BUSINESS SPOTLIGHT: Favored^®, Inc. (FVRD.PK)

Today consumers care about what they eat. They want to serve their families foods that taste good and are good for them and are made with natural and organic ingredients, safe to eat, produced with quality and traceability, and free from pesticides, growth hormones and genetic modification. This need for quality also extends to food producers who are demanding identity-preserved and non-genetically modified (non-GMO) grains, seeds and feeds that offer superior output, consistency and value. According to the Natural Foods Merchandiser's Annual Market Overview, Americans spent more than $51.4 billion on natural and organic products in 2005, creating double-digit market growth and major opportunity within the sector. Fueled by consumers seeking healthier alternatives to conventional beef with its reliance on growth hormones, chemical additives and drugs, the natural beef market is growing 15 to 20% per year.

FAVORED^® Inc. delivers high quality grain and meat products that are certified natural, free from genetic modification and completely traceable "from seed to plate". The company has developed the FAVORED system to brand its products within the growing market for natural foods, identifying its grain, seed and meat products as all-natural, traceable, identity preserved, full-flavor and safe to eat. The FAVORED system focuses on the traits consumers want in their foodsâ?�meats with superior flavor and texture and without growth hormones or antibiotics and non-GMO grains with optimal traits and varietal advantages. The company provides customers with a winning combination of taste and trust.

Established in 2002, FAVORED has built brand equity, a solid reputation and a rapidly expanding customer base. The company generated revenues of $7.2 million last year, representing substantial growth and increase over revenues of $1.3 million in 2004.

FAVORED's highly innovative and seasoned management team has a firm commitment to building value for shareholders. With its quality products, established reputation, rising revenue and visionary leadership, FAVORED is uniquely and advantageously positioned to carve out increasing market share in the $51.4 billion natural products, $42 billion North American corn and soybean and $79.5 billion US beef industries.

KEY INVESMENT HIGHLIGHTS

• A growing, revenue positive company, FAVORED generated $7.2 in revenue in 2005.
• FAVORED is a trusted provider of all-natural, high quality, traceable meat and grain products.
• Consumer willingness to pay a premium price for organic foods and beverages has increased 88% between 2002 and 2005, moving from 17% to 32% (Natural Marketing Institute, 2006).
• The company created the FAVORED brand to differentiate its growers, meat producers and grain handlers as reliable and traceable providers of advantageous, value-enhanced quality foods and feeds that adhere to the strict FAVORED protocols for safety and quality.
• Leveraging the growing consumer demand for soy protein and soy products in Japan, Asia, Canada and the US, FAVORED provides companies all over the world with specialty identity preserved soybeans. FAVORED soybeans are "Process Ready" and can be used immediately by processors, reducing the time, energy, freight, and overall production costs of soy based products.
• FAVORED Beef was awarded the coveted Five Star Diamond Award for Excellence by the American Academy of Hospitality Sciences (AAHS) in June. The AAHS recognized FAVORED Beef for its high quality, superb taste and natural tenderness served at Burke & Donatella's, a fine dining establishment in New York.
• The company is in the process of taking its quality standards for FAVORED Beef to a level that very few have achievedâ?�USDA Process Verified.
• The Organic Crop Improvement Association has inspected and certified FAVORED Grain's operations, awarding its International Organic Certification.

All-Natural Products

FAVORED^® BEEF

FAVORED markets traceable beef that is fed mother's milk, FAVORED Grain and other known sources for non-GMO feeds without the use of hormones, antibiotics or animal protein. Per the FAVORED protocols the cattle is handled in a responsible, humane manner in a low-stressor environment prohibiting the use of cattle prods or electric shock. All animals must be provided with adequate nutrition, including minerals and vitamins, and must be identified by ear tag or electronic identification at all times and tracked from farm to market. The result is a product with better flavor, consistency, quality and health for the discriminating consumer.

FAVORED^® GRAIN

FAVORED delivers a lineup of culturally preferred crops with an initial focus on corn and soybeans developed under the banner of FAVORED Grain. In order to meet international demand for Identity Preserved grains and oilseeds FAVORED^® is assembling growers with an understanding of identity preservation and are equipping them with protocols that exceed those established by AOSCA (Association of Official Seed Certifying Agencies, www.aosca.org).

FAVORED works with growers, grain marketers, millers, and feeders to supply uniquely traceable grain, allowing them to pass on the varietal advantages for the given application.

All FAVORED crops are audited by the Indiana Crop Association, a third party agency. The Indiana Crop Improvement Association, Inc. exists to deliver unbiased, needed services to customers in the seed, grain, food, and related industries. As a non-profit, self-supporting agency, ICIA objectively carries out various seed programs including seed certification, laboratory testing and other quality assurance programs.

FAVORED Grain is a branded grain system that enables growers, feeders, millers and consumers to receive enhanced value. Growers reap the benefits of high yielding varieties that have potentially rewarding characteristics. Feeders and millers receive the benefit from the purity, consistency, and varietal advantages in their supply of FAVORED Grain for the given application. Consumers receive the comfort of knowing that their foods are made with ingredients and feeds that are derived from traceable, known sources which can be tracked right back to the farm.

FAVORED^® SEED

FAVORED has introduced a system to foster the research and development of the very best seed for its grains. The resulting high output grain follows a protocol that ensures complete traceability from the soil to the end user. The grains are pure, natural, traceable, and of the highest attainable quality under today's standard and the company's own innovative agricultural practices.

The laboratories that develop the seed to conform to FAVORED's output requirements monitor research for the availability of traits in the grain desired by customers.

A key to achieving buyer preferred identity preserved grain is to start with a consistent, AOSCA inspected, high purity seed. FAVORED Seed provides the foundation on which FAVORED growers have the potential to build extra benefit into their farming operation.

FAVORED carefully plants, grows and monitors the best seed in a controlled environment where individual plants are selected to enter the FAVORED system. Only those plants that are identified as producing the output traits desired by the company are then planted to create a harvest resulting in the availability of FAVORED Grain.

Major Market Opportunity in Natural Products

The demand for healthy, safe, high quality food products is increasing, creating major growth potential for companies like FAVORED who offer unique brands that meet these high standards.

Interest in natural and organic food products has been fueled in part by the increasing awareness of the links between diet and health, rising incomes, and the aging of the 78-million strong baby boomer generation born between 1946 and 1964. The federal government's approval of rBGH in milk, concerns over ingesting pesticides, and E. coli outbreaks like the recent recall of spinach are also spurring awareness, demand and adoption.

In retail channels alone sales of natural products increased from $1.9 billion in 1980 to $25.5 billion in 2005 (Natural Foods Merchandiser's Market Overview 2006). And growers and food producers are lining up to take advantage of this rapidly widening market niche. For example, last year California showed an increase of 40,000 acres, or 27%, in organic livestock production. The number of acres dedicated to organic vegetable production increased by 5,000 acres, or 12%, according to the California Certified Organic Farmers, an organics trade association. "Strong demand is creating markets here," says Jake Lewin, director of marketing at the organization.

Large corporations have taken sizeable steps into the organic market, although often using specialized brands. Silk, the best-selling branded soy milk, is a product from Dean Foods, the $10 billion behemoth that sells the most milk in the country. Cascadian Farms, which makes organic cereal, frozen fruits, and other products, is a brand of cereal giant General Mills. And Kraft owns Boca Burgers.

Wal-Mart has made an aggressive move into the all-natural arena, announcing plans to carry more than 400 organic items. The juggernaut retailer said recently that it plans to double its offerings of organic products, including produce, dairy, and dry goods. CEO Lee Scott asserted in the company's last annual general meeting: "We know that customers at all ends of the income spectrum want organic and natural foods."

Target Corp. announced in September that it has introduced its own line of organic foods, countering Wal-Mart's move to go green. Target and Wal-Mart are helping to boost sales, consumer awareness and adoption of organic foods while lowering prices.

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