Major Shareholder:

• Madam Cheung Kwai Lan ¡V 65.52% interest

Company Subsidiaries:

• Loyalion Limited (100%): Distribution of natural supplementary foods and investment holding
• Natural Food Company Limited (100%): Manufacture and distribution of natural supplementary foods
• Natural Food Company Limited (55%): Manufacture and distribution of natural supplementary foods

The Group is principally engaged in the distribution, research and development, and manufacture of natural supplementary food products in the PRC and Hong Kong. Natural supplementary food products are supplementary food products that are largely or completely free from artificial ingredients, preservatives, and other chemicals. Supplementary food products are food and beverage products that are considered by the general public to be consumed as a supplement to a normal diet because of the products' taste, and because they are both nutritious and healthy. As at the Latest Practicable Date, the Group's distribution network covered 28 cities in the PRC and in Hong Kong.

The Directors consider that the Group's products (which include bird's nest, mead, and honey) are natural supplementary food products as they are 100% natural and are usually consumed by the general public as supplements to a normal diet. All of the products are widely considered by the public to be tasty, nutritious, and healthy.

People today are more aware of the quality of their diet and are always trying to improve and maintain their bodily health. As a result, natural supplementary foods have become more desirable and popular. In view of the potential market for natural supplementary food products, the Group commenced distributing bird's nest, its first natural supplementary food product, in Hong Kong in July 1999.

The Group's third distributed natural supplementary food product is honey. In February and April 2002, the Group obtained distributorships from two honey suppliers. The honey distributed by the Group is pure natural acacia honey sourced from the Nature Reserves of Huang Shan and Buddhist Mountain Jiuhua Shan in the PRC. The Group commenced distributing honey in the PRC in March 2002 and for the year ended June 30, 2002, the Group's turnover derived from the distribution of honey accounted for approximately 2.7% of its total turnover.

The Directors believe that the Group has the following competitive advantages:

• Its stable relationship with its suppliers which enables the Group to source high quality materials, maintain the quality of its products, and maintain low product costs;
• Its diverse product range (which includes bird's nest, mead, and raw honey) mitigating market and industry risks;
• The ultra-filtration technology owned by the Group which enables it to improve its mead production capacity and product quality; and
• Its research and development team which enables the Group to develop and explore new natural supplementary food products in order to expand the Group's product range.

• Reliance on major customers;
• Reliance on bird's nest supplies from Indonesia;
• Profits available for distribution;
• Reliance on mead;
• Risks related to the preferential tax treatment;

The Group will continue to focus mainly on its business development in the PRC, which is considered as the major market of the Group. However, it also plans to enter and expand its market presence in other countries including Japan, Korea, the United States, and some European countries. The Group also plans to appoint more local and overseas sales agents to strengthen and expand its distribution network in the PRC and establish its overseas distribution networks.

The Group plans to build new production facilities in Zhuhai in order to expand its production capacity. The Group also plans to purchase additional machinery and equipment for the manufacture of new natural supplementary food products.

The Group is the registered owner of the website www.chinamead.com. The Group plans to enhance its website in order to raise public awareness of the Group's products. The contents will be improved by including information on bird's nest, mead, and honey, as well as special offers and a cooking corner to provide recipes, and discussion areas for those interested in natural supplementary foods.

The Group will promote its products to health conscious consumers. The Directors believe that the market for natural supplementary foods has the potential for further expansion. The Group will emphasize, when promoting the characteristics of its products to its target customers, that they are free of artificial ingredients, preservatives, and other chemicals. The Group will continue to improve public recognition of its products.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$30.2 million (based on the offer price HK$0.4 per share). The Group at present intends to apply the net proceeds as follows: