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					                                                                 IMPORTANT

   If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager,
   solicitor, professional accountant or other professional adviser.




                                         (incorporated in the Cayman Islands with limited liability)
                           LISTING ON THE GROWTH ENTERPRISE MARKET OF
                             THE STOCK EXCHANGE OF HONG KONG LIMITED
                                 BY WAY OF PUBLIC OFFER AND PLACING
          Number of Offer Shares            : 120,000,000 Shares
          Number of Public Offer Shares     : 12,000,000 Shares, subject to re-allocation
          Number of Placing Shares          : 108,000,000 Shares, subject to re-allocation
          Offer Price                       : Not less than HK$0.50 per Share and
                                                  not more than HK$0.68 per Share
          Nominal value                     : HK$0.01 each
          Stock code                        : 8031
                                                            Sponsor and Lead Manager




                                                                     Co-sponsor




                Lead manager                                                                                       Lead underwriter and manager
SBI E2-Capital Securities Limited                                                                                    Hantec Capital Limited
                                                                  Lead underwriter
                                                        SG Securities (HK) Limited
                                                                Co-lead underwriters
Christfund Securities Limited                                                                                                     CEF Capital Limited
AMS Corporate Finance Limited                                                                                                   GC Securities Limited
UOB Kay Hian (Hong Kong) Limited                                                                              Kim Eng Securities (Hong Kong) Limited
Sanfull Securities Limited
                                                                     Underwriters
Guotai Junan Securities (Hong Kong) Limited                                                                              Hung Sing Securities Limited
Koffman Securities Limited                                                                                      Shenyin Wanguo Capital (H.K.) Limited
Taiwan Concord Capital Securities (Hong Kong) Limited                                                             Tanrich Securities Company Limited
YF Securities Company Limited                                                                                      Quam Securities Company Limited


The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this
prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever
arising from or in reliance upon the whole or any part of the contents of this prospectus.
A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrar of
Companies” in Appendix V to this prospectus, has been registered with the Registrar of Companies in Hong Kong as required by section 342C of the
Companies Ordinance. The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of
this prospectus or any of the other documents referred to above.
The Offer Price is expected to be fixed by agreement between AMS and Hantec (for and on behalf of the Sponsors and the Underwriters) and the
Company not later than 12:00 noon on 28 May 2002. Investors applying for Public Offer Shares must pay the maximum Offer Price of HK$0.68 per Share,
together with brokerage of 1.0%, transaction levy of 0.007% imposed by the Securities and Futures Commission and Stock Exchange trading fee of
0.005%. An announcement of the Offer Price, the level of indication of interest in the Placing and the results and basis of allocation of the Public Offer
Shares will be published on the GEM website and in the Hong Kong iMail (in English) and the Hong Kong Economic Times (in Chinese) on 30 May 2002.
Applicants should note that in no circumstances can application be withdrawn once submitted.
Prospective investors of the Offer Shares should note that the Underwriters are entitled to terminate their obligations under the Underwriting
Agreement by notice in writing to the Company given by AMS, in the capacity as the sponsor to and lead manager of the Share Offer and acting
on behalf of the Sponsors and the Underwriters, upon the occurrence of any of the events set forth under the paragraph headed “Grounds for
termination” in the section headed “Underwriting” in this prospectus at any time prior to 8:00 a.m. (Hong Kong time) on the date of despatch of
share certificates relating to the Share Offer. Such events include, but without limitation to, any acts of government, strikes, lock-outs, fire,
explosion, flooding, civil commotion, acts of war, acts of God, acts of terrorism, accident or interruption or delay in transportation, economic
sanctions, public disorder, riot and epidemic.

                                                                                                                      22 May 2002, Hong Kong
                                CHARACTERISTICS OF GEM


      GEM has been established as a market designed to accommodate companies to which a high
investment risk may be attached. In particular, companies may list on GEM with neither a track
record of profitability nor any obligation to forecast future profitability. Furthermore, there may be
risks arising out of the emerging nature of companies listed on GEM and the business sectors or
countries in which the companies operate. Prospective investors should be aware of the potential
risks of investing in such companies and should make the decision to invest only after due and
careful consideration. The greater risk profile and other characteristics of GEM mean that it is a
market more suited to professional and other sophisticated investors.

     Given the emerging nature of companies listed on GEM, there is a risk that securities traded
on GEM may be more susceptible to high market volatility than securities traded on the Main
Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

      The principal means of information dissemination on GEM is publication on the internet
website operated by the Stock Exchange. Listed companies are not generally required to issue
paid announcements in gazetted newspapers. Accordingly, prospective investors should note that
they need to have access to the GEM website in order to obtain up-to-date information on GEM-
listed issuers.




                                                –i–
                                                        EXPECTED TIMETABLE


Application lists of the Share Offer open (Note 2) . . . . . . . . . . . . . . . . . . . . 11:45 a.m. on 27 May 2002, Monday

Latest time for lodging WHITE and YELLOW
  application forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on 27 May 2002, Monday

Application lists of the Share Offer close . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on 27 May 2002, Monday

Determination of the Offer Price on or before . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on 28 May 2002, Tuesday

Allotment of Offer Shares to successful applicants and
   placees or their designated person(s) on or about . . . . . . . . . . . . . . . . . . . . . . . . . .29 May 2002, Wednesday

Announcement of the Offer Price, the level of indication
  of interests in the Placing, the results of applications
  in respect of the Public Offer and the basis of
  allotment of the Public Offer Shares (with successful
  applicants’ identification number, where appropriate)
  to be published on the GEM website at www.hkgem.com
  and in the Hong Kong iMail (in English) and the
     Hong Kong Economic Times (in Chinese) on or before . . . . . . . . . . . . . . . . . . . . . . 30 May 2002, Thursday

Refund cheques in respect of wholly or partially
  unsuccessful applications to be posted on or before
  (Notes 3 & 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 May 2002, Thursday

Share certificates to be posted or available on or before
  (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 May 2002, Thursday

Dealings in Shares on GEM to commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 June 2002, Monday

Notes:

1.       All times refer to Hong Kong local time.

2.       If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force at any time between 9:00
         a.m. to 12:00 noon on Monday, 27 May 2002, the application lists will not be open on that day. Please refer to the section
         headed “How to apply for Public Offer Shares – Effect of bad weather on the opening of the application lists” in this prospectus.

3.       If you are using a WHITE application form to apply for 1,000,000 Public Offer Shares or above and have indicated on your
         application form that you intend to collect your share certificates and refund cheque (if any), you may collect them in person
         from the Company’s Hong Kong branch share registrar, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road,
         Central, Hong Kong between 9:00 a.m. and 1:00 p.m. on Thursday, 30 May 2002 or on the date notified by the Company on the
         GEM website and in the Hong Kong iMail (in English) and the Hong Kong Economic Times (in Chinese) as the date of despatch
         of share certificates and refund cheque.

         Applicants being individuals who opt for personal collection must not authorise any other person to make their collection on their
         behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing
         letters of authorisation from their corporations stamped with the corporation’s chop. Both individuals and authorised
         representatives (if applicable) must produce at the time of collection evidence of identity acceptable to Tengis Limited.




                                                                           – ii –
                                               EXPECTED TIMETABLE

     If you have opted for personal collection but do not collect your share certificates and refund cheque (if any) by 1:00 p.m. on
     Thursday, 30 May 2002, they will be sent to the address on your application form in the afternoon on the date of despatch, by
     ordinary post at your own risk. If you have not indicated on your application form that you will collect your share certificates and
     refund cheque (if any) in person, then your share certificates and refund cheque (if any) will be sent to the address on your
     application form on the date of despatch, by ordinary post at your own risk.


     If you are using a YELLOW application form, please refer to the section headed “How to apply for Public Offer Shares –
     Collection/posting of share certificates/refund cheques and deposit of share certificates into CCASS” in this prospectus.

4.   The share certificates for the Placing Shares to be distributed via CCASS are expected to be deposited into CCASS on 30 May
     2002 for the purpose of crediting the same to the respective CCASS participants’ stock accounts designated by the
     Underwriters, the placees or their agents, as the case may be.

5.   Refund cheques will also be issued in respect of wholly or partially successful applications in the event that the Offer Price is
     less than the initial price per Share actually paid.


     If there is any change in the above expected timetable, the Company will issue a separate
announcement.

      For details of the conditions of the Share Offer, please refer to the section headed “Structure and
conditions of the Share Offer” in this prospectus.

      Prospective investors of the Offer Shares should note that the Underwriters are entitled to
terminate their obligation under the Underwriting Agreement by notice in writing to the Company
given by AMS, in the capacity as the sponsor to and lead manager of the Share Offer and acting on
behalf of the Sponsors and the Underwriters, upon the occurrence of any of the events set forth under
“Grounds for termination” in the section headed “Underwriting” in this prospectus at any time prior to
8:00 a.m. (Hong Kong) time on the date of despatch of share certificates relating to the Share Offer.
Such events include, but without limitation to, any acts of government, strikes, lock-outs, fire,
explosion, flooding, civil commotion, acts of war, acts of God, acts of terrorism, accident or
interruption or delay in transportation, economic sanctions, public disorder, riot and epidemic.




                                                               – iii –
                                                                          CONTENTS


       You should rely only on the information contained in this prospectus and the application forms to
  make your investment decision.

        The Company has not authorised anyone to provide you with information that is different from what is
  contained in this prospectus and the application forms.

         Any information or representation not made or contained in this prospectus and the application forms
  must not be relied on by you as having been authorised by the Company, the Sponsors, the Underwriters,
  their respective directors, or any other parties involved in the Share Offer.

                                                                                                                                                                  Page

CHARACTERISTICS OF GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          i

EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   ii

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       27

GLOSSARY OF TECHNICAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               38

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          41

INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER . . . . . . . . . . . . . . . . . . . . . . . .                                                               53

DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       56

CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       58

PARTIES INVOLVED IN THE SHARE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                     60

INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 64

GENERAL OVERVIEW OF THE GROUP
    Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        84
    Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           85
    Shareholding structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                86
    History and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   90
    Active business pursuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                97
    Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               104
    Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     107
    Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     116
    Awards and recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 119




                                                                                  – iv –
                                                                           CONTENTS


                                                                                                                                                                     Page


         Quality control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      119
         Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      120
         Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    121
         Issue of Buret Option and Buret Allotment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          122
         Issue of Anderson Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               123
         Intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             124
         Property interests and principal place of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               125
         Exempted connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      126

STATEMENT OF BUSINESS OBJECTIVES
    Overall business objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     133
    Implementation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  138
    Bases and assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     150
    Reasons for the Share Offer and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                     150

DIRECTORS, ADVISORY BOARD, SENIOR MANAGEMENT AND STAFF
    Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       154
    Audit committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             156
    Senior management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   156
    Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     158
    Share Option Scheme and Pre-IPO Share Option Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                  160

INITIAL MANAGEMENT, SUBSTANTIAL AND
   SIGNIFICANT SHAREHOLDERS
      Initial Management Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         161
      Substantial Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 162
      Significant Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               162
      Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          162

SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             164

FINANCIAL INFORMATION
    Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            167
    Liquidity, financial resources and capital structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  168
    Trading record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            169
    Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             172
    Dividend policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             173
    Distributable reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                173
    Adjusted net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      173
    No material adverse change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        174




                                                                                   –v–
                                                                         CONTENTS


                                                                                                                                                               Page


UNDERWRITING
    Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    175
    Underwriting arrangements and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            175

STRUCTURE AND CONDITIONS OF THE SHARE OFFER
    Price payable on application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                186
    Conditions of the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               186
    The Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       186
    Offer Mechanism – reallocation of the Offer Shares
       between the Public Offer and the Placing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           188

HOW TO APPLY FOR PUBLIC OFFER SHARES
    Which application form to use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                 189
    Where to collect the application forms for the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . .                                        189
    How to complete the application form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      190
    How many applications you may make . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          190
    How much to pay for the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             192
    Time for applying for the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           192
    Effect of bad weather on the opening of the application lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                   192
    Circumstances in which you will not be allocated
       the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              193
    Publication of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        194
    Collection/posting of share certificates/refund cheques
       and deposit of share certificates into CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             194
    Commencement of dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            196
    Shares will be eligible for CCASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   196

APPENDIX I                –      ACCOUNTANTS’ REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    197

APPENDIX II               –      PROPERTY VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   224

APPENDIX III              –      SUMMARY OF THE CONSTITUTION OF THE COMPANY
                                   AND CAYMAN ISLANDS COMPANY LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                       232

APPENDIX IV               –      STATUTORY AND GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                      252

APPENDIX V                –      DOCUMENTS DELIVERED AND
                                   AVAILABLE FOR INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           335




                                                                                – vi –
                                                SUMMARY


      This summary aims to give you an overview of the information contained in this prospectus. As it is a
 summary, it does not contain all the information that may be important to you. You should read this
 prospectus in its entirety before you decide to invest in the Offer Shares.

       There are risks associated with any investment. Some of the particular risks in investing in the Offer
 Shares are set out in the sections headed “Characteristics of GEM” and “Risk factors”. You should read
 those sections carefully before you decide to invest in the Offer Shares.

BUSINESS

      The Group was founded in 1987 in Alberta, Canada with the incorporation of Kinetana Inc. to provide,
through Dr. Tam, consulting services and conduct pre-clinical and clinical studies in pharmacokinetics and
pharmacodynamics for pharmaceutical and biotechnological companies. In March 1998, KGI, now a wholly-
owned subsidiary of the Company, was founded to engage in biopharmaceutical technology development.
The core competence of the Group is pharmacokinetics/pharmacodynamics and the Group’s mission is to
accelerate the discovery and development of synthetic drugs and natural products, including TCM. The
Group’s principal technological innovation is its “simulated biological dissolution and absorption system”, or
the SimBioDAS™ technology, which was initially co-invented by Dr. Tam and Dr. Anderson.

      Dr. Tam and Dr. Anderson came up with the concept of the SimBioDAS™ technology in or about
January 1997 when, as a professor and a graduate student, respectively, at the University of Alberta they
were working on research projects together. On 8 February 2000, a US patent was issued for the
SimBioDAS™ technology which will expire on 2 December 2017. On 9 August 2000, the Group also received
from the Canadian Intellectual Property Office a notice confirming the national entry of the invention of the
SimBioDAS™ technology.

      In March 2000, the Group began to set up its cell biology department in Edmonton, Alberta, Canada for
developing the conditions for culturing the Kinetana Cells so that absorption experiments could be conducted.
By November 2000, the Group had achieved a proof of principle on its technology and later in February 2001,
a proof of concept was attained. In late 2001, after about three years’ of development and refinement,
particularly in cell biology for the development of the Kinetana Cells and in analytical chemistry, the Group
developed the SimBioDAS™ technology into a system which is intended for predicting the intestinal
absorption of compounds in humans effectively with consistent results within an acceptable margin of error.
The SimBioDAS™ system is currently operated manually, and is intended to be developed into an automated
system.

      The emerging SimBioDAS™ technology is an in vitro screening system through which the Group aims
to help shorten the drug development timeline by facilitating early decisions on which drug candidates to be
brought forward for further development, thereby reducing the cost and resources required for the pre-clinical
drug development process. Technologies similar in some respects to the SimBioDAS™ technology are
available in the market. However, to the best of the Directors’ knowledge, information and belief, the
SimBioDAS™ technology is the only one that uses normal human cell lines in absorbability screening.

     The SimBioDAS™ system is expected to have the following distinct features:

     –     It will use normal human small intestinal cell lines, which are expected to offer better prediction of
           drug candidate absorbability in humans than the common industry practice of using animal or
           cancer cell lines. The Kinetana Cells that are used in the SimBioDAS™ system are cultured in
           specific conditions from the Buret Cell Line, which are derived from normal human cells and do



                                                     –1–
                                                 SUMMARY

            not have a tumoral original and which the Group has the exclusive licence to use under the Cell
            Line Agreement. The culturing of the Kinetana Cells is expected to take a much shorter time,
            usually approximately three days as compared to typically 21 days as required in the common
            industry practice of using Caco-2 cells.

      –     It will use disposable cartridges containing the cell membranes; experiments will be conducted
            using a robotic system interfaced with an automated analytical system; analytical data will be
            received and subject to computer analysis. The SimBioDAS™ system is expected to provide rapid
            screening of potential drugs in a consistent and reproducible manner.

      –     It will have built-in data analysis software that was developed by the Group’s own expertise in
            analytical chemistry and computational modelling and is expected to accurately model the
            absorption characteristics of drug candidates over the entire small intestine instead of giving an
            estimate of absorbability at a particular point along the length of the intestine. Further, the
            software will take into consideration factors not previously accounted for, using multivariate
            analysis, i.e. a statistical method that can account for more than one variable or factor at the
            same time.

     The SimBioDAS™ technology has been tested by the Group and is intended to work in the following
areas:

      –     to help pharmaceutical companies focus on developing drug candidates that are well-absorbed by
            humans;

      –     to predict pharmacokinetics, especially absorption, of drug candidates in animals using an in vitro
            system; and

      –     to predict possible pharmacokinetic and toxicity problems with drug candidates in humans by
            revealing the potential differences between animal and human absorption of screened compounds.

       In summary, the SimBioDAS™ technology aims to contribute to the lead identification process and
facilitate rapid decisions on compound selection for further development and on discontinuation of less well-
absorbed drug candidates. The SimBioDAS™ technology has not been independently tested for its
effectiveness. To the best of the Directors’ knowledge and belief, they are not aware of any independent or
government authority which will endorse technology developments, such as the SimBioDAS™ technology, for
commercial applications. The Group will allow its potential clients to provide drug samples for testing utilising
the SimBioDAS™ technology, and to be satisfied by the results of the testing before making any business
commitment. The Group commenced commercialization of the SimBioDAS™ technology in November 2001.
However, the Group had not obtained any business contracts until the last quarter of the Track Record
Period.

      The SimBioDAS™ technology is expected to be adapted to test the absorption of ingredients in TCM in
humans. The Group also intends to develop a related biotechnological method to effectively isolate the active
ingredients in natural herbal products. Using its expertise and technology, the Group aims to test and develop
novel high quality TCM formulations as drug products for the world market.

      Currently, the Group’s operation in Canada is expected to focus on the development and provision of
drug screening services using the SimBioDAS™ technology and the development and formulation of western
herbal products. In Hong Kong, the Group’s operation is expected to be related to the development and
formulation of TCM-related products using the SimBioDAS™ or related technology.




                                                     –2–
                                               SUMMARY


ACTIVE BUSINESS PURSUITS

      The following is a summary of the Group’s active business pursuits during the period from 1 March 1999
to the Latest Practicable Date.

For the year ended 29 February 2000

Research and development                   The Group continued studying and verifying absorption of drug
                                           compounds in humans by way of in vivo models, i.e. animal
                                           experiments, in order to develop the fundamentals and framework
                                           for the SimBioDAS™ technology.

                                           In November 1999, the Group set up a computational modelling
                                           department and began the development of mathematical methods
                                           to analyze the processes and factors affecting absorption,
                                           including the experimental results. The Group was also developing
                                           two drugs:

                                           –    “KI001” which was designed to treat endotoxemia, i.e. blood
                                                poisoning by bacteria.

                                           –    “KI002” which was a novel formulation of an existing anti-
                                                fungal agent and was reformulated to reduce the toxicity
                                                profiles while retaining its potency.

                                           As at 29 February 2000, the Group’s research and development
                                           team comprised 12 technical staff, all of whom were based in
                                           Canada.

Accomplishment                             On 8 February 2000, a US patent for the period up to 2 December
                                           2017 was issued for the invention entitled “simulated biological
                                           dissolution and absorption system”.

Corporate development                      In October 1999, KIP and KHP, currently both wholly-owned
                                           subsidiaries of the Company, were established with the objectives
                                           to modify the SimBioDASTM technology to screen the absorbability
                                           of more complex mixtures of compounds such as those found in
                                           TCM herbs.

                                           In January 2000, the Group signed an agreement with The Hong
                                           Kong Institute of Biotechnology Limited to set up an office and
                                           laboratory at the Hong Kong Institute of Biotechnology in Shatin,
                                           New Territories, Hong Kong.

Operational growth                         As at 29 February 2000, the Group had a total of 13 full-time
                                           employees, all of whom were based in Canada.



                                                   –3–
                                          SUMMARY


For the year ended 28 February 2001

Research and development              The Group suspended the development of the KI002 drug after it
                                      had completed studies on active ingredients of the formulation
                                      and concluded not to proceed with further development. The
                                      Group scaled down the development of the KI001 drug in order to
                                      focus its financial and human resources in its laboratory in
                                      Edmonton, Alberta, Canada on the development of the
                                      SimBioDAS™ technology.

                                      In January 2001, the Group also commenced preliminary research
                                      in Canada on the development of a novel formulation of Ginkgo
                                      biloba by using the SimBioDAS™ technology to isolate the
                                      absorbable active ingredients from natural Ginkgo leaves and
                                      studying the scientific literature on Ginkgo.

                                      In Hong Kong, the Group focused on modifying the SimBioDAS™
                                      technology to isolate the active ingredients in TCM and to predict
                                      their absorbability in humans.

                                      As at 28 February 2001, the Group’s research and development
                                      team comprised 16 technical staff, of whom 14 and 2 were based
                                      in Canada and Hong Kong respectively.

Accomplishment                        The Group was awarded financial support amounting to
                                      CAN$235,000 by the National Research Council of Canada under
                                      the Industrial Research Assistance Program for the Group’s
                                      development of the SimBioDAS™ technology for prediction of
                                      intestinal absorption of drug compounds in humans.

Business development                  In April 2000, the Group signed a five-year contract with a US-
                                      based multinational conglomerate which is worth US$1 million
                                      and under which the Group would perform pre-clinical studies on
                                      drug candidates for such conglomerate. As at the Latest Practicable
                                      Date, no service has been provided by the Group under such
                                      contract.

Financial support                     The Group’s operations and its plan to modernize TCM using the
                                      SimBioDAS™ or related technology had been funded by the
                                      HK$13 million raised from 37 investors in Hong Kong.

Operational growth                    In April 2000, the Group started to set up an office and research
                                      facilities in the Hong Kong Institute of Biotechnology in Shatin,
                                      New Territories, Hong Kong.

                                      As at 28 February 2001, the Group had a total of 22 full-time
                                      employees, 16 and 6 of whom were based in its offices in Canada
                                      and Hong Kong respectively.

                                              –4–
                                            SUMMARY


For the period from 1 March 2001 to the Latest Practicable Date

Research and development                The Group continued its research and development work in
                                        Canada on developing the SimBioDAS™ technology for predicting
                                        drug absorption in humans. In Hong Kong, the Group began the
                                        development of a related biotechnological method to isolate the
                                        active ingredients in TCM by adapting the SimBioDAS™ technology
                                        to screen the complex mixtures of substances and compounds
                                        that are usually found in TCM herbs.

                                        In July 2001, the Group started a pilot formulation of its Ginkgo
                                        product in Edmonton, Alberta, Canada.

                                        In September 2001, the Group entered into an agreement with a
                                        Japanese pharmaceutical company regarding a collaborative
                                        project on the development of a novel, sustained-released
                                        formulation based on an existing drug formulation of an antibiotic
                                        in the prevention and treatment of infectious diseases.

                                        As at the Latest Practicable Date, the Group’s research and
                                        development team comprised 15 technical staff, of whom 8 and 7
                                        were based in Canada and Hong Kong respectively.

Accomplishment                          In August 2001, the Group was the recipient of the “Best
                                        Biochemistry Technology Company Award” for the year 2000 at
                                        the “Omega Outstanding Information Technology & Financial
                                        Enterprises Awards” which was organised by the Hong Kong
                                        Capital Magazine.

Business development                    The Group had been exploring with a robotic system company to
                                        develop the SimBioDAS™ technology into an automated system
                                        which can be controlled by a computer to carry out drug
                                        absorption screening experiments with minimal human intervention.

                                        The Group was devising marketing plans for approaching the
                                        North American market with its new Ginkgo formulation which is
                                        expected to have a known quantity of absorbable active
                                        ingredients.

                                        In January and February 2002, the Group signed two business
                                        contracts in the amount of HK$600,000 and HK$1,000,000
                                        respectively for the provision of services, which include ingredient
                                        absorption analyses and evaluation of active ingredients in TCM-
                                        based formulae, using the SimBioDAS™ technology.




                                                –5–
                                               SUMMARY


Corporate development                      In July 2001, the Group entered into a joint venture agreement
                                           with NCM for the marketing and distribution of TCM-based
                                           products, particularly in Hong Kong and Japan.

Financial support                          In June 2001, the Group signed an agreement with the Hong
                                           Kong Government and HKUST under which each of the Group
                                           and the ITF agreed to work together on the establishment and
                                           validation of the SimBioDAS™ technology for the development of
                                           TCM-based products.

                                           In July 2001, the Group signed an agreement with the Hong Kong
                                           Government and CUHK under which the Group agreed to team up
                                           with CUHK to work on the validation of the Group’s biotechnological
                                           method for the isolation of active ingredients in TCM and the
                                           development of TCM-based products with known active ingredients
                                           and verified absorbability.

                                           In September 2001, the Group completed the Pre-IPO Placing
                                           whereby a total sum of approximately HK$18 million was raised
                                           by offering equity interest of approximately 19% in the Group
                                           immediately after completion of the Pre-IPO Placing. The principal
                                           purposes of the Pre-IPO Placing are to accommodate the Group’s
                                           financial requirements in contributing the matching funds under
                                           the agreements with HKUST and CUHK respectively, and to fund
                                           the continuous development of the SimBioDAS™ technology and
                                           the Group’s operations in Canada and Hong Kong.

Operational growth                         As at the Latest Practicable Date, the Group had a total of 25 full-
                                           time employees, 12 and 13 of whom were based in Canada and
                                           Hong Kong respectively.

      Further details of the Group’s operations during the period from 1 March 1999 to the Latest Practicable
Date are set out in the paragraph headed “Active business pursuits” in the section headed “General overview
of the Group” in this prospectus.




                                                    –6–
                                                                   SUMMARY


     The following table summarises the areas of research and development activities that the Group had
worked on during the Track Record Period and up to the Latest Practicable Date:

     Technology/                                                      Project                                 Target
     Product                 Description/              Party          commencement    Current                 launch               Target
     identification          Purpose                   involved       date            status                  date                 market
                                                                                                                                   (note)

     Continuing projects

     SimBioDASTM             Please refer to           the Group      January 1997    Commercialised          Not                  Pharmaceutical
     technology              the paragraph                                            since                   applicable           companies,
                             headed “Proprietary                                      November                                     biotechnology
                             technology” in this                                      2001                                         companies,
                             prospectus                                                                                            laboratories and
                                                                                                                                   research institutes

     Ginkgo biloba           Treatment of mental       the Group      January 2001    Pilot formulation       Second or third      Initially, the US,
                             difficulties associated                                  completed and           quarter of 2002      Canada, Japan and
                             with old age, poor                                       proceeding to                                Hong Kong
                             concentration and                                        marketing planning
                             memory, and other
                             mental problems

     TCM-based including     Treatment of liver        the Group and 1 July 2001      Facilities set up,           As a food       Patients with liver
     Radix Angelicae         cancer                    HKUST                          laboratory equipment supplement by           disease or liver
        sinensis                                                                      and materials acquired, the end of 2007      cancer
     formulation                                                                      training staff and preparing
                                                                                      for bioassay

     TCM-based including     Treatment of              the Group and 1 January 2002   Setting up facilities   As a food            Patients with
     Rhizoma                 cardiovascular            CUHK                           and hiring technical    supplement by        cardiovascular
     chuanxiong              diseases                                                 personnel               the end of 2007      diseases

     formulation

     Discontinued projects

     KI001                   Treatment of              the Group      October 1998    Scaled down since       Not yet determined   To be determined
                             endotoxemia                                              September 2000 and                           if project
                                                                                      may be reactivated                           reactivated
                                                                                      as and when market
                                                                                      opportunity arises

     KI002                   Treatment of serious      the Group      October 1998    Suspended in            Not applicable       Not applicable
                             infections with fungus                                   September 2000
                             (moulds) in the lung
     Note: As the Group has not yet commercialized any product as a drug and has not provided any service that require regulatory
           approval, the Group has so far not applied for any regulatory approval. Details of the laws and regulations that may be
           relevant to the Group’s business, products and services in Canada and in Hong Kong are set out under the paragraphs



                                                                       –7–
                                                     SUMMARY

           headed “Laws and regulations on the Chinese medicine industry in Hong Kong”, “Applicable Alberta and federal
           Canadian laws and regulations” and “Summary of proposed Canadian natural health products regulations” in the section
           headed “Industry overview” in this prospectus.


Revenue model

     The Group has commenced commercialisation of the SimBioDAS™ technology since November
2001 by offering drug screening services and ingredient absorption analyses in its laboratories in
Edmonton, Alberta, Canada and in Hong Kong.

       In January and February 2002, the Group signed two business contracts. The first one was signed with
an independent third party for an amount of HK$600,000 in relation to the provision of services including
ingredient absorption analyses using the SimBioDAS™ technology. Such services were completed in March
2002. The second contract was signed with an indirect wholly-owned subsidiary of NCM, the Group’s joint
venture partner, for an amount of HK$1,000,000 in relation to the provision of services including evaluation of
active ingredients in TCM-based formulae using the SimBioDAS™ technology. Such services will be provided
in stages in line with the client’s development and production processes and are expected to be completed by
April 2004.

     The Directors expect the Group’s revenue profile to develop over time when the SimBioDAS™
technology becomes widely adopted in the pharmaceutical industry and the Group has successfully
developed its proprietary TCM-derived products. The Group currently targets the following revenue streams:

     –     Service revenue (contracts in progress) from undertaking screening analyses of drug compounds
           for drug formulation and active ingredient identification using the SimBioDAS™ technology;

     –     Revenue from the sale of proprietary formulation of popular herbal products (in approximately
           three to six months from the Latest Practicable Date);

     –     Contract revenue (in approximately six to 12 months from the Latest Practicable Date) from the
           provision of pre-clinical testing services of drug candidates using the SimBioDAS™ technology;

     –     Licensing fees (in approximately 15 to 21 months from the Latest Practicable Date) for allowing
           the use of the SimBioDAS™ technology by the Group’s target clients under licensing agreements;

     –     Revenue from the sale of the automated SimBioDAS™ system (in approximately 15 to 21
           months from the Latest Practicable Date), which is expected to be controlled by a computer to
           handle the absorption screening experiments with minimal human intervention; and

     –     Revenue from the sale of proprietary TCM-based products, including those TCM-based
           formulations being worked on with HKUST and CUHK for the treatment of liver cancer and
           cardiovascular diseases respectively which are expected to be completed by the end of 2007.

     Further details of the Group’s revenue model are set out in the sub-paragraph headed “Revenue model”
under the section headed “General overview of the Group” in this prospectus.




                                                           –8–
                                              SUMMARY


STRENGTHS

   The Directors believe that the competitive strengths of the Group are as follows:

   –    Strong research and development capability

        The Group has a research and development team comprising 15 technical staff, of whom 8 are
        Ph.D scientists with the remaining being technicians or technologists who hold diplomas in
        laboratory or veterinary technology, or university degrees in science. The Group’s strategic
        alliances with various academic institutions and research institutes (details of which are set out in
        the paragraph headed “Research and development arrangement” in this section) are also
        intended to provide the Group with access to a wealth of technology, research results and product
        information relating to the biotechnology and pharmaceutical industries, and hence to strengthen
        the Group’s research and development capabilities.

   –    Significant awards and recognition

        The Group was named the winner of the “Best Biochemistry Technology Company” for the year
        2000 by the Hong Kong Capital Magazine, and has received numerous grants or subsidies from
        governmental agencies in Canada as well as in Hong Kong in support of its research and
        development activities.

   –    Parallel development

        The Group’s SimBioDAS™ technology can be utilised to develop proprietary drug products,
        including refining the TCM-based formulations to be developed jointly with HKUST and CUHK
        from health products to drugs, which are expected to contribute to its revenue profile in the long
        term while revenue is expected in the short term by the provision of screening services using the
        SimBioDAS™ technology and producing high quality herbal products.

   –    Strategic alliances

        The Group expects to limit its risks involved in the drug development process and to enjoy the
        flexibility of an efficient organizational structure by entering into various strategic alliances. For a
        brief summary of the Group’s development in respect of strategic alliances, please refer to the
        paragraph headed “Business model” in this prospectus. Please also note that the terms of some
        of the Group’s strategic alliances are subject to further negotiation and mutual agreement.




                                                   –9–
                                               SUMMARY


BUSINESS OBJECTIVES

     The Group’s mission is to accelerate the discovery and development of synthetic drugs and natural
products, including TCM.

      In order to accomplish its mission, the Group has designed a plan to achieve multiple objectives using
its platform technology. The Group plans to provide proprietary drug products in the long term, in
approximately five to seven years, including TCM-based products and herbal products which will initially be
marketed as food supplements and, if successful, will eventually be developed into drug with medical or
health claims. The Group also plans to minimize its development risks by generating revenue in the short
term, in approximately one to three years. Under the current plan, the Group’s operation in Canada is
expected to focus on the development and provision of services using the SimBioDAS™ technology and the
development and formulation of western herbal products. In Hong Kong’s operation is expected to be related
to the development and formulation of TCM-related products using the SimBioDAS™ or related technology.
The Directors consider the Group’s activities in Canada and Hong Kong to be complementary. Both
operations leverage on the SimBioDAS™ technology while each has its distinct market focus – the Canadian
operation focuses on the research and development of technology and the provision of drug screening
services while the Hong Kong operation focuses on the development of TCM related products.

     The following are the Group’s key strategies for generating immediate to medium term revenue (in
approximately three months to three years):

     1.    To offer drug-screening services and ingredient absorption analyses, in the Group’s laboratories in
           Edmonton, Alberta, Canada and in Hong Kong, using the SimBioDAS™ technology. (The Group
           has so far secured two business contracts, of which one had been completed and the other one is
           in progress.)

     2.    To develop in Canada an automated system to accommodate the demand for increased through-
           put of in-house drug screening and for licensing to third party customers. (Such development plan
           is currently in progress.)

     3.    To develop in Canada and introduce the Group’s first Ginkgo                   product as a food
           supplement in the second or third quarter of 2002 which is expected to be in tablet or capsule
           form and contain a known quantity of absorbable active ingredients that are extracted from natural
           Ginkgo leaves.

     4.    To develop in Canada and market other single-herb products as food supplements, such as St.
           John’s Wort                 and Echinacea               , with worldwide popularity. (This is
           expected to commence in approximately three months after the launch of the Group’s Ginkgo
           product to the market.)




                                                   – 10 –
                                               SUMMARY


     5.    To develop in Hong Kong and market in Asian markets the Group’s Ginseng product, followed by
           Cordyceps militaris                     and Ganoderma lucidum (commonly known as Lingzhi)
                    products, all of which are expected to be in capsule or tablet form and contain a known
           quantity of absorbable active ingredients that are extracted from the relevant herbs using the
           SimBioDAS™ or related technology. (This is expected to commence in approximately three to six
           months after the launch of the Group’s Ginkgo product to the market.)

     6.    To upgrade in Hong Kong one to three TCM-based product formulations for the Group’s joint
           venture and strategic partners. (This is expected to commence in approximately 12 months from
           the Latest Practicable Date.)

     The Group’s long-term objectives, to be integrated between the operations in Hong Kong and Canada in
approximately five to seven years, are as follows:

     1.    To continue development in Canada of the SimBioDAS™ technology into its next generation,
           which is capable of evaluating other pharmacokinetic processes, such as the distribution of a drug
           compound in a human body or the elimination of a drug compound from a human body, and to
           include the capability to evaluate other pharmacokinetic processes, such as distribution and
           elimination, in future generations of the SimBioDAS™ system.

     2.    To refine in Canada the Group’s food supplement grade natural products into FDA-approved
           drugs for worldwide distribution.

     3.    To build a profile library of active ingredients of TCM herbs in Hong Kong from which the Group
           will develop high profit margin drug products by refining the Group’s food supplement grade
           natural products into drugs or products with medical or health claims. In pursuing such objective,
           the Group will have to observe the relevant regulatory and approval requirements and it may or
           may not be able to comply with all such requirements.

      Details of the Group’s business objectives, strategies and the implementation plans are set out in the
section headed “Statement of business objectives” in this prospectus.

      The Directors reiterate that the Group was engaged principally in research and development
activities during the Track Record Period. The future prospects of the Group are therefore, to a
significant extent, dependent on the validity and successful commercialization of the SimBioDAS™
technology. If the Group fails to validate the effectiveness of the SimBioDAS™ technology or if the
SimBioDAS™ technology or any of the Group’s products are not accepted by the market, there will be
an adverse impact on the Group’s business and operating performance and the Group may continue
to incur losses.

     The Group’s business objectives, strategies and implementation plans described in this
prospectus are based on the existing plans and intentions of the Group which are either at the
conceptual or preliminary stages, and are based on assumptions as to the occurrence of future




                                                   – 11 –
                                                   SUMMARY


events, which may or may not happen. There is no assurance that the future plans of the Group will
materialise, or result in the conclusion or execution of any agreement in accordance with the planned
timeframe, or that the objectives of the Group will be fully or partially accomplished. Accordingly,
there is no assurance that the Group will be able to generate any operating revenue, profit or to
maintain a positive cash flow position. In the event that the Group fails to generate any or sufficient
operating revenue as planned, the Group’s current working capital together with the net proceeds
from the Share Offer of approximately HK$46 million (based on the minimum Offer Price of HK$0.50
per Share) will be used up in approximately 30 months from the Listing Date (assuming that the Group
does not modify its business plans or take any measures to control or reduce costs).

TRADING RECORD

      The following is a summary of the Group’s combined audited results for the Track Record Period which
has been extracted from the Accountants’ Report set out in Appendix I to this prospectus. The combined
audited results were prepared on the assumption that the current structure of the Group had been in
existence throughout the Track Record Period and in accordance with the basis set out in section 1 of the
Accountants’ Report contained in Appendix I to this prospectus.

                                                                            Year ended
                                                        29 February       28 February        28 February
                                                               2000              2001               2002
                                                          (HK$’000)         (HK$’000)          (HK$’000)

     Turnover (Note 1)                                               –              –                 750
     Cost of services rendered                                       –              –                (205)


     Gross profit                                                    –              –                 545
     Other revenue, net (Note 2)                                    88            138                 612
     Administrative expenses                                    (3,190)        (7,094)            (11,249)
     Research and development costs                               (520)        (1,260)             (3,301)
     Other operating expenses, net                              (1,329)           (43)             (1,303)

     Loss from operations                                       (4,951)        (8,259)            (14,696)
     Finance costs                                                 (86)          (100)               (216)


                                                                (5,037)        (8,359)            (14,912)
     Share of profits of a jointly controlled entity
       (Note 3)                                                      –              –                  14

     Loss attributable to shareholders                          (5,037)        (8,359)            (14,898)


     Dividends                                                       –              –                   –


     Basic loss per Share (Note 4)                        (1.3) cents      (2.1) cents         (3.7) cents




                                                       – 12 –
                                                          SUMMARY

     Notes:

     1.       The Group had not recorded any turnover until the last quarter of the Track Record Period.

     2.       Other revenue represented interest income and investment tax credit recovered, if any.

     3.       The jointly controlled entity is KNCM, which is owned by the Group as to 50% with the remaining 50% interest held by an
              independent third party.

     4.       The calculation of basic loss per Share is based on the loss attributable to shareholders during such period and on the
              assumption that 400 million Shares were in issue (being the aggregate of the existing number of Shares in issue and
              Shares to be issued pursuant to the Capitalisation Issue) throughout the Track Record Period. As the Company recorded
              losses in its combined audited results throughout the Track Record Period, any Shares that may be issued upon the
              exercise of any options granted under the Share Option Scheme, the Pre-IPO Share Option Schemes, the Warrants, the
              KGI Consultants Options or pursuant to the Buret Allotment will be anti-dilutive.


REASONS FOR THE SHARE OFFER AND USE OF PROCEEDS

       The Directors believe that the listing of the Shares on GEM will enhance the Company’s profile and
expand its capital base for future growth and development. The net proceeds from the Share Offer will
provide funding for the Group’s plans as set out in the section headed “Statement of business objectives” of
this prospectus.

      The net proceeds from the Share Offer, after deduction of the related expenses and based on the
minimum Offer Price of HK$0.50 per Share, are estimated to be approximately HK$46 million. The Directors
currently intend to use such net proceeds as follows:

     –        as to approximately HK$12 million for acquisition of chemical analysis equipment and machines
              for pilot formulations and pilot production of natural herbal products;

     –        as to approximately HK$4 million for hiring additional technical staff and consultant for pilot
              formulation and pilot production of natural herbal products;

     –        as to approximately HK$4 million for funding the manpower cost in respect of additional research
              and development staff, including those in analytical chemistry and cell biology, for the refinement
              and upgrades of the SimBioDAS™ technology;

     –        as to approximately HK$4 million for funding the manpower cost in respect of sales and marketing
              of the Group’s drug screening and analysis services and products, including Ginkgo, Echinacea,
              Ginseng, St. John’s Wort and Cordyceps militaris;

     –        as to approximately HK$4 million for the matching fund obligations under the collaborative
              projects with HKUST and CUHK;

     –        as to approximately HK$5 million for acquisition of analytical chemistry and cell biology equipment
              for refinement and upgrades of the SimBioDAS™ technology;

     –        as to approximately HK$2 million for establishing a facility in Canada for development of an
              automated SimBioDAS™ system;




                                                               – 13 –
                                                                 SUMMARY


        –       as to approximately HK$1 million for acquisition of equipment to perform contract services,
                especially in pre-clinical testing of drug candidates and absorption screening analyses of drug
                compounds using the SimBioDAS™ technology;

        –       as to approximately HK$5 million for marketing and promotion activities of the Group’s herbal
                products; and

        –       as to approximately HK$5 million for additional manpower cost in respect of herbal product
                development.

      Should the final Offer Price be determined at the maximum Offer Price of HK$0.68 per Share, the net
proceeds from the Share Offer will be approximately HK$66 million. The Directors intend to use the additional
net proceeds of approximately HK$20 million as to approximately HK$10 million for developing and promoting
the Group’s corporate image and product image by advertising and promotion activities; as to approximately
HK$5 million for early repayment of the Group’s finance lease obligations, and as to the balance of
approximately HK$5 million as additional general working capital of the Group.

     To the extent that the net proceeds from the Share Offer are not immediately applied for the above
purposes, it is the present intention of the Directors that such net proceeds will be placed on short-term
deposits with financial institutions in Hong Kong.

      The Group’s detailed business implementation plans for the period up to 28 February 2005 are set out
in the section headed “Statement of business objectives” in this prospectus. According to current estimates,
the Directors expect that the net proceeds from the Share Offer (based on the minimum Offer Price of
HK$0.50 per Share) of about HK$46 million will be sufficient to finance the implementation of the Group’s
business plans up to 28 February 2005.

      In the event that any part of the business objectives or the implementation plans of the Group do not
materialise or proceed as planned, the Directors will evaluate such change in circumstances, if any, and may
reallocate the intended funding out of the net proceeds from the Share Offer to other business plans and/or to
new projects of the Group and/or to place such funds in interest-bearing deposits with financial institutions in
Hong Kong as long as the Directors consider such action to be in the best interests of the Group and the
shareholders of the Company as a whole. In such event, the Company will comply with the relevant
disclosure requirements under the GEM Listing Rules.

SHARE OFFER STATISTICS

Number of Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000,000 Shares

Number of Public Offer Shares
  (subject to reallocation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000 Shares

Number of Placing Shares (subject to reallocation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,000,000 Shares

Number of Shares immediately after
  the Share Offer and the Capitalisation Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000,000 Shares



                                                                       – 14 –
                                                                         SUMMARY


                                                                                                      Minimum               Maximum

Offer Price (per Share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               HK$0.50                 HK$0.68

Market capitalisation at the Offer Price (Note 1) . . . . . . . . . . .                          HK$260 million     HK$353.6 million

Adjusted net tangible asset value per Share
  (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10.5 cents             14.4 cents

Notes:

1.       The market capitalisation is calculated on the basis of the Offer Price and 520 million Shares in issue and to be issued
         immediately following the completion of the Share Offer and the Capitalisation Issue but takes no account of any Shares which
         may be allotted and issued upon the exercise of any options granted under the Share Option Scheme or the Pre-IPO Share
         Option Schemes, or the Warrants, the KGI Consultants Options or pursuant to the Buret Allotment or of any Shares which may
         be allotted and issued or repurchased by the Company pursuant to the mandates referred to in the paragraphs headed “Written
         resolutions of the sole shareholder of the Company passed on 7 May 2002” and “Repurchase by the Company of its own
         securities” in Appendix IV to this prospectus or otherwise.

2.       The adjusted net tangible asset value per Share has been arrived at after making the adjustments described under the
         paragraph headed “Adjusted net tangible assets” in the section headed “Financial information” in this prospectus and on the
         basis of a total of 520 million Shares in issue immediately following completion of the Share Offer and the Capitalisation Issue
         but taking no account of any Shares which may be issued upon the exercise of the options granted under the Share Option
         Scheme or the Pre-IPO Share Option Schemes, or the Warrants, the KGI Consultants Options or pursuant to the Buret Allotment
         or of any Shares which may be allotted or issued or repurchased by the Company pursuant to the mandates referred to in the
         paragraphs headed “Written resolutions of the sole shareholder of the Company passed on 7 May 2002” and “Repurchase by
         the Company of its own securities” in Appendix IV to this prospectus or otherwise.




                                                                               – 15 –
                                                  SUMMARY


SHAREHOLDING STRUCTURE

      Set out below is the shareholding structure of the Company and the respective interests (without taking
into account the Shares which may be taken up under the Share Offer) of the shareholders, immediately after
completion of the Share Offer and the Capitalisation Issue (assuming that their interests will remain
unchanged after the Latest Practicable Date):

                         Date of         Approximate         Number of Shares     Approximate     Approximate
                         becoming               total    held immediately after       average      percentage
                         shareholder      investment          completion of the       cost per      of holding    Restrictions
                         of a member         amount         Share Offer and the         Share           in the    on disposal
                         of the Group          (HK$)       Capitalisation Issue        (cents)       Company        of Shares
                         (Note 1)           (Note 15)                                (Note 15)

Initial Management Shareholders

Dr. Tam (Note 2)         29 June 1987            427                22,011,161       Negligible         4.24%       12 months
                                                                                      (Note 2)                        (Note 5)

943788 Alberta Ltd.      21 July 2001           2,301              118,737,854       Negligible        22.83%       12 months
  (Note 2)                                                                            (Note 2)                        (Note 5)

Grand Interest           14 June 1999       4,961,250               30,815,591           16.10          5.93%       12 months
  Development                                                                                                         (Note 5)
  Limited (Note 3)

Constance Tam            29 June 1987             50                 6,114,205       Negligible         1.18%       12 months
  (Note 2)                                                                                                            (Note 5)

Suzanne Tam              29 June 1987             50                 6,114,205       Negligible         1.18%       12 months
  (Note 2)                                                                                                            (Note 5)

Patrick Chiu             28 March 1998         50,025                1,614,150            3.10          0.31%         6 months
  Kit Young (Note 4)

Dr. Antoine A. Noujaim   28 March 1998            18                   855,989       Negligible         0.16%         6 months
   (Note 4)

Employees (Note 6)

Dr. Klaus Stoeckel       28 March 1998            18                   855,989       Negligible         0.16%         6 months

Shirley Howrish          28 March 1998             8                   366,852       Negligible         0.07%    Not applicable

Yeung Kai Kwong          10 March 2001       148,500                   733,705           20.24          0.14%    Not applicable




                                                        – 16 –
                                                            SUMMARY

                            Date of                Approximate         Number of Shares     Approximate     Approximate
                            becoming                      total    held immediately after       average      percentage
                            shareholder             investment          completion of the       cost per      of holding   Restrictions
                            of a member                amount         Share Offer and the         Share           in the   on disposal
                            of the Group                 (HK$)       Capitalisation Issue        (cents)       Company       of Shares
                            (Note 1)                  (Note 15)                                (Note 15)

Relatives of the Initial Management Shareholders

Relatives of Dr. Tam (Note 7)

Abu Md. Basharat Ali        28 March 1998                   50                 2,445,682       Negligible         0.47%      12 months

Tam Mei Ha                  10 March 2001              297,000                 1,467,409           20.24          0.28%      12 months

Tam Mei Ling                10 March 2001              396,000                 1,956,545           20.24          0.38%      12 months

Tam Oi Ling                 10 March 2001              594,000                 2,934,818           20.24          0.56%      12 months

Tam Sau Ying                10 March 2001              297,000                 1,467,409           20.24          0.28%      12 months

Tam Yun Kwong               10 March 2001              198,000                   978,273           20.24          0.19%      12 months

Tam Yun Leung               10 March 2001              198,000                   978,273           20.24          0.19%      12 months

Relatives of Mr. Young (Note 8)

Yeung Oi Fan                10 March 2001              198,000                   978,273           20.24          0.19%      12 months

Yeung Shui Kwong            10 March 2001              396,000                 1,956,545           20.24          0.38%      12 months

Yeung Sui Fai               10 March 2001              297,000                 1,467,409           20.24          0.28%      12 months

Yeung Sui Leung             10 March 2001              643,500                 3,179,387           20.24          0.61%      12 months

Yeung Sui Ping Stephen      10 March 2001              247,500                 1,222,841           20.24          0.24%      12 months

Relative of David Shong Tak Tam (Note 9)

Lam Tung King               29 August 2001               25,025                1,418,495            1.76          0.27%       6 months

Relative of Patrick Chiu Kit Young (Note 10)

Francis Yip (through        2 February 1999             112,000                  635,877           17.61          0.12%       6 months
  598111 Alberta Ltd.)




                                                                  – 17 –
                                                                  SUMMARY

                            Date of                  Approximate            Number of Shares     Approximate      Approximate
                            becoming                        total       held immediately after       average       percentage
                            shareholder               investment             completion of the       cost per       of holding    Restrictions
                            of a member                  amount            Share Offer and the         Share            in the    on disposal
                            of the Group                   (HK$)          Capitalisation Issue        (cents)        Company        of Shares
                            (Note 1)                    (Note 15)                                   (Note 15)

Scientific advisory board

Members of the scientific advisory board of the Group (Note 11)

Dovichi Norman J.           28 March 1998                         50                2,445,682        Negligible         0.47%    Not applicable

John Samuel (through        28 March 1998                         10                  489,136        Negligible         0.09%    Not applicable
  John Samuel and
  Associates Ltd.)

Kwon Glen S.                28 March 1998                         50                2,445,682        Negligible         0.47%    Not applicable

Meyer Urs A.                28 March 1998                         10                  489,136        Negligible         0.09%    Not applicable

Venkataramanan Raman        28 March 1998                         10                  489,136        Negligible         0.09%    Not applicable

Other Shareholders
   (Note 14)

Chan Muk Fong               6 September 2001               248,000                    978,273            25.35          0.19%         6 months

Chan Wai Fong               6 September 2001               124,000                    489,136            25.35          0.09%         6 months

Lee Annie                   6 September 2001               124,000                    489,136            25.35          0.09%         6 months

Lee Ching Yee, Jenny        6 September 2001                62,000                    244,568            25.35          0.05%         6 months

Tam Wai Kit                 6 September 2001               186,000                    733,705            25.35          0.14%         6 months

Tang Sun Tsai               6 September 2001               248,000                    978,273            25.35          0.19%         6 months

Toy James                   6 September 2001                62,000                    244,568            25.35          0.05%         6 months

Wiebe Darren M. &           6 September 2001                62,000                    244,568            25.35          0.05%         6 months
  Wiebe Tina M.

Wong Tak Sang               6 September 2001                62,000                    244,568            25.35          0.05%         6 months

Wallis Doug                 28 September 2001               67,500                    660,334            10.22          0.13%         6 months

Wallis Sharon               28 September 2001               62,500                    611,420            10.22          0.12%         6 months

Dr. Buret                   1 December 2001          Not applicable                   349,390    Not applicable         0.07%       12 months
   (Note 12)




                                                                       – 18 –
                                                            SUMMARY

                           Date of                Approximate           Number of Shares     Approximate    Approximate
                           becoming                      total      held immediately after       average     percentage
                           shareholder             investment            completion of the       cost per     of holding     Restrictions
                           of a member                amount           Share Offer and the         Share          in the     on disposal
                           of the Group                 (HK$)         Capitalisation Issue        (cents)      Company         of Shares
                           (Note 1)                  (Note 15)                                  (Note 15)

Other Shareholders
   (Note 14)

Wong Chi Wan Henry         6 February 2002             496,000                  1,956,545           25.35           0.38%      12 months

Frontier (Note 13)         14 May 2002                1,715,700                11,988,734           14.31           2.31%      12 months

Corkwood (Note 13)         14 May 2002                1,143,800                 7,992,490           14.31           1.54%      12 months

81 Other existing          Between                   32,282,470               154,128,583 Between 12.78           29.64%    Not applicable
  Shareholders               23 December                                                      and 25.35
                             1998 and 28
                             August 2001

Notes:

1.       This represents the actual date on which the parties first became shareholders of a member of the Group.

2.       Dr. Tam is the president and chief executive officer of the Group and an executive Director and is interested in 140,749,015
         Shares in the following manner:

         i.     22,011,161 Shares are held by Dr. Tam personally.

         ii.    118,737,854 Shares are held by 943788 Alberta Ltd. which is an investment holding company wholly owned by Dr. Tam.

         The consideration for the allotment and issue of such Shares includes, among other things, Dr. Tam’s assignment of his rights,
         title and interest in the SimBioDAS™ technology co-invented by Dr. Tam and Dr. Anderson to the Group.

         Dr. Tam-Zaman is the wife of Dr. Tam and is deemed to be interested in the 140,749,015 Shares interested in by Dr. Tam and an
         Initial Management Shareholder.

         Dr. Tam is the brother-in-law of Mr. Young, an executive Director. Constance Tam and Suzanne Tam are the daughters of Dr.
         Tam.

3.       Grand Interest Development Limited is an investment holding company beneficially owned as to approximately 16.67% by each
         of Mr. Young (an executive Director), Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping
         Stephen, who are the brothers and sister of Mr. Young and have no management function in the Group. Mr. Young is the brother-
         in-law of Dr. Tam and is deemed to be an Initial Management Shareholder.

4.       Patrick Chiu Kit Young is an executive Director and Dr. Antoine A. Noujaim is a non-executive Director. Each of Patrick Chiu Kit
         Young and Dr. Antoine A. Noujaim has undertaken to the Company, the Stock Exchange, the Sponsors and the Underwriters that
         he will not, save as provided in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or
         permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his Relevant Securities or any
         direct or indirect interests therein for a period of six months from the Listing Date.

5.       Each of Dr. Tam, 943788 Alberta Ltd., Dr. Tam-Zaman, Grand Interest Development Limited, Mr. Young, Constance Tam and
         Suzanne Tam has undertaken to the Company, the Stock Exchange, the Sponsors and the Underwriters that he, she or it will
         not, save as provided in rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit
         the registered holder to dispose of (or enter into any agreement to dispose of) any of his/her or its Relevant Securities or any
         direct or indirect interests therein for a period of 12 months from the Listing Date. Dr. Tam has further undertaken to the
         Company, the Stock Exchange, the Sponsors and the Underwriters that he will not dispose of (or enter into any agreement to
         dispose of) his direct or indirect interests in 943788 Alberta Ltd. for a period of 12 months from the Listing Date.




                                                                  – 19 –
                                                            SUMMARY

      Each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen, who are
      the brothers and sister of Mr. Young, has undertaken to the Company, the Stock Exchange, the Sponsors, and the Underwriters
      that he or she will not dispose of (or enter into any agreement to dispose of) any of his or her direct or indirect interests in Grand
      Interest Development Limited for a period of 12 months from the Listing Date.

6.    Dr. Klaus Stoeckel is not an employee or a member of the senior management of the Group. Dr. Klaus Stoeckel was invited to
      join the boards of directors of KGI and KIP for the purposes of giving independent advice to the Group in its early stage of
      development. Dr. Klaus Stoeckel has voluntarily undertaken to the Company that he will not, save as provided in the
      circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit
      the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his Relevant Securities or any direct or
      indirect interests therein for a period of six months from the Listing Date. Dr. Klaus Stoeckel will not be counted as a member of
      the public in determining the minimum public float at the time of listing under the GEM Listing Rules.

      Shirley Howrish is a secretary and the Shares held by her were offered by the Group at a nominal value because she was
      involved in starting the Group’s operations in Canada in 1998. Yeung Kai Kwong is an office and laboratory co-ordinator of the
      Group and he paid the same price for the Shares held by him as the other investors who participated in the same round of
      financing by the Group. Each of Shirley Howrish and Yeung Kai Kwong is independent of and not connected with the directors,
      chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective
      associates. They will not be counted as members of the public in determining the minimum public float at the time of listing
      under the GEM Listing Rules.

7.    Abu Md. Basharat Ali is the brother-in-law of Dr. Tam. Tam Mei Ha, Tam Mei Ling, Tam Oi Ling, Tam Sau Ying, Tam Yun Kwong
      and Tam Yun Leung are the brothers and sisters of Dr. Tam. Such relatives of Dr. Tam have no management function in the
      Group. They do not hold their respective Shares for any other person and the costs for the acquisition of their Shares were
      financed by themselves respectively. Subject as disclosed herein, each of such relatives of Dr. Tam is independent of and not
      related to any connected person (as defined in the GEM Listing Rules) and other existing shareholders of the Company. Each of
      such relatives of Dr. Tam has undertaken to the Company that he/she will not, save as provided in the circumstances set out in
      Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder(s) to
      dispose of (or enter into any agreement to dispose of) any of his/her Relevant Securities or any direct or indirect interests
      therein for a period of 12 months from the Listing Date. Such relatives of Dr. Tam will be counted as members of the public in
      determining the minimum public float at the time of listing under the GEM Listing Rules.

8.    Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen are the brothers and sister of
      Mr. Young. Such relatives of Mr. Young have no management function in the Group. They do not hold their respective Shares for
      any other person and the costs for the acquisition of their Shares were financed by themselves respectively. Subject as
      disclosed herein, each of such relatives of Mr. Young is independent of and not related to any connected person (as defined in
      the GEM Listing Rules) and other existing shareholders of the Company. Each of such relatives of Mr. Young has undertaken to
      the Company that he/she will not, save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules,
      dispose of (or enter into any agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any
      agreement to dispose of) any of his/her Relevant Securities or any direct or indirect interests therein for a period of 12 months
      from the Listing Date. Such relatives of Mr. Young will be counted as members of the public in determining the minimum public
      float at the time of listing under the GEM Listing Rules.

9.    Lam Tung King is the mother of David Shong Tak Tam, a non-executive Director. Lam Tung King has no management function in
      the Group. She does not hold her Shares for any other person and the costs for the acquisition of her Shares were financed by
      herself. Subject as disclosed herein, Lam Tung King is independent of and not related to any connected person (as defined in
      the GEM Listing Rules) and other existing shareholders of the Company. Lam Tung King has undertaken to the Company that
      she will not, save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any
      agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of her
      Relevant Securities or any direct or indirect interests therein for a period of six months from the Listing Date. Lam Tung King will
      be counted as a member of the public in determining the minimum public float at the time of listing under the GEM Listing Rules.

10.   Francis Yip is the brother-in-law of Patrick Chiu Kit Young, an executive Director and 598111 Alberta Ltd. is an investment
      holding company wholly owned by Francis Yip. Francis Yip and 598111 Alberta Ltd. have no management function in the Group.
      598111 Alberta Ltd. does not hold its Shares for any other person and the costs for the acquisition of the Shares were financed
      by it. Subject as disclosed herein, Francis Yip is independent of and not related to any connected person (as defined in the GEM
      Listing Rules) and other existing shareholders of the Company. 598111 Alberta Ltd. has undertaken to the Company that it will
      not save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any
      agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of its
      Relevant Securities or any direct or indirect interests therein for a period of six months from the Listing Date. Francis Yip has
      further undertaken to the Company that he will not dispose of (or enter into any agreement to dispose of) his direct or indirect
      interests in 598111 Alberta Ltd. for a period of six months from the Listing Date. 598111 Alberta Ltd. will be counted as a
      member of the public in determining the minimum public float at the time of listing under the GEM Listing Rules.




                                                                 – 20 –
                                                           SUMMARY

11.   Members of the scientific advisory board of the Group are not employees of the Group and have no management function in the
      Group. Each of them is independent of and not connected with the directors, chief executive, substantial shareholders or
      management shareholders of the Company or its subsidiaries or their respective associates, and the costs for the acquisition of
      their respective Shares were not funded by any of such persons. The Shares were offered to them by the Group at nominal
      value as an incentive for them to join the scientific advisory board of the Group at the early stage of the Group’s development.
      They will be counted as members of the public in determining the minimum public float at the time of listing under the GEM
      Listing Rules.

12.   The Shares were allotted and issued to Dr. Buret in consequence of the Cell Line Agreement at no further consideration. Further
      details are set out in the paragraph headed “Issue of Buret Option and Buret Allotment” in the section headed “General overview
      of the Group”.

13.   The Shares held by Frontier and Corkwood were allotted and issued by the Company pursuant to the Frontier Option Agreement
      and Corkwood Option Agreement respectively.

14.   This category includes 96 passive investors, whom in aggregate are interested in 182,334,291 Shares. Each of these investors
      is an independent third party who is not connected with the directors, chief executive, substantial shareholders or management
      shareholders of the Company or its subsidiaries or their respective associates. These passive investors do not hold their
      respective Shares for any connected person (as defined in the GEM Listing Rules) nor cohabit with any director of the Company.
      Each of Chan Muk Fong, Chan Wai Fong, Lee Annie, Lee Ching Yee Jenny, Tam Wai Kit, Tang Sun Tsai, Toy James, Wiebe
      Darren M. & Wiebe Tina M., Wong Tak Sang, Wallis Doug and Wallis Sharon has undertaken to the Company that he/she will
      not save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any
      agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his/
      her Relevant Securities or any direct or indirect interests therein for a period of 6 months from the Listing Date. Each of Dr.
      Buret, Wong Chi Wan Henry, Frontier and Corkwood has undertaken to the Company that he/she/it will not save as provided in
      the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or
      permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his/her/its Relevant Securities or
      any direct or indirect interests therein for a period of 12 months from the Listing Date. These 96 passive investors will be
      counted as members of the public in determining the minimum public float at the time of listing under the GEM Listing Rules.
      Further details of these passive investors are set out in the paragraph “Shareholding Structure” under the section headed
      “General overview of the Group” in this prospectus.

15.   Where shares had been acquired by any shareholders from other shareholders, the original subscription prices paid to the
      Group by the first shareholders were used in the computation of the investment costs paid by the existing shareholders.


      Further particulars of the shareholding structure of the Company immediately after completion of the
Share Offer and the Capitalisation Issue are set out in the paragraph headed “Shareholding structure” in the
section headed “General overview of the Group” in this prospectus.

SHARE OPTION SCHEMES AND OUTSTANDING WARRANTS AND OPTIONS

Pre-IPO Share Option Schemes

      As at the date of this prospectus, options to subscribe for an aggregate of 65,874,438 Shares
(representing approximately 12.67% of the issued share capital of the Company immediately after completion
of the Share Offer and the Capitalisation Issue but before enlargement by the exercise of such options, or
approximately 11.24% after such enlargement) have been granted by the Group under the Pre-IPO Share
Option Schemes. Particulars of such grants and the grantees are set out under the paragraph headed “Pre-
IPO Share Option Schemes” in Appendix IV to this prospectus. Save as disclosed therein, no options have
been or will be granted by the Company under the Pre-IPO Share Option Schemes.

Share Option Scheme

       The Company has conditionally adopted the Share Option Scheme on 7 May 2002, the terms of which
are set out in the paragraph headed “Share Option Scheme” in Appendix IV to this prospectus. As at the date
of this prospectus, no options have been granted or agreed to be granted by the Company under the Share
Option Scheme.

                                                               – 21 –
                                                SUMMARY


Warrants

      KGI has granted the Warrants to subscribe for an aggregate of 527,000 common shares of KGI to 25
investors, including 1 Initial Management Shareholder, namely Grand Interest Development Limited (as to
315,000 Warrants), and 24 other independent investors (as to an aggregate of 212,000 Warrants), which if
exercised in full and pursuant to the Exchange Agreement will result in the issue of 12,888,744 Shares
(representing approximately 2.48% of the issued share capital of the Company immediately after completion
of the Share Offer and the Capitalisation Issue but before enlargement by the issue of such Shares, or
approximately 2.42% after such enlargement). Pursuant to the Exchange Agreement, the Warrants are
exercisable within the period of six months immediately after the first 6-month period following the Listing
Date at the exercise price of CAN$3.10 (approximately HK$15.50) per common share of KGI, and on the
basis of one common share of KGI to be exchanged for approximately 24.45 Shares, representing
approximately HK$0.63 per Share and approximately 26% above the minimum Offer Price of HK$0.50 per
Share and approximately 7% below the maximum Offer Price of HK$0.68 per Share. Any Shares that may be
issued upon the exercise of the Warrants held by Grand Interest Development Limited will be subject to lock-
up for 12 months from the Listing Date as required under the GEM Listing Rules.

     The Warrants were issued pursuant to the resolutions of the directors of KGI on 10 December 1999,
whereby it was, among other things, resolved that one-half Warrant would be issued for the exercise of every
warrant of KGI then outstanding (“First Warrant”) if such First Warrant was exercised on or prior to 29
February 2000.

      Upon full exercise of the outstanding 527,000 Warrants at an exercise price of CAN$3.10 each, a total
of CAN$1,633,700 (equivalent to approximately HK$8.2 million) will be received by the Group. The Group
presently has no concrete plans for the use of such proceeds as the Warrants may or may not be exercised.
In the event that any of the Warrants are exercised, the Group presently intends to use the proceeds
therefrom as additional working capital for the Group’s operation. If the Warrants are exercised and, if the
amount of proceeds to be received by the Group is significant and the market situation is favourable, the
Group will consider utilizing such proceeds to expedite the implementation of its business plans or to explore
more product development opportunity.

     Particulars of the First Warrant, the Warrants and the warrantholders are set out under the paragraph
headed “Warrants” in Appendix IV to this prospectus.

KGI Consultants Options

      In consideration of Dr. Anderson assigning to the Group his rights, title, estate, ownership and interest
in the SimBioDAS™ technology, co-invented by Dr. Tam and Dr. Anderson, the Group on 1 February 1997,
among others, granted the Anderson Option to Dr. Anderson to subscribe for an aggregate of 20,000 common
shares of KGI. Pursuant to the Anderson Exchange Agreement, an exercise in full of the Anderson Option will
result in the issue of 489,136 Shares (representing approximately 0.09% of the issued share capital of the
Company immediately after completion of the Share Offer and the Capitalisation Issue but before
enlargement by the exercise of the Anderson Option, or approximately 0.09% after such enlargement). The
Anderson Option is exercisable within the period commencing on the date falling six months from the Listing
Date and ending on 11 February 2005 at the exercise price of CAN$0.50 (approximately HK$2.50) per
common share of KGI, and on the basis of one common share of KGI to be exchanged for approximately
24.45 Shares, representing approximately HK$0.10 per Share and approximately 80% below the minimum

                                                    – 22 –
                                                 SUMMARY


Offer Price of HK$0.50 per Share and approximately 85% below the maximum Offer Price of HK$0.68 per
Share.

       Pursuant to the Cell Line Agreement, Dr. Buret granted an exclusive licence to the Group to use the
Buret Cell Line and the related technologies developed and/or acquired by Dr. Buret for an initial term of two
years commencing on 7 November 2001. In consideration of Dr. Buret granting an option to the Group,
exercisable prior to the expiration of such initial term to extend the licence perpetually, the Group on 12 July
2001, among other things, granted the Buret Option to Dr. Buret. If the Group exercises the option to extend
the licence, Dr. Buret will be entitled to subscribe for up to an aggregate of 142,857 common shares of KGI.
Pursuant to the Buret Exchange Agreement, an exercise in full of the Buret Option will result in the issue of
3,493,828 Shares (representing approximately 0.67% of the issued share capital of the Company immediately
after completion of the Share Offer and the Capitalisation Issue but before enlargement by the exercise of the
Buret Option, or approximately 0.67% after such enlargement). The Buret Option is exercisable only after the
Group exercises its option to extend the licence at the exercise price of CAN$0.70 (approximately HK$3.50)
per common shares of KGI, representing approximately HK$0.14 per Share on the basis of one common
share of KGI to be exchanged for approximately 24.45 Shares and approximately 72% below the minimum
Offer Price of HK$0.50 per Share and approximately 79% below the maximum Offer Price of HK$0.68 per
Share. In the event that the Group exercises the option to extend the licence perpetually and Dr. Buret
exercises the Buret Option in full, neither party shall be required to pay the other the price for the exercise of
their respective options.

     Each of Dr. Anderson and Dr. Buret is an independent third party not connected with the directors, chief
executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their
respective associates.

     An exercise in full of the KGI Consultants Options will result in the issue of an aggregate of 3,982,964
Shares (representing approximately 0.77% of the issued share capital of the Company immediately after
completion of the Share Offer and the Capitalisation Issue but before enlargement by the exercise of the KGI
Consultants Options, or approximately 0.76% after such enlargement).

      Upon full exercise of the KGI Consultants Options, a total of CAN$10,000 (equivalent to approximately
HK$50,000) will be received by the Group. In the event that any of the KGI Consultants Options are
exercised, the Group presently intends to use the proceeds therefrom as additional general working capital.

      Particulars of the KGI Consultants Options are set out in the paragraphs headed “Issue of Buret Option
and Buret Allotment” and “Issue of Anderson Option” in the section headed “General overview of the Group”
and the paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix IV to this prospectus.

Buret Allotment

      In consideration of Dr. Buret granting an exclusive licence to the Group to use the Buret Cell Line and
the related technologies developed and/or acquired by Dr. Buret for an initial term of two years commencing
on 7 November 2001, together with an option to the Group, exercisable prior to the expiration of the initial
term, to extend the licence perpetually, the Group, among other things, agreed to allot and issue to Dr. Buret
21,429 common shares of KGI within 450 days and a further 21,429 common shares of KGI within 720 days
from 7 November 2001 at no further consideration. Pursuant to the Buret Exchange Agreement, allotment in



                                                     – 23 –
                                               SUMMARY


full of the aforementioned 42,858 common shares of KGI in aggregate will result in the issue of 1,048,170
Shares (representing approximately 0.20% of the issued share capital of the Company immediately after
completion of the Share Offer and the Capitalisation Issue but before enlargement by the issue of such
Shares, or approximately 0.20% after such enlargement).

      Particulars of the Buret Allotment are set out in the paragraph headed “Issue of Buret Option and Buret
Allotment” in the section headed “General overview of the Group” and the paragraph headed “KGI
Consultants Options and Buret Allotment” in Appendix IV to this prospectus.

      Exercise of the options granted under the Pre-IPO Share Option Schemes, the Warrants, the Buret
Option, the Anderson Option and the issue and allotment of Shares pursuant to the Buret Allotment will result
in the issue of an aggregate of 83,794,316 Shares (representing approximately 16.11% of the total number of
Shares in issue immediately following completion of the Share Offer and the Capitalisation Issue but before
enlargement by the issue of such Shares, or approximately 13.88% after such enlargement.

RISK FACTORS

    The Directors consider the business of the Group to be subject to a number of risk factors which can be
summarised as follows:

Risks associated with the Group

     •     Reliance on a single technology that is in the early stage of commercialisation and has not
           been independently tested, the success of which is yet to be proven

                 The current focus of the Group’s business is the SimBioDAS™ technology which is intended
           to be used for the provision of drug screening services. The Group also plans to adapt the
           SimBioDAS™ technology to predict the absorption of TCM in humans and to isolate active
           ingredients in natural herbs with a view to developing TCM-based formulations. Although the
           Group has commenced commercialisation of the SimBioDAS™ technology since November 2001
           by offering drug screening services to the market, the Group has not secured any business
           contract or generated any operating revenue until the last quarter of the Track Record Period. The
           future prospects of the Group are therefore, to a significant extent, dependent on the validity and
           successful commercialisation of the SimBioDAS™ technology. Investors should note that the
           SimBioDAS™ technology has not been independently tested for its effectiveness and has only
           been tested by the Group. If the Group fails to validate the effectiveness of the SimBioDAS™
           technology or if the SimBioDAS™ technology or any of the Group’s products are not accepted by
           the market, there will be an adverse impact on the Group’s business and operating performance
           and the Group may continue to incur losses.

     •     Limited operating history and limited experience with unproven business and revenue
           models and history of losses and possibility of continuous losses

                The Group has only a limited operating history by which investors may evaluate its
           business; furthermore, its business strategy is unproven. Since the establishment of KGI in 1998,
           the Group has been focusing on research and development activities, particularly in the



                                                   – 24 –
                                         SUMMARY


    SimBioDAS™ technology, towards its mission to accelerate the discovery and development of
    synthetic drugs and natural products. Therefore, the Group has limited experience in commercial
    business operations. The Group has not generated any operating revenue until the last quarter of
    the Track Record Period and has incurred net losses attributable to shareholders for the Track
    Record Period. The Group’s ability to achieve positive operating results will depend on a variety of
    factors, including without limitation, competition, success in implementing its business strategy,
    general economic environments in Hong Kong, the PRC, North America and Europe and market
    acceptance of the Group’s services or future products. Investors should note that the Group’s
    technology is in the early stage of commercialisation and, that there can be no assurance that the
    Group will be able to generate any operating revenue or profit, or maintain a positive cash flow
    position, or make any dividend payments in the future, nor can there be any assurance that the
    Group will not continue to incur losses in the foreseeable future.

•   Dilution effect of the exercise of options under the Pre-IPO Share Option Schemes and the Share
    Option Scheme, the Warrants, the Buret Option, the Anderson Option and the Buret Allotment

•   Drug development risk

          The Group’s mission is to accelerate the discovery and development of synthetic drugs and
    natural products, including TCM. The Group may therefore be engaged in developing products
    based on existing drug formulations or herbal or TCM-based products that have history of
    effective uses. Given that drug discovery and development is a complex, highly regulated, long
    and expensive process, and that the success rate is low (as discussed in the section headed
    “Industry overview” in this prospectus), the Group will be subject to substantial risk in its plan to
    develop any drug product. In the event that the Group fails to achieve the time plan for its product
    development as intended, the Group’s operations and operating performance may be adversely
    affected.

•   Research and development risks

          As at 29 February 2000, 28 February 2001 and 28 February 2002, the development costs
    capitalised by the Group were approximately HK$1.8 million, HK$5.0 million and HK$6.3 million
    respectively. The Group’s future prospects are, to a significant extent, dependent upon the
    continuous development and successful commercialisation of new products and technology,
    including but not limited to, the SimBioDAS™ technology. As one of its strategies, the Group has
    formed and intends to form additional strategic alliances with suitable partners or candidates that
    would offer the Group access to capital and research products that will lead to commercial
    applications. The success of biopharmaceutical product development is, however, unpredictable.
    Products that appear to be promising at the early phases of research and development may fail to
    reach the market for numerous reasons, including the discovery of harmful side effects in pre-
    clinical tests and clinical trials and the failure to obtain the necessary regulatory approvals.
    Consequently, the corresponding research and development expenditures incurred would have to
    be expensed, which may have an adverse impact on the profitability of the Group.

•   No assurance of achieving business objectives successfully




                                             – 25 –
                                                 SUMMARY


     •     No assurance of commercial viability

     •     Reliance on key technical personnel

     •     No production facilities

     •     No distribution network and no assurance of the effectiveness of the distribution arrangement by
           way of strategic alliance

     •     Canadian taxation

     •     No product liability insurance

     •     No assurance that business plans will materialise

     •     Possibility of additional funding through the issue of new equity

     •     Infringement of intellectual property rights

     •     Product and technology substitution

Risks associated with the industry

     •     Importance of continuing research and development

     •     Extensive government regulations and regulatory approvals

     •     Competition

Risks associated with political and economic conditions

     •     Possible impact of the terrorist attacks in the US

     •     Currency risks

Risks associated with the Shares and certain information in this prospectus

     •     Marketability and possible price volatility of the Shares

     •     Possible deviation in use of proceeds from the current plans

     •     No independent verifications of certain statistics and projections

     For further details of these risks, please refer to the section headed “Risk factors” of this prospectus.




                                                     – 26 –
                                             DEFINITIONS


     In this prospectus, unless the context otherwise requires, the following expressions have the following
meanings:

“AMS”                                      AMS Corporate Finance Limited, an investment adviser registered
                                           under the Securities Ordinance (Chapter 333 of the Laws of Hong
                                           Kong), being the sponsor to and lead manager of the Share Offer

“Anderson Exchange Agreement”              the conditional share exchange offer made on 15 January 2002
                                           by (i) the Company; (ii) KBVI; (iii) KBarb and agreed by Kinetana
                                           Inc. and KGI (as supplemented by two letters dated 27 February
                                           2002 and 28 March 2002 by the same parties) and accepted by
                                           Dr. Anderson on 7 May 2002, pursuant to which Dr. Anderson
                                           has, among others, agreed to exchange common shares of KGI
                                           that he may obtain pursuant to the Anderson R&D Agreement for
                                           Shares on the basis of one common share of KGI for approximately
                                           24.45 Shares, details of which are set out in the paragraph
                                           headed “Issue of Anderson Option” in the section headed
                                           “General overview of the Group” and the paragraph headed “KGI
                                           Consultants Options and Buret Allotment” in Appendix IV to this
                                           prospectus

“Anderson Option”                          the option granted pursuant to the Anderson R&D Agreement by
                                           KGI to Dr. Anderson in respect of an aggregate of 20,000
                                           common shares of KGI (equivalent to 489,136 Shares, representing
                                           approximately 0.09% of the issued share capital of the Company
                                           immediately after completion of the Share Offer and the
                                           Capitalisation Issue but before enlargement by such issue, or
                                           approximately 0.09% after such enlargement, based on one
                                           common share of KGI to be exchanged for approximately 24.45
                                           Shares pursuant to the Anderson Exchange Agreement), details
                                           of which are set out in the paragraph headed “Issue of Anderson
                                           Option” in the section headed “General overview of the Group”
                                           and the paragraph headed “KGI Consultants Options and Buret
                                           Allotment” in Appendix IV to this prospectus

“Anderson R&D Agreement”                   the research and development agreement between Kinetana Inc.
                                           and Dr. Anderson effective 1 February 1997 (as supplemented by
                                           the assignment between Kinetana Inc. as assignor and KGI as
                                           assignee dated 8 August 2001 and confirmed by the form of
                                           acknowledgment dated 14 January 2002 given by Dr. Anderson)

“associate(s)”                             the same meaning ascribed thereto under the GEM Listing Rules

“Buret Allotment”                          the issue and allotment of 42,858 common shares of KGI
                                           (equivalent to 1,048,170 Shares, representing approximately
                                           0.20% of the issued share capital of the Company immediately



                                                  – 27 –
                               DEFINITIONS


                             after completion of the Share Offer and the Capitalisation Issue
                             but before enlargement by such issue, or approximately 0.20%
                             after such enlargement, based on one common share of KGI to
                             be exchanged for approximately 24.45 Shares pursuant to the
                             Buret Exchange Agreement) to Dr. Buret pursuant to the Cell Line
                             Agreement for his granting of an exclusive licence to the Group to
                             use the Buret Cell Line and the related technologies, developed
                             and/or acquired by him, details of which are set out in the
                             paragraph headed “Issue of Buret Option and Buret Allotment” in
                             the section headed “General overview of the Group” and the
                             paragraph headed “KGI Consultants Options and Buret Allotment”
                             in Appendix IV to this prospectus

“Buret Cell Line”            the human cell line isolated and characterized by Dr. Buret which
                             was originally intended to be used for studying human small
                             intestine wall cell functions and has currently been cultured by the
                             Group in specific conditions as the Kinetana Cells for prediction
                             of human absorption of drug and natural products, including TCM

“Buret Exchange Agreement”   the conditional share exchange offer made on 15 January 2002
                             by (i) the Company; (ii) KBVI; (iii) KBarb and agreed by KGI (as
                             supplemented by two letters dated 27 February 2002 and 28
                             March 2002 by the same parties) and accepted by Dr. Buret on
                             27 April 2002, pursuant to which Dr. Buret has, among others,
                             agreed to exchange common shares of KGI that he may obtain
                             pursuant to the Cell Line Agreement for Shares on the basis of
                             one common share of KGI for approximately 24.45 Shares,
                             details of which are set out in the paragraph headed “Issue of
                             Buret Option and Burent Allotment” in the section headed
                             “General overview of the Group” and the paragraph headed “KGI
                             Consultants Options and Buret Allotment” in Appendix IV to this
                             prospectus

“Buret Option”               the conditional option granted by KGI to Dr. Buret pursuant to the
                             Cell Line Agreement in respect of an aggregate of up to 142,857
                             common shares of KGI (equivalent to 3,493,828 Shares based on
                             one common share of KGI to be exchanged for approximately
                             24.45 Shares, representing approximately 0.67% of the issued
                             share capital of the Company immediately after completion of the
                             Share Offer and the Capitalisation Issue but before enlargement
                             by such issue, or approximately 0.67% after such enlargement,
                             pursuant to the Buret Exchange Agreement), details of which are
                             set out in the paragraph headed “Issue of Buret Option and Buret
                             Allotment” in the section headed “General overview of the Group”
                             and the paragraph headed “KGI Consultants Options and Buret
                             Allotment” in Appendix IV to this prospectus



                                     – 28 –
                                DEFINITIONS


“BVI”                         British Virgin Islands

“Capitalisation Issue”         the issue of Shares to be made upon capitalisation of part of the
                              share premium account of the Company referred to in the
                              paragraph headed “Further information about the Company and
                              its subsidiaries” in Appendix IV to this prospectus

“CCASS”                       the Central Clearing and Settlement System established and
                              operated HKSCC

“Cell Line Agreement”          the cell line licence agreement dated 12 July 2001 between KGI
                              and Dr. Buret (as supplemented by an agreement dated 13 May
                              2002 between the same parties), details of which are set out in
                              the paragraph headed “Issue of Buret Option and Buret Allotment”
                              in the section headed “General overview of the Group” and the
                              paragraph headed “KGI Consultants Options and Buret Allotment”
                              in Appendix IV to this prospectus.

“Companies Law”               the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and
                              revised) of the Cayman Islands

“Companies Ordinance”         the Companies Ordinance (Chapter 32 of the Laws of Hong
                              Kong)

“Company”                     Kinetana International Biotech Pharma Limited, an exempted
                              company incorporated in the Cayman Islands on 18 October 2001
                              with limited liability

“Controlling Shareholders”    the same meaning ascribed thereto under the GEM Listing Rules
                              and herein refers to Dr. Tam, 943788 Alberta Ltd., Dr. Tam-
                              Zaman, Grand Interest Development Limited, Mr. Young, Constance
                              Tam and Suzanne Tam

“Corkwood”                    Corkwood Enterprises Limited, the grantee under the Corkwood
                              Option Agreement, which is an investment holding company
                              wholly owned by Lee Chun Kit, who is independent of and not
                              connected with the directors, chief executive, substantial
                              shareholders or management shareholders of the Company or its
                              subsidiaries or any of their respective associate, and has advised
                              the Group on financial management and internal control measures,
                              including the recruitment of financial staff in Hong Kong

“Corkwood Option Agreement”   the agreement made between KIP and Corkwood dated 7 June
                              2001 pursuant to which KIP granted Corkwood an option to
                              require KIP to procure the allotment and issue by the Company
                              such number of Shares (“Option Shares”) that is up to 2% of the



                                      – 29 –
                   DEFINITIONS


                 Shares in issue (as enlarged thereby) immediately before the
                 printing of this prospectus (equivalent to approximately 8,000,000
                 Shares immediately after completion of the Share Offer and the
                 Capitalisation Issue) at HK$3.5 per Option Share (approximately
                 HK$0.14 per Share after completion of the Share Offer and the
                 Capitalisation Issue and approximately 72% below the minimum
                 Offer Price of HK$0.50 per Share and approximately 79% below
                 the maximum Offer Price of HK$0.68 per Share) in consideration
                 of Corkwood agreeing to provide consultancy and advice on the
                 Group’s business model and strategies for business development

“Covenantors”    Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui
                 Leung, and Yeung Sui Ping Stephen, the brothers and sister of
                 Mr. Young

“CUHK”           the Chinese University of Hong Kong

“Director(s)”    the director(s) of the Company

“Dr. Anderson”   Dr. Keith Edward Anderson, a co-inventor of the invention entitled
                 “simulated biological dissolution and absorption system” who is
                 independent of and not connected with the directors, chief
                 executive, substantial shareholders or management shareholders
                 of the Company or its subsidiaries or their respective associates,
                 and is the holder of the Anderson Option, details of which are set
                 out in the paragraph headed “Issue of Anderson Option in the
                 section headed “General overview of the Group” and the paragraph
                 headed “KGI Consultants Options and Buret Allotment” in Appendix
                 IV to this prospectus

“Dr. Buret”      Dr. Andre G. Buret, the inventor of the Buret Cell Line that is used
                 in the SimBioDAS™ system, who is independent of and not
                 connected with the directors, chief executive, substantial
                 shareholders or management shareholders of the Company or its
                 subsidiaries or their respective associates, and is the holder of
                 the Buret Option and the allotee under the Buret Allotment,
                 details of which are set out in the paragraph headed “Issue of
                 Buret Option and Buret Allotment” in the section headed “General
                 overview of the Group” and the paragraph headed “KGI Consultants
                 Options and Buret Allotment” in Appendix IV to this prospectus

“Dr. Tam”        Dr. Yun Kau Tam, the President and Chief Executive Officer of the
                 Group and an executive Director, who is considered an Initial
                 Management Shareholder and will have an attributable equity
                 interest of approximately 27.07% in the Company immediately
                 after completion of the Share Offer and the Capitalisation Issue



                         – 30 –
                                DEFINITIONS


“Dr. Tam-Zaman”               Dr. Nuzhat Tam-Zaman, the Director of International Affairs and
                              Quality Assurance of the Group and the wife of Dr. Tam, who is
                              considered an Initial Management Shareholder, further details of
                              her duties are set out in the paragraph headed “Senior
                              management” in the section headed “Directors, senior management
                              and staff” in this prospectus

“Exchange Agreement”          the conditional share exchange offer made on 5 November 2001
                              by (i) the Company; (ii) KBVI; and (iii) KBarb; and agreed by KGI
                              (as supplemented by two letters dated 27 February 2002 and 28
                              March 2002 by the same parties) and accepted by each holder of
                              option(s) in KGI and each holder of the Warrants between 15 April
                              2002 and 16 May 2002, pursuant to which each of such holders
                              has, among other things, agreed to exchange common shares of
                              KGI which may be issued and allotted pursuant to the exercise of
                              option(s) in KGI or the Warrants for Shares on the basis of one
                              common share of KGI for approximately 24.45 Shares, details of
                              which are set out in the paragraphs headed “Warrants” and “Pre-
                              IPO Share Option Schemes” in Appendix IV to this prospectus

“FDA”                         Food and Drug Administration Bureau which is within the
                              Department of Health and Human Services of the US and
                              enforces the Food, Drug and Cosmetics Act and related federal
                              public health laws of the US

“Frontier”                    Frontier Finder Limited, the grantee under the Frontier Option
                              Agreement, which is an investment holding company wholly
                              owned by Lau Kim Hung, Jack who is independent of and not
                              connected with the directors, chief executive, substantial
                              shareholders or management shareholders of the Company or its
                              subsidiaries or any of their respective associates and has
                              introduced business partners and customers to the Group

“Frontier Option Agreement”   the agreement made between KIP and Frontier dated 7 June
                              2001 pursuant to which KIP granted Frontier an option to require
                              KIP to procure the allotment and issue by the Company such
                              number of Shares (“Option Shares”) that is up to 3% of the
                              Shares in issue (as enlarged thereby) immediately before the
                              printing of this prospectus (equivalent to approximately 12,000,000
                              Shares immediately after completion of the Share Offer and the
                              Capitalisation Issue) at HK$3.5 per Option Share (approximately
                              HK$0.14 per Share after completion of the Share Offer and the
                              Capitalisation Issue and approximately 72% below the minimum
                              Offer Price of HK$0.50 per Share and approximately 79% below
                              the maximum Offer Price of HK$0.68 per Share) in consideration
                              of Frontier agreeing to introduce to the Group potential business
                              partners

                                      – 31 –
                           DEFINITIONS


“GEM”                    the Growth Enterprise Market of the Stock Exchange

“GEM Listing Rules”      Rules Governing the Listing of Securities on GEM

“GLP”                    Good Laboratory Practice as set out by OECD to promote the
                         development of quality test data with a view to facilitating
                         acceptance of test data among countries

“GMP”                    Good Manufacturing Practice, a system established by the World
                         Health Organisation for ensuring that pharmaceutical products
                         are consistently produced and controlled according to quality
                         standards

“Group”                  the Company, its subsidiaries and associated company, or, where
                         the context so requires, some or any of them or, where the
                         context so requires, in respect of the period before the Company
                         became the holding company of its present subsidiaries and
                         associated company, the present subsidiaries and associated
                         company of the Company or, where the context so requires, in
                         respect of financial or accounting information which does not
                         include associated company, the Company and its subsidiaries,
                         and “members of the Group” shall be construed accordingly

“Hantec”                 Hantec Capital Limited, an investment adviser and dealer
                         registered under the Securities Ordinance, being the lead
                         underwriter and manager of the Placing

“HKSCC”                  Hong Kong Securities Clearing Company Limited

“HKUST”                  the Hong Kong University of Science and Technology

“Hong Kong”              the Hong Kong Special Administrative Region of the People’s
                         Republic of China

“Hong Kong Government”   the government of Hong Kong

“Initial Management      the same meaning as defined in the GEM Listing
   Shareholders”         Rules and herein refers to the initial management shareholders of
                         the Company as described in the section headed “Initial
                         Management, Substantial and Significant Shareholders” in this
                         prospectus and include Dr. Tam, 943788 Alberta Ltd., Dr. Tam-
                         Zaman, Constance Tam, Suzanne Tam, Grand Interest
                         Development Limited, Mr. Young, Patrick Chiu Kit Young and Dr.
                         Antoine A. Noujaim




                                – 32 –
                              DEFINITIONS


“ITF”                       Innovation and Technology Fund, a fund set up by the Hong Kong
                            Government to support projects that contribute to innovation and
                            technology upgrading in local industry

“KBarb”                     Kinetana Holdings (Barbados) Limited, a company incorporated in
                            Barbados on 19 July 2001 with limited liability and an indirect
                            wholly-owned subsidiary of the Company

“KBVI”                      Kinetana Holdings (BVI) Limited, a company incorporated in BVI
                            on 11 July 2001 with limited liability and a wholly-owned
                            subsidiary of the Company

“KCP”                       Kinetana China Pharmaceuticals Limited, a company incorporated
                            in Hong Kong on 15 December 1999 with limited liability and an
                            indirect wholly-owned subsidiary of the Company

“KGI”                       Kinetana Group Inc., a company incorporated in Alberta, Canada
                            on 18 March 1998 (formerly known as 777328 Alberta Ltd.), and
                            an indirect wholly-owned subsidiary of the Company

“KGI Consultants Options”    the Buret Option and the Anderson Option which, if exercised in
                            full and pursuant to the Buret Exchange Agreement and the
                            Anderson Exchange Agreement, will result in the issue of an
                            aggregate of 3,982,964 Shares, representing approximately 0.77%
                            of the issued share capital of the Company immediately after
                            completion of the Share Offer and the Capitalisation Issue but
                            before enlargement by the exercise of such options or
                            approximately 0.76% after such enlargement

“KGI Pre-IPO Share          the KGI Share Option Plan as supplemented by the
  Option Scheme”            Exchange Agreement, details of which are set out in the
                            paragraph headed “Pre-IPO Share Option Schemes” in Appendix
                            IV to this prospectus

“KGI Share Option Plan”     the share option plan adopted by KGI on 20 March 2000 (as
                            amended on 31 March 2000 and on 5 November 2001), the
                            principal terms of which are summarized in the paragraph headed
                            “Pre-IPO Share Option Schemes” in Appendix IV to this prospectus

“KHP”                       Kinetana Hong Kong Herbal Pharmaceuticals Limited, a company
                            incorporated in Hong Kong on 20 October 1999 with limited
                            liability and an indirect wholly-owned subsidiary of the Company

“KIBP Pre-IPO Share         the share option scheme conditionally adopted by the Company
   Option Scheme”           on 7 May 2002, the principal terms of which are summarized in
                            the paragraph headed “Pre-IPO Share Option Schemes” in
                            Appendix IV to this prospectus

                                   – 33 –
                              DEFINITIONS

“Kinetana Cells”            the cell line developed by the Group by culturing the Buret Cell
                            Line in specific conditions for use in the SimBioDAS™ system

“KIP”                       Kinetana International Pharmaceuticals Limited, a company
                            incorporated in Hong Kong on 20 October 1999 with limited
                            liability and an indirect wholly-owned subsidiary of the Company

“KNCM”                      KNCM Biotech Pharma Limited (formerly known as Joywise
                            Limited), a company incorporated in Hong Kong on 25 May 2001
                            with limited liability and owned as to 50% by KPCH and 50% by
                            NCM, an independent third party

“KPCH”                      Kinetana Pharmaceutical Commercial Holdings (BVI) Limited
                            (formerly known as Couto Co., Ltd.), a company incorporated in
                            BVI on 14 May 2001 with limited liability and an indirect wholly-
                            owned subsidiary of the Company

“KPH”                       Kinetana Hong Kong Pharmaceuticals Holdings Limited, a company
                            incorporated in Hong Kong on 20 October 1999 with limited
                            liability and an indirect wholly-owned subsidiary of the Company

“Latest Practicable Date”   16 May 2002, being the latest practicable date prior to the
                            printing of this prospectus for ascertaining certain information
                            referred to in this prospectus

“Listing Date”              the date on which dealings in the Shares on GEM first commence

“Main Board”                the securities market operated by the Stock Exchange under the
                            Rules Governing the Listing of Securities on the Stock Exchange

“Mr. Young”                 Mr. Shui Chung Young, the managing director and vice president,
                            Asian operations of the Group and an executive Director, who is
                            considered an Initial Management Shareholder and will have an
                            attributable equity interest of approximately 0.99% in the Company
                            (through his approximately 16.67% interest in Grand Interest
                            Development Limited, which in turn is interested in approximately
                            5.93% in the Company) immediately after completion of the Share
                            Offer and the Capitalisation Issue

“NCM”                       New Chinese Medicine (BVI) Limited, a shareholder of KNCM as
                            to 50% of its total issued share capital which is an independent
                            third party not connected with the directors, chief executive,
                            substantial shareholders or management shareholders of the
                            Company or its subsidiaries or their respective associates, and is
                            principally engaged in the marketing and distribution of proprietary
                            Chinese medicines



                                    – 34 –
                           DEFINITIONS


“OECD”                   Organisation for Economic Co-operation and Development, an
                         international organisation established to help governments with
                         the economic, social and governance challenges of a globalised
                         economy

“Offer Price”            the final price per Offer Share (exclusive of brokerage, transaction
                         levy and Stock Exchange trading fee) at which the Offer Shares
                         are to be offered pursuant to the Share Offer, to be determined as
                         described in the section headed “Structure and conditions of the
                         Share Offer” in this prospectus

“Offer Shares”           the Public Offer Shares and the Placing Shares

“Ph.D”                   Doctor of Philosophy

“Placing”                the conditional placing by the Placing Underwriters of the Placing
                         Shares with professional, institutional and individual investors in
                         Hong Kong on and subject to the terms and conditions stated in
                         this prospectus, representing 90% of the Shares initially available
                         under the Share Offer

“Placing Shares”         the 108,000,000 new Shares being initially offered under the
                         Placing subject to the adjustment stated in the section headed
                         “Structure and conditions of the Share Offer” in this prospectus

“Placing Underwriters”   Hantec, Christfund Securities Limited, CEF Capital Limited, SBI
                         E2-Capital Securities Limited, SG Securities (HK) Limited, GC
                         Securities Limited, UOB Kay Hian (Hong Kong) Limited, Kim Eng
                         Securities (Hong Kong) Limited, Sanfull Securities Limited, Guotai
                         Junan Securities (Hong Kong) Limited, Hung Sing Securities
                         Limited, Koffman Securities Limited, Shenyin Wanguo Capital
                         (H.K.) Limited, Taiwan Concord Capital Securities (Hong Kong)
                         Limited, Tanrich Securities Company Limited, YF Securities
                         Company Limited and Quam Securities Company Limited

“PRC”                    the People’s Republic of China which, for the purposes of this
                         prospectus, excludes Hong Kong, the Macau Special Administrative
                         Region of the People’s Republic of China and Taiwan

“Pre-IPO Placing”        the placing of shares of KBVI pursuant to the agreements made
                         between July 2001 and September 2001

“Pre-IPO Share           the KIBP Pre-IPO Share Option Scheme and the KGI Pre-IPO
   Option Schemes”       Share Option Scheme, details of which are set out in the
                         paragraph headed “Pre-IPO Share Option Schemes” in Appendix
                         IV to this prospectus



                                 – 35 –
                               DEFINITIONS


“Public Offer”               the offer for subscription of the Public Offer Shares for cash at the
                             Offer Price to members of the public in Hong Kong on and subject
                             to the terms and conditions stated in this prospectus and the
                             related application forms, representing 10% of the Shares initially
                             available under the Share Offer

“Public Offer Shares”        the 12,000,000 new Shares being initially offered under the Public
                             Offer subject to the adjustment described in the section headed
                             “Structure and conditions of the Share Offer”

“Public Offer Underwriter”   AMS and Hantec

“Relevant Securities”        in relation to each of the parties which has undertaken not to
                             dispose of his/her/its Shares during the six months or the 12
                             months after the Listing Date, has the same meaning ascribed
                             thereto in Rule 13.15 (4) of the GEM Listing Rules and references
                             in such rule to “initial management shareholder” shall include
                             each of the above parties

“SBI”                        SBI E2-Capital (HK) Limited, an investment adviser and a dealer
                             registered under the Securities Ordinance (Chapter 333 of the
                             Laws of Hong Kong), being the co-sponsor to the Share Offer

“SDI Ordinance”              the Securities (Disclosure of Interests) Ordinance (Chapter 396 of
                             the Laws of Hong Kong)

“Share(s)”                   share(s) of HK$0.01 each in the share capital of the Company

“Share Offer”                the Public Offer and the Placing

“Share Option Scheme”         the share option scheme conditionally adopted by the Company
                             on 7 May 2002, the principal terms of which are summarised in
                             the paragraph headed “Share Option Scheme” in Appendix IV to
                             this prospectus

“Significant Shareholders”   the same meaning as defined in the GEM Listing Rules

“SimBioDAS”                  an acronym of the simulated biological dissolution and absorption
                             system which was co-invented by Dr. Tam and Dr. Anderson

“SimBioDAS™ system”          the system or process in deploying the SimBioDAS™ technology

“SimBioDAS™ technology”      the Group’s proprietary technology which is an in vitro screening
                             system for predicting intestinal absorption of compounds in
                             humans (also known as the “artificial gut” technology)




                                     – 36 –
                                            DEFINITIONS


“Sponsors”                                AMS and SBI

“Stock Exchange”                         The Stock Exchange of Hong Kong Limited

“Substantial Shareholders”                the same meaning as defined in the GEM Listing Rules

“TCM”                                     traditional Chinese medicine

“Track Record Period”                    the period comprising the three years ended 29 February 2000,
                                         28 February 2001 and 28 February 2002

“Underwriters”                           the Public Offer Underwriters and the Placing Underwriters

“Underwriting Agreement”                 the underwriting and placing agreement dated 21 May 2002
                                         between, inter alios, the Company, the Sponsors, Hantec and the
                                         Underwriters in relation to the Share Offer, particulars of which
                                         are summarized in the section headed “Underwriting” in this
                                         prospectus

“US”                                      United States of America

“US Patent Office”                        United States Patent and Trademark Office

“Warrant(s)”                             the outstanding warrant(s) issued by KGI, details of which are set
                                         out in the paragraph headed “Warrants” in Appendix IV to this
                                         prospectus

“CAN$”                                    Canadian dollars, the lawful currency of Canada

“HK$” and “cents”                        Hong Kong dollars and cents respectively, the lawful currency of
                                         Hong Kong

“US$”                                     US dollars, the lawful currency of the US

“%”                                       per cent

“6-Month Lock-up Period”                 a period of 6 months from the Listing Date

“12-Month Lock-up Period”                a period of 12 months from the Listing Date

    In this prospectus, unless otherwise specified, conversions of CAN$ into HK$ are based on the rate of
CAN$1 to HK$5 and conversions of US$ into HK$ are based on the rate of US$1 to HK$7.8.




                                                 – 37 –
                              GLOSSARY OF TECHNICAL TERMS


     The glossary of technical terms hereunder contains explanations of certain terms used in this
prospectus in connection with the Group and its business. The terms and their meanings set out hereunder
may not correspond to standard industry meanings or usage of these terms.

“active ingredient”                       any component that is intended to furnish direct effect in the
                                          diagnosis, cure, mitigation, treatment, or prevention of disease, or
                                          to affect the structure or any function of the body of man or other
                                          animals

“anti-fungal”                             refers to a substance that is designed to fight against infection
                                          caused by a fungus, such as a lung infection caused by a mould
                                          named Aspergillus

“assay”                                   a quantitative or qualitative evaluation, or test, of a substance
                                          which is frequently used to describe tests for measuring a
                                          biological response or for determining characteristics such as
                                          composition, purity, activity, and weight

“Caco-2 cells”                            colon cancer cells

“cell line”                               a population of cells of a particular type able to divide indefinitely
                                          in culture

“clinical trial”                          any investigation in human subjects intended to determine the
                                          clinical pharmacological, pharmacokinetic, and/or other
                                          pharmacodynamic effects of an investigational agent, and/or to
                                          identify any adverse reactions to an investigational agent to
                                          assess the agent’s safety and efficacy

“compound”                                a single chemical or biological entity whose structure is known
                                          and can be deduced

“dietary supplement” or “food supplement” a product taken by mouth that contains ingredient(s) intended to
                                          supplement the diet, and can be extracts or concentrates, and
                                          may be in forms such as tablets, capsules, or powders and that
                                          must not be represented as a conventional food or a sole item of
                                          a meal or diet

“dosage form”                             the “delivery system” for a drug or biologic product, e.g. tablet,
                                          capsule, IV (intravenous) solution, topical cream

“drug candidate”                          the compound qualified for further research after methods of
                                          detection, such as screening, have been employed




                                                  – 38 –
                              GLOSSARY OF TECHNICAL TERMS


“efficacy”                           a product’s ability to produce beneficial effects on the duration or
                                     course of a disease, and is measured by evaluating the clinical
                                     and statistical results of clinical tests

“endotoxemia”                        the presence in the blood of endotoxin, a toxin produced by
                                     certain bacteria and released upon destruction of the bacterial
                                     cells

“formulation”                        the mixture of chemicals and/or biological substances and
                                     excipients used to prepare dosage forms

“Ginkgo” or “Ginkgo biloba”          one of the world’s oldest known living tree species which often
                                     has a single vertical slit in the top centre of its leaves, commonly
                                     referred to as Ginkgo “biloba”

“hepatic steatosis”                  the condition also known as “fatty liver” in which fat builds up
                                     around the liver, affecting its proper function

“high-throughput”                    in vitro screening of large numbers of compounds through the use
                                     of automated machinery, and highly automated systems can
                                     screen thousands of compounds per hour, identifying those with a
                                     desired chemical or biological response

“in silico”                          literally, “computer mediated”, which refers to the use of computer
                                     models rather than expensive laboratory and animal experiments
                                     to simulate, process, or analyze a biological experiment

“in vitro”                           literally, “in glass”, which refers to experiments not conducted on
                                     living animals or humans, especially test-tube experiments

“in vivo”                            literally, “in life”, which refers to experiments conducted on living
                                     animals or humans

“lead”                               a compound which exhibits the greatest likelihood for development
                                     into a drug

“marker drug compound”               the well-studied compound or substance commonly used in in
                                     vitro absorption experiments that can be used for comparison
                                     with known human absorbability information and also information
                                     from other cell lines (most of these were selected from a group of
                                     compounds recommended by the FDA in their Biopharmaceutics
                                     Classification System (BCS) as reference compounds used to
                                     standardize in vitro absorption models)




                                             – 39 –
                           GLOSSARY OF TECHNICAL TERMS


“nutraceutical”                   a food or naturally occurring food supplement that is thought to
                                  have a beneficial effect on human health

“pharmacokinetics”                the study of how a drug is metabolized and includes the study of
                                  drug absorption and distribution, the study of the chemical
                                  alterations a drug may undergo in the body, and the study of the
                                  means by which drugs are stored in the body and eliminated from
                                  it (commonly referred to in the pharmaceutical industry as “PK”)

“pharmacodynamics”                the study of the effect of drugs in relation to time, or the
                                  relationship between blood or plasma drug concentration and
                                  drug effects on the body (commonly referred to in the
                                  pharmaceutical industry as “PD”)

“pharmacology”                    the study of the effects of drugs

“pre-clinical”                    refers to laboratory and animal studies

“pre-clinical testing”            the studies conducted before a drug may be tested on humans
                                  and either in vitro but usually in vivo on animals to determine that
                                  the drug is safe

“proof of concept”                proof of concept is achieved when a prototype has been
                                  developed which has sufficient background data to show the
                                  desired activity and to support the commercialisation of the
                                  original idea

“proof of principle”              the stage of development whereby it has the first definitive
                                  indication that the approach being studied is functional

“screening”                       the process by which drug compounds are evaluated in a battery
                                  of tests designed to detect a specific biological property or
                                  activity. It can be conducted on a random basis in which
                                  compounds are tested without any pre-selection criteria or on a
                                  targeted basis in which information on a compound with known
                                  activity or structure or absorbability is used as a basis for
                                  selection

“target product profile”          a definition of the desired characteristics of a drug, including its
                                  solubility, absorbability and activity

“toxicology”                      the scientific study of poisons, their actions, detection, and the
                                  treatment of the conditions produced by them




                                          – 40 –
                                             RISK FACTORS


        Prospective investors should consider carefully all of the information set out in this prospectus and,
 in particular, the following risks associated with an investment in the Company before making an
 investment decision in relation to the Share Offer. The information in this prospectus includes forward-
 looking statements which involve risks and uncertainties. The Company’s actual operating results could
 differ materially from those anticipated in these forward-looking statements as a result of certain factors,
 including those set forth in this section. Further, there may be other risks and uncertainties not presently
 known to the Company or that the Company currently deems immaterial which could also harm the
 business, financial condition and operating results of the Company.

RISKS ASSOCIATED WITH THE GROUP

Reliance on a single technology that is in the early stage of commercialisation and has not been
independently tested, the success of which is yet to be proven

      The current focus of the Group’s business is the SimBioDAS™ technology which is intended to
be used for the provision of drug screening services. The Group also plans to adapt the SimBioDAS™
technology to predict the absorption of TCM in humans and to isolate active ingredients in natural
herbs with a view to developing TCM-based formulations. Although the Group has commenced
commercialisation of the SimBioDAS™ technology since November 2001 by offering drug screening
services to the market, the Group has not secured any business contract or generated any operating
revenue until the last quarter of the Track Record Period. The future prospects of the Group are
therefore, to a significant extent, dependent on the validity and successful commercialisation of the
SimBioDAS™ technology. Investors should note that the SimBioDAS™ technology has not been
independently tested for its effectiveness and has only been tested by the Group. If the Group fails to
validate the effectiveness of the SimBioDAS™ technology or if the SimBioDAS™ technology or any of
the Group’s products are not accepted by the market, there will be an adverse impact on the Group’s
business and operating performance and the Group may continue to incur losses.

Limited operating history and limited experience with unproven business and revenue models and
history of losses and possibility of continuous losses

      The Group has only a limited operating history by which investors may evaluate its business;
furthermore, its business strategy is unproven. Since the establishment of KGI in 1998, the Group has
been focusing on research and development activities, particularly in the SimBioDAS™ technology,
towards its mission to accelerate the discovery and development of synthetic drugs and natural
products. Therefore, the Group has limited experience in commercial business operations. The Group
has not generated any business turnover or operating revenue until the last quarter of the Track
Record Period and has incurred net losses attributable to shareholders for the Track Record Period.
The Group’s ability to achieve positive operating results will depend on a variety of factors, including
without limitation, competition, success in implementing its business strategy, general economic
environments in Hong Kong, the PRC, North America and Europe and market acceptance of the
Group’s services or future products. Investors should note that the Group’s technology is in the early
stage of commercialisation and, that there can be no assurance that the Group will be able to generate
any operating revenue or profit, or maintain a positive cash flow position, or make any dividend
payments in the future, nor can there be any assurance that the Group will not continue to incur
losses in the foreseeable future.


                                                    – 41 –
                                                           RISK FACTORS


Dilution effect of the exercise of options under the Pre-IPO Share Option Schemes and the Share
Option Scheme, the Warrants, the Buret Option, the Anderson Option and the Buret Allotment

Pre-IPO Share Option Schemes and the Share Option Scheme

       Rule 23.03(3) of the GEM Listing Rules requires that the total number of Shares subject to the Pre-IPO
Share Option Schemes, the Share Option Scheme and any other share option schemes of the Company must
not, in aggregate, exceed 30% of the issued share capital of the Company from time to time (the “Limit”).

      As at the date of this prospectus, options to subscribe for an aggregate of 689,000 common
shares of KGI have been granted under the KGI Share Option Plan and options to subscribe for an
aggregate of 49,023,691 Shares have been granted under the KIBP Pre-IPO Share Option Scheme, at
discount ranging from 50% to approximately 80% to the minimum Offer Price of HK$0.50 per Share.
Such options if exercised in full, will result in the issue of an aggregate of 65,874,438 Shares
(representing approximately 12.67% of the issued capital of the Company immediately following
completion of the Share Offer and the Capitalisation Issue but before enlargement by the issue of
such Shares, or approximately 11.24% after such enlargement). All the options under the KGI Share
Option Plan were granted at the exercise price equivalent to approximately HK$0.1 per Share
(representing a deep discount of approximately 80% to the minimum Offer Price of HK$0.50 per Share)
and all the options under the KIBP Pre-IPO Share Option Scheme (other than an option granted to a
senior management staff of the Group in respect of 1,589,692 Shares, the exercise price of which
would be equivalent to approximately HK$0.16 per Share) were granted at the exercise price of 50%
discount to the Offer Price. Particulars of such options are as follows:

     Name                                              KGI Pre-IPO Share Option Scheme                   KIBP Pre-IPO Share Option Scheme
                                   No. of options under No. of Shares pursuant
                                          the KGI Share           to the Exchange
                                            Option Plan                 Agreement Expiration Date     No. of options    Expiration Date

     Initial Management Shareholders/Directors

     Dr. Tam                                       8,000               195,655     31 March 2005          24,456,818    between 66 months and
                                                                                                                        84 months after the Listing Date
     Mr. Young                                    50,000             1,222,841     31 March 2005           6,114,205    66 months after the Listing Date
     Patrick Chiu Kit Young                       18,000               440,223     31 March 2005           1,222,841    66 months after the Listing Date
     Dr. Antoine A. Noujaim                       11,000               269,025     31 March 2005           1,222,841    66 months after the Listing Date
     Chiu Kang Lee                                    —                     —      —                       1,222,841    66 months after the Listing Date
     David Shong-Tak Tam                              —                     —      —                       1,222,841    66 months after the Listing Date
     Dr. Cecilia Wai Bing Pang                        —                     —      —                       1,222,841    66 months after the Listing Date
     Mo Po Chan                                       —                     —      —                       1,222,841    66 months after the Listing Date
     Dr. Tam-Zaman                               140,000             3,423,954     50% on 1 July 2006        733,705    66 months after the Listing Date
                                                                                   50% on 19 December 2006
     18 other grantees                           462,000             11,299,049    between 15 July 2004 10,381,917      between 1 December 2005 and
                                                                                   and 22 October 2006                  66 months after the Listing Date




                                                                     – 42 –
                                             RISK FACTORS


     Further particulars of such grants and the grantees are set out in the paragraph headed “Pre-IPO Share
Option Schemes” in Appendix IV to this prospectus.

     In the event the above options are exercised, the percentage ownership of the shareholders and
the earnings, if any, per Share will be reduced.

      Pursuant to the Share Option Scheme, the Company may, subject to certain conditions, grant additional
options to the participants of the scheme to subscribe for Shares up to 30% of the issued share capital of the
Company from time to time.

     In the event that the Company grants the maximum limit of options (i.e. 30% of the issued share
capital of the Company from time to time) and such options are exercised in full by the holders, the
shareholders of the Company should be aware that there will be material dilution of their
shareholdings in the Company and that the earnings, if any, per Share will be reduced.

Warrants

      As at the date of this prospectus, Warrants to subscribe for an aggregate of 527,000 common
shares of KGI have been granted by KGI as a bonus upon exercise of the then existing warrants of KGI
prior to 29 February 2000 but otherwise at no further consideration, which if exercised in full and
pursuant to the Exchange Agreement, will result in the issue of 12,888,744 Shares (representing
approximately 2.48% of the issued share capital of the Company immediately following completion of
the Share Offer and the Capitalisation Issue but before enlargement by the issue of such Shares, or
approximately 2.42% after such enlargement). All the Warrants were granted at the exercise price of
CAN$3.10 per common share of KGI (equivalent to approximately HK$0.63 per Share on the basis of
one common share of KGI to be exchanged for approximately 24.45 Shares). Particulars of such
grants and the warrantholders are set out in the paragraph headed “Warrants” in Appendix IV to this
prospectus.

Buret Option, Anderson Option and the Buret Allotment

      KGI has granted the Buret Option to subscribe for an aggregate of 142,857 common shares of KGI,
which if exercised in full and pursuant to the Buret Exchange Agreement will result in the issue of 3,493,828
Shares (representing approximately 0.67% of the total issued share capital of the Company immediately
following completion of the Share Offer and the Capitalisation Issue but before enlargement by the issue of
such Shares, or approximately 0.67% after such enlargement). The Buret Option was granted in consideration
for the granting of a licence by Dr. Buret to the Group to use the Buret Cell Line and the related technologies
developed and/or acquired by him at the exercise price of CAN$0.70 per common share of KGI (equivalent to
approximately HK$0.14 per Share on the basis of one common share of KGI to be exchanged for
approximately 24.45 Shares, representing a deep discount of approximately 72% to the minimum Offer Price
of HK$0.50 per Share). Particulars of the Buret Option are set out in the paragraph headed “Issue of Buret
Option and Buret Allotment” in the section headed “General overview of the Group” and the paragraph
headed “KGI Consultants Options and Buret Allotment” in Appendix IV to this prospectus.




                                                    – 43 –
                                             RISK FACTORS


      KGI has granted the Anderson Option to subscribe for an aggregate of 20,000 common shares of KGI,
which if exercised in full and pursuant to the Anderson Exchange Agreement will result in the issue of 489,136
Shares (representing approximately 0.09% of the issued share capital of the Company immediately following
completion of the Share Offer and the Capitalisation Issue but before enlargement by the issue of such
Shares, or approximately 0.09% after such enlargement). The Anderson Option was granted at the exercise
price of CAN$0.5 per common share of KGI (equivalent to approximately HK$0.10 per Share on the basis of
one common share of KGI to be exchanged for approximately 24.45 Shares, representing a deep discount of
approximately 80% to the minimum Offer Price of HK$0.50 per Share).

       KGI has, among other things, agreed to issue and allot to Dr. Buret at no further consideration an
aggregate of 57,144 common shares of KGI in stages as consideration for the granting of a licence by him to
the Group to use the Buret Cell Line and the related technologies developed and/or acquired by him. On 1
December 2001, 14,286 common shares of KGI were issued and allotted to Dr. Buret. Pursuant to the Buret
Exchange Agreement, allotment in full of the remaining balance of 42,858 common shares of KGI to Dr. Buret
will result in the issue of 1,048,170 Shares (representing approximately 0.20% of the total number of Shares
in issue immediately following completion of the Share Offer and the Capitalisation Issue but before
enlargement by the issue of such Shares, or approximately 0.20% after such enlargement). Particulars of the
Buret Allotment are set out in the paragraph headed “Issue of Buret Option and Buret Allotment” in the section
headed “General overview of the Group” and the paragraph headed “KGI Consultants Options and Buret
Allotment” in Appendix IV to this prospectus.

      In the event the Buret Option and/or the Anderson Option are exercised and/or Shares are
allotted and issued pursuant to the Buret Allotment, the percentage ownership of the shareholders of
the Company and the earnings, if any, per Share will be reduced and upon exercise in full of the Buret
Option and the Anderson Option and allotment in full of the Shares pursuant to the Buret Allotment,
Dr. Tam’s interest in the Company will be reduced from approximately 27.07% to approximately 26.81%
(assuming no further Shares will be issued after the Listing Date).

      Exercise of the options granted under the Pre-IPO Share Option Schemes, the Warrants, the Buret
Option, the Anderson Option and the issue and allotment of Shares pursuant to the Buret Allotment will result
in the issue of an aggregate of 83,794,316 Shares (representing approximately 16.11% of the total number of
Shares in issue immediately following completion of the Share Offer and the Capitalisation Issue but before
enlargement by the issue of such Shares, or approximately 13.88% after such enlargement).

     Shareholders of the Company should be aware that there may be a material dilution in their
shareholdings in the Company.

Drug development risk

      The Group’s mission is to accelerate the discovery and development of synthetic drugs and natural
products, including TCM. The Group may therefore be engaged in developing products based on existing
drug formulations or herbal or TCM-based products that have history of effective uses. Given that drug
discovery and development is a complex, highly regulated, long and expensive process, and that the success
rate is low (as discussed in the section headed “Industry overview” in this prospectus), the Group will be
subject to substantial risk in its plan to develop any drug product. In the event that the Group fails to achieve
the time plan for its product development as intended, the Group’s operations and operating performance may
be adversely affected.

                                                     – 44 –
                                             RISK FACTORS


Research and development risks

       As at 29 February 2000, 28 February 2001 and 28 February 2002, the development costs capitalised by
the Group were approximately HK$1.8 million, HK$5.0 million and HK$6.3 million respectively. The Group’s
future prospects are, to a significant extent, dependent upon the continuous development and successful
commercialisation of new products and technology, including but not limited to, the SimBioDAS™ technology.
As one of its strategies, the Group has formed and intends to form additional strategic alliances with suitable
partners or candidates that would offer the Group access to capital and research products that will lead to
commercial applications. The success of biopharmaceutical product development is, however, unpredictable.
Products that appear to be promising at the early phases of research and development may fail to reach the
market for numerous reasons, including the discovery of harmful side effects in pre-clinical tests and clinical
trials and the failure to obtain the necessary regulatory approvals. Consequently, the corresponding research
and development expenditures incurred would have to be expensed, which may have an adverse impact on
the profitability of the Group.

No assurance of achieving business objectives successfully

     The business objectives as set out in this prospectus are based on the existing plans and intentions of
the Group which are either at the conceptual or preliminary stages. These plans and intentions are based on
assumptions as to the occurrence of future events, which may or may not happen.

       There is no assurance that the future plans of the Group will materialise, or result in the conclusion or
execution of any agreement in accordance with the planned timeframe, or that the objectives of the Group will
be fully or partially accomplished. The Group’s results of operations may be adversely affected in the event
that the Group’s future plans do not materialise and its business objectives are not achieved.

No assurance of commercial viability

      As the scale of the Group’s operations grows, the Directors consider that the Group will have to
continually improve its management and operational systems, procedures and controls, and expand its skilled
workforce. The expansion of its business operations may also involve the Group cooperating or developing
new relationships with third parties such as pharmaceutical manufacturers and research institutions. There
can be no assurance that the Group’s existing or future management and operational systems, procedures
and controls will be adequate to support its future operations, or that the Group will be able to recruit, retain
and motivate its personnel, or that the Group will be able to establish or develop business relationships
beneficial to its future operations. Failure of the Group to manage growth effectively could have a material
adverse effect on its business, results of operations and financial condition.

Reliance on key technical personnel

      The Group depends, to a significant extent, on the technical expertise of Dr. Tam, the founder, president
and chief executive officer of the Group, and certain key technical personnel including Dr. Hugh Alexander
Semple, Dr. Douglas Thacher Ridgway and Dr. Chee Keong Choo. Dr. Tam has entered into a service
contract with the Company pursuant to which he was appointed president and chief executive officer of the
Group and is required to devote not less than 90% of his time for the affairs of the Group. The service




                                                     – 45 –
                                             RISK FACTORS


agreement is for an initial term of two years and nine months commencing on 1 January 2002, subject to early
termination or extension pursuant to the terms of the contract. Either the Company or Dr. Tam may terminate
the service contract without cause upon giving six months notice to the other. Details of the terms of the
service contract are set out in the sub-paragraph headed “Particulars of service contracts” in Appendix IV to
this prospectus. Certain scientists of the Group, including Dr. Hugh Alexander Semple, Dr. Douglas Thacher
Ridgway and Dr. Chee Keong Choo, have also entered into service contracts with the Group which can be
terminated by either party upon giving three months notice to the other. Under these service contracts, each
of Dr. Tam and the relevant scientists has undertaken to the Group not to divulge any confidential information
of the Group or to engage in business that competes directly or indirectly with the Group during the term of
any of their service contracts. There can be no assurance that Dr. Tam and the other key personnel of the
Group will continue to devote his/her time and technical expertise to the Group’s business. The loss of Dr.
Tam or other key technical and management personnel of the Group may have a material adverse effect on
the Group’s business operations and research capability.

      The continued development of the Group’s operations is also dependent on its ability to keep pace with
the rapid technological developments and to continue to enhance its existing technology and products and
develop new technologies and products that meet the expectations of its customers. The Directors consider
that a key factor to this is the Group’s ability to continue attracting experienced, qualified and talented
professionals to work for the Group. The Group acknowledges the shortage in the supply of expertise in the
biopharmaceutical and pharmacology fields in Hong Kong. Accordingly, the Group’s operations may be
adversely affected if it encounters any serious difficulty in retaining or recruiting suitable professional
personnel.

No production facilities

      The Group currently neither has nor intends to establish any production facilities for the manufacture of
its products that will be developed in the future. It is the present intention of the Directors that the
manufacturing process of the Group’s products in the future will be outsourced. As the actual production
process will not be carried out directly by the Group, there remains the risk that the manufacturers may fail to
meet the contractual requirements specified by the Group. If the Group cannot find a reliable manufacturer to
undertake the Group’s production requirements, the Group’s business and operating performance may be
adversely affected.

No distribution network and no assurance of the effectiveness of the distribution arrangement by way
of strategic alliance

       The Directors consider that the successful commercialisation of the Group’s technology and products is,
to a certain extent, dependent on the coverage and effectiveness of its distribution network and the
relationship with its distribution partners. As at the Latest Practicable Date, the Group had entered into two
agreements with independent third parties which possess the marketing and distribution networks for the
Group’s products. Details of the major terms of these agreements are set out in the paragraph headed
“Business model” in the section headed “General overview of the Group” in this prospectus. As the Group has
no direct control over these distribution networks, there remains the risk that the Group’s products may not be
effectively marketed to potential customers. Further, the Group has not yet begun marketing its products
through the distribution network of its strategic partners. There is no assurance that the distribution




                                                    – 46 –
                                             RISK FACTORS


arrangement between the Group and its strategic partners will work as intended. If such distribution
arrangement does not work as intended and the Group cannot find suitable replacement partners or
distributors or develop its own distribution network, the Group’s business and operating performance may be
adversely affected.

Canadian taxation

       The Group’s principal operations are currently carried on in Canada and Hong Kong, and certain
members of the Group were incorporated under the laws of the Province of Alberta, Canada. Pursuant to the
laws and regulations relating to income tax in Alberta, members of the Group that were incorporated in
Alberta are subject to income tax rate of approximately 39.6% for the year ended 28 February 2002, which is
substantially higher than the prevailing Hong Kong profits tax at the rate of 16%. Investors should note that in
the event that the Group’s future income is primarily derived from those companies incorporated in Alberta,
the Group’s corporate income tax may represent an effective tax rate that is even higher than the aforesaid
39.6% or that applicable to members of the Group incorporated in Alberta.

No product liability insurance

       Product liability claims may arise in respect of the use of the Group’s technology or in respect of the
consumption of the Group’s products. The Group currently does not maintain any product liability insurance
for its technology products sold or distributed. The Group’s business may be adversely affected by any
successful product liability claim. Any such claim, regardless of its merits, may result in costly litigation and
put a strain on the Group’s resources. In addition, any such claims could damage the Group’s relations with
its customers and negatively affect the Group’s reputation.

No assurance that business plans will materialise

      According to current estimates, the Directors expect that the net proceeds from the Share Offer (based
on the minimum Offer Price of HK$0.50 per Share) of about HK$46 million will be sufficient to finance the
implementation of the Group’s business plans up to 28 February 2005. If, however, the actual financial
requirements of the Group during such period exceed its current estimates and it is unable to generate any
internal resources from its business or fails to raise such funding by way of bank financing or otherwise, it
may be required to make material modifications to its business plans and/or the intended use of proceeds
described in the section headed “Statement of business objectives” in this prospectus. It could also adversely
affect the Company’s business development. Furthermore, the failure to generate internal resources could
also adversely affect the Group’s business development and shareholders may suffer a dilution in their
shareholdings in the Company in the event that the Company raises funds by way of equity financing.

Possibility of additional funding through the issuance of new equity

      The Group may need to raise additional funds in the future to finance expansion of or new
developments of its operations or the implementation of the Group’s business plans. If additional funds are
raised through the issuance of new equity or equity-linked securities of the Company other than on a pro rata
basis to existing shareholders, the percentage ownership of the shareholders of the Company may be diluted.




                                                     – 47 –
                                             RISK FACTORS


Infringement of intellectual property rights

       The Group’s success depends heavily on its ability to protect its proprietary technologies and
processes. The Group has three trademark applications pending in Canada in respect of three trademarks
and eight trademark applications pending in Hong Kong in respect of four trademarks, and owns one patent in
the US. KGI also has ten patent applications pending in various countries and territories in respect of three
inventions. It may be possible for a third party to copy or otherwise obtain and use the Group’s intellectual
property rights without authorisation. In addition, there are countries where protection of trademarks and other
intellectual property rights may not be effective or may be limited. There can be no assurance that any steps
taken by the Group will successfully prevent misappropriation or infringement of its intellectual property
rights.

      On the other hand, the Group’s commercial success also depends significantly on its ability to operate
without infringing the patents and other proprietary rights of third parties. The Group’s competitors may
develop products, processes and technologies that are similar to that of the Group and these competitors may
seek and/or obtain patent or other intellectual property right registration in respect of their processes,
products, technologies and inventions. Any patents obtained by the Group’s competitors may overlap with the
products, processes and techniques being developed by the Group. This may result in infringement claims
being made against the Group by its competitors. Furthermore, in establishing strategic alliances with
technological partners, the Group will be required to provide access to the Group’s know-how with respect to
research, pre-clinical tests, clinical trials and other development processes. While the Group intends to enter
into confidentiality agreements with its technological partners, there is no assurance that such confidentiality
agreements will be honoured or that the Group will be successful in obtaining a remedy in the event such
agreements are breached.

       The Group may also require the use of technologies developed by third parties in connection with the
development of new products. There is a potential risk that any technology utilized by the Group or acquired
from third parties may result in future disputes regarding intellectual property rights which may not be
identifiable. Therefore, the Group’s use of any third parties’ technology may expose the Group to potential
infringement claims if the transferor of the technology acquired by the Group does not have the legal right to
transfer the necessary technology to the Group or does not have the valid right to use or license such
technology.

Product and technology substitution

      Technologies similar in some respects to the SimBioDAS™ technology are available in the market.
Developments in biopharmaceutical processes and products are also expected to continue at a rapid pace. It
is extremely difficult to predict the effect of future technological changes and discoveries on the
competitiveness of the Group’s products. It is important for the Group to respond to technological changes by
developing new and high quality products in a timely and cost efficient manner and, the Directors consider
that, the Group must adopt and modify development methods, programs and processes in response to
emerging technologies and new discoveries. If the Group fails to respond rapidly, the Group’s performance,
reputation and viability could suffer from a material adverse impact. Furthermore, third parties may develop
superior biopharmaceutical processes or products with prices analogous to or lower than those developed
and provided by the Group , or biopharmaceutical technologies analogous to those being developed by the
Group, in particular, the SimBioDAS™ technology, which is currently the primary technology of the Group.



                                                    – 48 –
                                            RISK FACTORS


RISKS ASSOCIATED WITH THE INDUSTRY

Importance of continuing research and development

      The market in which the Group operates is characterised by rapidly changing technology, evolving
industry standards, frequent introduction of new technologies or products, and changing demands and
requirements. Accordingly, the Group’s continuous success in the future will depend on its ability to adapt to
the rapidly changing technologies, to continue its research and development work, to improve and enhance
the performance of the SimBioDAS™ technology as well as to develop new technologies and products that
meet the changing demands. Although the Group will continue its commitment to research and development,
there is no assurance that the Group will be able to develop and introduce new technologies or products to
meet the changing demands. In the event that the Group fails to adapt to the changes in the marketplace in a
timely and effective manner, the Group’s business and operating results and prospects will be adversely
affected.

Extensive government regulations and regulatory approvals

        The biotechnology and pharmaceutical industries are characterized by extensive government
regulations and regulatory approvals. The products and services to be offered by the Group in the future may
be subject to legal or regulatory requirements. Details of the laws and regulations in Hong Kong and in
Canada that may be applicable to the Group’s services or products are set out in the paragraphs headed in
“Laws and regulations on the Chinese medicine industry in Hong Kong”, “Applicable Alberta and federal
Canadian laws and regulations” and “Summary of proposed Canadian natural health products regulations” in
the section headed “Industry overview” in this prospectus. There is no assurance that the Group will be able
to comply with any such requirements in respect of its products or services. Compliance standards in relation
to approvals or regulatory requirements may also change from time to time. New laws and regulations and/or
changes in the interpretation of existing laws and regulations may escalate the compliance costs for the
Group or prohibit or restrict the Group’s ability to conduct any part of its business such that the Group’s
operations may have to be reduced or limited, resulting in the Group’s results of operations being materially
adversely affected.

Competition

      The biotechnology and pharmaceutical industries are highly competitive and subject to significant and
rapid technological change. There are other pharmaceutical and biotechnology companies that are engaged
in the provision of in vitro screening and related services. The Group believes that there may be companies,
academic institutions, government agencies or research organizations that are working on technologies
related to in vitro screening systems or technologies similar in some respects to the SimBioDAS™
technology. These competitors may have specific expertise or technologies related to in vitro screening and
may introduce new or modified technologies from time to time. The Group is also aware of numerous
companies that develop and manufacture herbal preparations. These companies manufacture herbal
supplements from extracts similar in some respects to what the Group proposes to develop. Many of these
companies and organizations, either alone or together with their customers, may have substantially greater
financial resources and larger research and development capability and product commercialisation
experience than the Group. Accordingly, the Group may or will be competing against companies with greater
resources and in areas in which the Group has limited or no experience.



                                                   – 49 –
                                               RISK FACTORS


      Developments by competitors may render the Group’s technologies or products obsolete or non-
competitive. The Group is aware that it may be subject to competition from other companies for agreements
with pharmaceutical and biotechnology companies, for relationships with academic and research institutions,
and for licences to proprietary technology. These competitors, either alone or with their customers, may
succeed in developing technologies or products that are more effective than those of the Group and there is
no assurance that the Group will be able to compete successfully with these or other potential competitors.
The Group’s business plans have also been formulated on the assumption that there will be no material
changes in the development of drug absorption screening technology and competition within the
pharmaceutical industry. The failure of the Group to respond rapidly to changing technologies, new
discoveries and increases in competition could have a material adverse impact on the Group’s business.

RISKS ASSOCIATED WITH POLITICAL AND ECONOMIC CONDITIONS

Possible impact of the terrorist attacks in the US

       The attacks at the World Trade Center in New York, the US, on 11 September 2001 are generally
expected to exert considerable direct and indirect political and economic effects on the US and other parts of
the world. The subsequent conflict between the US and Afghanistan is also expected to adversely affect the
global economy and heighten uncertainty in the coming future and, particularly, in the US. If the economic
slow down continues in the near future, the overall economy of Hong Kong and other markets intended to be
accessed by the Group (such as the North American and European markets) may be adversely affected which
in turn could have an adverse impact on the business and results of operations of the Group.

Currency risks

        The Group’s principal operations are currently carried on in Canada and Hong Kong and, accordingly,
its operating expenses are primarily expended in CAN$ and HK$. According to the Group’s current business
plans, the Group’s revenue in the foreseeable future is expected to be derived initially from the US, Canada,
Hong Kong and the PRC and is likely to be denominated in US$, CAN$ or HK$. In the event that there is an
imbalance in the timing or amount of the Group’s payment obligations and income denominated in foreign
currencies, or there is a significant fluctuation in the relevant foreign currencies, the Group’s financial and
operating positions may be adversely affected.

RISKS ASSOCIATED WITH THE SHARES AND CERTAIN INFORMATION IN THIS PROSPECTUS

Marketability and possible price volatility of the Shares

      Prior to the completion of the Share Offer, there has been no public market for any of the Shares. The
Offer Price was determined by negotiations between the Company and the Underwriters. This price may not
be indicative of the price at which the Shares will be traded on GEM. Furthermore, there is no guarantee that
an active trading market for the Shares will develop, or, if it does, that it will sustain. The marketability and the
price of the Shares following completion of the Share Offer are subject to many factors, some of which are
beyond the Group’s control, including:

      –     investors’ perception of the Group and its business prospects;




                                                       – 50 –
                                              RISK FACTORS


      –     technological innovations;

      –     introduction of new technologies or products by the Group’s competitors;

      –     changes in the pricing of products or services similar to those offered by the Group;

      –     general stock market conditions; and

      –     general economic and other factors.

Possible deviation in use of proceeds from the current plans

      The intended use of the net proceeds from the Share Offer is set out in the section headed “Statement
of business objectives” of this prospectus. It is the Directors’ current intention to apply the net proceeds from
the Share Offer in the manner described therein. However, as new business opportunities arise or as
unforeseen events occur, the Directors may, if they consider it to be in the best interests of the Group,
reallocate all or part of the net proceeds to other business plans, new projects or other uses, or hold such
funds in bank accounts or invest in short term securities, so that the actual application of the net proceeds
from the Share Offer may deviate from the intended use as described in this prospectus. In addition, the
business plans of the Group as described in the section headed “Statement of business objectives” of this
prospectus are based on assumptions of future events which by their nature are subject to uncertainty and
there is no assurance that the plans of the Group will materialise as intended. The Company will issue an
announcement in the event of a material deviation in the use of the proceeds from the intended use as
described in this prospectus.

No independent verification of certain statistics and projections

      Certain statistics and projections quoted in this prospectus relating to the business and the industry are
derived from various unofficial publications. Such information has not been independently verified by the
Company or any independent party appointed by the Company, and may be incomplete or outdated. The
Directors make no representation as to the correctness or accuracy of such statements and accordingly, such
information must not be unduly relied upon.

      Included in this prospectus are various forward-looking statements which can be identified by the use of
forward looking terminology such as “may”, “will”, “expect”, “estimate”, “anticipate”, “believe” and other similar
words. The Group and the Directors have made forward-looking statements with respect to, among other
things, the following:

      –     the applications of the SimBioDAS™ technology in the pharmaceutical industry;

      –     the market potential of the SimBioDAS™ technology; and

      –     the strategies of the Group to achieve its business objectives.




                                                     – 51 –
                                            RISK FACTORS


      Such forward-looking statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Group, or industry results, to be
materially different from those expressed or implied by such forward-looking statements. Such forward-
looking statements are also based on assumptions regarding the Group’s present and future business
strategies and the environment in which the Group will operate in the future. Important factors that could
cause the Group’s actual operating results or achievements to differ materially from those in the forward-
looking statements include, among others, increasing competition in the industry, the loss of key personnel of
the Group, changes relating to the pharmaceutical and biotechnological industries and changes in the general
economic, political and business conditions worldwide. Additional factors that could cause actual operating
results or achievements to differ materially include, but are not limited to, those discussed above in this
section. These forward-looking statements speak only as of the Latest Practicable Date.




                                                   – 52 –
            INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER


DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

      This prospectus, for which the Directors collectively and individually accept full responsibility, includes
particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard
to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their
knowledge and belief:

      (a)    the information contained in this prospectus is accurate and complete in all material respects and
             not misleading;

      (b)    there are no other matters the omission of which would make any statement in this prospectus
             misleading; and

      (c)    all opinions expressed in this prospectus have been arrived at after due and careful consideration
             and are founded on bases and assumptions that are fair and reasonable.

     The Offer Shares are offered solely on the basis of the information contained and the representations
made in this prospectus. No person is authorized in connection with the Share Offer to give any information or
to make any representation not contained in this prospectus, and any information or representation not
contained herein must not be relied upon as having been authorized by the Company, the Sponsors, the
Underwriters, their respective directors, or officers or any other parties involved in the Share Offer.

OFFER SHARES ARE FULLY UNDERWRITTEN

     This prospectus is published solely for the purpose of the Share Offer. The listing of the Shares is
sponsored by AMS and co-sponsored by SBI and the Offer Shares are fully underwritten by the Underwriters
pursuant to the Underwriting Agreement.

       For further information about the Underwriters and the underwriting arrangements, please refer to the
paragraph headed “Underwriting arrangements and expenses” under the section headed “Underwriting” in
this prospectus.

PROSPECTUS TO BE DISTRIBUTED IN HONG KONG ONLY

       No action has been taken in any jurisdiction other than Hong Kong to permit any of the offering of the
Offer Shares or the distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this
prospectus may not be used for the purposes of, and does not constitute, an offer or invitation in any
jurisdiction or in any circumstances in which such an offer or invitation is not authorised or to any person to
whom it is unlawful to make such an offer or invitation.

APPLICATION FOR LISTING ON GEM

      Application has been made to the Stock Exchange for the granting of approval of the listing of, and
permission to deal in, the Shares in issue and Shares to be issued as mentioned in this prospectus, including
the Offer Shares and Shares to be issued pursuant to the Capitalisation Issue and the exercise of any options




                                                     – 53 –
         INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER


under the Pre-IPO Share Option Schemes and the Share Option Scheme, pursuant to the exercise of any
subscription rights attached to the Warrants and pursuant to the KGI Consultants Options and the Buret
Allotment, on GEM.

        No part of the share or loan capital of the Company is listed or dealt in on the Main Board or any other
stock exchange. At present, the Company is not seeking or proposing to seek any such listing or permission
to list on any other stock exchange.

       Pursuant to Rule 11.23(1) of the GEM Listing Rules, at the time of listing of the Shares on GEM and at
all times thereafter, the Company must maintain the “minimum prescribed percentage” of 25%, in the case of
the Company, of the issued share capital of the Company in public hands (which term has the same meaning
as defined in the GEM Listing Rules). At the time of listing, approximately 63.80% of the issued share capital
of the Company will be in the hands of the public.

PROFESSIONAL TAX ADVICE RECOMMENDED

      If you are unsure about the taxation implications of the subscription for, purchase, holding or disposal
of, dealing in, or the exercise of any rights in relation to the Offer Shares, you should consult an expert.

      None of the Company, the Sponsors, the Underwriters, their respective directors or any other parties
involved in the Share Offer will accept responsibility for any tax effects on or liabilities resulting from the
subscription for, purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to, the
Offer Shares.

REGISTERS OF MEMBERS AND STAMP DUTY

      All Shares in issue and to be issued as mentioned in this prospectus will be registered on the
Company’s branch register of members to be maintained by Tengis Limited in Hong Kong. The Company’s
principal register of members is maintained by Bank of Butterfield International (Cayman) Ltd.

     Only Shares registered on the Company’s Hong Kong branch register of members may be traded on
GEM. Dealings in Shares registered on the Company’s branch register of members in Hong Kong will be
subject to Hong Kong stamp duty.

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

       If the Stock Exchange grants the approval of the listing of, and permission to deal in, the Shares on
GEM and the Company complies with the stock admission requirements of HKSCC, the Shares will be
accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the
date of commencement of dealings in the Shares on GEM or on any other date as determined by HKSCC.
Investors should seek advice from their stockbroker or other professional adviser for details of those
settlement arrangements as such arrangements will affect their rights and interest. Settlement of transactions
between participants of the Stock Exchange is required to take place in CCASS on the second business day
after any trading day.




                                                     – 54 –
         INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER


     All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time.

     All necessary arrangements have been made for the Shares to be admitted into CCASS.

    The Company will not issue temporary documents of title. No receipt will be issued for application
money paid.

COMMENCEMENT OF DEALINGS IN THE SHARES

      Dealings in the Shares are expected to commence on 3 June 2002. Shares will be traded in board lots
of 4,000 each.

STRUCTURE OF THE SHARE OFFER

      Details of the structure of the Share Offer, including conditions, are set out in the section headed
“Structure and conditions of the Share Offer” in this prospectus.




                                                  – 55 –
                             DIRECTORS


DIRECTORS

Name                          Residential Address             Nationality

Executive Directors

Dr. Yun Kau TAM               Flat A, 4th Floor               Canadian
                              Tower 5, Parc Oasis
                              No. 35 Tat Chee Avenue
                              Kowloon
                              Hong Kong

Mr. Shui Chung YOUNG          No. 33 River North 9th Street   Dutch
                              Section O, Fairview Park
                              Yuen Long, New Territories
                              Hong Kong

Mr. Patrick Chiu Kit YOUNG    627 Village Drive               Canadian
                              Sherwood Park, Alberta
                              Canada T8A 4K7

Non-executive Directors

Dr. Antoine A. Noujaim        58 Wilkin Road                  Canadian
                              Edmonton, Alberta
                              Canada T6M 2K4

Mr. Chiu Kang LEE             Flat 6H, Block 2, Site 9        Canadian
                              Whampoa Garden
                              Hunghom, Kowloon
                              Hong Kong

Mr. David Shong-Tak TAM       925 Heacock Road                Canadian
                              Edmonton, Alberta
                              Canada T6R 2K4




                                – 56 –
                                      DIRECTORS


Independent non-executive Directors

Dr. Cecilia Wai Bing PANG              11B, Iris Court               Australian
                                       Pictorial Gardens Phase III
                                       25 On King Street
                                       Shatin
                                       New Territories
                                       Hong Kong

Mr. Mo Po CHAN                         Flat 2, 34th Floor            British
                                       Block H, Beverly Hill
                                       6 Broadwood Road
                                       Happy Valley
                                       Hong Kong




                                         – 57 –
                              CORPORATE INFORMATION


Registered office                     Century Yard
                                      Cricket Square
                                      Hutchins Drive
                                      P.O. Box 2681 GT
                                      George Town
                                      Grand Cayman
                                      British West Indies

Principal place of business           108 Advanced Technology Centre
  in Canada                           9650-20th Avenue N.W.
                                      Edmonton, Alberta
                                      Canada T6N 1G1

Principal place of business           Rooms 101-103
  in Hong Kong                        Hong Kong Institute of Biotechnology
                                      2 Biotechnology Avenue
                                      Shatin, New Territories
                                      Hong Kong

Company website                       http://www.kinetana.com
                                      Note: Information contained in this website does not form part of this
                                            prospectus


Company secretary                     Mr. Francis Chi-Ming LAM FCCA, AHKSA

Authorised representatives            Dr. Yun Kau TAM
                                      Flat A, 4th Floor
                                      Tower 5, Parc Oasis
                                      No. 35 Tat Chee Avenue
                                      Kowloon
                                      Hong Kong

                                      Mr. Shui Chung YOUNG
                                      No. 33 River North 9th Street
                                      Section O, Fairview Park
                                      Yuen Long, New Territories
                                      Hong Kong

Compliance officer                    Mr. Shui Chung YOUNG

Qualified accountant                  Mr. Francis Chi-Ming LAM FCCA, AHKSA

Audit committee members               Dr. Cecilia Wai Bing PANG
                                      Mr. Mo Po CHAN
                                      Mr. David Shong-Tak TAM




                                      – 58 –
                                CORPORATE INFORMATION


Senior business adviser                 Mr. Yuk Lam LO

Principal bankers                       The Hongkong and Shanghai Banking
                                          Corporation Limited
                                        1 Queen’s Road Central
                                        Hong Kong

                                        The Bank of Nova Scotia
                                        Edmonton Commercial Building Centre &
                                          Main Branch
                                        Scotia Place Building
                                        10050 Jasper Avenue
                                        Edmonton, Alberta
                                        Canada T5S 1V7

Principal share registrar and           Bank of Butterfield International
  transfer office                         (Cayman) Ltd.
                                        Butterfield House
                                        68 Fort Street
                                        P.O. Box 705
                                        George Town
                                        Grand Cayman
                                        Cayman Islands

Hong Kong branch share registrar        Tengis Limited
  and transfer office                   4th Floor, Hutchison House
                                        10 Harcourt Road
                                        Central
                                        Hong Kong




                                        – 59 –
                        PARTIES INVOLVED IN THE SHARE OFFER


Sponsor and Lead Manager               AMS Corporate Finance Limited
                                       20th Floor
                                       Hong Kong Diamond Exchange Building
                                       8-10 Duddell Street
                                       Central
                                       Hong Kong

Co-sponsor                             SBI E2-Capital (HK) Limited
                                       4th Floor, Henley Building
                                       5 Queen’s Road Central
                                       Hong Kong

Public Offer Underwriters              AMS Corporate Finance Limited
                                       20th Floor
                                       Hong Kong Diamond Exchange Building
                                       8-10 Duddell Street, Hong Kong

                                       Hantec Capital Limited
                                       45th Floor, COSCO Tower
                                       183 Queen’s Road Central, Hong Kong

Placing Underwriters                   Hantec Capital Limited
                                       45th Floor, COSCO Tower
                                       183 Queen’s Road Central, Hong Kong

                                       Christfund Securities Limited
                                       Suite 2808-2811
                                       One International Finance Centre
                                       1 Harbour View Street
                                       Central, Hong Kong

                                       CEF Capital Limited
                                       Suite 2001, 20th Floor, Cheung Kong Center
                                       2 Queen’s Road Central, Hong Kong

                                       SBI E2-Capital Securities Limited
                                       20th Floor, Henley Building
                                       5 Queen’s Road Central
                                       Hong Kong

                                       SG Securities (HK) Limited
                                       41st Floor, Edinburgh Tower
                                       15 Queen’s Road Central, Hong Kong




                                       – 60 –
PARTIES INVOLVED IN THE SHARE OFFER


               GC Securities Limited
               Suite 2812, 28th Floor, One International Finance Centre
               1 Harbour View Street
               Central, Hong Kong

               UOB Kay Hian (Hong Kong) Limited
               Room 1501, 15th Floor, Aon China Building
               29 Queen’s Road Central
               Hong Kong

               Kim Eng Securities (Hong Kong) Limited
               8th Floor, Alexandra House
               16-20 Chater Road, Central, Hong Kong

               Sanfull Securities Limited
               20th Floors, Far East Consortium Building
               121 Des Voeux Road Central, Hong Kong

               Guotai Junan Securities (Hong Kong) Limited
               27th Floor, Grand Millennium Plaza
               181 Queen’s Road Central, Hong Kong

               Hung Sing Securities Limited
               Rooms 605-608, Wing Shan Tower
               173 Des Voeux Road, Central, Hong Kong

               Koffman Securities Limited
               11th-13th Floors, Ying Kong Mansion
               2-6 Yee Wo Street
               Causeway Bay, Hong Kong

               Shenyin Wanguo Capital (H.K.) Limited
               28th Floor, Citibank Tower
               Citibank Plaza
               3 Garden Road, Hong Kong

               Taiwan Concord Capital Securities (Hong Kong) Limited
               Rooms 3005-6, The Center
               99 Queen’s Road Central, Central, Hong Kong

               Tanrich Securities Company Limited
               16th Floor, Central Plaza
               18 Harbour Road
               Hong Kong




               – 61 –
                      PARTIES INVOLVED IN THE SHARE OFFER


                                     YF Securities Company Limited
                                     11th Floor, CMA Building
                                     64-66 Connaught Road Central
                                     Hong Kong

                                     Quam Securities Company Limited
                                     Room 3308, Gloucester Tower
                                     The Landmark
                                     Central, Hong Kong

Legal advisers to the Company        As to Hong Kong law
                                     Preston Gates Ellis
                                     10th Floor, Hutchison House
                                     10 Harcourt Road
                                     Central
                                     Hong Kong

                                     As to laws of the Province of Alberta, Canada
                                     Parlee McLaws LLP
                                     1500 Manulife Place
                                     10180-101 Street
                                     Edmonton, Alberta
                                     Canada T5J 4K1

                                     As to certain federal laws of Canada and certain
                                       laws of the Provinces of British Columbia,
                                       Ontario and Alberta, Canada
                                     Blake, Cassels & Graydon LLP
                                     Box 25, Commerce Court West
                                     199 Bay Street
                                     Toronto, Ontario
                                     Canada, M5L 1A9

                                     As to Cayman Islands law
                                     Conyers Dill & Pearman, Cayman
                                     Century Yard
                                     Cricket Square
                                     Hutchins Drive
                                     P.O. Box 2681 GT
                                     George Town
                                     Grand Cayman
                                     Cayman Islands
                                     British West Indies




                                     – 62 –
                         PARTIES INVOLVED IN THE SHARE OFFER


Legal advisers to the Sponsors          As to Hong Kong law
  and the Underwriters                  So Keung Yip & Sin
                                        in association with Perkins Coie LLP
                                        17th Floor
                                        Standard Chartered Bank Building
                                        4 Des Voeux Road Central
                                        Hong Kong

Auditors and reporting                  Ernst & Young
  accountants                           Certified Public Accountants
                                        15th Floor, Hutchison House
                                        10 Harcourt Road
                                        Central
                                        Hong Kong

Property valuer                         LCH (Asia-Pacific) Surveyors Limited
                                        1506 Vicwood Plaza
                                        199 Des Voeux Road Central
                                        Hong Kong

Receiving banker                        Hang Seng Bank Limited
                                        Level 3
                                        83 Des Voeux Road Central
                                        Hong Kong




                                        – 63 –
                                        INDUSTRY OVERVIEW


       The information provided in this section is derived from various publications and contains the
 opinions of the Directors. This information has not been prepared or independently verified by the
 Company, the Sponsors, the Underwriters or their respective advisers or any other parties involved in the
 Share Offer.

BACKGROUND

      Biotechnology is a generic term used to cover a broad field of study. The OECD defines biotechnology
as “the application of scientific and engineering principles to the processing of materials by biological agents
to provide goods and services”. In Canadian legislation, biotechnology is defined as “the application of
science and engineering in the direct or indirect use of living organisms or parts or products of living
organisms in their natural or modified forms”. This broad definition covers all organisms, their parts and
products, whether developed traditionally or through the newer molecular techniques such as genetic
engineering.

      While no two biotechnology companies are alike, all share an emphasis on the use of engineering
principles and the manipulation of organisms at a molecular level. As biotechnology is a series of techniques
and not a product, it is applied in many sectors to develop goods and services of value to the economy.

     Biopharmaceutical companies are those that use biotechnology to develop innovative drugs.

      The Group is engaged in the research and development of in vitro absorption screening technology,
namely the SimBioDAS™ technology, to accelerate pre-clinical development of western drugs and natural
products. By using or licensing the use of the Group’s proprietary screening technology, the Group aims to
provide screening services to pharmaceutical companies, biotechnology companies, research institutes and
laboratories, and to accelerate the pre-clinical stage of the drug development process.

      The Group also aims to use the SimBioDAS™ and related technology in the modernization of TCM by
testing the absorbability of ingredients in TCM and isolating the active ingredients in natural herbal products,
and to develop its own products for the world markets.

     The Group is therefore a biotechnology and biopharmaceutical enterprise.




                                                    – 64 –
                                             INDUSTRY OVERVIEW


THE PHARMACEUTICAL INDUSTRY

      The global demand for pharmaceutical products has been increasing steadily as indicated by the
continuous growth in global pharmaceutical sales.

     The following table sets out the global pharmaceutical sales in 2000 by geographical region.

                                                  Pharmaceutical                 % to             % Growth
     World Market                                   Sales in 2000        Global Sales         (year-on-year)
                                                       US$ billion

     North America                                           152.8                48.2                    14
     Europe                                                   75.3                23.7                     8
     Japan                                                    51.5                16.2                     3
     Latin America                                            18.9                 6.0                     9
     Asia (excluding Japan),
       Africa and Australia                                   18.7                 5.9                    10
     Total                                                   317.2                 100                    10

     Source: World Review 2001, IMS Health


      In 2000, global pharmaceutical sales grew approximately 7% to reach US$317.2 billion, up from
US$295.9 billion in 1999. According to World Review 2001, IMS Health, “North America is by far the most
dynamic pharmaceutical market in the world”, with pharmaceutical sales in 2000 reaching US$152.8 billion
and representing more than 48% of the total global pharmaceutical sales and approximately 14% growth from
preceding year. Europe also showed growth of approximately 8% in 2000 to US$75.3 billion, becoming the
world’s second-largest pharmaceutical market. Japan was the third-largest pharmaceutical market, experiencing
year-on-year growth of approximately 3%. North America, Europe and Japan accounted for more than 88% in
aggregate of worldwide pharmaceutical consumption in 2000. Strong growth opportunities were also reflected
in the 10% increase in Asia (excluding Japan), Africa and Australia, with total pharmaceutical sales in 2000
reaching US$18.7 billion.




                                                    – 65 –
                                                INDUSTRY OVERVIEW


THE PROCESS OF DRUG RESEARCH AND DEVELOPMENT

     Drug discovery and development is a multi-disciplinary, complex and highly regulated process. The US
system of new drug approval, which aims to regulate drugs and related products in the world’s largest
pharmaceutical market, is perhaps the most rigorous in the world. The following chart gives the length of time
each key step of the drug discovery and development process takes and its success rate.


                   Pre-clinical                                                                                    Phase IIIb/IV
                     Testing                                 Clinical Trials                            Approval     Studies

                                                 Phase I       Phase II        Phase III

     Years            1 to 5                        1              2               3                      2.5

      Test          Laboratory         File      Usually       Usually          1,000 to        File                Additional
   Population       and animal       investi-    20 to 80        up to            3,000      new drug                  post
                     studies         gational    healthy       several           patient       appli-               marketing
                                    new drug    volunteers     hundred         volunteers     cation                  testing
                                      appli-                    patient                       at FDA                 required
                                      cation                  volunteers                                              by FDA
                                     at FDA

    Purpose          Assess                     Determine      Evaluate           Verify
                    safety and                  safety and     effective-       effective-
                    biological                   dosage           ness,           ness,
                     activity                                   look for         monitor
                                                                   side          adverse
                                                                 effects        reactions
                                                                               from long-
                                                                                term use

    Success            5,000                                                                               1
     Rate           compounds                                5 enter trials                             approved
                     evaluated


Source: Alliance Pharmaceutical Corporation, a pharmaceutical research and development company listed on Nasdaq.


      In summary, new medicines are developed as follows:

      Pre-clinical Testing – A pharmaceutical company conducts laboratory and animal studies to show
biological activities of the compounds against the targeted diseases. Those with biologically active structures,
or structures that allow interaction with the biological target, (usually referred to as “lead compounds”)
become potential candidates for further study. In the pre-clinical stage of drug development, laboratory tests
document the lead compounds’ biological activities, safety, toxicology and pharmacokinetic profile. Often
during this same stage of development, lead prioritization studies are conducted in animals (in vivo) and in
human cells in the test tube (in vitro) to compare various lead compounds and to predict pharmacokinetics,
including the absorption, distribution, metabolism and excretion (usually referred to as “ADME” in the
pharmaceutical industry) of the compounds in humans. These tests can take from one to five years.

       Investigational New Drug Application (“IND”) – After completing pre-clinical testing, the company
files an IND with the FDA to begin to test the drug in humans. The IND becomes effective if the FDA does not
disapprove it within 30 days. The IND shows results of previous experiments; how, where and by whom the
new studies will be conducted; the chemical structure of the compound; how it is thought to work in the body;



                                                             – 66 –
                                         INDUSTRY OVERVIEW


any toxic effects found in the animal studies; and how the compound is manufactured. In addition, the IND
must be reviewed and approved by an institutional review board where the studies will be conducted. An
institutional review board is an independent committee of physicians, community advocates and others that
ensures that a clinical trial is ethical and that the rights of study participants are protected.

      Clinical Trials, Phase I – These studies are designed to verify safety and tolerability of the candidate
drug in humans and typically take about a year. The tests involve about 20 to 80 normal, healthy volunteers
who take the investigational drug for short periods of time. Testing includes observation and careful
documentation of how the drug acts in the body, how it is absorbed, distributed, metabolized and excreted,
and the duration of its action.

      Clinical Trials, Phase II – These studies are designed to determine safety and effectiveness of the
drug in treating the condition and establish the minimum and maximum effective dose. Testing is conducted
with up to several hundred patients suffering from the condition the investigational drug is designed to treat.
Most Phase II clinical trial patients are randomly divided into groups, one of which receives the investigational
drug, one of which gets a placebo containing no medication, and sometimes a third which receives a current
standard treatment to which the new investigational drug will be compared. In addition, most Phase II clinical
studies are double-blinded, meaning that neither patients nor researchers evaluating the compound know who
is receiving the investigational drug or placebo.

      Clinical Trials, Phase III – This phase lasts about three years and usually involves 1,000 to 3,000
volunteer patients suffering from the condition the investigational drug treats. In Phase III clinical studies,
physicians monitor patients closely to determine efficacy and identify adverse reactions.

      New Drug Application (“NDA”) – Following the completion of all three phases of clinical trials, the
company analyzes all of the data and files an NDA with the FDA if the data successfully demonstrate safety
and effectiveness. The NDA must contain all of the scientific information that the company has collected
during the drug development process. The NDA must also present substantial evidence that the drug will have
the effect it is represented to have when people use it or under the conditions for which it is prescribed,
recommended or suggested in the labeling. By law, the FDA is allowed six months to review an NDA. In
almost all cases, the period between the first submission of an NDA and final FDA approval exceeds that limit.

     Approval – Once the FDA approves the NDA, the new medicine becomes available for physicians to
prescribe and can be marketed. The company must continue to submit periodic reports to the FDA, including
any cases of adverse reactions and appropriate quality-control records.

      Phase IIIb/IV Studies – Phase IIIb trials, which often begin before approval, may supplement or
complete earlier trials by providing additional safety data or they may test the approved drug for additional
safety data or they may test the approved drug for additional conditions for which it may prove useful. For
some medicines, the FDA requires additional studies (Phase IV) to expand testing of a proven drug to broader
patient populations and compare the long-term effectiveness and/or cost of the drug to other marketed drugs
available to treat the same condition. Some pharmaceutical companies may also conduct post-marketing
studies to test a marketed drug in new age groups or patient types. Some studies focus on previously
unknown side effects or related risk factors. As with all stages of drug development testing, the purpose is to
ensure the safety and effectiveness of marketed drugs.




                                                     – 67 –
                                          INDUSTRY OVERVIEW


      As indicated above, discovering and developing safe and effective new medicines is a long, difficult and
expensive process. According to Pharmaceutical Research and Manufacturers of America, only one in every
5,000 to 10,000 compounds screened eventually becomes an approved drug. It costs an average of US$500
million to discover and develop one new medicine, and it takes an average of 12 to 15 years to bring a new
medicine from the laboratory to the pharmacy shelf.

      The US has been leading the world in pharmaceutical innovation. Of the 152 major global drugs
launched between 1975 and 1994, nearly half originated in the US. In 1998, US pharmaceutical companies
are expected to have spent more than US$21 billion to discover and develop new medicines. It is believed
that pharmaceutical company research spending has nearly doubled every five years since 1970.

      The Directors consider that one of the crucial factors in successful development of a drug is the
understanding of human pharmacokinetics and pharmacodynamics, i.e. the studies of how the body handles the
drug over time and of the effect of the drug in relation to time, respectively. If a compound cannot reach the site
of action or cannot be absorbed, it cannot produce its effect. The Directors believe that the SimBioDAS™
technology will be able to accurately predict the absorption of drug compounds in humans and help shorten the
drug development timeline by a few months to more than a year and lower both the cost and risk of drug
development by facilitating early decisions on which drug candidates to bring forward for further development.

A traditional model for absorption prediction – Caco-2 cells

      The intestinal epithelium is a gatekeeper, i.e. it controls the entry of nutrients and xenobiotics (for
example, medicines). Knowledge of the absorption and metabolism of these substances at the intestinal level
is of particular importance, since oral administration is the preferred route of drug delivery. Therefore,
screening for intestinal permeability, or absorption, is important for drug development.

      Cell culture drug absorption models can mimic epithelial absorption barriers and are useful for
determining drug permeability and mechanisms of drug absorption. Caco-2 cells are the most popular cellular
model in studies on passage and transport of test compounds. Caco-2 cells, which were derived from human
colon cancer cells, possess many of the properties of the small intestine of humans and express in culture the
majority of the morphological and functional characteristics of small intestinal absorptive cells.

      Caco-2 cells grow as a monolayer and differentiate on a semi-permeable membrane. The complete
morphological and functional differentiation of Caco-2 cells requires approximately 21 days in standard
culture medium and involves many labour intensive steps, such as changing the media every other day and
rinsing the cells.

      In experiments, the Caco-2 cell monolayers are plated on transwells where the cell monolayer forms a
permeability barrier between two control medium. The test compound is then added on to one side and
samples of media are taken at different time intervals from the other side. By LC/MS (liquid chromatography
mass spectrometry) analysis, the samples collected allow determination of the cell monolayer permeability of
the test compound. These experiments can be handled manually or adapted to an automated system.




                                                      – 68 –
                                        INDUSTRY OVERVIEW


      Caco-2 cells have emerged as a suitable model for studying drug absorption that mimic the
physiological situation as the drug traverses only the epithelial layer. However, the predictions of absorption
in humans based on permeability data obtained with Caco-2 monolayers are not completely satisfactory.
Some of the disadvantages of using Caco-2 cells include: the cells have a tumoral origin; membranes from
them are not as permeable as normal small intestinal membranes; they sometimes give poor predictions of
drug compound absorbability; and inconsistent results may be obtained from different laboratories and even
within laboratories. For this reason, efforts have been made on continuous research and development for cell
culture or techniques for better prediction of intestinal absorption in humans.

TRADITIONAL CHINESE MEDICINE

      TCM is a comprehensive system of natural medicine that has diagnosed, treated and prevented illness
for well over 2000 years. The Chinese believe that health is achieved, and disease prevented, by maintaining
the body in a “balanced state”. They also state that daily activities should include mental as well as physical
tasks. TCM can be an effective remedy for diseases and ailments, and can also calm the mind, boost
immunity, and improve one’s quality of life.

       One of the major assumptions inherent in TCM is that disease is due to an internal imbalance of Yin
       and Yang         ; therefore disease can be treated by correcting the Yin-Yang imbalance, thereby
returning the body to a healthy state. Yin represents water, quiet, substance and night, whilst Yang represents
fire, noise, function and day. The body is a delicate balance of Yin and Yang. The strategy of TCM is to
restore harmony, or the Yin-Yang balance, within the body.

      TCM incorporates the use of natural medicinal plants (herbs), acupuncture, massage, nutrition,
meditation, and exercise. Herbal medicine is an accepted method of healing. Herbs assist the organ networks
within the body in the performance of their tasks. Some herbal formulas address ailments such as colds,
allergies, inflammation, or cramps with dramatic and immediate results, while others fortify body reserves
over time. Chinese herbs are usually combined in formulas to enhance their properties and actions. Formulas
are available in a variety of forms: crude herbs to be boiled into tea, liquid bottled extracts, ground herbs
packaged in pills, and powders. Herbs, more like foods than drugs, can supplement a person’s diet and fortify
his or her constitution as well as prevent or remedy ailments.

      The clinical efficacy of Chinese herbal medicine in the prevention and treatment of diseases has been
confirmed by its widespread usage over the past thousands of years, particularly in China. As a result, TCM is
gaining more acceptance by the western community and is growing in popularity outside China. The Ministry
of Public Health of the PRC noted that, among all of the foreign students who go to China to study natural
sciences, the ones who study TCM make up the largest proportion.

       The World Health Organization has set up seven TCM co-operation centers in the PRC, while the PRC
has built international training centers for TCM in Beijing, Shanghai, Guangzhou and other large Chinese
cities. Statistics from the Ministry of Public Health of the PRC                            show that the
export volume of TCM reached US$500 million, and that TCM is sold to more than 130 countries and regions.

     Despite the long history of traditional use of TCM, the Directors consider that one of the major
drawbacks of TCM is the lack of consistency in and standardization of quality. In mid 2001, the State
Pharmaceutical Supervision and Administration Bureau of the PRC



                                                    – 69 –
                                         INDUSTRY OVERVIEW


             published the first quarter drug testing report which indicated that Chinese herbal medicine has the
highest failure rate of 25%, among all drug products. Samples drawn from products of TCM companies,
including those of certain large and established enterprises, also revealed a failure rate of 7.5%. This
indicates that many TCM are of low or inconsistent quality, with little or no therapeutic effect. Even if active
ingredients are identified in these TCM products, their quantities may be unknown and it is uncertain if the
active ingredients are in a form that can be dissolved or absorbed into the body. Furthermore, the California
State Department of Health Services studies found nearly one-third of the Asian products tested contained
elements not listed on labels. In view of the fact that the public, in general, wants more scientifically reliable
information about alternative and complementary medicine, the Directors consider that the modernization of
TCM is necessary so as to establish the efficacy and safety of proprietary Chinese medicine products in
scientific terms, thereby gaining public confidence in applying TCM.

LAWS AND REGULATIONS ON THE CHINESE MEDICINE INDUSTRY IN HONG KONG

      Before the coming into effect of the Chinese Medicine Ordinance (Chapter 549 of the Laws of Hong
Kong), there is no specific legislation governing the sales, registration or prescription of Chinese medicine.
The Pharmacy and Poisons Ordinance (Chapter 138 of the Laws of Hong Kong) is expressly stated to be not
applicable to the sale, manufacturing, dispensing or compounding of traditional Chinese medicine as listed in
the Chinese Herbal Materia Medica or which are made from herbs customarily used by the Chinese. The
‘control’ of Chinese medicine only rests on some related ordinances, such as the Animals and Plants
(Protection of Endangered Species) Ordinance (Chapter 187 of the Laws of Hong Kong), the Dangerous
Drugs Ordinance (Chapter 134 of the Laws of Hong Kong) and the Public Health and Municipal Services
Ordinance (Chapter 132 of the Laws of Hong Kong).

      The Chinese Medicine Ordinance was passed in July 1999 and will be implemented in phases
commencing from 2000. Pursuant to the Chinese Medicine Ordinance, a Chinese Medicine Council of Hong
Kong, comprising the Chinese Medicine Practitioners Board and the Chinese Medicines Board, was
established to implement various control measures through a system of registration and licensing.

      Under the Chinese Medicine Ordinance, no person shall be allowed to sell or distribute Chinese herbal
medicine as specified in the Chinese Medicine Ordinance without a license. In addition, proprietary Chinese
medicine will have to be registered before it can be sold in Hong Kong and a wholesale license shall be
required for the wholesale of proprietary Chinese medicine.

      The Chinese Medicine Ordinance will also amend the provisions of the Pharmacy and Poisons
Ordinance such that the registration requirements under the Pharmacy and Poisons Ordinance shall apply to
pharmaceutical products containing any Chinese herbal medicines or proprietary Chinese medicines or other
materials of herbal, animal or mineral origin customarily used by the Chinese for medicinal purposes as active
ingredients.

       The Public Health and Municipal Services Ordinance (Chapter 132 of the Laws of Hong Kong) provides
that it is an offence to sell any drug for use by man which is unfit for that purpose or to falsely label and/or
advertise the food or drugs sold by him. The Public Health and Municipal Services Ordinance and the
subsidiary regulations also contain provisions covering general protection for food purchasers, offences in
connection with sale of adulterated food, composition of food and food hygiene. Under the provisions of the




                                                     – 70 –
                                        INDUSTRY OVERVIEW


Chinese Medicine Ordinance, the definition for “drug” in the Public Health and Municipal Services Ordinance
will be amended by including “any medicine, Chinese herbal medicine or proprietary Chinese medicine for
internal or external use by man”.

       The Undesirable Medical Advertisements Ordinance (Chapter 231 of the Laws of Hong Kong) provides
that no person shall publish any advertisement likely to lead to the use of any medicine for the purpose of
treating human beings for, or preventing human beings from, contracting any disease or condition specified in
that ordinance. Under the provisions of the Chinese Medicine Ordinance, the definition for “medicine” will be
amended by including “Chinese herbal medicine and proprietary Chinese medicine”.

Statutory requirements

     The Group has obtained legal opinion that there is no law at present in Hong Kong which prevents the
use and culture of human cells lawfully acquired in research and development and to predict drug candidate
absorbability/elimination in humans as the SimBioDASTM technology does.

      The registration and licensing requirements under the Chinese Medicine Ordinance currently are not
applicable to the Group as the relevant provisions have not yet come into force and the Group has not yet
launched any products in Hong Kong.

      In the future, when the Chinese Medicine Ordinance comes into effect and the Group is ready to launch
its Chinese herbal medicine or proprietary Chinese medicines products in Hong Kong (as food supplements
and not as pharmaceutical products), the Group will be required to comply with the requirements of the
relevant provisions of the Chinese Medicine Ordinance, the Public Health and Municipal Services Ordinance
and the Undesirable Medical Advertisements Ordinance.

(1)   Registration of proprietary Chinese medicines

       When Part XIII of the Chinese Medicine Ordinance comes into force and the Group is ready to launch
its proprietary Chinese medicines products in Hong Kong (as food supplements and not as pharmaceutical
products), the Group will have to apply to the Chinese Medicines Board for the registration of its proprietary
Chinese medicines. In determining such application, the Chinese Medicines Board shall take into
consideration the following factors:–

      (a)   the safety of the proprietary Chinese medicine;

      (b)   the quality of the proprietary Chinese medicine according to the specification and the method or
            proposed method of manufacture of the medicine, and the provisions proposed for securing that
            medicine as sold or supplied will be of that quality; and

      (c)   the efficacy of the proprietary Chinese medicine for the purposes for which the medicine is
            proposed to be administered.




                                                    – 71 –
                                        INDUSTRY OVERVIEW


(2)   Licensing of Chinese medicine traders

     When Part XII and XIV of the Chinese Medicine Ordinance comes into force and the Group is ready to
launch its Chinese herbal medicine or proprietary Chinese medicines products in Hong Kong (as food
supplements and not as pharmaceutical products), the Group will have to apply to the Chinese Medicines
Board for the relevant license.

(3)   Labelling and packaging of proprietary Chinese medicine

     The Group will also have to comply with the regulations regarding the labeling, packaging, import,
export, record-keeping, processing, manufacturing and disposal of its proprietary Chinese medicines.

NUTRACEUTICAL AND FUNCTIONAL FOOD MARKET

      A nutraceutical is a food or naturally occurring food supplement that is believed to have a beneficial
effect on human health. Today, consumers are increasingly using non-pharmaceutical options such as
nutraceuticals and functional foods to supplement and even treat diseases. Current world consumption of
nutraceuticals and functional foods is estimated to be over US$45 billion annually and is expected to reach
US$330 billion by 2010. The Chairman of the Foundation for Innovation in Medicine estimated that
approximately 70% of practising physicians now recommend dietary supplements. He also estimated the
potential market for nutraceuticals at US$250 billion, or half of the food market and 2.5 times the prescription
pharmaceutical and over-the-counter markets combined. It is believed that consumers’ desire to slow aging,
prevent disease, and optimize health underpin the rapid growth in the nutrition industry, prompting
mainstream food and pharmaceutical corporations to consider launching nutraceutical products.

       Although the potential for development of nutraceuticals and functional foods is enormous, competition
is keen. The pharmaceutical companies with broad resources in related areas are able to take advantages of
shifts in consumer behavior and the subsequent potential in nutraceuticals and functional foods. By 2010, it is
predicted that the pharmaceutical and nutraceutical industries will converge so that both will offer various
products for the same ailment. The Directors consider that a key to success in bringing competitive
nutraceuticals and functional foods into the market is establishing consumer satisfaction and confidence by
providing scientifically reliable information on these products, such as certified quantities of active
ingredients, measured absorbability, and/or endorsements from recognized health associations. Brand name,
on the other hand, is also of paramount importance. Thus, the ability to ally with major multinational
pharmaceutical companies in co-development towards FDA-approved drugs or co-marketing nutraceuticals
and functional food formulations as drugs is another key to success.

APPLICABLE ALBERTA AND FEDERAL CANADIAN LAWS AND REGULATIONS

      The enforcement and regulation necessary to support and promote the protection, enhancement and
wise use of the environment and to ensure a sustainable development based on an ecologically efficient use
of natural, social and economic resources, is achieved by compliance with the Environmental Protection and
Enhancement Act (Alberta) (“EPEA”) which incorporates its predecessor legislation, the Hazardous Chemicals
Act (Alberta), the Agricultural Chemicals Act (Alberta), the Clean Water Act (Alberta) and the Clear Air Act
(Alberta). The EPEA governs the requisite notices, assessments and approvals associated with various
substances and activities which may be harmful to the environment and implements enforcement,
administration and control measures through a system of registration, approvals, notices and orders.

                                                    – 72 –
                                        INDUSTRY OVERVIEW


      EPEA and its accompanying Regulations are comprehensive in their scope and constitute the primary
legislation in Alberta governing the protection of the environment. Alberta Environment is the Province of
Alberta’s governmental department that is responsible for administering and enforcing EPEA. The primary
focus of Alberta Environment is education and prevention in reducing and preventing non-compliance with
EPEA. EPEA provides a variety of methods in which Alberta Environment can respond to non-compliance of
the EPEA by a third party.

      Warning letters can be issued by Alberta Environment as a deterrent, tickets may also be issued by
Alberta Environment to third parties, and remedial orders can also be utilized by Alberta Environment to
compel a third party to remedy a contravention and, if appropriate, to require certain actions to be taken by
that third party to prevent future contraventions of EPEA. Additionally, EPEA provides that enforcement
orders can be issued (whether or not the third party has been charged or convicted in respect of a
contravention), which order may result in the suspension of an activity, either permanent or for a specified
period, or the requirement that the third party complies with certain conditions in the order to effect
compliance with EPEA. Serious non-compliance with EPEA can result in charges being laid against the third
party and convictions being obtained which typically result in fines being imposed at the time of sentencing by
the Courts. Notwithstanding that offenders can be prosecuted with offences and charged with fines under
EPEA, generally, the practice of Alberta Environment is to issue a remedial order requiring the offender to
remedy the contravention at the offender’s own expense within a reasonable period of time. Such expenses
can become quite significant depending on the level of environmental contamination that has occurred as a
result of the offender’s contravention. Typically, as long as the offender complies with the remedial order,
Alberta Environment will not prosecute the offender.

    The maximum amount of statutory fines that can be imposed against a corporation for contravening the
EPEA ranges from CAN$1,000 to CAN$1,000,000 depending on the seriousness of the offence.

      It should be noted that for many of the offence sections, a person will not be convicted if that person
establishes, on a balance of probabilities, that the person took all reasonable steps to prevent its commission.
If a corporation commits an offence under EPEA, any officer, director or agent of the corporation who
directed, authorized, assented to acquiesced in or participated in the commission of the offence, is guilty of
the offence and is liable to the punishment provided for the offence, whether or not the corporation has been
prosecuted for or convicted of the offence. In the event a person is convicted of an offence under EPEA, in
addition to any statutory penalties that may be imposed under EPEA, a Court may also:

     (a)   make an order prohibiting the offender from repeating the offence, directing the offender to take
           action to remedy or prevent any harm to the environment, or directing the offender to post a bond
           or pay money into Court that will ensure compliance with any order made;

     (b)   make an order, at the time the sentence is imposed and on the application of an aggrieved
           person, requiring the offender to pay to the aggrieved person an amount by way of satisfaction or
           compensation for loss of or damage to property suffered by that aggrieved person as a result of
           the commission of the offence; and/or

     (c)   make an order requiring the offender to pay a fine in an amount equal to the Court’s estimation of
           the amount of monetary benefits that accrued to the offender as a result of the commission of the
           offence.



                                                    – 73 –
                                            INDUSTRY OVERVIEW


      However, if Alberta Environment directs a person to pay an administrative penalty as a result of a
contravention of EPEA, the payment of the administrative penalty in respect of the contravention will prevent
that person from being charged under EPEA with an offence in respect of that contravention. Administrative
penalties can be ordered in respect of many of the offence sections of EPEA. An administrative penalty may
be increased or decreased from the base penalty (ranging from CAN$1,000 to CAN$5,000 for each day that
the contravention occurs or continues) based on factors such as the importance of compliance with the
regulatory scheme, the degree of willfulness or negligence by the person involved in the contravention,
whether or not there was any mitigation of the consequences of the contravention, whether or not the person
who receives the notice of administrative penalty has a history of non-compliance, and whether or not the
person who received the notice of the administrative penalty derived any economic benefit from the
contravention.

      Workplace and worker safety is governed by the Occupational Health and Safety Act (Alberta)
(“OHSA”). The OHSA provides that an employer is to ensure, as far as it is reasonably practicable, the health
and safety of an employer’s workers and those present at the work site of an employer and that the
employer’s workers are aware of their duties and responsibilities under the OHSA and its regulations.
Violation of the safety of a worker may lead to a stop work order, removal of the worker from the site or a
remedial order to correct the unsafe practice or situation. Regulation and enforcement of such orders are
done through a system of reviews, assessments, prohibitions and fines, up to and including possible
imprisonment.

       The Public Health Act (Alberta) (“PHA”) deals with communicable diseases in humans and quarantine
measures. The PHA provides that an officer appointed under the PHA may inspect a public place to determine
if there is a condition that is or that might become injurious or dangerous to the public health, or that might
hinder in any manner the prevention or suppression of disease. Such inspection under the PHA can include
the review of premises, books and records, reasonable oral or written inquiries of any person, inspection and
sampling, or the taking of tests, photographs and recordings.

     The Animal Protection Act (Alberta) (“APA”) provides that no person shall cause distress, or continue to
permit distress to be caused to, an animal they own or are ordinarily in charge of, unless such distress results
from an activity carried on in accordance with reasonable and generally accepted practices of animal
management, husbandry or slaughter. A person who contravenes the APA will be guilty of an offence and
subject to fines or restraining orders. The definition of distress is stated as:

     s.1(2) An animal is in distress if it is:

           (a)    deprived of adequate food, water, care or shelter,

           (b)    injured, sick, in pain or suffering, or

           (c)    abused or subjected to undue hardship, privation or neglect.




                                                       – 74 –
                                        INDUSTRY OVERVIEW


     Section 446 of the federal Criminal Code, provides that it is a crime to:

     (a)   willfully cause or, as an owner, to wilfully permit to be caused unnecessary pain, suffering or injury
           to an animal or a bird;
     (b)   by wilful neglect cause damage or injury to animals or birds while they are being driven or
           conveyed;
     (c)   as the owner or the person having custody or control of a domestic animal or a bird or an animal
           or a bird wild by nature that is in captivity, abandons it in distress or wilfully neglects or fails to
           provide suitable and adequate food, water, shelter and care for it;
     (d)   in any manner encourage, aid or assist at the fighting or baiting of animals or birds;
     (e)   wilfully, without reasonable excuse, administer a poisonous or an injurious drug or substance to a
           domestic animal or bird or an animal or a bird wild by nature that is kept in captivity or, being the
           owner of such an animal or a bird, wilfully permit a poisonous or an injurious drug or substance to
           be administered to it;
     (f)   promote, arrange, conduct, assist in, receive money for or take part in any meeting, competition,
           exhibition, pastime, practice, display or event at or in the course of which captive birds are
           liberated by hand, trap, contrivance or any other means for the purpose of being shot when they
           are liberated; or
     (g)   as the owner, occupier or person in charge of any premises, permit the premises or any part
           thereof to be used for a purpose mentioned in paragraph (f).

      Under the federal Human Pathogens Importation Regulations promulgated under the federal Department
of Health Act, no person shall import a “human pathogen” unless a valid permit is obtained, proper notification
prior to shipping has been given to suppliers, and that all applicable notification and safety handling
procedures have been adopted as specified in the regulation. The definition of “human pathogen” is stated as
an infectious substance, the toxin of an infectious substance or any diagnostic specimen or other material
that contains, or that its importer has reasonable grounds to believe contains, an infectious substance or the
toxin of an infectious substance. The application of the provisions applicable to importation are facilitated
through a system of application procedures and permit issuance.

      The federal Health of Animals Act and the Health of Animals Regulations govern diseases and toxic
substances that may affect animals or that may be transmitted by animals to persons, including the protection
of animals. More specifically, the legislation regulates the importation, use, and disposal of any “animal by-
product”, “animal food”, “animal pathogen”, “manure” or “veterinary biologic” as defined therein and also
stipulate that they cannot be imported into Canada without proper authorization, license or permit.

      The federal Canadian Environmental Protection Act (“CEPA”) and the New Substances Notification
Regulations promulgated under the CEPA, provide that notification and information regarding the manufacture
or importation of various “substances” is required to be given to Environment Canada, if such manufacturing
or importation exceeds certain quantity levels. The “substances” of concern are those listed on the Non-
domestic Substances List (“NDSL”) and the specified quantity levels are provided for under the regulation. It
is an offence for a person to import or manufacture a “substance” which is on the NDSL in excess of the
stipulated quantities without providing the required information and notice.




                                                     – 75 –
                                         INDUSTRY OVERVIEW


      The Workers’ Compensation Act (Alberta) (“WCA”) and associated regulations, provide a mandatory
basis of insurance coverage to employees for injuries sustained at work, but only for selected industries. The
WCA establishes a regime of administration, procedure and governance to the application of claims made
under the WCA, while the regulations provide a list of industries which are exempt from having to maintain the
mandatory workers’ compensation accounts. Businesses involved solely in the operation of operating
laboratories, including analytical, bacteriological, clinical, medical, metallurgical, petroleum, prescription,
research, testing, and x-ray and/or the provision of research services are exempt from having to maintain a
workers’ compensation account.

      Under the federal Hazardous Products Act (“HPA”), no person shall advertise, sell or import a
hazardous or prohibited product. No person shall advertise, sell or import a restricted product, unless having
obtained authorization to do so pursuant to the regulations promulgated under the HPA. The schedules to the
HPA define the substances which comprise a prohibited or restricted product. There are mandatory disclosure
requirements regarding the composition of controlled products specified under the HPA, prior to their
importation. Additionally, an exemption from mandatory disclosure may be obtained pursuant to the
Hazardous Material Information Review Act (“HMIRA”), if it is determined that confidential business
information would be revealed from having to disclose. It is an offence to violate any of the provisions of the
HPA or the HMIRA, or any regulation promulgated thereunder.

      The federal Transportation of Dangerous Goods Act (“TDGA”) is an act which promotes public safety in
the transportation of dangerous goods and provides that no person shall handle, offer for transport, transport
or import any “dangerous goods” unless all applicable handling provisions, safety requirements and
documentation are complied with. No person shall display a safety mark on a good for transportation which is
misleading to the presence of danger, nature of danger or compliance with any safety standard. A system of
handling procedures, informational disclosure and inspection provisions are provided to ensure compliance
with the TDGA.

Statutory requirements

       Kinetana Inc., KGI and Kinetana Innovations Inc. (the “Alberta Group”) have obtained legal opinions
relating to the laws of the Province of Alberta and applicable federal laws in force in Alberta in connection with
the business and services of the Alberta Group, subject to certain assumptions, reservations and
qualifications and relying upon certain representations and statements made and declared by an officer of the
Alberta Group as more particularly expressed therein, that:

      1.    There is no law in Alberta nor is there any law of Canada which is in force in Alberta that prevents
            the use, including the reproduction, culture and the licensing of, human intestinal cell lines, animal
            intestinal cell lines and fresh animal liver cells in research and development and, in particular, in
            the development of the SimBioDAS™ technology by the Alberta Group.

      2.    There is no law in Alberta nor is there any law of Canada which is in force in Alberta that prevents
            the Alberta Group from providing, to third parties, in Alberta in vitro screening services for
            predicting intestinal absorption of compounds and drug candidates in humans and animals using
            the SimBioDAS™ technology. As well, as long as the Alberta Group is providing in vitro screening
            services in Alberta and does so in accordance with the methods and procedures stipulated in Dr.




                                                     – 76 –
                                 INDUSTRY OVERVIEW


     Tam’s statutory declaration, the Alberta Group will not be in violation of any law or regulation
     relating to the protection of human health and safety, the environment or hazardous or toxic
     substances or wastes, pollutants or contaminants in force in Alberta as at the date of such
     opinion.

3.   There are no current activities or outstanding priority claims in Alberta against the Alberta Group
     as employers pursuant to the provisions of the Employment Standards Code (Alberta) as at 25
     January 2002 nor any orders against the Alberta Group pursuant to the provisions of the
     Occupational Health and Safety Act (Alberta) as at 5 February 2002.

4.   The Alberta Group is currently not subject to any charges under: s.446 of the federal Criminal
     Code, s.12 of the Animal Protection Act (Alberta), s.28(1) of the federal Hazardous Products Act,
     s.33 of the federal Transportation of Dangerous Goods Act or s.49(1) of the federal Hazardous
     Materials Information Review Act.

5.   The Alberta Group is currently exempt from providing any information to the Minister of
     Environment pursuant to s.81(1), (2), (3) and (4) of the federal Canadian Environmental
     Protection Act based on the fact that the Alberta Group has confirmed it does not currently import
     or manufacture any “substance” as defined in that Act in a quantity that exceeds the quantity that
     first triggers a requirement to provide information under the federal New Substances Notification
     Regulations.

6.   As at 25 January 2002, there have been no enforcement actions, ticket prosecutions,
     administrative penalties, warnings, enforcement orders, enforcement orders concerning waste,
     environmental protection orders, chemical control orders, water quality control orders or stop
     orders issued against the Alberta Group in the conduct of their businesses as they are now being
     conducted pursuant to the Environmental Protection and Enhancement Act (Alberta) and its
     predecessor legislation, the Hazardous Chemicals Act (Alberta), the Agricultural Chemicals Act
     (Alberta), the Clean Water Act (Alberta) and the Clear Air Act (Alberta), nor, as at 21 February
     2002, any environmental concerns recorded by the Capital Health Authority, Environmental
     Health, pursuant to the Public Health Act (Alberta) regarding Plan 8722619, Block 1, Lot 6 and
     Plan 8120859, Block 2, Lot 1, being the lands on which Kinetana Inc. carries on business from its
     leased premises.

7.   As at 2 March 2002, Kinetana Innovations Inc. has filed all corporate income tax returns required
     to be filed with Canada Customs and Revenue Agency.

8.   As at 6 March 2002, KGI has filed all corporate income tax returns required to be filed with
     Canada Customs and Revenue Agency and as at 21 March 2002 its corporate tax account has no
     arrears.

9.   As at 2 March 2002, no goods and services taxes arrears or source deduction remittance arrears
     are recorded by Canada Customs and Revenue Agency in respect of Kinetana Inc., and as at 4
     April 2002 Kinetana Inc. has filed all corporate tax returns required to be filed with Canada
     Customs and Revenue Agency.




                                             – 77 –
                                        INDUSTRY OVERVIEW


     10.   The Alberta Group is currently not in contravention of s.19 of the federal Human Pathogens
           Importation Regulations based on the fact that the Alberta Group currently does not import nor
           has ever imported any “human pathogen” as defined in the federal Human Pathogens Importation
           Regulations promulgated under the federal Department of Health Act.

     11.   The Alberta Group is currently not in contravention of s.65 of the federal Health of Animals Act
           based on the fact that the Alberta Group currently does not import nor has ever imported any
           “animal by-product”, “animal food”, “animal pathogen”, “animal product”, “manure”, or “veterinary
           biologic” as defined in the federal Health of Animals Act or the federal Health of Animals
           Regulations promulgated under the federal Health of Animals Act.

     12.   The Alberta Group is not currently subject to the application of the Workers’ Compensation Act
           (Alberta) based on the fact that all current activities carried on by the Alberta Group fall within the
           industries of “operation of laboratories, including analytical, bacteriological, clinical, medical,
           metallurgical, petroleum, prescription, research, testing and x-ray” and “provision of research
           services” as described in the Workers’ Compensation Regulation (Alberta) promulgated under the
           Workers’ Compensation Act (Alberta).

SUMMARY OF PROPOSED CANADIAN NATURAL HEALTH PRODUCTS REGULATIONS

      Currently in Canada, vitamins and minerals, herbal products, homeopathic preparations and natural
health products (“NHPs”) are regulated inconsistently as either a food or a drug under the Food and Drugs
Act (Canada) (the “Act”). The Act sets forth a regulatory regime in Canada for foods, drugs, cosmetics and
medical devices, including detailed requirements relating to the composition, manufacturing, labelling,
packaging, safety and sale of foods, drugs, cosmetics and medical devices. Under the Act, it is stipulated
that:

     “‘food’ includes any article manufactured, sold or represented for use as food or drink for human beings,
chewing gum, and any ingredient that may be mixed with food for any purpose whatever;”

     “‘drug’ includes any substance or mixture of substances manufactured, sold or represented for use in

     (a)   the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical
           state, or its symptoms, in human beings or animals,

     (b)   restoring, correcting or modifying organic functions in human beings or animals, or

     (c)   disinfection in premises in which food is manufactured, prepared or kept;”

      Generally, food products are not subject to a pre-market approval or licensing system under the Act so
long as no direct or indirect, explicit or implied health, safety or efficacy claims are made and there are no
such claims existing about the product. Drugs require pre-clearance and issuance of authority to sell the drug
in the form of a Notice of Compliance (in the case of new drugs which have not been sold before in Canada)
and a drug identification number (in the case of all drugs).




                                                     – 78 –
                                        INDUSTRY OVERVIEW


      The Department of Health (Canada) has proposed new regulations under the Act entitled Natural Health
Products Regulations (the “Proposed Regulations”) to regulate the manufacture, packaging, labelling,
storage, importation, distribution and sale of all products falling within the definition of a NHP.

     Under the Proposed Regulations, NHPs will be considered a subset of drugs under the Act. The
Proposed Regulations will place requirements on persons who sell NHPs, namely manufacturers, distributors,
importers, packagers and labellers. The main components of the Proposed Regulations are definitions,
product licensing, site licensing, good manufacturing practices, clinical trials, and labelling and packaging.
The Proposed Regulations also provide for, in general, a two-year transition period for all NHPs to come into
compliance with the new requirements.

      The Proposed Regulations have been published in the Canada Gazette Part I and there is a ninety-day
period for public consultation starting from 13 December 2001. The government has stated that it expects to
publish the final form of the Proposed Regulations in the Canada Gazette Part II by the end of the year 2002,
upon which the Proposed Regulations would take effect.

      The following is a summary of the Proposed Regulations in their currently published form. The
Proposed Regulations may be subject to amendment, modification, revocation or other changes, as a result
of public consultation or otherwise, and there is no assurance that the Proposed Regulations will come into
force in their current form or at all.

(1)   Proposed definition of a NHP

       “‘NHP’ is defined to mean ‘a substance set out in Schedule 1 or a combination of substances in which
all the medicinal ingredients are substances set out in Schedule 1, a homeopathic preparation or a traditional
medicine, that is manufactured, sold or represented for use in

      (a)   the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical
            state or its symptoms in humans;

      (b)   restoring or correcting organic functions in humans; or

      (c)   maintaining or promoting health or otherwise modifying organic functions in humans.’

       However, a NHP does not include a substance set out in Schedule 2 or any combination of substances
that includes a substance set out in Schedule 2.”




                                                    – 79 –
                                           INDUSTRY OVERVIEW


Schedule 1 – Included NHP substances:

Item   Substances

1.     A plant or a plant material, an alga, a fungus or a non-human animal material

2.     An extract or isolate of a substance described in item 1, the primary molecular structure of which is
       identical to that which it had prior to its extraction or isolation

3.     Any of the following vitamins, their salts or their derivatives:
       biotin
       folic acid
       niacin
       pantothenic acid
       vitamin A
       vitamin B1 or thiamine
       vitamin B2 or riboflavin
       vitamin B6 or pyridoxine
       vitamin B12 or cyanocobalamin
       vitamin C or ascorbic acid
       vitamin D
       vitamin E
       vitamin K

4.     An amino acid or any of its salts

5.     An essential fatty acid

6.     A synthetic duplicate of a substance described in any of items 2 to 5

7.     A mineral

8.     A probiotic

Schedule 2 - Excluded natural health product substances:

Item   Substances

1      An antibiotic prepared from a micro-organism or a synthetic duplicate of that antibiotic

2.     A substance set out in Schedule C radiopharmaceuticals or D biologics to the Act

3.     A substance regulated under the Tobacco Act

4.     A substance intended to be administered by injection




                                                      – 80 –
                                         INDUSTRY OVERVIEW


      The Canadian Natural Health Products Directorate considers that certain herbs, whether sold in a
dosage form such as a capsule, or in loose or bulk form, fall within the NHP definition given their known
physiologic or pharmacological properties. Similarly, the Canadian Food Directorate considers that such herbs
are not appropriate to be sold as foods, having no recognized food purpose. An administrative list setting out
these herbs will be prepared by both Directorates and will be made available on the Natural Health Products
Directorate website, at http://www.hc-sc.gc.ca/hpb/onhp.

(2)   Product licensing

     Under the Proposed Regulations, each NHP sold in Canada will go through an assessment before it is
authorized for sale by the Minister of Health. Section 4(1) of the Proposed Regulations provides:

      “(1) Subject to subsections (2) and (3), no person shall sell a natural health product unless a product
licence is issued in respect of that natural health product.”

(3)   Site licensing

    A site licence will be required for importers, distributors, manufacturers, packagers and labellers of
NHPs. Section 20 of the Proposed Regulations provides:

     “(1) Subject to subsection (2), no person shall manufacture, package, label or import a natural health
product for sale or distribute a natural health product unless

      (a)   the person holds a site licence;

      (b)   the person conducts the activity in accordance with the requirements set out in Part 3 Good
            Manufacturing Practices; and

      (c)   if the person is importing a natural health product in dosage form for sale, the person has a
            representative in Canada who is responsible for the sale of the natural health product.”

      One of the pre-requisites that must be met before a site licence is issued is that GMPs are employed.

(4)   GMPs

     The Proposed Regulations indicate that no person shall sell an NHP unless it has been manufactured,
packaged, labelled and stored in accordance with the GMPs. The provisions cover: specifications (product),
premises, equipment, personnel, sanitation program, operations, quality assurance, stability, records, sterile
products, lot or batch samples, and recall reporting. Section 33 of the Proposed Regulations provides:

      “(1) Subject to subsection (2), no person shall sell a natural health product unless it is manufactured,
           packaged, labelled, imported, distributed and stored, as the case may be, in accordance with this
           Part.




                                                   – 81 –
                                         INDUSTRY OVERVIEW


      (2)   A person may sell a natural health product that is manufactured, packaged, labelled, imported,
            distributed and stored, as the case may be, in accordance with requirements that are equivalent
            to those set out in this Part if the natural health product is imported.”

(5)   Clinical trials

     The Proposed Regulations would establish a means of conducting human clinical trials for NHPs
without a long history of traditional use or to obtain evidence to support new claims.

      Section 56 of the Proposed Regulations provides:

     “(1) Despite section 4 and subject to subsection (2), no person shall sell or import a natural health
product for the purposes of a clinical trial unless

      (a)   the person is authorized under this Part;

      (b)   the person complies with this Part and section C.01.064 of the Food and Drug Regulations; and

      (c)   if the natural health product is to be imported, the person has a representative in Canada who is
            responsible for the sale of the natural health product.”

     The Proposed Regulations further provide that clinical trials with NHPs must be conducted in
accordance with generally accepted principles of good clinical practice.

(6)   Labelling and packaging

      Section 75 of the Proposed Regulations provides:

      “(1) No person shall sell a natural health product unless it is labelled and packaged in accordance with
these Regulations.

       (2) Despite subsection (1), a person may sell a natural health product that is not labelled and packaged
in accordance with these Regulations if the sale is pursuant to a prescription or is to a manufacturer or
distributor.”

(7)   Licensing of natural health products

       The Company has obtained a legal opinion dated the date of this prospectus relating to the federal laws
of Canada in connection with the proposed sale in Canada of Gingko biloba, Echinacea, St. John’s Wort,
Garlic, Silymarin and Soy (in this section, hereinafter collectively referred to as the “Kinetana Products”) that,
based on and subject to certain assumptions, reservations and qualifications, and relying upon certain
representations and statements made and certified by an officer of the Company as more particularly
described below, the better view is that, under the federal laws of Canada in force on the date hereof, if the
Kinetana Products were being sold on the date hereof they would be regulated in Canada as foods under the
Act provided that there are no direct or indirect, explicit or implied health, safety or efficacy claims made or
existing about the Kinetana Products.



                                                     – 82 –
                                         INDUSTRY OVERVIEW


     The foregoing opinion is based in part on a statutory declaration of Dr. Tam, the President and Chief
Executive Officer of the Company, as to certain matters, including the following:

     (a)   Each of the Kinetana Products is and will be a plant or plant material. None of the Kinetana
           Products is or will be, or includes or will include, an antibiotic prepared from a micro-organism, a
           substance intended for injection, a tobacco product, a radiopharmaceutical or a biologic. None of
           the Kinetana Products has a narrow margin of safety.

     (b)   The Group does not and will not grow any of the Kinetana Products or any raw materials for any
           of the Kinetana Products. The Group does not and will not manufacture any of the Kinetana
           Products. The Group will commission a third party or parties to grow the raw materials for the
           Kinetana Products and manufacture the Kinetana Products.

     (c)   The Kinetana Products are not and will not be, and do not and will not contain: anything that is
           injurious or potentially injurious, directly or indirectly, to plants or to products or to by-products of
           plants; or a biological obstacle to the control of pests.

     (d)   The Kinetana Products will be sold at retail sale by third party retailers and are not and will not be
           sold at retail sale directly by the Group.

     (e)   None of the Kinetana Products is or will be a vegetable or fruit product.

     (f)   No direct or indirect, explicit or implied health, safety or efficacy claims will be made for the
           Kinetana Products in the course of manufacturing, selling or promoting the Kinetana Products and
           no such claims are or will be existing.

     (g)   No claims that the Kinetana Products are organic will be made.

     (h)   None of the Kinetana Products will be: (i) manufactured, prepared, preserved or packaged by a
           process that has not been previously applied to that product and which causes the product to
           undergo a major change; or (ii) derived from a plant, animal or micro-organism that has been
           genetically modified.

      The foregoing opinion expresses a better view with respect to the sale of the Kinetana Products under
the federal laws of Canada in force on the date hereof. However, there can be no assurance that Canadian
food and drug regulatory authorities will not take a differing view that the Kinetana Products are drugs or
should be regulated as drugs under applicable Canadian laws, based on the activities of the Group or other
factors, or that such a differing view will not ultimately be successful in a court or other adjudicative or
regulatory proceeding. In such circumstances, the Kinetana Products may be required to be regulated as
drugs and not foods under applicable Canadian laws.

      When the Proposed Regulations come into force and the Group is ready to launch the Kinetana
Products in Canada as NHPs and not as pharmaceutical products, the Group will have to apply to the
Canadian Minister of Health for product and site licenses. As part of such process it will be required to
provide information that supports the safety and efficacy of the NHP when it is used in accordance with the
recommended conditions of use.



                                                     – 83 –
                             GENERAL OVERVIEW OF THE GROUP


INTRODUCTION

      The Group was founded in 1987 with the incorporation of Kinetana Inc. as a consulting company. In
March 1998, KGI, now a wholly-owned subsidiary of the Company, was founded to engage in biopharmaceutical
technology development. The core competency of the Group is pharmacokinetics and pharmacodynamics
(commonly referred to in the pharmaceutical industry as “PK/PD”) and the Group’s mission is to accelerate
the discovery and development of synthetic drugs and natural products, including TCM.

       Understanding PK/PD is crucial to the success of a drug: if a potent compound, or compound with
activities, cannot reach the site in the body that is being treated, it cannot exert its effect. According to
Nimbus Biotechnology GmbH, an independent third party, approximately 56% of drugs which fail during
development are dropped due to inadequate pharmacokinetics or unacceptable toxicity. Given that it takes an
average of 12-15 years and costs over US$500 million to discover and develop one new drug, the Directors
believe that the pharmaceutical and biotechnology industries would be very interested in reducing drug
development time and cost. The pharmaceutical industry also recognizes that the potential benefit of early
and accurate pharmacokinetic testing is enormous.

       The main bottleneck in the development process before a drug candidate is introduced into humans is
predicting the degree to which a drug candidate taken by mouth will be absorbed through the intestine and
into the body. To help to solve this bottleneck, the Group has focused its research program on developing a
platform technology called the SimBioDAS™ technology to predict how well a drug candidate will be absorbed
into the human body. This system will be used to screen drug candidates for their absorption properties as
part of an automated screening program leading to decisions on which drug candidates to be brought forward
for further development.

      The need for PK/PD information is not restricted to western medicines. Natural products, including TCM
and nutraceuticals, are comprised of complex mixtures of active ingredients, and ingredients with
pharmacological activity must be absorbed to exert their activity in the body. In order to have an effective
formulation based on natural products, the absorbable active ingredients should be identified in the raw herbs
and then their activities and absorbability should be confirmed in the marketed product. This information is
missing in regard to the majority of TCM products and nutraceuticals, so there is little basis for the quality
control now demanded by consumers and regulatory agencies like the FDA. Identifying active ingredients has
been a difficult task, but the Directors believe that with the proprietary technology being developed by the
Group, the Group is poised to solve this major problem.

      The emerging SimBioDAS™ technology is an in vitro screening system through which the Group aims
to help shorten the drug development timeline, thereby reducing the cost and resources required for the pre-
clinical drug development process. The amount of time that can be saved by using the SimBioDAS™
technology in the drug development process cannot be generalized in any specific instance. It depends on
various factors, including in which stage of the drug development process is the SimBioDAS™ technology
being used and whether the SimBioDAS™ technology is used in different stages in the process. The Directors
believe that the SimBioDAS™ technology could shorten the drug development time by a few months to more
than a year, depending on the situation. On the basis that it costs an average of US$500 million and 10 years
to discover and develop a drug, every week is about US$1 million on average. Thus the saving of even a few
weeks in the process could make using the SimBioDAS™ technology cost effective.




                                                   – 84 –
                                                     GENERAL OVERVIEW OF THE GROUP


     The SimBioDAS™ technology is intended to work in the following areas:

     –          to help pharmaceutical companies focus on developing drug candidates that are well-absorbed by
                humans;

     –          to predict pharmacokinetics, especially absorption, of drug candidates in animals using an in vitro
                system; and

     –          to predict possible pharmacokinetic and toxicity problems with drug candidates in humans by
                revealing the potential differences between animal and human absorption of screened compounds.

       In summary, the SimBioDAS™ technology aims to contribute to the lead identification process and
facilitate rapid decisions on compound selection for further development and on discontinuation of less well-
absorbed candidates.

      The SimBioDAS™ technology is expected to be adapted to predict the absorption of ingredients in TCM
in humans. The Group also intends to develop a related biotechnological method to effectively isolate the
active ingredients in natural herbal products. Using the Group’s expertise and technology, the Group aims to
test and develop novel high quality TCM formulations as drug products for the world market.

GROUP STRUCTURE

      On 13 May, 2002, the Group completed a reorganisation in preparation for the listing of the Shares on
GEM, details of which are set out in the paragraph headed “Corporate reorganization” in Appendix IV to this
prospectus. As a result, the Company became the holding company of the Group. The following chart sets out
the corporate structure and the principal business activities of the members of the Group immediately
following completion of the said reorganisation:

                                                                           Kinetana International Biotech
                                                                                  Pharma Limited
                                                                        (Incorporated in the Cayman Islands)

                                                                                  Investment holding
                                                                                            100%
                                                                           Kinetana Holdings (BVI) Limited
                                                                      (Incorporated in the British Virgin Islands)

                                                                                  Investment holding

                                 100%                                                        100%                                                 100%
                                Kinetana Holdings                               Kinetana International                             Kinetana Pharmaceutical
                               (Barbados) Limited                              Pharmaceuticals Limited                          Commercial Holdings (BVI) Limited
                        (Incorporated in Barbados)                           (Incorporated in Hong Kong)                       (Incorporated in British Virgin Islands)

                               Investment holding                               Investment holding                                      Investment holding
                               100%                                                        100%                                                      50%
                             Kinetana Group Inc.                               Kinetana Hong Kong                                 KNCM Biotech Pharma Limited
                                                                          Pharmaceuticals Holdings Limited                         (Incorporated in Hong Kong)

                                                                                                                                              Dormant
                    (Incorporated in Alberta, Canada)
                                                                             (Incorporated in Hong Kong)
                      Investment and patent holding                               Investment holding

             100%                                         100%     100%                                       100%
                                                                                                        Kinetana
             Kinetana Inc.                                                                          Hong Kong Herbal
                                                   Kinetana                                          Pharmaceuticals
                                                                   Kinetana China                        Limited
            (Incorporated in
           Alberta, Canada)                     Innovations Inc.
             Research and                                          Pharmaceuticals                   (Incorporated in


            development of
                                                (Incorporated in
                                                                       Limited                         Hong Kong)
                                               Alberta, Canada)
                                                                                                       Research and
           biopharmaceutical                        Dormant
                                                                   (Incorporated in
                                                                                                      development of
           technologies and
                                                                     Hong Kong)

                                                                      Dormant                       biopharmaceutical
         western herbal products                                                                    technologies and
                                                                                               TCM Ð based products and
                                                                                               provision of related services



                                                                                 – 85 –
                                            GENERAL OVERVIEW OF THE GROUP


SHAREHOLDING STRUCTURE

       The shareholding structure of the Company immediately following completion of the Share Offer and the
Capitalisation Issue (assuming that the interests of the shareholders of the Company will remain unchanged
after the Latest Practicable Date and subscription in full for the Offer Shares by the public) is summarized
below:


                                                                Initial Management Shareholders

                                                                                    Mr. Young and
                                          Dr. Tam                                  his five brothers
                                                                                     and sister in
                                                                                    equal shares
                                              100%                                             100%
                                       943788               Constance Tam           Grand Interest         Patrick
                        Dr. Tam                                                     Development           Chiu Kit    Dr. Antoine
                        (Note 1)     Alberta Ltd.            Suzanne Tam                Limited            Young      A. Noujaim
                         4.24%        (Note 1)                 (Note 1)                (Note 2)           (Note 3)     (Note 3)
                                       22.83%                   2.36%                   5.93%              0.31%        0.16%


                                                                                              Public shareholders
                                                *                     #                      * Chan Muk Fong         #                  #
                                                      Relatives           Members of            Chan Wai Fong                                Public
               35.83%      Employees of                of Initial           scientific             Lee Annie          Other existing
                                                     Management             advisory         Lee Ching Yee Jenny     public investors    shareholders
                            the Group                                                                                                     pursuant to
                             (Note 5)                Shareholders            board                Tam Wai Kit           (Note 12)       the Share Offer
                                                    (Notes 6,7,8,9)        (Note 10)            Tang Sun Tsai            29.64%             23.08%
                                                        4.44%                1.21%                 Toy James
                                                                                              Wiebe Darren M. &
                                   0.37%                                                        Wiebe Tina M.
                                                                                                Wong Tak Sang
                                                                                                  Wallis Doug
                                                                                                 Wallis Sharon
                                                                                                    Dr. Buret
                                                                                             Wong Chi Wan Henry
                                                                                                     Frontier
                                                                                                   Corkwood
                                                                                                    (Note 11)
                                                                                                     5.43%
                                                                                                        63.8%

                                                                                         The Company

“*”      represents the Shares held by such public shareholders will be subject to lock-up.

“#”      represents the Shares held by such public shareholders will not be subject to lock-up.

Notes:

1.       Dr. Tam is the president and chief executive officer of the Group and an executive Director and is interested in 140,749,015
         Shares in the following manner:

         i.        22,011,161 Shares are held by Dr. Tam personally.

         ii.       118,737,854 Shares are held by 943788 Alberta Ltd. which is an investment holding company wholly owned by Dr. Tam.

         The consideration for the allotment and issue of such Shares includes, among other things, Dr. Tam’s assignment of his rights,
         title and interest in the SimBioDAS™ technology co-invented by Dr. Tam and Dr. Anderson to the Group.




                                                                                  – 86 –
                                   GENERAL OVERVIEW OF THE GROUP

     Dr. Tam-Zaman is the wife of Dr. Tam and is deemed to be interested in the 140,749,015 Shares interested in by Dr. Tam and an
     Initial Management Shareholder.

     Dr. Tam is the brother-in-law of Mr. Young, an executive Director. Constance Tam and Suzanne Tam are the daughters of Dr.
     Tam and each of them is interested in 6,114,205 Shares (1.18%).

2.   Grand Interest Development Limited is interested in 30,815,591 Shares (5.93%). Grand Interest Development Limited is an
     investment holding company beneficially owned as to approximately 16.67% by each of Mr. Young (an executive Director),
     Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen, who are the brothers and
     sister of Mr. Young and have no management function in the Group. Mr. Young is the brother-in-law of Dr. Tam and is deemed to
     be an Initial Management Shareholder.

3.   Patrick Chiu Kit Young is an executive Director and is interested in 1,614,150 Shares (0.31%). Dr. Antoine A. Noujaim is a non-
     executive Director and is interested in 855,989 Shares (0.16%). Each of Patrick Chiu Kit Young and Dr. Antoine A. Noujaim has
     undertaken to the Company, the Stock Exchange, the Sponsors and the Underwriters that he will not, save as provided in Rule
     13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder(s) to
     dispose of (or enter into any agreement to dispose of) any of his Relevant Securities or any direct or indirect interests therein for
     a period of six months from the Listing Date.

4.   Each of Dr. Tam, 943788 Alberta Ltd., Dr. Tam-Zaman, Grand Interest Development Limited, Mr. Young, Constance Tam and
     Suzanne Tam has undertaken to the Company, the Stock Exchange, the Sponsors and the Underwriters that he/she/it will not,
     save as provided in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the
     registered holder to dispose of (or enter into any agreement to dispose of) any of his/her/its Relevant Securities or any direct or
     indirect interests therein for a period of 12 months from the Listing Date. Dr. Tam has further undertaken to the Company, the
     Stock Exchange, the Sponsors and the Underwriters that he will not dispose of (or enter into any agreement to dispose of) his
     direct or indirect interests in 943788 Alberta Ltd. for a period of 12 months from the Listing Date.

     Each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen, who are
     the brothers and sister of Mr. Young, has undertaken to the Company, the Stock Exchange, the Sponsors, and the Underwriters
     that he or she will not dispose of (or enter into any agreement to dispose of) any of his or her direct or indirect interests in Grand
     Interest Development Limited for a period of 12 months from the Listing Date.

5.   This category refers to the following persons:–

     Name                                           Number of Shares

     Dr. Klaus Stoeckel                                 855,989 (0.16%)
     Shirley Howrish                                    366,852 (0.07%)
     Yeung Kai Kwong                                    733,705 (0.14%)

     Dr. Klaus Stoeckel is not an employee or a member of the senior management of the Group. Dr. Klaus Stoeckel was invited to
     join the boards of directors of KGI and KIP for the purposes of giving independent advice to the Group in its early stage of
     development. Dr. Klaus Stoeckel has voluntarily undertaken to the Company that he will not, save as provided in the
     circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit
     the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his Relevant Securities or any direct or
     indirect interests therein for a period of six months from the Listing Date. Dr. Klaus Stoekel will not be counted as a member of
     the public in determining the minimum public float at the time of listing under the GEM listing Rules.

     Shirley Howrish is a secretary and the Shares held by her were offered by the Group at a nominal value because she was
     involved in starting the Group’s operations in Canada in 1998. Yeung Kai Kwong is an office and laboratory co-ordinator of the
     Group and he paid the same price for the Shares held by him as the other investors who participated in the same round of
     financing by the Group. Each of Shirley Howrish and Yeung Kai Kwong is independent of and not connected with the directors,
     chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective
     associates. They will not be counted as members of the public in determining the minimum public float at the time of listing
     under the GEM Listing Rules.

6.   This category refers to the relatives of Dr. Tam as follows:–

     Name                                           Number of Shares

     Abu Md. Basharat Ali                              2,445,682 (0.47%)
     Tam Mei Ha                                        1,467,409 (0.28%)
     Tam Mei Ling                                      1,956,545 (0.38%)
     Tam Oi Ling                                       2,934,818 (0.56%)
     Tam Sau Ying                                      1,467,409 (0.28%)
     Tam Yun Kwong                                       978,273 (0.19%)
     Tam Yun Leung                                       978,273 (0.19%)
                                                                – 87 –
                                   GENERAL OVERVIEW OF THE GROUP

     Abu Md. Basharat Ali is the brother-in-law of Dr. Tam. Tam Mei Ha, Tam Mei Ling, Tam Oi Ling, Tam Sau Ying, Tam Yun Kwong
     and Tam Yun Leung are the brothers and sisters of Dr. Tam. Such relatives of Dr. Tam have no management function in the
     Group. They do not hold their respective Shares for any other person and the costs for the acquisition of their Shares were
     financed by themselves respectively. Subject as disclosed herein, each of such relatives of Dr. Tam is independent of and not
     related to any connected person (as defined in the GEM Listing Rules) and other existing shareholders of the Company. Each of
     such relatives of Dr. Tam has undertaken to the Company that he/she will not, save as provided in the circumstances set out in
     Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder(s) to
     dispose of (or enter into any agreement to dispose of) any of his/her Relevant Securities or any direct or indirect interests
     therein for a period of 12 months from the Listing Date. Such relatives of Dr. Tam will be counted as members of the public in
     determining the minimum public float at the time of listing under the GEM Listing Rules.

7.   This category refers to the relatives of Mr. Young as follows:–

     Name                                           Number of Shares

     Yeung Oi Fan                                      978,273 (0.19%)
     Yeung Shui Kwong                                1,956,545 (0.38%)
     Yeung Sui Fai                                   1,467,409 (0.28%)
     Yeung Sui Leung                                 3,179,387 (0.61%)
     Yeung Sui Ping Stephen                          1,222,841 (0.24%)

     Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen are the brothers and sister of
     Mr. Young, each of whom has no management function in the Group. They do not hold their respective Shares for any other
     person and the costs for the acquisition of their Shares were financed by themselves respectively. Subject as disclosed herein,
     each of such relatives of Mr. Young is independent of and not related to any connected person (as defined in the GEM Listing
     Rules) and other existing shareholders of the Company. Each of such relatives of Mr. Young has undertaken to the Company
     that he/she will not, save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter
     into any agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreement to dispose of)
     any of his/her Relevant Securities or any direct or indirect interests therein for a period of 12 months from the Listing Date. Such
     relatives of Mr. Young will be counted as members of the public in determining the minimum public float at the time of listing
     under the GEM Listing Rules.

8.   This category refers to the relative of David Shong Tak Tam as follows:–

     Name                                           Number of Shares

     Lam Tung King                                   1,418,495 (0.27%)

     Lam Tung King is the mother of David Shong Tak Tam, a non-executive Director. Lam Tung King has no management function in
     the Group. She does not hold her Shares for any other person and the costs for the acquisition of her Shares were financed by
     herself. Subject as disclosed herein, Lam Tung King is independent of and not related to any connected person (as defined in
     the GEM Listing Rules) and other existing shareholders of the Company. Lam Tung King has undertaken to the Company that
     she will not, save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any
     agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of her
     Relevant Securities or any direct or indirect interests therein for a period of six months from the Listing Date. Lam Tung King will
     be counted as a member of the public in determining the minimum public float at the time of listing under the GEM Listing Rules.

9.   This category refers to the relative of Patrick Chiu Kit Young as follows:–

     Name                                           Number of Shares

     Francis Yip                                       635,877 (0.12%)
       (through 598111 Alberta Ltd.)

     Francis Yip is the brother-in-law of Patrick Chiu Kit Young, an executive Director and 598111 Alberta Ltd. is an investment
     holding company wholly owned by Francis Yip. Francis Yip and 598111 Alberta Ltd. have no management function in the Group.
     598111 Alberta Ltd. does not hold its Shares for any other person and the costs for the acquisition of the Shares were financed
     by it. Subject as disclosed herein, Francis Yip is independent of and not related to any connected person (as defined in the GEM
     Listing Rules) and other existing shareholders of the Company. 598111 Alberta Ltd. has undertaken to the Company that it will
     not save as provided in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any
     agreement to dispose of) or permit the registered holder(s) to dispose of (or enter into any agreements to dispose of) any of its
     Relevant Securities or any direct or indirect interests therein for a period of six months from the Listing Date. Francis Yip has
     further undertaken to the Company that he will not dispose of (or enter into any agreement to dispose of) his direct or indirect
     interests in 598111 Alberta Ltd. for a period of six months from the Listing Date. 598111 Alberta Ltd. will be counted as a
     member of the public in determining the minimum public float at the time of listing under the GEM Listing Rules.



                                                               – 88 –
                                   GENERAL OVERVIEW OF THE GROUP

10.   This category refers to the members of the scientific advisory board of the Group as follows:–

      Name                                          Number of Shares

      Dovichi Norman J.                              2,445,682 (0.47%)
      John Samuel (through John Samuel                 489,136 (0.09%)
        and Associates Ltd.)
      Kwon Glen S.                                   2,445,682 (0.47%)
      Meyer Urs A.                                     489,136 (0.09%)
      Venkataramanan Raman                             489,136 (0.09%)

      Members of the scientific advisory board of the Group are not employees of the Group and have no management function in the
      Group. Each of them is independent of and not connected with the directors, chief executive, substantial shareholders or
      management shareholders of the Company or its subsidiaries or their respective associates, and the costs for the acquisition of
      their respective Shares were not funded by any of such persons. The Shares were offered to them by the Group at nominal
      value as an incentive for them to join the scientific advisory board of the Group at the early stage of the Group’s development.
      They will be counted as members of the public in determining the minimum public float at the time of listing under the GEM
      Listing Rules.

11.   This category refers to 15 passive investors as follows:–

      Name                                          Number of Shares

      Chan Muk Fong                                    978,273 (0.19%)
      Chan Wai Fong                                    489,136 (0.09%)
      Lee Annie                                        489,136 (0.09%)
      Lee Ching Yee Jenny                              244,568 (0.05%)
      Tam Wai Kit                                      733,705 (0.14%)
      Tang Sun Tsai                                    978,273 (0.19%)
      Toy James                                        244,568 (0.05%)
      Wiebe Darren M. & Wiebe Tina M.                  244,568 (0.05%)
      Wong Tak Sang                                    244,568 (0.05%)
      Wallis Doug                                      660,334 (0.13%)
      Wallis Sharon                                    611,420 (0.12%)
      Dr. Buret                                       349, 390 (0.07%)
      Wong Chi Wan Henry                             1,956,545 (0.38%)
      Frontier                                      11,988,734 (2.31%)
      Corkwood                                       7,992,490 (1.54%)

      Each of these 15 investors is an independent third party who is not connected with the directors, chief executive, substantial
      shareholders or management shareholders of the Company or its subsidiaries or their respective associates. Each of Chan Muk
      Fong, Chan Wai Fong, Lee Annie, Lee Ching Yee Jenny, Tam Wai Kit, Tang Sun Tsai, Toy James, Wiebe Darren M. & Wiebe
      Tina M., Wong Tak Sang, Wallis Doug and Wallis Sharon has undertaken to the Company that he/she will not save as provided
      in the circumstances set out in Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or
      permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his/her Relevant Securities or
      any direct or indirect interests therein for a period of six months from the Listing Date. Each of Dr. Buret, Wong Chi Wan Henry,
      Frontier and Corkwood has undertaken to the Company that he/she/it will not save as provided in the circumstances set out in
      Rule 13.18 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder(s) to
      dispose of (or enter into any agreement to dispose of) any of his/her/its Relevant Securities or any direct or indirect interests
      therein for a period of 12 months from the Listing Date. These 15 passive investors will be counted as members of the public in
      determining the minimum public float at the time of listing under the GEM Listing Rules.

12.   This category includes 81 passive investors, whom in aggregate are interested in 154,128,583 Shares. Each of these investors
      is an independent third party who is not connected with the directors, chief executive, substantial shareholders or management
      shareholders of the Company or its subsidiaries or their respective associates. These investors invested in the Group through
      its private placements and/or acquisitions during the period from late 1998 to 2001 when the Group was in its early stage of
      development with no proven technology.

      These 154,128,583 Shares were issued in different rounds of financing exercise of the Group and investors in each round of
      financing paid the same price as one another in the same round of financing, whom at the material time were taking risks in
      facing uncertainties as to whether an initial public offering would occur or the Offer Price would be above or below their
      investment amount. These 81 passive investors will be counted as members of the public in determining the minimum public
      float at the time of listing under the GEM Listing Rules.




                                                                  – 89 –
                             GENERAL OVERVIEW OF THE GROUP


HISTORY AND DEVELOPMENT

History and corporate development

      The Group was founded in May 1987 by Dr. Tam with the establishment of Kinetana Inc. pursuant to the
laws of the Province of Alberta, Canada. Kinetana Inc. was originally owned as to 25% by each of Dr. Tam,
his two daughters, namely Constance Tam and Suzanne Tam, and his ex-wife (who subsequently transferred
all her shareholding interests in the Group to Dr. Tam) in equal shares, all of whom were passive
shareholders. The business of Kinetana Inc. had been operated and managed solely by Dr. Tam. At that time,
Dr. Tam was an Associate Professor in the Faculty of Pharmacy and Pharmaceutical Sciences at the
University of Alberta. Through Kinetana Inc., Dr. Tam provided consulting services and conducted pre-clinical
and clinical studies in pharmacokinetics and pharmadynamics for pharmaceutical and biotechnological
companies. His clients in the early stage included pharmaceutical companies and medical laboratories, and
his main duties in the consultancy assignments were conducting clinical studies and strategic evaluations and
competitive assessments of pharmaceutical products, drug compounds and drug candidates.

      After pursuing basic and clinical pharmacokinetic studies for over 20 years, Dr. Tam began working on
different strategies towards accelerating the drug discovery and development process. Dr. Tam became
acquainted with Dr. Anderson, who was then a graduate student at the University of Alberta and is an
independent third party. In or about January 1997, Dr. Tam and Dr. Anderson co-invented the concept of the
“simulated biological dissolution and absorption system”. As it was not known at that time as to how much
time and financial resources would be required to develop such technology and whether it would have the
potential for commercialisation, Dr. Anderson in consideration of, among other things, the Anderson Option,
assigned in February 1997 his entire rights in such invention to the Group. In December 1997, Dr. Tam and
Dr. Anderson jointly filed a patent application with the US Patent Office in respect of their invention entitled
“simulated biological dissolution and absorption system”. KGI was incorporated in March 1998. After moving
to the Group’s headquarters in Edmonton, Alberta, Canada and having formed a team of six staff, of which
five were Ph.D scientists, KGI through its subsidiary began research and development on the SimBioDAS™
technology and two drugs, KI001 and KI002 in October 1998. KI001 was designed to treat endotoxemia and
KI002 was a novel formulation of an existing anti-fungal agent reformulated to reduce the toxicity profiles. As
the SimBioDAS™ technology is intended to facilitate early decisions on which drug candidates to bring
forward for further development by accurately predicting the absorption of drug compounds in humans, and
the development of the KI001 and KI002 drugs is based on existing drug formulations, the Group considers
that the development of the SimBioDAS™ technology and these two drugs are in line with its mission to
accelerate the drug development and discovery process.

     Throughout the period since moving to the Group’s laboratory in Edmonton, the Group had dedicated to
establishing standard operating procedures in accordance with the GLP standards for its research studies
and experiments.

      In or about February 1999, with the expertise of the Group’s Ph.D scientists, and in particular Dr. Tam,
in pharmacokinetics and pharmacodynamics, the Group continued studying and verifying absorption of drug
compounds in humans by way of in vivo models, i.e. animal experiments, in order to develop the
fundamentals and framework for the SimBioDAS™ technology.




                                                    – 90 –
                             GENERAL OVERVIEW OF THE GROUP


      Pursuant to an assignment dated 2 February 1999 (as supplemented by a deed between KGI and Dr.
Tam dated 9 May 2002), the terms of which are set out under the sub-paragraph headed “Dr. Tam IP
Assignment” under the paragraph headed “Exempted connected transactions” in this section, Dr. Tam
assigned his rights in the SimBioDAS™ system to the Group. During the period from December 1998 to
September 1999 and by issuing new shares of KGI, KGI raised seed money of a total of approximately
CAN$1.2 million (equivalent to approximately HK$6.0 million) from 46 investors which had been used up for
the purposes of setting up research facilities in Edmonton, Alberta, Canada primarily for the development of
the SimBioDAS™ technology and for funding the Group’s operations.

     In November 1999, the Group set up a computational modelling department by hiring a Ph.D scientist,
namely Dr. Douglas Thacher Ridgway, and began the development of mathematical methods to analyze the
processes and factors affecting absorption, including the experimental results.

      In light of the potential of the nutraceuticals market and the support of the Hong Kong Government for
development of TCM as indicated in the 1998 policy speech by the Chief Executive Officer of Hong Kong, KIP
was established in Hong Kong on 20 October 1999 with a view to pursuing its goal to modernize TCM. The
Group intended to adapt the SimBioDAS™ technology to predict the absorption of ingredients in herbs or
TCM in humans, and to develop a related biotechnological method to isolate the active ingredients in natural
herbs or TCM. Mr. Young, through Grand Interest Development Limited, which is owned in equal share by Mr.
Young and his five brothers and sister, became an indirect shareholder of KGI on 14 June 1999 as to
approximately 7.34%, and joined the Group as a consultant, responsible for promoting the Group by
introducing Dr. Tam to potential investors and partners in Hong Kong as well as in the PRC. Mr. Young was
responsible for managing the Group’s general business operations in Hong Kong and has been instrumental
in exploring and developing the Group’s business potential in Hong Kong and the PRC. In January 2000, the
Group signed an agreement with The Hong Kong Institute of Biotechnology Limited for the purposes of setting
up an office and laboratory at the Hong Kong Institute of Biotechnology in Shatin, New Territories, Hong
Kong.

      On 21 January 2000, the Group applied to the National Research Council of Canada for funding under
the Industrial Research Assistance Programme to develop the SimBioDAS™ technology to the proof of
concept stage. Such application was approved in February 2000 and a total amount of CAN$235,000
(equivalent to approximately HK$1,175,000) was subsequently awarded to the Group’s one-year project
proposal for the development of the SimBioDASTM technology in Canada. The full amount of the grant was
applied to the project as intended, which was commenced in April 2000 and completed in April 2001. This
project gave the Group the skills and research data that the Group subsequently used to validate the
SimBioDAS™ technology.

     On 8 February 2000, a US patent was issued for the invention “simulated biological dissolution and
absorption system” which will expire on 2 December 2017. On 9 August 2000, the Group also received from
the Canadian Intellectual Property Office a notice confirming the national entry of the invention of the
SimBioDAS™ technology.

        For the purposes of exploring and developing TCM-related businesses using the SimBioDAS™
technology, the Group entered into a facility agreement with The Hong Kong Institute of Biotechnology Limited
on 13 January 2000 for the use of certain premises and facilities at the Hong Kong Institute of Biotechnology
in Shatin, New Territories, Hong Kong. The Group began in April 2000 to set up an office and research
facilities there and which commenced operation in July 2000. The Group’s operation in Hong Kong at that

                                                   – 91 –
                               GENERAL OVERVIEW OF THE GROUP


time was primarily to establish relationship in the local and PRC communities and to explore business
prospects. With the recruitment of a Ph.D scientist, namely Dr. Chee Keong Choo, and two general and
administration staff for office and laboratory support, the Group began in November 2000 to transfer the
SimBioDAS™ technology to its laboratory in Hong Kong for adaptation in connection with the development of
TCM-based products.

      In order to fund the implementation of the Group’s plan to modernise TCM using the SimBioDAS™ or
related technology, KIP raised equity by agreeing to issue new shares of KIP during the third quarter of 2000.
As a result, approximately HK$13 million was raised from 37 investors, which included the relatives of Dr.
Tam and Mr. Young and one employee of the Group (particulars of which are set out in paragraph 5(d) of the
section headed “Further information about the Company and its subsidiaries” in Appendix IV to this
prospectus). Following the successful fund raising, the Group began formulating a business plan for its
operation in Hong Kong and building up business network with potential customers and business partners in
Hong Kong and the PRC. The funds had subsequently been applied in full for the Group’s operations in
Canada and Hong Kong.

     In September 2000, the Group suspended the development of the KI002 drug and scaled down the
KI001 drug, which was at the proof of concept stage, in order to focus the limited financial and human
resources then available to the Group in Canada on the development of the SimBioDAS™ technology.

       On 12 April 2001, the Group applied to the ITF for financial support under the University-Industry
Collaboration Programme in Hong Kong for its development project to modernize TCM. Under the Group’s
application, the Group proposed to team up with HKUST to work to establish and validate the SimBioDAS™
technology for the development of TCM-based products, and to evaluate the activity and absorption of a TCM
formula that is intended to be used for treatment of liver cancer. Such application was approved by the ITF
and, accordingly, the Group entered into an agreement with the Hong Kong Government and HKUST on 15
June 2001 pursuant to which each of the ITF and the Group would contribute approximately HK$3.4 million by
installments to be made at different stages throughout the project toward its development cost.

       On 7 June 2001, the Group jointly applied with CUHK to the ITF under the University-Industry
Collaboration Programme for financial support for their development project to validate the Group’s
biotechnological approach for the modernization of TCM and for the development of a new modernized TCM
herbal pre-formulation with consistently high quality and known active ingredients and confirmed pharmacological
activities for the treatment of cardiovascular diseases. Such application was approved by the ITF and the
Group entered into an agreement with the Hong Kong Government and CUHK on 30 July 2001 pursuant to
which each of the ITF and the Group would contribute a total of approximately HK$2.8 million by installments
to be made at different stages throughout the project toward its development cost. The principal terms of the
agreements between the Group and the Hong Kong Government in relation to the Group’s collaboration with
HKUST and CUHK are summarized in the paragraph headed “Business model” under the sub-section headed
“Business” in this prospectus.

      As stipulated in the relevant agreements, the funds to be contributed shall be applied exclusively for the
purposes of the projects referred to in the agreements and are not permitted to be used by the Group or the
relevant universities for other purposes. Further, the Group shall hold all intellectual property rights in its sole
name and HKUST and CUHK shall make it a condition of their contracts with any employees, agents or other
personnel who are involved in the relevant projects that the Group shall be the sole absolute and beneficial



                                                      – 92 –
                             GENERAL OVERVIEW OF THE GROUP


owner of any and all intellectual property rights howsoever arising, to the exclusion of the universities, their
employees, agents or other personnel. Notwithstanding that all intellectual property rights are held by the
Group, HKUST and CUHK may at their discretion decide and agree on whether and how the royalties arising
from the intellectual property rights are to be allocated. Up to the Latest Practicable Date, a total amount of
approximately HK$2.1 million had been contributed by the Group for the collaborative projects with HKUST
and CUHK.

       During the second and third quarters of 2001, the Group entered into memorandum of understanding or
letters of intent with various PRC organisations, which are independent third parties, with a view to exploring
and developing business opportunities in the TCM industry. Details of these memorandum of understanding
or letters of intent are set out in the paragraph headed “Business model” in this section below.

      With a view to forming an alliance with a party which has an extensive marketing and distribution
network for TCM-based products, the Group entered into a joint venture agreement on 10 July 2001 with
NCM, an independent third party. NCM is a member of a group, which is engaged in the marketing of
modernized Chinese medicines, particularly through its established cooperative relationship with tour
operators in Japan to Japanese tourists. The NCM group markets its products through its retail outlet in Hong
Kong, an online store, mail order services and its membership plan. Each of NCM and the Group has a 50%
interest in the joint venture, KNCM. The current paid-up capital of KNCM is HK$2. Pursuant to the joint
venture agreement, each of the Group and NCM has agreed to inject equity of HK$499,999 in order to
increase the paid-up capital of KNCM to HK1,000,000 to finance its operation in the future. It is intended that
the Group and KNCM will utilize the distribution network of the NCM group, which comprises its established
cooperative relationship with tour operators in Japan, a retail outlet in Hong Kong, an online store, mail order
services and its membership plan, for distributing its products. The Directors believe that through such a joint
venture, the Group may capitalise on NCM’s marketing experience and distribution channels in Hong Kong
and Japan for the sale and marketing of the TCM-based products to be developed by the Group. The Group
has also capitalised on the marketing knowledge and experience of NCM in the packaging design, such as
the dosage form, of the Group’s Ginkgo product. As the Group has not yet commercialised its products,
KNCM presently remains inactive.

     An application for registration of “SimBioDAS” as a trademark was made in Canada in August 2001, the
approval of which is subject to the Canadian Intellectual Property Office and is expected to be issued in
approximately two years from the initial filing date of application.

      On 17 September 2001, the Group entered into an agreement with a Japanese pharmaceutical
company, which is an independent third party, in respect of a collaborative project on the development of a
novel, sustained-release formulation of an antibiotic in the prevention and treatment of infectious diseases.
Such project will be based on an existing drug formulation and pursued by the Group towards its mission to
accelerate the discovery and development of synthetic drugs and natural products. Details of the
development plan depends on the results of the feasibility study which shall be submitted by the Group by 30
September 2002 and further negotiation and mutual agreement.

      For the purpose of the Pre-IPO Placing completed between July and September 2001, KBVI was
incorporated and became the intermediate holding company of the Group following a reorganisation to put
KGI and KIP and their subsidiaries under one roof. Under the Pre-IPO Placing, the Group raised a total of




                                                    – 93 –
                              GENERAL OVERVIEW OF THE GROUP


approximately HK$18 million from 32 investors, details of which are set out in items (iv), (vi) and (ix) under
paragraph 5(a) in Appendix IV to this prospectus. Immediately following completion of the Pre-IPO Placing,
KBVI was held as to 40.4% by Dr. Tam and his associates and approximately 8.1% by Mr. Young and his
associates. The main purpose of the Pre-IPO Placing is to raise equity funds to meet the Group’s matching
fund obligations under the agreements with the Hong Kong Government (under which the Group had
contributed an aggregate of approximately HK$2.1 million) and to provide additional working capital to the
Group for pilot formulations for natural products. The balance of proceeds from the Pre-IPO had subsequently
applied in full for the Group’s operations in Canada and Hong Kong.

      In January and February 2002, the Group signed two business contracts. The first one was signed with
an independent third party for an amount of HK$600,000 in relation to the provision of services including
ingredient absorption analyses using the SimBioDAS™ technology. Such services were completed in March
2002 with the contract amount fully settled. The second contract was signed with an indirect wholly-owned
subsidiary of NCM, the Group’s joint venture partner, for an amount of HK$1,000,000 in relation to the
provision of services including evaluation of active ingredients in TCM-based formulae using the
SimBioDAS™ technology. Such services will be provided in stages in line with the client’s development and
production processes and are expected to be completed by April 2004.

Technology development

      The core technology of the Group is the SimBioDAS™ technology through which the Group aims to help
shorten the drug development timeline, and to develop herbal and TCM-related products.

     The patent application for the invention entitled “simulated biological dissolution and absorption system”
was submitted in December 1997. After moving into its headquarters in Edmonton, Alberta, Canada since
October 1998, the Group had dedicated to establishing standard operating procedures in accordance with the
GLP standards for its research studies and experiments.

      In or about February 1999, with the expertise of the Group’s Ph.D scientists, and in particular Dr. Tam,
in pharmacokinetics and pharmacodynamics, the Group continued studying and verifying absorption of drug
compounds in humans by way of in vivo models, i.e. animal experiments, in order to develop the
fundamentals and framework for the SimBioDAS™ technology.

      In November 1999, the Group set up a computational modeling department by hiring a Ph.D scientist,
namely Dr. Douglas Thacher Ridgway, and began the development of mathematical methods to analyze the
processes and factors affecting absorption, including the experimental results. From October 1998 to
December 1999, the Group also attempted to set up a collaboration to develop the cell biology component of
the SimBioDAS™ technology. As the collaboration did not materialise, the Group began to set up its own cell
biology department in Canada in March 2000 to complement the Group’s existing expertise in pharmacokinetics,
analytical chemistry and computer and animal modelling. In July 2000, the Group obtained from Dr. Buret the
Buret Cell Line at no initial cost on a trial basis, which is a normal human intestinal cell line and can be used
by scientists in research and development work in the medical industry, and began developing the conditions
for growing the cells into the Kinetana Cells and forming membranes with them so that absorption
experiments could be conducted. The Buret Cell Line was originally intended to be used for studying human
small intestine wall cell functions. The Group considers that it was amongst one of the first companies which




                                                     – 94 –
                              GENERAL OVERVIEW OF THE GROUP


discovered the use of the Buret Cell Line and tested it out in the drug screening analysis. The Group cultured
the Buret Cell Line in specific conditions and performed analyses and measures of the various properties of
the cell line in respect of absorption with a view to determining the cell line’s suitability for use in the
SimBioDAS™ system. Following the successful development of the Kinetana Cells by culturing the Buret Cell
Line, the supply of which is under the Cell Line Agreement, the Group no longer depends on any supplier for
cell lines for use in the SimBioDAS™ system.

       By November 2000, the Group had achieved a proof of principle on the technology, meaning that it had
the first definitive indication that the approach to develop the SimBioDAS™ technology was effective. This
was achieved after analysis of the first complete set of 9 marker drug compounds which are absorbed through
different mechanisms, comparing the Kinetana Cells with another cell line called “Caco-2” often used by
industry for screening of drug candidates for absorbability. The Kinetana Cells provided better predictions of
human marker drug absorption when compared to Caco-2 cells, which were derived from human colon cancer
cells.

      In addition to the principle being proved, a proof of concept requires that a conceptually complete
system be in place. By February 2001, the Group had analyzed data from several complete sets of
compounds, showing consistent results from batch to batch within an acceptable margin of error. In addition,
the Group’s scientists tested the effects of using different generations of cells to demonstrate that the quality
of the results of drug absorbability experiments achieved by the Group from its previous studies and analyses
would not drift with time. This was important in establishing that cell deterioration over time would not
interfere with the commercial life of the technology. With these experiments complete, the essential
requirements for commercialization of the Kinetana Cells were shown to have been met.

      In January 2001, the Group commenced preliminary research on the development of a novel
formulation of Ginkgo in Canada by using the SimBioDAS™ technology to isolate the absorbable active
ingredients from natural Ginkgo leaves and studying the scientific literature on Ginkgo.

       In November 2001, a further 10 marker drug compounds had been tested based on the results of further
analysis and comments from potential clients, which are pharmaceutical companies and biotechnology
companies that the Group targets at. The results on these further 10 marker drugs confirmed the Group’s
earlier observations on the 9 marker drugs, that the human absorption predictions of the SimBioDAS™
technology were better than those of systems using Caco-2 cells. The results indicated that the SimBioDAS™
is comparatively more accurate and less variable in human absorption prediction. These 10 compounds were
analysed with both the Kinetana Cells and Caco-2 cells for a total of 19 in the overall comparison. The
increased number of marker drugs in the survey served to increase the Group’s confidence in the earlier
results. After upgrading the cell culture conditions for the Kinetana Cells, the Group achieved the first
commercialization prototype of the SimBioDAS™ technology in late October 2001 and began in November
2001 to offer screening services to large pharmaceutical companies. The Group also continued investigations
into the effects of different experimental conditions on maturity and functionality of the cells grown, and hence
on the results achieved. This was and is expected to help characterize and manipulate the capabilities of the
Kinetana Cells to transport compounds by different mechanisms. The process to refine and further develop
the SimBioDAS™ technology is constantly ongoing.




                                                     – 95 –
                             GENERAL OVERVIEW OF THE GROUP


     After setting up an office and research facilities in Hong Kong in July 2000, the Group began
establishing a cell biology department in its laboratory in Hong Kong by hiring a Ph.D scientist whose
research interests include molecular and cell biology. In November 2000, the Group began to transfer the
SimBioDAS™ technology to its laboratory in Hong Kong for adaptation in connection with the development of
TCM-based products. The adaptation is now under way with the beginning of the collaborative projects with
HKUST and CUHK.

       In July 2001, at the Group’s facilities in Canada, the Group began to develop new tablet and capsule
formulations of the popular medicinal herb, Ginkgo, as well as the analytical methods to measure
concentrations of its known active ingredients. In formulating the Group’s Ginkgo product, the Group has
studied Ginkgo extensively, in particular, in respect of (i) the concentration of active ingredients; (ii) the
dissolution of dosage forms; and (iii) the absorbability experiments using the SimBioDAS™ system. The
SimBioDAS™ technology is currently being used by the Group to establish and verify the absorbability of the
active ingredients of several available concentrates and commercial products of Ginkgo, as well as the
absorbability of the ingredients in the Group’s future Ginkgo product. The Group’s testing results indicated
that the concentration of key ingredients contained in the commercially available Ginkgo products varied from
zero (i.e. probably a product not made from Ginkgo) through below specifications to within specifications. The
solubility of the key ingredients contained in these Ginkgo products also varied, from poorly soluble to quickly
soluble. The results of the Group’s tests further indicated that the other ingredients in the capsules might
affect the absorption of the key ingredients. With all these data collected from the Group’s experiments, the
Group successfully developed the first tablet of its Ginkgo formulation in August 2001 which contains an
optimum amount of the key active ingredients that are highly absorbable in humans. Following such
achievement, the Group continued refining its Ginkgo formulation, including analyzing the effects of different
dosage forms, such as tablet as compared to capsule. The Group is also testing the quality of the Ginkgo leaf
extracts from different sources from the PRC, the US and Europe, and is devising marketing plans for
approaching the North American market. When launched in the second or third quarter of 2002, the Group’s
Ginkgo product is expected to have known concentrations of active ingredients and their absorbability will
also be verified.

      Details of the laws and regulations that may be relevant to the Group’s business, products and services
in Canada and in Hong Kong are set out under the paragraphs headed “Laws and regulations on the Chinese
medicine industry in Hong Kong”, “Applicable Alberta and federal Canadian laws and regulations” and
“Summary of proposed Canadian natural health products regulations” in the section headed “Industry
overview” in this prospectus.




                                                    – 96 –
                            GENERAL OVERVIEW OF THE GROUP


ACTIVE BUSINESS PURSUITS

      Since KGI’s establishment in March 1998, the Group has been focusing on research and development
towards its mission to accelerate the discovery and development of synthetic drugs and natural products,
which included two drugs (the development of one of which had subsequently been suspended and the other
one scaled down) and the SimBioDAS™ technology. The Group’s present core business is related to the
SimBioDAS™ technology, the active research and development of which commenced in October 1998. The
following is a summary of the Group’s active business pursuits during the period from 1 March 1999 to the
Latest Practicable Date.

For the year ended 29 February 2000

Research and development                 The Group continued studying and verifying absorption of drug
                                         compounds in humans by way of in vivo models, i.e. animal
                                         experiments, in order to develop the fundamentals and framework
                                         for the SimBioDAS™ technology.

                                         In November 1999, the Group set up a computational modelling
                                         department by hiring a Ph.D scientist, namely Dr. Douglas
                                         Thacher Ridgway, and began the development of mathematical
                                         methods to analyze the processes and factors affecting absorption,
                                         including the experimental results.

                                         The Group explored the possibility of setting up a collaboration to
                                         develop the cell biology component of the SimBioDAS™
                                         technology.

                                         The Group was actively seeking partnerships with various
                                         technology companies and government support for the
                                         development of the SimBioDAS™ technology. The Group was
                                         also developing two drugs through KGI and its subsidiary:

                                         –     “KI001” which was designed to treat endotoxemia.
                                               Endotoxemia (blood poisoning by bacteria) is related to the
                                               release of toxins from dying bacteria within an animal’s
                                               body that can be life-threatening. Patients who contract
                                               endotoxemia are usually those with terminal cancer, AIDS,
                                               large bowel disease and surgical patients.

                                         –     “KI002” which was a novel formulation of an existing anti-
                                               fungal agent and was reformulated to reduce the toxicity
                                               profiles while retaining its potency. It is meant to treat
                                               serious infections with fungus (moulds) in the lung,
                                               sometimes contracted by patients with poor immune systems.




                                                 – 97 –
                        GENERAL OVERVIEW OF THE GROUP


                                As at 29 February 2000, the Group’s research and development
                                team comprised 12 technical staff, all of whom were based in
                                Canada, and of whom 7 were Ph.D scientists with the remaining
                                being either technicians or technologists who hold diplomas in
                                laboratory or veterinary technology, or university degrees in
                                science.

Corporate development           In October 1999, KIP and KHP, currently both wholly-owned
                                subsidiaries of the Company, were established with the objectives
                                to modify the SimBioDASTM technology to screen the absorbability
                                of more complex mixtures of compounds such as those found in
                                TCM herbs, to develop a related biotechnological method to
                                isolate active ingredients from a complex mixture of organic
                                chemicals originating from herbs, and to develop TCM-based
                                formulations with consistent quality and certified active ingredients
                                with measured absorbability for the world market.

                                In January 2000, the Group signed an agreement with The Hong
                                Kong Institute of Biotechnology Limited to set up an office and
                                laboratory at the Hong Kong Institute of Biotechnology in Shatin,
                                New Territories, Hong Kong for the modernization of TCM and
                                development of TCM-based products using the SimBioDAS TM or
                                related technology.

Accomplishment                  On 8 February 2000, a US patent for the period up to 2 December
                                2017 was issued for the invention entitled “simulated biological
                                dissolution and absorption system”.

Operational growth              As at 29 February 2000, the Group had a total of 13 full-time
                                employees, all of whom were based in Canada. 12 of them were
                                engaged in research and development and 1 in general office
                                administration and management. As the Group did not take
                                possession of the premises in Hong Kong for its office and
                                laboratory until April 2000 when the renovation work commenced,
                                the Group did not have any full-time employees as at 29 February
                                2000 in Hong Kong.




                                        – 98 –
                           GENERAL OVERVIEW OF THE GROUP


For the year ended 28 February 2001

Research and development              In March 2000, the Group began to set up its own cell biology
                                      department in Edmonton, Alberta, Canada for the study and
                                      development of the specific conditions for culturing the cell lines,
                                      that are required for experiments to be done under the
                                      SimBioDAS™ system.

                                      In July 2000, the Group began developing the conditions for
                                      growing the Buret Cell Line into the Kinetana Cells so that
                                      absorption experiments could be conducted.

                                      In September, 2000, the Group suspended the development of
                                      the KI002 drug after it had completed studies on active ingredients
                                      of the formulation and found that the advantages of the Group’s
                                      dosage form was not as strong as the Group had anticipated; and
                                      that there was a competing product which was ahead of the
                                      Group’s development. In the same month, the Group scaled down
                                      the development of the KI001 drug at the proof of concept stage
                                      in order to focus its financial and human resources in its
                                      laboratory in Edmonton, Canada on the development of the
                                      SimBioDAS™ technology with emphases on cell biology for
                                      permeability determination and computer modeling for virtual gut
                                      software development, and mathematical and statistical methods.

                                      In November 2000, the Group had achieved a proof of principle
                                      on the SimBioDAS™ technology. In the same month, the Group
                                      began to transfer the SimBioDAS™ technology to its laboratory in
                                      Hong Kong for adaptation in connection with the isolation of
                                      active ingredients in TCM herbs and the development of TCM-
                                      based products.

                                      In January 2001, the Group also commenced preliminary research
                                      on the development of a novel formulation of Ginkgo biloba in
                                      Canada by using the SimBioDAS™ technology to isolate the
                                      absorbable active ingredients from natural Ginkgo leaves and
                                      studying the scientific literature on Ginkgo. Ginkgo has been
                                      studied in the scientific literature for decades and is one of the
                                      biggest sellers among herbal supplements.

                                      By February 2001, the Group had achieved a proof of concept on
                                      the SimBioDAS™ technology.




                                              – 99 –
                       GENERAL OVERVIEW OF THE GROUP


                               As at 28 February 2001, the Group’s research and development
                               team comprised 16 technical staff, of whom 14 and 2 were based
                               in Canada and Hong Kong respectively. Of these 16 technical
                               staff, 10 were Ph.D scientists with the remaining being either
                               technicians or technologists who hold diplomas in laboratory or
                               veterinary technology, or university degrees in science.

Financial support              The Group’s operations and its plan to modernize TCM using the
                               SimBioDAS™ or related technology had been funded by the
                               HK$13 million raised from 37 investors in Hong Kong.

Accomplishment                 Having met the criteria for being a project that contributes to
                               technological innovation, the Group was awarded in February
                               2001 financial support amounting to CAN$235,000 by the National
                               Research Council of Canada under the Industrial Research
                               Assistance Program for the Group’s development of the
                               SimBioDAS™ technology for prediction of intestinal absorption of
                               drug compounds in humans.

Business development           In April 2000, the Group signed a five-year contract with a US-
                               based multinational conglomerate, an independent third party,
                               which is worth US$1 million and under which the Group would
                               perform pre-clinical studies on drug candidates for such
                               conglomerate using the Group’s expertise in pharmaceokinetics
                               and pharmacodynamics. Under the contract, only the contract
                               value for the provision by the Group of pre-clinical studies on
                               drug candidates has been expressly agreed. Specific terms as to
                               when and how much of the Group’s services would be required
                               have not been stipulated in the contract. As at the Latest
                               Practicable Date, no service has been provided by the Group
                               under such contract.

Operational growth             In April 2000, the Group started to set up an office and research
                               facilities in the Hong Kong Institute of Biotechnology in Shatin,
                               New Territories, Hong Kong for the purposes of exploring and
                               developing TCM-related businesses using the SimBioDAS™
                               technology.

                               As at 28 February 2001, the Group had a total of 22 full-time
                               employees, 16 and 6 of whom were based in its offices in Canada
                               and Hong Kong respectively. 14 of the Group’s staff in Canada
                               were engaged in research and development, and 2 in general
                               office administration and management. Of the 6 employees in
                               Hong Kong, 2 were engaged in research and development and 4
                               were in general office administration and management.




                                      – 100 –
                           GENERAL OVERVIEW OF THE GROUP


For the period from 1 March 2001 to the Latest Practicable Date

Research and development                The Group continued its research and development work in
                                        Canada on developing the SimBioDAS™ technology for predicting
                                        drug absorption in humans. Since March 2001, the Group began
                                        testing further marker drug compounds using the SimBioDAS™
                                        technology with a view to confirming and increasing the Group’s
                                        confidence in its earlier testing results.

                                        In April 2001, the Group began in Hong Kong the development of
                                        a related biotechnological method to isolate the active ingredients
                                        in TCM herbs by adapting the SimBioDAS™ technology to screen
                                        the complex mixtures of substances and compounds that are
                                        usually found in TCM herbs.

                                        In July 2001, the Group started pilot formulation of its Ginkgo
                                        product in Edmonton, Alberta, Canada and the first tablet of its
                                        pilot formulation was successfully developed in August 2001.
                                        There are numerous Ginkgo products commercially available in
                                        the market as food supplements. However, information about the
                                        composition of the active ingredients contained in these products
                                        is usually not listed on the labels or made available to consumers.
                                        The Ginkgo product being developed by the Group is expected to
                                        contain a known quantity of absorbable active ingredients and to
                                        compare favourably to the Ginkgo products that are currently
                                        available in the market.

                                        In September 2001, the Group entered into an agreement with a
                                        Japanese pharmaceutical company regarding a collaborative
                                        project on the development of a novel, sustained-released
                                        formulation based on an existing drug formulation of an antibiotic
                                        in the prevention and treatment of infectious diseases. Such
                                        project is in line with the Group’s mission to accelerate the drug
                                        discovery and development process.

                                        During the period, the Group had expanded the list of marker
                                        drug compounds from 9 to 19 tested on the SimBioDAS TM
                                        technology in order to demonstrate the performance of the
                                        SimBioDASTM technology and to assist in marketing the technology.
                                        The Group had also been evaluating a robotics system, which is
                                        developed by an independent third party, for culturing the
                                        Kinetana Cells and running absorption screening experiments.




                                               – 101 –
                        GENERAL OVERVIEW OF THE GROUP


                                As at the Latest Practicable Date, the Group’s research and
                                development team comprised 15 technical staff, of whom 8 and 7
                                were based in Canada and Hong Kong respectively. Of these 15
                                technical staff, 8 were Ph.D scientists with the remaining being
                                either technicians or technologists who hold diplomas in laboratory
                                or veterinary technology, or university degrees in science.

Business development            In June, 2001, the Group had been exploring with a robotic
                                system company, an independent third party, to develop the
                                SimBioDAS™ technology into an automated system which can be
                                controlled by a computer to carry out drug absorption screening
                                experiments with minimal human intervention. The Group had not
                                entered into any negotiation with such robotics system company
                                as at the Latest Practicable Date.

                                The Group was devising marketing plans for approaching the
                                North American market with its new Ginkgo formulation which is
                                expected to have a known quantity of absorbable active
                                ingredients.

                                In January and February 2002, the Group signed two business
                                contracts. The first one was signed with an independent third
                                party for an amount of HK$600,000 in relation to the provision of
                                services including ingredient absorption analyses using the
                                SimBioDAS™ technology. Such services were completed in
                                March 2002 with the contract amount fully settled. The second
                                contract was signed with an indirect wholly-owned subsidiary of
                                NCM, the Group’s joint venture partner, for an amount of
                                HK$1,000,000 in relation to the provision of services including
                                evaluation of active ingredients in TCM-based formulae using the
                                SimBioDAS™ technology. Such services will be provided in
                                stages in line with the client’s development and production
                                processes and are expected to be completed by April 2004. (This
                                second contract had been completed as to approximately 15%
                                and 30% as at 28 February 2002 and the Latest Practicable Date,
                                respectively.)

Corporate development           In July 2001, the Group entered into a joint venture agreement
                                with NCM for the marketing and distribution of TCM-based
                                products, particularly in Hong Kong and Japan.

Accomplishment                  In August 2001, the Group was the recipient of the “Best
                                Biochemistry Technology Company Award” for the year 2000 at
                                the “Omega Outstanding Information Technology & Financial
                                Enterprises Awards” which was organised by the Hong Kong
                                Capital Magazine.



                                       – 102 –
                     GENERAL OVERVIEW OF THE GROUP


Financial support            In June 2001, the Group signed an agreement with the Hong
                             Kong Government and HKUST under which each of the Group
                             and the ITF agreed to work together on the establishment and
                             validation of the SimBioDAS™ technology for the development of
                             TCM-based products. Initially, HKUST will work with the Group on
                             the development of a TCM-based formulation for the treatment of
                             liver cancer. Under the agreement, each of the Group and ITF
                             agreed to contribute approximately HK$3.4 million by installments
                             for the development costs.

                             In July 2001, the Group signed an agreement with the Hong Kong
                             Government and CUHK under which the Group agreed to team up
                             with CUHK to work on the validation of the Group’s biotechnological
                             method for the isolation of active ingredients in TCM and the
                             development of TCM-based products with known active ingredients
                             and verified absorbability. Initially, CUHK will work with the Group
                             on the development of a TCM-based formulation for the treatment
                             of cardiovascular diseases. Each of the Group and ITF had also
                             agreed to contribute approximately HK$2.8 million by installments
                             to the development costs.

                             Between July and September 2001, the Group completed the
                             Pre-IPO Placing to 32 investors whereby a total sum of
                             approximately HK$18 million was raised by offering equity
                             interest of approximately 19% in the Group immediately after
                             completion of the Pre-IPO Placing. The principal purposes of the
                             Pre-IPO Placing are to accommodate the Group’s financial
                             requirements in contributing the matching funds under the
                             agreements with HKUST and CUHK respectively, and to fund the
                             continuous development of the SimBioDAS™ technology and the
                             Group’s operations in Canada and Hong Kong.

Operational growth           As at the Latest Practicable Date, the Group had a total of 25 full-
                             time employees, 12 and 13 of whom were based in Canada and
                             Hong Kong respectively. Of the 12 staff in Canada, 8 were
                             engaged in research and development and 4 were in finance,
                             general administration and business development. Of the 13 staff
                             in Hong Kong, 7 were engaged in research and development and
                             6 were in finance, general administration and business
                             development.




                                    – 103 –
                             GENERAL OVERVIEW OF THE GROUP


PROPRIETARY TECHNOLOGY

      The Group’s flagship product in development, the SimBioDAS™ technology, is an in vitro screening
system designed to predict the intestinal absorption of drug compounds in humans effectively with consistent
results within an acceptable margin of error. The SimBioDAS™ system is currently operated manually, and is
intended to be developed into an automated system. The SimBioDAS™ technology is commonly referred to
as the “artificial gut”.

     The SimBioDAS™ system is expected to have the following distinct features:

     •     It will use normal human small intestinal cell lines, which are expected to offer better prediction of
           drug candidate absorbability in humans than the common industry practice of using animal or
           cancer cell lines. The Kinetana Cells that are used in the SimBioDAS™ system are cultured in
           specific conditions from the Buret Cell Line, which are derived from normal human cells and do
           not have a tumoral original and which the Group has the exclusive licence to use under the Cell
           Line Agreement.

     •     It will use disposable cartridges containing the cell membranes; experiments will be conducted
           using a robotic system interfaced with an automated analytical system; analytical data will be
           received and subjected to computer analysis. The SimBioDAS™ system is expected to provide
           rapid screening of potential drugs in a consistent and reproducible manner.

     •     It will have built-in data analysis software that is expected to accurately model the absorption
           characteristics of drug candidates over the entire small intestine instead of giving an estimate of
           absorbability at a particular point along the length of the intestine. As well, the software will take
           into consideration factors not previously accounted for, using multivariate analysis.

     On 8 February 2000, a US patent was issued for the SimBioDAS™ technology which will expire on 2
December 2017, i.e. 20 years after its application was filed, subject to payment of the periodic patent
maintenance fees to the US Patent Office in order to maintain the registration of such patent. Subject to
changes, such fees are currently US$440, US$1,010 and US$1,550 for companies with 500 or less
employees and are payable at 3.5 years, 7.5 years and 11.5 years from the date of issue of the patent.

      The SimBioDAS™ technology aims to help shorten the drug development timeline, thereby reducing the
cost and resources required for the pre-clinical drug development process. The amount of time that can be
saved by using the SimBioDAS™ technology in the drug development process cannot be generalized in any
specific instance. It depends on various factors, including in which stage of the drug development process is
the SimBioDAS™ technology being used and whether the SimBioDAS™ technology is used in different
stages in the process. The Directors believe that the SimBioDAS™ technology could shorten the drug
development time by a few months to more than a year, depending on the situation. On the basis that it costs
an average of US$500 million and 10 years to discover and develop a drug, every week is about US$1 million
on average. Thus the saving of even a few weeks in the process could make using the SimBioDAS™
technology cost effective.




                                                    – 104 –
                                GENERAL OVERVIEW OF THE GROUP


     The following is a simplified process flow diagram of the automated SimBioDAS™ system.



     Media and cell kits
                                                                                                     Drug candidates
     (Note 1)
                                                                                                     with better

                                                                                                     absorbability

                                                                                                     (Note 4)




                                                                          Information
                                                                                                PC


     Customer drug
                                                                                        Virtual gut
     candidates
                                                                                        model
     (Note 2)


                       SimBioDASª          High-throughput screening

                       cartridges          automated equipment

                       (consumables)       (cartridges, fluid handling,

                                           analytical) (Note 3)
    {
    {
    {The process of the automated SimBioDASTM system typically works as follows:

Step 1
                  5JAF                              5JAF                                    5JAF !




      To form cell membranes, the Kinetana Cells grown by the Group are added to small depressions called
“wells” in plastic cartridges, which can be 24-well or 96-well plates depending on the number of wells per
plate. The individual wells have a porous plastic sheet on the bottom which holds the Kinetana Cells in place.
The Kinetana Cells settle and grow in media specially made for such purpose until they cover the plastic
sheet to form a cell membrane. The Kinetana Cells used for the current application by the Group are human.

Step 2

      In an absorbability experiment using automated high-throughput equipment, a drug or herbal product is
placed in the well and samples of media are taken at different time intervals from both above and below the
cell membrane by a computer-controlled robotics unit. The samples are then transferred to an automated
instrumentation system for chemical analysis.

      The automated equipment for high-throughput screening is not invented by the Group and is available
commercially, but requires the Group’s modification in order to meet the specifications of the SimBioDAS™
system. A robotics system company, which is an independent third party, is currently working on the cost of
custom design instrument based on the Group’s experience with their fluid handling system. As at the Latest
Practicable Date, the Group had not entered into any negotiation with such robotics system company for
development of the SimBioDAS™ system into an automated system.




                                                    – 105 –
                                    GENERAL OVERVIEW OF THE GROUP


Step 3

      The resulting ingredient concentration data are then fed into a computer, called the virtual gut model,
where mathematical modelling methods are applied to account for the various processes and factors affecting
absorption, including the experimental results. The virtual gut model computes a prediction of the percentage
of each sample ingredient that will be absorbed if the drug or herb product were to be given to a human.

       The whole process presently takes less than a day from the time that the absorbability experiments
start. The absorbability experiments typically last one hour. The resulting samples can be analyzed in a few
hours and the computer analysis of the resulting data (i.e. the virtual gut analysis) takes approximately one
hour. However, as a preparatory step for the experiments, cell membranes have to be formed by growing the
Kinetana Cells in specific conditions which usually takes approximately three days.

     The Group has developed its first commercialization prototype which will be used by the Group to offer
screening services to pharmaceutical and biotechnology companies. In this prototype, the absorbability
experiments are being conducted manually, but the technology has been shown to work. The Group is also
evaluating a robotics system provided by an independent third party with a view to developing the
SimBioDASTM system into an automated system for culturing the Kinetana Cells and conducting absorption
screening experiments. The Group expects to negotiate with such independent third party for further
cooperation upon completion of the trial out and an estimation of the relevant costs.

     Notes:

     (1)      The cell kits are consumables and contain the cell lines that might be used to start a culture. The media is the fluid made
              up specifically to feed and nurture the cell culture.

     (2)      These drug candidates are different chemical compounds that may be related in structure, but different in absorbability.
              The process aims to isolate, among those with a particular pharmacological activity in the body, the one that has better
              absorption properties for further testing.

     (3)      The automated equipment handles the absorption screening experiments with minimal human intervention.

     (4)      Subsequent to the absorption screening test, the drug candidates with better absorbability are identified.


      The SimBioDAS™ technology has not been independently tested for its effectiveness. To the best of the
Directors’ knowledge and belief, they are not aware of any independent or government authority which will
endorse technology developments, such as the SimBioDAS™ technology, for commercial applications.
However, the Group will allow its potential clients to provide drug samples for testing utilising the
SimBioDAS™ technology, and to be satisfied by the results of the testing before making any business
commitment.




                                                               – 106 –
                               GENERAL OVERVIEW OF THE GROUP


BUSINESS

Business model

       As outlined under the section headed “Industry overview” in this prospectus, the drug development
process requires a long term engagement and investment, and involves many different disciplines and types
of expertise. Therefore, the Directors believe that success is built around the formation of teams that embody
all the expertise required. Success is also determined by how those teams are led, directed and managed.
Projects may fail at any stage along this process, either due to poor efficacy, inability to formulate properly,
toxicity, uncompetitive costs, or other factors. In order to efficiently manage the Group’s resources, the Group
has developed a business model, supported by its core technology and continuous research and
development.

      The Group seeks to complement and enhance its internal capabilities, particularly in technical expertise
and requirements for operation and business developments, with strategic alliances and partnerships, thereby
attempting to limit the risks involved in the drug development process and giving it the flexibility of an efficient
organizational structure. The diagram below depicts the Group’s business model:



                                                 SimBioDASª                              Marketing
                                                 technology                                 and
                                                                                        distribution



               Sourcing
                                                                                      Manufacturing
                                                 Formulation
              Toxicology                            and
                                                  analysis
                                                                                      Preparation of
                                                                                        standards
             Clinical trials



      •     Core technology

            The current focus of the Group’s business is the development of the SimBioDAS™ technology
            which is designed to reproducibly predict the intestinal absorption of drug compounds in humans.
            A related biotechnological method is being developed by adapting the SimBioDASTM technology in
            the Group’s laboratory in Hong Kong to predict the absorption of TCM in humans and to
            effectively isolate active ingredients in natural herbs. Apart from the provision of screening
            services using the SimBioDAS™ technology, the Directors believe that by establishing absorption
            as well as pharmacological and chemical profiles using the Group’s proprietary technology, TCM-




                                                      – 107 –
                      GENERAL OVERVIEW OF THE GROUP


    based formulations with uniform high quality and known active ingredients can be developed.
    Using this approach with support from scientifically reliable data, the Group intends to persuade
    regulatory agencies, especially those in Europe and North America, to accept TCM as a main
    stream drug therapy, and to foster medical and economic opportunities through global acceptance
    of these products.

•   Formulation and analysis

    The Group’s core expertise, from which the Group’s value arises, is in pharmacokinetics and
    pharmacodynamics and related disciplines such as cell biology, analytical chemistry and
    formulation. It is from this core expertise that high value ideas are expected to arise, and
    therefore, the Group will keep activities related to this expertise, such as analysis and formulation,
    within the Group. Consequently, to complement the SimBioDAS™ technology and the related
    biotechnological method for the isolation of active ingredients, the Group intends to maintain
    strong analytical capabilities by having cell biologists and analytical chemists in each of its
    laboratories in Edmonton, Alberta, Canada and Hong Kong in order to keep with the demands of
    identifying active ingredients from complex mixtures. Further, in order to develop dosage forms
    containing active ingredients that can be absorbed well, the Group plans to establish and maintain
    a small formulation laboratory in each of its laboratories in Edmonton, Alberta, Canada and Hong
    Kong. The laboratory in Edmonton is expected to be established after completion of the Share
    Offer in mid 2002, with the one in Hong Kong to be established after the Group has moved into
    the Hong Kong Science Park, which is expected to be by the end of 2003. The Group plans to test
    new herbal product formulations on the SimBioDAS™ technology first, but the laboratories are
    also intended to have pilot plant capabilities so that small batches of product can be made for
    testing in humans, i.e. clinical trials, if required in the future. A product sample can also be made
    for testing marketability before outsourcing for scaling up of the final products.

•   Sourcing

    Very often TCM or herbal remedies/products that are examined in the studies by comparing the
    amount stated on the label to the actual amount in the container have been found to contain little
    or none of the stated ingredients. One of the reasons leading to this problem is the quality of
    herbs that have been used in the production. In order to ensure a supply of herbs of consistent
    quality, the Group intends to enter into strategic alliances with partners in the PRC which are
    engaged in the cultivation of herbs or herbal compounds under controlled environments, such as
    organic growing, genetic engineering or others that meet the internationally adopted Good
    Agricultural Practice as set out by the UK Department for Environment, Food & Rural Affairs.

    On 4 July 2001, the Group entered into a memorandum of understanding with Guobao Holding
    Limited (“Guobao”) with a mutual intention to pursue a collaborative business opportunity to
    develop standardized Cordyceps militaris                    formulations using the SimBioDAS™
    technology. Guobao is an independent third party whose research and development operations
    are principally located in Shanghai, the PRC and possesses the technology to propagate and
    cultivate Cordyceps militaris in a controlled environment as well as all related research results,
    plans, improvements and technical know-how. Cordyceps militaris is a fungus and is most




                                             – 108 –
                      GENERAL OVERVIEW OF THE GROUP


    commonly found in high altitudes. Natural Cordyceps militaris found in the PRC, especially Tibet,
    is regarded as containing active ingredients that can be used as a tonic for the immune system
    and to relieve fatigue, weakness and impotence.

    The Group has also signed a letter of intent on 27 July 2001 with the Shanghai Innovative
    Research Centre of Traditional Chinese Medicine (“Shanghai Innovative”) for the research and
    development of TCM-based formulations. Shanghai Innovative, an independent third party and the
    founding members of which include state-owned authorities, possesses a wealth of knowledge
    and research results in TCM. Further details of the collaboration are subject to further negotiation
    and mutual agreement. The Group aims to capitalise on the resources of Shanghai Innovative for
    the development of novel herbal formulations in the future.

•   Toxicology

    Toxicology is the scientific study of poisons, their actions, detection, and the treatment of the
    conditions produced by them. Toxicology studies are conducted during the pre-clinical trials of
    drug candidates to ensure that any risks to humans are identified. The Group intends to appoint
    PRC research organisations in the future as contract researchers to undertake the toxicology
    studies that may be required by the Group when the Group materialises its plan to develop its
    novel formulation of herbal or TCM-based products into drugs. Such services are also widely
    available in the US and Canada.

•   Clinical trials

    During clinical trials, the test medication is administered to healthy volunteers and patients. This
    step is highly regulated by government agencies, such as the FDA in the US, and the principal
    objectives are to assess the safety, tolerability, dose response and metabolic properties of the
    compound in humans, and to determine the drug’s safety profile, efficacy and optimal dosing
    regimen. The Group will not be required to do clinical trials until it develops its own drug products
    which will then be subject to regulatory approval. In such event, the Group intends to commission
    independent clinical centers to undertake the clinical trials and will only provide the product
    protocol for trials and participate in the design, supervision and monitoring of the trials.

•   Preparation of standards

    The Group plans to quantify active ingredients in its own and others’ natural product formulations
    as part of its quality control and certification system. The Group’s own natural product
    formulations will include its first Ginkgo product and the other future herbal products that will be
    derived from natural Ginseng, Cordyceps militaris, Echinacea and St. John’s Wort. The Group
    also intends to provide screening services to its potential clients or strategic partners for their
    product formulations using the SimBioDAS™ technology or related technology. Once active
    ingredients have been identified, either through the scientific literature or by the SimBioDAS™
    system, they must be purified or synthesized and quantified in order that they may be used to
    quantify active ingredients in mixtures (e.g. extracts from herbs). Natural product chemistry
    expertise capable of performing these purifications is available through research institutes in the




                                            – 109 –
                             GENERAL OVERVIEW OF THE GROUP


           PRC. When opportunities arise, the Group intends to form alliances with some of these institutes
           in order to obtain purified source material for its quality programme. As at the Latest Practicable
           Date, the Group did not have any negotiation underway for such purposes.

     •     Manufacturing

           The Group intends to formulate its own proprietary products, the first one being a Ginkgo product,
           and intends to manufacture them in accordance with GMP by outsourcing. The Directors consider
           that, compared with the formulation development process, the manufacturing process is relatively
           straightforward. The Directors also believe that a wealth of drug manufacturing expertise is readily
           available all over the world, such as in the US, Canada and Europe. The Directors believe that the
           Group will have little difficulty in identifying a qualified and competent drug manufacturer to handle
           the manufacturing process for the drugs that are intended to be developed by the Group. In
           outsourcing the manufacturing process of its products in the future, it is the intention of the Group
           to consider only those who comply with GMP and other relevant quality standards. The Group
           presently intends to outsource the manufacture of its Ginkgo product in Canada. Confidentiality
           clauses will also be included in the relevant agreements with third party manufacturers in order to
           protect the Group’s intellectual property rights.

     •     Marketing and distribution

           The Directors consider that the Group’s competitive edge lies in its strong research and
           development capabilities and that it will be more cost effective for the Group to take advantage of
           external marketing expertise and distribution network by strategic alliance.

           In July 2001, the Group entered into a joint venture agreement with NCM for the marketing and
           distribution of TCM-based products, particularly in Hong Kong and Japan. NCM is principally
           engaged in the marketing and distribution of proprietary Chinese medicine, particularly through its
           established cooperative relationship with tour operators in Japan to Japanese tourists. NCM also
           markets its products through its retail outlet in Hong Kong, an online store, mail order services
           and its membership plan. It is intended that the Group and KNCM will utilize the distribution
           network of the NCM group for distributing its products. As the health concerns of people in Japan
           and Hong Kong are generally increasing, the Group considers both Japan and Hong Kong as
           potential markets for its products.

           The Group continues to seek strong marketing partners with extensive marketing and distribution
           channels in order to maximize the commercial benefits of its products.

      The Group has entered into agreements/letters of intent with the following institutions and companies
for the purposes of exploring and developing the business and marketing the products and services of the
Group, each of whom is an independent third party not connected with the directors, chief executive,
substantial shareholder or management shareholders of the Company or its subsidiaries or their respective
associates.




                                                    – 110 –
                              GENERAL OVERVIEW OF THE GROUP


Research and development arrangements

•    ITF agreements

       The Group has entered into agreements with the Hong Kong Government and HKUST and CUHK
respectively in respect of research and development activities. The principal terms of these agreements are
as follows:

                                          HKUST                               CUHK

     Date of agreement                    15 June 2001                        30 July 2001

     Project title                        Establishing the SimBioDAS          Development of
                                          “Artificial Gut” technology for     TCM-based products with
                                          the development of TCM-based        known active ingredients
                                          products                            and verified oral absorbability

     Target results                       To validate a proprietary           To validate the proposed
                                          custom device made for              biotechnological approach
                                          predicting TCM ingredient           for the modernization of TCM
                                          absorption; to develop a            and to use the validated
                                          series of biological assays         advanced biotechnological
                                          for pharmacological evaluation,     method to develop a new
                                          and to develop activity and         modernized TCM herbal
                                          absorption profiles of a            pre-formulation with
                                          TCM formula which will be           controlled known active
                                          used in the treatment of            ingredients and confirmed
                                          liver cancer                        pharmacological activities for
                                                                              the treatment of
                                                                              cardiovascular diseases

     Project commencement date            1 July 2001                         1 January 2002

     Estimated total project cost         HK$6,776,000                        HK$5,500,000

     Total Government grant               HK$3,388,000                        HK$2,750,000

     Group’s total contribution           HK$3,388,000                        HK$2,750,000

        Contributed                       HK$1,502,563                        HK$630,000
        By 1 April 2002                   HK$577,125                          HK$552,000
        By 1 October 2002                 HK$587,125                          HK$440,000
        By 1 April 2003                   HK$492,125                          HK$500,000
        By 1 October 2003                 HK$229,062                          HK$424,000
        By 1 April 2004                   –                                   HK$204,000

     Expected completion date             31 December 2003                    30 June 2004




                                                 – 111 –
                              GENERAL OVERVIEW OF THE GROUP


•     A Japanese pharmaceutical company

      The Group entered into an agreement on 20 September 2001 with a Japanese pharmaceutical
company, an independent third party,, pursuant to which the parties agreed to collaborate to conduct a
feasibility study on the development of a novel, sustained-release formulation of an antibiotic in the
prevention and treatment of infectious diseases using the Group’s core competence in pharmacokinetics and
pharmacodynamics. Further details of the development plan depends on the results of the feasibility study
which shall be submitted by the Group by 30 September 2002 and further negotiation and mutual agreement.

•     Guobao Holding Ltd

       The Group entered into a memorandum of understanding dated 4 July 2001 with Guobao under which
the parties expressed their mutual intention to develop standardized Cordyceps militaris formulations in
collaboration using the SimBioDAS™ technology and the technology of Guobao to propagate and cultivate
Cordyceps militaris in a controlled environment. Guobao is owned by a private company and four individuals,
all of which are independent third parties. Further details of the collaboration are subject to further negotiation
and mutual agreement.

•     Shanghai Innovative Research Centre of Traditional Chinese Medicine

      The Group entered into a letter of intent dated 27 July 2001 with Shanghai Innovative under which the
parties expressed their mutual intention to conduct research and development of TCM-based formulations
using the SimBioDAS™ technology. Shanghai Innovative, an independent third party and the founding
members of which include state-owned authorities, has been established for the modernization of TCM in
Shanghai and possesses a wealth of knowledge and research results in TCM. Further details of the
collaboration are subject to further negotiation and mutual agreement.

•     Shaanxi Yangling Daiying Biological Engineering Ltd.

       The Group entered into a letter of intent dated 30 June 2001 with Shaanxi Yangling Daiying Biological
Engineering Ltd. (“Shaanxi Daiying”) under which the parties agreed to establish a screening system for
screening drugs for Hepatitis C in collaboration using the SimBioDAS™ technology. Shaanxi Daiying, an
independent third party, is engaged in research on biological engineering and is specialised on the research
and development of methods for treatment of Hepatitis C virus. Further details of the collaboration are subject
to further negotiation and mutual agreement.

•     Sichuan Academy of TCM

      The Group entered into a preliminary agreement dated 29 September 2001 with Sichuan Academy of
TCM (“Sichuan Academy”), an independent third party, under which the parties agreed to identify active
ingredients and perform quality assurance on TCM and formulas based on TCM herbs grown and cropped in
Sichuan using the SimBioDAS™ technology. The Group shall first conduct studies and analysis on the TCM
herbs or formulations being studies by Sichuan Academy in relation to Rheumatoid arthritis
         , acute gouty arthritis                       and allergic Rhinitis           . Further details of
the collaboration are subject to further negotiation and mutual agreement.




                                                     – 112 –
                             GENERAL OVERVIEW OF THE GROUP


Marketing and distribution arrangement

•    KNCM

      The Group entered into a shareholders’ agreement dated 10 July 2001 with NCM, an independent third
party, in relation to the operation of KNCM, which is owned by them in equal shares. It is intended that the
principal business activities of KNCM, among others, shall be the marketing, sale and distribution of the
Group’s herbal or TCM-based products. Under the shareholders agreement, each of the Group and NCM has
agreed to contribute approximately HK$500,000 towards the capital of KNCM. NCM is principally engaged in
the marketing and distribution of proprietary Chinese medicine.

•    Aptus Medical Group Limited

      Pursuant to a preliminary alliance agreement dated 15 January 2002 between the Group and Aptus
Medical Group Limited (“Aptus”), an independent third party, the parties expressed their mutual intention to
develop collaborative opportunities and form strategic alliances for the marketing of the Group’s products and
technological services on a non-exclusive basis in the PRC. Further details of the collaboration are subject to
further negotiation and mutual agreement.

      No further negotiations on the details of the collaboration have been made by the Group since the
signing of the above-mentioned agreements / memorandum of understanding / letters of intent with Guobao,
Shanghai Innovative, Shaanxi Daiying, Sichuan Academy and Aptus as such business objectives or plans
may only be implemented or proceeded by the Group upon the Group obtaining the necessary funding.

Revenue model

       The Group has commenced commercialisation of the SimBioDAS™ technology since November 2001
by offering drug screening services to the market. However, the Group had not secured any business contract
until the last quarter of the Track Record Period.

      In January and February 2002, the Group signed two business contracts. The first one was signed with
an independent third party, which is a manufacturer of honey wine, for an amount of HK$600,000. The
services provided under this contract included:

     –     to establish protocols using the SimBioDAS™ technology for the evaluation of the honey wine
           absorption;

     –     to draft clinical trial protocol to evaluate the nutrient content and any hang-over effect of honey
           wine using the SimBioDAS™ technology;

     –     to identify the content of the honey wine;

     –     to set up quality control criteria for honey wine and its ingredient absorption using the
           SimBioDAS™ technology; and




                                                   – 113 –
                             GENERAL OVERVIEW OF THE GROUP


     –     to design and establish fermentation laboratory in accordance with GLP guidelines to ensure
           consistency of yeast stock.

     Such contract was completed in March 2002 with the contract amount fully settled.

     The second contract was signed with an indirect wholly-owned subsidiary of NCM, the Group’s joint
venture partner, for an amount of HK$1,000,000. The services to be provided under this contract include:

     –     to custom develop analytical assays for eight TCM formulae which should include quality control
           under GLP conditions for up to five major absorbable and active markers using the SimBioDAS™
           technology; and

     –     to evaluate the dissolution and disintegration properties and shelve-life of the TCM finished
           products.

      Such services will be provided in stages in line with the client’s development and production processes
and are expected to be completed by April 2004. This contract had been completed as to approximately 15%
and 30% as at 28 February 2002 and the Latest Practicable Date, respectively.

     The Directors expect that in the future, the Group’s business contracts will usually be settled in either
Canadian dollars, Hong Kong dollars or US dollars. Payment terms will be negotiated on a case by case basis
and will be stipulated in written contracts for the relevant transactions.

      The costs of services provided by the Group comprise primarily the scientists’ salaries, depreciation of
laboratory equipment and laboratory consumables and medical supplies. Purchases of these laboratory
consumables and supplies are usually made periodically to meet the day-to-day operation requirements of the
Group’s laboratories, and are not made specifically for any business contracts. The Group’s purchases are
usually made from suppliers in Canada or in Hong Kong, and are settled in Canadian dollars or Hong Kong
dollars. None of the Directors, their respective associates nor any shareholder of the Company (who or which
to the knowledge of the Directors will be interested in more than 5% of the issued share capital of the
Company immediately after the Share Offer and the Capitalization Issue, without taking into account the
Shares which may be taken up under the Share Offer) had any interest in any of the Group’s suppliers during
the Track Record Period.

      The Directors expect the Group’s revenue profile to develop over time when the SimBioDAS™
technology becomes widely adopted for in vitro screening and the Group has successfully developed its
proprietary TCM-derived products. The Group currently targets the following revenue streams:

     •     Service revenue (operation in progress) is expected to be one of the major sources of the
           Group’s revenue when the Group is commissioned by clients to undertake screening analyses
           using the SimBioDAS™ technology for drug compounds and natural product ingredients for the
           purposes of evaluating formulations or improving drug formulations or natural products, including
           TCM. If the Group is commissioned to undertake screening analysis by a potential client for a




                                                   – 114 –
                      GENERAL OVERVIEW OF THE GROUP


    particular drug compound, the service revenue is likely to be on a one-off basis. If the Group is
    commissioned to undertake screening analysis in respect of a drug development project, the
    service revenue is likely to be based on the services provided and not on a one-off basis. In either
    case, the Group needs to set out its own equipment and facilities of the SimBioDAS™ system for
    the provision of services to its clients.

•   Revenue from the sale of proprietary formulations of popular herbs (in approximately three to
    six months from the Latest Practicable Date) sold as nutraceuticals in the worldwide markets is
    expected to be a significant source of revenue in the short to medium term, and continuing
    onward. The Group intends to launch is first Gingko product in the second quarter of 2002. In two
    to three years as currently planned, revenue is expected to increase through the release of
    additional herbal products, such as Panax ginseng              , Hypericum perforatum (commonly
    known as St. John’s Wort)                         , Silybum marianum               and Echinacea
                 , and from upgrading these products to FDA-approved drugs where possible. These
    herbs have been extensively studied in scientific literature and in the treatment of various health
    conditions. The Group will continue to do research on the market size and potential of these
    herbal products that it is developing or will develop.

•   Contract revenue (in approximately six to 12 months from the Latest Practicable Date) is also
    expected to form one of the major sources of the Group’s revenue in the short term when the
    Group is contracted by clients, such as pharmaceutical companies, biotechnology companies,
    laboratories and research institutes, for the provision of pre-clinical testing services for synthetic
    or natural herbal drug candidates using the SimBioDAS™ technology. This revenue stream is
    directly linked to the level of acceptance and usage of the SimBioDAS™ technology by the
    Group’s potential clients.

•   Licensing fees (in approximately 15 to 21 months from the Latest Practicable Date) are expected
    to be another major source of the Group’s revenue in the short term when the use of the
    SimBioDAS™ technology is licensed to clients for use in their own laboratories. The Group
    recognizes that some potential clients may prefer conducting the screening tests in their own
    laboratories in order to better utilize their own resources in screening tests or for confidentiality
    reasons. The Group is prepared to allow the use of the SimBioDAS™ technology by its clients
    under licensing agreements. The terms of the licensing arrangement, including ownership of the
    SimBioDAS™ equipment, will be subject to negotiation by the Group and its potential clients on a
    case-by-case basis.

•   Revenue from the sale of the automated screening system (in approximately 15 to 21 months
    from the Latest Practicable Date) is expected to be realized when the Group has successfully
    developed the SimBioDAS™ technology into an automated screening system, which can be
    controlled by a computer to handle the absorption screening experiments with minimal human
    intervention. The Group is currently exploring such an opportunity with a robotics company which
    has evaluated the SimBioDAS™ technology and is proceeding with a trial out. The main markets
    for the high throughput technology are expected to be large pharmaceutical companies which




                                             – 115 –
                                      GENERAL OVERVIEW OF THE GROUP


           wish to do in-house analysis and contract research organizations which conduct third-party
           screening for smaller pharmaceutical, combinatorial chemistry and biotechnology companies.
           Additional revenue is expected to be generated when the Kinetana Cells used in the
           SimBioDAS™ technology are plated on semi-permeable membranes and prepared in kit format,
           i.e. disposable cartridges. The cartridges are intended to be manufactured on generic multi-well
           plates and be usable in robotic systems produced by third parties.

     •     Revenue from the sale of proprietary TCM-based products developed by the Group is
           expected to be a significant source of the Group’s revenue in the long run when the Group has,
           either alone or jointly with its partners, successfully developed proprietary TCM formulations that
           can be scaled up for commercial production. The Group is currently working with HKUST and
           CUHK in the development of TCM-based formulations for treatment of liver cancer and
           cardiovascular diseases respectively, which are expected to be completed by the end of 2007.

RESEARCH AND DEVELOPMENT

      The market in which the Group operates is characterized by rapidly changing technology, evolving
industry standards, frequent introduction of new technologies and products, and changing market demands.
Accordingly, the Group’s success in the future is expected to depend on its ability to adapt to the rapidly
changing environment. In turn, this will depend on continuous research and development in order to improve
and enhance the performance of the SimBioDAS™ technology and to develop new technologies and
products.

     As at the Latest Practicable Date, the Group’s research and development team comprised 15 full-time
technical staff, of whom 8 were Ph.D scientists, all of whom possess distinguished academic qualifications
and doctorate degrees in the relevant disciplines. Below is an overview chart of the Group’s research and
development team and their complementary expertise.

                                           Pharmacokinetics/Pharmacodynamics
                                                      Yun Kau Tam, Ph.D.
                                              Hugh Alexander Semple, D.V.M., Ph.D.
              Computational                        Nuzhat Tam-Zaman, Ph.D.
                Modelling                                                                       Cell Biology
                                                                                           James Yi-chan Lin, Ph.D.
              Douglas Thacher
                                                                                           Chee Keong Choo, Ph.D.
               Ridgway, Ph.D.
                                                 In silico               In vitro
                                                 (computer               (test tube)
                                                  models)
                   Analytical
                                                                                          Natural Product
                   Chemistry
                                                                                            Chemistry
                 Brian Duff Sloley,
                                                              In vivo                        Lei Ling, Ph.D.
                       Ph.D.
                                                             (animal &
                                                              human)


                        Animal                                                           Formulation
                       Modelling                                                       Raimar Loebenberg,
                Hugh Alexander Semple,                                                        Ph.D.
                     D.V.M., Ph.D.                          Drug                          (Collaborator)
                                                          Metabolism
                                                       Nuzhat Tam-Zaman,
                                                              Ph.D.




                                                             – 116 –
                                     GENERAL OVERVIEW OF THE GROUP


       During the last 24 months, the Group has developed a close relationship with an extensive network of
companies, academic institutions and research institutes in Canada and Hong Kong as well as the PRC,
details of which are summarised in the paragraph headed “Business model” in this prospectus. In particular,
the Group’s ties with HKUST and CUHK and some PRC research institutes have been forged by strategic
alliances under various joint development programmes and cooperation arrangements. Due to such close
relationships, the Directors consider the Group to have a competitive advantage in having access to a wealth
of research talent and technical expertise, and in identifying, attracting and retaining qualified professionals
for the Group’s continuous research and development.

      Furthermore, the Group has a very strong scientific advisory board which comprises of five members all
of whom are professors of renowned universities, namely the University of Washington, University of
Wisconsin and University of Pittsburgh in the US, University of Alberta in Canada and University of Basel in
Switzerland. They have been invited to join the Group’s scientific advisory board because of their reputations
in the scientific community and the relationship of their expertise to the Group’s technology. These professors
have expertise in various disciplines in the bio-pharmaceutical industry, including drug metabolism,
pharmacokinetics, drug formulation, analytical chemistry and immunopharmacology which, the Directors
consider, is required for the proper development of the Group as a biotechnology enterprise. The advisory
board’s function is to provide guidance and direction to the working scientists employed by the Group.

     The following table summarises the areas of research and development activities that the Group had
worked on during the Track Record Period and up to the Latest Practicable Date:

     Technology/                                                    Project                                       Target
     Product               Description/              Party          commencement   Current                        launch            Target
     identification        Purpose                   involved       date           status                         date              market
                                                                                                                                    (note)

     Continuing projects

     SimBioDASTM           Please refer to           the Group      January 1997   Commercialised                 Not               Pharmaceutical
     technology            the paragraph                                           since November 2001            applicable        companies,
                           headed “Proprietary                                                                                      biotechnology
                           technology” in this                                                                                      companies,
                           prospectus                                                                                               laboratories and
                                                                                                                                    research institutes

     Ginkgo biloba         Treatment of mental       the Group      January 2001   Pilot formulation              Second or third   Initially, the US,
                           difficulties associated                                 completed and                  quarter of 2002   Canada, Japan and
                           with old age, poor                                      proceeding to                                    Hong Kong
                           concentration and                                       marketing planning
                           memory, and other
                           mental problems

     TCM-based including   Treatment of liver        the Group and 1 July 2001     Facilities set up,             As a food         Patients with liver
     Radix Angelicae       cancer                    HKUST                         laboratory equipment           supplement by     disease or liver
        sinensis                                                                   and materials acquired,        the end of 2007   cancer
     formulation                                                                   training staff and preparing   (Note)
                                                                                   for bioassay


                                                                    – 117 –
                                      GENERAL OVERVIEW OF THE GROUP


     Technology/                                                     Project                                 Target
     Product                 Description/             Party          commencement    Current                 launch               Target
     identification          Purpose                  involved       date            status                  date                 market
                                                                                                                                  (note)

     TCM-based including     Treatment of             the Group and 1 January 2002   Setting up facilities   As a food            Patients with
     Rhizoma                 cardiovascular           CUHK                           and hiring technical    supplement by        cardiovascular
     chuanxiong              diseases                                                personnel               the end of 2007      diseases
                                                                                                             (Note)
     formulation

     Note: Product development and formulation will continue following the expected project completion date in December 2003 and
           June 2004 respectively with a view to commercialising the product.

     Discontinued projects

     KI001                   Treatment of             the Group      October 1998    Scaled down since       Not yet determined   To be determined
                             endotoxemia                                             September 2000 and                           if project
                                                                                     may be reactivated                           reactivated
                                                                                     as and when market
                                                                                     opportunity arises

     KI002                   Treatment of serious     the Group      October 1998    Suspended in            Not applicable       Not applicable
                             infections with fungus                                  September 2000
                             (moulds) in the lung

     Note: As the Group has not yet commercialized any product as a drug or intends to provide any service that require regulatory
           approval, the Group has so far not applied for any regulatory approval. Details of the laws and regulations that may be
           relevant to the Group’s business, products and services in Canada and in Hong Kong are set out under the paragraphs
           headed “Laws and regulations on the Chinese medicine industry in Hong Kong”, “Applicable Alberta and federal
           Canadian laws and regulations” and “Summary of proposed Canadian natural health products regulations” in the section
           headed “Industry overview” in this prospectus.


      As at 29 February 2000, 28 February 2001 and 28 February 2002, the amount of research and
development costs capitalised by the Group was approximately HK$1.8 million, HK$5.0 million and HK$6.3
million respectively. The Group’s research costs comprised mainly of staff costs and laboratory supplies and
were charged to the profit and loss account as incurred. The Group’s development costs incurred for new
products which were determined on a specific identification basis, were capitalised and deferred when the
projects could be clearly defined. The deferred development costs are amortized over the estimated
commercial lives of the underlying products, subject to a maximum of ten years, commencing from the date
when the products are put into commercial production.




                                                                     – 118 –
                              GENERAL OVERVIEW OF THE GROUP


AWARDS AND RECOGNITION

      The Group was named the winner of the “Best Biochemistry Technology Company” for the year 2000 of
the “Omega Outstanding Information Technology and Financial Enterprises Awards” by the Hong Kong Capital
Magazine for the Group’s outstanding performance and achievement and contribution in the biochemistry
technology industry in Hong Kong.

      Recognizing the Group’s distinguished achievement in developing an in vitro screening system, the
Group was nominated for the 2001 NRC/ASTech Innovation in Industrial Research Award (North of Red
Deer). The award is sponsored by the National Research Council of Canada under the Industrial Research
Assistance Program and is awarded to a company which demonstrates experience and technical maturity in
furthering the commercialisation of sophisticated technology, has the capability to pursue a specific
technology and is willing to employ a student for at least six months to pursue the specific project. Although
the Group did not win the award this year, the Directors consider it an honour to have been nominated.

     Since 1998, the Group has been awarded numerous grants or subsidies from governmental agencies,
such as the National Research Council of Canada and the Hong Kong Government, in support of its research
and development of in vitro screening systems. The Directors consider that such financial support
demonstrates the recognition by the respective governmental agencies of the significance of the Group’s
research plans.

QUALITY CONTROL

      The Group is dedicated to maintaining a high standard of quality control in its operations.

      The Group currently has two research facilities, one in Canada and one in Hong Kong. The Group’s
research and laboratory facilities in Edmonton, Alberta, Canada include components of the SimBioDAS™
system, cell biology laboratories, animal facilities, analytical chemistry facilities, liquid chromatography/mass
spectrometry instruments which are primarily used for cell biology, chemical analysis and computer modeling.
The Group’s research facilities in Hong Kong include similar equipment for the SimBioDAS™ functionality, cell
biology and analytical laboratories and a natural product laboratory for TCM-based product development. The
Group’s laboratories have been set up in accordance with the relevant standards and guidelines for GLP
compliance.

       GLP is a quality system concerned with the organizational process and the conditions under which non-
clinical health and environmental safety studies are planned, performed, monitored, recorded, archived and
reported. Non-clinical health and environmental safety studies covered by the principles of the GLP include
work conducted in the laboratory, in greenhouses, and in the field. Although GLP compliance often represents
quality standard, non-compliance with GLP standards should not be considered a breach of any standards.
GLP compliance is not required under law, but rather for regulatory reasons when conducting studies towards
approval of drugs, etc., to ensure that the studies are conducted with sufficient documentation and that all
procedures can be tracked. Clients may or may not require that services be performed under GLP standards,
depending on whether they require the data to support regulatory studies. Unless specifically exempted by
national legislation, the principles of the GLP apply to all non-clinical health and environmental safety studies
required by regulations for the purpose of registering or licensing pharmaceuticals, veterinary drug products
and similar products.



                                                    – 119 –
                              GENERAL OVERVIEW OF THE GROUP


      Although the Group has not pursued for certification as it has not commercialized the SimBioDAS™
technology during the Track Record Period, the Group intends to maintain its laboratories at GLP standards
and will consider proceeding with the GLP certification when the Group has sufficient resources. The
Directors consider that the Group’s dedication to comply with the GLP standards is a demonstration of the
Group’s stringent quality control in its operations.

COMPETITION

      The SimBioDAS™ system is a patented system in the US, the patent of which will expire on 2
December 2017. Nonetheless, there are other companies that are attempting to address the industry’s
requirements in respect of drug screening analyses. The Group is aware of several US-based pharmaceutical
and biotechnology companies that have established operations and facilities for the provision of drug
screening or related services. These companies work with commercially available cell lines that are usually
derived from human cancerous tissues and provide services for drug screening similar in some respects to
what the Group is proposing. However, there are key differences between their services and the
SimBioDAS™ system. Firstly, these companies use cell lines that were derived from cancerous tissue and
thus have built-in flaws, which prevent it from accurately predicting the absorption of drugs in the gut.
Secondly, the Kinetana Cells used by the Group in the SimBioDAS™ system has a significantly shorter
maturation time than the commercially available cell line. Thirdly, the commercially available cell line only
represents one small portion of the gut. Different drugs are absorbed in distinct but different regions of the gut
and at varying rates as they pass through. A number of parameters are not accounted for when absorption
tests are conducted on cells in a test tube.

      The Directors consider that the SimBioDAS™ system will have the following distinct advantages:

      •     it will use normal human cell lines, which are expected to offer better prediction of drug candidate
            absorbability in humans than the common industry practice of using animals or cancerous cells;

      •     it will use the Kinetana Cells which can be cultured in three days, i.e. a significantly shorter time
            than the commercially available cancerous cells which usually take about 21 days; and

      •     it will have built-in computer analysis software that are developed by the Group‘s own expertise in
            analytical chemistry and computational modelling and is expected to accurately model the entire
            gut, not just a portion of the gut, thereby taking into consideration parameters not accounted for in
            a “test tube model”.

       The Group is developing a Ginkgo product and plans to develop more single-herb products from herbs
with worldwide popularity, such as Echinacea, St John’s Wort and Silymarin. The Group is also aware of
numerous companies that develop and manufacture herbal preparations. These companies manufacture
herbal supplements from extracts similar in some respects to what the Group proposes to develop. However,
there are key differences between their products and the Group’s products. Firstly, the Group uses the
SimBioDAS™ system to establish and verify the absorbability of herbal ingredients. Secondly, the Group’s
expertise in pharmacokinetics, pharmacodynamics and formulation are used to develop a dosage form with
optimal dissolution. Thirdly, the Group uses its analytical capability to ensure the ingredient quantity in the
final product is consistent for each production batch.




                                                     – 120 –
                             GENERAL OVERVIEW OF THE GROUP


     The Directors consider that the Group’s herbal products will have the following distinct advantages:

     •     consistent quantities of ingredients;

     •     dosage forms with optimal dissolution; and

     •     absorption properties verified using the SimBioDAS™ system.

STRENGTHS

     The Directors believe that the competitive strengths of the Group are as follows:

Strong research and development capability

       The Group has a full-time research and development team comprising of 9 Ph.D scientists and 8
additional technical personnel. The Group’s research and development staff possess advanced academic
qualifications and technical know-how in their areas of profession. With such strong research and
development capability, the Directors consider that the Group is able to maintain its market position as a
reputable enterprise in designing and developing screening technology and high quality herbal products. The
Group’s strategic alliances with various companies, academic institutions and research institutes are also
intended to provide the Group with access to a wealth of technology, research results and product information
relating to the biotechnology and pharmaceutical industries.

Significant awards and recognition

       The Group was named the winner of the “Best Biochemistry Technology Company” for the year 2000 of
“Omega Outstanding Information Technology and Financial Enterprises Awards” by the Hong Kong Capital
Magazine for the Group’s outstanding performance and achievement and contribution in the biochemistry
technology industry in Hong Kong, and has received numerous grants or subsidies from governmental
agencies, such as the National Research Council of Canada and the Hong Kong Government, in support of
its research and development for the in vitro screening systems. The Directors consider that such recognition
will enhance the market profile and market acceptance of the Group’s technologies, services and products.

Parallel development

      As mentioned earlier, the drug development process is a typically long, complex, costly and highly
regulated process and involves risk as only one in every 5,000 to 10,000 compounds screened eventually
becomes an approved drug. Although the Group expects to require considerable financial resources to
implement its plan to develop proprietary TCM-based products, its cashflow requirements during the drug
development process can be eased by the revenue expected to be generated by the SimBioDAS™
technology. Using the SimBioDAS™ technology, the Group may also produce high quality herbal products or
nutraceuticals in the short term. The Group presently expects to launch its proprietary formulation of Ginkgo
product in North America and Asia initially and then Europe in approximately six to 12 months.




                                                   – 121 –
                              GENERAL OVERVIEW OF THE GROUP


Strategic alliances

       The Group has entered into various strategic alliances with partners who possess the technology or
know-how in various disciplines essential for successful drug development. By way of such networks, the
Group intends to limit its risks involved in the drug development process and to enjoy the flexibility of an
efficient organizational structure. For a brief summary of the Group’s development in respect of strategic
alliances, please refer to the paragraph headed “Business model” in this prospectus. Please also note that
the terms of some of the Group’s strategic alliances are subject to further negotiation and mutual agreement.

ISSUE OF BURET OPTION AND BURET ALLOTMENT

      In developing the cell biology component of the SimBioDAS™ technology, the Group has acquired the
human intestinal cell line from Dr. Buret and began developing the conditions for growing the cells and
forming membranes with them so that absorption experiments could be conducted.

      Dr. Buret is not an employee of the Group. Dr. Buret is an independent third party who became
acquainted with the Group in mid 2000 when the latter acquired the Buret Cell Line from him. Dr. Buret
obtained his Ph.D (Pathophysiology of Infectious Disease) in 1991 from the University of Calgary (Canada)
and served as a Post-doctoral Fellow in the University of Newcastle (Australia) and University of Calgary. Dr.
Buret is currently an Associate Professor of the Department of Biological Sciences (Zoology/Cellular,
Molecular & Microbial Biology) in the Faculty of Science at University of Calgary.

      The Buret Cell Line was originally intended to be used for studying human small intestine wall cell
functions. The Group considers that it was amongst one of the first companies which discovered the use of
the Buret Cell Line and tested it out in the drug screening analysis. In July 2000, the Group cultured the Buret
Cell Line in specific conditions and performed analyses and measures of the various properties of the cell line
in respect of absorption with a view to determining the cell line’s suitability for use in the SimBioDAS™
system. For the purpose of having an exclusive licence to use the cell line and related technologies created
by Dr. Buret, the Group entered into the Cell Line Agreement.

       Pursuant to the Cell Line Agreement, Dr. Buret granted an exclusive licence to the Group to use the
Buret Cell Line and the related technologies developed and/or acquired by Dr. Buret in the field of predicting
and measuring the effective absorption of chemical or biochemical entities, including compounds of natural or
endogenous origin, by the human gastrointestinal system (“Field of Use”) and to manufacture, commercialise,
distribute, market, sell and lease any services, processes or goods utilizing the Buret Cell Line and the
related technologies within the Field of Use for a term of two years from 7 November 2001, together with an
option to the Group, exercisable prior to the expiration of the initial term, to extend the license perpetually for
the sum of CAN$100,000. If the Group exercises the option to extend the license, Dr. Buret will have the
option to receive such payment in cash or in common shares of KGI at CAN$0.70 (approximately HK$3.50)
per share or by a combination thereof. In addition, Dr. Buret would be entitled to be paid and allotted and
issued an aggregate of CAN$40,000 and 57,144 common shares of KGI respectively, of which CAN$10,000
and 14,286 common shares of KGI has been paid and allotted and issued to Dr. Buret accordingly. As to the
balance of CAN$30,000 and 42,858 common shares of KGI, CAN$15,000 and 21,429 common shares of KGI
will be paid and allotted and issued to Dr. Buret within 360 days and 450 days respectively and the remaining
CAN$15,000 and 21,429 common shares of KGI within 720 days, all from 7 November 2001.




                                                     – 122 –
                             GENERAL OVERVIEW OF THE GROUP


      During the term of the licence, Dr. Buret shall be entitled to a royalty of 2% of monies actually received
by the Group from the net sales of services, processes and goods making use of the Buret Cell Line and/or
licensed technologies within the Field of Use. In the event KGI sub-licenses the Buret Cell Line or the
licensed technologies, KGI shall pay to Dr. Buret (i) 2% of the revenues paid to KGI as a fee or royalty from
any sub-licensing arrangement and/or the sale of services, processes and goods making use of the Buret Cell
Line and/or licensed technologies by the sub-licensee(s) within the Field of Use; and (ii) in the event such
sub-licencee is introduced by Dr. Buret, the percentage referred to in (i) shall be increased to 5%.

      Pursuant to the Buret Exchange Agreement, Dr. Buret has conditionally agreed to sell the common
shares of KGI that may be obtained by him under the Cell Line Agreement to the Company, KBarb or KBVI in
exchange for Shares on the basis of one common share of KGI for approximately 24.45 Shares. The Buret
Exchange Agreement is conditional upon (i) the commencement of trading of the Shares on GEM; and (ii) all
necessary waivers, consents, approvals (if required) in relation to the Company, KBarb and KBVI and their
respective subsidiaries for the Buret Exchange Agreement and the transactions contemplated therein being
obtained, in each case on or before 15 October, 2002.

     During the Track Record Period, no royalty or license fees had been paid by the Group to Dr. Buret as
the Group had not generated any sales revenue using the Buret Cell Line or the licensed technologies.

      Pursuant to the Buret Exchange Agreement, exercise in full of the Buret Option will result in the issue of
3,493,828 Shares at approximately HK$0.14 per Share and approximately 72% below the minimum Offer
Price of HK$0.50 per Share and approximately 79% below the maximum Offer Price of HK$0.68 per Share
and allotment in full of common shares of KGI pursuant to the Buret Allotment will result in the issue of
1,048,170 Shares (representing, in aggregate, approximately 0.87% of the issued share capital of the
Company immediately after completion of the Share Offer and the Capitalisation Issue but before
enlargement by the issue of such Shares, or approximately 0.87% after such enlargement).

     The Shares to be allotted and issued pursuant to the Buret Option and Buret Allotment will rank pari
passu in all respects with the fully paid Shares in issue on the date of allotment. No issue of Shares will be
made under the Buret Option nor the Buret Allotment within the period of six months after the Listing Date.

     Application has been made to the GEM Listing Committee for the listing of and permission to deal in the
Shares which may fall to be issued pursuant to the exercise of the Buret Option and the allotment of common
shares of KGI under the Buret Allotment. Particulars of the Buret Option and Buret Allotment are set out in the
paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix IV to this prospectus.

ISSUE OF ANDERSON OPTION

     The invention entitled “simulated biological dissolution and absorption System” was co-invented by Dr.
Tam and Dr. Anderson.

      Dr. Anderson is an independent third party who became acquainted with Dr. Tam in 1992 when he was a
graduate student at the University of Alberta where Dr. Tam was teaching as a professor. Dr. Anderson
obtained his Ph.D (Pharmaceutical Sciences) in 1998 from the University of Alberta (Canada).




                                                    – 123 –
                             GENERAL OVERVIEW OF THE GROUP


      Pursuant to the Anderson R&D Agreement, Dr. Anderson assigned to KGI his rights, title, estate,
ownership and interest in the SimBioDASTM technology, that was co-invented by Dr. Tam and Dr. Anderson. As
consideration for such assignment, Dr. Anderson was given an option to subscribe for 20,000 common shares
of KGI at CAN$0.50 (approximately HK$2.50) per share and an entitlement to an annual royalty of 1% of the
net profits from the sale of any products utilizing or derived from the SimBioDASTM technology.

      Pursuant to the Anderson Exchange Agreement, Dr. Anderson has conditionally agreed to sell the
shares of KGI that may be obtained by him under the Anderson R&D Agreement to the Company, KBarb or
KBVI in exchange for Shares on the basis of one common share of KGI for approximately 24.45 Shares. The
Anderson Exchange Agreement is conditional upon (i) the commencement of trading of the Shares on GEM;
and (ii) all necessary waivers, consents, approvals (if required) in relation to the Company, KBarb and KBVI
and their respective subsidiaries for the Anderson Exchange Agreement and the transactions contemplated
therein being obtained, in each case on or before 15 October, 2002.

     During the Track Record Period, no royalty had been paid by the Group to Dr. Anderson as neither the
SimBioDAS™ system nor any products developed using the SimBioDAS™ technology had been commercialized.

       Pursuant to the Anderson Exchange Agreement, the Anderson Option is exercisable within the period
commencing on the date falling six months from the Listing Date and ending on 11 February 2005 at the
exercise price of CAN$0.50 (approximately HK$2.50) per common share of KGI. Exercise in full of the
Anderson Option will result in the issue of 489,136 Shares at approximately HK$0.10 per Share and
approximately 80% below the minimum Offer Price of HK$0.50 per Share and approximately 85% below the
maximum Offer Price of HK$0.68 per Share (representing approximately 0.09% of the issued share capital of
the Company immediately after completion of the Share Offer and the Capitalisation Issue but before
enlargement by the issue of such Shares, or approximately 0.09% after such enlargement). The Shares to be
allotted and issued pursuant to the Anderson Option will rank pari passu in all respects with the fully paid
Shares in issue on the date of allotment.

     Application has been made to the GEM Listing Committee for the listing of and permission to deal in the
Shares which may fall to be issued pursuant to the exercise of the Anderson Option. Particulars of the
Anderson Option are set out in the paragraph headed “KGI Consultants Options and Buret Allotment” in
Appendix IV to this prospectus.

INTELLECTUAL PROPERTY RIGHTS

      The Group owns the exclusive rights to a US patent in respect of the invention entitled “simulated
biological dissolution and absorption system” which will expire on 2 December 2017, i.e. 20 years after its
application was filed.

      The Group has 10 patent applications pending in various countries and territories in respect of the
following three inventions:

     (i)    simulated biological dissolution and absorption system;

     (ii)   serum albumin-based parenteral formulations of polyene macrolides (referred to as the KI002
            drug herein earlier, the development of which had been suspended by the Group); and



                                                   – 124 –
                               GENERAL OVERVIEW OF THE GROUP


      (iii)   method and composition for prevention of hepatic steatosis (referred to as the KI001 drug herein
              before, the development of which had been scaled down by the Group and may be reactivated as
              and when market opportunity arises).

     Details of the patent and these patent application are more particularly described in the paragraph
headed “Intellectual property rights of the Group” in Appendix IV to this prospectus.

    The Group has applied in Canada for registration of three trademarks, namely, Kinetana, ,
SIMBIODAS, and in Hong Kong for registration of four trademarks, namely KINETANA, SIMBIODAS,
     and      .

     The Group is also the registered owner of the domain names “www.kinetana.com”, “www.kinetana.ca”
and “www.kinetana.com.hk”.

      Details of the applications for registration of these trademarks and the domain names are set out under
the paragraph headed “Intellectual property rights of the Group” in Appendix IV to this prospectus.

PROPERTY INTERESTS AND PRINCIPAL PLACES OF BUSINESS

       The Group is headquartered in Edmonton, Alberta, Canada. The Group maintains an office and
research facilities at Advanced Technology Centre and Research Centre One, both on 20th Avenue,
Edmonton, Alberta, Canada. These office and research facilities occupy a total area of approximately 6,926
sq.ft. and are leased from Economic Development Edmonton for different terms, including on a month to
month basis and expiring on 31 August 2002, and fixed terms expiring on 31 August 2003 and 31 March 2005
respectively.

       The principal place of business of the Group in Hong Kong is situated at Rooms 101-103 Hong Kong
Institute of Biotechnology, 2 Biotechnology Avenue, Shatin, New Territories, Hong Kong which has a gross
floor area of approximately 3,250 sq.ft.. In March 2000, the Group signed an agreement with the Hong Kong
Institute of Biotechnology Ltd. by passing the admission qualifications of the Hong Kong Science Park. The
Group has the intention to rent premises in the Hong Kong Science Park. The Group intends to relocate its
operations in the Hong Kong Institute of Biotechnology to the Hong Kong Science Park in or about end of
2003 when the custom-designed facility is expected to be completed and the Group will establish a new
research operation for the development of TCM-based products.

      For details of the Group’s laboratory facilities, please refer to the paragraph headed “Quality control” in
this section.

     The Group has also rented two residential properties in Hong Kong as staff quarters for its scientists
who have been relocated to Hong Kong from overseas.

       The property interests of the Group have been valued to be of no commercial value as at 31 March
2002 by LCH (Asia-Pacific) Surveyors Limited, an independent property valuer. The texts of the valuation
letter together with a valuation certificate of these properties prepared by LCH (Asia-Pacific) Surveyors
Limited are set out in Appendix II to this prospectus.




                                                    – 125 –
                               GENERAL OVERVIEW OF THE GROUP


EXEMPTED CONNECTED TRANSACTIONS

       The Company expects that the following exempted connected transactions will subsist following the
listing of the Shares (certain other connected transactions having subsisted in the past are noted in the
accountants’ report in Appendix I to this prospectus, but will not continue after the Share Offer) on GEM:

     (1)   Tam-Zaman Service Agreement

                 Pursuant to a service agreement dated 9 May 2002 (the “Tam-Zaman Service Agreement”)
           entered into between KHP and Dr. Tam-Zaman, the wife of Dr. Tam, KHP agreed to employ Dr.
           Tam-Zaman as the Director of International Affairs and Quality Assurance. Dr. Tam-Zaman holds a
           Ph.D from the Department of Pharmacy and Pharmaceutical Science, University of Alberta,
           Canada and specializes in the effects of parenteral nutrients on hepatic function and drug
           elimination. (Further details of the qualifications and experience of Dr. Tam-Zaman are set out in
           the paragraph headed “Senior Management” in the section headed “Directors, Senior Management
           and Staff” in this prospectus.) Dr. Tam-Zaman will be responsible for supervising the activities of
           the PK/PD Department, including pharmacokinetics studies, data analyses and reporting and
           company-wide quality assurance and acts as a liaison between the Canadian and Hong Kong
           offices of the Group. The Tam-Zaman Service Agreement is for a period of 3 years commencing
           on 1 October 2001 and expiring on 1 October 2004 and, pursuant to which, Dr. Tam-Zaman shall
           devote full time to the affairs of KHP and/or other members of the Group. Dr. Tam-Zaman will be
           remunerated in the following manner:

                (i)     an annual salary of HK$500,000 payable in arrears in 12 equal monthly instalments,
                        subject to annual review (“Base Salary”) which is comparable to the remuneration
                        payable to other scientists of the Group;

                (ii)    a discretionary bonus considered by the board of directors of KHP and paid based on
                        the same criteria and in accordance with the same bonus program which the Group
                        adopts for all the employees of the Group (“Bonus”); and

                (iii)   options to subscribe for 733,705 Shares at 50% of the Offer Price per Share, i.e.
                        between HK$183,426.25 and HK$249,459.70 in aggregate, (representing approximately
                        0.14% of the issued share capital of the Company immediately after completion of the
                        Share Offer and the Capitalisation Issue but before enlargement by the issue of such
                        Shares, or approximately 0.14% after such enlargement upon exercise in full of such
                        options) under the KIBP Pre-IPO Share Option Scheme, details of which are set out in
                        the paragraph headed “Pre-IPO Share Option Schemes” in Appendix IV to this
                        prospectus.

                        Note: The exercise price for the options under the KIBP Pre-IPO Share Option Scheme for all the
                              optionees (including the above options granted to Dr. Tam-Zaman) is 50% of the Offer Price (other
                              than Dr. Choo Chee Keong in respect of 1,589,692 options, for which the exercise price is HK$0.16
                              per Share). Shares arising from exercise of the above options by Dr. Tam-Zaman are subject to 12
                              months lock-up from the Listing Date.




                                                         – 126 –
                 GENERAL OVERVIEW OF THE GROUP


      In addition, Dr. Tam-Zaman shall be entitled to participate in any benefit plans provided by
the Group to its employees, including medical, dental and disability insurance plans (“Benefits”)
and the Share Option Scheme.

      The Tam-Zaman Service Agreement may be terminated without cause (i) by Dr. Tam-Zaman
upon the giving of 3 months’ written notice to KHP or (ii) by KHP upon the giving of 3 months’
written notice to Dr. Tam-Zaman or equivalent payment in lieu of notice.

      The amounts paid by the Group to Dr. Tam-Zaman for the years ended 29 February 2000,
28 February 2001 and 28 February 2002 were approximately HK$400,448, HK$425,147 and
HK$431,609 as Base Salary, Bonus and Benefits respectively and options in respect of an
aggregate of 140,000 common shares of KGI were granted by the Group to Dr. Tam-Zaman,
details of which are set out in the paragraph headed “KGI Pre-IPO Share Option Scheme in
Appendix IV to this prospectus. The Directors are of the view that the aggregate cost of the Base
Salary, the Bonus and Benefits provided by the Group to Dr. Tam-Zaman per annum shall not
exceed the higher of HK$1,000,000 or 0.03% of the net tangible assets of the Group for the
current financial year and each of the two financial years thereafter.

     The Directors (including the independent non-executive Directors) are of the view that the
Tam-Zaman Service Agreement has been and will be entered into in the ordinary course of
business of the Group and is and will be fair and reasonable as far as the independent
shareholders as a whole are concerned and is in the interests of the Group.

      The Tam-Zaman Service Agreement is an exempted connected transaction under Rule
20.25(3) of the GEM Listing Rules as the amount of the Base Salary, Bonus and Benefits involved
per annum is expected to be less than the higher of HK$1,000,000 or 0.03% of the net tangible
assets of the Group and under Rule 20.23(6) of the GEM Listing, as Dr. Tam-Zaman is the wife of
Dr. Tam. Accordingly, the Tam-Zaman Service Agreement is not subject to reporting, announcement
and shareholders’ approval under Chapter 20 of the GEM Listing Rules. In the event that the limit
of HK$1,000,000 or 0.03% of the net tangible assets of the Group in respect of the Base Salary,
the Bonus and the Benefits may be exceeded, the Company has confirmed that appropriate
actions will be taken for compliance with the relevant requirements under the GEM Listing Rules.

      The Directors (including the independent non-executive Directors) are of the view that the
provision of the Tam-Zaman Service Agreement has been and is expected to continue to be
entered into in the ordinary course of the business of the Group and an normal commercial terms
and is and will continue to be fair and reasonable to the Company and the independent
shareholders taken as a whole.

(2)   Accounting Services

      Under the director service agreement between the Company and Patrick Chiu Kit Young, an
executive Director, Patrick Chiu Kit Young will devote 55% of his time to the affairs of the Group.
In the event the Group shall require additional services and advice and in particular in respect of
corporate, financing, accounting and tax advice (“Accounting Services”), Patrick C. Young




                                       – 127 –
                        GENERAL OVERVIEW OF THE GROUP


      Professional Corporation, Chartered Accountant, a firm wholly-owned by Patrick Chiu Kit Young,
      will provide Accounting Services on the latter’s ordinary trading terms and in the ordinary course
      of business.

            The Directors consider that although the Group has appointed a qualified accountant whom
      will normally be stationed in Hong Kong, the Accounting Services may still be required by the
      Group in order to meet statutory reporting requirements and for prudent financial management
      and corporate governance purposes as a Canadian accountant firm would inevitably be more
      familiar with the regulatory requirements concerning the Group’s operations in Canada.

            During the years ended 29 February 2000, 28 February 2001 and 28 February 2002, the
      Accounting Services were provided to the Group at a mutually-agreed rate of CAN$100 per hour
      and the amounts incurred during such periods were approximately HK$82,604, HK$252,871 and
      HK$215,359 respectively. The Group may or may not require the Accounting Services and no
      agreement has been signed between the Group and Patrick C. Young Professional Corporation,
      Chartered Accountant for the provision of the Accounting Services. The Directors (including the
      independent non-executive Directors) are of the view that the cost of the Accounting Services will
      be made on a fair and reasonable basis and on normal commercial terms and expect that such
      costs shall not exceed the higher of HK$1,000,000 or 0.03% per annum of the net tangible assets
      of the Group for the current financial year and the financial year thereafter.

            The provision of the Accounting Services is an exempted connected transaction under Rule
      20.25(3) of the GEM Listing Rules as the amount involved per annum is expected to be less than
      the higher of HK$1,000,000 or 0.03% of the net tangible assets of the Group. Accordingly, the
      provision of the Accounting Services is not subject to reporting, announcement and shareholders’
      approval under Chapter 20 of the GEM Listing Rules. In the event that the limit of HK$1,000,000
      or 0.03% of the net tangible assets of the Group per annum may be exceeded, the Company has
      confirmed that appropriate actions will be taken for compliance with the relevant requirements
      under the GEM Listing Rules.
            .
            The Directors (including the independent non-executive Directors) are of the view that the
      provision of the Accounting Services has been and is expected to continue to be entered into in
      the ordinary course of the business of the Group and on normal commercial terms and is and will
      continue to be fair and reasonable to the Company and the independent shareholders taken as a
      whole.

(3)   Dr. Tam IP Assignment

            Pursuant to an assignment effective 2 February 1999 (as supplemented by a deed between
      KGI and Dr. Tam dated 9 May 2002) (the “Dr. Tam IP Assignment”), Dr. Tam assigned to KGI his
      entire right, title and interest in and to (i) the inventions co-invented by him and Dr. Anderson, i.e.
      the invention entitled “simulated biological dissolution and absorption system”, as described
      herein below (“SimBioDAS Invention”); and (ii) the inventions co-invented by him, Dr. Tam-Zaman
      and Dr. Naobumi Ishida, i.e. the invention entitled “composition for prevention of hepatic
      steatosis” (the “KI001 drug”), as described herein below (“KI001 Invention”), in consideration for




                                               – 128 –
                     GENERAL OVERVIEW OF THE GROUP


5,505,000 common shares of KGI (equivalent to approximately 134.6 million Shares immediately
after completion of the Share Offer and the Capitalisation Issue, representing approximately
25.89% of the issued share capital of the Company immediately after such completion) and a
royalty equal to the percentage(s) as set out below of the net profits derived from any of the
Group’s products utilizing the SimBioDAS Invention and/or the KI001 Invention or any part thereof
(with or without improvements or modifications whether by Dr. Tam or not) provided that the
royalty payable to Dr. Tam in any financial year shall not exceed the higher of HK$1,000,000 or
0.03% of the net tangible assets of the Group (or such higher amount or percentage as may be
allowed under the GEM Listing Rules for exempt continuing connected transactions for de minimis
transactions). The royalty shall be payable to Dr.Tam as long as net profits are derived from any
of the Group’s products utilizing the SimBioDAS™ Invention and/or the KI001 Invention:

(i)    “simulated biological dissolution and absorption system, and the Patent Cooperation Treaty
       (“PCT”) application for Letters Patent therefor, as filed pursuant to the PCT under
       international application number PCT/CA98/01090 and the application for the United States
       Letter Patent therefor, as filed in the U.S. Patent and Trademark Office on 2 December
       1997 and assigned application serial number 08/982,692” (the patent of such invention will
       expire on 2 December 2017)

       Inventors:
       – Dr. Tam
       – Dr. Anderson

      The percentage referred to above for calculation of the royalty payable to Dr. Tam shall be
equal to 1% of the net profits derived from any of the Group’s products utilizing the SimBioDAS
Invention.

(ii)   “composition for prevention of hepatic steatosis (the “KI001 drug”) (The KI001 drug was
       designed to treat endotoxemia, i.e. blood poisoning by bacteria. Further information about
       the KI001 drug is contained in the paragraphs headed “Active business pursuits” and
       “Research and development” in the section headed “General Overview of the Group” of this
       prospectus.), and the PCT application for Letters Patent therefor, as filed pursuant to the
       PCT under international application number PCT/CA97/00176”

       Inventors:
       – Dr. Tam
       – Dr. Tam-Zaman
       – Dr. Naobumi Ishida (Note)

       Note: Dr. Naobumi Ishida is an independent third party who is not connected with the directors, chief executive,
             substantial shareholders or management shareholders of the Company or its subsidiaries or any of their
             respective associates. Pursuant to a research and development agreement dated 1 February 1997
             between Dr. Naobumi Ishida and the Group (as supplemented by an assignment effective from 18 March
             1998 and confirmed by a confirmatory assignment dated 11 February 2000), Dr. Naobumi Ishida assigned
             to the Group her entire right, title and interest in and to the above invention in consideration of an annual
             royalty equal to 2% of the net profits from the sale of the Group’s products utilizing the above invention.
             The royalty shall be payable to Dr. Naobumi Ishida as long as net profits are derived from any of the
             Group’s products utilizing the KI001 Invention.




                                                – 129 –
                        GENERAL OVERVIEW OF THE GROUP


           The percentage referred to above for calculation of the royalty payable to Dr. Tam and Dr.
      Tam-Zaman in aggregate shall be equal to 1% of the net profits derived from any of the Group’s
      products utilizing the KI001 Invention.

           In summary, the consideration for the assignment of the technologies co-invented by Dr.
      Tam is a combination of monetary compensation and shares/options in the Group, as follows:

            (i)    5,505,000 common shares of KGI; and

            (ii)   the royalty payment,

            No amounts were paid by the Group as royalty to Dr. Tam during the Track Record Period.

            The Dr. Tam IP Assignment is an exempted connected transaction under Rule 20.25(3) of
      the GEM Listing Rules as the amount involved per annum is expected to be less than the higher
      of HK$1,000,000 or 0.03% of the net tangible assets of the Group (or such higher amount or
      percentage as may be allowed under the GEM Listing Rules for exempt continuing connected
      transactions for de minimis transactions). In the event that the limit of HK$1,000,000 or 0.03% of
      the net tangible assets of the Group in respect of the royalty payable to Dr. Tam may be
      exceeded, the Company has confirmed that appropriate actions will be taken for compliance with
      the relevant requirements under the GEM Listing Rules.

            The Directors (including the independent non-executive Directors) are of the view that the
      Dr. Tam IP Assignment has been entered into in the ordinary course of business of the Group and
      on arm’s length basis and is fair and reasonable as far as the independent shareholders as a
      whole are concerned and is in the interests of the Group.

(4)   Dr. Tam-Zaman IP Assignment

            Pursuant to an assignment effective 1 July 1999 (as supplemented by a deed between KGI
      and Dr. Tam-Zaman dated 9 May 2002) (the “Dr. Tam-Zaman IP Assignment”), Dr. Tam-Zaman
      assigned to KGI her entire right, title and interest in and to the inventions co-invented by her, Dr.
      Tam and Dr. Naobumi Ishida, i.e. the invention entitled “composition for prevention of hepatic
      steatosis” (the KI001 drug) as described herein below (“KI001 Invention”) in consideration for KGI
      entering into an employment contract with her dated 1 July 1999 commencing on the same date
      (such employment contract has been superseded by the Tam-Zaman Service Agreement), the
      stock options as referred to in the paragraph “KGI Share Option Plan” in the section headed “KGI
      Pre-IPO Share Option Scheme” in Appendix IV to this prospectus and a royalty equal to the
      percentage as set out below of the net profits derived from any of the Group’s products utilizing
      the KI001 Invention or any part thereof (with or without improvements or modifications whether by
      Dr. Tam-Zaman or not), provided that the royalty payable to Dr. Tam-Zaman in any financial year
      shall not exceed the higher of HK$1,000,000 or 0.03% of the net tangible assets of the Group (or
      such higher amount or percentage as may be allowed under the GEM Listing Rules for exempt
      continuing connected transactions for de minimis transactions). The royalty shall be payable to
      Dr.Tam-Zaman as long as net profits are derived from any of the Group’s products utilizing the
      KI001 Invention:



                                              – 130 –
                   GENERAL OVERVIEW OF THE GROUP


      “composition for prevention of hepatic steatosis” (the “KI001 drug”) (The KI001 drug was
designed to treat endotoxemia, i.e. blood poisoning by bacteria. Further information about the
KI001 drug is contained in the paragraphs headed “Active business pursuits” and “Research and
development” in the section headed “General Overview of the Group” of this prospectus.), and the
PCT application for Letters Patent therefor, as filed pursuant to the PCT under international
application number PCT/CA97/00176”

     Inventors:
     – Dr. Tam
     – Dr. Tam-Zaman
     – Dr. Naobumi Ishida (Note)

     Note : Dr. Naobumi Ishida is an independent third party who is not connected with the directors, chief executive,
            substantial shareholders or management shareholders of the Company or its subsidiaries or any of their
            respective associates. Pursuant to a research and development agreement dated 1 February 1997
            between Dr. Naobumi Ishida and the Group (as supplemented by an assignment effective from 18 March
            1998 and confirmed by a confirmatory assignment date 11 February 2000), Dr. Naobumi Ishida assigned
            to the Group her entire right, title and interest in and to the above invention in consideration of an annual
            royalty equal to 2% of the net profits from the sale of the Group’s products utilizing the above invention.
            The royalty shall be payable to Dr. Naobumi Ishida as long as net profits are derived from any of the
            Group’s products utilizing the KI001 Invention.


     The percentage referred to above for calculation of the royalty payable to Dr. Tam and Dr.
Tam-Zaman in aggregate shall be equal to 1% of the net profits derived from any of the Group’s
products utilizing the KI001 Invention.

      In summary, the consideration for the assignment of the technologies co-invented by Dr.
Tam-Zaman is a combination of monetary compensation and shares/options in the Group, as
follows:

     (i)     the entering into by KGI of the previous employment contract dated 1 July 1999;

     (ii)    the stock options under the KGI Share Option Plan; and

     (iii)   the royalty.

     No amounts were paid by the Group as royalty to Dr. Tam-Zaman during the Track Record
Period.

      The Dr. Tam-Zaman IP Assignment is an exempted connected transaction under Rule
20.25(3) of the GEM Listing Rules as the amount involved per annum is less than the higher of
HK$1,000,000 or 0.03% of the net tangible assets of the Group (or such higher amount or
percentage as may be allowed under the GEM Listing Rules for exempt continuing connected
transactions for de minimis transactions). In the event that the limit of HK$1,000,000 or 0.03% of
the net tangible assets of the Group in respect of the royalty payable to Dr. Tam-Zaman may be
exceeded, the Company has confirmed that appropriate actions will be taken for compliance with
the relevant requirements under the GEM Listing Rules.




                                               – 131 –
                 GENERAL OVERVIEW OF THE GROUP


      The Directors (including the independent non-executive Directors) are of the view that the
Dr. Tam-Zaman IP Assignment has been entered into in the ordinary course of business of the
Group and on arm’s length basis and is fair and reasonable as far as the independent
shareholders as a whole are concerned and is in the interests of the Group.




                                      – 132 –
                           STATEMENT OF BUSINESS OBJECTIVES


     Investors should note that the business objectives stated below and their respective scheduled
times for attainment are formulated on the bases and assumptions as set out under the paragraph
headed “Bases and assumptions” below. These bases and assumptions are inherently subject to
many uncertainties and unpredictable factors, in particular, those set out in the section headed “Risk
factors” in this prospectus. In addition, many, if not all, of these assumptions are untested and
accordingly, may turn out to be invalid. This may result in any or all of the business objectives not
being achieved within the scheduled times or at all. The Group will also review market developments
and market response and its own developments and may adjust its business objectives as time goes
on.

OVERALL BUSINESS OBJECTIVES

       The Group’s mission is to accelerate the discovery and development of synthetic drugs and natural
products, including TCM. In order to accomplish its mission, the Group has designed a plan to achieve
multiple objectives using its platform technology. The Group plans to provide proprietary drug products in the
long term, approximately five to seven years, and also to minimize the Group’s development risks by
generating revenue in the short term, approximately one to five years. Under the current plan, the Group’s
operation in Canada is expected to focus on the development and provision of drug screening services to
pharmaceutical and biotechnology companies using the SimBioDAS™ technology whereas its operation in
Hong Kong is expected to be related to the development and formulation of TCM-related products using the
SimBioDAS™ or related technology. The Directors consider the Group’s activities in Canada and Hong Kong
are intended to be complementary. Both operations leverage on the SimBioDAS™ technology while each has
its distinct market focus – the Canadian operation focuses on the research and development of technology
and the provision of drug screening services while the Hong Kong operation focuses on the development of
TCM related products.

     The Group expects that, in the near future, its business focus will be in the development of health
products in addition to the provision of screening services.

     The following are the Group’s key strategies for generating short to medium term revenue in
approximately one to three years:

In Canada

1.   To offer drug-screening services using the SimBioDAS™ technology

     The Group is currently offering drug-screening services in Canada using the SimBioDAS™ technology.
     The Directors believe that, the number of targets for pharmacology screening would increase due to
     information derived from the US Human Genome Project, which began in 1990 and has been worked on
     for the last ten years by scientists from all over the world to sequence all the chromosomes in the
     human cell. A working draft of the entire human genome sequence was announced in June 2000, with
     analyses published in February 2001. An important feature of this project is the US federal
     government’s dedication to the transfer of technology to the private sector, which fosters the
     development of new medical applications. The number of compounds to be screened would therefore
     increase due to the rapid production of huge combinatorial chemistry libraries, and the major




                                                   – 133 –
                           STATEMENT OF BUSINESS OBJECTIVES


     pharmaceutical companies have been rapidly expanding their absorption screening needs, estimated by
     an independent scientist at 300,000 compounds per year for the ten largest pharmaceutical companies
     alone. With the Group’s current facilities in Canada and before an automated system is set up, the
     Directors believe that the Group can start screening 150 compounds per month by adding one more
     technician in cell biology and analytical chemistry respectively to accommodate the extra work.

2.   To develop an automated system to accommodate the demand for increased throughput of drug
     screening services

     Using the technical expertise in Canada, the Group intends to develop the SimBioDAS™ technology
     into an automated system to accommodate the demand for increased throughput of drug screening
     services. The Directors believe that with the huge number of samples to be screened, high-throughput
     technology will be required to meet the market demand. The Directors consider that the main markets
     for the technology will be large pharmaceutical companies who wish to do analyses in-house and
     contract research organizations who will conduct third-party screening for mostly smaller pharmaceutical,
     combinatorial chemistry and biotechnology companies. In addition to selling or licensing the use of the
     automated system to customers, the Group believes that it will be able to sell the cell line used in the
     SimBioDAS™ system as disposable cartridges, or license out the cell line to customers who can
     prepare the cartridges themselves for use with their own systems.

     The Group can also use the automated SimBioDAS™ system for its in-house requirements in respect of
     testing of natural products, including nutraceuticals, under development in Canada and TCM-based
     products under development in Hong Kong by the Group.

3.   To develop and introduce its first Ginkgo product

     In collaboration with a professor at the University of Alberta specializing in formulations, the Group
     begun in January 2001 pre-formulating a Ginkgo tablet from dried Ginkgo biloba extract using the
     SimBioDAS™ technology. Ginkgo is a natural herb and is commonly used in herbal prescriptions. Fresh
     Ginkgo leaves are perishable and may contain undesirable ingredients or impurities. There are
     numerous Ginkgo products currently available in the market as food supplements. However, information
     about the composition of these products is usually not listed on the labels or made available to
     consumers. Therefore, the Group intends to develop a refined Ginkgo product in capsule or tablet with
     known quantity of absorbable active ingredients by modifying the active ingredient profile of existing
     Ginkgo products to make them stronger. Scientific literature on Ginkgo has described the beneficial
     effects of Ginkgo biloba extracts on patients with different types of dementias (i.e. the loss of mental
     function), mood changes, disturbances in cognitive functions associated with aging and senility; poor
     concentration and memory; confusion, depression and anxiety. The Group’s Ginkgo product is expected
     to contain a known quantity of absorbable active ingredients that are extracted from natural Ginkgo
     leaves. Product development began with evaluation of marketed products to determine the variability in
     the content of active ingredients, and the Group is continuing with evaluation of these products for
     active ingredient absorbability. The Group designed in July 2001 the initial ginkgo tablet formulation and
     will outsource future production of the product. Production of the Group’s Ginkgo tablets is expected to
     begin in the second or third quarter of 2002. The Group plans to initially target the North American
     market. With the joint venture between the Group and NCM in place, the Group also expects to enter
     the Asian market through the marketing channels of NCM in Hong Kong and Japan.



                                                   – 134 –
                           STATEMENT OF BUSINESS OBJECTIVES


4.   To develop and market other single-herb products with worldwide popularity

     The Group plans to develop single-herb products, that are made from one single kind of herb, with
     worldwide popularity into formulations with certified active ingredients and measured absorbability using
     the SimBioDAS™ technology or related technology. Within the next two years, the Group anticipates
     being able to develop, produce and market Echinacea, St. John’s Wort and Silymarin to the world
     markets using the SimBioDAS™ or related technology in the isolation of active ingredients from the
     relevant herbs..

     Echinacea, one of the most frequently used traditional American herbal medicines, is commonly
     believed to act as an immuno-stimulant, or as a preventative against contracting colds or flu. The
     extract from the flower and leaves of St. John’s Wort is a natural herbal product that has been used in
     European folk medicine for indications of depressive disorders, and is often the preferred choice of
     treatment for mild to moderate depression because it is believed to have fewer and less severe side
     effects than synthetic anti-depressants. On the other hand, Silymarin, the purified extract of the fruits of
     Silybum marianum, has been widely used in Europe to maintain liver health and treat diseases of the
     liver. There are various herbal products commercially available in the market as food supplements.
     However, information about the composition of these products is usually not listed on the labels or
     made available to consumers. Therefore, consumers have no knowledge of the type or quantity, if any,
     of active ingredients contained in the products that they are buying. Even if active ingredients are
     identified, it is uncertain if the active ingredients can be absorbed by the body.

     Set out below are some of the common or traditional uses, which may or may not be supported by
     scientific studies, of the herbs that the Group presently intends to develop:

     Herb                                                          Uses

     Ginseng                                                       improving mental and physical vitality
     St. John’s Wort                                               anti-depression
     Silymarin                                                     treatment of liver diseases
     Echinacea                                                     strengthening the immune system

     The Group has done and will continue to do research on the market size and potential of the herbal
     products that the Group is developing or will develop. The Directors consider that herbal products, such
     as Ginseng, St. John’s Wort, Silymarin and Echinacea, are very popular in both the Asian and western
     communities, and that it is the current plan of the Group to use the SimBioDAS™ or related technology
     to develop proprietary formulations of popular herbs with a known quantity of active ingredients with
     measured absorbability that differentiate them from those commercially available in the market. The
     Group expects that the development of these herbal products will begin following the launch of its future
     Ginkgo product, which is expected to be in the second or third quarter of 2002.




                                                    – 135 –
                             STATEMENT OF BUSINESS OBJECTIVES


In Hong Kong

       The Directors believe that the key to success for the oriental applications emanating from the Group’s
base in Hong Kong is to use the SimBioDAS™ technology and its related biotechnological method for active
ingredient isolation to establish a library of active ingredient profiles of TCM herbs. Although western drugs
are usually composed of one single chemical entity, complex mixtures of substances and compounds are
usually found in TCM herbs, therefore, the Group began the development of a biotechnological method by
adapting the SimBioDAS™ technology which is expected to be capable of isolating the active ingredients in
more complex mixtures of organic chemicals originating from herbs while minimizing the complexity of
ingredients and compounds in TCM. The Group’s long-term objective will be to identify and quantify the
absorbable active ingredients in each herb for inclusion in internationally marketable FDA-approved drug
products of high quality. The Group’s development strategy will be to produce a library of herbs with active
ingredient profiles which is currently not available in a scientific and organised manner. The Directors expect
that the single-herb products to be developed by the Group in Canada and Hong Kong will have added value
by using the SimBioDAS™ technology to certify that they contain a specific amount of absorbable active
ingredients. The Group intends that its certification will be a scientifically verifiable mark of quality. Short-term
revenue generation is expected to occur within one to two years in the following areas:

1.    To produce and market Ginseng, Cordyceps militaris and Lingzhi products

      The Group intends to produce and market its Ginseng products in or about December 2002, and
      subsequently Cordyceps militaris and Lingzhi products within the next two years. These products are
      expected to be in capsule or tablet form which contains a known quantity of active ingredients that are
      extracted from natural Ginseng, Cordyceps militaris and Lingzhi, respectively. They are intended to be
      sold worldwide through the Group’s marketing alliances in development, with NCM being the first one
      for the Asian markets. As at the Latest Practicable Date, the Group did not have any negotiations
      underway in respect of strategic alliances for the purposes of worldwide marketing of the Group’s
      products.

2.    To upgrade one to three products for the Group’s joint venture and strategic partners

      The Group expects to participate in upgrading the products of its joint venture and strategic partners
      using the adapted SimBioDAS™ system. The Group has entered into a joint venture and collaborative
      arrangements with various research institutes and pharmaceutical enterprises in the PRC for the
      development and formulation of TCM-based products. Details of these collaborative arrangements are
      set out in the paragraph headed “Business model” in the section headed “General overview of the
      Group” in this prospectus. The Group plans to work on one to three products in the next two years.

     The Group’s long-term objectives, to be integrated between the operations in Hong Kong and Canada in
approximately five to seven years, are as follows:

1.    To continue development of the SimBioDAS™ technology into its next generation in Canada

      In the long term, in approximately three to six years, the Group intends to continue development of the
      SimBioDAS™ technology into its next generation in Canada. The existing SimBioDAS™ technology is
      capable of predicting the intestinal absorption of drug compounds in humans, which is only one of the



                                                      – 136 –
                           STATEMENT OF BUSINESS OBJECTIVES


     pharmacokinetic processes. The Group considers it a strategic move to start working on improving and
     upgrading its technology and aims to include the capability to evaluate other pharmacokinetic processes
     (such as the distribution in, and the elimination from, the body of a drug after taken by mouth) in future
     generations of the SimBioDAS™ system.

2.   To refine the Group’s food supplement grade natural products into FDA-approved drugs

     In the long term, in approximately four to seven years, the Group intends to refine in Canada its natural
     herbal products, that will be developed in the next few years, and develop them as drugs with claimed
     medical or health effects. As these drugs will have undergone a rigorous review process, including pre-
     clinical and clinical trials, in order to obtain FDA approval to be marketed as drugs, the Directors
     consider that such drugs would likely command a higher profit margin. The Group presently intends to
     develop its proprietary Ginkgo formulation into an FDA-approved drug eventually, through changing the
     active ingredient profile of the final product.

3.   To build a profile library of active ingredients of TCM herbs in Hong Kong

     To the best of the Directors’ knowledge, information and belief, scientifically reliable information about
     herbs, including TCM, and their active ingredients is not usually made available to the public because of
     the lack of regulations. Nevertheless, the public is demanding more information and the Group is
     intending to supply not only information about the quantities of key ingredients in its formulations, but
     also to give the customer information about how well these ingredients can be expected to be absorbed
     from the Group’s products. By using the SimBioDAS™ or related technology, the Group intends to
     identify and measure the absorbability of the active ingredients of TCM herbs to form profiles, and to
     produce a library of scientific data on these herbs. With this data, the Group intends to develop and
     produce its proprietary formulations of herbal or TCM-based products. The advantage of a library of
     active ingredient profiles is that many TCM formulae (mixtures of herbs), with previously documented
     clinical efficacy, contain common herbs. The Directors believe that as the library expands, so will the
     Group’s capability to develop new formulae from one or more herbs already profiled. Using the library,
     the Group intends to develop drug products with specific therapeutic indications from previously little
     researched TCM formulae. Thus, the Group expects to be able to develop a large pipeline of formulae
     to treat various diseases, and the relative cost will decrease over time, as profiles can be reused. It is
     these products that the Group believes will carry the long term (four to five years and beyond) prospects
     for high returns. The first two TCM-based formulations that the Group would initially work on are those
     under the collaborative arrangements with HKUST and CUHK respectively for the treatment of liver
     cancer and cardiovascular diseases respectively. The Group plans to launch these TCM-based
     formulations initially as food supplements and, if successful, will refine them as drugs with medical or
     health claims. In pursuing such objective, the Group will have to observe the relevant regulatory and
     approval requirements and it may or may not be able to comply with all such requirements.




                                                   – 137 –
                             STATEMENT OF BUSINESS OBJECTIVES


IMPLEMENTATION PLANS

For the period from the Latest Practicable Date to 31 August 2002


Product Development                    Sales and marketing                     Resources deployment

Drug-screening services

•   To continue the development        •   To identify customers, such as      •   To acquire additional
    of the SimBioDASTM                     pharmaceutical companies,               instrumentation, such as, 2
    technology, particularly in the        biotechnology companies,                LC/MS instruments (Liquid
    areas of refining the culture          laboratories and research               Chromatography/Mass
    conditions of the Kinetana             institutes, for validation of the       Spectrometry for providing
    Cells, by the addition of              SimBioDAS™ technology                   chemical analysis on samples
    various hormones, growth                                                       being produced by the Group)
    promoters and other factors,       •   To begin to identify and sign           (1 for Canada and 1 for Hong
    and refining the computational         agreements with potential               Kong), 1 LC instrument, 1
    modeling system.                       customers for the                       incubator and 3 bio-safety
                                           SimBioDAS™ technology.                  hoods (which will be used by
•   To explore the possibility of                                                  the Group for the purposes of
    having a partner for                                                           air filtration and prevention of
    developing a robotic system                                                    contamination of sterile cell
    on the SimBioDAS™                                                              cultures).
    technology for rapid
    screening.                                                                 •   To employ 2 more technicians
                                                                                   in Canada for application and
•   To begin locating human liver                                                  refinement of the
    cell lines to test in the                                                      SimBioDASTM technology
    development of the second
    generation of the                                                          •   To renovate the existing
    SimBioDAS™ technology                                                          facilities in Canada in order to
    which includes the process of                                                  better utilize the office space
    elimination of drugs by liver                                                  and to improve the efficiency
    metabolism.                                                                    of the operation flow in the
                                                                                   laboratory, in particular for
•   To file 3 patent applications of                                               development of a robotic
    certain inventions or                                                          system on the SimBioDAS™
    processes related to the                                                       technology.
    SimBioDASTM technology.




                                                     – 138 –
                            STATEMENT OF BUSINESS OBJECTIVES


Product Development                  Sales and marketing                   Resources deployment

Herbal and TCM

•   To finalise the manufacturing    •   To determine, establish and       •   To outsource the
    procedure for Ginkgo as a            implement a marketing plan            manufacturing of Ginkgo.
    food supplement.                     for the Group’s Ginkgo
                                         product in North American and     •   To employ a consultant for
•   In Hong Kong, to commence            European markets.                     formulation of the Group’s
    the assay development for                                                  products.
    Ginseng and Cordyceps            •   To establish a marketing plan
    militaris.                           for the Group’s product,          •   In Hong Kong, to employ 1
                                         including the Group’s joint           more technician, 1 marketing
•   In Canada, to commence the           venture partner, for the Asian        consultant, 1 marketing
    assay development for                market.                               assistant and 1 product
    Echinacea and St. John’s                                                   manager.
    Wort.                            •   To launch Ginkgo as a food
                                         supplement in North America       •   To employ 1 marketing
•   To prepare regulatory                and Asia.                             manager for North American
    documents, in respect of the                                               and European markets in
    proposed regulations on                                                    Canada.
    natural health products that
    were announced by Health
    Canada in December 2001
    which are subject to 90-day
    consultation period and a two-
    year transition period
    following final approval, for
    submission of the Ginkgo
    formulation in Canada.

•   In Hong Kong, to support
    CUHK and HKUST to
    establish the ITF projects on
    TCM-based cardiovascular
    and liver cancer formulations.

      It is presently estimated that approximately HK$5.4 million will be required for the scheduled events to
be achieved from the Latest Practicable Date to 31 August 2002, of which approximately HK$1.6 million and
HK$3.8 million respectively will be used for sales and marketing, and product development. For the overall
proposed use of proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share
Offer and use of proceeds” below.




                                                   – 139 –
                             STATEMENT OF BUSINESS OBJECTIVES


For the six-month period ending 28 February 2003


Product Development                   Sales and marketing                  Resources deployment

Drug-screening services

•   To begin the development of       •   To continue to identify and      •   To fully utilise the existing
    an automated system for the           sign agreements with potential       resources and, with the
    SimBioDAS™ technology for             customers, such as                   “learning curve” effects,
    rapid screening.                      pharmaceutical companies,            increase efficiency to cope
                                          biotechnology companies,             with the additional workload.
•   To continue to locate and also        laboratories and research
    to obtain, culture and store          institutes, for the
    human liver cell lines and to         SimBioDAS™ technology.
    locate a stable supply of fresh
    human liver cells for
    evaluation in the second
    generation of the
    SimBioDASTM technology
    (which includes the process of
    elimination of drugs by liver
    metabolism). These human
    and animal cells are freshly
    harvested from a biopsy or
    recently deceased person and
    are commercially available.

•   To continue the refinement of
    the cell culture system for the
    SimBioDAS™ technology
    through developing growth
    conditions to support drug
    metabolism in the cell lines.




                                                   – 140 –
                            STATEMENT OF BUSINESS OBJECTIVES


Product Development                  Sales and marketing                   Resources deployment

Herbal and TCM

•   In Hong Kong, to complete the    •   To determine and establish        •   To employ 1 store manager in
    assay development of                 the marketing plans for               Canada.
    Ginseng and Cordyceps                Ginseng, Cordyceps militaris,
    militaris and commence               Echinacea and St. John’s          •   To employ 2 scientists and 1
    formulation of the products.         Wort in the North American,           technician in analytical
                                         European and Asian markets.           chemistry.
•   In Canada, to complete the
    assay development of
    Echinacea and St. John’s
    Wort and commence
    formulation of the products.

•   To identify and quantify the
    absorbable active ingredients
    in Ginkgo.

•   To support the activities of
    CUHK to validate the active
    ingredient isolator and to
    develop herbal extraction
    methods and absorbable
    ingredient profiles for the
    TCM-based cardiovascular
    formulation.

•   To support HKUST to validate
    the SimBioDAS TM technology
    on a model TCM formula and
    to establish and optimize
    pharmacological assays.

      It is presently estimated that approximately HK$5.9 million will be required for the scheduled events to
be achieved from 31 August 2002 to 28 February 2003, of which approximately HK$1.7 million and HK$4.2
million respectively will be used for sales and marketing, and product development. For the overall proposed
use of proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share Offer and
use of proceeds” below.




                                                   – 141 –
                              STATEMENT OF BUSINESS OBJECTIVES


For the six-month period ending 31 August 2003


Product Development                    Sales and marketing                 Resources deployment

Drug-screening services

•   To continue the development        •   To identify the potential       •   To fully utilise the existing
    of an automated system on              customers, such as large            resources and, with the
    the SimBioDAS™ technology              pharmaceutical companies            “learning curve” effects,
    for rapid screening.                   and biotechnology companies,        increase efficiency to cope
                                           for the licensing of                with the additional workload.
•   To conduct pilot studies               SimBioDAS™ technology.
    comparing major metabolism
    features of selected human         •   To continue to increase the
    liver cell lines and fresh             market share for the
    human liver cells as part of           screening services by
    the development of the                 introducing and promoting the
    second generation of the               features of the SimBioDAS™
    SimBioDAS™ technology.                 technology, through marketing
                                           calls and seminars, to
•   To continue the refinement of          different market segments of
    the cell culture system for the        the pharmaceutical industry.
    SimBioDAS™ technology              .
    through developing further
    growth conditions to support
    the expression of a key drug
    transporter, called P-
    glycoprotein, in the cell lines.




                                                    – 142 –
                            STATEMENT OF BUSINESS OBJECTIVES


Product Development                  Sales and marketing                   Resources deployment

Herbal and TCM

•   In Hong Kong, to finalise the    •   To refine the marketing plans     •   To employ 4 technicians on
    manufacturing procedure of           for Ginkgo.                           analytical chemistry (2 in
    Ginseng and Cordyceps                                                      Hong Kong for performing
    militaris as food supplements.   •   To implement marketing plans          analyses on TCM-related
                                         for Ginseng, Cordyceps                products, such as the Group’s
•   In Canada, to finalise the           militaris, Echinacea and St.          Ginseng and Cordyceps
    manufacturing procedure of           John’s Wort for the North             militaris products, and 2 in
    Echinacea and St. John’s             American, European and                Canada for similar work
    Wort as food supplements.            Asian markets.                        activities on the Group’s
                                                                               herbal products, such as
•   To continue the development      •   To launch Ginseng,                    Echinacea and St. John’s
    of Ginkgo as a drug by               Cordyceps militaris,                  Wort).
    identifying more active              Echinacea and St. John’s
    ingredients, standardizing and       Wort as food supplements.
    formulating them in a way that
    all of the active ingredients
    can be absorbed.

•   To support the activities of
    CUHK to develop a bio-assay
    for the TCM-based
    cardiovascular formulation; to
    identify active ingredients,
    optimize the extraction
    procedure and to test the
    active ingredients of a TCM-
    based cardiovascular formula
    for absorbability using the
    Group’s technology.

•   To support HKUST to extract
    and fractionate the proposed
    liver cancer formula and to
    further identify active
    ingredients.

      It is presently estimated that approximately HK$5.4 million will be required for the scheduled events to
be achieved from 28 February 2003 to 31 August 2003, of which approximately HK$2.1 million and HK$3.3
million respectively will be used for sales and marketing, and product development. For the overall proposed
use of proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share Offer and
use of proceeds” below.




                                                   – 143 –
                            STATEMENT OF BUSINESS OBJECTIVES


For the six-month period ending 29 February 2004


Product Development                   Sales and marketing                  Resources deployment

Drug-screening services

•   To continue the development       •   To license the SimBioDAS™        •   To employ 1 technician for
    of an automated system on             technology to customers, such        drug screening in the cell
    the SimBioDAS™ technology             as large pharmaceutical              biology department.
    for rapid screening by                companies, biotechnology
    implementing features to              companies and research
    improve speed and efficiency          institutes which can afford to
    of processing.                        run their own screening
                                          programmes, for their own
•   To continue the development           absorption testing.
    of the second generation of
    the SimBioDAS™ technology         •   To continue to increase the
    by selecting and testing              market share for the
    human liver cell lines and            screening services by
    fresh human liver cells for           introducing and promoting the
    detailed study of metabolism          features of the SimBioDAS™
    features.                             technology, through marketing
                                          calls and seminars, to
•   To continue the refinement of         different market segments of
    the cell culture system for the       the pharmaceutical industry.
    SimBioDAS™ technology             .
    through developing further the
    growth conditions to support
    the expression of an
    additional drug transporter,
    called the dipeptide
    transporter, in the cell lines.




                                                   – 144 –
                                   STATEMENT OF BUSINESS OBJECTIVES


Product Development                            Sales and marketing                 Resources deployment

Herbal and TCM

•   In Hong Kong, to complete the              •   To launch Ginseng,              •   To acquire 2 LC/MS
    assay development of Lingzhi                   Cordyceps militaris,                instruments (Liquid
    and Salvia miltiorrhiza                        Echinacea and St. John’s            Chromatography/Mass
    (commonly known as                             Wort as food supplements.           Spectrometry for providing
    Danshen)              and                                                          chemical analysis on samples
    commence formulation of the                •   To determine and establish          being produced by the
    products.                                      marketing plans for Lingzhi,        Group), 1 for Hong Kong and
                                                   Danshen, Silymarin and Garlic       1 for Canada.
•   In Canada, to complete the
                                                   in the North American,
    assay development of
                                                   European and Asian markets.     •   To establish a pilot production
    Silymarin and Garlic and
                                                                                       facility in Canada.
    commence formulation of the
                                               •   To refine the marketing plans
    products.
                                                   for Ginkgo, Ginseng,            •   To employ 5 more scientists
•   To continue the development                    Cordyceps militaris,                for the pilot production facility
    of Ginseng, Cordyceps                          Echinacea and St. John’s            in Canada
    militaris, Echinacea and St.                   Wort.
    John’s Wort by identifying and
    quantifying their absorbable
    active ingredients.

•   To c o n d u c t p r e - c l i n i c a l
    pharmacology studies on the
    new Ginkgo formulation.

•   To work with CUHK to conduct
    regulatory pharmacological
    studies, to identify active
    ingredients and their
    metabolites and to finalize the
    extraction of the TCM-based
    cardiovascular formulation.

•   To assist HKUST to fractionate
    and characterize the active
    ingredients of the liver cancer
    formula, and to characterize
    its pharmacology and
    pharmacokinetics, and also to
    develop absorption profiles of
    active ingredients.

      It is presently estimated that approximately HK$15.0 million will be required for the scheduled events to
be achieved from 31 August 2003 to 29 February 2004, of which approximately HK$3.4 million and HK$11.6
million respectively will be used for sales and marketing, and product development. For the overall proposed
use of proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share Offer and
use of proceeds” below.
                                                            – 145 –
                             STATEMENT OF BUSINESS OBJECTIVES


For the six-month period ending 31 August 2004


Product Development                   Sales and marketing                 Resources deployment

Drug-screening services

•   To continue the development       •   To license the SimBioDAS™       •   To employ 1 technician for
    of an automated system on             technology to customers for         drug screening in the cell
    the SimBioDAS™ technology             their own absorption tests.         biology department.
    for rapid screenings by
    implementing features, such       •   To continue to increase the
    as those relating to increasing       market share for the
    speed, to reduce costs without        screening services by
    affecting functionality.              introducing and promoting the
                                          features of the SimBioDAS™
•   To continue the development           technology, through marketing
    of the second generation of           calls and seminars, to
    the SimBioDAS™ technology             different market segments of
    by selecting a single cell line       the pharmaceutical industry.
    or fresh human liver cells and
    begin adapting it or them to
    the automated SimBioDASTM
    system.

•   To continue the refinement of
    the cell culture system for the
    SimBioDAS™ technology
    through developing further the
    growth conditions to support
    the expression of additional
    transport systems, such as
    those for amino acids and
    sugars as well as the multiple
    drug resistance (MDR)
    transporter in the cell lines.




                                                   – 146 –
                            STATEMENT OF BUSINESS OBJECTIVES


Product Development                  Sales and marketing                   Resources deployment

Herbal and TCM

•   In Hong Kong, to finalise the    •   To implement marketing plans      •   To file drug patent
    manufacturing procedure of           for Lingzhi, Danshen,                 applications for Ginkgo and
    Lingzhi and Danshen as food          Silymarin and Garlic in the           liver cancer formulae.
    supplements.                         North American, European
                                         and Asian markets.                •   To outsource animal
•   In Canada, to finalise the                                                 pharmacology and toxicology
    manufacturing procedure of       •   To refine the marketing plans         studies.
    Silymarin and Allium sativum         for Ginkgo, Ginseng,
    (commonly known as Garlic            Cordyceps militaris,
              as food                    Echinacea and St. John’s
    supplements.                         Wort.

•   To continue the development      •   To launch Lingzhi, Danshen,
    of Echinacea, St. John’s Wort,       Silymarin and Garlic as food
    Ginseng and Cordyceps                supplements in North
    militaris through developing         American, European and
    new formulations with specific       Asian markets.
    active ingredient profiles.

•   To conduct pre-clinical
    toxicology studies on the new
    Ginkgo formulation and to
    begin the planning of clinical
    trials.

•   In Hong Kong, to support the
    ITF projects on TCM-based
    cardiovascular and liver
    cancer formulations


      It is presently estimated that approximately HK$8.3 million will be required for the scheduled events to
be achieved from 29 February 2004 to 31 August 2004, of which approximately HK$3.2 million and HK$5.1
million respectively will be used for sales and marketing, and product development. For the overall proposed
use of proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share Offer and
use of proceeds” below.




                                                   – 147 –
                             STATEMENT OF BUSINESS OBJECTIVES


For the six-month period ending 28 February 2005

Product Development                   Sales and marketing                   Resources deployment

Drug-screening services

•   To continue the development       •   To expand the licence base        •   To employ 1 technician for
    of an automated system on             for the SimBioDASTM                   drug screening in the cell
    the SimBioDASTM technology            technology.                           biology department.
    for animal to man scale-up by
    testing and adding animal (rat,   •   To continue expansion of the
    dog, monkey) intestinal cell          licence base for the
    lines (starting with rat cell         SimBioDASTM technology
    lines for this period), along         based upon the added
    with adding rat data to the           functionality due to the
    virtual gut modelling                 addition of transporter
                                          function to the cell line.
•   To continue the development
    of the second generation of       •   To continue to increase the
    the SimBioDASTM technology            market share for the
    by selecting a single cell line       screening services by filling
    or fresh animal (rat, dog,            more clients’ niche
    monkey; starting with rat in          requirements (i.e. special drug
    this period) liver cells and          transporters).
    begin adapting it or them to
    the automated SimBioDAS™
    system.

•   To continue the refinement of
    the cell culture system for the
    SimBioDASTM technology
    through developing further the
    growth conditions to support
    the rat small intestinal and
    liver cell lines.




                                                   – 148 –
                              STATEMENT OF BUSINESS OBJECTIVES


Product Development                  Sales and marketing                   Resources deployment

Herbal and TCM

•   In Hong Kong, to complete the    •   To determine and establish        •   To acquire 2 LC/MS
    assay development of Tian            marketing plans for Tian Chi,         instruments, 1 for Hong Kong
    Chi and Bird’s nest and              Bird’s nest, Milk Thistle and         and 1 for Canada.
    commence formulation of the          Soy in the North American,
    products.                            European and Asian markets.

•   In Canada, to complete the       •   To refine the marketing plans
    assay development of Milk            for Ginkgo, Lingzhi, Danshen,
    Thistle and Soy and                  Silymarin and Garlic.
    commence formulation of the
    products.

•   To continue the development
    of Ginkgo, Ginseng,
    Cordyceps, Echinacea and St.
    John’s Wort by identifying and
    quantifying their absorbable
    active ingredients.

•   To begin clinical trial on the
    new Ginkgo formulation.

     It is presently estimated that approximately HK$6.0 million will be required for the scheduled events to
be achieved from the 1 September 2004 to 28 February 2005, of which HK$2.0 million and HK$4.0 million
respectively will be used for sales and marketing, and product development. For the overall proposed use of
proceeds from the Share Offer, please refer to the paragraph headed “Reasons for the Share Offer and use of
proceeds” below.




                                                  – 149 –
                           STATEMENT OF BUSINESS OBJECTIVES


BASES AND ASSUMPTIONS

      The Directors have assessed the potential of the markets in which the Group operates and formulated
the proposed implementation plans to achieve the Group’s business objectives. The principal assumptions
used to make such assessment and strategic formulations are:

General assumptions

     (a)   There will be no material adverse change in the existing political, legal, fiscal, foreign trade or
           economic conditions in the countries in which the Group carries or intends to carry on business.

     (b)   There will be no material changes in the existing laws, policies, or industry or regulatory treatment
           relating to the Group’s business.

     (c)   There will be continuous growth in the pharmaceutical market. In addition, there will be no
           material changes in the development of drug absorption screening technology and competition
           within the pharmaceutical industry.

     (d)   There will be no material adverse change in the bases or rates of taxation in the countries in
           which the Group operates or its subsidiaries are incorporated.

     (e)   There will be no material adverse change in interest rates or foreign currency exchange rates
           from those currently prevailing.

Specific assumptions

     (a)   The Group will not be significantly affected by any of the risk factors set out in the section headed
           “Risk factors” in this prospectus.

     (b)   There will be a growing demand for the Group’s proprietary technology or the products developed
           by the Group.

     (c)   There will be no significant adverse changes in the Group’s business.

     (d)   There will be no material changes in the funding requirements for the implementation of the
           Group’s business plans as set out in the paragraph headed “Implementation plans” above.

REASONS FOR THE SHARE OFFER AND USE OF PROCEEDS

      The Directors believe that the listing of the Shares on GEM will enhance the Company’s profile and
expand its capital base for future growth and development. The net proceeds from the Share Offer will
provide funding for the Group’s plans as set out in this section.




                                                   – 150 –
                           STATEMENT OF BUSINESS OBJECTIVES


      The net proceeds from the Share Offer, after deduction of the related expenses and based on the
minimum Offer Price of HK$0.50 per Share, are estimated to be approximately HK$46 million. The Directors
currently intend to use such net proceeds as follows:

     –     as to approximately HK$12 million for acquisition of chemical analysis equipment and machines,
           i.e. the LC/MS instrument described in the “Implementation plans“ above, for pilot formulations
           and pilot production of natural herbal products;

     –     as to approximately HK$4 million for hiring additional technical staff and consultant for pilot
           formulation and pilot production of natural herbal products;

     –     as to approximately HK$4 million for funding the manpower cost in respect of additional research
           and development staff, including those in analytical chemistry and cell biology, for the refinement
           and upgrades of the SimBioDAS™ technology;

     –     as to approximately HK$4 million for funding the manpower cost in respect of sales and marketing
           of the Group’s services and products;

     –     as to approximately HK$4 million for the matching fund obligations under the collaborative
           projects with HKUST and CUHK;

     –     as to approximately HK$5 million for acquisition of analytical chemistry and cell biology equipment
           for refinement and upgrades of the SimBioDAS™ technology;

     –     as to approximately HK$2 million for establishing a facility in Canada for development of an
           automated SimBioDAS™ system;

     –     as to approximately HK$1 million for acquisition of equipment to perform contract services,
           especially in absorption screening;

     –     as to approximately HK$5 million for marketing and promotion activities of the Group’s herbal
           products; and

     –     as to approximately HK$5 million for additional manpower cost in respect of herbal product
           development.




                                                  – 151 –
                                     STATEMENT OF BUSINESS OBJECTIVES


      In summary, the implementation of the Group’s business plans for the period from the Latest Practicable
Date to 28 February 2005 will be funded by the proceeds from the Share Offer as follows:

                                   From Latest
                                    Practicable    6 months     6 months     6 months      6 months    6 months
                                        Date to       ended        ended         ended        ended       ended
                                     31.08.2002   28.02.2003   31.08.2003   29.02.2004     31.8.2004    28.02.05   Total
                                                                            HK$’ million

     Acquisition of chemical
       analysis equipment and
       machines for pilot
       formulation and pilot
       production of natural
       herbal products                      0.2          0.2          0.2           8.1          2.1         1.2   12.0

     Hiring additional technical staff
        and consultant for pilot
        formulation and pilot
        production of natural
        herbal products                     0.3          0.3          0.3           0.8          1.1         1.2     4.0

     Additional research and
       development staff, including
       those in analytical chemistry
       and cell biology, for the
       refinement and upgrades
       of SimBioDAS™ technology             0.5          0.6          0.7           0.7          0.8         0.7     4.0

     Sales and marketing of the
       Group’s services and products        0.6          0.6          0.7           0.7          0.7         0.7     4.0

     ITF matching fund obligations
        under the collaborative
        projects with HKUST
        projects and CUHK                   1.1          1.0          1.0           0.7          0.2          –      4.0

     Acquisition of analytical
       chemistry and cell biology
       equipment for refinement
       and upgrades of the
       SimBioDAS™ technology                1.5          1.5          0.5           0.5          0.5         0.5     5.0




                                                               – 152 –
                                     STATEMENT OF BUSINESS OBJECTIVES


                                   From Latest
                                    Practicable    6 months     6 months     6 months      6 months    6 months
                                        Date to       ended        ended         ended        ended       ended
                                     31.08.2002   28.02.2003   31.08.2003   29.02.2004     31.8.2004    28.02.05   Total
                                                                            HK$’ million

     Establishing a facility in Canada
       for development of an
       automated SimBioDAS™
       technology                           0.3          0.3          0.3           0.4          0.3         0.4     2.0

     Acquisition of equipment
       to perform contract
       services using the
       SimBioDAS™ technology                0.4          0.1          0.1           0.1          0.2         0.1      1

     Marketing and promotion
       activities of the Group’s
       herbal products                      0.3          0.7          1.0           1.8          1.2          –      5.0

     Herbal product development             0.2          0.6          0.6           1.2          1.2         1.2     5.0

     Expected utilisation of
       net proceeds                         5.4          5.9          5.4          15.0          8.3         6.0   46.0


      Should the final Offer Price be determined at the maximum Offer Price of HK$0.68 per Share, the net
proceeds from the Share Offer will be approximately HK$66 million. The Directors intend to use the additional
net proceeds of approximately HK$20 million as to approximately HK$10 million for developing and promoting
the Group’s corporate image and product image by advertising and promotion activities; as to approximately
HK$5 million for early repayment of the Group’s finance lease obligations, and as to the balance of
approximately HK$5 million as additional general working capital of the Group.

     To the extent that the net proceeds from the Share Offer are not immediately applied for the above
purposes, it is the present intention of the Directors that such net proceeds will be placed on short-term
deposits with financial institutions in Hong Kong.

     The Group’s detailed business implementation plans up to 28 February 2005 are set out in this section.
According to current estimates, the Directors expect that the net proceeds from the Share Offer (based on the
minimum Offer Price of HK$0.50 per Share) of about HK$46 million will be sufficient to finance the
implementation of the Group’s business plans up to 28 February 2005.

      In the event that any part of the business objectives or the implementation plans of the Group do not
materialise or proceed as planned, the Directors will evaluate such change in circumstances, if any, and may
reallocate the intended funding out of the net proceeds from the Share Offer to other business plans and/or to
new projects of the Group and/or to place such funds in interest-bearing deposits with financial institutions in
Hong Kong as long as the Directors consider such action to be in the best interests of the Group and the
shareholders of the Company as a whole. In such event, the Company will comply with the relevant
disclosure requirements under the GEM Listing Rules.


                                                               – 153 –
                      DIRECTORS, SENIOR MANAGEMENT AND STAFF


DIRECTORS

Executive Directors

      Dr. Yun Kau TAM, aged 49, is the founder and the President and Chief Executive Officer of the Group.
Dr. Tam obtained his Bachelor of Science from the University of Minnesota in 1975, his Master of Science
(Pharmaceutical Science) from the University of British Columbia in 1978 and his Ph.D (Pharmaceutical
Science) from the University of British Columbia in 1981. Dr. Tam has pursued his academic and corporate
interests in basic and clinical pharmacokinetic studies for two decades. Dr. Tam had held various teaching
positions at the University of Alberta during the period from 1981 to 2000, and currently remains an Adjunct
Professor in the faculty of Pharmacy and Pharmaceutical Sciences. Dr. Tam has had in excess of 80 articles
published or accepted for publication in referred journals. He is also the co-inventor of the invention entitled
“simulated biological dissolution and absorption system” which has received patent protection in the US. Dr.
Tam is also a co-inventor of an invention entitled “composition for prevention of hepatic steatosis” in respect
of which the Group has five patent applications pending in various countries and territories. He presently
serves on the Editorial Advisory Board of the Journal of Pharmaceutical Sciences and Drug Metabolism and
Disposition. Dr. Tam is a brother-in-law of Mr. Young. He is also the husband of Dr. Tam-Zaman.

       Mr. Shui Chung YOUNG, aged 49, is the Managing Director and Vice President, Asian Operations of
the Group. Mr. Young obtained his Bachelor Degree in Business Administration (Marketing) at CUHK in 1978.
Since 1999, he has been enrolled in the postgraduate studies part-time program for executives leading to a
Master of Science in International Business from CUHK. He has served several international trading firms and
established Kasonic Hong Kong Limited in 1980 and established Kasonic (China) Limited in 1992. Mr. Young
has been a director of a private management consulting company, which is independent of the Group, since
1994 and was also involved in setting up its subsidiary engaging in food trading, manufacturing and
distribution businesses in the PRC. In June 1999, Mr. Young partnered with Dr. Tam to establish the Group’s
operations in Hong Kong. He is now responsible for the overall management and operational activities of the
Group in Hong Kong. Mr. Young is a brother-in-law of Dr. Tam.

      Mr. Patrick Chiu Kit YOUNG, aged 55, is the Vice President and Corporate Secretary, Canadian
Operations of the Group. In 1972, Mr. Patrick Young obtained his Bachelor of Commerce from the University
of Alberta. In 1975, he was admitted to the Institute of Chartered Accountants of Alberta as a Chartered
Accountant. As well, Mr. Patrick Young obtained his Certified Financial Planner designation in 1999 from the
Financial Planner Standards Council. Mr. Patrick Young operates his own accounting firm, Patrick C. Young
Professional Corporation, Chartered Accountant in Canada. Mr. Patrick Young joined the Group in May 1987
as a part-time accountant and was appointed as executive Director on 5 November 2001 and is responsible
for overseeing the Group’s accounting and financial management in Canada.

Non-executive Directors

      Dr. Antoine A. Noujaim, aged 65, is a non-executive Director appointed on 5 November 2001. Dr.
Noujaim obtained his Bachelor of Science (Pharmaceutical Chemistry) from Cairo University in 1958.
Thereafter, he also obtained both his Master of Science (Bionucleonics) in 1963 and his Ph.D (Bionucleonics)
in 1965 from Purdue University. Dr. Noujaim is the founder, Chairman and Chief Scientific Officer of AltaRex
Corp., a company involved in cancer immunity research, and whose shares are traded on The Toronto Stock




                                                    – 154 –
                      DIRECTORS, SENIOR MANAGEMENT AND STAFF


Exchange. Dr. Noujaim is also a co-founder of Biomira Inc., a corporation whose shares are also traded on
The Toronto Stock Exchange and which is involved in cancer vaccines and therapy. He also served firstly as
an associate professor and then as a professor at the Faculty of Pharmacy, University of Alberta from 1966 to
1992.

      Mr. Chiu Kang LEE, aged 52, is a non-executive Director appointed on 5 November 2001. Mr. Lee
presently acts as the Managing Director of Phoenix Capital Asia Limited. Mr. Lee was educated at the Golden
Gate University in the US and obtained a Bachelor of Arts (Economics) in 1975. Mr. Lee has been appointed
as a key executive of numerous corporations, including Chase Manhattan Bank, Union Bank of Switzerland,
and Hanny Magnetic Holdings Ltd. He is also an independent director of Proview International Holdings Ltd.
and has been a director of Phoenix Capital Investment Holdings Limited since December 1996.

      Mr. David Shong-Tak TAM, aged 39, is a non-executive Director appointed on 5 November 2001. Mr.
David Tam is a partner with the law firm of Parlee McLaws LLP, Barristers and Solicitors in Edmonton,
Alberta, Canada. Mr. Tam obtained his Bachelor of Science (Pharmacy) from the University of Alberta in 1985
and obtained a Bachelor of Laws from the University of Alberta in 1989 and practises securities law, focusing
on the high tech and biotech industries. He has represented both issuers and agents for a number of public
offerings, private placements and regulatory compliance matters. Mr. Tam is also the secretary of several
public companies listed on the Canadian Venture Exchange including Discovery Acquisitions Inc., Granville
Pacific Capital Corp., Guodong Capital Corp., and acts as the secretary and director of Poly-Pacific
International Inc.

Independent non-executive Directors

      Dr. Cecilia Wai Bing PANG, aged 46, is an independent non-executive Director appointed on 5
November 2001. Dr. Pang obtained her Bachelor of Science from the University of Manitoba in 1976. In 1978,
she obtained a Bachelor of Science from Monash University, Australia and in 1983 obtained her Ph.D
(Virulence of Leptospires) from Monash University as well. Dr. Pang worked as a research and development
scientist with Silenus Laboratories from 1985 to 1989 involving in projects directed towards the development
of new diagnostics products in the medical and veterinary fields. Since 1989, Dr. Pang has worked for
Amersham Biosciences Limited, a biotechnology company, holding various positions including Regional
Products Marketing Manager, Regional Marketing Director, General Manager (China), and Vice-President,
Business Development. She currently serves as Director of Business Development of Amersham Biosciences
Limited and is responsible for strategic development projects in the Asia Pacific region.

      Mr. Mo Po CHAN, aged 47, is an independent non-executive Director appointed on 5 November 2001.
Mr. Chan is a graduate of the CUHK where he obtained both his bachelor and master degrees in Business
Administration. He is a fellow member of the Association of Chartered Certified Accountants, the Hong Kong
Society of Accountants, the Institute of Chartered Secretaries and Administrators, the Taxation Institute of
Hong Kong, and the Macau Society of Certified Practising Accountants. He has over 20 years’ experience in
the accounting and finance field and is the managing partner of Paul Chan & Partners, Certified Public
Accountants. He is currently a Council member of the Hong Kong Society of Accountants. He is a former
Chairman of the Association of Chartered Certified Accountants of Hong Kong and a former member of its
Council in the United Kingdom. On the public services side, he serves on the Transport Advisory Committee.
He is also a panel member of the Board of Review (Inland Revenue). He has also been elected to represent
the accountancy sector on the Election Committee of the Legislative Council of the HKSAR.



                                                  – 155 –
                      DIRECTORS, SENIOR MANAGEMENT AND STAFF


AUDIT COMMITTEE

      The Company has established an audit committee with written terms of reference based upon the
guidelines published by the Hong Kong Society of Accountants. The primary duties of the audit committee are
to review the Company’s annual report and accounts, half-year reports and quarterly reports and to provide
advice and comments thereon to the board of Directors. The audit committee is also responsible for reviewing
and supervising the Company’s financial reporting and internal control procedures. The audit committee
consists of two independent non-executive Directors, namely Dr. Cecilia Wai Bing Pang and Mr. Mo Po Chan,
and a non-executive Director, Mr. David Shong-Tak Tam. Mr. Mo Po Chan is the chairman of the audit
committee.

SENIOR MANAGEMENT

      Dr. Nuzhat TAM-ZAMAN, aged 40, is the director of international affairs and quality assurance of the
Group. Dr. Tam-Zaman obtained her Bachelor of Pharmacy in 1985 and her Master of Pharmacy in 1988 from
the University of Dhaka. Dr. Tam-Zaman also obtained her Ph.D in 1996 from the Department of Pharmacy
and Pharmaceutical Science, University of Alberta. Dr. Tam-Zaman spent one year as a scientist in SynPhar
Laboratories Inc., Edmonton, Alberta, Canada. She has pursued her interests in the effects of parenteral
nutrients on hepatic function and drug elimination. She has 17 publications and presented her work in
numerous international meetings. Dr. Tam-Zaman is also a co-inventor of an invention entitled “composition
for prevention of hepatic steatosis” in respect of which the Group has five patent applications pending in
various countries and territories. Dr. Tam-Zaman joined the Group in May 1997 and is the wife of Dr. Tam. Her
responsibilities in the Group include supervising the activities of the PK/PD department, including
pharmacokinetics studies, data analyses and reporting and company-wide quality assurance. Dr. Tam-Zaman
also acts as a liaison between the Canadian and Hong Kong offices.

      Dr. Hugh Alexander SEMPLE, aged 50, is the director of scientific and regulatory affairs of the Group.
He holds a Doctor of Veterinary Medicine from University of Saskatchewan, and a Ph.D (Pharmacokinetics)
from the University of Alberta. From 1989 to 1999, he served as a professor of pharmacokinetics with the
College of Pharmacy and Nutrition (formerly known as the College of Pharmacy), University of Saskatchewan,
and as an Associate Member in the Western College of Veterinary Medicine, University of Saskatchewan. In
July 1998, he joined the Group as the Director of the Pharmacokinetics/Pharmacodynamics Department but
retains the Adjunct Professor status with the University of Saskatchewan. He has over 22 peer-reviewed
publications, most of these concern research related to first-pass metabolism of high-extraction drugs. Dr.
Semple is responsible for overseeing the scientific activities of the Group’s operation in Canada, including
planning, co-ordination, budgeting, experimental design, reporting and implementation. He is also involved in
writing applications for funding, writing business plans and other fund-raising endeavours. In addition, Dr.
Semple oversees the applications to regulatory agencies and ensures compliance with regulations.

      Dr. Douglas Thacher RIDGWAY, aged 32, is a director of the Group’s department of computational
modelling. Dr. Ridgway received a Bachelor of Science (Physics) from Harvey Mudd College in 1991 and
completed a Ph.D (Physics) at the University of California, San Diego in 1997. From 1997 to 1999, he held an
Alberta Heritage Foundation for Medical Research Postdoctoral Fellowship at the Faculty of Pharmacy,
University of Alberta, where he worked on models of drug metabolism, including simulations, data analysis
and model discrimination. Dr. Ridgway has 8 peer-reviewed publications and some other talks, presentations,




                                                  – 156 –
                      DIRECTORS, SENIOR MANAGEMENT AND STAFF


and abstracts. Besides his modeling responsibilities, Dr. Ridgway is involved in experimental design and data
analysis. He is also responsible for developing the Group’s database and for overseeing the Group’s network
operations in Canada. Dr. Ridgway joined the Group in October 1999.

       Dr. Brian Duff SLOLEY, aged 45, is a senior scientist/ analytical chemist of the Group. Dr. Sloley holds
a Bachelor of Science (Biology) from Queen’s University, Kingston, Ontario, a Master of Science (Zoology)
from the University of Western Ontario, and a Ph.D (Biology) from the University of Waterloo, Ontario. After
serving as a post-doctoral fellow, Dr. Sloley was a Sessional Lecturer at the associate professor level at the
University of Alberta from January to April 1993. Dr. Sloley joined the Group in June 2001 and is responsible
for the chemical analysis of all samples produced by other departments of the Group in Canada.

        Dr. James Yi-chan LIN, aged 38, is the senior scientist/ cell biologist of the Group in Canada. Dr. Lin
received both a Bachelor of Science (Marine Resources) and a Master of Science (Marine Biology) from
National Sun Yat-Sen University, Taiwan, and a Ph.D. (Biological Sciences) from the University of Alberta,
Canada. Dr. Lin served as a sessional lecturer in the Department of Biological Sciences, University of Alberta,
from 1 September 1999 to 31 December 1999. Dr. Lin joined the Group in June 2001. He focuses on
developing the cell model for the SimBioDAS™ technology. He is also responsible for integrating the cell line
into an automated system and for all in vitro screening services.

     Mr. Robert William SADLER, aged 39, is the manager, business development of the Group. Mr. Sadler
holds a Bachelor of Science and a Bachelor of Science (Agriculture) both from the University of
Saskatchewan. Mr. Sadler completed his Masters of Business Administration in Enterprise Development from
the University of Calgary in June 2000. From January 1993 to June 1998, he worked with the University of
Saskatchewan Technologies Inc. with the prime function of facilitating the technology transfer from the
university to private sector institutions. He also acted as the Manager of Business Development for Digital
Outcry Inc. from May 2000 to February 2001. Mr. Sadler joined the Group in July 2001, and is responsible for
managing the business activities of the Group in Canada, including business development, marketing,
development and implementation of the business plan for the Group’s operations in Canada.

       Dr. Chee Keong CHOO, aged 36, is the director of cell biology of the Group in Hong Kong. In 1988, he
received a Bachelor of Arts from Hanover College, US. In 1994, he obtained his Ph.D (Physiology and
Biophysics) from Case Western Reserve University where he also performed research on normal and
cancerous cell biology. From 1994 to 1996, Dr. Choo was a Research Fellow at the Institute of Molecular and
Cell Biology in Singapore where he studied human papillomavirus in relation to human cancer. Dr. Choo was
a Research Officer and Honorary Assistant Professor in the Department of Pathology and Department of
Medicine at the University of Hong Kong from 1996-2001. He has published over 10 peer-reviewed journal
articles on the study of normal and cancerous molecular and cell biology. Dr. Choo joined the Group as a
senior scientist in November 2000 and is involved in the generation of animal and human cell lines for further
refinement of the SimBioDAS™ technology and in vitro screening of TCM.

     Dr. Lei LING, aged 39, is a senior scientist (analytical chemist) of the Group. Dr. Ling received his
Bachelor of Science (Chemistry) and Master of Science (Polymer Science) from South China Institute of
Technology (now known as South China University of Technology). He received his Master of Engineering and
Ph.D (organic synthesis) from Ehime University (Japan). Dr. Ling has published over 16 research papers and
a book chapter. After working as a post-doctoral fellow at the Department of Chemistry, University of Alberta,




                                                   – 157 –
                      DIRECTORS, SENIOR MANAGEMENT AND STAFF


Canada, for two years and research scientist in CV Technologies Inc. for four years, Dr. Ling joined the Group
in October 2001 as a senior scientist. He is leading the analytical department of the Group in Hong Kong for
development of methods for product quality control and also provides research support to the Group.

       Mr. Francis Chi-ming LAM, aged 43, is the financial controller and company secretary of the Group.
Mr. Lam holds a Bachelor Degree in Economic and Social Studies from the University of Manchester, United
Kingdom. He has over 17 years of experience in accounting, auditing and financial control and management.
Prior to joining the Group, Mr. Lam was the chief operating officer of a listed company in Hong Kong and had
worked in a major international accounting firm. He is a fellow member of the Association of Chartered
Certified Accountants and an associate member of the Hong Kong Society of Accountants. Mr. Lam joined the
Group in July 2001, and is responsible for overseeing the Group’s accounting and financial management in
Hong Kong.

STAFF

     As at the Latest Practicable Date, the Group had 25 full-time employees, who were based in Canada
and Hong Kong. A breakdown of the Group’s workforce by activity and geographical location is as follows:

                                                                             Number of staff
     Activity                                                Hong Kong           Canada                 Total

     Research and development                                           7                 8                15
     Accounting and Finance                                             2                 1                 3
     General administration                                             3                 2                 5
     Business development                                               1                 1                 2


     Total:                                                           13                 12                25




                                                   – 158 –
                                  DIRECTORS, SENIOR MANAGEMENT AND STAFF


       The organizational chart of the Group is as follows:


                Hong Kong operation                                         Board of Directors                                    Canadian operation




                                                                 President and Chief Executive Officer

                                                                                 Dr. Tam




                                                                        Vice president and
                    Managing Director
                                                                       Corporate Secretary/
                           Mr. Young
                                                                             Accounts

                                                                      Patrick Chiu Kit Young




    Business          Accounts             Cell Biology                              Department of             Department of           Analytical          Administration

  development        Department            Department                              Pharmacokinetic/            Computational           Chemistry            Department

   department       Francis Lam              Dr. Chee                             Pharmacodynamics               Modeling             Department

                                          Keong Choo                                                            Dr. Douglas            Dr. Brian
                                                                                                              Thacher Ridgway         Duff Sloley


      (1)                   (2)                  (2)                                         (1)                    (1)                   (3)                   (2)




                Administrative          Analytical        International                      Scientific and         Cell Biology             Business

                 Department             Chemistry         Affairs Quality               Regulatory Affairs          Department             Development

                                       Department          Assurance                           Dr. Hugh             Dr. James              Department

                                       Dr. Lei Ling         Dr. Tam-                    Alexander Semple            Yi-chan Lin                 Robert

                                                             Zaman                                                                        William Sadler


                     (2)                   (3)                  (1)                                (1)                      (2)                  (1)




Note: Figures in brackets refer to the total number of employees in that department.


Benefits

     The Group provides mandatory provident fund to its full-time employees in Hong Kong. The Group’s
employees in Canada are members of a state-managed retirement benefits scheme operated by the
government of Canada.

Relationship with employees

       The Directors consider that it is important to maintain a good working relationship with employees and
to provide them with proper training and competitive compensation and incentives. The Group has not
experienced any disruption of its operations due to labour disputes or any difficulty in recruiting suitable staff
for its operations.




                                                                                 – 159 –
                     DIRECTORS, SENIOR MANAGEMENT AND STAFF


SHARE OPTION SCHEME AND PRE-IPO SHARE OPTION SCHEMES

      The Company has conditionally adopted the Pre-IPO Share Option Schemes and the Share Option
Scheme. Details of the Pre-IPO Share Option Schemes and the Share Option Scheme are set out in the
paragraphs headed “Pre-IPO Share Option Schemes” and “Share Option Scheme” respectively in Appendix
IV to this prospectus. The Directors believe that such schemes will assist the Group in the recruitment and
retention of high calibre executives and employees. Save as those disclosed in the paragraph headed “Pre-
IPO Share Option Schemes” in Appendix IV to this prospectus, no further options will be offered or granted
under the Pre-IPO Share Option Schemes. As at the date of this prospectus, no option has been granted or
agreed to be granted under the Share Option Scheme.




                                                 – 160 –
          INITIAL MANAGEMENT, SUBSTANTIAL AND SIGNIFICANT SHAREHOLDERS


INITIAL MANAGEMENT SHAREHOLDERS

       The following persons, being: (1) a person (or group of persons who together are) entitled to exercise or
control the exercise of 5% or more of the voting power at general meetings of the Company and who is (or
are) able, as a practicable matter, to direct or influence the management of the Company immediately after
completion of the Share Offer and the Capitalisation Issue (without taking into account the Shares which may
be taken up under the Share Offer); or (2) a director or a member of the senior management of the Company
who are shareholders of the Company or a shareholder of the Company and who is represented on the board
prior to the date of listing of the Shares on GEM, are regarded as initial management shareholders of the
Company under the GEM Listing Rules:

                                                                  KGI Pre-IPO
                                                             Share Option Scheme                                         Number of
                                                              Number          Number                    Number             Warrants
                                                           of options       of Shares                of options         (Number of
                                                           under the     pursuant to            under the KIBP     Shares pursuant
                                      Number of Percentage KGI Share the Exchange                Pre-IPO Share     to the Exchange
     Name                               Shares of holding Option Plan      Agreement            Option Scheme           Agreement)

     Dr. Tam (Notes 1, 2 & 3)     140,749,015            27.07%       148,000      3,619,609         25,190,523                   –
     943788 Alberta Ltd. (Note 1) 118,737,854            22.83%             –              –                  –                   –
     Dr. Tam-Zaman (Note 1)       140,749,015            27.07%       148,000      3,619,609         25,190,523                   –
     Constance Tam (Note 2)         6,114,205             1.18%             –              –                  –                   –
     Suzanne Tam (Note 2)           6,114,205             1.18%             –              –                  –                   –
     Grand Interest
        Development
        Limited (Note 3)           30,815,591             5.93%            –                –                  –            315,000
                                                                                                                         (7,703,898)
     Mr. Young (Notes 3)              30,815,591          5.93%        50,000      1,222,841           6,114,205            315,000
                                                                                                                         (7,703,898)
     Patrick Chiu Kit Young (Note 4) 1,614,150            0.31%        18,000        440,223          1,222,841                   –
     Dr. Antoine A. Noujaim (Note 5) 855,989              0.16%        11,000        269,025          1,222,841                   –

     Notes:

     1.       The 140,749,015 Shares, 148,000 options under the KGI Share Option Plan and 25,190,523 options under the KIBP Pre-
              IPO Share Option Scheme referred to above are duplicated and include 22,011,161 Shares held by Dr. Tam, 118,737,854
              Shares held by 943788 Alberta Ltd., an investment holding company wholly owned by Dr. Tam, 24,456,818 and 733,705
              options under the KIBP Pre-IPO Share Option Scheme held by Dr. Tam and Dr. Tam-Zaman respectively and 8,000 and
              140,000 options under the KGI Share Option Plan held by Dr. Tam and Dr. Tam-Zaman respectively. Dr. Tam-Zaman is
              the wife of Dr. Tam and either of them is deemed to be interested in the Shares and/or options held by the other.

     2.       Constance Tam and Suzanne Tam are the daughters of Dr. Tam. Dr. Tam is a brother-in-law of Mr. Young.

     3.       Grand Interest Development Limited is an investment holding company beneficially owned as to approximately 16.67%
              by each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen
              who are the brothers and sister of Mr. Young. Mr. Young is a brother-in-law of Dr. Tam. The 30,815,591 Shares and
              315,000 Warrants referred to above are held by Grand Interest Development Limited and are duplicated with those of Mr.
              Young.

     4.       Patrick Chiu Kit Young is an executive Director.

     5.       Dr. Antoine A. Noujaim is a non-executive Director.

                                                                 – 161 –
          INITIAL MANAGEMENT, SUBSTANTIAL AND SIGNIFICANT SHAREHOLDERS


SUBSTANTIAL SHAREHOLDERS

      So far as the Directors are aware, the following person(s), other than a Director or a chief executive of
the Company, will be entitled to exercise or control the exercise of 10% or more of the voting powers at
general meetings of the Company immediately following completion of the Share Offer and the Capitalisation
Issue (without taking into account the Shares which may be taken up under the Share Offer):

                                                                                                                Percentage
     Name                                                                      Number of Shares                  of holding

     943788 Alberta Ltd. (Note 1)                                                      118,737,854                    22.83%
     Dr. Tam-Zaman (Note 2)                                                            140,749,015                    27.07%

     Notes

     1.       943788 Alberta Ltd. is an investment holding company wholly owned by Dr. Tam.

     2.       The 140,749,015 Shares referred to above include 22,011,161 Shares held by Dr. Tam and 118,737,854 Shares held by
              943788 Alberta Ltd. (as referred to in Note 1 above). Dr. Tam-Zaman is the wife of Dr. Tam and is deemed to be
              interested in such Shares.


SIGNIFICANT SHAREHOLDER

      So far as the Directors are aware, apart from the Substantial Shareholders and Initial Management
Shareholders referred to above, the Company will have no significant shareholders (as defined in the GEM
Listing Rules) immediately following completion of the Share Offer and the Capitalisation Issue (without taking
into account the Shares which may be taken up under the Share Offer).

UNDERTAKINGS

      Each of the Initial Management Shareholders has undertaken to the Company and the Stock Exchange
pursuant to the GEM Listing Rules that for a period of 12 months after the Listing Date in the case of Dr. Tam,
943788 Alberta Ltd., Dr. Tam-Zaman, Grand Interest Development Limited, Mr. Young, Constance Tam and
Suzanne Tam and for a period of six months after the Listing Date in the case of Patrick Chiu Kit Young, and
Dr. Antoine A. Noujaim:

     1.      he, she or it will not, save as provided in Rule 13.18 of the GEM Listing Rules, dispose of (or
             enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into
             any agreement to dispose of) any of his, her or its direct or indirect interests in his/her/its
             Relevant Securities;

     2.      in the event that he, she or it pledges or charges any direct or indirect interest in the Relevant
             Securities under Rule 13.18(1) or pursuant to any right or waiver granted by the Stock Exchange
             pursuant to Rule 13.18(4) at any time during the relevant lock-up periods, he, she or it must
             inform (or procure to inform) the Company immediately thereafter, disclosing the details as
             specified in the GEM Listing Rules; and




                                                           – 162 –
          INITIAL MANAGEMENT, SUBSTANTIAL AND SIGNIFICANT SHAREHOLDERS


     3.    having pledged or charged any of his, her or its interests in the Relevant Securities under sub-
           paragraph (2) above, he, she or it must inform (or procure to inform) the Company immediately in
           the event that he, she or it becomes aware that the pledgee or chargee has disposed of or intends
           to dispose of such interest and of the number of the Relevant Securities affected.

       Dr. Tam has undertaken with the Company and the Stock Exchange that he will not dispose of (or enter
into any agreement to dispose of) any of his direct or indirect interest in the share capital of 943788 Alberta
Ltd. for a period of 12 months from the Listing Date.

      Each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui
Ping Stephen has undertaken with the Company and the Stock Exchange that she/he will not dispose of (or
enter into any agreement to dispose of) any of her/his direct or indirect interest in the share capital of Grand
Interest Development Limited for a period of 12 months from the Listing Date.

     Each of the Initial Management Shareholders will place in escrow, with an escrow agent acceptable to
the Company and the Stock Exchange, the Relevant Securities held by him/her/it on terms acceptable to the
Company and the Stock Exchange during the relevant lock-up periods.




                                                    – 163 –
                                                        SHARE CAPITAL


         The authorised and issued share capital of the Company are as follows:

Authorised:                                                                                                                           HK$

     1,000,000,000           Shares                                                                                          10,000,000


Issued, to be issued, fully paid or credited as fully paid:

          16,355,357         Shares in issue as at the date of this prospectus                                                   163,554
         383,644,643         Shares to be issued pursuant to the Capitalisation Issue                                          3,836,446
         120,000,000         Shares to be issued under the Share Offer                                                         1,200,000


         520,000,000         Shares                                                                                            5,200,000


      The minimum level of public float to be maintained by the Company at the time of the listing of the
Shares and all times thereafter under the GEM Listing Rules is 25% of its share capital in issue from time to
time.

Notes:

1.       Assumptions

         This table assumes that the Share Offer and the Capitalisation Issue become unconditional.

         It takes no account of any Share which may be allotted and issued pursuant to the exercise of the options granted under the
         Share Option Scheme or the Pre-IPO Share Option Schemes, or which may be allotted and issued pursuant to the exercise of
         the Warrants, the KGI Consultants Options, the Buret Allotment or under the general mandate (see below “General mandate to
         issue new Shares”) or which may be bought back by the Company (see below “General mandate to repurchase Shares”).

2.       Ranking

         The Offer Shares will rank pari passu in all respects with all other Shares in issue or to be issued as mentioned in this
         prospectus and, in particular, will qualify for all dividends or other distributions declared, paid or made on the Shares after the
         date of this prospectus (other than the Capitalisation Issue).

3.       Share option schemes

         The Company has conditionally adopted the Share Option Scheme and the Pre-IPO Share Option Schemes. Summaries of their
         respective principal terms are set out in the paragraphs headed “Share Option Scheme” and “Pre-IPO Share Option Schemes”
         in Appendix IV to this prospectus.

         As at date of this prospectus, options to subscribe for an aggregate of 689,000 common shares of KGI have been granted under
         the KGI Share Option Plan and options to subscribe for an aggregate of 49,023,691 Shares have been granted under the KIBP
         Pre-IPO Share Option Scheme, which if exercised in full and in the case of options exercised under the KGI Share Option Plan,
         pursuant to the Exchange Agreement, will result in the issue of an aggregate of 65,874,438 Shares, representing approximately
         12.67% of the issued share capital of the Company immediately after completion of the Share Offer and the Capitalisation Issue
         but before enlargement by the issue of such Shares, or approximately 11.24% after such enlargement. Particulars of such
         grants and the grantees are set out in the paragraph headed “Pre-IPO Share Option Schemes” in Appendix IV to this
         prospectus.

         Under the Share Option Scheme, options to subscribe for Shares may be granted to any full time or part time employee
         (including the executive and non-executive Director or proposed executive and non-executive Director) of the Group and
         adviser, consultant, contractor, client and supplier who in the sole discretion of the board of Directors have contributed or may
         contribute to the Group provided that the maximum number of Shares which may be issued upon exercise of all outstanding
         options granted under the Share Option Scheme, the Pre-IPO Share Option Schemes and any other share option schemes of
         the Company shall not exceed 30% (or such higher percentage as may be allowed under the GEM Listing Rules) of the total
         number of Shares in issue from time to time.



                                                                  – 164 –
                                                   SHARE CAPITAL

4.   Warrants

     KGI has granted the Warrants to subscribe for an aggregate of 527,000 common shares of KGI to 25 investors, including one
     Initial Management Shareholder, namely Grand Interest Development Limited, and 24 other independent investors, which if
     exercised in full and pursuant to the Exchange Agreement will result in the issue of 12,888,744 Shares (representing
     approximately 2.48% of the issued share capital of the Company immediately after completion of the Share Offer and the
     Capitalisation Issue but before enlargement by the issue of such Shares, or approximately 2.42% after such enlargement). The
     Warrants were granted pursuant to the resolutions of the directors of KGI on 10 December 1999 whereupon it was, among other
     things, resolved that one-half Warrant would be issued for the exercise of every warrant of KGI then outstanding. Details of the
     Warrants and the warrantholders are set out in the paragraph headed “Warrants” in Appendix IV to this prospectus.

5.   Buret Option, Anderson Option and Buret Allotment

     Buret Option

     Pursuant to the Cell Line Agreement, Dr. Buret granted an exclusive licence to the Group to use the Buret Cell Line and the
     related technologies developed and/or acquired by Dr. Buret for a term of 2 years from 7 November 2001, together with an
     option to the Group, exercisable prior to the expiration of the initial term, to extend the license perpetually for the sum of
     CAN$100,000. If the Group exercises the option to extend the license, Dr. Buret will have, among others, the option to receive
     such payment in cash or in shares of KGI at CAN$0.70 (approximately HK$3.50) per share or by any combination thereof.

     Pursuant to the Buret Exchange Agreement, exercise in full of the Buret Option will result in the issue of 3,493,828 Shares at
     approximately HK$0.14 per Share and approximately 72% below the minimum Offer Price of HK$0.50 per Share and
     approximately 79% below the maximum Offer Price of HK$0.68 per Share (representing approximately 0.67% of the issued
     share capital of the Company immediately after completion of the Share Offer and the Capitalisation Issue but before
     enlargement by the issue of such Shares, or approximately 0.67% after such enlargement).

     Details of the Buret Option are set out under the paragraph headed “Issue of Buret Option and Buret Allotment” in the section
     headed “General overview of the Group” and the paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix
     IV to this prospectus.

     Anderson Option

     Pursuant to the Anderson R&D Agreement, Dr. Anderson assigned to KGI his rights, title, estate, ownership and interest in the
     SimBioDAS™ technology, co-invented by Dr. Tam and Dr. Anderson. As consideration for such assignment, Dr. Anderson was,
     among others, given the Anderson Option to subscribe for 20,000 common shares of KGI at CAN$0.50 (approximately HK$2.50)
     per share.

     Pursuant to the Anderson Exchange Agreement, the Anderson Option is exercisable within the period commencing on the date
     falling six months from the Listing Date and ending on 11 February 2005 at the exercise price of CAN$0.50 (approximately
     HK$2.50) per common share of KGI. Exercise in full of the Anderson Option will result in the issue of 489,136 Shares at
     approximately HK$0.10 per Share and approximately 80% below the minimum Offer Price of HK$0.50 per Share and
     approximately 85% below the maximum Offer Price of HK$0.68 per Share (representing approximately 0.09% of the issued
     share capital of the Company immediately after completion of the Share Offer and the Capitalisation Issue but before
     enlargement by the issue of such Shares, or approximately 0.09% after such enlargement).

     Details of the Anderson Option are set out under the paragraph headed “Issue of Anderson Option” in the section headed
     “General overview of the Group” and the paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix IV to
     this prospectus.

     Buret Allotment

     Pursuant to the Cell Line Agreement, KGI has, among other things, agreed to allot and issue to Dr. Buret at no further
     consideration (i) 21,429 KGI shares within 450 days from 7 November 2001; and (ii) 21,429 KGI shares within 720 days from 7
     November 2001.

     Pursuant to the Buret Exchange Agreement, allotment in full of KGI shares pursuant to the Buret Allotment will result in the
     issue of 1,048,170 Shares (representing approximately 0.20% of the issued share capital of the Company immediately after
     completion of the Share Offer and the Capitalisation Issue but before enlargement by the issue of such Shares, or approximately
     0.20% after such enlargement).

     Details of the Buret Allotment are set out under the paragraph headed “Issue of Buret Option and Buret Allotment” in the section
     headed “General overview of the Group” and the paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix
     IV to this prospectus.




                                                            – 165 –
                                                    SHARE CAPITAL

6.   General mandate to issue new Shares

     A general unconditional mandate has been granted to the Directors to allot, issue and deal with Shares or securities or options
     convertible into Shares with a total nominal value of not more than the sum of:

     (i)     20% of the aggregate nominal amount of the share capital of the Company in issue immediately following completion of
             the Share Offer and the Capitalisation Issue; and

     (ii)    the aggregate nominal amount of the share capital of the Company repurchased by the Company under the authority
             referred to in the paragraph headed “General mandate to repurchase Shares” below.

     This mandate is in addition to the power of the Directors to allot, issue or deal with Shares under a rights issue, an issue of
     Shares upon the exercise of any subscription rights attached to any warrants (including the Warrants) or convertible securities
     (including the KGI Consultants Options), on the exercise of options granted under the Share Option Scheme or the Pre-IPO
     Share Option Schemes or any other option scheme or other similar arrangements, pursuant to any scrip dividend schemes in
     accordance with the articles of association of the Company or a specific authority granted by the shareholders of the Company
     in general meeting or the KGI Consultants Options or the Buret Allotment.

     This mandate will expire:

     (i)     at the end of the Company’s next annual meeting; or

     (ii)    at the end of the period within which the Company is required by the Cayman Islands law or its articles of association to
             hold its next annual general meeting: or

     (iii)   when varied or revoked by an ordinary resolution of shareholders of the Company in general meeting, whichever is the
             earliest.

     For further details of this general mandate, see the paragraph headed “Written resolutions of the sole shareholder of the
     Company passed on 7 May 2002” in Appendix IV to this prospectus.

7.   General mandate to repurchase Shares

     A general unconditional mandate has been granted to the Directors to exercise all the powers of the Company to repurchase
     Shares with nominal value of up to 10% of the aggregate nominal amount of the share capital of the Company in issue
     immediately following completion of the Share Offer and the Capitalisation Issue.

     This mandate only relates to purchases made on the Stock Exchange or on any other stock exchange on which the Shares are
     listed (and which is recognized by the Securities and Futures Commission and the Stock Exchange for this purpose), and which
     is in accordance with the GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the paragraph headed
     “Repurchase by the Company of its own securities” in Appendix IV to this prospectus.

     This mandate will expire:

     (i)     at the end of the Company’s next annual meeting; or

     (ii)    at the end of the period within which the Company is required by the Cayman Islands law or its articles of association to
             hold its next annual general meeting; or

     (iii)   when varied or revoked by an ordinary resolution of shareholders of the Company in general meeting,

     whichever is the earliest.

     For further details of this general mandate, see the paragraph headed “Written resolutions of the sole shareholder of the
     Company passed on 7 May 2002” in Appendix IV to this prospectus.




                                                             – 166 –
                                     FINANCIAL INFORMATION


INDEBTEDNESS

Borrowings

     At the close of business on 31 March 2002, being the latest practicable date for the purpose of this
indebtedness statement prior to the printing of this prospectus, the Group had the following outstanding
borrowings:

                                                                Repayable
                                                                    within         Repayable
                                                               one year or              after
                                                               on demand            one year              Total
                                                                      HK$               HK$                HK$

     Unsecured loan from Dr. Tam                                  1,531,623                  –       1,531,623

     Unsecured loan from the mother of Dr. Tam                     250,000                   –         250,000

     Finance lease payable                                         319,785            490,416          810,201


                                                                  2,101,408           490,416        2,591,824


      Subsequent to 31 March 2002, the unsecured loan from Dr. Tam of HK$1,531,623 and the unsecured
loan from the mother of Dr. Tam of HK$250,000 were fully repaid.

Contingent liabilities

     As at 31 March 2002, the Group had no material contingent liabilities or liabilities under guarantees.

Disclaimer

      Save as aforesaid and as otherwise disclosed herein, and apart from intra-Group liabilities, the Group
did not have any bank loans, bank overdrafts and liabilities under acceptances or other similar indebtedness,
debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments,
guarantees or other material contingent liabilities outstanding at the close of business on 31 March 2002.

No material change

     The Directors have confirmed that there have not been any material changes in the indebtedness of the
Group since 31 March 2002.




                                                   – 167 –
                                      FINANCIAL INFORMATION


LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Net current assets

     As at 31 March 2002, being the latest practicable date for the purpose of this indebtedness statement,
the Group has net current assets of HK$1,323,217. Current assets of the Group comprised cash and bank
balances of HK$459,928, tax recoverable of HK$465,378, and prepayments, deposits and other receivables
of HK$7,572,723 and amount due from a contract customer of HK$79,316. The current liabilities of the Group
comprised current portion of a finance lease payable of HK$319,785, other payables and accruals of
HK$5,152,720, loan from a Director of HK$1,531,623 and loan from a related party of HK$250,000.

Financial resources

      Historically, the Group has been financed by equity subscriptions from shareholders, loans from a
Director and a related party and banking facilities provided by its principal banker in Canada. As at 31 March
2002, the Group did not have any banking facilities.

Capital commitments

       At 31 March 2002, capital expenditure commitments of the Group contracted but not provided for in the
financial statements amounted to approximately HK$4,505,436. These commitments are in respect of
contributions to two research and development projects of HK$4,005,437 and additional investment in a
jointly-controlled entity of HK$499,999.

Foreign currency risk

        The income and expenditure of the Group are mainly in both HK$ and CAN$ and the assets and
liabilities of the Group were denominated in both HK$ and CAN$. The Group has maintained a balanced
portfolio of Hong Kong dollar denominated assets and liabilities and Canadian dollar denominated assets and
liabilities, taking into account the Group’s operational and capital requirements. Hence, the Directors do not
consider the Group is significantly exposed to any foreign currency exchange risk.

Directors’ opinion on sufficiency of working capital

     The Directors are of the opinion that, taking into account the banking facilities granted to the Group by a
bank subsequent to 31 March 2002, the agreement to provide continual financial support to the Group by Dr.
Tam and Mr. Young, Directors, until the successful listing of the Shares on GEM and the estimated net
proceeds of the Share Offer, the Group has sufficient working capital for its present requirements.

Disclaimer under GEM Listing Rules 17.15 to 17.21

     The Directors confirm that as at the Latest Practicable Date, they were not aware of any circumstances
which would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.




                                                    – 168 –
                                             FINANCIAL INFORMATION


TRADING RECORD

Summary of combined results of the Group

      The following is a summary of the Group’s combined audited results for the Track Record Period which
have been extracted from the Accountants’ Report set out in Appendix I to this prospectus. The combined
results were prepared on the assumption that the current structure of the Group had been in existence
throughout the periods under review and in accordance with the basis set out in section 1 of the Accountants’
Report contained in Appendix I to this prospectus.

                                                                                           Year ended
                                                                 29 February               28 February               28 February
                                                                        2000                      2001                      2002
                                                                   (HK$’000)                 (HK$’000)                 (HK$’000)

     Turnover (Note 1)                                                         –                           –                    750
     Cost of services rendered                                                 –                           –                   (205)


     Gross profit                                                            –                          –                       545
     Other revenue, net (Note 2)                                            88                        138                       612
     Administrative expenses                                            (3,190)                    (7,094)                  (11,249)
     Research and development costs                                       (520)                    (1,260)                   (3,301)
     Other operating expenses, net                                      (1,329)                       (43)                   (1,303)


     Loss from operations                                               (4,951)                    (8,259)                 (14,696)
     Finance costs                                                         (86)                      (100)                    (216)


                                                                        (5,037)                    (8,359)                 (14,912)

     Share of profits of a jointly controlled entity                           –                           –                      14

     Loss attributable to shareholders                                  (5,037)                    (8,359)                 (14,898)


     Dividends                                                                 –                           –                       –


     Basic loss per Share (Note 3)                                 (1.3) cents                (2.1) cents               (3.7) cents

     Notes:

     1.       The Group had not recorded any turnover until the last quarter of the Track Record Period.

     2.       Other revenue represented interest income and investment tax credit recovered, if any.

     3.       The calculation of basic loss per Share is based on the loss attributable to shareholders during such period and on the
              assumption that 400 million Shares were in issue (being the aggregate of the existing number of Shares and Shares to
              be issued pursuant to the Capitalisation Issue) throughout the Track Record Period. As the Company recorded losses in
              its combined audited results throughout the Track Record Period, any Shares that may be issued upon the exercise of
              any options granted under the Share Option Scheme, the Pre-IPO Share Option Schemes, the Warrants, the KGI
              Consultants Options or pursuant to the Buret Allotment will be anti-dilutive.


                                                              – 169 –
                                      FINANCIAL INFORMATION


Management discussion and analysis of the Group’s results of operations

Overview

     During the Track Record Period, the Group concentrated its efforts on the development of the
SimBioDAS™ technology with a view to provide drug-screening services from the financial year of 2002
onwards.

      Since the inception of business, the Group began to develop a proof of principle to demonstrate how the
theory of the SimBioDAS™ technology works. Such proof of principle was accomplished in November 2000,
and the Group commenced its work on the proof of concept of the SimBioDAS™ technology whereby the
Group developed a prototype which has sufficient background data to support the commercialisation of the
technology. This proof of concept was achieved in February 2001. Following further experiments and
analyses, the Group has commenced the commercialisation of the SimBioDAS™ technology since November
2001.

      The Group has not generated any operating income as it had been developing its SimBioDAS™
technology until the last quarter of the Track Record Period. During the Track Record Period, most expenses
directly relating to the SimBioDAS™ technology were capitalized on the balance sheet as deferred
development costs, and only the research costs were charged to the profit and loss accounts. The major
components of the Group’s operating expenses were salaries and related costs, professional and consulting
expenses, rental and occupancy costs. In order to support its operation, the Group had carried out a series of
fund-raising activities during the Track Record Period.

For the year ended 29 February 2000

     For the year ended 29 February 2000, along with the development of the KI001 and KI002 drugs, the
Group continued its research and development with the aim of commercializing the SimBioDAS™ technology.
The Group recruited three additional scientists to work towards the commercialisation of the SimBioDAS™
technology in the latter half of the fiscal year. During the year, the Group focused on the development of the
SimBioDAS™ technology. The KI001 project was scaled down and the KI002 project was suspended
subsequent to the balance sheet date, resulting in a write-off of some deferred development costs. As at 29
February 2000, the Group employed a team of 12 research and development staff in its laboratory facilities in
Edmonton, Alberta, Canada, of whom 7 were Ph.D scientists.

      The Group did not have any operating income during the year ended 29 February 2000 as it had not
commenced its trading operation. Other revenue of approximately HK$88,000 represented bank interest
income. The Group’s administrative expenses which amounted to approximately HK$3.2 million comprised
mainly salaries and related costs, professional and consulting expenses, rental and occupancy costs. Other
operating expenses represented primarily the patents and development costs written-off of approximately
HK$1.3 million for the KI002 drug which had been suspended. The amount of development costs capitalized
on the balance sheet amounted to approximately HK$1.8 million as at 29 February 2000. For the year ended
29 February 2000, the Group’s loss attributable to shareholders amounted to approximately HK$5.0 million.




                                                   – 170 –
                                      FINANCIAL INFORMATION


For the year ended 28 February 2001

      In late 2000, the Group commenced its work on the proof of concept of the SimBioDAS™ technology
whereby the Group developed a prototype which had sufficient background data to support the commercialisation
of the technology. The Group achieved this proof of concept in February 2001. An ancillary function of the
SimBioDAS™ technology is to act as an active ingredient identifier which is expected to be useful in the
development and modernization of TCM. Thus, in April 2000, the Group started to set up an office and a
laboratory in Hong Kong in order to have easier access to the PRC which is the origin for TCM. As at 28
February 2001, the Group had a team of 16 research and development staff, 14 of whom were located in
Canada and 2 in Hong Kong.

      The Group did not have any operating income during the year ended 28 February 2001 as it had not
commenced its trading operations. Other revenue of approximately HK$138,000 represented bank interest
income. Total operating expenses increased by approximately 66.6% from approximately HK$5.0 million for
the year ended 29 February 2000 to approximately HK$8.4 million for the year ended 29 February 2001 which
was attributable to the increase in the Group’s administrative expenses by approximately HK$3.9 million.
Such increase was primarily due to increase in salaries and related costs resulting from the recruitment of
four more technical staff, including three full-time scientists, and five more administration staff in Canada as
well as in Hong Kong in preparation for the commercialization of the SimBioDAS™ technology, and lease
rentals following the set-up of an office and research facilities in Hong Kong. Other operating expenses
decreased by approximately 96.8% from approximately HK$1.3 million to approximately HK$43,000 as the
Group was not required to write off any deferred costs as in the preceding financial year. The amount of
development costs capitalized on the balance sheet amounted to approximately HK$5.0 million as at 28
February 2001. For the year ended 28 February 2001, the Group’s loss attributable to shareholders amounted
to approximately HK$8.4 million.

For the year ended 28 February 2002

      For the year ended 28 February 2002, upon completion of the proof of concept for the SimBioDAS TM
technology by February 2001, the Group transferred the cell biology technology to its research facilities in
Hong Kong for TCM development work. In Hong Kong, the Group obtained two matching grants from the ITF
to apply the SimBioDAS™ technology to develop and validate the TCM active ingredient isolation process
and to adapt and validate the SimBioDAS™ technology for TCM. During this period, the Group’s cell biology
laboratory in Hong Kong was also in full-scale operation to develop the required cell line for the SimBioDAS™
technology and the analytical chemistry laboratory was being set up to measure the absorption of active
ingredients in TCM. In Canada, apart from continuing the development of the SimBioDAS™ technology, the
Group commenced to develop its own formulation of Ginkgo with verified quantities and absorbability of active
ingredients with the first tablet of its pilot formulation successfully developed in August 2001.

     The Group did not have any operating income until the last quarter of the year ended 28 February 2002
when the Group entered into two business contracts for the provision of screening analysis services using the
SimBioDAS™ technology. Other revenue of approximately HK$612,000 comprised investment tax credit
recovered (which represented tax recoverable in respect of actual amount of expenditures related to scientific
research and experimental development activities incurred on the KI002 drug) and bank interest income. The
Group’s operating expenses increased by approximately 88.8% to approximately HK$15.9 million which




                                                    – 171 –
                                      FINANCIAL INFORMATION


comprised mainly administrative expenses, research and development costs and other operating expense,
such as laboratory supplies and equipment depreciation. The administrative expenses increased from
approximately HK$7.1 million to approximately HK$11.2 million which was primarily due to the increase in
salary expenses as a result of the recruitment of additional six employees during the year, increase in
depreciation expense and the payment of professional fees and agency commission in an aggregate amount
of approximately HK$2.3 million incurred in connection with the Group’s fund raising exercise during the year.
Research and development costs increased by approximately 162.0% to approximately HK$3.3 million during
the year because there was a full-year operation and an increase in technical staff for the Group’s laboratory
in Hong Kong. Other operating expenses included the written-off deferred development costs in respect of the
KI001 drug of approximately HK$1.1 million. The amount of development costs capitalized on the balance
sheet amounted to approximately HK$6.3 million as at 28 February 2002. For the year ended 28 February
2002, the Group’s loss attributable to shareholders amounted to approximately HK$14.9 million.

Taxation

     In accordance with the relevant tax legislation, rules and regulations, interpretations and practices in
Hong Kong and Alberta, Canada, no provision for Hong Kong profits tax or overseas income tax has been
made during the Track Record Period as the Group had no assessable profits arising in Hong Kong and
overseas.

     As the Group did not make any taxable profit during the Track Record Period, it was not required to pay
any profits tax during such period.

INTANGIBLE ASSETS

      As at 28 February 2002, the Group had intangible assets of approximately HK$6.5 million, comprising
patents of approximately HK$0.2 million and deferred development costs of approximately HK$6.3 million.
The deferred development costs represented the total cost incurred in respect of the development of the
SimBioDAS TM technology and the Group’s Ginkgo product in Canada of approximately HK$3.8 million and
HK$0.4 million, respectively, and the ITF matching fund of approximately HK$2.1 million contributed toward
the development cost.

      Since October 1998, KGI started research and development of the SimBioDAS TM technology with a view
to commercialise it towards accelerating the drug discovery and development processes. The development
costs comprised mainly staff cost incurred. The ITF matching fund was contributed under the University-
Industry Collaboration Programme in respect of a project to team up with HKUST to work to establish and
validate the SimBioDASTM technology for the development of TCM-based products. The project also aims to
evaluate the activity and absorption of a TCM formula that is intended to be used for treatment of liver cancer.

      It is the Group’s accounting policy to amortize the deferred development cost over the estimated
commercial lives of the underlying products, subject to a maximum of ten years, commencing from the date
when the products are put into commercial production. For the SimBioDASTM technology, it is the Directors’
present intention that amortization will commence in 2002 over a period of 5 years as the Directors expect
that by 2007, the second generation of the SimBioDAS TM technology would be ready for commercialisation
and would replace the current SimBioDASTM technology.




                                                    – 172 –
                                     FINANCIAL INFORMATION


DIVIDEND POLICY

      The Group had not declared or paid any dividend for each of the years or period during the Track
Record Period. The Directors presently do not intend to recommend payment of any dividends for the
foreseeable future. Should dividends be paid in the future, the Company is likely to pay such dividends in or
about January and July of each year. The declaration, payment and amount of dividends will be subject to the
discretion of the Directors and will be dependent upon the Company’s earning, financial condition, cash
requirements and availability, contractual restrictions, the provisions of relevant laws and all other relevant
factors.

DISTRIBUTABLE RESERVES

     The Company was incorporated on 18 October 2001 and had no distributable reserves as at 28
February 2002.

ADJUSTED NET TANGIBLE ASSETS

      The following statement of adjusted net tangible assets of the Group is based on the audited combined
net assets of the Group as at 28 February 2002 as set out in the Accountants’ Report in Appendix I to this
prospectus and adjusted as follows:
                                                                                            Based on
                                                                                 Minimum           Maximum
                                                                             Offer price of    Offer Price of
                                                                                  HK$0.50           HK$0.68
                                                                                 per Share         per Share
                                                                                  HK$’000            HK$’000

     Audited combined net assets of the Group as
       at 28 February 2002 as set out in Appendix I to this prospectus               13,982             13,982

     Intangible assets capitalised as at 28 February 2002                             (6,550)           (6,550)

     Net tangible assets of the Group as at 28 February 2002                          7,432              7,432

     Less: Unaudited combined loss of the Group for the month
             ended 31 March 2002                                                      (1,481)           (1,481)

     Add:    Amortisation of intangible assets
               for the month ended 31 March 2002                                          34                34

             Capital injection from issue of new Shares by
               the Company in May 2002 (Note 1)                                       2,860              2,860

             Estimated net proceeds of the Share Offer                               46,000             66,000

     Adjusted net tangible assets                                                    54,845             74,845

     Adjusted net tangible asset value per Share (Note 2)                        10.5 cents        14.4 cents




                                                   – 173 –
                                                FINANCIAL INFORMATION

Notes:

1.       On 14 May 2002, the Company allotted and issued 326,800 Shares to Corkwood pursuant to the Corkwood Option Agreement
         for an aggregate amount of HK$1,143,800. On the same date, the Company allotted and issued 490,200 Shares to Frontier
         pursuant to the Frontier Option Agreement for an aggregate amount of HK$1,715,700.

2.       The adjusted net tangible asset value per Share is arrived at after the adjustments referred to in this section and on the basis of
         520 million Shares in issue and to be issued immediately following the Share Offer and the Capitalisation Issue but taking no
         account of any Share which may be issued upon the exercise of any options granted under the Share Option Scheme, the Pre-
         IPO Share Option Schemes, the Warrants or the KGI Consultants Options or pursuant to the Buret Allotment or which may be
         allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase
         of Shares or otherwise.


NO MATERIAL ADVERSE CHANGE

      Save as disclosed in this prospectus, the Directors are not aware of any material adverse change in the
financial or trading positions or prospects of the Group since 28 February 2002.




                                                                  – 174 –
                                           UNDERWRITING


UNDERWRITERS

Public Offer Underwriter

     AMS Corporate Finance Limited
     Hantec Capital Limited

Placing Underwriters

     Hantec Capital Limited
     Christfund Securities Limited
     CEF Capital Limited
     SBI E2-Capital Securities Limited
     SG Securities (HK) Limited
     GC Securities Limited
     UOB Kay Hian (Hong Kong) Limited
     Kim Eng Securities (Hong Kong) Limited
     Sanfull Securities Limited
     Guotai Junan Securities (Hong Kong) Limited
     Hung Sing Securities Limited
     Koffman Securities Limited
     Shenyin Wanguo Capital (H.K.) Limited
     Taiwan Concord Capital Securities (Hong Kong) Limited
     Tanrich Securities Company Limited
     YF Securities Company Limited
     Quam Securities Company Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Underwriting Agreement

       Pursuant to the Underwriting Agreement, the Company has agreed to offer the Offer Shares at the Offer
Price for subscription by members of the public in Hong Kong under the Public Offer and the Placing on and
subject to the terms and conditions set out in this prospectus and the related application forms. Subject to,
among other conditions, listing of and permission to deal in the Shares in issue and to be issued as
mentioned in this prospectus being granted (and such listing and permission not subsequently being revoked
prior to the date on which dealings in the Shares first commence on GEM) by the GEM Listing Committee on
or before 21 June, 2002 (or such later date as AMS (for and on behalf of the Sponsors and the Underwriters)
may agree in writing with the Company):

     (a)   the Public Offer Underwriters have severally agreed to subscribe or procure subscribers for the
           Public Offer Shares on the terms and conditions of this prospectus and the related application
           forms; and

     (b)   the Placing Underwriters have severally agreed to subscribe or procure subscribers for the
           Placing Shares on the terms and conditions of this prospectus.



                                                  – 175 –
                                             UNDERWRITING


Grounds for termination

      The Underwriters are entitled to terminate their obligations to subscribe or procure subscribers to
subscribe for the Offer Shares by giving written notice to the Company if certain events, including the
following events, shall occur prior to 8:00 a.m. on the date of despatch of share certificates relating to the
Share Offer:

     (a)   there comes to the notice of any of the Sponsors and the Underwriters that:

           (i)     any statement contained in this prospectus or the related application forms or the
                   documents for the Placing was, when such documents were issued, or has become, untrue,
                   incorrect or misleading in any material respect in the sole and absolute opinion of AMS (for
                   and on behalf of the Sponsors and the Underwriters); or

           (ii)    any matter has arisen or been discovered which would, had it arisen or been discovered
                   immediately before the date of this prospectus or the related application forms or the
                   documents for the Placing, constitute a material omission therefrom in the sole and absolute
                   opinion of AMS (for and on behalf of the Sponsors and the Underwriters); or

           (iii)   any of the representations, warranties and undertakings contained in the Underwriting
                   Agreement is untrue or inaccurate in any respect which AMS (for and on behalf of the
                   Sponsors and the Underwriters) in its sole and absolute opinion considers to be material in
                   the context of the Share Offer; or

           (iv)    any event, act or omission which gives or is likely to give rise to a liability of any of the
                   Company, the executive Directors, the Initial Management Shareholders (except Dr. Antoine
                   A. Noujaim), and the Covenantors pursuant to the indemnities given under the Underwriting
                   Agreement; or

           (v)     any of the obligations or undertakings expressed to be assumed by or imposed on any of
                   the Company, the executive Directors, the Initial Management Shareholders (except Dr.
                   Antoine A. Noujaim) and the Covenantors under the Underwriting Agreement has not been
                   complied with or observed by any of them in any respect considered by AMS (for and on
                   behalf of the Sponsors and the Underwriters) to be material; or

           (vi)    any information, matter or event which in the sole and absolute opinion of AMS (for and on
                   behalf of the Sponsors and the Underwriters) may lead to a material adverse change in the
                   business or in the financial or trading position or prospect of the Group; or

     (b)   there shall develop, occur, exist or come into effect:

           (i)     any new law or regulation or any change in existing laws or regulations of any nature
                   whatsoever or any change in the interpretation or application thereof by any court or other
                   competent authority of any relevant jurisdiction; or




                                                    – 176 –
                                         UNDERWRITING


      (ii)    any change (whether or not forming part of a series of changes occurring or continuing
              before, on and/or after the date of the Underwriting Agreement and including an event or
              change in relation to or a development of an existing state of affairs) in local, national, or
              international financial, political, military, industrial, fiscal or economic conditions or
              prospects; or

      (iii)   any change in the conditions of the local, national or international securities or commodities
              markets (or in conditions affecting a sector only of such market) including, for the avoidance
              of doubt, any significant adverse change in the index level or volume of turnover of any such
              markets; or

      (iv)    the imposition of any moratorium, suspension or material restriction on trading in securities
              generally on the Stock Exchange occurring due to exceptional financial circumstances or
              otherwise; or

      (v)     a change or development involving a prospective change in taxation or exchange control (or
              the implementation of exchange control) in Hong Kong, the Cayman Islands, BVI, Canada,
              Barbados or the PRC or other relevant jurisdiction; or

      (vi)    any event, or series of events, beyond the reasonable control of the Underwriters, including,
              without limitation, acts of government, strikes, lock-outs, fire, explosion, flooding, civil
              commotion, acts of war, acts of God, acts of terrorism, accident or interruption or delay in
              transportation, economic sanctions, public disorder, riot and epidemic; or

      (vii) any litigation or claim brought by any third party against any member of the Group which will
            or is reasonably likely to result in the Group incurring liability that is material to the Group as
            a whole; or

      (viii) any other change whether or not ejusdem generis with any of the foregoing,

and which, in each case, in the sole and absolute opinion of AMS (for and on behalf of the Sponsors
and the Underwriters):

(1)   is or will or is likely to be materially adverse to the business, financial or other condition or
      prospects of the Group or to any present or prospective shareholders of the Company in its
      capacity as such; or

(2)   has or will have or is likely to have a material adverse effect on the success of the Placing or the
      Public Offer or the level of the Placing Shares or Public Offer Shares being applied for or
      accepted or the distribution of the Offer Shares; or

(3)   makes it inadvisable or inexpedient to proceed with the Placing or the Public Offer or the delivery
      of the Offer Shares on the terms and in the manner contemplated by this prospectus or the related
      application forms or the documents for the Placing.




                                                – 177 –
                                             UNDERWRITING


Undertakings

    Under the Underwriting Agreement:

    (a)   the Company has undertaken to and agreed and covenanted with the Sponsors and the
          Underwriters and each of them that it will and each of the Initial Management Shareholders
          (except Dr. Antoine A. Noujaim) and executive Directors has jointly and severally undertaken to
          and agreed and covenanted with the Sponsors and the Underwriters and each of them to, and/or
          procure that the Company will, inter alia:

          (i)     comply in all respects with the terms and conditions of the Share Offer;

          (ii)    pay any tax, duty, levy, fee or other charge or expense which may be payable by the
                  Company in Hong Kong or elsewhere whether pursuant to the requirement of any law or
                  regulations or otherwise, in connection with the creation, allotment and issue of Shares
                  under the Share Offer, the Share Offer and the execution and delivery of, or the
                  performance of any of the provisions under, the Underwriting Agreement;

          (iii)   not, without the prior written consent of AMS (for and on behalf of the Sponsors and the
                  Underwriters) at any time after the date of the Underwriting Agreement up to and including
                  the date on which all of the conditions contained in the Underwriting Agreement are fulfilled
                  (or waived) in accordance with the Underwriting Agreement, amend or agree to amend the
                  memorandum and articles of association of the Company;

          (iv)    comply in a timely manner with its obligations under the requirements of the Stock
                  Exchange in connection with the Share Offer (including, without limitation, the GEM Listing
                  Rules or any replacement thereof or amendment thereto);

          (v)     procure that the Company will maintain a listing for the Shares on GEM after the conditions
                  contained in the Underwriting Agreement have been fulfilled except following a withdrawal of
                  such listing which has been approved by the relevant shareholders of the Company in
                  accordance with the GEM Listing Rules or following an offer (within the meaning of the
                  Hong Kong Code on Takeovers and Mergers) for the Company becoming unconditional;

          (vi)    procure that Tengis Limited (being the Hong Kong branch share registrar of the Company)
                  and Hang Seng Bank Limited (being the receiving banker in respect of the Share Offer)
                  shall comply in all respects with the terms of their respective appointments and that neither
                  of such appointment shall be amended without the prior written consent of AMS (for and on
                  behalf of the Sponsors and the Underwriters);

          (vii) procure that there shall be delivered to the Stock Exchange as soon as practicable the
                declaration in the form set out in appendix 5, form E of the GEM Listing Rules;

          (viii) procure compliance with the obligations imposed upon it by the Companies Ordinance, the
                 Companies Law and the GEM Listing Rules and the Securities (Stock Exchange Listing)
                 Rules 1989 of Hong Kong and any like legislation or regulations in respect of or by reason
                 of the matters contemplated by the Underwriting Agreement, including but without limitation:

                                                    – 178 –
                                       UNDERWRITING


             (aa) the making of all necessary registration with the Registrar of Companies in Hong
                  Kong; and

             (bb) the making available for inspection at the offices of Preston Gates Ellis, the
                  Company’s legal advisers as to Hong Kong law, of the documents referred to in
                  Appendix V to this prospectus during the period referred to therein;

      (ix)   procure that the audited consolidated accounts of the Company for its financial year ending
             28 February 2003, 29 February 2004 and 28 February 2005 respectively will be prepared on
             a basis consistent in all material respects with the accounting policies adopted for the
             purposes of the financial statements contained in Appendix I to this prospectus;

      (x)    not without the prior written consent of AMS (for and on behalf of the Sponsors and the
             Underwriters) issue, publish, distribute or otherwise make available any document, material
             or information in connection with the Share Offer (except this prospectus or the related
             application forms or the documents for the Placing or otherwise as provided under the
             Underwriting Agreement);

      (xi)   discuss with AMS any announcement proposed to be made to the public within 12 months
             following the date of this prospectus which would conflict in any respect with any statement
             in this prospectus;

      (xii) not (and the Company shall procure that none of its subsidiaries will) at any time during the
            period from the date of the Underwriting Agreement up to and including the Listing Date
            make any announcement or otherwise make public any information which will or is likely to
            affect the market price of the Offer Shares without the prior written consent of AMS (for and
            on behalf of the Sponsors and the Underwriters) or otherwise than during the course of any
            programme of publicity agreed with AMS (for and on behalf of the Sponsors and the
            Underwriters); and

      (xiii) do all other acts and things as may be reasonably required to be done by AMS (for and on
             behalf of the Sponsors and the Underwriters) or to carry into effect the Share Offer in
             accordance with the terms thereof;

(b)   the Company has undertaken to and agreed and covenanted with the Sponsors and the
      Underwriters and each of them that it will not, and each of the executive Directors and the Initial
      Management Shareholders (except Dr. Antoine A. Noujaim) has jointly and severally undertaken
      to and agreed and covenanted with the Sponsors and the Underwriters and each of them to
      procure that without the prior written consent of AMS (for and on behalf of the Sponsors and the
      Underwriters), which it may withhold in its absolute discretion regardless of whether or not the
      GEM Listing Rules have been complied with, the Company will not, except pursuant to the Share
      Offer and the Capitalisation Issue:

      (i)    at any time after the date of the Underwriting Agreement up to and including the date falling
             six months after the Listing Date (“First Six-Month Period”), allot, issue, agree to allot or
             issue any Shares or other securities of the Company or grant or agree to grant any option,
             warrant or other rights carrying the right to subscribe for, or otherwise convert into, or
             exchange for, securities of the Company; and
                                              – 179 –
                                        UNDERWRITING


      (ii)   further except pursuant to the issue of Shares upon exercise of any option granted under
             the Pre-IPO Share Option Schemes or any option that may be granted under the Share
             Option Scheme or the issue of Shares pursuant to the exercise of any subscription rights
             attached to the Warrants or pursuant to the KGI Consultants Options or the Buret Allotment
             at any time during a further six-month period immediately following the expiry of the First
             six-Month Period, allot, issue, agree to issue any Shares or other securities of the Company
             or grant or agree to grant any option, warrant or other rights carrying the right to subscribe
             for, or otherwise convert into, or exchange for securities of the Company so as to result in
             the Controlling Shareholders taken together with their respective associates, would directly
             or indirectly cease to be controlling shareholders (as defined in the GEM Listing Rules) of
             the Company;

(c)   each of the executive Directors and the Initial Management Shareholders (except Dr. Antoine A.
      Noujaim) has jointly and severally undertaken to and agreed and covenanted with the Sponsors
      and the Underwriters and each of them:

      (i)    to procure that the Company complies with its obligations and undertakings contained in the
             Underwriting Agreement and to do all such acts and things within his, her or its powers as
             may be required by AMS (for and on behalf of the Sponsors and the Underwriters) to give
             effect to the same; and

      (ii)   that he, she or it shall not subscribe or purchase or enter into or effect any arrangements,
             and shall procure that none of his, her or its associates shall subscribe or purchase or enter
             into or effect any arrangements, for the subscription or purchase of any Offer Shares
             pursuant to the Share Offer whereby he, she or it or any of his, her or its associates shall
             become legally or beneficially (whether directly or indirectly) interested in any Offer Shares;

(d)   each of the Company, executive Directors, the Initial Management Shareholders (except Dr.
      Antoine A. Noujaim) and the Covenantors has jointly and severally undertaken to and agreed and
      covenanted with the Sponsors and the Underwriters and each of them that:

      (i)    he, she or it will not make or permit any of his, her or its associates to make, bids or
             purchase for the purpose of creating actual or apparent active trading in, or of raising the
             price of the Offer Shares which is designed to or which has constituted or which might be
             expected to cause or result in stabilisation or manipulation of the price of any securities of
             the Company;

      (ii)   he, she or it shall at his, her or its own expense do all such acts and things as may be
             required by AMS (for and on behalf of the Sponsors and the Underwriters) to be done
             including, without limitation, to supply all such information, pay all such fees, and deliver all
             such documents as are required by the Stock Exchange, to implement the Share Offer and,
             that he, she or it will comply with all requirements so as to enable the approval for the
             granting of the listing of, and permission to deal in, the Shares to be obtained and each of
             the Company, the executive Directors, the Initial Management Shareholders (except Dr.
             Antoine A. Noujaim) and the Covenantors will use its best endeavours to ensure that each




                                                – 180 –
                                         UNDERWRITING


              of the Directors will execute or cause to be duly executed on his behalf all documents
              requiring to be executed by him as a Director for the purpose of or in connection with any
              necessary registrations and/or filings with the respective Stock Exchange and the Registrar
              of Companies in Hong Kong or the obtaining of the approval of the listing of, and permission
              to deal in, the Shares; and

      (iii)   it or he shall comply with the rules and regulations issued from time to time by the Stock
              Exchange and any other regulatory authority in connection with the Share Offer;

(e)   each of Dr. Tam, 943788 Alberta Ltd., Dr. Tam-Zaman, Grand Interest Development Limited, Mr.
      Young, Constance Tam and Suzanne Tam has jointly and severally undertaken to and agreed and
      covenanted with the Company, the Sponsors and the Underwriters and each of them that:

      (i)     he, she or it shall not, and shall procure that none of its or his associates, nominees or
              trustees holding in trust for him, her or it shall, during the 12-Month Lock-up Period, sell,
              transfer or otherwise dispose of or create any rights in respect of (or enter into any
              agreement to sell, transfer or otherwise dispose of or create any rights in respect of) nor
              permit the registered holder thereof to sell, transfer or otherwise dispose of or create any
              rights in respect of (or enter into any agreement to sell, transfer or otherwise dispose of or
              create any rights in respect of), save pursuant to the exceptional circumstances permitted
              under rule 13.18 of the GEM Listing Rules, any of his, her or its Relevant Securities, or sell,
              transfer or otherwise dispose of or create any rights in respect of (or enter into any
              agreement to sell, transfer or otherwise dispose of or create any rights in respect of), save
              pursuant to the exceptional circumstances permitted under rule 13.18 of the GEM Listing
              Rules, any securities in any company controlled by him, her or it which is directly or
              indirectly the beneficial owner of any of the Relevant Securities or any interest therein;

      (ii)    in the event of a disposal of any Relevant Securities or any interests therein after the 12-
              Month Lock-up Period, he, she or it shall take all reasonable steps to ensure that such a
              disposal will not create a disorderly or false market in the Shares or other securities of the
              Company;

      (iii)   he, she or it shall, not later than the business day immediately preceding the Listing Date,
              enter into an escrow agreement in an agreed form with an escrow agent acceptable to the
              Stock Exchange and the Sponsors and place in escrow with such escrow agent during the
              12-Month Lock-up Period, all his, her or its Relevant Securities;

      (iv)    in respect of any right or waiver granted by the Stock Exchange pursuant to rule 13.18(4) of
              the GEM Listing Rules, at any time during the 12-Month Lock-up Period, he, she or it shall
              inform the Company and AMS (for and on behalf of the Sponsors and the Underwriters) in
              writing immediately thereafter, disclosing the details as required under rules 17.43(1) to (4)
              of the GEM Listing Rules; and




                                                – 181 –
                                         UNDERWRITING


      (v)     during the 12-Month Lock-up Period:

              (1)   if he, she or it pledges or charges any direct or indirect interests in the Relevant
                    Securities or in any shares in any company controlled by him, her or it which is
                    directly or indirectly the beneficial owner of any of the Relevant Securities, he, she or
                    it shall give prior written notice of not less than three Business Days to the Company
                    of such pledges or charges together with the number and class of securities so
                    pledged or charged and the purpose for which the pledge or charge is made; and

              (2)   when he, she or it is aware of or receives indications, either verbal or written, from the
                    pledgee or chargee that any of such pledged or charged securities or interests therein
                    will be disposed of, he, she or it will immediately inform the Company of such
                    indications and details of such disposal,

              and the Company has undertaken to and agreed and covenanted with the Sponsors and the
              Underwriters and each of them to forthwith inform the Sponsor and the Stock Exchange the
              pledges and charges referred to above and publish a press announcement thereof
              immediately upon receipt of the notification from any of Dr. Tam, 943788 Alberta Ltd., Dr.
              Tam-Zaman, Grand Interest Development Limited, Mr. Young, Constance Tam and Suzanne
              Tam;

(f)   each of the Patrick Chiu Kit Young and Dr. Antoine A. Noujaim has jointly and severally
      undertaken to and agreed and covenanted with the Company, the Sponsors and the Underwriters
      and each of them that:

      (i)     he shall not, and shall procure that none of his associates, nominees or trustees holding in
              trust for him shall, during the 6-Month Lock-up Period, sell, transfer or otherwise dispose of
              or create any rights in respect of (or enter into any agreement to sell, transfer or otherwise
              dispose of or create any rights in respect of) nor permit the registered holder thereof to sell,
              transfer or otherwise dispose of or create any rights in respect of (or enter into any
              agreement to sell, transfer or otherwise dispose of or create any rights in respect of), save
              pursuant to the exceptional circumstances permitted under rule 13.18 of the GEM Listing
              Rules, any of his Relevant Securities, or sell, transfer or otherwise dispose of or create any
              rights in respect of (or enter into any agreement to sell, transfer or otherwise dispose of or
              create any rights in respect of), save pursuant to the exceptional circumstances permitted
              under rule 13.18 of the GEM Listing Rules, any securities in any company controlled by him
              which is directly or indirectly the beneficial owner of any of the Relevant Securities or any
              interest therein;

      (ii)    in the event of a disposal of any Relevant Securities or any interests therein after the 6-
              Month Lock-up Period, he shall take all reasonable steps to ensure that such a disposal will
              not create a disorderly or false market in the Shares or other securities of the Company;

      (iii)   he shall, not later than the business day immediately preceding the Listing Date, enter into
              an escrow agreement in an agreed form with an escrow agent acceptable to the Stock
              Exchange and the Sponsors and place in escrow with such escrow agent during the 6-
              Month Lock-up Period, all his Relevant Securities;

                                                 – 182 –
                                        UNDERWRITING


      (iv)   in respect of any right or waiver granted by the Stock Exchange pursuant to rule 13.18(4) of
             the GEM Listing Rules, at any time during the 6-Month Lock-up Period, he shall inform the
             Company and AMS (for and on behalf of the Sponsors and the Underwriters) in writing
             immediately thereafter, disclosing the details as required under rules 17.43(1) to (4) of the
             GEM Listing Rules; and

      (v)    during the 6-Month Lock-up Period:

             (3)   if he pledges or charges any direct or indirect interests in the Relevant Securities or in
                   any shares in any company controlled by him which is directly or indirectly the
                   beneficial owner of any of the Relevant Securities, he shall give prior written notice of
                   not less than three Business Days to the Company of such pledges or charges
                   together with the number and class of securities so pledged or charged and the
                   purpose for which the pledge or charge is made; and

             (4)   when he is aware of or receives indications, either verbal or written, from the pledgee
                   or chargee that any of such pledged or charged securities or interests therein will be
                   disposed of, he will immediately inform the Company of such indications and details of
                   such disposal,

             and the Company has undertaken to and agreed and covenanted with the Sponsors and the
             Underwriters to forthwith inform the Sponsor and the Stock Exchange the pledges and
             charges referred to above and publish a press announcement thereof immediately upon
             receipt of the notification from any of Patrick Chiu Kit Young and Dr. Antoine A. Noujaim;

(g)   the Company has undertaken to and agreed and covenanted with the Sponsors and the
      Underwriters and each of them (except Dr. Antoine A. Noujaim) that it will not, and each of the
      executive Directors and the Initial Management Shareholders has jointly and severally undertaken
      to and agreed and covenanted with the Sponsors and the Underwriters to procure that the
      Company will not, effect any purchase of Shares or other securities of the Company, or agree to
      do so, within the First Six-Month Period without first having obtained the prior written consent of
      AMS (for and on behalf of the Sponsors and the Underwriters) which it may withhold in its
      absolute discretion;

(h)   Dr. Tam has further undertaken to and agreed and covenanted with the Sponsors and the
      Underwriters and each of them that he shall not, and shall procure that none of his associates,
      nominees or trustees holding in trust for him shall, during the 12-Month Lock-up Period, sell,
      transfer or otherwise dispose of or create any rights in respect of (or enter into any agreement to
      dispose of), nor permit the registered holder thereof to dispose of (or enter into any agreement to
      sell, transfer or otherwise dispose of or create any rights in respect of), any of his direct or indirect
      interests in 943788 Alberta Ltd; and

(i)   each of Mr. Young and the Covenantors has jointly and severally undertaken to and agreed and
      covenanted with the Company, the Sponsors and the Underwriters and each of them that he or
      she shall not, and shall procure that none of his or her associates, nominees or trustees holding in




                                                – 183 –
                                             UNDERWRITING


           trust for it shall, during the 12-Month Lock-up Period, sell, transfer or otherwise dispose of or
           create any rights in respect of (or enter into any agreement to dispose of), nor permit the
           registered holder thereof to dispose of (or enter into any agreement to sell, transfer or otherwise
           dispose of or create any rights in respect of), any of his or her direct or indirect interests in Grand
           Interest Development Limited.

Commission and expenses

      The Underwriters will receive a commission of 5% of the aggregate Offer Price of all the Offer Shares,
out of which they will pay any management or sub-underwriting commission. In addition, AMS and SBI will
receive documentation and advisory fees for providing the documentation services and for acting as the
sponsor and co-sponsor, respectively, to the Share Offer. Such underwriting commission, documentation fees,
together with the Stock Exchange listing fees, the Stock Exchange transaction levy, legal and other
professional fees, printing and other expenses relating to the Share Offer which are currently estimated to be
approximately HK$14 million (based on the minimum Offer Price of HK$0.50 per Share) in aggregate will be
payable by the Company.

Underwriters’ interests in the Company

       Save as pursuant to the Underwriting Agreement and save as described under the paragraph headed
“Sponsors’ interest in the Company” below, none of the Underwriters is interested in, beneficially or non-
beneficially, in any member of the Group or has any right (whether legally enforceable or not) to subscribe for
or to nominate persons to subscribe for securities in any member of the Group.

Sponsor Agreement

      Under a sponsor agreement dated 21 May 2002 and made between AMS and the Company (the
“Sponsor Agreement”), the Company appoints AMS and AMS agrees to act as the sponsor to the Company
for the purpose of the GEM Listing Rules for a fee from the Listing Date until 28 February 2005 or until the
Sponsor Agreement is terminated pursuant to its terms and conditions.

Sponsors’ interest in the Company

       Save for the documentation and advisory fees to be paid to AMS and SBI as the sponsor and co-
sponsor, respectively, to the Share Offer, their obligations under the Underwriting Agreement and, in the case
of AMS, the Sponsor Agreement, and interests in securities that may be subscribed for pursuant to the Share
Offer, neither AMS nor SBI nor their respective associates has or may, as a result of the Share Offer, have
any interest in any class of securities of the Company or any other company in the Group (including options
or rights to subscribe for such securities).

      No director or employee of each of the Sponsors who is involved in providing advice to the Company
has or may, as a result of the Share Offer, have any interest in any class of securities of the Company or any
other company in the Group (including options or rights to subscribe for such securities but, for the avoidance
of doubt, excluding interests in securities that may be subscribed for or purchased by any such director or
employee pursuant to the Share Offer).




                                                    – 184 –
                                           UNDERWRITING


     Neither the Sponsors nor their respective associates has accrued any material benefit as a result of the
successful outcome of the Share Offer, including the repayment of material outstanding indebtedness or
success fees save and except for the receipt of underwriting commission and the documentation and
management fees in respect of the Share Offer to be received by the Sponsors and/or its respective
associates.

    No director or employee of each of the Sponsors has a directorship in the Company or any other
company in the Group.




                                                  – 185 –
                 STRUCTURE AND CONDITIONS OF THE SHARE OFFER


PRICE PAYABLE ON APPLICATION

      The Offer Price will be not less than HK$0.50 per Share and not more than HK$0.68 per Share.
Applicants for the Public Offer Shares should pay, on application, the maximum Offer Price of HK$0.68 per
Share plus 1% brokerage, 0.007% transaction levy imposed by the Securities and Futures Commission and
0.005% Stock Exchange trading fee, amounting to a total of HK$2,747.53 per board lot of 4,000 Shares.

     The Offer Price is expected to be fixed by agreement between AMS and Hantec (for and on behalf of
the Sponsors and the Underwriters) and the Company not later than 12:00 noon on 28 May 2002. An
announcement of, among other things, the final Offer Price will be published on the GEM website and in the
Hong Kong iMail (in English) and the Hong Kong Economic Times (in Chinese) on 30 May 2002. Applicants
should note that in no circumstances can application be withdrawn once submitted.

CONDITIONS OF THE SHARE OFFER

     Acceptance of all applications for the Offer Shares is conditional upon:

     –     the GEM Listing Committee of the Stock Exchange granting approval of the listing of, and
           permission to deal in, the Shares in issue and the Shares to be issued as mentioned in this
           prospectus; and

     –     the obligations of the Underwriters under the Underwriting Agreement becoming unconditional
           (including, if relevant, as a result of the waiver of any condition(s) by the Underwriters) and not
           being terminated in accordance with the terms of that agreement or otherwise,

in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the
extent such conditions are waived on or before such dates and times) and in any event not later than 21 June
2002, being the date which is 30 days after the date of this prospectus.

      If these conditions are not fulfilled (or, where applicable, waived by AMS (for and on behalf of the
Sponsors and the Underwriters)) on or before 21 June 2002, the application monies will be returned to
applicants of the Offer Shares, without interest. The terms on which the money will be returned to the
applicants are set out in the section headed “Refund of your money” on the application forms.

      In the meantime, the application monies for the Public Offer will be held in a separate bank account(s)
with the receiving banker or any other bank(s) in Hong Kong licensed under the Banking Ordinance (Chapter
155 of the Laws of Hong Kong).

THE SHARE OFFER

     The Share Offer comprises the Public Offer and the Placing. The Offer Shares comprising in aggregate
120 million Offer Shares, will represent approximately 23% of the Company’s enlarged issued share capital
immediately following completion of the Share Offer and the Capitalisation Issue.




                                                   – 186 –
                   STRUCTURE AND CONDITIONS OF THE SHARE OFFER


      The Public Offer Shares are fully underwritten by the Public Offer Underwriters and the Placing Shares
are fully underwritten by the Placing Underwriters in each case on a several basis, each being subject to the
conditions set forth under “Underwriting Agreement” in the section headed “Underwriting” in this prospectus.

      References in this prospectus to applications, application forms, application money or to the procedure
for application relate solely to the Public Offer.

The Public Offer

     The Company is initially offering 12 million new Shares under the Public Offer, representing in
aggregate 10% of the Offer Shares initially available under the Share Offer, for subscription by members of
the public in Hong Kong at the Offer Price. The Public Offer is fully underwritten by the Public Offer
Underwriters subject to the terms and conditions of the Underwriting Agreement.

     Applicants under the Public Offer are required to pay on application the maximum Offer Price of
HK$0.68 per Share, together with a 1% brokerage, transaction levy of 0.007% imposed by the Securities and
Futures Commission and 0.005% Stock Exchange trading fee thereon.

      The Public Offer Shares will be allocated on an equitable basis to applicants who have applied for the
Public Offer Shares. When there is a full or over subscription of Public Offer Shares, allocation of Public Offer
Shares will be solely based on the level of valid applications received. The basis of allocation may vary,
depending on the number of Public Offer Shares validly applied for by each applicant, but will otherwise be
made on a strictly pro rata basis. However, this may involve balloting, which would mean that some applicants
may be allocated more Public Offer Shares than others who have applied for the same number of Public Offer
Shares and that applicants who are not successful in the balloting may not receive any Public Offer Shares.

The Placing

      The Company is initially offering 108 million new Shares under the Placing, representing in aggregate
90% of the Offer Shares initially available under the Share Offer. The Placing is fully underwritten by the
Placing Underwriters subject to the terms and conditions of the Underwriting Agreement.

       The Placing Shares will be conditionally placed on behalf of the Company by the Placing Underwriters
or through selling agents appointed by them at the Offer Price. Shares will be placed with professional,
institutional and individual investors in Hong Kong.

      Allocation of the Placing Shares to professional, institutional and individual investors pursuant to the
Placing is based on a number of factors including the level and timing of demand, and whether or not it is
expected that the relevant investor is likely to buy further Shares, or hold or to sell its Shares, after the listing
of the Shares on GEM. Such allocation is generally intended to result in a distribution of the Placing Shares
on a basis which would lead to the establishment of a broad shareholder base to the benefit of the Company
and its shareholders as a whole.




                                                      – 187 –
                  STRUCTURE AND CONDITIONS OF THE SHARE OFFER


OFFER MECHANISM – RE-ALLOCATION OF THE OFFER SHARES BETWEEN THE PUBLIC OFFER AND
THE PLACING

      The allocation of the Offer Shares between the Placing and the Public Offer is subject to adjustment. If
the Public Offer is not fully subscribed, AMS and Hantec (acting for and on behalf of the Sponsors and the
Underwriters) may, in their absolute discretion, re-allocate all or any unsubscribed Public Offer Shares
originally included in the Public Offer to the Placing in such proportion and in such manner as AMS and
Hantec consider appropriate. If the Placing is not fully subscribed, AMS and Hantec (acting for and on behalf
of the Sponsors and the Underwriters) may, in their absolute discretion, re-allocate all or any unplaced
Placing Shares originally included in the Placing to the Public Offer in such proportion and in such manner as
AMS and Hantec consider appropriate.




                                                   – 188 –
                          HOW TO APPLY FOR PUBLIC OFFER SHARES


WHICH APPLICATION FORM TO USE

     Use a WHITE application form if you want the Public Offer Shares to be issued in your own name.

     Use a YELLOW application form if you want the Public Offer Shares to be issued in the name of
HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock
account or the stock account of your designated CCASS participant.

     Note:   The Public Offer Shares are not available to existing beneficial owners of Shares, the chief executive of the Company,
             the Directors or the associates of any of them.


WHERE TO COLLECT THE APPLICATION FORMS FOR THE PUBLIC OFFER SHARES

     Copies of this prospectus, together with the WHITE application forms, may be obtained from:

                                                Any participant of
                                     The Stock Exchange of Hong Kong Limited

                                                              or

                                         AMS Corporate Finance Limited
                                                    20th Floor
                                       Hong Kong Diamond Exchange Building
                                               8-10 Duddell Street
                                                     Central
                                                   Hong Kong

                                                              or

                                              SBI E2-Capital (HK) Limited
                                               4th Floor, Henley Building
                                                5 Queen’s Road Central
                                                      Hong Kong

                                                              or

                                                Hantec Capital Limited
                                               45th Floor, COSCO Tower
                                               183 Queen’s Road Central
                                                      Hong Kong

or any one of the following branches of Hang Seng Bank Limited:

Hong Kong Island:               Head Office                         83 Des Voeux Road Central
                                Central District Branch             Basement, Central Building, Pedder Street
                                Causeway Bay Branch                 28 Yee Woo Street
                                Wanchai Branch                      200 Hennessy Road


                                                           – 189 –
                         HOW TO APPLY FOR PUBLIC OFFER SHARES


Kowloon:                      Kowloon Main Branch           618 Nathan Road
                              Tsimshatsui Branch            18 Carnarvon Road
                              Kwun Tong Branch              70 Yue Man Square

New Territories:              Chung On Street Branch        38 Chung On Street, Tsuen Wan
                              Shatin Branch                 Shop 18 Lucky Plaza, Wang Pok Street, Sha Tin
                              Yuen Long Branch              93 Castle Peak Road, Yuen Long

      You can collect a YELLOW application form and a prospectus from:

      (1)   the depository counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central,
            Hong Kong; or

      (2)   the Customer Service Centre of HKSCC at Upper Ground Floor, V-Heun Building, 128-140 Queen
            Road Central, Hong Kong; or

      (3)   your broker may have the application forms available.

HOW TO COMPLETE THE APPLICATION FORM

       There are detailed instructions on each application form. You should read those instructions carefully. If
you do not follow the instructions, your application may be rejected. Each WHITE or YELLOW application
form must be accompanied by either one separate cheque drawn on the applicant Hong Kong dollar bank
account in Hong Kong and bearing the account name (either pre-printed by the bank or certified by an
authorised signatory of such bank on the reverse of the cheque) which must correspond with the name of the
applicant (or, in the case of joint applicants, the name of the first applicant) on the relevant application form,
or one separate banker’s cashier order on the reverse of which the bank has certified by an authorised
signatory the name of the applicant, which must correspond with the name of the applicant (or, in the case of
joint applicants, the name of the first applicant) on the relevant application form. All such cheques or banker’s
cashier orders must be made payable as set out in the application form and crossed “Account Payee Only”.

      If your application is made through a duly authorised attorney, AMS, in consultation with the Company,
or their agents may accept your application at their discretion, and subject to any conditions they think fit,
including evidence of the authority of your attorney.

HOW MANY APPLICATIONS YOU MAY MAKE

      There is only one situation where you may make more than one application for Public Offer Shares:

      –     If you are a nominee, you may lodge more than one application in your own name on behalf of
            different owners. In the box on the application form marked “For nominees” you must include for
            each beneficial owner:

            –      an account number; or

            –      some other identification code.



                                                     – 190 –
                          HOW TO APPLY FOR PUBLIC OFFER SHARES


       If you do not include this information, the application will be treated as being for your own benefit.

       Otherwise, multiple applications are not allowed.

       It will be a term and condition of all applications that by completing and delivering an application form,
you:

       –     (if the application is made for your own benefit) warrant that this is the only application which will
             be made for your benefit on a WHITE or YELLOW application form;

       –     (if you are an agent for another person) warrant that this is the only application which will be
             made for the benefit of that other person on a WHITE or YELLOW application form, and that you
             are duly authorised to sign this form as that other person agent.

      All of your applications will be rejected as multiple applications if you, or you and joint applicants
together, or any of your joint applicants:

       –     make more than one application on a WHITE or YELLOW application form; or

       –     apply on one YELLOW or WHITE (whether individually or jointly with others) application form for
             more than 100% of the Public Offer Shares being offered.

     All of your applications will also be rejected as multiple applications if more than one application is
made for your benefit.

       If an application is made by an unlisted company and

       –     the only business of that company is dealing in securities; and

       –     you exercise statutory control over that company,

then the application will be treated as being for your benefit.

       An unlisted company means a company with no equity securities listed on the Stock Exchange.

       Statutory control means you:

       –     control the composition of the board of directors of that company; or

       –     control more than half the voting powers of that company; or

       –     hold more than half the issued share capital of that company (not counting any part of it which
             carries no right to participate beyond a specified amount in a distribution of either profits or
             capital).




                                                      – 191 –
                        HOW TO APPLY FOR PUBLIC OFFER SHARES


HOW MUCH TO PAY FOR THE PUBLIC OFFER SHARES

      The maximum Offer Price is HK$0.68 per Share. The proposed board lot for trading in the Shares is
4,000 Shares. You must pay the maximum Offer Price of HK$0.68 per Share, together with brokerage of 1%,
transaction levy of 0.007% imposed by the Securities and Futures Commission and 0.005% Stock Exchange
trading fee. This means that for every 4,000 Public Offer Shares, you will pay HK$2,747.53. The application
forms have tables showing the exact amount payable for multiples of Shares applied for.

     Your payment must be made by one cheque or one banker’s cashier order and must comply with the
terms of the related application forms. Your cheque or banker’s cashier order will not be presented for
payment before 27 May 2002.

      If your application is successful, brokerage is paid to participants of the Stock Exchange, and the
transaction levy is paid to the Securities and Futures Commission and the trading fee is paid to the Stock
Exchange.

TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

      Completed WHITE or YELLOW application forms, with payment attached, must be lodged by 12:00
noon on Monday, 27 May 2002, or, if the application lists are not open on that day, then by 12:00 noon on the
next business day when the application lists are open.

      Your completed application form, with payment attached, should be deposited in any of the special
collection boxes provided at any of the branches of Hang Seng Bank Limited listed above at the following
times:

                            22 May 2002 (Wednesday)         –   9:00 a.m. to 4:00 p.m.
                              23 May 2002 (Thursday)        –   9:00 a.m. to 4:00 p.m.
                                 24 May 2002 (Friday)       –   9:00 a.m. to 4:00 p.m.
                               27 May 2002 (Monday)         –   9:00 a.m. to 12:00 noon

     The application lists will be open from 11:45 a.m. to 12:00 noon on Monday, 27 May 2002.

EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS

     The application lists will not be open if there is:

     –     a tropical cyclone warning signal number 8 or above, or

     –     a “black” rainstorm warning signal

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Monday, 27 May 2002. Instead the
application lists will be open between 11:45 a.m. and 12:00 noon on the next business day which does not
have either of those warnings in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.




                                                      – 192 –
                         HOW TO APPLY FOR PUBLIC OFFER SHARES


      For the purpose of this section, business day means a day that is not a Saturday, Sunday or public
holiday in Hong Kong.

CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED THE PUBLIC OFFER SHARES

      Details of the circumstances which you will not be allotted the Public Offer Shares are set out in the
notes contained in the application forms, and you should read them carefully. You should note in particular the
following two situations in which the Public Offer Shares will not be allotted to you:

      –     Your application is revoked

             You cannot revoke your application before the end of 3 June 2002, being the fifth day (excluding
      Saturdays, Sundays and public holidays) after the time of the opening of the application lists, except
      that you may revoke your application earlier than that date if a person responsible for this prospectus
      under section 40 of the Companies Ordinance gives a public notice under that section which excludes
      or limits the responsibility of that person for this prospectus.

            If your application has been accepted, it cannot be revoked.

      –     Circumstances in which allotment of Public Offer Shares will be void

            Your allotment of Public Offer Shares, if made, will be void if the GEM Listing Committee does not
      grant permission to list the Shares either:

            –     within three weeks from the closing of the application lists; or

            –     within a longer period of up to six weeks if the GEM Listing Committee notifies the Company
                  of that longer period within three weeks of the closing date of the application lists.

      You may not be allocated Public Offer Shares if:

      At the discretion of the Company or its agent, your application is rejected:

     The Company and AMS (acting for and on behalf of the Sponsors and the Underwriters) as agent for
the Company, have full discretion to reject or accept any application, or to accept only part of any application.

     The Company and AMS as agent for the Company do not have to give any reason for any rejection or
acceptance.

      If your application is rejected:

      Your application will be rejected if:

      –     it is a multiple application;




                                                     – 193 –
                        HOW TO APPLY FOR PUBLIC OFFER SHARES

     –     your application form is not completed correctly;

     –     you or the person for whose benefit you are applying have been allotted Placing Shares;

     –     your payment is not in correct form; or

     –     you pay by cheque and the cheque is dishonoured on its first presentation.

     If your application is not accepted:

     Your application will not be accepted if:

     –     the Underwriting Agreement does not become unconditional; or

     –     the Underwriting Agreement is terminated in accordance with its terms.

      You should also note that you may apply for the Public Offer Shares under the Public Offer or indicate
an interest for the Placing Shares, but may not do both.

PUBLICATION OF RESULTS

      The Company expects to publish the results of the Share Offer and the basis of allotment of the Public
Offer Shares (with successful applicants’ identification number, where appropriate) on or before Thursday, 30
May 2002 on the GEM website and in Hong Kong iMail (in English) and Hong Kong Economic Times (in
Chinese).

COLLECTION/POSTING OF SHARE CERTIFICATES/REFUND CHEQUES AND DEPOSIT OF SHARE
CERTIFICATES INTO CCASS

    The Company will not issue temporary documents of title. No receipt will be issued for application
money paid.

     WHITE application form:

      If you have applied for 1,000,000 Public Offer Shares or above and have indicated on your application
form that you intend to collect your Share certificates and refund cheque (if any) in person, you may collect
them in person from:

                                                  Tengis Limited
                                                     4th Floor
                                                 Hutchison House
                                                 10 Harcourt Road
                                                      Central
                                                    Hong Kong

between 9:00 a.m. and 1:00 p.m. on the date notified by the Company on the GEM website and in Hong Kong
iMail (in English) and Hong Kong Economic Times (in Chinese) as the date of despatch of share certificates.
This is expected to be on Thursday, 30 May 2002.


                                                     – 194 –
                        HOW TO APPLY FOR PUBLIC OFFER SHARES


       Applicants being individuals who opt for personal collection must not authorise any other person to
make collection on their behalf. Applicants being corporations who opt for personal collection must attend by
their authorised representatives bearing letters of authorisation from their corporation stamped with the
corporations’ chops. Both individuals and authorised representatives (if applicable) must produce at the time
of collection evidence of identity acceptable to Tengis Limited.

       If you have opted for personal collection but do not collect your share certificates and/or refund cheque
(if any) at the specified time, they will be sent to the address on your application form in the afternoon on the
date of despatch, by ordinary post and at your own risk. The Company intends to use commercially
reasonable efforts to avoid delays in refunding money.

      If you have not indicated on your application form that you intend to collect your share certificates and/
or refund cheque (if any) in person, then your share certificates and/or refund cheque (if any) will be sent to
the address on your application form on the date of despatch, by ordinary post and at your own risk.

      YELLOW application form:

       Your Share certificate(s) will be issued in the name of HKSCC Nominees Limited and deposited into
CCASS for credit to your investor participant stock account or the stock account of your designated CCASS
participant as instructed by you at the close of business on Thursday, 30 May 2002, or under any contingent
situation, on any other date as shall be determined by HKSCC or HKSCC Nominees Limited.

      If you are applying through a designated CCASS participant (other than an investor participant):

      –     for the Public Offer Shares credited to the stock account of your designated CCASS participant
            (other than investor participant), you can check the number of Public Offer Shares allocated to
            you with that CCASS participant.

      If you are applying as an investor participant:

      –     the Company will publish the results of investor participants’ applications together with the results
            of the Share Offer on the GEM website and in Hong Kong iMail (in English) and Hong Kong
            Economic Times (in Chinese) on or before Thursday, 30 May 2002. You should check against the
            announcement published by the Company and report any discrepancies to HKSCC before 5:00
            p.m. on Thursday, 30 May 2002 or such other date as shall be determined by HKSCC or HKSCC
            Nominees Limited. On Friday, 31 May 2002 (the next day following the credit of the Public Offer
            Shares to your stock account) you can check your new account balance via the CCASS Phone
            System and CCASS Internet System (under the procedures contained in HKSCC’s “An Operating
            Guide for Investor Participants” in effect from time to time). HKSCC will also mail to you an
            Activity Statement showing the number of Public Offer Shares credited to your stock account.

      If you have applied for 1,000,000 Public Offer Shares or above and have indicated on your application
form that you intend to collect your refund cheque (if any) in person, please follow the procedures as set out
in the paragraph “WHITE application form” above.




                                                    – 195 –
                        HOW TO APPLY FOR PUBLIC OFFER SHARES


      If you have opted for personal collection but do not collect your refund cheque (if any) at the specified
time, they will be sent to the address on your application form in the afternoon on the date of dispatch, by
ordinary post and at your own risk. The Company intends to use commercially reasonable efforts to avoid
delays in refunding money.

      If you have not indicated on your application form that you intend to collect your refund cheque (if any)
in person, then your refund cheque (if any) will be sent to the address on your application form on the date of
dispatch, by ordinary post and at your own risk.

COMMENCEMENT OF DEALINGS IN THE SHARES

      Dealings in the Shares on GEM are expected to commence on Monday, 3 June 2002. Shares will be
traded in board lots of 4,000 Shares each.

SHARES WILL BE ELIGIBLE FOR CCASS

      Subject to the granting of the listing of, and permission to deal in, the Shares on GEM as well as
compliance with the stock admission requirements of HKSCC, the Shares will be accepted as eligible
securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of
commencement of dealings in the Shares on GEM or on any other date HKSCC chooses. Investors should
seek advice from their stockbroker or other professional adviser for details of those settlement arrangements
as such arrangements will affect their rights and interests. Settlement of transactions between participants of
the Stock Exchange is required to take place in CCASS on the second business day after any trading day.

     All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational
Procedures in effect from time to time.

     All necessary arrangements have been made for the Shares to be admitted into CCASS.




                                                   – 196 –
APPENDIX I                                                                 ACCOUNTANTS’ REPORT


      The following is the text of a report, prepared for the purpose of incorporation in this prospectus,
received from the auditors and reporting accountants of the Company, Ernst & Young, Certified Public
Accountants, Hong Kong.

                                                                                          15th Floor
                                                                                          Hutchison House
                                                                                          10 Harcourt Road
                                                                                          Central
                                                                                          Hong Kong

                                                                                          22 May 2002

The Directors
Kinetana International Biotech Pharma Limited
AMS Corporate Finance Limited
SBI E2-Capital (HK) Limited

Dear Sirs,

      We set out below our report on the financial information regarding Kinetana International Biotech
Pharma Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and
a jointly-controlled entity of the Group for the three years ended 28 February 2002 (the “Relevant Periods”),
prepared on the basis set out in Section 1 below, for inclusion in the prospectus of the Company dated
22 May 2002 (the “Prospectus”).

      The Company was incorporated as an exempted company with limited liability in the Cayman Islands
under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands on
18 October 2001. Pursuant to a group reorganisation, as further described in the paragraph headed
“Reorganisation” in Appendix IV to the Prospectus, the Company became the ultimate holding company of the
Group on 13 May 2002. The Company has not carried on any business since the date of its incorporation
save for the acquisition of the entire issued share capital of Kinetana Holdings (BVI) Limited (“KBVI”), a
company incorporated in the British Virgin Islands, on 13 May 2002. KBVI was, as at that date, the ultimate
holding company of the other subsidiaries set out in Section 1 below.

      As at the date of this report, no audited financial statements have been prepared for the Company,
KBVI, Kinetana Holdings (Barbados) Limited (“KBarb”), Kinetana Pharmaceutical Commercial Holdings (BVI)
Limited (“KPCH”) and KNCM Biotech Pharma Limited (“KNCM”) since their respective dates of incorporation.
We have, however, performed an independent review of all the relevant transactions of these companies
since their respective dates of incorporation.

      We have examined the audited consolidated financial statements of Kinetana International
Pharmaceuticals Limited (“KIP”) and Kinetana Group Inc. (“KGI”), and the management accounts of the
Company, KBVI, KBarb, KPCH and KNCM for the Relevant Periods or since their respective dates of
incorporation to 28 February 2002, where this is a shorter period, in accordance with the Auditing Guideline
“Prospectuses and the Reporting Accountants” issued by the Hong Kong Society of Accountants (the
“HKSA”).



                                                  – 197 –
APPENDIX I                                                                   ACCOUNTANTS’ REPORT


       We have acted as auditors of the companies now comprising the Group and of its jointly-controlled
entity for the Relevant Periods, except for KGI, Kinetana Inc. and Kinetana Innovations Inc., for which KPMG
LLP were the auditors for each of the Relevant Periods. We have, however, undertaken an independent audit
of the financial statements of KGI, Kinetana Inc. and Kinetana Innovations Inc. for each of the Relevant
Periods for the purpose of this report in accordance with Statements of Auditing Standards issued by the
HKSA.

      The summaries of the combined results, combined cash flows and combined movements in equity of
the Group for the Relevant Periods and the combined balance sheets of the Group as at 29 February 2000,
28 February 2001 and 28 February 2002 together with the balance sheet of the Company as at 28 February
2002 (the “Summaries”) set out in this report have been prepared by the directors of the Company based on
the audited consolidated financial statements of KIP and KGI, and the management accounts of the
Company, KBVI, KBarb, KPCH and KNCM, after making such adjustments as are appropriate, and on the
basis set out in Section 1 below.

      The directors of the Company are responsible for the preparation of the Summaries in order to give a
true and fair view. The directors of the companies comprising the Group are also responsible for the
preparation of the companies’ respective financial statements or, where financial statements are not
prepared, management accounts, in order to give a true and fair view. In preparing the Summaries, financial
statements and management accounts that give a true and fair view, it is fundamental that appropriate
accounting policies are selected and applied consistently.

     It is our responsibility to form an independent opinion on the Summaries.

      In our opinion, the Summaries together with the notes thereon give, for the purpose of this report, a true
and fair view of the combined results and combined cash flows of the Group for the Relevant Periods, and of
the combined balance sheets of the Group as at 29 February 2000, 28 February 2001 and 28 February 2002
and the balance sheet of the Company as at 28 February 2002.

1.   BASIS OF PRESENTATION

      The Summaries, which are based on the audited consolidated financial statements of KIP and KGI, and
the management accounts of the Company, KBVI, KBarb, KPCH and KNCM, after making such adjustments
as are appropriate, include the combined results, cash flows, movements in equity and balance sheets of the
companies now comprising the Group since the respective dates of incorporation or acquisition of the
companies and as if the current Group structure had been in existence throughout the Relevant Periods. All
material intra-group transactions and balances have been eliminated on combination.

      The Summaries have been prepared on the basis that the Group will continue to operate as a going
concern, notwithstanding the fact that the Group had been making losses during the Relevant Periods. The
directors of the Company believe this basis of presentation is appropriate because:

     (a)   Dr. Tam Yun Kau and Mr. Young Shui Chung, directors of the Company, as at the date of this
           report have agreed to provide continuing financial support to the Group until the successful listing
           of the Company’s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong
           Limited (the “Listing”); and



                                                    – 198 –
APPENDIX I                                                                    ACCOUNTANTS’ REPORT


      (b)   the Group intends to apply the net proceeds of approximately HK$46 million from the Listing to
            fund the Group’s capital expenditure and for working capital purpose.

       At the date of this report, the Company had direct or indirect interests in the following subsidiaries and
jointly-controlled entity, all of which are private companies (or, if incorporated/registered outside Hong Kong,
have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of
which are set out below:

                                   Place and               Issued and              Equity
                                      date of                  paid-up            interest
                               incorporation                  ordinary       attributable              Principal
Company name                  and operations             share capital      to the Group               activities

Subsidiaries:

Kinetana Holdings                 British Virgin        HK$1,553,836                100%             Investment
   (BVI) Limited ✝                      Islands                                                          holding
                                  11 July 2001

Kinetana International             Hong Kong           HK$13,409,906                100%             Investment
   Pharmaceuticals            20 October 1999                                                            holding
   Limited

Kinetana Hong Kong                 Hong Kong                     HK$2               100%             Investment
   Pharmaceuticals            20 October 1999                                                            holding
   Holdings Limited

Kinetana Hong Kong                 Hong Kong                     HK$2               100%          Research and
   Herbal                     20 October 1999                                                    development of
   Pharmaceuticals                                                                           biopharmaceutical
   Limited                                                                                    technologies and
                                                                                                      traditional
                                                                                             Chinese medicines
                                                                                                 based products
                                                                                               and provision of
                                                                                                related services

Kinetana China                    Hong Kong                      HK$2               100%                Dormant
   Pharmaceuticals         15 December 1999
   Limited

Kinetana Holdings                    Barbados        CAN$12,259,960                 100%             Investment
   (Barbados) Limited             19 July 2001                                                           holding

Kinetana Group Inc.                   Canada           CAN$2,317,045                100%             Investment
                                18 March 1998                                                         and patent
                                                                                                         holding




                                                    – 199 –
APPENDIX I                                                                    ACCOUNTANTS’ REPORT


                                          Place and          Issued and            Equity
                                             date of             paid-up          interest
                                      incorporation             ordinary     attributable              Principal
Company name                         and operations        share capital    to the Group               activities

Kinetana Inc.                              Canada                CAN$40             100%          Research and
                                       25 May 1987                                               development of
                                                                                              biopharmaceutical
                                                                                               technologies and
                                                                                                 western herbal
                                                                                                       products

Kinetana Innovations                        Canada               CAN$100            100%                Dormant
   Inc.                               18 March 1998

Kinetana                     British Virgin Islands                US$2             100%             Investment
   Pharmaceutical                    14 May 2001                                                         holding
   Commercial
   Holdings (BVI)
   Limited

Jointly-controlled entity:

KNCM Biotech Pharma                     Hong Kong                  HK$2              50%                Dormant
  Limited                              25 May 2001

✝     Directly held by the Company


2.    PRINCIPAL ACCOUNTING POLICIES

       The principal accounting policies adopted by the Group in arriving at the financial information set out in
this report, which conform to accounting principles generally accepted in Hong Kong, are set out below:

      Subsidiaries

            A subsidiary is a company whose financial and operating policies the Company controls, directly
      or indirectly, so as to obtain benefits from its activities.

      Jointly-controlled entity

            A jointly-controlled entity is a joint venture which involves the establishment of a corporation,
      partnership or other entity in which each venturer has an interest. The jointly-controlled entity operates
      in the same way as other enterprises, except that a contractual arrangement between the venturers
      establishes joint control over the economic activity of the entity.




                                                       – 200 –
APPENDIX I                                                                  ACCOUNTANTS’ REPORT


          The results of a jointly-controlled entity are included in the combined results to the extent of the
   profits or losses attributable to the Group. The Group’s interest in a jointly-controlled entity is stated in
   the combined balance sheets at the Group’s share of net assets under the equity method of accounting.

   Impairment of assets

         An assessment is made at each balance sheet date of whether there is any indication of
   impairment of any asset, or whether there is any indication that an impairment loss previously
   recognised for an asset in prior years may no longer exist or may have decreased. If any such
   indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is
   calculated as the higher of the asset’s value in use or its net selling price.

        An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable
   amount. An impairment loss is charged to the profit and loss account in the period in which it arises,
   unless the asset is carried at a revalued amount, when the impairment loss is accounted for in
   accordance with the relevant accounting policy for that revalued asset.

         A previously recognised impairment loss is reversed only if there has been a change in the
   estimates used to determine the recoverable amount of an asset, however not to an amount higher than
   the carrying amount that would have been determined (net of any depreciation/amortisation), had no
   impairment loss been recognised for the asset in prior years.

         A reversal of an impairment loss is credited to the profit and loss account in the period in which it
   arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is
   accounted for in accordance with the relevant accounting policy for that revalued asset.

   Fixed assets and depreciation

         Fixed assets are stated at cost less accumulated depreciation and any impairment losses.

          The cost of an asset comprises its purchase price and any directly attributable costs of bringing
   the asset to its working condition and location for its intended use. Expenditure incurred after fixed
   assets have been put into operation, such as repairs and maintenance, is normally charged to the profit
   and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated
   that the expenditure has resulted in an increase in the future economic benefits expected to be obtained
   from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

        Depreciation is calculated on the straight-line basis to write off the cost of each asset over its
   estimated useful life. The principal annual rates used for this purpose are as follows:

         Leasehold improvements                                                     20%
         Laboratory equipment                                                       20%
         Furniture, fixtures and office equipment                                   20%

         The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss
   account, is the difference between the net sales proceeds and the carrying amount of the relevant
   asset.

                                                    – 201 –
APPENDIX I                                                                 ACCOUNTANTS’ REPORT


   Intangible assets

   Patents and trademarks

        Patents and trademarks represent the application and registration fees paid for patents and
   trademarks. Costs relating to patents and trademarks are capitalised and stated at cost less
   accumulated amortisation and any impairment losses. Amortisation is calculated on the straight-line
   basis to write off the costs of patents and trademarks over their estimated economic useful lives,
   subject to a maximum of ten years, commencing from the date when the related products are put into
   commercial production.

   Research and development costs

         All research costs are charged to the profit and loss account as incurred.

         Expenditure incurred on projects to develop new products is capitalised and deferred only when
   the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably;
   there is reasonable certainty that the projects are technically feasible; and the products have
   commercial value. Product development expenditure which does not meet these criteria is expensed
   when incurred.

         Deferred development costs are stated at cost less accumulated amortisation and any impairment
   losses. Amortisation is calculated on the straight-line basis to write off the deferred development costs
   over the estimated commercial lives of the underlying products, subject to a maximum of ten years,
   commencing from the date when the products are put into commercial production.

   Government grants and subsidies

          Grants and subsidies from the government are recognised at their fair values when received, or
   there is reasonable assurance that they will be received, and all attached conditions are complied with.
   When the grant or subsidy relates to an expense item, it is recognised as income over the periods
   necessary to match the grant or subsidy, on a systematic basis, with the costs which it is intended to
   compensate. Where the grant or subsidy relates to an asset, including non-monetary grants at fair
   value, the fair value of the grant or subsidy is deducted in arriving at the carrying amount of the related
   asset, or, as appropriate, is initially recorded as deferred income in the balance sheet, and thereafter
   will be recognised as income over the useful life of the relevant asset.

   Short term investments

          Short term investments are investments in equity securities held for trading purposes and are
   stated at their values on the basis of their quoted market prices at the balance sheet date, on an
   individual investment basis. The gains or losses arising from changes in the fair value of such securities
   are credited or charged to the profit and loss account for the period in which they arise.




                                                 – 202 –
APPENDIX I                                                                  ACCOUNTANTS’ REPORT


   Leased assets

         Leases that transfer substantially all the rewards and risks of ownership of assets to the Group,
   other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of
   the leased asset is capitalised at the present value of the minimum lease payments and recorded
   together with the obligation, excluding the interest element, to reflect the purchase and financing.
   Assets held under capitalised finance leases are included in fixed assets and depreciated over the
   shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases
   are charged to the profit and loss account so as to provide a constant periodic rate of charge over the
   lease terms.

         Assets acquired through hire purchase contracts of a financing nature are accounted for as
   finance leases, but are depreciated over their estimated useful lives.

        Leases where substantially all the rewards and risks of ownership of assets remain with the lessor
   are accounted for as operating leases. Where the Group is the lessee, rentals payable under the
   operating leases are charged to the profit and loss account on the straight-line basis over the lease
   terms.

   Contracts for services

         Contract revenue on the rendering of services comprises the agreed contract amount. Costs of
   rendering services comprise labour and other costs of personnel directly engaged in providing the
   services and attributable overheads.

          Revenue from the rendering of services is recognised based on the percentage of completion of
   the transaction, provided that the revenue, the costs incurred and the estimated costs to completion can
   be measured reliably. The percentage of completion is established by reference to the costs incurred to
   date as compared to the total costs to be incurred under the transaction.

         Provision is made for foreseeable losses as soon as they are anticipated by management.

        Where contract costs incurred to date plus recognised profits less recognised losses exceed
   progress billings, the surplus is treated as an amount due from contract customers.

        Where progress billings exceed contract costs incurred to date, plus recognised profits less
   recognised losses, the surplus is treated as an amount due to contract customers.

   Retirement benefits scheme

          The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme
   (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees
   who are eligible to participate in the MPF Scheme. The MPF Scheme has operated since 1 December
   2000. Contributions are made based on a percentage of the employees’ basic salaries and are charged
   to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme.
   The assets of the MPF Scheme are held separately from those of the Group in an independently
   administered fund. The Group’s employer contributions vest fully with the employees when contributed
   into the MPF Scheme.
                                                  – 203 –
APPENDIX I                                                                    ACCOUNTANTS’ REPORT


         Certain employees of the Group are members of a compulsory retirement benefits scheme
   operated by the government of Canada, assets of which are held separately from those of the Group.
   Contributions made are based on a percentage of the eligible employees’ salaries and are charged to
   the profit and loss account as they become payable in accordance with the rules of the scheme. The
   Group’s employer contributions vest fully once made.

   Deferred tax

         Deferred tax is provided, using the liability method, on all significant timing differences to the
   extent it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not
   recognised until its realisation is assured beyond reasonable doubt.

   Foreign currencies

         Foreign currency transactions are recorded at the applicable rates of exchange ruling at the
   transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance
   sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences
   are dealt with in the profit and loss account.

         On combination, the financial statements of the subsidiaries denominated in foreign currencies
   are translated into Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet
   date. The resulting translation differences are included in the exchange fluctuation reserve.

   Related parties

          Parties are considered to be related if one party has the ability, directly or indirectly, to control the
   other party or exercise significant influence over the other party in making financial and operating
   decisions. Parties are also considered to be related if they are subject to common control or common
   significant influence. Related parties may be individuals or corporate entities.

   Revenue recognition

        Revenue is recognised when it is probable that the economic benefits will flow to the Group and
   when the revenue can be measured reliably, on the following basis:

         (a)   from the rendering of services, based on the percentage of completion basis, as further
               explained in the accounting policy for “Contracts for services” above; and

         (b)   interest income, on a time proportion basis, taking into account the principal outstanding
               and the effective interest rate applicable.

   Cash equivalents

         For the purpose of the combined cash flow statements, cash equivalents represent short term
   highly liquid investments which are readily convertible into known amounts of cash and which were
   within three months of maturity when acquired, less advances from banks repayable within three
   months from the date of the advance. For the purpose of combined balance sheet classification, cash
   equivalents represent assets similar in nature to cash, which are not restricted as to use.
                                                   – 204 –
APPENDIX I                                                                              ACCOUNTANTS’ REPORT


3.   COMBINED RESULTS

      The following is a summary of the combined results of the Group for the Relevant Periods, prepared on
the basis set out in Section 1 above:

                                                                       Year ended            Year ended           Year ended
                                                                      29 February           28 February          28 February
                                                                             2000                  2001                 2002
                                                       Notes                  HK$                   HK$                  HK$

     TURNOVER                                            (a)                       –                     –             750,000
     Cost of services rendered                                                     –                     –            (205,040)


     Gross profit                                                                  –                     –             544,960

     Other revenue, net                                  (a)                88,270               137,555              611,987
     Administrative expenses                                            (3,189,649)           (7,094,003)         (11,248,733)
     Other operating expenses, net                                      (1,849,333)           (1,303,024)          (4,604,037)


     LOSS FROM OPERATING
       ACTIVITIES                                        (b)            (4,950,712)           (8,259,472)         (14,695,823)

     Finance costs                                       (c)                (86,200)              (99,954)            (216,758)

     Share of profits of a
       jointly-controlled entity                                                    –                    –              14,434


     LOSS BEFORE TAX                                                    (5,036,912)           (8,359,426)         (14,898,147)
     Tax                                                 (e)                     –                     –                    –

     NET LOSS FROM ORDINARY
       ACTIVITIES ATTRIBUTABLE
       TO SHAREHOLDERS                                                  (5,036,912)           (8,359,426)         (14,898,147)


     Dividends                                           (f)                       –                     –                     –


     Loss per share – basic (HK cents)                   (g)                    (1.3)                 (2.1)                 (3.7)


     Notes:

     (a)      Turnover and other revenue, net

            Turnover represents the appropriate proportion of contract revenue from services rendered on evaluation of ingredient
     absorption in traditional Chinese medicines based formula and wine.




                                                           – 205 –
APPENDIX I                                                                                ACCOUNTANTS’ REPORT

         An analysis of the Group’s turnover and other revenue, net is as follows:

                                                                           Year ended             Year ended       Year ended
                                                                          29 February            28 February      28 February
                                                                                 2000                   2001             2002
                                                                                  HK$                    HK$              HK$

         Turnover
         Rendering of services                                                        –                    –           750,000

         Other revenue, net
         Interest income                                                        88,270               137,555            51,962
         Investment tax credits recovered                                            –                     –           560,025

                                                                                88,270               137,555           611,987

   (b)   Loss from operating activities

         The Group’s loss from operating activities was arrived at after charging/(crediting):

                                                                           Year ended             Year ended       Year ended
                                                                          29 February            28 February      28 February
                                                                                 2000                   2001             2002
                                                                                  HK$                    HK$              HK$

         Depreciation                                                          297,591               565,077         1,230,364
         Patents and trademarks:
           Amortisation for the year*                                                –                     –             3,495
           Impairment arising during the year**                                 38,256                     –            43,770

                                                                                38,256                     –            47,265

         Development costs:
           Amortisation for the year*                                                –                     –            58,725
           Impairment arising during the year**                              1,273,844                     –         1,065,715

                                                                             1,273,844                     –         1,124,440

         Minimum lease payments under operating leases:
           Land and buildings                                                  267,332             1,097,346         1,239,410
           Laboratory equipment, furniture, fixtures and
              office equipment                                                 280,436               649,501           896,143

                                                                               547,768             1,746,847         2,135,553
              Less: Capitalised in deferred development costs                  (97,651)                    –                 –

                                                                               450,117             1,746,847         2,135,553

         Auditors’ remuneration                                                 31,200               439,280           388,476

         Staff costs (excluding directors’ remuneration – note d):
           Salaries, bonuses, allowances and benefits in kind                2,151,932             4,182,044         6,578,288
           Retirement benefits scheme contributions                             51,438               100,334           187,244

                                                                             2,203,370             4,282,378         6,765,532
              Less: Capitalised in deferred development costs               (1,341,813)           (3,016,889)       (2,681,349)

                                                                               861,557             1,265,489         4,084,183

         Loss on disposal of short term investments                                  –                     –            31,883
         Exchange losses, net                                                        –                 8,301           115,134
         Interest income                                                       (88,270)             (137,555)          (51,962)

         *        The amortisations of deferred development costs, patents and trademarks for the year are included in “Cost of
                  services rendered” on the face of the profit and loss account.

         **       The impairments of deferred development costs, patents and trademarks for the year are included in “Other
                  operating expenses, net” on the face of the profit and loss account.


                                                           – 206 –
APPENDIX I                                                                               ACCOUNTANTS’ REPORT

   (c)   Finance costs

                                                                          Year ended         Year ended            Year ended
                                                                         29 February        28 February           28 February
                                                                                2000               2001                  2002
                                                                                 HK$                HK$                   HK$

         Interest on bank loan and overdrafts, and other
            loans wholly repayable within five years                           86,200             99,954               150,133
         Interest on a finance lease                                                –                  –                66,625

                                                                               86,200             99,954               216,758


   (d)   Directors’ and senior executives’ remuneration

         (i)    Details of directors’ remuneration are as follows:

                                                                          Year ended         Year ended            Year ended
                                                                         29 February        28 February           28 February
                                                                                2000               2001                  2002
                                                                                 HK$                HK$                   HK$

                Fees                                                                 –                 –                     –

                Other emoluments of executive directors:
                  Salaries, bonuses, allowances and
                     benefits in kind                                                –         1,147,233             2,053,650
                  Retirement benefits scheme
                     contributions                                                   –            48,297                20,270

                                                                                     –         1,195,530             2,073,920


                                                                                     –         1,195,530             2,073,920


                The remuneration of the directors fell within the following bands:

                                                                          Year ended         Year ended            Year ended
                                                                         29 February        28 February           28 February
                                                                                 2000               2001                  2002
                                                                           Number of          Number of             Number of
                                                                             directors          directors             directors

                Nil to HK$1,000,000                                                  8                 8                     7
                HK$1,000,001-HK$1,500,000                                            –                 –                     1

                                                                                     8                 8                     8


                The executive directors did not receive any fees or emoluments during the year ended 29 February 2000. The
                three executive directors received emoluments of HK$712,530, HK$483,000 and nil, respectively, for the year
                ended 28 February 2001, and HK$1,101,920, HK$972,000 and nil, respectively, for the year ended 28 February
                2002.

                The non-executive directors and independent non-executive directors did not receive any fees or emoluments for
                the Relevant Periods.

                There was no arrangement under which a director waived or agreed to waive any remuneration during the
                Relevant Periods.

                During the year ended 28 February 2001, 8,000, 50,000, 18,000 and 11,000 share options of KGI were granted to
                Dr. Tam Yun Kau, Mr. Young Shui Chung, Mr. Young Chiu Kit, Patrick and Dr. Antoine A. Noujaim, directors of the
                Company, respectively. None of these share options was exercised by the directors during the remainder of the
                Relevant Periods.



                                                           – 207 –
APPENDIX I                                                                                 ACCOUNTANTS’ REPORT

                 In addition, for the year ended 29 February 2000, 630,000, 16,000 warrants of KGI were granted to Grand Interest
                 Development Limited (“Grand Interest”), a company in which Mr. Young Shui Chung, a director of the Company,
                 has beneficial interests, and Mr. Young Chiu Kit, Patrick, a director of the Company, respectively, to subscribe for
                 1 common share of KGI at an exercise price of CAN$1.20 for each warrant granted. Pursuant to a resolution of
                 KGI’s directors passed on 10 December 1999, such warrants could be exercised at a reduced exercise price of
                 CAN$0.95 until 29 February 2000. Upon the exercise of all the above warrants by Grand Interest on 4 February
                 2000, a further 315,000 warrants of KGI were granted to Grand Interest, allowing it to subscribe for 1 common
                 share of KGI at an exercise price of CAN$3.10 for each warrant granted.

                 No value is included in the directors’ remuneration in respect of the share options and warrants granted because,
                 in the absence of a readily available market value for the options and warrants on KGI’s common shares, the
                 directors are unable to arrive at an accurate assessment of the value of the options and warrants granted.

          (ii)   The five highest paid individuals in the Group during each of the Relevant Periods included no directors for the
                 year ended 29 February 2000 and 2 directors for the two years ended 28 February 2002, details of whose
                 remuneration have been disclosed above. The emoluments paid to the remaining non-director, highest paid
                 individuals for each of the Relevant Periods are as follows:

                                                                           Year ended              Year ended            Year ended
                                                                          29 February             28 February           28 February
                                                                                 2000                    2001                  2002
                                                                                  HK$                     HK$                   HK$
                 Salaries, bonuses, allowances and
                   benefits in kind                                          1,309,507               1,261,081            1,889,950
                 Retirement benefits scheme
                   contributions                                                33,346                  21,564                27,960

                                                                             1,342,853               1,282,645            1,917,910


                 The remuneration of the non-director, highest paid individuals fell within the following band:

                                                                           Year ended              Year ended            Year ended
                                                                          29 February             28 February           28 February
                                                                                 2000                    2001                  2002
                                                                            Number of               Number of             Number of
                                                                            employees               employees             employees

                 Nil to HK$1,000,000                                                  5                       3                    3


                 Of the remaining non-director, highest paid individuals for each of the Relevant Periods, one was granted 120,000
                 KGI share options for the year ended 29 February 2000, two were granted 70,000 and 50,000 KGI share options,
                 respectively, for the year ended 28 February 2001 and one was granted 70,000 KGI share options for the year
                 ended 28 February 2002. None of these share options was exercised by them during the remainder of the
                 Relevant Periods. No value is included in the remuneration of the remaining non-director, highest paid individuals
                 in respect of the share options granted because, in the absence of a readily available market value for the options
                 on KGI’s common shares, the directors are unable to arrive at an accurate assessment of the value of the options
                 granted.

          During the Relevant Periods, no emoluments were paid by the Group to the directors or any of the five highest paid
          individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

   (e)    Tax

          In accordance with the relevant tax legislation, rules and regulations, interpretations and practices in Hong Kong and
   Alberta, Canada, no provision for Hong Kong profits tax or overseas income tax has been made during the Relevant Periods as
   the Group had no assessable profits arising in Hong Kong and overseas.

          The amount of deferred tax not recognised is set out in Section 4(m) below.




                                                           – 208 –
APPENDIX I                                                                                   ACCOUNTANTS’ REPORT

   (f)    Dividends

         No dividends have been paid or declared by the Company or the companies now comprising the Group during the
   Relevant Periods.

   (g)    Loss per share

           The calculation of basic loss per share for each of the Relevant Periods is based on the net loss from ordinary activities
   attributable to shareholders for each of the Relevant Periods and on the assumption that 400,000,000 shares had been in issue
   throughout the Relevant Periods, comprising the 16,355,357 shares in issue as at the date of the Prospectus and 383,644,643
   shares issued pursuant to the capitalisation issue, as described more fully in the paragraph headed “Written resolutions of the
   sole shareholder of the Company passed on 7 May 2002” in Appendix IV to the Prospectus.

          No diluted loss per share has been presented as no diluting event existed during each of the Relevant Periods.

   (h)    Related party transactions

          In addition to the transactions disclosed in Section 4(d), (h), (i) and (j) of this report, the Group had the following material
   transactions with related parties during the Relevant Periods:

                                                                              Year ended             Year ended              Year ended
                                                                             29 February            28 February             28 February
                                                                                    2000                   2001                    2002
                                                              Notes                  HK$                    HK$                     HK$

          CONTINUING TRANSACTIONS:

                Salaries, bonuses, allowances, and benefits
                  in kind paid to Dr. Nuzhat Tam-Zaman
                  and retirement benefits scheme
                  contributions thereof                         (i)               400,448                425,147                 431,609

                Royalties entitled by Dr. Tam Yun Kau           (ii)                     –                       –                      –

                Royalties entitled by Dr. Nuzhat Tam-Zaman     (iii)                     –                       –                      –

                Consultancy fees paid to Patrick C. Young
                  Professional Corporation, Chartered
                  Accountant                                   (iv)                82,604                252,871                 215,359

          DISCONTINUING TRANSACTIONS:

                Consultancy fees paid to
                  Kasonic World Limited (“KWL”)                 (v)                      –               166,868                        –

                Interest expenses paid to Dr. Tam Yun Kau      (vi)                      –                 17,987                 84,569

                Interest expenses paid to
                   Mr. Young Shui Chung                        (vii)                     –                       –                35,000

                Commission expenses paid to KNCM               (viii)                    –                       –                50,000


          Notes:

          (i)       Dr. Nuzhat Tam-Zaman is the wife of Dr. Tam Yun Kau, a director of the Company. The amounts paid to Dr.
                    Nuzhat Tam-Zaman during each of the Relevant Periods as an employee of the Group were based on mutually-
                    agreed terms. In addition, pursuant to the employment agreement (“Employment Agreement”) entered into
                    between Dr. Nuzhat Tam-Zaman and KGI on 1 July 1999, 140,000 share options were granted to Dr. Nuzhat Tam-
                    Zaman for the year ended 28 February 2002, which allow her to subscribe for common shares of KGI at
                    CAN$0.50 per share. No value is included in the amount of salaries, bonuses, allowances and benefits in kind in
                    respect of the share options granted because, in the absence of a readily available market value for the options
                    on KGI’s common shares, the directors are unable to arrive at an accurate assessment of the value of the options
                    granted.




                                                              – 209 –
APPENDIX I                                                                                  ACCOUNTANTS’ REPORT

            (ii)     Pursuant to an assignment agreement (the “Dr. Tam Assignment Agreement”) entered into between KGI and Dr.
                     Tam Yun Kau, a director of the Company, on 2 February 1999, Dr. Tam Yun Kau assigned to KGI his entire right,
                     title and interest in the two inventions, namely Simulated Biological Dissolution and Absorption System and
                     Composition for Prevention of Hepatic Steatosis (the “Dr. Tam Intellectual Properties”) for 5,505,000 common
                     shares of KGI and the entitlements to royalties payable by KGI. Pursuant to the Dr. Tam Assignment Agreement,
                     the royalty entitlement was equivalent to 2% of the net profit of KGI derived from the Dr. Tam Intellectual
                     Properties as calculated in accordance with generally accepted accounting practices in Canada. No such royalties
                     were paid or payable as KGI did not generate any net profit during the Relevant Periods.

            (iii)    Pursuant to the Employment Agreement as referred in sub-paragraph (i) above and an assignment agreement
                     (the “Dr. Zaman Assignment Agreement”) entered into between Dr. Nuzhat Tam-Zaman and KGI on 1 July 1999,
                     Dr. Nuzhat Tam-Zaman agreed to assign to KGI her entire right, title and interest in the invention, namely
                     Composition for Prevention of Hepatic Steatosis (the “Dr. Zaman Intellectual Property”) for obtaining the
                     employment by KGI, share options of KGI and the entitlements to royalties payable by KGI. Pursuant to the Dr.
                     Zaman Assignment Agreement, the royalty entitlement was equivalent to 2% of the net profit of KGI derived from
                     the Dr. Zaman Intellectual Property as calculated in accordance with generally accepted accounting practices in
                     Canada. No such royalties were paid or payable as KGI did not generate any net profit during the Relevant
                     Periods.

            (iv)     Mr. Young Chiu Kit, Patrick, a director of the Company, has beneficial interests in Patrick C. Young Professional
                     Corporation, Chartered Accountant. The consultancy fees paid were based on a mutually-agreed rate of CAN$100
                     for each hour of accounting services provided, which was considered by the directors of the Company to be in
                     line with the then prevailing rate for such services.

            (v)      Mr. Young Shui Chung, a director of the Company, has beneficial interests in KWL. The consultancy fees paid
                     were charged at a mutually-agreed rate of CAN$100 for each hour of consultancy services provided, which was
                     considered by the directors of the Company to be in line with the then prevailing rate for such services.

            (vi)     Interest expenses paid to Dr. Tam Yun Kau, a director of the Company, arose from advances made to the Group.
                     The advances bore interest at 8% per annum, which was considered by the directors of the Company to be in line
                     with the then prevailing rate for such loan advanced.

            (vii)    Interest expenses paid to Mr. Young Shui Chung, a director of the Company, arose from a loan of HK$2,000,000
                     to the Group during the year ended 28 February 2002. Such loan was fully repaid before 28 February 2002. The
                     loan bore interest at 1.75% per month, which was considered by the directors of the Company to be in line with
                     the then prevailing rate for such loan advanced, taking into account of the then financial position of the Group.

            (viii)   Commission expenses paid to KNCM, a jointly-controlled entity of the Company, were determined based on a
                     mutually-agreed rate of 5% on the value of the service contract introduced by KNCM.

            The directors are of the opinion that the above transactions were conducted in the ordinary course of business of the
   Group.




                                                              – 210 –
APPENDIX I                                                                     ACCOUNTANTS’ REPORT


4.   COMBINED BALANCE SHEETS
      The following is a summary of the combined balance sheets of the Group as at the end of each of the
Relevant Periods and the balance sheet of the Company as at 28 February 2002, prepared on the basis set
out in Section 1 above:
                                                                         Group                        Company
                                                         29 February   28 February   28 February    28 February
                                                                2000          2001          2002           2002
                                                Notes            HK$           HK$           HK$            HK$

     NON-CURRENT ASSETS
     Fixed assets                                (a)       1,256,528     3,951,794     5,297,943              –
     Intangible assets                           (b)       1,903,039     5,254,018     6,549,787              –
     Interests in subsidiaries                   (c)               –             –             –     (3,306,678)
     Interests in a jointly-controlled entity    (d)               –             –       (34,565)             –

                                                           3,159,567     9,205,812    11,813,165     (3,306,678)

     CURRENT ASSETS
     Short term investments, unlisted                         53,560        53,560             –             –
     Tax recoverable                             (e)         209,446       274,196       446,327             –
     Trade receivables                           (f)               –             –       650,000             –
     Prepayments, deposits and
       other receivables                                     140,265       463,078     7,443,224      4,128,204
     Cash and cash equivalents                             1,793,329     2,643,248        69,872              –

                                                           2,196,600     3,434,082     8,609,423      4,128,204

     CURRENT LIABILITIES
     Other payables and accruals                             627,118     1,590,902     4,429,885        828,062
     Amount due to a contract customer           (g)               –             –       100,000              –
     Due to a director                           (h)               1             1             –              –
     Loan from a director                        (i)         509,460       511,098       826,011              –
     Loan from a related party                    (j)        260,000       260,000       250,000              –
     Interest-bearing bank borrowings            (k)         615,727       156,000             –              –
     Finance lease payable                       (l)               –             –       316,616              –

                                                           2,012,306     2,518,001     5,922,512       828,062

     NET CURRENT ASSETS                                      184,294       916,081     2,686,911      3,300,142

     TOTAL ASSETS LESS CURRENT LIABILITIES                 3,343,861    10,121,893    14,500,076         (6,536)

     NON-CURRENT LIABILITIES
     Interest-bearing bank borrowings            (k)         481,000       312,000             –             –
     Finance lease payable                       (l)               –             –       518,549             –

                                                            481,000       312,000       518,549              –

     MINORITY INTERESTS                                           1             1              –             –

                                                           2,862,860     9,809,892    13,981,527         (6,536)
     Represented by:
     Combined shareholders’ equity                         2,862,860     9,809,892    13,981,527         (6,536)



                                                        – 211 –
APPENDIX I                                                                           ACCOUNTANTS’ REPORT

   Notes:

   (a)      Fixed assets


                                                                                              Group
                                                                      29 February          28 February          28 February
                                                                             2000                 2001                 2002
                                                                              HK$                  HK$                  HK$

            Cost:
              Leasehold improvements                                      729,513             2,842,318            3,361,547
              Laboratory equipment                                        582,327             1,379,009            2,958,986
              Furniture, fixtures and office equipment                    454,860               805,716            1,248,329

                                                                        1,766,700             5,027,043            7,568,862

            Accumulated depreciation:
              Leasehold improvements                                      195,702               493,309            1,131,811
              Laboratory equipment                                        194,485               347,876              719,474
              Furniture, fixtures and office equipment                    119,985               234,064              419,634

                                                                          510,172             1,075,249            2,270,919

            Net book value:
              Leasehold improvements                                      533,811             2,349,009            2,229,736
              Laboratory equipment                                        387,842             1,031,133            2,239,512
              Furniture, fixtures and office equipment                    334,875               571,652              828,695

                                                                        1,256,528             3,951,794            5,297,943


         The net book value of the Group’s fixed assets held under a finance lease included in the total amount of laboratory
   equipment at 28 February 2002 amounted to HK$1,216,356. There were no fixed assets held under finance leases as at
   29 February 2000 and 28 February 2001.

   (b)      Intangible assets

                                                                                              Group
                                                                      29 February          28 February          28 February
                                                                             2000                 2001                 2002
                                                                              HK$                  HK$                  HK$

            Costs:
              Patents and trademarks                                      156,598               283,431              303,759
              Deferred development costs                                3,058,541             6,282,687            8,729,833

                                                                        3,215,139             6,566,118            9,033,592

            Accumulated amortisation and impairment:
              Patents and trademarks                                       38,256                38,256               85,521
              Deferred development costs                                1,273,844             1,273,844            2,398,284

                                                                        1,312,100             1,312,100            2,483,805

            Net book value:
              Patents and trademarks                                      118,342               245,175              218,238
              Deferred development costs                                1,784,697             5,008,843            6,331,549

                                                                        1,903,039             5,254,018            6,549,787

         Government grants and subsidies of nil, HK$728,000 and HK$675,000 were received from a government authority for the
   year ended 29 February 2000, the year ended 28 February 2001 and the year ended 28 February 2002, respectively. The
   government grants and subsidies received were related to a technology development project undertaken by the Group and were
   accounted for as a deduction in arriving at the carrying value of deferred development costs.




                                                         – 212 –
APPENDIX I                                                                                ACCOUNTANTS’ REPORT

   (c)    Interests in subsidiaries

           The balance represented amounts due to KIP sub-group and KGI sub-group. As disclosed in “Basis of presentation” in
   Section 1 above, the Summaries is prepared as if the current Group structure had been in existence throughout the Relevant
   Periods, accordingly, the amounts due to KIP sub-group and KGI sub-group were classified as due to subsidiaries and included
   in interests in subsidiaries.

         The amounts due to KIP sub-group and KGI sub-group are unsecured, interest-free and have no fixed terms of
   repayment.

   (d)    Interests in a jointly-controlled entity

                                                                                                   Group
                                                                          29 February           28 February            28 February
                                                                                 2000                  2001                   2002
                                                                                  HK$                   HK$                    HK$

          Share of net assets                                                        –                      –                  14,435
          Due to a jointly-controlled entity                                         –                      –                 (49,000)

                                                                                     –                      –                 (34,565)

          The amount due to the jointly-controlled entity is unsecured, interest-free and has no fixed terms of repayment.

   (e)    Tax recoverable

            Tax recoverable represented Goods and Service Tax (“GST”) recoverable. The Group’s operating subsidiaries in Canada
   are subject to GST, which is charged at the applicable tax rates on the selling price of finished products. An input credit is
   available whereby input GST previously paid on the purchase of goods and services can be used to offset the output GST on
   sales to determine the net GST payable or recoverable. In the case that a GST recoverable amount exists at the period end and
   is certified by the relevant Canadian tax authority, a tax refund will be made.

   (f)    Trade receivables

          The credit period of the Group given to its customers is normally within 30 days. The aged analysis of the Group’s trade
   receivables, based on invoice date, is as follows:

                                                                          29 February           28 February            28 February
                                                                                 2000                  2001                   2002
                                                                                  HK$                   HK$                    HK$

          0 to 90 days                                                               –                      –                650,000

   (g)    Amount due to a contract customer

                                                                                                   Group
                                                                          29 February           28 February            28 February
                                                                                 2000                  2001                   2002
                                                                                  HK$                   HK$                    HK$

          Contract costs incurred plus recognised
            profits less recognised losses to date                                   –                      –                150,000

          Less: Progress billings                                                    –                      –                (250,000)

          Gross amount due to a contract customer                                    –                      –                (100,000)

          The amount relates to a service contract entered into between the Group and an independent third party.

   (h)    Due to a director

          The balance was unsecured, interest-free and had no fixed terms of repayment.

   (i)    Loan from a director

         The loan was unsecured, bore interest at 8% per annum and had no fixed terms of repayment. The balance as at
   28 February 2002 was fully repaid to the director on 15 May 2002.



                                                           – 213 –
APPENDIX I                                                                               ACCOUNTANTS’ REPORT

   (j)   Loan from a related party

         The amount represented a loan from Ms. Lau Yau, who is the mother of Dr. Tam Yun Kau, a director of the Company, and
   was unsecured, interest-free and had no fixed terms of repayment. The loan was fully settled on 15 May 2002.

   (k)   Interest-bearing bank borrowings

                                                                                                Group
                                                                         29 February        28 February           28 February
                                                                                2000               2001                  2002
                                                                                 HK$                HK$                   HK$

         Bank overdrafts, secured                                            459,727                  –                    –
         Bank loan, secured                                                  637,000            468,000                    –

                                                                           1,096,727            468,000                    –

         Amounts repayable:
           Within one year or on demand                                      615,727            156,000                    –
           In the second year                                                156,000            156,000                    –
           In the third to fifth years, inclusive                            325,000            156,000                    –

                                                                           1,096,727            468,000                    –
         Less: Portion classified as current liabilities                    (615,727)          (156,000)                   –

         Long term portion                                                   481,000            312,000                    –


   (l)   Finance lease payable

          The total future minimum lease payments under a finance lease and their present values for each of the Relevant
   Periods were as follows:

         Group
                                                                                                  Present value of
                                                          Minimum lease payments              minimum lease payments
                                                29 February 28 February 28 February 29 February 28 February 28 February
                                                       2000        2001        2002        2000        2001        2002
                                                        HK$         HK$         HK$         HK$         HK$         HK$

         Amounts repayable:
           Within one year                                 –         –        399,890           –             –       377,558
           In the second year                              –         –        399,890           –             –       332,586
           In the third to fifth years,
              inclusive                                    –         –        166,620           –             –       125,021

         Total minimum finance
            lease payments                                 –         –        966,400           –             –       835,165


         Less: Future finance charges                      –         –       (131,235)

         Total net finance lease payable                   –         –        835,165

         Less: Portion classified as
                current liabilities                        –         –       (316,616)

         Long term portion                                 –         –        518,549




                                                           – 214 –
APPENDIX I                                                                                 ACCOUNTANTS’ REPORT

   (m)    Deferred tax

           The principal components of the Group’s net deferred tax asset position as at 28 February 2002 not recognised were as
   follows:

                                                                                                                                  HK$


          Tax losses                                                                                                         7,083,000
          Scientific research and development tax pools and tax credits                                                      3,302,000
          Accelerated depreciation allowances                                                                                  (43,000)
          Accelerated development cost allowances                                                                           (1,565,000)

                                                                                                                            8,777,000


           The potential deferred tax assets/liabilities arising from tax losses, scientific research and development tax pools and tax
   credits, accelerated depreciation allowances or accelerated development cost allowances have not been recognised as they are
   subject to agreements with the relevant tax authorities.

         The Company had no significant potential deferred tax liabilities for which provision has not been made as at
   28 February 2002.

   (n)    Share options and warrants

          Share options

                 KGI, a wholly-owned subsidiary of the Company, had 710,000 share options outstanding as at 28 February 2002.
          The share options entitle the registered holders (“KGI Option Holders”) to subscribe in cash for common shares of KGI at
          CAN$0.50 per share. Of the total 710,000 share options outstanding as at 28 February 2002, 170,000, 280,000 and
          260,000 share options will expire during the years ending 28 February 2005, 28 February 2006 and 28 February 2007,
          respectively.

                  Pursuant to an exchange agreement entered into between the Company, KBVI, KBarb, KGI Option Holders and
          warrant holders of KGI (the “Exchange Agreement”), for the common shares of KGI which might be issued and allotted
          pursuant to the exercise of such options, KGI Option Holders have conditionally agreed to exchange common shares of
          KGI for ordinary shares of the Company on the basis of 1 common share of KGI for approximately 24.45 ordinary shares
          of the Company after the capitalisation issue (the “Capitalisation Issue”) as referred in the paragraph headed “Written
          resolutions of the sole shareholder of the Company passed on 7 May 2002” in Appendix IV to the Prospectus. The details
          of the share options of KGI are set out in the paragraphs headed “KGI Consultants Options and Buret Allotment” and
          “Pre-IPO Share Option Schemes” in Appendix IV to the Prospectus.

          Warrants

                 As at 28 February 2002, KGI had 527,000 warrants outstanding which entitled the warrant holders to acquire at
          any time during the exercise period one common share of KGI at an exercise price of CAN$3.10 for each warrant.

                 Pursuant to the Exchange Agreement, no such warrants shall be exercisable within the six-month period after the
          date of the Listing and such warrants are exercisable within the six-month period immediately after the first six-month
          period following the date of the Listing. In addition, for the common shares of KGI which might be issued and allotted
          pursuant to the exercise of such warrants, the registered holders of the 527,000 warrants outstanding as at 28 February
          2002 have conditionally agreed to exchange common shares of KGI for ordinary shares of the Company on the basis of 1
          common share of KGI for approximately 24.45 shares of the Company after the Capitalisation Issue. The details of the
          warrants of KGI are set out in the paragraph headed “Warrants” in Appendix IV to the Prospectus.




                                                            – 215 –
APPENDIX I                                                                                 ACCOUNTANTS’ REPORT

   (o)   Commitments

         (i)     Capital commitments

                 At 28 February 2002, the Group had the following capital commitments:
                                                                                                                                  HK$

                 Capital commitments in respect of contributions to research and
                   development projects:
                      Contracted, but not provided for                                                                      4,005,437

                 Capital commitment in respect of additional investment in
                   a jointly-controlled entity:
                      Contracted, but not provided for                                                                        499,999

                 Total capital commitments                                                                                  4,505,436


                 The Company had no material capital commitments as at 28 February 2002.

         (ii)    Operating lease commitments

                 At 28 February 2002, the Group had total future minimum lease payments under non-cancellable operating leases
         falling due as follows:

                                                                                                                                  HK$

                 Land and buildings:
                   Within one year                                                                                          1,468,686
                   In the second to fifth years, inclusive                                                                    270,191

                                                                                                                            1,738,877

                 Laboratory equipment, furniture, fixtures and office equipment:
                   Within one year                                                                                            117,129
                   In the second to fifth years, inclusive                                                                    123,325

                                                                                                                              240,454

                 Total operating lease commitments                                                                          1,979,331


         (iii)   Research and development agreement

                Pursuant to a research and development agreement (the “R&D Agreement”) dated 1 February 1997 entered into
         between the Group and a third party, and an assignment agreement dated 8 August 2001 entered into between Kinetana
         Inc. and KGI together with an acknowledgement dated 14 January 2002 from the third party, the third party assigned to
         the Group his rights, title, estate, ownership and interest in an invention (the “Invention”) for 20,000 share options of KGI,
         which allows the third party to purchase 20,000 common shares of KGI at CAN$0.50 per share and is exercisable for a
         period of five years from 11 February 2000, and the entitlements to royalties payable by KGI. Pursuant to the R&D
         Agreement, the royalty entitlement was equivalent to 1% of the net profit of KGI derived from the Invention.

                 Pursuant to an exchange agreement entered into between the Company, KBVI, KBarb, KGI, Kinetana Inc. and the
         third party, the third party has conditionally agreed to exchange common shares of KGI, which might be issued and
         allotted pursuant to the R&D Agreement, for ordinary shares of the Company on the basis of 1 common share of KGI for
         approximately 24.45 ordinary shares of the Company after the Capitalisation Issue. The details of which are set out in
         the paragraph headed “KGI Consultants Options and Buret Allotment” in Appendix IV to the Prospectus.

         (iv)    Licence agreement

                On 12 July 2001, the Group, for the purpose of obtaining an exclusive worldwide licence to use certain inventions
         created by a third party, entered into a licence agreement and a supplementary agreement thereto (the “Licence
         Agreement”) which provided for the payment of a royalty of 2% on the net sales of the related products. The Licence
         Agreement also provides for the payment of CAN$40,000 in cash and 57,144 common shares of KGI over a period of two




                                                             – 216 –
APPENDIX I                                                                                  ACCOUNTANTS’ REPORT

         years from 7 November 2001, of which CAN$10,000 was accrued and included in other payables and accruals as at
         28 February 2002 and 14,286 common shares of KGI were allotted and issued to the licensor during the year ended
         28 February 2002. As to the remaining balance of CAN$30,000 and 42,858 common shares of KGI, CAN$15,000 and
         21,429 common shares of KGI will be paid and allotted and issued to the licensor within 360 days and 450 days,
         respectively, from 7 November 2001 and the remaining CAN$15,000 and 21,429 common shares of KGI within 720 days
         from 7 November 2001. In addition, pursuant to the Licence Agreement, the Group would have the option to extend the
         initial term of two years to a period which is perpetual by paying CAN$100,000 to the licensor. The licensor would have
         the option to receive the payment in cash or in the common shares of KGI at a price of CAN$0.70 per share, or by any
         combination thereof.

                Pursuant to an exchange agreement entered into between the Company, KBVI, KBarb, KGI and the licensor, the
         licensor has conditionally agreed to exchange common shares of KGI, which might be issued and allotted pursuant to the
         Licence Agreement, for ordinary shares of the Company on the basis of 1 common share of KGI for approximately 24.45
         ordinary shares of the Company after the Capitalisation Issue. The details of which are set out in the paragraph headed
         “KGI Consultants Options and Buret Allotment” in Appendix IV to the Prospectus.

         (v)    Frontier Option Agreement

                On 7 June 2001, the Group, for the purpose of obtaining potential business partners, entered into an option
         agreement with a third party which requires the Group to procure the issue and allotment by the Company such number
         of the Company’s ordinary shares, which is equal to 3% of the number of the Company’s ordinary shares in issue (as
         enlarged thereby) immediately before the printing of the Prospectus, at HK$3.5 per ordinary share.


         (vi)   Corkwood Option Agreement

                On 7 June 2001, the Group, in consideration of a third party agreeing to provide consultancy services and advices
         on the Group’s business model and strategies for business development, entered into an option agreement with the third
         party which requires the Group to procure the issue and allotment by the Company such number of the Company’s
         ordinary shares, which is equal to 2% of the number of the Company’s ordinary shares in issue (as enlarged thereby)
         immediately before the printing of the Prospectus, at HK$3.5 per ordinary share.

   (p)   Segment information

         (i)    Business segment

                 As the Group was engaged only in research and development of biopharmaceutical technologies and western and
         traditional Chinese medicines based products, and the provision of related services throughout the Relevant Periods,
         segment information by business segment is not presented.

         (ii)   Geographical segment

                 An analysis of the Group’s segment revenue, results and certain assets and capital expenditure information by
         geographical segment is set out below. In determining the Group’s geographical segments, revenues and results are
         attributable to the segments based on the location of the customers, and assets are attributable to the segments based
         on the location of the assets.

                                                                    Year ended 29 February 2000 or at 29 February 2000
                                               Hong Kong              Canada Unallocated items             Eliminations   Combined
                                                     HK$                  HK$                 HK$                  HK$        HK$

                Segment revenue                          –                   –                   –                   –             –

                Segment results                   (432,869 )        (4,606,113 )                 –                   –    (5,038,982 )

                Segment assets                    130,008            5,172,599                   –                   –    5,302,607

                Capital expenditures:
                  Fixed assets                    510,536                    –                   –                   –      510,536
                  Patents and trademarks                –               85,405                   –                   –       85,405
                  Deferred development costs            –            2,423,049                   –                   –    2,423,049

                                                  510,536            2,508,454                   –                   –    3,018,990




                                                          – 217 –
APPENDIX I                                                                                   ACCOUNTANTS’ REPORT

                                                                  Year ended 28 February 2001 or at 28 February 2001
                                                Hong Kong            Canada Unallocated items           Eliminations          Combined
                                                      HK$               HK$                HK$                   HK$              HK$

                Segment revenue                           –                   –                   –                    –               –

                Segment results                  (8,404,228 )        (5,547,288 )                 –           5,554,489       (8,397,027 )

                Segment assets                    5,089,910           7,496,424                   –                    –     12,586,334

                Capital expenditures:
                  Fixed assets                   2,827,916              432,427                   –                    –       3,260,343
                  Patents and trademarks                 –              126,833                   –                    –         126,833
                  Deferred development costs             –            3,224,146                   –                    –       3,224,146

                                                 2,827,916            3,783,406                   –                    –       6,611,322


                                                                     Year ended 28 February 2002 or at 28 February 2002
                                                Hong Kong              Canada Unallocated items             Eliminations      Combined
                                                      HK$                  HK$                 HK$                  HK$           HK$

                Segment revenue                    750,000             560,045                    –                    –       1,310,045

                Segment results                 (14,271,931 )        (5,964,804 )       (18,742,267 )        24,263,100      (14,715,902 )

                Segment assets                    8,917,419          11,084,898           4,128,219           (3,673,383 )   20,457,153

                Capital expenditures:
                  Fixed assets                   2,612,808              13,592                    –                    –       2,626,400
                  Patents and trademarks                 –              29,758                    –                    –          29,758
                  Deferred development costs     2,132,563             507,231                    –                    –       2,639,794

                                                 4,745,371             550,581                    –                    –       5,295,952

                Unallocated items mainly represented inter-company balances and provisions for inter-company balances which
         were eliminated upon combination of accounts.

   (q)   Contingent liabilities

         At 28 February 2002, the Group and the Company did not have any significant contingent liabilities.

   (r)   Deficiency in assets of the Company

         The deficiency in assets of the Company as at 28 February 2002 amounted to HK$6,536.

   (s)   Distributable reserves

         The Company had no reserves available for distribution to shareholders as at 28 February 2002.




                                                           – 218 –
APPENDIX I                                                              ACCOUNTANTS’ REPORT


5.   COMBINED CASH FLOW STATEMENTS

     The following is a summary of the combined cash flow statements of the Group for the Relevant
Periods, prepared on the basis set out in Section 1 above:

                                                          Year ended      Year ended      Year ended
                                                         29 February     28 February     28 February
                                                                2000            2001            2002
                                             Notes               HK$             HK$             HK$

     NET CASH OUTFLOW FROM
       OPERATING ACTIVITIES                   (a)         (3,100,587)      (7,255,729)   (16,887,781)


     RETURNS ON INVESTMENTS
       AND SERVICING OF FINANCE
         Interest received                                    88,270         137,555          51,962
         Interest paid                                       (86,200)        (99,954)       (150,133)
         Interest element of finance lease
            rental payments                                        –                –        (66,625)


     Net cash inflow/(outflow) from
       returns on investments and
       servicing of finance                                    2,070          37,601        (164,796)


     INVESTING ACTIVITIES
       Purchases of fixed assets                            (510,536)      (3,260,343)    (1,583,160)
       Increase in patents and trademarks                    (85,405)        (126,833)       (29,758)
       Increase in deferred
          development costs                               (2,423,049)      (3,224,146)    (2,639,794)
       Acquisition of a subsidiary            (c)                  2                –              –
       Proceeds from disposal of
          short term investments                              50,596                –         19,617
       Decrease/(increase) in time
          deposit with a maturity of
          more than three months when acquired              (199,935)         35,688         157,930

     Net cash outflow from investing
       activities                                         (3,168,327)      (6,575,634)    (4,075,165)


     NET CASH OUTFLOW BEFORE
       FINANCING ACTIVITIES                               (6,266,844)     (13,793,762)   (21,127,742)




                                               – 219 –
APPENDIX I                                                                              ACCOUNTANTS’ REPORT


                                                                       Year ended           Year ended         Year ended
                                                                      29 February          28 February        28 February
                                                                             2000                 2001               2002
                                                         Notes                HK$                  HK$                HK$

   FINANCING ACTIVITIES
     Proceeds from issue of share
       capital                                            (b)            8,328,450           15,306,458        19,011,200
     Repayment of bank loan                               (b)             (663,000)            (169,000)         (450,000)
     Capital element of
       finance lease rental payments                      (b)                      –                     –       (167,950)
     Net increase/(decrease) in loan
       from a director                                    (b)             (190,855)                1,638          334,571

   Net cash inflow from financing
     activities                                                          7,474,595           15,139,096        18,727,821

   INCREASE/(DECREASE) IN CASH
     AND CASH EQUIVALENTS                                                1,207,751            1,345,334        (2,399,921)

   Cash and cash equivalents
     at beginning of year                                                  (74,084)           1,133,667         2,479,001

   Effect of foreign exchange
      changes, net                                                                 –                     –          (9,208)

   CASH AND CASH EQUIVALENTS
     AT END OF YEAR                                       (d)           1,133,667             2,479,001            69,872

   Notes:

   (a)      Reconciliation of loss from operating activities to net cash outflow from operating activities

                                                                         Year ended            Year ended        Year ended
                                                                        29 February           28 February       28 February
                                                                               2000                  2001              2002
                                                                                HK$                   HK$               HK$

            Loss from operating activities                                (4,950,712)           (8,259,472)     (14,695,823)
            Interest income                                                  (88,270)             (137,555)         (51,962)
            Depreciation                                                     297,591               565,077        1,230,364
            Amortisation of patents and trademarks                                 –                     –            3,495
            Impairment of patents and trademarks                              38,256                     –           43,770
            Amortisation of deferred development costs                             –                     –           58,725
            Impairment of deferred development costs                       1,273,844                     –        1,065,715
            Licensing fees paid through issuance of shares                         –                     –           50,000
            Loss on disposal of short term investments                        18,829                     –           31,883
            Increase in amount due to a jointly-controlled entity                  –                     –           49,000
            Increase in tax recoverable                                      (93,824)              (64,750)        (172,131)
            Increase in trade receivables                                          –                     –         (650,000)
            Increase in prepayments, deposits and other receivables         (134,613)             (322,813)      (6,980,146)
            Increase in other payables and accruals                          538,312               963,784        2,838,982
            Increase in amount due to a contract customer                          –                     –          100,000
            Decrease in amount due to a director                                   –                     –               (1)
            Exchange adjustments                                                   –                     –          190,348

            Net cash outflow from operating activities                    (3,100,587)           (7,255,729)     (16,887,781)


                                                           – 220 –
APPENDIX I                                                                                    ACCOUNTANTS’ REPORT

   (b)    Analysis of changes in financing activities

                                                  Issued
                                                  capital   Interest-
                                              and capital    bearing             Finance                    Loan from
                                              received in       bank                lease     Loan from      a related        Minority
                                                 advance borrowings              payable      a director         party       interests
                                                     HK$         HK$                  HK$           HK$           HK$             HK$

          Balance at 1 March 1999                 939,224       1,300,000                 –     700,315         260,000             –
          Cash inflow/(outflow) from
            financing, net                      8,328,450        (663,000)                –    (190,855)              –             –
          Acquisition of a subsidiary                   –               –                 –           –               –             1

          Balance at 29 February 2000
            and at 1 March 2000                 9,267,674        637,000                  –     509,460         260,000             1
          Cash inflow/(outflow) from
            financing, net                     15,306,458        (169,000)                –       1,638               –             –

          Balance at 28 February 2001
             and at 1 March 2001               24,574,132        468,000                  –     511,098         260,000             1
          Cash inflow/(outflow) from
             financing, net                    19,011,200        (450,000)      (167,950)       334,571               –             –
          Licensing fees paid through
             issuance of shares                    50,000               –                 –            –              –             –
          Inception of a finance
             lease contract                                 –           –       1,043,240              –              –             –
          Acquisition of additional
             equity interest in
             a subsidiary                                   –           –               –              –              –             (1)
          Exchange realignments                             –     (18,000)        (40,125)       (19,658)       (10,000)             –

          Balance at 28 February 2002          43,635,332               –        835,165        826,011         250,000             –


   (c)    Acquisition of a subsidiary

          During the year ended 29 February 2000, the Group acquired a subsidiary from a director of the Company with net
   assets attributable to the Group of HK$1, representing cash on hand of HK$2 and minority interests of HK$1. The cash
   consideration of the acquisition of HK$1 remained unpaid at 29 February 2000 and was included in the amount due to a director
   as at 29 February 2000.

   (d)    Analysis of balances of cash and cash equivalents

                                                                            29 February           28 February              28 February
                                                                                   2000                  2001                     2002
                                                                                    HK$                   HK$                      HK$

          Cash and bank balances                                              1,593,394             2,479,001                   69,872
          Time deposit                                                          199,935               164,247                        –

                                                                              1,793,329             2,643,248                   69,872
          Less: Time deposit with a maturity of more than
                    three months when acquired                                 (199,935)             (164,247)                      –

                                                                              1,593,394             2,479,001                   69,872
          Bank overdrafts                                                      (459,727)                    –                        –

          Cash and cash equivalents                                           1,133,667             2,479,001                   69,872




                                                            – 221 –
APPENDIX I                                                                             ACCOUNTANTS’ REPORT

     (e)   Major non-cash transactions

           (i)    During the year ended 28 February 2002, the Group purchased certain fixed assets with a total capital value of
                  HK$1,303,240, of which, HK$260,000 was paid as a down payment and the remaining balance of HK$1,043,240
                  was financed by entering into a finance lease contract arrangement.

           (ii)   During the year ended 28 February 2002, the Group settled the licensing fees of HK$50,000 in form of the issue
                  of 14,286 new common shares of KGI granted in lieu of cash consideration.


6.   COMBINED STATEMENTS OF MOVEMENTS IN EQUITY

      The movements in the combined shareholders’ equity of the Group for the Relevant Periods, prepared
on the basis set out in Section 1 above, are as follows:

                                                                      Year ended            Year ended           Year ended
                                                                     29 February           28 February          28 February
                                                                            2000                  2001                 2002
                                                                             HK$                   HK$                  HK$

     At beginning of year                                                (428,678)           2,862,860             9,809,892
     Issue of share capital                                             8,328,450           15,306,458            19,061,200
     Movements in exchange fluctuation reserve                                  –                    –                 8,582
     Net loss from ordinary activities
        attributable to shareholders                                   (5,036,912)           (8,359,426)         (14,898,147)


     At end of year                                                     2,862,860             9,809,892           13,981,527


7.   DIRECTORS’ REMUNERATION

      Save as disclosed herein, no remuneration has been paid or is payable in respect of any of the
Relevant Periods referred to in this report by the Company or any of its subsidiaries now comprising the
Group to the directors of the Company. Under the arrangements currently in force, the estimated aggregate
amount of directors’ fees and other emoluments payable for the year ending 28 February 2003 will be
approximately HK$3.7 million, excluding discretionary bonuses payable under the directors’ service contracts,
the terms of which are set out in the paragraph headed “Particulars of service contracts” in Appendix IV to the
Prospectus.




                                                          – 222 –
APPENDIX I                                                                 ACCOUNTANTS’ REPORT


8.   SUBSEQUENT EVENTS

     The following material events took place subsequent to 28 February 2002:

     (a)   Written resolutions were passed on 7 May 2002 to effect the transactions set out in the paragraph
           headed “Written resolutions of the sole shareholder of the Company passed on 7 May 2002” in
           Appendix IV to the Prospectus.

     (b)   On 13 May 2002, the companies now comprising the Group underwent a reorganisation in
           preparation for the Listing. The details of the reorganisation are set out in the paragraph headed
           “Reorganisation” in Appendix IV to the Prospectus. As a result of the reorganisation, the Company
           became the holding company of the Group on 13 May 2002.

     (c)   On 14 May 2002, an aggregate of 817,000 ordinary shares of the Company were allotted and
           issued at HK$3.5 per ordinary share pursuant to the Frontier Option Agreement and Corkwood
           Option Agreement as referred in Section 4(o) sub-paragraphs (v) and (vi) above.

     Save as aforesaid, no other material events took place subsequent to 28 February 2002.

9.   SUBSEQUENT FINANCIAL STATEMENTS

     No audited financial statements have been prepared by the Company or any of the companies
comprising the Group in respect of any period subsequent to 28 February 2002.

                                                                                       Yours faithfully,
                                                                                       Ernst & Young
                                                                                Certified Public Accountants
                                                                                         Hong Kong




                                                  – 223 –
APPENDIX II                                                                      PROPERTY VALUATION


     The following is the text of a letter with summary of values and valuation certificate, prepared for the
purpose of incorporation in this prospectus, received from LCH (Asia-Pacific) Surveyors Limited, an
independent property valuer, in connection with its valuation as at 31 March 2002 of the property interests of
the Group.

                                                                                   1506
           L C H (Asia-Pacific) Surveyors Limited                                  Vicwood Plaza
           CANADA • HONG KONG • PRC• PHILIPPINES
           CHARTERED SURVEYORS
           PLANT AND MACHINERY VALUERS • BUSINESS & FINANCIAL SERVICES VALUERS
                                                                                   199 Des Voeux Road Central
                                                                                   Sheung Wan
                                                                                   Hong Kong

                                                                                   22 May 2002

The Directors
Kinetana International Biotech Pharma Limited
Rooms 101 -103
Hong Kong Institute of Biotechnology
2 Biotechnology Avenue
12 Miles, Tai Po Road
Shatin, New Territories
Hong Kong

Dear Sirs,

      In accordance with your instructions to value the property interests in which Kinetana International
Biotech Pharma Limited (referred to as the “Company”) and its subsidiaries (together referred to as the
“Group”) have interests in Hong Kong and in Canada for the purpose of incorporation in a public listing
prospectus, we confirm that we have carried out inspections, made relevant enquiries and searches and
obtained such further information as we consider necessary for the purpose of providing you with our opinion
of the open market value of the property interests as at 31 March 2002 (referred to as the “date of valuation”).

      Our valuations are on the basis of open market value which we define as “an opinion of the best price at
which the sale of an interest in property would have been completed unconditionally for cash consideration on
the date of valuation, assuming:

     (a)     a willing seller;

     (b)     that, prior to the date of valuation, there had been a reasonable period (having regard to the
             nature of the property and the state of the market) for the proper marketing of the interest, for the
             agreement of the price and terms and for the completion of the sale;

     (c)     that the state of the market, level of values and other circumstances were, on any earlier assumed
             date of exchange of contracts, the same as on the date of valuation;

     (d)     that no account is taken of any additional bid by a prospective purchaser with a special interest;
             and



                                                            – 224 –
APPENDIX II                                                                    PROPERTY VALUATION


     (e)   that both parties to the transaction had acted knowledgeably, prudently and without compulsion”.

      We have not attributed any commercial value to the property interests in this certificate due mainly to
the short term nature of the tenancy agreements or prohibition against assignment or sub-letting or otherwise
lack of substantial profit rent.

      We have relied to a considerable extent on the information provided by the Group and the Group’s
Canadian legal adviser, and have accepted advice given to us on such matters as planning approvals or
statutory notices, easements, tenure, occupation, lettings, rentals, site and floor areas and all other relevant
matters.

     We have not carried out detailed site measurements to verify the correctness of the floor areas of the
properties but have assumed that the floor areas shown on the documents and official floor plans handed to
us are correct. All documents and contracts have been used as reference only and all dimensions,
measurements and areas are approximations.

      We have inspected the exterior and, where possible, the interior of the properties, in respect of which
we have been provided with such information as we have required for the purpose of our valuations. We have
not inspected those parts of the properties which were covered, unexposed or inaccessible and such parts
have been assumed to be in reasonable condition. We cannot express an opinion about or advise upon the
condition of the uninspected parts and this valuation certificate should not be taken as making any implied
representation or statement about such parts. No structural survey, investigation or examination has been
made, but in the course of our inspections we did not note any serious defects in the properties valued. We
are not, however, able to report that the properties are free from rot, infestation or any other structural
defects. No tests were carried out to any of the services.

      We have only been provided with copies of the lease documents relating to the rented properties in
Group I and II, and have caused searches to be made at the Land Registry in respect of the properties in
Hong Kong. However, we have not searched the original documents to verify ownership or to verify any lease
amendment which may not appear on the copies handed to us. We have made reference to the tenancy
report relating to properties in Group II given by the Group’s Canadian legal adviser on Canadian laws in
respect of the Group’s title to the property interests. We are not attorney in nature, and we are unable to
ascertain the title and encumbrances (if any) registered against the property interests as disclosed in this
valuation certificate which may affect the Group’s title to the property interests. All documents and leases
have been used as reference only.

     We are not aware of the content of any environmental audit or other environmental investigation or soil
survey which may have been carried out on the properties, and which may draw attention to any
contamination or the possibility of any such contamination. In undertaking our work, we have been instructed
to assume that no contaminative or potentially contaminative uses have ever been carried out in the
properties. We have not carried out any investigation into past or present uses, either of the properties or of
any neighbouring land, to establish whether there is any contamination or potential for contamination to the
subject properties from these uses or sites, and have therefore assumed that none exists. However, should it
be established subsequently that contamination, seepage or pollution exists at the properties or on any
neighbouring land, or that the premises have been or are being put to a contaminative use, this might affect
the Group’s interest in occupying the properties.



                                                    – 225 –
APPENDIX II                                                                                   PROPERTY VALUATION


      We have not arranged for any investigation to be carried out to determine whether or not any
deleterious or hazardous material has been used in the construction of these properties, or has since been
incorporated, and we are therefore unable to report that the properties are free from risk in this respect. For
the purpose of these valuations we have assumed that such investigation would not disclose the presence of
any such material to any significant extent.

      To the best of our knowledge, all data set forth in this valuation certificate are true and accurate.
Although gathered from reliable sources, no warranty is made nor liability assumed for the accuracy of any
data, opinion, or estimates identified as being furnished by others which have been used in formulating this
valuation certificate.

      We are unable to accept any responsibility for the information that has not been supplied to us by the
Group. Our analysis and valuations are based upon full disclosure between us and the Group of material and
latent facts that may affect our valuations.

      We have had no reason to doubt the truth and accuracy of the information provided to us by the Group.
We have also sought and received confirmation from the Group that no material factors have been omitted
from the information supplied. We consider that we have been provided with sufficient information to reach an
informed view, and have had no reason to suspect that any material information has been withheld.

     This valuation certificate is prepared in line with the ethics and guidelines as contained in the RICS
Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors and the Guidance
Notes on the Valuation of Property Assets published by the Hong Kong Institute of Surveyors. The valuations
have been undertaken by valuers, acting as external valuers, qualified for the purpose of the valuations.

         Unless otherwise stated, all monetary amounts are in Hong Kong dollars.

         Our valuations are summarised below and the valuation certificate is attached.

                                                      Yours faithfully,
                                                   For and on behalf of
                                           LCH (Asia-Pacific) Surveyors Limited

                       Joseph Ho Chin Choi                                            Elsa Ng Hung Mui
                             B.Sc. MRICS                                        B.Sc. MRICS AHKIS RPS (GP)
                         Managing Director                                            Associate Director

Notes:

1.       Mr. Joseph Ho Chin Choi has been conducting asset (including real estate properties) valuations and advisory work in Hong
         Kong, Macau, Taiwan, mainland China, South East Asia, Finland, Canada and the United States of America for various purposes
         since 1988.

2.       Ms. Elsa Ng Hung Mui is a Registered Professional Surveyor who has over seven years of experience in valuing properties in
         Hong Kong.




                                                              – 226 –
APPENDIX II                                                 PROPERTY VALUATION

                                       SUMMARY OF VALUES

Group I – Properties rented by the Group in Hong Kong

                                                           Capital value in existing state
                                                           attributable to the Group as at
     Property                                                               31 March 2002
                                                                                      HK$


1.   Flat E on 10th Floor                                               No commercial value
     Block 8
     Castello
     No. 69 Siu Lek Yuen Road
     Shatin
     New Territories
     Hong Kong

2.   Flat A on 4th Floor                                                No commercial value
     Tower 5
     Parc Oasis
     No. 35 Tat Chee Avenue
     Kowloon
     Hong Kong

                                                           Sub-total:                   Nil

Group II – Properties rented by the Group in Canada

3.   Room 108 on Level 1 and Room 209 on Level 2                        No commercial value
     Advanced Technology Centre
     9650 – 20th Avenue
     Edmonton
     Alberta
     Canada

4.   Room 109 and West Storage Room on Level 1                          No commercial value
     Advanced Technology Centre
     9650 – 20th Avenue
     Edmonton
     Alberta
     Canada

5.   Premises on Level 1                                                No commercial value
     Research Centre One
     9411 – 20th Avenue
     Edmonton
     Alberta
     Canada

                                                           Sub-total:                   Nil

                                                           Grand-Total:                 Nil



                                              – 227 –
APPENDIX II                                                                        PROPERTY VALUATION


                                       VALUATION CERTIFICATE

Group I – Properties rented by the Group in Hong Kong
                                                                                                 Capital value in
                                                                                      existing state attributable
                                                                                              to the Group as at
   Property                   Description and occupancy                                           31 March 2002
                                                                                                             HK$

1. Flat E on 10th Floor       The property comprises a residential unit on the              No commercial value
   Block 8                    10th Floor of a 31-storeyed residential building
   Castello                   which was completed in 1999.
   No. 69 Siu Lek Yuen Road
   Shatin                     The lettable area of the property is approximately
   New Territories            718 sq.ft. (66.7 sq.m.).
   Hong Kong
                              The property is rented to the Group for a term of 2
                              years from 1 January 2002 to 31 December 2003 at
                              a monthly rental of HK$11,000 inclusive of rates,
                              Government Rent and management fee.

                              This tenancy agreement has a break clause. After
                              the first twelve months of the term, the Group may
                              terminate the tenancy agreement by serving not less
                              than two months’ written notice in advance or paying
                              two months’ rental in lieu of notice to the owner.

                              The property is currently occupied by the Group’s
                              staff as staff quarters.

2. Flat A on 4th Floor        The property comprises a residential unit on the 4th          No commercial value
   Tower 5                    Floor of an 8-storeyed residential building which
   Parc Oasis                 was completed in 1992.
   No. 35 Tat Chee Avenue
   Kowloon                    The lettable area of the property is approximately
   Hong Kong                  915 sq.ft. (85 sq.m.).

                              The property is rented to the Group for a term of 2
                              years from 16 January 2002 to 15 January 2004 at a
                              monthly rental of HK$20,000 inclusive of rates,
                              Government Rent and management fee.

                              This tenancy agreement has a break clause. After
                              the first twelve months of the term, the Group may
                              terminate the tenancy agreement by serving not less
                              than two months’ written notice in advance or paying
                              two months’ rental in lieu of notice to the owner.

                              The property is currently occupied by the Group’s
                              staff as staff quarters.


                                                  – 228 –
APPENDIX II                                                                                    PROPERTY VALUATION


Group II – Properties rented by the Group in Canada

                                                                                                               Capital value in
                                                                                                    existing state attributable
                                                                                                            to the Group as at
   Property                               Description and occupancy                                             31 March 2002
                                                                                                                           HK$


3. Room 108 on Level 1 and                The property comprises an office unit on the Level 1             No commercial value
   Room 209 on Level 2                    and an office unit on the Level 2 of a 2-storeyed
   Advanced Technology                    office block which was completed in 1988.
   Centre
   9650-20th Avenue                       The lettable area of the property is approximately
   Edmonton                               2,865 sq.ft. (266.2 sq.m.).
   Alberta
   Canada                                 The property is rented to the Group on a month-to-
                                          month basis commencing on 1 May 2000 at a
                                          monthly rental of CAN$2,390.9 inclusive of Goods
                                          and Service Tax.

                                          The property is currently occupied by the Group for
                                          office purpose.


   Notes:

   1.       The tenant is Kinetana Inc.

   2.       The permitted use of the premises is drug discovery and development.

   3.       The tenant agreed to pay the cost of improvements amounting to CAN$11,739.00 to the landlord over a 47-month period on
            an equal basis i.e. CAN$249.77 plus Goods and Service Tax per month. The last date of payment is 31 August 2002.




                                                              – 229 –
APPENDIX II                                                                                    PROPERTY VALUATION

                                                                                                             Capital value in
                                                                                                  existing state attributable
                                                                                                          to the Group as at
   Property                               Description and occupancy                                           31 March 2002
                                                                                                                         HK$


4. Room 109 and West                      The property comprises an office unit and an                  No commercial value
   Storage Room on Level 1                adjoining storage room on the Level 1 of a 2-
   Advanced Technology                    storeyed office block which was completed in 1998.
   Centre
   9650-20th Avenue                       The lettable area of the property is approximately
   Edmonton                               2,170 sq.ft. ( 201.6 sq.m.).
   Alberta
   Canada                                 The property is rented to the Group from 1
                                          September 1998 to 31 August 2003 at a monthly
                                          rental of CAN$1,831.0 inclusive of Goods and
                                          Service Tax and an additional monthly charge of
                                          CAN$1,293.50 as repayment of leasehold
                                          improvement.

                                          The property is currently occupied by the Group for
                                          laboratory purpose.


   Notes:

   1.       The tenant is Kinetana Inc.

   2.       The permitted use of the premises is drug discovery and development.




                                                              – 230 –
APPENDIX II                                                                                    PROPERTY VALUATION

                                                                                                                  Capital value in
                                                                                                       existing state attributable
                                                                                                               to the Group as at
   Property                               Description and occupancy                                                31 March 2002
                                                                                                                              HK$


5. Premises on Level 1                    The property comprises several office units on the                  No commercial value
   Research Centre One                    Level 1 of a 2-storeyed office block which was
   9411-20th Avenue                       completed in 1983.
   Edmonton
   Alberta                                The lettable area of the property is approximately
   Canada                                 1,892 sq.ft. (175.8 sq.m.).

                                          The property is rented to the Group from 1
                                          September 2000 to 31 March 2005 with an option to
                                          renew for a further term of 5 years at a monthly
                                          rental of CAN$1,349.6 inclusive of Goods and
                                          Service Tax. The monthly rental has been adjusted
                                          to CAN$1,434 inclusive of Goods and Service Tax
                                          on 1 April 2002 to the end of the term.

                                          The property is currently occupied by the Group for
                                          office and laboratory purposes.


   Notes:

   1.       The tenant is Kinetana Inc.

   2.       The permitted use of the premises is to undertake basic and applied research relating to the development of biotechnology
            and pharmaceutical products.




                                                              – 231 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    Set out below is a summary of certain provisions of the memorandum and articles of association of the
Company and of certain aspects of Cayman Islands company law.

       The Company was incorporated in the Cayman Islands as an exempted company with limited liability on
18 October 2001 under the Companies Law. The memorandum of association (the “Memorandum”) and the
articles of association (the “Articles”) comprise its constitution.

1.   MEMORANDUM

     (a)   The Memorandum states, inter alia, that the liability of members of the Company is limited to the
           amount, if any, for the time being unpaid on the Shares respectively held by them and that the
           objects for which the Company is established are unrestricted (including acting as an investment
           company), and that the Company shall have and be capable of exercising any and all of the
           powers at any time or from time to time exercisable by a natural person of full capacity,
           irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies
           Law and in view of the fact that the Company is an exempted company that the Company may not
           trade in the Cayman Islands with any person, firm or corporation except in furtherance of the
           business of the Company carried on outside the Cayman Islands.

     (b)   The Company may by special resolution alter its Memorandum with respect to any objects,
           powers or other matters specified therein.

2.   ARTICLES

      The Articles were conditionally adopted on 7 May, 2002. The following is a summary of certain
provisions of the Articles:

     (a)   Directors

           (i)   Power to allot and issue shares and warrants

                  Subject to the provisions of the Companies Law, the Memorandum and the Articles and to any special
           rights conferred on the holders of any shares or class of shares, any share may be issued with or have
           attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital,
           or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such
           determination or so far as the same may not make specific provision, as the board may determine). Subject
           to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles), the
           Memorandum and the Articles, any share may be issued on terms that, at the option of the Company or the
           holder thereof, they are liable to be redeemed.

                 The board may issue warrants conferring the right upon the holders thereof to subscribe for any class
           of shares or securities in the capital of the Company on such terms as it may from time to time determine.

                    Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of
           any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or
           restrictions for the time being attached to any shares or any class of shares, all unissued shares in the
           Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise
           dispose of them to such persons, at such times, for such consideration and on such terms and conditions as
           it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.


                                                       – 232 –
APPENDIX III                                    SUMMARY OF THE CONSTITUTION OF THE
                                           COMPANY AND CAYMAN ISLANDS COMPANY LAW

                Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer
        of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares
        to members or others with registered addresses in any particular territory or territories being a territory or
        territories where, in the absence of a registration statement or other special formalities, this would or might,
        in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing
        sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

        (ii)    Power to dispose of the assets of the Company or any subsidiary

              There are no specific provisions in the Articles relating to the disposal of the assets of the Company
        or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which
        may be exercised or done or approved by the Company and which are not required by the Articles or the
        Companies Law to be exercised or done by the Company in general meeting.

        (iii)   Compensation or payments for loss of office

              Pursuant to the Articles, payments to any Director or past Director of any sum by way of
        compensation for loss of office or as consideration for or in connection with his retirement from office (not
        being a payment to which the Director is contractually entitled) must be approved by the Company in
        general meeting.

        (iv)    Loans and provision of security for loans to Directors

                There are provisions in the Articles prohibiting the making of loans to Directors.

        (v)     Disclosure of interests in contracts with the Company or any of its subsidiaries

               A Director may hold any other office or place of profit with the Company (except that of the auditor of
        the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon
        such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way
        of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or
        pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise
        interested in, any company promoted by the Company or any other company in which the Company may be
        interested, and shall not be liable to account to the Company or the members for any remuneration, profits
        or other benefits received by him as a director, officer or member of, or from his interest in, such other
        company. Subject as otherwise provided by the Articles, the board may also cause the voting power
        conferred by the shares in any other company held or owned by the Company to be exercised in such
        manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing
        the Directors or any of them to be directors or officers of such other company, or voting or providing for the
        payment of remuneration to the directors or officers of such other company.

               Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be
        disqualified by his office from contracting with the Company, either with regard to his tenure of any office or
        place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or
        any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor
        shall any Director so contracting or being so interested be liable to account to the Company or the members
        for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of




                                                      – 233 –
APPENDIX III                                    SUMMARY OF THE CONSTITUTION OF THE
                                           COMPANY AND CAYMAN ISLANDS COMPANY LAW

        such Director holding that office or the fiduciary relationship thereby established. A Director who to his
        knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed
        contract or arrangement with the Company shall declare the nature of his interest at the meeting of the
        board at which the question of entering into the contract or arrangement is first taken into consideration, if
        he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that
        he is or has become so interested.

              A Director shall not vote (nor be counted in the quorum) on any resolution of the board in respect of
        any contract or arrangement or other proposal in which he is to his knowledge materially interested but this
        prohibition shall not apply to any of the following matters, namely:

               (aa) any contract or arrangement for giving of any security or indemnity to the Director in respect of
                    money lent or obligations incurred or undertaken by him at the request of or for the benefit of
                    the Company or any of its subsidiaries;

               (bb) any contract or arrangement for the giving by the Company of any security or indemnity to a
                    third party in respect of a debt or obligation of the Company or any of its subsidiaries for which
                    the Director has himself assumed responsibility in whole or in part whether alone or jointly
                    under a guarantee or indemnity or by the giving of security;

               (cc)   any contract or arrangement concerning an offer of shares or debentures or other securities of
                      or by the Company or any other company which the Company may promote or be interested in
                      for subscription or purchase, where the Director is or is to be interested as a participant in the
                      underwriting or sub-underwriting of the offer;

               (dd) any contract or arrangement in which the Director is interested in the same manner as other
                    holders of shares or debentures or other securities of the Company or any of its subsidiaries by
                    virtue only of his interest in shares or debentures or other securities of the Company;

               (ee) any contract or arrangement concerning any other company in which he is interested only,
                    whether directly or indirectly, as an officer or executive or a shareholder other than a company
                    in which the Director together with any of his associates (as defined by the rules, where
                    applicable, of any Designated Stock Exchange (as defined in the Articles)) is beneficially
                    interested in 5% or more of the issued shares or of the voting rights of any class of shares of
                    such company (or of any third company through which his interest is derived); or

               (ff)   any proposal concerning the adoption, modification or operation of a share option scheme, a
                      pension fund or retirement, death, or disability benefits scheme or other arrangement which
                      relates both to Directors and employees of the Company or of any of its subsidiaries and does
                      not provide in respect of any Director as such any privilege or advantage not accorded to the
                      employees to which such scheme or fund relates.

        (vi)   Remuneration

              The ordinary remuneration of the Directors shall from time to time be determined by the Company in
        general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided
        amongst the Directors in such proportions and in such manner as the board may agree or, failing




                                                     – 234 –
APPENDIX III                                   SUMMARY OF THE CONSTITUTION OF THE
                                          COMPANY AND CAYMAN ISLANDS COMPANY LAW

        agreement, equally, except that any Director holding office for part only of the period in respect of which the
        remuneration is payable shall only rank in such division in proportion to the time during such period for
        which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and
        incidental expenses reasonably expected to be incurred or incurred by them in attending any board
        meetings, committee meetings or general meetings or separate meetings of any class of shares or of
        debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

               Any Director who, by request, goes or resides abroad for any purpose of the Company or who
        performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid
        such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the
        board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary
        remuneration as a Director. An executive Director appointed to be a managing director, joint managing
        director, deputy managing director or other executive officer shall receive such remuneration (whether by
        way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such
        other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the
        board may from time to time decide. Such remuneration may be either in addition to or in lieu of his
        remuneration as a Director.

               The board may establish or concur or join with other companies (being subsidiary companies of the
        Company or companies with which it is associated in business) in establishing and making contributions out
        of the Company monies to any schemes or funds for providing pensions, sickness or compassionate
        allowances, life assurance or other benefits for employees (which expression as used in this and the
        following paragraph shall include any Director or ex-Director who may hold or have held any executive office
        or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and
        their dependents or any class or classes of such persons.

               The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and
        either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-
        employees and their dependents, or to any of such persons, including pensions or benefits additional to
        those, if any, to which such employees or ex-employees or their dependents are or may become entitled
        under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit
        may, as the board considers desirable, be granted to an employee either before and in anticipation of, or
        upon or at any time after, his actual retirement.

        (vii)   Retirement, appointment and removal

                At each annual general meeting, one third of the Directors for the time being (or if their number is not
        a multiple of three, then the number nearest to but not greater than one third) will retire from office by
        rotation provided that no Director holding office as chairman and/or managing director shall be subject to
        retirement by rotation, or be taken into account in determining the number of Directors to retire. The
        Directors to retire in every year will be those who have been longest in office since their last re-election or
        appointment but as between persons who became or were last re-elected Directors on the same day those
        to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions
        relating to retirement of Directors upon reaching any age limit.

              The Directors shall have the power from time to time and at any time to appoint any person as a
        Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director so
        appointed shall hold office only until the next following annual general meeting of the Company and shall
        then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in
        the Company by way of qualification.

                                                     – 235 –
APPENDIX III                                    SUMMARY OF THE CONSTITUTION OF THE
                                           COMPANY AND CAYMAN ISLANDS COMPANY LAW

                A Director may be removed by a special resolution of the Company before the expiration of his period
        of office (but without prejudice to any claim which such Director may have for damages for any breach of
        any contract between him and the Company) and may by ordinary resolution appoint another in his place.
        Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less
        than two. There is no maximum number of Directors.

               The office or director shall be vacated:

               (aa) if he resigns his office by notice in writing delivered to the Company at the registered office of
                    the Company for the time being or tendered at a meeting of the Board whereupon the Board
                    resolves to accept such resignation;

               (bb) becomes of unsound mind or dies;

               (cc)   if, without special leave, he is absent from meetings of the board (unless an alternate director
                      appointed by him attends) for six (6) consecutive months, and the board resolves that his office
                      is vacated;

               (dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or
                    compounds with his creditors;

               (ee) if he is prohibited from being a director by law;

               (ff)   if he ceases to be a director by virtue of any provision of law or is removed from office pursuant
                      to the Articles.

               The board may from time to time appoint one or more of its body to be managing director, joint
        managing director, or deputy managing director or to hold any other employment or executive office with the
        Company for such period and upon such terms as the board may determine and the board may revoke or
        terminate any of such appointments. The board may delegate any of its powers, authorities and discretions
        to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may
        from time to time revoke such delegation or revoke the appointment of and discharge any such committees
        either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the
        exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from
        time to time be imposed upon it by the board.

        (viii) Borrowing powers

               The board may exercise all the powers of the Company to raise or borrow money, to mortgage or
        charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of
        the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the
        Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of
        any third party.

        (ix)   Proceedings of the Board

               The board may meet for the despatch of business, adjourn and otherwise regulate their meetings as
        they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an
        equality of votes, the chairman of the meeting shall have an additional or casting vote.


                                                     – 236 –
APPENDIX III                                       SUMMARY OF THE CONSTITUTION OF THE
                                              COMPANY AND CAYMAN ISLANDS COMPANY LAW

          (x)     Register of Directors and Officers

                 The Companies Law and the Articles provide that the Company is required to maintain at its
          registered office a register of directors and officers which is not available for inspection by the public. A copy
          of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must
          be notified to the Registrar within 30 days of any change in such directors or officers.

    (b)   Alterations to constitutional documents

           The Articles may be rescinded, altered or amended by the Company in general meeting by special
    resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum,
    or to change the name of the Company.

    (c)   Alteration of capital

        The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the
    Companies Law:

          (i)     increase its capital by such sum, to be divided into shares of such amounts as the resolution shall
                  prescribe;

          (ii)    consolidate and divide all or any of its capital into shares of larger amount than its existing shares;

          (iii)   divide its shares into several classes and without prejudice to any special rights previously conferred
                  on the holders of existing shares as the directors may determine;

          (iv)    sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum,
                  subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any
                  share is sub-divided may determine that, as between the holders of the shares resulting from such
                  sub-division, one or more of the shares may have any such preferred or other special rights, over, or
                  may have such deferred rights or be subject to any such restrictions as compared with the others as
                  the Company has power to attach to unissued or new shares;

          (v)     cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to
                  be taken, by any person, and diminish the amount of its capital by the amount of the shares so
                  cancelled.

          The Company may subject to the provisions of the Companies Law reduce its share capital or share
    premium account or any capital redemption reserve or other undistributable reserve in any way by special
    resolution.

    (d)   Variation of rights of existing shares or classes of shares

           Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares
    may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with
    the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that
    class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares




                                                        – 237 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    of that class. To every such separate general meeting the provisions of the Articles relating to general meetings
    will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two
    persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that
    class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held
    by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every
    such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

           The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise
    expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the
    creation or issue of further shares ranking pari passu therewith.

    (e)   Special resolution majority required

           Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than
    three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such
    members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a
    general meeting of which not less than 21 clear days’ notice, specifying the intention to propose the resolution as
    a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so
    agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority
    together holding not less than 95% in nominal value of the shares giving that right and, in the case of an annual
    general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed
    and passed as a special resolution at a meeting of which less than 21 clear days’ notice has been given.

           A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands
    within 15 days of being passed.

          An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the
    votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations,
    by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in
    accordance with the Articles.

    (f)   Voting rights (generally and on a poll) and right to demand a poll

           Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in
    accordance with the Articles, at any general meeting on a show of hands, every member who is present in person
    or by proxy or being a corporation, is present by its duly authorised representative shall have one vote and on a
    poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly
    authorised representative shall have one vote for every fully paid share of which he is the holder but so that no
    amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing
    purposes as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy
    is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a
    show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes
    he uses in the same way.

           At any general meeting a resolution put to the vote of the meeting is to be decided on a show of hands
    unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand
    for a poll) a poll is demanded by (i) the chairman of the meeting or (ii) at least three members present in person or,




                                                       – 238 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being
    entitled to vote at the meeting or (iii) any member or members present in person or, in the case of a member being
    a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the
    total voting rights of all the members having the right to vote at the meeting or (iv) a member or members present
    in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and
    holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum
    has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

           If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such
    person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of
    any class of members of the Company provided that, if more than one person is so authorised, the authorisation
    shall specify the number and class of shares in respect of which each such person is so authorised. A person
    authorised pursuant to this provision shall be entitled to exercise the same rights and powers on behalf of the
    recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the
    Company held by the recognised clearing house (or its nominee(s)) including the rights to vote individually on a
    show of hands.

    (g)   Requirements for annual general meetings

           An annual general meeting of the Company must be held in each year, other than the year of incorporation
    (within a period of not more than 15 months after the holding of the last preceding annual general meeting or a
    period of 18 months from the date of incorporation, unless a longer period would not infringe the rules of any
    Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the
    board.

    (h)   Accounts and audit

           The board shall cause true accounts to be kept of the sums of money received and expended by the
    Company, and the matters in respect of which such receipt and expenditure take place, and of the property,
    assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary
    to give a true and fair view of the Company affairs and to explain its transactions.

           The accounting records shall be kept at the registered office or at such other place or places as the board
    decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any
    right to inspect any accounting record or book or document of the Company except as conferred by law or
    authorised by the board or the Company in general meeting.

           A copy of every balance sheet and profit and loss account (including every document required by law to be
    annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the
    Directors’ report and a copy of the auditors’ report, shall not less than 21 days before the date of the meeting be sent
    to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles;
    however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as
    defined in the Articles), the Company may send to such persons a summary financial statement derived from the
    Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing
    served on the Company, demand that the Company sends to him, in addition to a summary financial statement, a
    complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

          Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times
    regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the
    Company in general meeting or in such manner as the members may determine.

                                                        – 239 –
APPENDIX III                                        SUMMARY OF THE CONSTITUTION OF THE
                                               COMPANY AND CAYMAN ISLANDS COMPANY LAW

          The financial statements of the Company shall be audited by the auditor in accordance with generally
    accepted auditing standards. The auditor shall make a written report thereon in accordance with generally
    accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting.
    The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than
    the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name
    such country or jurisdiction.

    (i)   Notices of meetings and business to be conducted thereat

           An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special
    resolution shall (save as set out in sub-paragraph (e) above) be called by at least 21 clear days’ notice in writing,
    and any other extraordinary general meeting shall be called by at least 14 clear days’ notice (in each case
    exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given).
    The notice must specify the time and place of the meeting and, in the case of special business, the general nature
    of that business. In addition notice of every general meeting shall be given to all members of the Company other
    than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to
    receive such notices from the Company, and also to the auditors for the time being of the Company.

           Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it
    shall be deemed to have been duly called if it is so agreed:

          (i)     in the case of a meeting called as an annual general meeting, by all members of the Company
                  entitled to attend and vote thereat; and

          (ii)    in the case of any other meeting, by a majority in number of the members having a right to attend and
                  vote at the meeting, being a majority together holding not less than 95% in nominal value of the
                  issued shares giving that right.

           All business shall be deemed special that is transacted at an extraordinary general meeting and also all
    business shall be deemed special that is transacted at an annual general meeting with the exception of the
    following, which shall be deemed ordinary business:

          (i)     the declaration and sanctioning of dividends;

          (ii)    the consideration and adoption of the accounts and balance sheet and the reports of the directors
                  and the auditors;

          (iii)   the election of directors in place of those retiring;

          (iv)    the appointment of auditors and other officers;

          (v)     the fixing of the remuneration of the directors and of the auditors; and

          (vi)    the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise
                  dispose of the unissued shares of the Company representing not more than 20% in nominal value of
                  its existing issued share capital.




                                                          – 240 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    (j)   Transfer of shares

           All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a
    form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board
    may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s),
    by hand or by machine imprinted signature or by such other manner of execution as the board may approve from
    time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee
    provided that the board may dispense with the execution of the instrument of transfer by the transferee in any case
    in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share
    until the name of the transferee is entered in the register of members in respect thereof. The board may also
    resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept
    mechanically executed transfers.

           The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from
    time to time transfer any share upon the principal register to any branch register or any share on any branch
    register to the principal register or any other branch register.

           Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch
    register nor may shares on any branch register be transferred to the principal register or any other branch register.
    All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a
    branch register, at the relevant registration office and, in the case of shares on the principal register, at the
    registered office in the Cayman Islands or such other place at which the principal register is kept in accordance
    with the Companies Law.

           The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of
    any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any
    share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it
    may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share
    (not being a fully paid up share) on which the Company has a lien.

           The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any
    Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the
    Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if
    applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration
    office or registered office or such other place at which the principal register is kept accompanied by the relevant
    share certificate(s) and such other evidence as the board may reasonably require to show the right of the
    transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf,
    the authority of that person so to do).

           The registration of transfers may be suspended and the register closed on giving notice by advertisement in
    a relevant newspaper or any other newspapers or by any other means in accordance with the requirements of any
    Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may
    determine and either generally or in respect of any class of shares. The register of members shall not be closed
    for periods exceeding in the whole 30 days in any year.




                                                        – 241 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    (k)   Power for the Company to purchase its own shares

          The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to
    certain restrictions and the Board may only exercise this power on behalf of the Company subject to any
    applicable requirements imposed from time to time by any Designated Stock Exchange (as defined in the Articles).

    (l)   Power for any subsidiary of the Company to own shares in the Company

          There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

    (m)   Dividends and other methods of distribution

          Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to
    be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

           The Articles provide dividends may be declared and paid out of the profits of the Company, realised or
    unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the
    sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any
    other fund or account which can be authorised for this purpose in accordance with the Companies Law.

          Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all
    dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the
    dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up
    on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the
    shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may
    deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if
    any) presently payable by him to the Company on account of calls or otherwise.

           Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on
    the share capital of the Company, the board may further resolve either (i) that such dividend be satisfied wholly or
    in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled
    thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (ii)
    that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as
    fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also
    upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend
    of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up
    without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

           Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or
    warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders,
    addressed to the holder whose name stands first in the register of the Company in respect of the shares at his
    address as appearing in the register or addressed to such person and at such addresses as the holder or joint
    holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise
    direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose
    name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the
    cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of
    two or more joint holders may give effectual receipts for any dividends or other moneys payable or property
    distributable in respect of the shares held by such joint holders.




                                                       – 242 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

           Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared
    the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets
    of any kind.

            All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise
    made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a
    trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be
    forfeited by the board and shall revert to the Company.

          No dividend or other monies payable by the Company on or in respect of any share shall bear interest
    against the Company.

    (n)   Proxies

           Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint
    another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares
    may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or
    at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same
    powers on behalf of a member who is an individual and for whom he acts as proxy as such member could
    exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a
    corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a
    poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation,
    by its duly authorised representative) or by proxy.

    (o)   Call on shares and forfeiture of shares

            Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon
    the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the
    nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by
    installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for
    payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not
    exceeding 20% per annum as the board may agree to accept from the day appointed for the payment thereof to
    the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if
    it thinks fit, receive from any member willing to advance the same, either in money or money worth, all or any part
    of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the
    monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

           If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less
    than 14 clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest
    which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event
    of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to
    be forfeited.

           If the requirements of any such notice are not complied with, any share in respect of which the notice has
    been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a
    resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of
    the forfeited share and not actually paid before the forfeiture.




                                                       – 243 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

          A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares
    but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were
    payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so
    require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding
    20% per annum as the board determines.

    (p)   Inspection of register of members

           Pursuant to the Articles the register and branch register of members shall be open to inspection for at least
    two (2) hours on every business day by members without charge, or by any other person upon a maximum
    payment of HK$2.50 or such lesser sum specified by the Board, at the registered office or such other place in the
    Cayman Islands at which the register is kept in accordance with the Companies Law or, upon a maximum payment
    of HK$1.00 or such lesser sum specified by the board, at the Registration Office (as defined in the Articles), unless
    the register is closed in accordance with the Articles.

    (q)   Quorum for meetings and separate class meetings

          No business shall be transacted at any general meeting unless a quorum is present when the meeting
    proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

           Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present
    in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and
    entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction
    the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not
    less than one-third in nominal value of the issued shares of that class.

           A corporation being a member shall be deemed for the purpose of the Articles to be present in person if
    represented by its duly authorised representative being the person appointed by resolution of the directors or other
    governing body of such corporation to act as its representative at the relevant general meeting of the Company or
    at any relevant general meeting of any class of members of the Company.

    (r)   Rights of the minorities in relation to fraud or oppression

          There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or
    oppression. However, certain remedies are available to shareholders of the Company under Cayman Islands law,
    as summarised in paragraph 3(f) of this Appendix.

    (s)   Procedures on liquidation

          A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special
    resolution.

           Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on
    liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and
    the assets available for distribution amongst the members of the Company shall be more than sufficient to repay
    the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu
    amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the




                                                       – 244 –
APPENDIX III                                      SUMMARY OF THE CONSTITUTION OF THE
                                             COMPANY AND CAYMAN ISLANDS COMPANY LAW

    Company shall be wound up and the assets available for distribution amongst the members as such shall be
    insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be,
    the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid
    up, at the commencement of the winding up on the shares held by them respectively.

           If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may,
    with the authority of a special resolution and any other sanction required by the Companies Law divide among the
    members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of
    property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set
    such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may
    determine how such division shall be carried out as between the members or different classes of members. The
    liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of
    members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to
    accept any shares or other property in respect of which there is a liability.

    (t)   Untraceable members

           Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all
    cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such
    shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company
    has not during that time received any indication of the existence of the member; and (iii) the Company has caused
    an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in
    the Articles) giving notice of its intention to sell such shares and a period of three months, or such shorter period
    as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since such
    advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention.
    The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net
    proceeds, it shall become indebted to the former member of the Company for an amount equal to such net
    proceeds.

    (u)   Subscription rights reserve

           The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies
    Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or
    engages in any transaction which would result in the subscription price of such warrants being reduced below the
    par value of a share, a subscription rights reserve shall be established and applied in paying up the difference
    between the subscription price and the par value of a share on any exercise of the warrants.




                                                       – 245 –
APPENDIX III                                   SUMMARY OF THE CONSTITUTION OF THE
                                          COMPANY AND CAYMAN ISLANDS COMPANY LAW


3.   CAYMAN ISLANDS COMPANY LAW

      The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore,
operates subject to Cayman Island law. Set out below is a summary of certain provisions of Cayman company
law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete
review of all matters of Cayman Islands company law and taxation, which may differ from equivalent
provisions in jurisdictions with which interested parties may be more familiar:

     (a)   Operations

           As an exempted company, the Company’s operations must be conducted mainly outside the
     Cayman Islands. The Company is required to file an annual return each year with the Registrar of
     Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share
     capital.

     (b)   Share capital

           The Companies Law provides that where a company issues shares at a premium, whether for
     cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall
     be transferred to an account, to be called the “share premium account”. At the option of a company,
     these provisions may not apply to premiums or shares of that company allotted pursuant to any
     arrangement in consideration of the acquisition or cancellation of shares in any other company and
     issued at a premium. The Companies Law provides that the share premium account may be applied by
     the company subject to the provisions, if any, of its memorandum and articles of association in (i)
     paying distributions or dividends to members; (ii) paying up unissued shares of the company to be
     issued to members as fully paid bonus shares; (iii) in the redemption and repurchase of shares (subject
     to the provisions of section 37 of the Companies Law); (iv) writing-off the preliminary expenses of the
     company; (v) writing-off the expenses of, or the commission paid or discount allowed on, any issue of
     shares or debentures of the company; and (vi) providing for the premium payable on redemption or
     purchase of any shares or debentures of the company.

            No distribution or dividend may be paid to members out of the share premium account unless
     immediately following the date on which the distribution or dividend is proposed to be paid the company
     will be able to pay its debts as they fall due in the ordinary course business.

            The Companies Law provides that, subject to confirmation by the court, a company limited by
     shares or a company limited by guarantee and having a share capital may, if so authorised by its
     articles of association, by special resolution reduce its share capital in any way.

           The Articles includes certain protections for holders of special classes of shares, requiring their
     consent to be obtained before their rights may be varied. The consent of the specified proportions of the
     holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting
     of the holders of those shares is required.




                                                   – 246 –
APPENDIX III                                  SUMMARY OF THE CONSTITUTION OF THE
                                         COMPANY AND CAYMAN ISLANDS COMPANY LAW


    (c)   Financial assistance to purchase shares of a company or its holding company

           Subject to all applicable laws, the Company may give financial assistance to Directors and
    employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding
    company in order that they may buy Shares in the Company or shares in any subsidiary or holding
    company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee
    for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be
    held for the benefit of employees of the Company, its subsidiaries, any holding company of the
    Company or any subsidiary of any such holding company (including salaried Directors).

          There is no statutory restriction in the Cayman Islands on the provision of financial assistance by
    a company to another person for the purchase of, or subscription for, its own or its holding company
    shares. Accordingly, a company may provide financial assistance if the directors of the company
    consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the
    interests of the company, that such assistance can properly be given. Such assistance should be on an
    arm-length basis.

    (d)   Purchase of shares and warrants by a company and its subsidiaries

          Subject to the provisions of the Companies Law, a company limited by shares or a company
    limited by guarantee and having a share capital may, if so authorised by its articles of association, issue
    shares which are to be redeemed or are liable to be redeemed at the option of the company or a
    shareholder. In addition, such a company may, if authorised to do so by its articles of association,
    purchase its own shares, including any redeemable shares. However, if the articles of association do
    not authorise the manner or purchase, a company cannot purchase any of its own shares unless the
    manner of purchase has first been authorised by an ordinary resolution of the company. At no time may
    a company redeem or purchase its shares unless they are fully paid. A company may not redeem or
    purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any
    member of the company holding shares. A payment out of capital by a company for the redemption or
    purchase of its own shares is not lawful unless immediately following the date on which the payment is
    proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course
    of business.

          A company is not prohibited from purchasing and may purchase its own warrants subject to and in
    accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no
    requirement under Cayman Islands law that a company memorandum or articles of association contain
    a specific provision enabling such purchases and the directors of a company may rely upon the general
    power contained in its memorandum of association to buy and sell and deal in personal property of all
    kinds.

          Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain
    circumstances, may acquire such shares.




                                                  – 247 –
APPENDIX III                                  SUMMARY OF THE CONSTITUTION OF THE
                                         COMPANY AND CAYMAN ISLANDS COMPANY LAW


    (e)   Dividends and distributions

           With the exception of section 34 of the Companies Law, there are no statutory provisions relating
    to the payment of dividends. Based upon English case law which is likely to be persuasive in the
    Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies
    Law permits, subject to a solvency test and the provisions, if any, of the company memorandum and
    articles of association, the payment of dividends and distributions out of the share premium account
    (see paragraph 2(m) above for further details).

    (f)   Protection of minorities

          The Cayman Islands courts ordinarily would be expected to follow English case law precedents
    which permit a minority shareholder to commence a representative action against or derivative actions
    in the name of the company to challenge (i) an act which is ultra vires the company or illegal, (ii) an act
    which constitutes a fraud against the minority and the wrongdoers are themselves in control of the
    company, and (iii) an irregularity in the passing of a resolution which requires a qualified (or special)
    majority.

          In the case of a company (not being a bank) having a share capital divided into shares, the court
    may, on the application of members holding not less than one fifth of the shares of the company in
    issue, appoint an inspector to examine into the affairs of the company and to report thereon in such
    manner as the court shall direct.

          Any shareholder of a company may petition the court which may make a winding up order if the
    court is of the opinion that it is just and equitable that the company should be wound up.

          Generally claims against a company by its shareholders must be based on the general laws of
    contract or tort applicable in the Cayman Islands or their individual rights as shareholders as
    established by the company memorandum and articles of association.

    (g)   Management

          The Companies Law contains no specific restrictions on the power of directors to dispose of
    assets of a company. However, as a matter of general law, every officer of a company, which includes a
    director, managing director and secretary, in exercising his powers and discharging his duties must do
    so honestly and in good faith with a view to the best interests of the company and exercise the care,
    diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

    (h)   Accounting and auditing requirements

          A company shall cause proper records of accounts to be kept with respect to (i) all sums of money
    received and expended by the company and the matters in respect of which the receipt and expenditure
    takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of
    the company.




                                                  – 248 –
APPENDIX III                                  SUMMARY OF THE CONSTITUTION OF THE
                                         COMPANY AND CAYMAN ISLANDS COMPANY LAW


         Proper books of account shall not be deemed to be kept if there are not kept such books as are
    necessary to give a true and fair view of the state of the Company affairs and to explain its transactions.

    (i)   Exchange control

          There are no exchange control regulations or currency restrictions in the Cayman Islands.

    (j)   Taxation

        Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the
    Company has obtained an undertaking from the Governor-in-Council:

          (1)   that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits
                or income or gains or appreciation shall apply to the Company or its operations; and

          (2)   that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be
                payable on the shares, debentures or other obligations of the Company.

          The undertaking for the Company is for a period of twenty years from 13 November 2001.

          The Cayman Islands currently levy no taxes on individuals or corporations based upon profits,
    income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty.
    There are no other taxes likely to be material to the Company levied by the Government of the Cayman
    Islands save certain stamp duties which may be applicable, from time to time, on certain instruments
    executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party
    to any double tax treaties.

    (k)   Stamp duty on transfers

        No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands
    companies except those which hold interests in land in the Cayman Islands.

    (l)   Loans to directors

        There is no express provision in the Companies Law prohibiting the making of loans by a
    company to any of its directors.

    (m) Inspection of corporate records

          Members of the Company will have no general right under the Companies Law to inspect or
    obtain copies of the register of members or corporate records of the Company. They will, however, have
    such rights as may be set out in the Articles.




                                                  – 249 –
APPENDIX III                                     SUMMARY OF THE CONSTITUTION OF THE
                                            COMPANY AND CAYMAN ISLANDS COMPANY LAW


          An exempted company may, subject to the provisions of its articles of association, maintain its
    principal register of members and any branch registers at such locations, whether within or without the
    Cayman Islands, as the directors may, from time to time, think fit. There is no requirement under the
    Companies Law for an exempted company to make any returns of members to the Registrar of
    Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a
    matter of public record and are not available for public inspection.

    (n)   Winding up

          A company may be wound up by either an order of the court or by a special resolution of its
    members. The court also has authority to order winding up in a number of specified circumstances
    including where it is, in the opinion of the court, just and equitable that such company be wound up.

          A company may be wound up voluntarily when the members so resolve in general meeting by
    special resolution, or, in the case of a limited duration company, when the period fixed for the duration
    of the company by its memorandum expires, or the event occurs on the occurrence of which the
    memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, such
    company is obliged to cease to carry on its business from the time of passing the resolution for
    voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.
    Upon the appointment of a liquidator, the responsibility for the company affairs rests entirely in his
    hands and no future executive action may be carried out without his approval.

            A company is placed in liquidation either by an order of the court or by a special resolution of its
    members. A liquidator is appointed whose duties are to collect the assets of the company (including the
    amount (if any) due from the contributories), settle the list of creditors and discharge the company
    liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list
    of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with
    the rights attaching to the shares.

           In the case of a members’ voluntary winding up of a company, the company in general meeting
    must appoint one or more liquidators for the purpose of winding up the affairs of the company and
    distributing its assets.

          As soon as the affairs of the company are fully wound up, the liquidator must make up an account
    of the winding up, showing how the winding up has been conducted and the property of the company
    has been disposed of, and thereupon call a general meeting of the company for the purposes of laying
    before it the account and giving an explanation thereof. This final general meeting shall be called by
    Public Notice or otherwise as the Registrar of Companies may direct.

          For the purpose of conducting the proceedings in winding up a company and assisting the Court,
    there may be appointed one or more than one person to be called an official liquidator or official
    liquidator; and the Court may appoint to such office such person or persons, either provisionally or
    otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall
    declare whether any act hereby required or authorised to be done by the official liquidator is to be done




                                                       – 250 –
APPENDIX III                                    SUMMARY OF THE CONSTITUTION OF THE
                                           COMPANY AND CAYMAN ISLANDS COMPANY LAW


     by all or any one or more of such persons. The Court may also determine whether any and what
     security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or
     during any vacancy in such office, all the property of the company shall be in the custody of the Court.

     (o)   Reconstructions

           There are statutory provisions which facilitate reconstructions and amalgamations approved by a
     majority in number representing 75% in value of shareholders or creditors, depending on the
     circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the
     Courts. Whilst a dissenting shareholder would have the right to express to the Court his view that the
     transaction for which approval is sought would not provide the shareholders with a fair value for their
     shares, the Courts are unlikely to disapprove the transaction on that ground alone in the absence of
     evidence of fraud or bad faith on behalf of management and if the transaction were approved and
     consummated the dissenting shareholder would have no rights comparable to the appraisal rights (i.e.
     the right to receive payment in cash for the judicially determined value of their shares) ordinarily
     available, for example, to dissenting shareholders of a United States corporation.

     (p)   Take-overs

             Where an offer is made by a company for the shares of another company and, within four months
     of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the
     offeror may at any time within two months after the expiration of the said four months, by notice require
     the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder
     may apply to the Court of the Cayman Island within one month of the notice objecting to the transfer.
     The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which
     it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror
     and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority
     shareholders.

     (q)   Indemnification

           Cayman Islands law does not limit the extent to which a company articles of association may
     provide for indemnification of officers and directors, except to the extent any such provision may be
     held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against
     the consequences of committing a crime).

4.   GENERAL

       Conyers Dill & Pearman, Cayman, the Company’s special legal counsel on Cayman Islands law, have
sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This
letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph
headed “Documents available for inspection” in Appendix V to this prospectus. Any person wishing to have a
detailed summary of Cayman Islands company law or advice on the differences between it and the laws of
any jurisdiction with which he is more familiar is recommended to seek independent legal advice.




                                                     – 251 –
APPENDIX IV                                        STATUTORY AND GENERAL INFORMATION


FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES

1.   INCORPORATION

      The Company was incorporated in the Cayman Islands under the Companies Law as an exempted
company with limited liability on 18 October 2001. The Company has established a place of business in Hong
Kong at Rooms 101-103, Hong Kong Institute of Biotechnology, 2 Biotechnology Avenue, Shatin, New
Territories and was registered as an overseas company in Hong Kong under Part XI of the Companies
Ordinance on 7 March 2002. Such application contains a notice of appointment of Mr. Young of No. 33 River
North, 9th Street, Section O, Fairview Court, Yuen Long, New Territories, Hong Kong and Lam Chi Ming
Francis of 18A, Cameo Park, 63-69 Caine Road, Central District, Hong Kong as the agents of the Company
for the acceptance of service of process in Hong Kong. As the Company was incorporated in the Cayman
Islands, its operations are subject to the Companies Law and to its constitution which comprises a
memorandum and articles of association. A summary of various parts of the constitution and relevant aspects
of the Companies Law is set out in Appendix III to this prospectus.

2.   CHANGES IN SHARE CAPITAL OF THE COMPANY

     (a)   At the date of incorporation of the Company, its authorised share capital was HK$500,000 divided
           into 50,000,000 shares of HK$0.01 each, of which one Share was allotted and issued fully paid at
           par to Codan Trust Company (Cayman) Limited, the subscriber of the Company. This one Share
           was subsequently transferred to Dr. Tam on 29 October 2001 for cash at par;

     (b)   On 7 May 2002, the authorized share capital of the Company was increased from HK$500,000
           divided into 50,000,000 Shares to HK$10,000,000 divided into 1,000,000,000 Shares by the
           creation of an additional 950,000,000 Shares.




                                                 – 252 –
APPENDIX IV                                           STATUTORY AND GENERAL INFORMATION


   (c)   On 13 May 2002, an aggregate of 15,538,356 Shares were issued and allotted to the following
         persons as consideration for the transfer of the entire issued share capital of KBVI to the
         Company on the basis of one Share for one KBVI share (except for Dr. Tam who was allotted and
         issued one Share less):

                                                                                               Approximate % of
                                                                           (equivalent           the issued share
                                                                   number of Shares       capital of the Company
                                                                    immediately after           immediately after
                                                                   completion of the     completion of the Share
                                                                  Share Offer and the                Offer and the
         Name                              No. of KBVI shares    Capitalisation Issue)       Capitalisation Issue

           Abu Md. Basharat Ali (Note 1)               100,000              2,445,682                      0.47%
         * Asia Dynamic Assets
              Management Limited (Note 5)               80,000              1,956,545                      0.38%
         * Au Pok Kau                                   60,000              1,467,409                      0.28%
         * Aycl Holdings Inc. (Note 5)                  64,000              1,565,236                      0.30%
         * Dr. Buret (Note 16)                          14,286                349,390                      0.07%
         * Blue Heron Trading Company Ltd. (Note 5)     32,000                782,618                      0.15%
         * Buan Nancy J. (also known as
              Nancy J. Buan) (Note 5(iv))               10,000                244,568                      0.05%
         * Calaidan Capital Corporation (Note 5)        40,000                978,273                      0.19%
         * Cham Wai Ho Anthony                         240,000              5,869,637                      1.13%
         * Champion Leaders Ltd. (Note 5)              290,000              7,092,478                      1.36%
         * Chan Chui Sim Tam (also known as
              Chan Chui-Sim Tam) (Note 9)               50,000              1,222,841                      0.24%
         * Chan Muk Fong                                40,000                978,273                      0.19%
         * Chan Kwai Fong                               20,000                489,136                      0.09%
         * Chan Rosalia (also known as
              Rosalia Chan (Note 8)                     34,000                831,532                      0.16%
         * Chan Rosalia (also known as Rosalia Chan
              and Yu John (also known as John Yu)
              (Note 8)                                  16,000                391,309                      0.08%
         * Chan Wai Fong                                20,000                489,136                      0.09%
         * Chang Yang Yian & Wong Sze Di                80,000              1,956,545                      0.38%
         * Chow Yat Sun                                 20,000                489,136                      0.09%
         * Chiang Shuk Yee                              20,000                489,136                      0.09%
         * Crawford William (also known as
              Bill Crawford)                            26,000                635,877                      0.12%
         * Dial Holdings Ltd. (Note 5)                  60,000              1,467,409                      0.28%
           Dovichi Norman J. (also known as
              Norman J Dovichi (Note 7)                100,000              2,445,682                      0.47%
         * Eng Donna (also known as Donna Eng)
              (Note 10)                                  8,000                195,655                      0.04%




                                                  – 253 –
APPENDIX IV                                           STATUTORY AND GENERAL INFORMATION


                                                                                                 Approximate % of
                                                                             (equivalent           the issued share
                                                                     number of Shares       capital of the Company
                                                                      immediately after           immediately after
                                                                     completion of the     completion of the Share
                                                                    Share Offer and the                Offer and the
       Name                                 No. of KBVI shares     Capitalisation Issue)       Capitalisation Issue

       * Eng Fung Shek (also known as
            Fung Shek Eng) (Note 9)                      40,000                 978,273                      0.19%
       * Eng Fung Shek (also known as
            Fung Shek Eng) and
            Eng Nancy Yin (also known as
            Nancy Yin Eng) (Note 9)                     121,500               2,971,503                      0.57%
       * Eng Jayme (also known as
            Jayme Eng) (Note 10)                          8,000                 195,655                      0.04%
       * Eng Joel (also known as Joel Eng)
            (Note 10)                                    16,000                 391,309                      0.08%
       * Eng Michael Hawn (also known as
            Michael Hawn Eng) (Note 9)                   20,000                 489,136                      0.09%
       * Eng Nancy Yin (also known as
            Nancy Yin Eng) (Note 9)                      70,000               1,711,977                      0.33%
       * Eng Frank Yiu (also known as
            Frank Yiu Eng) (Note 9)                      10,000                 244,568                      0.05%
       * Eng Nelson Hawn (also known as
            Nelson Hawn Eng) (Note 9)                    20,000                 489,136                      0.09%
       * Eng Ricky Hawn (also known as
            Ricky Hawn Eng) (Note 9)                     20,000                 489,136                      0.09%
       * Falcon Trading Co. Ltd. (Note 5)                26,000                 635,877                      0.12%
       * Fallon Agnes (also known as
            Agnes Fallon) (Note 8)                       16,000                 391,309                      0.08%
       * Fallon Tony (also known as
            Tony Fallon) (Note 8)                        26,000                 635,877                      0.12%
       * First Canton Investment Limited (Note 5)       400,000               9,782,729                      1.88%
       * Freshwater Trading Limited (Note 5)            320,000               7,826,184                      1.51%
       * Friesen Vernon (also known as
            Vernon Friesen and Vernon D Friesen)
            (Note 5(vii))                                58,000               1,418,495                      0.27%
       * Gan Kiat Chai                                  160,000               3,913,092                      0.75%
         Grand Interest Development
            Limited (Note 2)                           1,260,000             30,815,591                      5.93%
       * Harried Horizons Limited (Note 5)                80,000              1,956,545                      0.38%
       * Hess Harry (also known as Harry Hess)
            and Hess Mary Anne (also known as
            Mary Anne Hess)                              80,000               1,956,545                      0.38%
       * Host Eagle International Limited (Note 5)      160,000               3,913,092                      0.75%



                                                     – 254 –
APPENDIX IV                                        STATUTORY AND GENERAL INFORMATION


                                                                                               Approximate % of
                                                                           (equivalent           the issued share
                                                                   number of Shares       capital of the Company
                                                                    immediately after           immediately after
                                                                   completion of the     completion of the Share
                                                                  Share Offer and the                Offer and the
       Name                                 No. of KBVI shares   Capitalisation Issue)       Capitalisation Issue

           Howrish Shirley (also known as
              Shirley Howrish) (Note 4 & 13)           15,000                 366,852                      0.07%
       *   Ip Leung Christina Ling Kwan
              (also known as Christina Ling
              Kwan Ip-Leung)                            32,000                782,618                      0.15%
           John Samuel and Associates Ltd.
              (Notes 5 & 7)                            20,000                 489,136                      0.09%
       *   Kump Glen (also known as
              Glen Kump and Glen M. Kump
              and Kump Glen M.) (Note 5(iii))          48,000               1,173,927                      0.23%
       *   Kung Agnes B. (also known as
              Agnes Kung and Agnes B. Kung)
              (Note 8)                                 32,000                 782,618                      0.15%
       *   Kwok Po Yin                                 20,000                 489,136                      0.09%
           Kwon Glen S. (also known as
              Glen S. Kwon) (Note 7)                  100,000               2,445,682                      0.47%
       *   Lam Peter K. K. (also known as
              Peter K. K. Lam) (Note 8)                48,000               1,173,927                      0.23%
           Lam Tung King (also known as
              Tung King Lam) (Note 6)                  58,000               1,418,495                      0.27%
       *   Lau Chi Fai (Note 5(xv))                    80,000               1,956,545                      0.38%
       *   Lee Annie (Note 11)                         20,000                 489,136                      0.09%
       *   Lee Ching Yee (also known as
              Lee Ching Yee Jenny)                     10,000                 244,568                      0.05%
       *   Lee Michael D. (also known as
              Michael D. Lee) (Note 11)                10,000                 244,568                      0.05%
       *   Leung Joseph (also known as
              Leung Joseph King Fai and
              Joseph Leung)                           108,000               2,641,336                      0.51%
       *   Loo Josephine (also known as
              Josephine Loo) and Loo Tommy
              (also known as Tommy Loo)                64,000               1,565,236                      0.30%
       *   Lundeberg Arthur (also known as
              Arthur H. Lundeberg and
              Arthur Lundeberg)                        21,000                 513,593                      0.10%
       *   Mak Fuk Shan                                10,000                 244,568                      0.05%
       *   Masson Marilyn H. (also known as
              Marilyn H. Masson and
              Marilyn Masson)                           16,000                391,309                      0.08%

                                                  – 255 –
APPENDIX IV                                          STATUTORY AND GENERAL INFORMATION


                                                                                                Approximate % of
                                                                            (equivalent           the issued share
                                                                    number of Shares       capital of the Company
                                                                     immediately after           immediately after
                                                                    completion of the     completion of the Share
                                                                   Share Offer and the                Offer and the
       Name                               No. of KBVI shares      Capitalisation Issue)       Capitalisation Issue

       * Melnik Nellie (also known as
           Nellie Melnik)                                26,000                635,877                      0.12%
         Meyer Urs A. (also known as
           Urs A. Meyer) (Note 7)                       20,000                 489,136                      0.09%
       * New Order Incorporated (Note 5)               201,500               4,928,050                      0.95%
       * Ng Kit Yung Karen                              80,000               1,956,545                      0.38%
         Noujaim Antoine (also known as
           Antoine A. Noujaim and
           Antoine Noujaim)                             35,000                 855,989                      0.16%
       * Ooi Soo Liat                                   80,000               1,956,545                      0.38%
       * Peat John A.(also known as John A. Peat)       32,000                 782,618                      0.15%
       * Red Robin Services Ltd. (Notes 5 & 17)        202,000               4,940,278                      0.95%
       * Shiu Ka Yue                                    80,000               1,956,545                      0.38%
       * Sovka Stanley (also known as
           Stanley Sovka) and Sovka Madeline
           (also known as Madeline Sovka)               32,000                 782,618                      0.15%
       * Steady Growth Group Limited (Note 5)          707,070              17,292,683                      3.33%
         Stoeckel Klaus (also known as
           Klaus Stoeckel) (Note 4)                     35,000                 855,989                      0.16%
       * Storey Brian (also known as Brian A.
           Storey and Storey Brian A.)                  50,000               1,222,841                      0.24%
       * Sunstar Resources Limited (Note 5)            400,000               9,782,729                      1.88%
       * Szeto Chor and Sit Ying Yu Priscilla           20,000                 489,136                      0.09%
         Tam Constance (also known as
           Constance Tam and Tam Constance
           See-Yiu (Note 1)                            250,000               6,114,205                      1.18%
       * Tam Donald Y. (also known as
           Donald Y. Tam (Note 12)                      16,000                 391,309                      0.08%
         Tam Mei Ha (Note 1)                            60,000               1,467,409                      0.28%
         Tam Mei Ling (Note 1)                          80,000               1,956,545                      0.38%
         Tam Oi Ling (Note 1)                          120,000               2,934,818                      0.56%
         Tam Sau Ying (Note 1)                          60,000               1,467,409                      0.28%
         Tam Suzanne (also known as Suzanne
           Tam and Suzanne Tam See Mun)
           (Note 1)                                    250,000               6,114,205                      1.18%
       * Tam Wai Kit                                    30,000                 733,705                      0.14%
       * Tam Wai Ling (also known as
           Wai Ling Tam) (Note 12)                      72,000               1,760,891                      0.34%



                                                    – 256 –
APPENDIX IV                                         STATUTORY AND GENERAL INFORMATION


                                                                                              Approximate % of
                                                                          (equivalent           the issued share
                                                                  number of Shares       capital of the Company
                                                                   immediately after           immediately after
                                                                  completion of the     completion of the Share
                                                                 Share Offer and the                Offer and the
       Name                                No. of KBVI shares   Capitalisation Issue)       Capitalisation Issue

       * Tam Winson (also known as
            Winson Tam) (Note 12)                      48,000              1,173,927                      0.23%
         Dr. Tam (Note 1)                             900,001             22,011,161                      4.23%
         Tam Yun Kwong (Note 1)                        40,000                978,273                      0.19%
         Tam Yun Leung (Note 1)                        40,000                978,273                      0.19%
       * Tang Sun Tsai                                 40,000                978,273                      0.19%
       * To Cho Kei                                    80,000              1,956,545                      0.38%
       * Tong Benjamin P. (also known as
            Benjamin P. Tong) (Note 17)                20,000                489,136                      0.09%
       * Toy James                                     10,000                244,568                      0.05%
       * Tse Wai Ling                                  20,000                489,136                      0.09%
         Venkataramanan Raman
            (also known as Raman
            Venkataramanan) (Note 7)                   20,000                489,136                      0.09%
       * Vintech Drafting Inc. (Note 5)                29,000                709,248                      0.14%
       * Wallis 111 Equities Inc. (Notes 5 & 13)      240,000              5,869,637                      1.13%
       * Wallis Doug (also known as
            Doug Wallis) (Note 13)                     27,000                660,334                      0.13%
       * Wallis Sharon (also known as
            Sharon Wallis) (Note 13)                   25,000                611,420                      0.12%
       * Wiebe Darren M. (also known as
            Darren Wiebe, Wiebe Darren Michael
            and Darren M. Wiebe)
            & Wiebe Tina M. (also known as
            Tina Wiebe, Wiebe Tina Mary
            and Tina M. Wiebe) (Note 14)               10,000                244,568                      0.05%
       * Wiebe Vic (also known as Vic Wiebe
            and Vic H. Wiebe) and
            Wiebe Maxine (also known as
            Maxine Wiebe and Maxine D. Wiebe)
            (Note 14)                                  40,000                978,273                      0.19%
       * Win Talent Co. Ltd. (Note 5)                 160,000              3,913,092                      0.75%
       * Wong Che Yan (also known as
            Wong Che Yan, Victor)                      60,000              1,467,409                      0.28%
       * Wong Chi Wan Henry                            80,000              1,956,545                      0.38%




                                                   – 257 –
APPENDIX IV                                       STATUTORY AND GENERAL INFORMATION


                                                                                              Approximate % of
                                                                          (equivalent           the issued share
                                                                  number of Shares       capital of the Company
                                                                   immediately after           immediately after
                                                                  completion of the     completion of the Share
                                                                 Share Offer and the                Offer and the
       Name                                No. of KBVI shares   Capitalisation Issue)       Capitalisation Issue

       * Wong Chok Kai Laurie                         40,000                 978,273                      0.19%
       * Wong Tak Sang                                10,000                 244,568                      0.05%
       * Wong Yuk Sheung Andy
            (also known as Wong Yuk Sheung)           90,000               2,201,114                      0.42%
       * Yeung Beatrice (also known as
            Beatrice Yeung and Beatrice
            T. B. Yeung)                              16,000                 391,309                      0.08%
         Yeung Kai Kwong (also known as
            Kevin Kai Kwong Yeung) (Note 4)           30,000                 733,705                      0.14%
       * Yeung Man Ki                                 20,000                 489,136                      0.09%
         Yeung Oi Fan (Note 2)                        40,000                 978,273                      0.19%
         Yeung Shui Kwong (Note 2)                    80,000               1,956,545                      0.38%
         Yeung Sui Fai (Note 2)                       60,000               1,467,409                      0.28%
         Yeung Sui Leung (Note 2)                    130,000               3,179,387                      0.61%
         Yeung Sui Ping Stephen (Note 2)              50,000               1,222,841                      0.24%
       * Yip Sek Wing Benny (Note 15)                 30,000                 733,705                      0.14%
       * Yip Suet Mei (Note 15)                       30,000                 733,705                      0.14%
       * Yip Veronica (also known as
            Veronica Yip) and Yip Adam
            (also known as Adam Yip) (Note 8)         18,000                 440,223                      0.08%
         Young Patrick C. (also known as
            Patrick Chiu Kit Young, Patrick
            C. Young and Young Chiu Kit
            Patrick)                                  66,000               1,614,150                      0.31%
       * Yu Dyna M (also known as
            Dyna Yu) (Note 8)                         64,000               1,565,236                      0.30%
       * Yu John (also known as John Yu)
            (Note 8)                                    8,000                195,655                      0.04%
         598111 Alberta Ltd. (Note 3)                  26,000                635,877                      0.12%
         943788 Alberta Ltd. (Note 1)               4,855,000            118,737,854                     22.83%




                                                 – 258 –
APPENDIX IV                                                STATUTORY AND GENERAL INFORMATION

       Notes:

       (1)      Abu Md. Basharat Ali is a brother-in-law of Dr. Tam. Tam Mei Ha, Tam Mei Ling, Tam Oi Ling, Tam Sau Ying, Tam
                Yun Kwong and Tam Yun Leung are the brothers and sister of Dr. Tam. Tam Constance and Tam Suzanne are the
                daughters of Dr. Tam and 943788 Alberta Ltd. is an investment holding company wholly owned by Dr. Tam.

       (2)      Dr. Tam is the brother-in-law of Mr. Young. Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung
                and Yeung Sui Ping Stephen are the brothers and sister of Mr. Young. Grand Interest Development Limited is an
                investment holding company beneficially owned as to approximately 16.67% by each of Mr. Young, Yeung Oi Fan,
                Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen.

       (3)      598111 Alberta Ltd. is an investment holding company wholly owned by Francis Yip, the brother-in-law of Patrick
                Chiu Kit Young, an executive Director.

       (4)      Shirley Howrish and Yeung Kai Kwong are employees of the Group. Klaus Stoeckel is a director of certain
                subsidiaries of the Company.

       (5)      Each of Asia Dynamic Assets Management Limited, Aycl Holdings Inc., Blue Heron Trading Company Ltd.,
                Calaidan Capital Corporation, Champion Leaders Ltd., Dial Holdings Ltd., Falcon Trading Co. Ltd., First Canton
                Investment Limited, Freshwater Trading Limited, Harried Horizons Limited, Host Eagle International Limited, John
                Samuel and Associates Ltd., New Order Incorporated, Red Robin Services Ltd., Steady Growth Group Limited,
                Sunstar Resources Limited, Vintech Drafting Inc., Wallis 111 Equities Inc. and Win Talent Co. Ltd. is an
                independent third party who is not connected with the directors, chief executive, substantial shareholders or
                management shareholders of the Company or its subsidiaries or their respective associates.

             (i)      Asia Dynamic Assets Management Limited is owned as to 31% by So Kwok Wing, as to 50% by Yip Chi
                      Hung, as to 10% by Tang Ching Ho and as to 9% by Lo Gar Ling, Emily;

             (ii)     Aycl Holdings Inc. is owned by Angelina Y.C. Loo;

             (iii)    Blue Heron Trading Company Ltd. is owned by Glen Kump and Kathryn Kump who are husband and wife;

             (iv)     Calaidan Capital Corporation is owned by Bernard J. Buan and Nancy J. Buan, who are husband and wife,
                      and their children;

             (v)      Champion Leaders Ltd. is owned by Yiu Ying Wai.

             (vi)     Dial Holdings Ltd. is owned by Alan Stewart and Diana Stewart who are husband and wife;

             (vii)    Falcon Trading Co. Ltd. is owned by Vernon Friesen and Darlene Friesen who are husband and wife;

             (viii)   First Canton Investment Limited is owned by Yip Chi Hung;

             (ix)     Freshwater Trading Limited is owned by Perfect International Holdings Limited, a company listed on the
                      Stock Exchange;

             (x)      Harried Horizons Limited is owned by Cheung Wai;

             (xi)     Host Eagle International Limited is owned by Yan Yuek To and Tung Hing Yu equally;

             (xii)    New Order Incorporated is owned by Ho Kee Kung and Au Kam Ha equally;

             (xiii)   Red Robin Services Ltd. is owned by Chow How Yeen Margaret, who is a niece of Tong Benjamin P.

             (xiv)    Steady Growth Group Limited is owned by Chan Siu Man;

             (xv)     Sunstar Resources Limited is owned by Lau Chi Fai;

             (xvi)    Vintech Drafting Inc. is owned by Vincent Tsang and Monica Tsang who are husband and wife;

             (xvii) Wallis 111 Equities Inc. is owned by Sharon Wallis and Doug Wallis who are husband and wife;

             (xviii) Win Talent Co. Ltd. is owned by Wong Hin Wing.




                                                         – 259 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION

         (6)    Lam Tung King is the mother of Tam David Shong Tak, a non-executive Director.

         (7)    Each of Dr. Raman Venkataramanan, Dr. Glen S. Kwon, Dr. Norman J. Dovichi and Dr. Urs A. Meyer is a member
                of the scientific advisory board of the Group. John Samuel and Associates Ltd. is beneficially owned by Dr. John
                Samuel and his family members. Dr. John Samuel is a member of the scientific advisory board of the Group.

         (8)    Rosalia Chan and Veronica Yip are the sisters of John Yu. Dyna Yu is the wife of John Yu and Agnes Kung is the
                sister of Dyna Yu. Veronica Yip is the mother of Adam Yip. Peter K.K. Lam and Agnes Fallon are cousins of John
                Yu. Agnes Fallon and Tony Fallon are husband and wife.

         (9)    Eng Fung Shek is the father of Eng Michael Hawn, Eng Nelson Hawn and Eng Ricky Hawn. Eng Nancy Yin is the
                wife of Eng Fung Shek and Eng Frank Yiu is the brother of Eng Fung Shek. Chan Chui Sim Tam is the mother of
                Eng Nancy Yin.

         (10)   Eng Joel and Eng Donna are husband and wife and Eng Jayme is their daughter.

         (11)   Lee Michael is the son of Lee Annie.

         (12)   Donald Y. Tam is the brother-in- law of Wai Ling Tam. Wai Ling Tam is the mother of Winson Tam.

         (13)   Sharon Wallis and Doug Wallis are husband and wife and they own all of the shares of Wallis 111 Equities Inc.
                Shirley Howrish is the sister of Sharon Wallis.

         (14)   Darren Wiebe and Tina Wiebe are husband and wife. Vic Wiebe and Maxine Wiebe are husband and wife. Vic
                Wiebe and Maxine Wiebe are the parents of Darren Wiebe.

         (15)   Yip Sek Wing Benny is the brother of Yip Suet Mei.

         (16)   The Shares were allotted and issued to Dr. Buret in consequence of the Cell Line Agreement at no further
                consideration. Further details are set out in the paragraph headed “Issue of Buret Option and Buret Allotment” in
                the section headed “General overview of the Group” in this prospectus.

         (17)   Tong Benjamin P. is the uncle of Chow How Yeen Margaret, the beneficial owner of Red Robin Services Ltd.

         (18)   The 94 shareholders marked with “ ” are passive investors, whom in aggregate will be interested in 162,353,067
                                                    *
                Shares immediately after completion of the Share Offer and the Capitalisation Issue. These passive investors do
                not hold their respective Shares for any connected person (as defined in the GEM Listing Rules) nor cohabit with
                any director of the Company. These 94 passive investors will be counted as members of the public in determining
                the minimum public float at the time of listing under the GEM Listing Rules.

   (d)   On 14 May 2002, Frontier was allotted and issued 490,200 Shares at HK$3.5 per Share pursuant
         to the exercise of the option under the Frontier Option Agreement.

   (e)   On 14 May 2002, Corkwood was allotted and issued 326,800 Shares at HK$3.5 per Share
         pursuant to the exercise of the option under the Corkwood Option Agreement.

   (f)   Save as aforesaid and in the following paragraphs in this section headed “Further Information
         about the Company and its Subsidiaries”, there has been no alteration in the share capital of the
         Company since the date of its incorporation;

   (g)   Assuming that the Share Offer becomes unconditional and the Share Offer and the Capitalisation
         Issue are duly completed, but taking no account of any Shares which may be issued pursuant to
         the Pre-IPO Share Option Schemes, the Share Option Scheme, the Warrants, or the KGI
         Consultants Options or pursuant to the Buret Allotment, the authorised share capital of the
         Company will be HK$10,000,000 divided into 1,000,000,000 Shares and the issued capital of the
         Company will be HK$5,200,000 divided into 520,000,000 Shares, fully paid or credited as fully
         paid, and 480,000,000 Shares will remain unissued. Other than pursuant to the exercise of any




                                                         – 260 –
APPENDIX IV                                           STATUTORY AND GENERAL INFORMATION


           options granted under the Pre-IPO Share Option Schemes or options which may be granted under
           the Share Option Scheme or the Warrants, the KGI Consultants Options and the Buret Allotment
           there is no present intention to issue any part of the authorised but unissued capital of the
           Company.

3.   WRITTEN RESOLUTIONS OF THE SOLE SHAREHOLDER OF THE COMPANY PASSED ON 7 MAY
     2002

     Pursuant to the resolutions passed by the sole shareholder of the Company on 7 May 2002:–

     (a)   the authorized share capital of the Company was increased from HK$500,000 divided into
           50,000,000 Shares to HK$10,000,000 divided into 1,000,000,000 Shares by the creation of an
           additional 950,000,000 Shares;

     (b)   conditional upon (i) the GEM Listing Committee granting listing of and permission to deal in the
           Shares in issue and the Shares to be issued as mentioned herein (including any Shares which
           may fall to be issued pursuant to the exercise of the options granted under the Pre-IPO Share
           Option Schemes, the Share Option Scheme, the Warrants, the KGI Consultants Options and
           pursuant to the Buret Allotment); and (ii) the obligations of the Underwriters under the
           Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of
           any condition(s) thereunder) and not being terminated in accordance with its terms or otherwise:

           (i)     the Public Offer and the Placing were approved and the Directors were authorized to allot
                   and issue the Public Offer Shares and the Placing Shares pursuant thereto;

           (ii)    and further conditional on the GEM Listing Committee granting approval of the listing of, and
                   permission to deal in, any Shares which may fall to be issued pursuant to the exercise of
                   any such option under the Share Option Scheme, the rules of the Share Option Scheme
                   were approved and adopted and the Directors were authorised to grant options to subscribe
                   for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of
                   options that may be granted under the Share Option Scheme and to do all such acts and
                   things as they may consider necessary or expedient to give effect to the Share Option
                   Scheme;

           (iii)   and further conditional on the GEM Listing Committee granting approval of the listing of, and
                   permission to deal in the Shares which may fall to be issued pursuant to the exercise of any
                   such option under the KIBP Pre-IPO Share Option Scheme, the rules of the KIBP Pre-IPO
                   Share Option Scheme were approved and adopted and the Directors were authorized to
                   grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares
                   pursuant to the exercise of options that may be granted under the KIBP Pre-IPO Share
                   Option Scheme and to do all such acts and things as they may consider necessary or
                   expedient to give effect to the KIBP Pre-IPO Share Option Scheme;




                                                    – 261 –
APPENDIX IV                                      STATUTORY AND GENERAL INFORMATION


       (iv)   and further conditional on the GEM Listing Committee granting approval of the listing of, and
              permission to deal in the Shares which may fall to be issued pursuant to the exercise of any
              such option under the KGI Pre-IPO Share Option Scheme, the rules of the KGI Pre-IPO
              Share Option Scheme were approved, confirmed and ratified and the Directors were
              authorized to allot, issue and deal with Shares pursuant to the exercise of options granted
              under the KGI Pre-IPO Share Option Scheme and to do all such acts and things as they
              may consider necessary or expedient to give effect to the KGI Pre-IPO Share Option
              Scheme;

       (v)    a general unconditional mandate was given to the Directors to exercise all the powers of the
              Company to allot, issue and deal with, otherwise than by way of rights issues or an issue of
              Shares upon the exercise of any subscription rights attached to the Warrants or any
              warrants or convertible securities (including the KGI Consultants Options) or pursuant to the
              exercise of any options which may be granted under the Pre-IPO Share Option Schemes,
              the Share Option Scheme or any other option scheme or other similar arrangements or any
              scrip dividend schemes in accordance with the articles of association of the Company or a
              specific authority granted by the shareholders of the Company in general meeting or the
              Buret Allotment, Shares or securities or options convertible into Shares with an aggregate
              nominal amount not exceeding 20% of the aggregate nominal value of the share capital of
              the Company in issue immediately following completion of the Share Offer and the
              Capitalisation Issue, such mandate to remain in effect until whichever is the earliest of:

              (aa) the conclusion of the next annual general meeting of the Company;

              (bb) the expiration of the period within which the next annual general meeting of the
                   Company is required by the articles of association or any applicable laws of the
                   Cayman Islands to be held; or

              (cc) the passing of an ordinary resolution by shareholders of the Company in general
                   meeting revoking or varying such mandate;

       (vi)   a general unconditional mandate (“Repurchase Mandate”) was given to the Directors
              authorising them to exercise all the powers of the Company to repurchase on GEM, or any
              other stock exchange on which the securities of the Company may be listed and which is
              recognised by the Securities and Futures Commission and the Stock Exchange for this
              purpose, in accordance with all applicable laws and the requirements of the GEM Listing
              Rules (or of such other stock exchange), such number of Shares with an aggregate nominal
              value not exceeding 10% of the aggregate nominal value of the share capital of the
              Company in issue immediately following completion of the Share Offer and the Capitalisation
              Issue, such mandate to remain in effect until whichever is the earliest of:

              (aa) the conclusion of the next annual general meeting of the Company;

              (bb) the expiration of the period within which the next annual general meeting of the
                   Company is required by the articles of association or any applicable laws of the
                   Cayman Islands to be held; or



                                               – 262 –
APPENDIX IV                                        STATUTORY AND GENERAL INFORMATION


                (cc) the passing of an ordinary resolution by shareholders of the Company in general
                     meeting revoking or varying such mandate; and

           (vii) the general unconditional mandate mentioned in (v) above was extended by the addition to
                 the aggregate nominal value of the share capital of the Company which may be allotted or
                 agreed conditionally or unconditionally to be allotted by the Directors pursuant to such
                 general mandate of an amount representing the aggregate nominal value of the share
                 capital of the Company repurchased by the Company (if any) under the authority granted to
                 the Directors as referred to in (vi) above;

     (c)   conditional on the share premium account of the Company being credited as a result of the Share
           Offer, the Directors were authorised to capitalise HK$3,836,446.43 standing to the credit of the
           share premium account of the Company by applying such sum in paying up in full at par
           383,644,643 Shares for allotment and issue to holders of Shares whose names appeared on the
           register of members of the Company at the close of business on the date of printing of this
           prospectus in proportion (without involving fractions) to their shareholdings of the Company;

     (d)   conditional upon the registration of this prospectus with the Registrar of Companies in Hong
           Kong, the Company approved and adopted the articles of association a summary of the provisions
           of which is set out in Appendix III with effect from the close of business on the day immediately
           preceding the Listing Date.

4.   REORGANISATION

     The companies comprising the Group underwent a reorganisation which involves the following:

     (a)   On 7 March 2000, Dr. Tam transferred to KIP one share of HK$1.00 par value in the capital of
           KPH at par and Mr. Young declared to hold one share of HK$1.00 par value in the capital of KPH
           on trust for the benefit of KIP.

     (b)   On 7 March 2000, Dr. Tam transferred to KPH one share of HK$1.00 par value in the capital of
           KHP at par and Mr. Young declared to hold one share of HK$1.00 par value in the capital of KHP
           on trust for the benefit of KPH.

     (c)   On 7 March 2000, Dr. Tam transferred to KGI one share of HK$1.00 par value in the capital of KIP
           at HK$1.00 and Mr. Young declared to hold one share of HK$1.00 par value in the capital of KIP
           on trust for the benefit of KGI.

     (d)   On 3 May 2001, Mr. Young transferred to KPH the one share of HK$1.00 par value in the capital
           of KCP (held by him on trust for the benefit of KPH) and Dr. Tam declared to hold one share of
           HK$1.00 par value in the capital of KCP on trust for the benefit of KPH.

     (e)   On 25 May 2001, KNCM was incorporated and on 12 July 2001, KPCH acquired one subscriber
           share of HK$1.00 par value in the capital of KNCM from the subscriber at par.




                                                  – 263 –
APPENDIX IV                                        STATUTORY AND GENERAL INFORMATION


   (f)   On 24 July 2001 KBVI acquired an aggregate of 8,310,000 common shares of KGI in the capital of
         KGI from the sellers set out in paragraph 5(a)(iii) in this Appendix in consideration for the issue
         and allotment by KBVI of an aggregate of 8,310,000 shares of HK$0.10 par value to such sellers
         on the basis of one KBVI share for one common share of KGI. (Please refer to the material
         contracts (a) to (r) in the paragraph headed “Summary of material contracts” in this Appendix IV.)

   (g)   On 24 July 2001 KBVI acquired an aggregate of 2,279,070 shares of HK$4.95 par value in the
         capital of KIP from the sellers set out in paragraph 5(a)(v) in this Appendix in consideration for the
         issue and allotment by KBVI of an aggregate of 2,279,070 shares of HK$0.10 par value to such
         sellers on the basis of one KBVI share for one KIP share. (Please refer to the material contracts
         (s) to (ba) in the paragraph headed “Summary of material contracts” in this Appendix IV.)

   (h)   On 31 August 2001 KBVI acquired an aggregate of 1,517,000 common shares of KGI in the
         capital of KGI from the sellers set out in paragraph 5(a)(vii) in this Appendix in consideration for
         the issue and allotment by KBVI of an aggregate of 1,517,000 shares of HK$0.10 par value to
         such sellers on the basis of one KBVI share for one common share of KGI. (Please refer to the
         material contracts (bb) to (cu) in the paragraph headed “Summary of material contracts” in this
         Appendix IV.)

   (i)   On 31 August 2001 KBVI acquired an aggregate of 430,000 shares of HK$4.95 par value in the
         capital of KIP from the sellers set out in paragraph 5(a)(viii) in this Appendix in consideration for
         the issue and allotment by KBVI of an aggregate of 430,000 shares of HK$0.10 par value to such
         sellers on the basis of one KBVI share for one KIP share. (Please refer to the material contracts
         (cy) to (dc) in the paragraph headed “Summary of material contracts” in this Appendix IV.)

   (j)   On 31 August 2001, KBVI acquired the two fractional shares in the capital of KIP at HK$1.00 per
         share.

   (k)   On 18 September 2001, KBarb acquired an aggregate of 9,827,000 common shares of KGI in the
         capital of KGI from KBVI in consideration for the issue and allotment by KBarb of 9,827,000
         common shares of KGI to KBVI. (Please refer to the material contract (dd) in the paragraph
         headed “Summary of material contracts” in this Appendix IV.)

   (l)   On 18 September 2001, KBarb repurchased from each of Dr. Tam and Mr. Young 50 common
         shares of KGI in the capital of KBarb at US$1.00 per share. (Please refer to the material contracts
         (eq) and (er) in the paragraph headed “Summary of material contracts” in this Appendix IV.)

   (m) On 28 September 2001, KBVI acquired an aggregate of 52,000 common shares in the capital of
       KGI from Wallis Doug and Wallis Sharon in consideration for the issue and allotment by KBVI of
       an aggregate of 52,000 shares of HK$0.10 par value as to 27,000 of such shares to Wallis Doug
       and as to 25,000 of such shares to Wallis Sharon. (Please refer to the material contracts (cv) and
       (cw) in the paragraph headed “Summary of material contracts” in this Appendix IV.)




                                                  – 264 –
APPENDIX IV                                          STATUTORY AND GENERAL INFORMATION


     (n)   On 28 September, 2001, KBarb acquired an aggregate of 52,000 common shares of KGI in the
           capital of KGI from KBVI in consideration for the issue and allotment by KBarb of 52,000 common
           shares to KBVI. (Please refer to the material contract (de) in the paragraph headed “Summary of
           material contracts” in this Appendix IV.)

     (o)   On 1 December 2001, KBVI acquired 14,286 common shares in the capital of KGI from Dr. Buret
           in consideration for the issue and allotment by KBVI of 14,286 shares of HK$0.10 par value to Dr.
           Buret. (Please refer to the material contract (cx) in the paragraph headed “Summary of material
           contracts” in this Appendix IV.)

     (p)   On 1 December 2001, KBarb acquired 14,286 common shares in the capital of KGI from KBVI in
           consideration for the issue and allotment by KBarb of 14,286 common shares to KBVI. (Please
           refer to the material contract (df) in the paragraph headed “Summary of material contracts” in this
           Appendix IV.)

     (q)   On 18 December 2001, each of Dr. Tam and Mr. Young transferred to KBVI one share of US$1.00
           par value in the capital of KPCH (held by them as trustees for the benefit of KBVI).

     (r)   On 21 March 2002 each of KBVI and Mr. Young (as trustee for the benefit of KBVI) was issued
           and allotted one share of HK$4.95 par value in the capital of KIP at par and subsequently on 26
           March 2002 part of the proceeds from such issue was utilised by KIP to purchase from each of
           KBVI and Mr. Young (as trustee for the benefit of KBVI) one fractional share of KIP at HK$1.00
           per share. (Please refer to the material contracts (eo) and (ep) in the paragraph headed
           “Summary of material contracts” in this Appendix IV.)

     (s)   On 13 May 2002, the Company acquired the entire issued share capital of KBVI from the
           shareholders of KBVI in consideration for the issue and allotment by the Company of an
           aggregate of 15,538,356 Shares to such shareholders on the basis of one Share for one KBVI
           share as set out in paragraph 2(c) in this Appendix. (Please refer to the material contract (fg) in
           the paragraph headed “Summary of material contracts” in this Appendix IV.)

5.   CHANGES IN THE SHARE CAPITAL OF SUBSIDIARIES

     The subsidiaries of the Company are referred to in the accountants report, the text of which is set out in
Appendix I to this prospectus.

      Within the two years immediately preceding the date of this prospectus, changes in share capital of the
following subsidiaries of the Group have taken place:–

     (a)   KBVI

           (i)    On 11 July 2001, KBVI was incorporated.

           (ii)   On 12 July 2001, 1 share of HK$0.10 par value in the capital of KBVI was issued and
                  allotted to Dr. Tam at par.




                                                   – 265 –
APPENDIX IV                                                STATUTORY AND GENERAL INFORMATION


       (iii)   On 24 July 2001, an aggregate of 8,310,000 shares of HK$0.10 par value in the capital of
               KBVI were issued and allotted to the following persons as consideration for the transfer to
               KBVI of an aggregate of 8,310,000 common shares in the capital of KGI, on the basis of one
               common share of KGI for one KBVI share:

               Name                                                                                   No. of KBVI shares

               Abu Md. Basharat Ali (Note 1)                                                                         100,000
               Calaidan Capital Corporation (Note 5)                                                                  40,000
               Crawford William                                                                                       26,000
               Dial Holdings Ltd. (Note 5)                                                                            50,000
               Fallon Tony                                                                                            10,000
               Grand Interest Development Limited (Notes 1 & 2)                                                    1,260,000
               Howrish Shirley (Note 3)                                                                               15,000
               Leung Joseph                                                                                           92,000
               Storey Brian A.                                                                                        50,000
               Tam Constance (Note 1)                                                                                250,000
               Tam David                                                                                              50,000
               Tam Suzanne (Note 1)                                                                                  250,000
               Dr. Tam (Note 1)                                                                                      900,000
               Wallis 111 Equities Inc. (Note 5)                                                                     240,000
               Wiebe Vic and Wiebe Maxine                                                                             40,000
               Young Patrick C.                                                                                       66,000
               598111 Alberta Ltd. (Note 4)                                                                           16,000
               943788 Alberta Ltd. (Note 1)                                                                        4,855,000

               Notes:

               (1)      Abu Md. Basharat Ali and Mr. Young are the brothers-in-law of Dr. Tam. Tam Constance and Tam Suzanne
                        are the daughters of Dr. Tam and 943788 Alberta Ltd. is an investment holding company wholly owned by
                        Dr. Tam. The common shares of KGI held by 943788 Alberta Ltd. included those previously held by and
                        subsequently transferred from the ex-wife of Dr. Tam.

               (2)      Dr. Tam is the brother-in-law of Mr. Young. Grand Interest Development Limited is an investment holding
                        company beneficially owned as to approximately 16.7% by each of Mr. Young, Yeung Oi Fan, Yeung Shui
                        Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen who are brothers and sister of Mr.
                        Young.

               (3)      Shirley Howrish is an employee of the Group.

               (4)      598111 Alberta Ltd. is an investment holding company wholly owned by Francis Yip, the brother-in-law of
                        Patrick Chiu Kit Young, an executive Director.

               (5)      Each of Calaidan Capital Corporation, Dial Holdings Ltd. and Wallis 111 Equities Inc. is an independent
                        third party who is not connected with the directors, chief executive, substantial shareholders or
                        management shareholders of the Company or its subsidiaries or their respective associates.




                                                         – 266 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION


       (iv)   On 24 July 2001, KBVI issued and allotted an aggregate of 2,240,000 shares of HK$0.10
              par value at HK$6.20 per share as follows:

              Name                                                                                     No. of KBVI shares

              Asia Bonus Co. Ltd. (Note 1)                                                                             80,000
              Asia Dynamic Assets Management Limited (Note 1)                                                          80,000
              Chang Yang Yian & Wong Sze Di                                                                            80,000
              First Canton Investment Limited (Note 1)                                                                 80,000
              Freshwater Trading Limited (Note 1)                                                                     320,000
              Gan Kiat Chai                                                                                           160,000
              Harried Horizons Limited (Note 1)                                                                        80,000
              Host Eagle International Limited (Note 1)                                                               160,000
              Lau Chi Fai                                                                                              80,000
              Ooi Soo Liat                                                                                             80,000
              Shiu Ka Yue                                                                                              80,000
              Steady Growth Group Limited (Note 1)                                                                    320,000
              Sunstar Resources Limited (Note 1)                                                                      400,000
              To Cho Kei                                                                                               80,000
              Win Talent Co. Ltd. (Note 1)                                                                            160,000

              Notes:

              (1)      Each of Asia Bonus Co. Ltd., Asia Dynamic Assets Management Limited, First Canton Investment Limited,
                       Freshwater Trading Limited, Harried Horizons Limited, Host Eagle International Limited, Steady Growth
                       Group Limited, Sunstar Resources Limited, and Win Talent Co. Ltd. is an independent third party who is
                       not connected with the directors, chief executive, substantial shareholders or management shareholders of
                       the Company or its subsidiaries or their respective associates.

              (2)      The subscription agreement in respect of the above subscriptions further granted an option to the
                       subscriber agent, Phoenix Capital Asia Limited or persons nominated by it, to subscribe for additional
                       shares of KBVI at HK$6.2 per share on or before 15 August 2001. Phoenix Capital Asia Limited received a
                       commission equal to 3% of the aggregate subscription price for acting as the subscription agent. Such
                       option was subsequently extended to 7 September 2001 and was exercised, details of which are described
                       in paragraphs 5(a)(vi) and 5(a)(ix) below in this Appendix.


       (v)    On 24 July 2001, an aggregate of 2,279,070 shares of HK$0.10 par value in the capital of
              KBVI were issued and allotted to the following persons as consideration for the transfer to
              KBVI of an aggregate of 2,279,070 shares of HK$4.95 par value in the capital of KIP, on the
              basis of one KIP share for one KBVI share:

              Name                                                                                     No. of KBVI shares

              Au Pok Kau                                                                                               60,000
              Chan Chui Sim Tam                                                                                        30,000
              Chan Kwai Fong                                                                                           20,000
              Chow Yat Sun                                                                                             20,000
              Chiang Shuk Yee                                                                                          20,000
              Eng Fung Shek                                                                                            40,000




                                                        – 267 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION


              Name                                                                                      No. of KBVI shares

              Eng Michael Hawn                                                                                          10,000
              Eng Nancy Yin                                                                                             20,000
              Eng Frank Yiu                                                                                             10,000
              Eng Nelson Hawn                                                                                           20,000
              Eng Ricky Hawn                                                                                            20,000
              Kwok Po Yin                                                                                               20,000
              Mak Fuk Shan                                                                                              10,000
              New Order Incorporated (Note 3)                                                                           40,000
              Red Robin Services Ltd. (Note 3)                                                                         202,000
              Steady Growth Group Limited (Note 3)                                                                     707,070
              Szeto Chor and Sit Ying Yu Priscilla                                                                      20,000
              Tam Mei Ha (Note 1)                                                                                       60,000
              Tam Mei Ling (Note 1)                                                                                     80,000
              Tam Oi Ling (Note 1)                                                                                     120,000
              Tam Sau Ying (Note 1)                                                                                     60,000
              Tam Yun Kwong (Note 1)                                                                                    40,000
              Tam Yun Leung (Note 1)                                                                                    40,000
              Tse Wai Ling                                                                                              20,000
              Wong Che Yan                                                                                              60,000
              Wong Chok Kai Laurie                                                                                      20,000
              Wong Yuk Sheung Andy                                                                                      70,000
              Yeung Kai Kwong (Note 4)                                                                                  30,000
              Yeung Man Ki                                                                                              20,000
              Yeung Oi Fan (Note 2)                                                                                     40,000
              Yeung Shui Kwong (Note 2)                                                                                 80,000
              Yeung Sui Fai (Note 2)                                                                                    60,000
              Yeung Sui Leung (Note 2)                                                                                 130,000
              Yeung Sui Ping Stephen (Note 2)                                                                           50,000
              Yip Suet Mei                                                                                              30,000

              Notes:

              (1)      Mr. Young is the brother-in-law of Dr. Tam. Tam Mei Ha, Tam Mei Ling, Tam Oi Ling, Tam Sau Ying, Tam
                       Yun Kwong and Tam Yun Leung are the brothers and sister of Dr. Tam.

              (2)      Dr. Tam is the brother-in-law of Mr. Young. Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui
                       Leung and Yeung Sui Ping Stephen are the brothers and sister of Mr. Young.

              (3)      Each of New Order Incorporated, Red Robin Services Ltd. and Steady Growth Group Limited is an
                       independent third party who is not connected with the directors, chief executive, substantial shareholders
                       or management shareholders of the Company or its subsidiaries or their respective associates.

              (4)      Yeung Kai Kwong is an employee of the Group.




                                                         – 268 –
APPENDIX IV                                            STATUTORY AND GENERAL INFORMATION


       (vi)   On 15 August 2001, KBVI issued and allotted 240,000 shares of HK$0.10 par value at
              HK$6.20 per share to Cham Wai Ho Anthony.

              Note:

              The subscription was made pursuant to the exercise of the option referred to in note (2) to paragraph 5(a)(iv)
              above in this Appendix. Phoenix Capital Asia Limited received a commission equal to 3% of the aggregate
              subscription price for acting as the subscription agent.


       (vii) On 31 August 2001, an aggregate of 1,517,000 shares of HK$0.10 par value in the capital of
             KBVI were issued and allotted to the following persons as consideration for the transfer to
             KBVI of an aggregate of 1,517,000 common shares in the capital of KGI, on the basis of one
             common share of KGI for one KBVI share:

              Name                                                                                 No. of KBVI shares

              Aycl Holdings Inc. (Note 2)                                                                          64,000
              Blue Heron Trading Company Ltd. (Note 2)                                                             32,000
              Buan Nancy J.                                                                                        10,000
              Chan, Chui Sim Tam                                                                                   10,000
              Chan Rosalia                                                                                         34,000
              Chan Rosalia and Yu John                                                                             16,000
              Dial Holdings Ltd. (Note 2)                                                                          10,000
              Dovichi Norman J. (Note 4)                                                                          100,000
              Eng Donna                                                                                             8,000
              Eng Fung Shek and Eng Nancy Yin                                                                     121,500
              Eng Jayme                                                                                             8,000
              Eng Joel                                                                                             16,000
              Eng Michael Hawn                                                                                     10,000
              Falcon Trading Co. Ltd. (Note 2)                                                                     26,000
              Fallon Agnes                                                                                         16,000
              Fallon Tony                                                                                          16,000
              Friesen Vernon                                                                                       58,000
              Hess Harry and Hess Mary Anne                                                                        80,000
              Ip Leung Christina Ling Kwan                                                                         32,000
              John Samuel and Associates Ltd. (Note 4)                                                             20,000
              Kump Glen                                                                                            48,000
              Kung Agnes B.                                                                                        32,000
              Kwon Glen S. (Note 4)                                                                               100,000
              Lam Peter K. K.                                                                                      48,000
              Lam Tung King (Note 1)                                                                                8,000
              Loo Josephine and Loo Tommy                                                                          64,000
              Lundeberg Arthur                                                                                     21,000
              Masson Marilyn H.                                                                                    16,000
              Melnik Nellie                                                                                        26,000
              Meyer Urs A. (Note 4)                                                                                20,000




                                                      – 269 –
APPENDIX IV                                                STATUTORY AND GENERAL INFORMATION


              Name                                                                                     No. of KBVI shares

              New Order Incorporated (Note 2)                                                                          21,500
              Noujaim Antoine                                                                                          35,000
              Peat John A.                                                                                             32,000
              Sovka Stanley and Sovka Madeline                                                                         32,000
              Stoeckel Klaus (Note 3)                                                                                  35,000
              Tam Donald Y.                                                                                            16,000
              Tam Wai Ling                                                                                             72,000
              Tam Winson                                                                                               48,000
              Venkataramanan Raman (Note 4)                                                                            20,000
              Vintech Drafting Inc. (Note 2)                                                                           29,000
              Yeung Beatrice                                                                                           16,000
              Yip Veronica and Yip Adam                                                                                18,000
              Yu Dyna M.                                                                                               64,000
              Yu John                                                                                                   8,000
              Notes:

              (1)      Lam Tung King is the mother of Tam David Shong Tak, a non-executive Director.

              (2)      Each of Aycl Holdings Inc., Blue Heron Trading Company Ltd., Dial Holdings Ltd., Falcon Trading Co. Ltd.,
                       New Order Incorporated and Vintech Drafting Inc., is an independent third party who is not connected with
                       the directors, chief executive, substantial shareholders or management shareholders of the Company or
                       its subsidiaries or their respective associates.

              (3)      Klaus Stoeckel is a director of certain subsidiaries of the Company.

              (4)      Each of Dr. Raman Venkataramanan, Dr. Glen S. Kwon, Dr. Norman J. Dovichi and Dr. Urs A. Meyer is a
                       member of the scientific advisory board of the Group. John Samuel and Associates Ltd. is beneficially
                       owned by Dr. John Samuel and his family members. Dr. John Samuel is a member of the scientific
                       advisory board of the Group.

       (viii) On 31 August 2001, an aggregate of 430,000 shares of HK$0.10 par value in the capital of
              KBVI were issued and allotted to the following persons as consideration for the transfer to
              KBVI of an aggregate of 430,000 shares of HK$4.95 par value in the capital of KIP, on the
              basis of one KIP share for one KBVI share:

              Name                                                                                     No. of KBVI shares

              Champion Leaders Ltd. (Note)                                                                            290,000
              Lee Michael D.                                                                                           10,000
              Ng Kit Yung Karen                                                                                        80,000
              Tong Benjamin P.                                                                                         20,000
              Yip Sek Wing Benny                                                                                       30,000




                                                         – 270 –
APPENDIX IV                                              STATUTORY AND GENERAL INFORMATION

              Note:

              Champion Leaders Ltd. is an independent third party who is not connected with the directors, chief executive,
              substantial shareholders or management shareholders of the Company or its subsidiaries or their respective
              associates.


       (ix)   On 6 September 2001, KBVI issued and allotted an aggregate of 456,000 shares of
              HK$0.10 par value at HK$6.20 per share as follows:

              Name                                                                                   No. of KBVI shares

              Chan Chui Sim Tam                                                                                      10,000
              Chan Muk Fong                                                                                          40,000
              Chan Wai Fong                                                                                          20,000
              Eng Nancy Yin                                                                                          50,000
              Lee Annie                                                                                              20,000
              Lee Ching Yee Jenny                                                                                    10,000
              Leung Joseph King Fai                                                                                  16,000
              New Order Incorporated (Note 2)                                                                       140,000
              Tam Wai Kit                                                                                            30,000
              Tang Sun Tsai                                                                                          40,000
              Toy James                                                                                              10,000
              Wiebe Darren Michael & Wiebe Tina Mary                                                                 10,000
              Wong Chok Kai Laurie                                                                                   20,000
              Wong Tak Sang                                                                                          10,000
              Wong Yuk Sheung Andy                                                                                   20,000
              598111 Alberta Ltd. (Note 1)                                                                           10,000

              Notes:

              (1)      598111 Alberta Ltd. is an investment holding company wholly owned by Francis Yip, the brother-in-law of
                       Patrick Chiu Kit Young, an executive Director.

              (2)      New Order Incorporated is an independent third party who is not connected with the directors, chief
                       executive, substantial shareholders or management shareholders of the Company or its subsidiaries or
                       their respective associates.

              (3)      The subscriptions were made pursuant to the exercise of the option referred to in note (2) to paragraph
                       5(a)(iv) above in this Appendix, the exercise period of which was extended to 7 September 2001 pursuant
                       to an amendment letter dated 3 September 2001 made between the relevant parties. Phoenix Capital Asia
                       Limited received a commission equal to 3% of the aggregate subscription price for acting as the
                       subscription agent.


       (x)    On 28 September 2001, an aggregate of 52,000 shares of HK$0.10 par value in the capital
              of KBVI were issued and allotted to the following persons as consideration for the transfer to
              KBVI of an aggregate of 52,000 common shares in the capital of KGI, on the basis of one
              common share of KGI for one KBVI share:

              Name                                                                                   No. of KBVI shares

              Wallis Doug                                                                                            27,000
              Wallis Sharon                                                                                          25,000


                                                        – 271 –
APPENDIX IV                                        STATUTORY AND GENERAL INFORMATION


         (xi)    On 1 December 2001, 14,286 shares of HK$0.10 par value in the capital of KBVI were
                 issued and allotted to Dr. Buret as consideration for the transfer to KBVI of 14,286 common
                 shares in the capital of KGI on the basis of one common share of KGI for one KBVI share.

   (b)   KBarb

         (i)     On 19 July 2001, KBarb was incorporated.

         (ii)    On 23 July 2001, 50 common shares were issued and allotted to each of Dr. Tam and Mr.
                 Young at US$1.00 per share.

         (iii)   On 18 September, 2001, 9,827,000 common shares in the capital of KBarb was issued and
                 allotted to KBVI credited as fully paid at the aggregate amount of CAN$12,185,480 as
                 consideration for the acquisition by KBarb from KBVI of 9,827,000 common shares in the
                 capital of KGI.

         (iv)    On 18 September 2001, KBarb repurchased from each of Dr. Tam and Mr. Young 50
                 common shares in the capital of KBarb at US$1.00 per share.

         (v)     On 28 September, 2001, 52,000 common shares in the capital of KBarb was issued and
                 allotted to KBVI credited as fully paid at the aggregate amount of CAN$64,480 as
                 consideration for the acquisition by KBarb from KBVI of 52,000 common shares in the
                 capital of KGI.

         (vi)    On 1 December 2001, 14,286 common shares in the capital of KBarb was issued and
                 allotted to KBVI credited as fully paid at the aggregate amount of CAN$10,000.20 as
                 consideration for the acquisition by KBarb from KBVI of 14,286 common shares in the
                 capital of KGI.

   (c)   KGI

         (i)     Effective on the dates set out below, KGI issued and allotted an aggregate of 1,134,000
                 common shares pursuant to the exercise of warrants by the following persons at the price of
                 CAN$0.95 per share in respect of the warrants exercised on or before 29 February 2000
                 and CAN$1.20 per share in respect of the warrants exercised after 29 February 2000 as
                 follows:

                 Effective date            Name                             No. of common shares of KGI

                 15 February 2000         Aycl Holdings Inc. (Note 1)                                32,000
                 15 February 2000         Blue Heron Trading Company Ltd. (Note 1)                   16,000
                 12 February 2000         Canadian Western Trust ITF
                                             Arthur Lundeberg Acc. No. 4105965                        5,000
                 15 February 2000         Canadian Western Trust ITF
                                             Dyna M. Yu Acc. No. 4105445                             32,000
                 15 February 2000         Canadian Western Trust ITF
                                             Glen M. Kump Acc. No. 0002654                           24,000


                                                  – 272 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION


              Effective date                   Name                                      No. of common shares of KGI

              15 February 2000                 Canadian Western Trust ITF
                                                  Peter K.K. Lam Acc. No. 4105508                                     16,000
              15 February 2000                 Canadian Western Trust ITF
                                                  Ronald C. Langille Acc. No. 4105526                                 15,000
              15 February 2000                 Canadian Western Trust ITF
                                                  Rosalia Chan Acc. No. 11189                                         16,000
              16 February 2000                 Canadian Western Trust ITF
                                                  Rosalia Chan Acc. No. 0007538                                         2,000
              15 February 2000                 Canadian Western Trust ITF
                                                  Tony Fallon Acc. No. 4105527                                          8,000
              14 February 2000                 Canadian Western Trust ITF
                                                  Vernon Friesen Acc. No. 4105473                                     16,000
              15 February 2000                 Chew Goon Tam
                                                  (deceased wife: Wai Ling Tam)                                       12,000
              14 February 2000                 Crawford William                                                       10,000
              4 February 2000                  Grand Interest Development Limited (Note 2)                           630,000
              29 January 2000                  Dial Holdings Ltd. (Note 1)                                            10,000
              15 February 2000                 Dial Holdings Ltd. (Note 1)                                             5,000
              11 February 2000                 Eng Fung Shek and Eng Nancy Yin                                        50,000
              14 February 2000                 Falcon Trading Co. Ltd. (Note 1)                                       10,000
              15 February 2000                 Fallon Tony                                                             2,000
              14 February 2000                 Friesen Vernon                                                         10,000
              15 February 2000                 Ip Leung Christina Ling Kwan                                           16,000
              15 February 2000                 Kung Agnes B.                                                          16,000
              12 February 2000                 Leung Joseph                                                           12,000
              30 April 2001                    Leung Joseph                                                           30,000
              3 February 2000                  Loo Joseph and Loo Tommy                                               32,000
              15 February 2000                 Melnik Nellie                                                          10,000
              30 April 2001                    Storey Brian                                                           34,000
              15 February 2000                 Tam Wai Ling                                                           12,000
              11 May 2001                      Tam Winson                                                             16,000
              15 February 2000                 Vintech Drafting Inc. (Note 1)                                          5,000
              15 February 2000                 Wiebe Vic and Wiebe Maxine                                             20,000
              15 February 2000                 Yip Veronica and Yip Adam                                               2,000
              16 February 2000                 Yu John                                                                 8,000

              Notes:

              (1)      Each of Aycl Holdings Inc., Blue Heron Trading Company Ltd., Dial Holdings Ltd., Falcon Trading Co. Ltd.
                       and Vintech Drafting Inc. is an independent third party who is not connected with the directors, chief
                       executive, substantial shareholders or management shareholders of the Company or its subsidiaries or
                       their respective associates.

              (2)      Grand Interest Development Limited is an investment holding company beneficially owned as to
                       approximately 16.67% by each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fa, Yeung Sui
                       Leung and Yeung Sui Ping, Stephen.




                                                        – 273 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION

                 (3)   The above-mentioned exercised warrants (“First Warrants”) were issued pursuant to subscription
                       agreements in respect of units of KGI, each unit comprising one common share of KGI and one First
                       Warrant exercisable for one common share of KGI at the subscription price of CAN$0.625 per unit. The
                       value attributable to each First Warrant was CAN$0.0001 each. The initial exercise price for the First
                       Warrants was CAN$1.20 per share. Pursuant to the resolutions of the directors of KGI on 10 December,
                       1999, the exercise price for the First Warrants was reduced to CAN$0.95 per share and upon exercise of
                       the First Warrants, one-half Warrant would be issued for the exercise of every First Warrant if such First
                       Warrants were exercised on or prior to 29 February 2000. Details of the Warrants are set out in the
                       paragraph headed “Warrants” in Appendix IV to this prospectus.


         (ii)    On 28 September 2001, KGI issued and allotted 52,000 common shares to Li Xing Fang
                 pursuant to the exercise of options under the KGI Share Option Plan by her at CAN$0.50
                 per share.

         (iii)   On 1 December 2001, KGI issued and allotted 14,286 common shares to Dr. Buret pursuant
                 to the Cell Line Agreement between KGI and Dr. Buret.

   (d)   KIP

         (i)     On 20 October 1999, KIP was incorporated and 1 subscriber share of HK$1.00 par value in
                 the capital of KIP was issued and allotted to each of Dr. Tam and Mr. Young at par.

         (ii)    On 1 March 2001, the share capital of KIP was increased from HK$10,000 divided into
                 10,000 shares of HK$1.00 par value to HK$148,500,000 divided into 148,500,000 shares of
                 HK$1.00 par value by the creation of an additional 148,490,000 shares of HK$1.00 par
                 value.

         (iii)   On 2 March 2001, the share capital of KIP, comprising 148,500,000 shares of HK$1.00 par
                 value was consolidated into 30,000,000 shares of HK$4.95 par value.

         (iv)    On 10 March 2001, KIP issued and allotted an aggregate of 2,669,070 shares of HK$4.95
                 par value as follows:

                                                                                    No of KIP shares
                                                                                          Warrants
                 Name                                                  Subscription      exercised                        Total

                 Au Pok Kau                                                    30,000                 30,000            60,000
                 Champion Leaders Ltd.                                        290,000                      –           290,000
                 Chan Chui Sim Tam                                             30,000                 30,000            60,000
                 Chan Kwai Fong                                                20,000                      –            20,000
                 Chiang Shuk Yee                                                    –                 20,000            20,000
                 Eng Fung Shek                                                      –                 10,000            10,000
                 Eng Nancy Yin                                                 10,000                 10,000            20,000
                 Eng Frank Yiu                                                 10,000                 10,000            20,000
                 Eng Nelson Hawn                                               10,000                 10,000            20,000
                 Eng Ricky Hawn                                                10,000                 10,000            20,000
                 Lee Michael D.                                                10,000                      –            10,000



                                                         – 274 –
APPENDIX IV                                               STATUTORY AND GENERAL INFORMATION


                                                                                    No of KIP shares
                                                                                          Warrants
              Name                                                     Subscription      exercised                       Total

              Mak Fuk Shan                                                          –                10,000            10,000
              New Order Incorporated                                           20,000                20,000            40,000
              Ng Kit Yung Karen                                                40,000                40,000            80,000
              Red Robin Services Ltd.                                         101,000               101,000           202,000
              Steady Growth Group Limited                                     707,070                     –           707,070
              Szeto Chor and Sit Ying Yu Priscilla                             20,000                     –            20,000
              Tam Mei Ha (Note 1)                                              30,000                30,000            60,000
              Tam Mei Ling (Note 1)                                            40,000                40,000            80,000
              Tam Oi Ling (Note 1)                                             60,000                60,000           120,000
              Tam Sau Ying (Note 1)                                            20,000                40,000            60,000
              Tam Yun Kwong (Note 1)                                           20,000                20,000            40,000
              Tam Yun Leung (Note 1)                                           20,000                20,000            40,000
              Tong Benjamin P.                                                 10,000                10,000            20,000
              Tse Wai Ling                                                     10,000                10,000            20,000
              Wong Che Yan                                                     30,000                30,000            60,000
              Wong Chok Kai Laurie                                             10,000                10,000            20,000
              Wong Yuk Sheung Andy                                             20,000                50,000            70,000
              Yeung Kai Kwong (Note 3)                                         20,000                10,000            30,000
              Yeung Man Ki                                                     10,000                10,000            20,000
              Yeung Oi Fan (Note 2)                                            20,000                20,000            40,000
              Yeung Shui Kwong (Note 2)                                        60,000                20,000            80,000
              Yeung Sui Fai (Note 2)                                           30,000                30,000            60,000
              Yeung Sui Leung (Note 2)                                         40,000                90,000           130,000
              Yeung Sui Ping Stephen (Note 2)                                  30,000                20,000            50,000
              Yip Sek Wing Benny                                               30,000                     –            30,000
              Yip Suet Mei                                                     30,000                     –            30,000

              Notes:

              (1)      Mr. Young is the brother-in-law of Dr. Tam. Tam Mei Ha, Tam Mei Ling, Tam Oi Ling, Tam Sau Ying, Tam
                       Yun Kwong and Tam Yun Leung are the brothers and sisters of Dr. Tam.

              (2)      Dr. Tam is the brother-in-law of Mr. Young. Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui
                       Leung and Yeung Sui Ping Stephen are the brothers and sister of Mr. Young.

              (3)      Yeung Kai Kwong is an employee of the Group.

              (4)      Each of Champion Leaders Ltd., New Order Incorporated, Red Robin Services Ltd. and Steady Growth
                       Group Limited is an independent third party who is not connected with the directors, chief executive,
                       substantial shareholders or management shareholders of the Company or its subsidiaries or their
                       respective associates.

              (5)      The above shares of KIP were issued pursuant to subscription agreements in respect of units of KIP, each
                       unit comprising one KIP share of HK$4.95 par value and one warrant for KIP share of HK$4.95 par value
                       at the subscription price of HK$4.95 per unit. The exercise price for the warrants was HK$4.95 per share.




                                                        – 275 –
APPENDIX IV                                         STATUTORY AND GENERAL INFORMATION


           (v)    On 18 July 2001, KIP issued and allotted 20,000 shares of HK$4.95 par value to each of
                  Chow Yat Sun and Kwok Po Yin at par.

           (vi)   On 21 March 2002, KIP issued and allotted one share of HK$4.95 par value to each of KBVI
                  and Mr. Young (as trustee for the benefit of KBVI) at par and subsequently utilized the
                  proceeds therefrom to purchase from each of KBVI and Mr. Young (as trustee for the benefit
                  of KBVI) on 26 March 2002 one fractional share of KIP at HK$1.00 per share.

     (e)   KHP

           (i)    On 20 October 1999, KHP was incorporated and 1 subscriber share of HK$1.00 par value in
                  the capital of KHP was issued and allotted to each of Dr. Tam and Mr. Young at par.

     (f)   KCP

           (i)    On 15 December 1999, KCP was incorporated.

           (ii)   On 22 December 1999, each of Dr. Tam and Mr. Young (on trust for the benefit of KPH)
                  acquired one share of HK$1.00 par value in the capital of KCP from the subscribers at par.

     (g)   KPH

           (i)    On 20 October 1999, KPH was incorporated and one subscriber share of HK$1.00 par value
                  in the capital of KPH was issued and allotted to each of Dr. Tam and Mr. Young at par.

     (h)   Kinetana Inc.

           (i)    On 30 November 1999, Kinetana Inc. issued and allotted 300 class “A” voting shares to KGI
                  in exchange for the 100 class “B” voting shares, 100 class “C” voting shares and the 100
                  class “D” voting shares held by KGI.

           (ii)   On 16 December 1999, each of the 400 class “A” voting shares held by KGI was re-
                  designated as a common share.

     (i)   KPCH

           (i)    On 14 May 2001, KPCH was incorporated.

           (ii)   On 6 July 2001, one share of US$1.00 par value was issued and allotted to each of Dr. Tam
                  and Mr. Young at par (both of them as trustees for the benefit of KBVI).

      Save as mentioned herein, there has been no alternation in the share capital of any of the subsidiaries
of the Company within the two years immediately preceding the date of this prospectus.




                                                  – 276 –
APPENDIX IV                                                   STATUTORY AND GENERAL INFORMATION


6.   WARRANTS

     The following is a summary of the principal terms of the Warrants:

     (i)     Holders of the Warrants are entitled to acquire for each whole warrant, subject to the restrictions
             and adjustments set forth therein, at any time during the exercise period (“Exercise Period”) one
             fully paid and non-assessable common share of KGI at a price of CAN$3.10 per common share of
             KGI.

     (ii)    The right to acquire common shares may only be exercised by the holders within the Exercise
             Period by (a) duly completing and executing the exercise form attached to the warrant certificate;
             (b) surrendering the warrant certificate to KGI at the principal office of KGI in Edmonton, Canada;
             and (c) remitting cash, a certified cheque, bank draft or money order in lawful money of Canada,
             payable to or to the order of KGI at par for the aggregate purchase price of the common shares of
             KGI so subscribed for.

     (iii)   Upon any subdivision or consolidation of the common shares of KGI, the number of common
             shares of KGI issuable on the exercise of Warrants and the exercise price thereof will be adjusted
             proportionately, and in the event of any reclassification or change of the common shares of KGI or
             consolidation, amalgamation or merger of KGI or any transfer of its undertaking or assets as an
             entirety or substantially as an entirety, a holder shall be entitled to receive the kind and amount of
             shares and other securities or property which he would have been entitled to receive as a result of
             such event if, on the effective date thereof, he had been the registered owner of the number of
             common shares of KGI to which he was theretofore entitled upon exercise.

     (iv)    The holding of the Warrants shall not constitute the holder a shareholder of KGI or entitle the
             holder to any right or interest in respect thereof.

     (v)     The Warrants may be transferred on the register kept at the offices of KGI by the registered
             holder or its legal representatives or its attorney duly appointed by an instrument in writing in form
             and execution satisfactory to KGI upon compliance with such reasonable requirements as KGI
             may prescribe and upon compliance of all regulatory approvals.

     Note:

     The Warrants were granted pursuant to the resolutions of the directors of KGI passed on 10 December 1999, pursuant to which
     it was, among others, resolved that one-half Warrant would be issued for the exercise of every First Warrant (as referred to in
     note (3) to paragraph 5(c)(i) above in this Appendix) if such First Warrant was exercised on or prior to 29 February 2000.




                                                            – 277 –
APPENDIX IV                                             STATUTORY AND GENERAL INFORMATION


Present status of the Warrants

      As at the date of this prospectus, 527,000 Warrants to subscribe for an aggregate of 527,000 common
shares of KGI had been granted to one Initial Management Shareholder, Grand Interest Development Limited,
and 24 independent investors. Pursuant to the Exchange Agreement, each warrantholder has conditionally
agreed to sell the common shares of KGI upon exercising the Warrants to the Company, KBarb or KBVI in
exchange for Shares on the basis of approximately 24.45 Shares for every common share of KGI. The
Exchange Agreement is conditional upon (i) the commencement of trading of the Shares on GEM; and (ii) all
necessary waivers, consents, approvals (if required) in relation to the Company, KBarb and KBVI and their
respective subsidiaries for the Exchange Agreement and the transactions contemplated therein being
obtained, in each case on or before 15 October 2002.

      Pursuant to the resolutions of the directors of KGI on 10 December 1999, the initial exercise price for
the First Warrants (as defined in note (3) to paragraph 5(c)(i) of Appendix IV to this prospectus) was reduced
from CAN$1.20 per share to CAN$0.95 per share and upon exercise of the First Warrants, one-half Warrant
was issued for every First Warrant being exercised if such First Warrant was exercised on or prior to 29
February 2000. Further details concerning the First Warrants are set out in note (3) of paragraph 5(c)(i) of
Appendix IV to this prospectus. Pursuant to the Exchange Agreement, no Warrants shall be exercisable within
the six months period after the Listing Date and the Warrants are exercisable within the six-month period
immediately after the first 6-month period following the Listing Date. Each Warrant entitles its holder to
subscribe for one common share of KGI at an exercise price of CAN$3.10 per common share of KGI,
representing an effective price of approximately HK$0.63 per Share pursuant to the Exchange Agreement and
approximately 26% above the minimum Offer Price of HK$0.50 per Share and approximately 7% below the
maximum Offer Price of HK$0.68 per Share.

     The particulars of the warrantholders are as follows:
                                                                                      Approximate % of the
                                                                                        issued share capital
                                                                               of the Company immediately
                                                                                     after completion of the
                                                         No. of Shares to be             Share Offer and the
                                          No. of KGI          exchanged for              Capitalisation Issue
                                              shares         pursuant to the                   assuming full
                                           subject to             Exchange          exercise of the Warrants
     Warrantholders                     the Warrants             Agreement             (before enlargement)

     Aycl Holdings Inc.                       16,000                391,309                               0.08
        6209 Elm Street
        Vancouver, Canada
        BC V6N 1B2
     Blue Heron Trading Company Ltd.           8,000                195,655                               0.04
        1A-3058 Great Northern Avenue
        Abbotsford, Canada
        BC V2T 6H4
     Chan Rosalia                              9,000                220,111                               0.04
        4359 Fraser Street, Apt. 2
        Vancouver, Canada
        BC V5V 4G4

                                                    – 278 –
APPENDIX IV                                           STATUTORY AND GENERAL INFORMATION


                                                                                    Approximate % of the
                                                                                      issued share capital
                                                                             of the Company immediately
                                                                                   after completion of the
                                                       No. of Shares to be             Share Offer and the
                                        No. of KGI          exchanged for              Capitalisation Issue
                                            shares         pursuant to the                   assuming full
                                         subject to             Exchange          exercise of the Warrants
   Warrantholders                     the Warrants             Agreement             (before enlargement)

   Crawford William                          5,000                122,284                            0.02%
      Suite 701
      1508 West Broadway
      Vancouver, Canada
      BC V6J 5K9
   Dial Holdings Ltd.                        7,500                183,426                            0.04%
      4192 Castlewood Crescent
      Burnaby, Canada
      BC V5G 2M2
   Eng Fung Shek and
      Eng Nancy Yin (jointly)               25,000                611,420                            0.12%
      15315, SE 59 Street
      Bellevue, WA
      U.S.A. 98006
   Falcon Trading Co. Ltd.                   5,000                122,284                            0.02%
      2748 Lock Street
      Abbotsford, Canada
      BC V4X 1E8
   Fallon Tony                               5,000                122,284                            0.02%
      2875 Lakewood Drive
      Vancouver, Canada
      BC V5N 5P8
   Friesen Vernon                           13,000                317,939                            0.06%
      2748 Lock Street
      Abbotsford, Canada
      BC V4X 1E8
   Grand Interest Development
      Limited (Note 1)                     315,000              7,703,898                            1.48%
      No. 33 River North 9th Street
      Section O, Fairview Park
      Yuen Long, New Territories
      Hong Kong
   Ip Leung Christina Ling Kwan              8,000                195,655                            0.04%
      15A, Hang Cheong Tai Bldg.
      21-23 Ko Shing Street
      Sheung Wan, Hong Kong



                                                  – 279 –
APPENDIX IV                                                STATUTORY AND GENERAL INFORMATION


                                                                                          Approximate % of the
                                                                                            issued share capital
                                                                                   of the Company immediately
                                                                                         after completion of the
                                                                   No. of Shares             Share Offer and the
                                             No. of KGI           exchanged for              Capitalisation Issue
                                                 shares          pursuant to the                   assuming full
                                              subject to               Exchange         exercise of the Warrants
   Warrantholders                          the Warrants              Agreement             (before enlargement)

   Kump Glen M.                                  12,000                 293,482                            0.06%
     4251 Cedar Drive
     Coquitlam, Canada
     BC V3E 3H7
   Kung Agnes B.                                  8,000                 195,655                            0.04%
     792-66th Avenve W.,
     Vancouver, Canada
     BC V6P 2R5
   Lam Peter K.K.                                 8,000                 195,655                            0.04%
     2536 McGill Street
     Vancouver, Canada
     BC V5K 1H1
   Langille Ronald C.                             7,500                 183,426                            0.04%
     540 Williams Crescent
     Prince George, Canada
     BC V2N 1X8
   Leung Joseph King Fai                          6,000                 146,741                            0.03%
     538 West 62nd Avenue
     Vancouver, Canada
     BC V6P 2C9
   Loo Josephine and Loo Tommy (jointly)         16,000                 391,309                            0.08%
     7073 Kitchener Street
     Burnaby, Canada
     BC V5A 1K8
   Lundeberg Arthur                               2,500                  61,142                            0.01%
     26155-126 Avenue
     Maple Ridge, Canada
     BC V2W 1C4
   Melnik Nellie                                  5,000                 122,284                            0.02%
     R.R. #1
     52 Chaffey’s Trail
     Pembroke, Canada
     ON K8A 6W2
   Tam Wai Ling                                  12,000                 293,482                            0.06%
     510-6th Avenue South
     Apt 503
     Seattle, WA
     U.S.A. 98104-3878
                                                       – 280 –
APPENDIX IV                                                   STATUTORY AND GENERAL INFORMATION


                                                                                                      Approximate % of the
                                                                                                        issued share capital
                                                                                               of the Company immediately
                                                                                                     after completion of the
                                                                        No. of Shares                    Share Offer and the
                                                No. of KGI             exchanged for                     Capitalisation Issue
                                                    shares            pursuant to the                          assuming full
                                                 subject to                 Exchange                exercise of the Warrants
   Warrantholders                             the Warrants                Agreement                    (before enlargement)

   Vintech Drafting Inc.                              2,500                     61,142                                        0.01%
      7480 Montana Road
      Richmond, Canada
      BC V7C 2K8
   Wiebe Vic and Wiebe Maxine (jointly)              10,000                    244,568                                        0.05%
      4416 Chaldecott Street
      Vancouver, Canada
      BC V6S 2K1
   Yip Veronica and Yip Adam (jointly)                1,000                     24,457                                        0.00%
      4227 Francis St.
      Burnaby, Canada
      BC V5C 2P9
   Yu Dyna M.                                        16,000                    391,309                                        0.08%
      1707-68th Avenue West
      Vancouver, Canada
      BC V6P 2V9
   Yu John                                            4,000                     97,827                                        0.02%
      1707 West 68th Avenue
      Vancouver, Canada
      BC V6P 2V9


                                Total:              527,000                 12,888,744                                        2.48%


   Notes:

   (1)      Grand Interest Development Limited is an investment holding company beneficially owned as to approximately 16.67%
            by each of Mr. Young, Yeung Oi Fan, Yeung Shui Kwong, Yeung Sui Fai, Yeung Sui Leung and Yeung Sui Ping Stephen,
            who are brothers and sister of Mr. Young. Dr. Tam is the brother-in-law of Mr. Young. Grand Interest Development Limited
            has undertaken to the Company and the Stock Exchange that, it will not, among others, save as provided in Rule 13.18
            of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder to
            dispose of (or enter into any agreement to dispose of) the Shares arising from the exercise of the Warrants or any direct
            or indirect interests therein for a period of 12 months from the Listing Date.


   (2)      Each of Aycl Holdings Inc., Blue Heron Trading Company Ltd., Dial Holdings Ltd., Falcon Trading Co. Ltd. and Vintech
            Drafting Inc. is an independent third party who is not connected with the directors, chief executive, substantial
            shareholders or management shareholders of the Company or its subsidiaries or their respective associates.


        Exercise in full of the Warrants will result in the issue of 12,888,744 Shares by the Company,
   representing approximately 2.48% of the issued share capital of the Company immediately after


                                                            – 281 –
APPENDIX IV                                         STATUTORY AND GENERAL INFORMATION


     completion of the Share Offer and the Capitalisation Issue (but before enlargement by the issue of such
     Shares, or approximately 2.42% after such enlargement).

          Application has been made to the GEM Listing Committee for the granting of listing of, and
     permission to deal in, the Shares which may fall to be issued pursuant to the exercise of the Warrants.

7.   KGI CONSULTANTS OPTIONS AND BURET ALLOTMENT

     (a)   Buret Option

           Pursuant to the Cell Line Agreement, Dr. Buret granted an exclusive licence to the Group to use
     the Buret Cell Line and the related technologies developed and/or acquired by Dr. Buret for a term of 2
     years from 7 November 2001, together with an option to the Group, exercisable prior to the expiration of
     the initial term, to extend the license perpetually for the sum of CAN$100,000. If the Group exercises
     the option to extend the license, Dr. Buret will have, among others, the option to receive such payment
     in cash or in common shares of KGI at CAN$0.70 (approximately HK$3.50) per share or by a
     combination thereof.

           Pursuant to the Buret Exchange Agreement, Dr. Buret has conditionally agreed to sell the
     common shares of KGI upon exercising the option to the Company, KBarb or KBVI in exchange for
     Shares on the basis of one common share of KGI for approximately 24.45 Shares. The Buret Exchange
     Agreement is conditional upon (i) the commencement of trading of the Shares on GEM; and (ii) all
     necessary waivers, consents, approvals (if required) in relation to the Company, KBarb and KBVI and
     their respective subsidiaries for the Buret Exchange Agreement and the transactions contemplated
     therein being obtained, in each case on or before 15 October 2002.

           Pursuant to the Buret Exchange Agreement, exercise in full of the Buret Option will result in the
     issue of 3,493,828 Shares at approximately HK$0.14 per Share and approximately 72% below the
     minimum Offer Price of HK$0.50 per Share and approximately 79% below the maximum Offer Price of
     HK$0.68 per Share (representing approximately 0.67% of the issued share capital of the Company
     immediately after completion of the Share Offer and the Capitalisation Issue but before enlargement by
     the issue of such Shares, or approximately 0.67% after such enlargement).

          The Shares to be allotted and issued pursuant to the Buret Option will rank pari passu in all
     respects with the fully paid Shares in issue on the date of allotment. No issue of Shares will be made
     under the Buret Option within the period of six months after the Listing Date.

          Dr. Buret is an independent third party not connected with the directors, chief executive,
     substantial shareholders or management shareholders of the Company or its subsidiaries or their
     respective associates. The address of Dr. Buret is 4523-41 Street, N.W. Calgary, Alberta, Canada, T3A
     0N3.

           Application has been made to the GEM Listing Committee for the listing of and permission to deal
     in the Shares which may fall to be issued pursuant to the exercise of the Buret Option. Particulars of the
     Buret Option are set out in the paragraph headed “Issue of Buret Option and Buret Allotment” in the
     section headed “General overview of the Group” in this prospectus.



                                                   – 282 –
APPENDIX IV                                      STATUTORY AND GENERAL INFORMATION


   (b)   Anderson Option

        Pursuant to the Anderson R & D Agreement, Dr. Anderson assigned to KGI his rights, title, estate,
   ownership and interest in the SimBioDAS™ technology, that was co-invented by Dr. Tam and Dr.
   Anderson. As consideration for such assignment, Dr. Anderson was, among others, given the Anderson
   Option to subscribe for 20,000 common shares of KGI at CAN$0.50 (approximately HK$2.50) per share.

        Pursuant to the Anderson Exchange Agreement, Dr. Anderson has conditionally agreed to sell the
   common shares of KGI upon exercising the Anderson Option to the Company, KBarb or KBVI in
   exchange for Shares on the basis of one common share of KGI for approximately 24.45 Shares. The
   Anderson Exchange Agreement is conditional upon (i) the commencement of trading of the Shares on
   GEM; and (ii) all necessary waivers, consents, approvals (if required) in relation to the Company, KBarb
   and KBVI and their respective subsidiaries for the Anderson Exchange Agreement and the transactions
   contemplated therein being obtained, in each case on or before 15 October 2002.

          Pursuant to the Anderson Exchange Agreement, the Anderson Option is exercisable within the
   period commencing on the date falling six months from the Listing Date and ending on 11 February
   2005 at the exercise price of CAN$0.50 (approximately HK$2.50) per common share of KGI. Exercise in
   full of the Anderson Option will result in the issue of 489,136 Shares at approximately HK$0.10 per
   Share and approximately 80% below the minimum Offer Price of HK$0.50 per Share and approximately
   85% below the maximum Offer Price of HK$0.68 per Share (representing approximately 0.09% of the
   issued share capital of the Company immediately after completion of the Share Offer and the
   Capitalisation Issue but before enlargement by the issue of such Shares, or approximately 0.09% after
   such enlargement). The Shares to be allotted and issued pursuant to the Anderson Option will rank pari
   passu in all respects with the fully paid Shares in issue on the date of allotment.

        Dr. Anderson is an independent third party not connected with the directors, chief executive,
   substantial shareholders or management shareholders of the Company or its subsidiaries or their
   respective associates. The address of Dr. Anderson is 11304 Legacy Canyon Pl., San Diego, CA 92131
   USA.

        Application has been made to the GEM Listing Committee for the granting of the listing of, and
   permission to deal in, the Shares which may fall to be issued pursuant to the exercise of the Anderson
   Option. Particulars of the Anderson Option are set out in the paragraph headed “Issue of Anderson
   Option” in the section headed “General overview of the Group” in this prospectus.

   (c)   Buret Allotment

         Pursuant to the Cell Line Agreement, KGI has, among others, agreed to allot and issue to Dr.
   Buret at no further consideration (i) 21,429 common shares of KGI within 450 days from 7 November
   2001; and (ii) 21,429 common shares of KGI within 720 days from 7 November 2001.

        Pursuant to the Buret Exchange Agreement, Dr. Buret has conditionally agreed to sell 42,858
   common shares of KGI pursuant to the Buret Allotment for Shares on the basis of one common share of
   KGI for approximately 24.45 Shares. The Buret Exchange Agreement is conditional upon (i) the




                                                – 283 –
APPENDIX IV                                          STATUTORY AND GENERAL INFORMATION


     commencement of trading of the Shares on GEM; and (ii) all necessary waivers, consents, approvals (if
     required) in relation to the Company, KBarb and KBVI and their respectiv