profitable to the business. The Company is now in the process of positioning Business Managers who will grow individual product lines while growing themselves.

6. Cautionary statement:

This analytical report contains forward-looking statements. Arrow may also make forward-looking statements in our periodic reports to the Stock Exchanges as per brvalent rules and in its annual report to shareholders, in its proxy statements, in its offering circulars and prospectuses, in brss releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Arrow assumes no obligation to update the forward-looking statements in this release and elsewhere. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.