MEMPHASYS LIMITED. — AGM Information 2009

Feb 12, 2009

NuSep Ltd

ACN 120 047 556

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Notice of Extraordinary General Meeting to be held on 13 March 2009

Explanatory Memorandum for the Notice of Extraordinar General Meetin y g

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT ABOUT THE ACTION YOU SHOULD TAKE PLEASE CONSULT YOUR STOCKBROKER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER.

NOTICE OF THE EXTRAORDINARY GENERAL MEETING TO BE HELD AT 22 RODBOROUGH ROAD, FRENCHS FOREST NSW 2086 AT 10.00AM ON 13 MARCH 2009

TO BE VALID, FORMS OF PROXY FOR USE AT THE EXTRAORDINARY GENERAL MEETING MUST BE COMPLETED AND RETURNED TO THE COMPANY NO LATER THAN 10.00AM SYDNEY TIME ON 11 MARCH 2009

Table of Contents

Section A – Chairman’s Letter	2
Section B – Glossary	5
Section C – Notice of Extraordinary General Meeting	10
Section D – Explanatory Memorandum	17
Section E – Proxy Form	61
Annexure A – Independent Expert’s Report	64
Annexure B – Investigating Accountant’s Report	65

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Section A – Chairman’s Letter

13 February 2009

Dear Shareholder,

On behalf of the Board, I have the pleasure in inviting you to an Extraordinary General Meeting of the members of NuSep Ltd ( NuSep or Company ) which will be held at 22 Rodborough Road, Frenchs Forest NSW 2086 on 13 March 2009 at 10.00am.

The Notice of Meeting and Explanatory Memorandum is enclosed. Please read these documents carefully.

Proposed Acquisition and Spin Out

The Board has agreed (subject to various shareholder approvals being given at the Extraordinary General Meeting and other conditions being satisfied) to acquire 100% of the issued share capital of NxGen Pharmaceuticals Pty Ltd ( NxGen ) ( NxGen Acquisition ). Prior to the NxGen Acquisition, NuSep proposes to spin out all of its assets and liabilities other than the shares held in NxGen and a proportion of cash raised under the general share offer (see below) into a new unlisted company, Prime BioSeparations Ltd ( Prime BioSeparations ) ( Spin Out ).

In consideration for the Spin Out, NuSep will be issued with approximately 1.7 million Prime BioSeparations shares and will conduct a pro rata distribution of 100% of those shares to NuSep’s shareholders on the basis of 1 Prime BioSeparations share for every 100 NuSep shares held by each shareholder (further details are set out in sections 2.1 and 3.2 of the Explanatory Memorandum).

Consolidation of Share Capital

As part of the acquisition of NxGen, NuSep is seeking shareholder approval to consolidate its share capital on a 1:20 basis. This would reduce the number of shares on issue post the acquisition from 174 million to 8.7 million shares.

The consolidation is also required so that NuSep will comply with the requirements in Chapters 1 and 2 of the ASX Listing Rules on Completion of the NxGen Acquisition.

Consideration for the NxGen Acquisition

The consideration for the NxGen Acquisition will be paid to NxGen’s shareholder in the following three instalments:

1. by the issue of 319 million NuSep shares (or 15.95 million shares on a post consolidation basis) or such number of shares that equal 55% of the total issued share capital of NuSep immediately prior to completion of the NxGen acquisition ( Completion ) on Completion (i.e. the First Instalment);

2. by the payment of cash and/or the issue of up to a maximum of 101.5 million NuSep shares (or 5.075 million shares on a post consolidation basis) that equal a maximum of 17.5% of the issued share capital of NuSep on Completion within 15 business days of the close of the Company’s general share offer which is described below (i.e. the Second Instalment). The proportion of cash and shares in the Second Instalment will depend on the proceeds raised by the general share offer which is being conducted by NuSep in conjunction with the holding of the meeting (see below) and will be determined by NuSep’s board immediately before Completion; and

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1. by the issue of 87 million NuSep shares (or 4.35 million shares on a post consolidation basis) or such number of shares that equal 15% of the total issued share capital of NuSep immediately prior to Completion when NxGen reaches a pre-tax profit of $2.1 million (i.e. the Third Instalment). To be eligible to receive the Third Instalment NxGen must reach this pretax profit prior to or on 30 June 2010. If the shares in the Third Instalment are not issued by 30 September 2010, the Third Instalment will lapse.

Further details of the consideration payable for the NxGen Acquisition are set out in section 2.3 of the Explanatory Memorandum.

NxGen was incorporated on 29 August 2007 and is a diversified pharmaceutical business which develops and formulates pharmaceutical products to the Australian sexual dysfunction, anti-aging medicine and addiction markets. The company also develops and licenses custom pharmaceuticals.

The NxGen Acquisition and the Spin Out are conditional on a number of matters including the passing of Resolutions 1 to 5 in the attached Notice of Meeting.

The terms of the NxGen Acquisition and the Spin Out are summarised in sections 2.1 and 2.3 of the Explanatory Memorandum.

Conclusion of the Independent Expert

Shareholders are referred to the Independent Expert’s Report prepared by Innovations Dynamics Pty Ltd ( Innovations Dynamics or Independent Expert ). Innovations Dynamics was engaged to provide an opinion as to whether or not the NxGen Acquisition is fair and reasonable to NuSep’s shareholders. Innovations Dynamics has concluded that the NxGen Acquisition, which is the subject of Resolution 4 in the enclosed Notice of Meeting, is fair and reasonable to NuSep’s shareholders.

The Independent Expert’s Report is contained in Annexure A of this document.

Change of name to NxGen Pharmaceuticals Ltd

The Company is also seeking shareholder approval to change the name of NuSep to NxGen Pharmaceuticals Ltd in order to more accurately reflect the business post the NxGen Acquisition. The NuSep name will continue to be used by Prime BioSeparations for both the Gels and the MF10 Separation Instrument.

General Share Offer under a prospectus

The Board is also proposing to raise up to $5,075,000 under a general share offer pursuant to a prospectus to be issued shortly after this Notice of Meeting with priority being given to existing NuSep shareholders on a first come first served basis ( General Share Offer ). As part of the General Share Offer, successful applicants will receive one option for every four shares applied for and issued under the General Share Offer. Successful applicants will also receive a pro rata entitlement with existing shareholders to a total of 26.5 million bonus shares ( Bonus Shares ).

The proceeds raised under the General Share Offer will be used to fund:

• the expenses of the General Share Offer;

• the cash component of the consideration payable for the NxGen Acquisition;

• the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from directors and former directors of NuSep and for working capital for Prime BioSeparations; and

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• NxGen’s working capital and expansion of its products into the US market which is expected to occur in the next 12 months.

As part of the Spin Out, it is proposed that up to $1.2 million of the proceeds raised under the General Share Offer will be transferred to Prime BioSeparations to be used for the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from directors and former directors of NuSep and for working capital purposes. The transfer of these funds is contingent on the amount of proceeds raised under the General Share Offer.

NxGen is currently in negotiations with a potential US partner in relation to its sexual dysfunction products and is expecting to enter into the US market later this year. Part of the proceeds of the General Share Offer will be used to fund this expansion.

The General Share Offer will not be underwritten. However, brokers that refer successful applicants to the General Share Offer will receive a fee of 6% of the relevant applicant’s application money.

Shareholder approval is being sought at the shareholders meeting to issue the shares under the General Share Offer.

Recommendation of the Directors

None of the Directors have any interest in the resolutions other than in their capacity as officers and shareholders of NuSep.

Shareholders are encouraged to read the enclosed Explanatory Memorandum in its entirety, and to attend the Extraordinary General Meeting and vote on the resolutions. A proxy form is enclosed at Section E to enable any shareholder who is unable to attend the Extraordinary General Meeting to vote at the meeting.

Each Director of the Company intends that they and their respective associates will vote in favour of the resolutions in the enclosed Notice of Meeting.

The Directors unanimously recommend that shareholders vote in favour of the resolutions.

Should you wish to discuss this notice of meeting you can contact the Company Secretary, Mr Prakash Patel on 02 8977 9000.

Once again, on behalf of the Board I would like to thank you for your continued support.

Yours faithfully,

John Manusu Executive Chairman

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Section B – Glossary

1. Definitions

The following definitions are used in the Notice of Meeting and the Explanatory Memorandum:

ACP means Australian Custom Pharmaceuticals ACN 669 184 818.

ACP Service Agreement means the service agreement between NxGen Australia and ACP dated 1 July 2007 relating to the provision of marketing services to ACP.

AMI Australia means AMI Australia Holdings Pty Ltd ACN 095 238 645, the Advanced Medical Institute.

ASA means ASA Pharmaceuticals Pty Limited ACN 110 211 544.

ASA Service Agreement means the service agreement between NxGen Australia and ASA dated 1 July 2007 relating to the provision of marketing services to ASA.

Associate has the meaning given to that term in the Corporations Act.

ASX means ASX Limited ACN 008 624 691.

ASX Listing Rules means the official listing rules issued and enforced by the ASX as amended from time to time.

Board or Board of Directors means the board of Directors of NuSep.

Bonus Shares means the 26.5 million bonus Shares to be issued to Eligible Bonus Shareholders.

Business Day means a day which is not a Saturday, Sunday or public holiday in Sydney.

Chairman means the executive chairman of the Company, who is currently John Manusu.

Company or NuSep means NuSep Ltd ACN 120 047 556.

Completion means completion of the NxGen Acquisition which is expected to occur on or around 30 March 2009.

Consideration Shares means a maximum of 507.5 million Shares (or 25.375 million Shares on a post consolidation basis) or such number of Shares that equal a maximum of 87.5% of the total issued Share capital of NuSep immediately prior to Completion which are to be issued to the NxGen Shareholder as consideration for the NxGen Acquisition.

Consolidation Date means 27 March 2009 which is the date that the Company’s share capital will be consolidated on a one for twenty basis pursuant to Resolution 1.

Constitution means the constitution of the Company, as amended from time to time.

Corporations Act or Act means the Corporations Act 2001 (Cth).

Director means a director of the Company.

Director and Employee Option Plan means the employee Share Option plan of the Company.

Eligible Bonus Shareholder means a Shareholder who is recorded on the Company’s Share register at 5.00pm Sydney time on 20 March 2009.

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Eligible Shareholder means a Shareholder who is recorded on the Company’s Share register at 5.00pm Sydney time on Wednesday 11 March 2009.

Explanatory Memorandum means the explanatory memorandum set out in Section D of this document.

Extraordinary General Meeting means the extraordinary general meeting of the Company to be held on 13 March 2009 pursuant to the Notice of Meeting.

First Instalment means the first instalment of consideration for the NxGen Acquisition which is payable by the issue of approximately 319 million Consideration Shares (or 15.95 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal 55% of the total issued Share capital of NuSep immediately prior to Completion on Completion of the NxGen Acquisition.

Gels means the gels manufactured and sold by NuSep which are typically used to separate biological macromolecules for example protein and DNA.

General Share Offer means the offer of up to 101.5 million Shares (or 5.075 million Shares on a post consolidation basis) to Investors to raise up to $5,075,000 under the Prospectus with preference given to Eligible Shareholders on a first come first served basis. As part of the General Share Offer, successful applicants will receive one Option for every four Shares applied for and issued under the General Share Offer. Successful applicants will also receive a pro rata entitlement with all other Eligible Bonus Shareholders to 26.5 million Bonus Shares.

Implementation Deed has the meaning given to that term in section 2.3.2 of the Explanatory Memorandum.

Independent Expert means Innovations Dynamics Pty Limited ACN 109 316 949.

Independent Expert’s Report means the report prepared by the Independent Expert for inclusion in this Notice of Meeting at Annexure A.

Investigating Accountant means Pinn Deavin & Associates.

Investigating Accountant’s Report means the report prepared by the Investigating Accountant for inclusion in this Notice of Meeting at Annexure B.

Investors means Eligible Shareholders, Shareholders and the general public.

Jehega Directors means each of:

• (i) Mr Michael Tattersall;

• (ii) Dr Alan Amodeo;

• (iii) Mr John Boyd; and

• (iv) Dr James Rowe.

MF10 Separation Instrument means a gradiflow based instrument used to separate proteins into multiple fractions which has been designed to meet the needs of the proteomic market.

NxGen means NxGen Pharmaceuticals Pty Ltd ACN 127 297 143.

NxGen Acquisition means the acquisition by the Company of 100% of the issued share capital in NxGen.

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NxGen Australia means NxGen Australia Pty Limited ACN 117 913 649.

NxGen Group means NxGen and its wholly-owned subsidiaries ASA and NxGen Australia.

NxGen Nominee Directors means each of Mr Daryll Knowles, Mr Michael John Tattersall, Dr Alan Henry Amodeo, Mr John Patrick Boyd and Dr James Stevens Rowe.

NxGen Shareholder means Jehega Pty Ltd ACN 125 224 508.

Notice of Meeting or Notice means the notice of Extraordinary General Meeting set out in Section C of this document.

Official List means the official list of entities that ASX has admitted and not removed.

Option means an option over a Share.

Prime BioSeparations means Prime BioSeparations Ltd ACN 134 281 977.

Prime BioSeparations Share means a fully paid ordinary share in the issued share capital of Prime BioSeparations.

Prospectus means the prospectus relating to the General Share Offer.

Resolution means a resolution passed by the requisite majority of members of the Company on a show of hands or by the requisite majority of votes given on a poll.

Resolution 1 means the ordinary resolution set out in the Notice of Meeting to approve the consolidation of NuSep’s Share capital.

Resolution 2 means the ordinary resolution set out in the Notice of Meeting to approve a return of capital to Eligible Shareholders.

Resolution 3 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 101.5 million Shares (or 5.075 million Shares on a post consolidation basis) to Investors under the General Share Offer.

Resolution 4 means the ordinary resolution set out in the Notice of Meeting to approve the NxGen Acquisition.

Resolution 5 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 507.5 million Consideration Shares (or 25.375 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal a maximum of 87.5% of the total issued Share capital of NuSep immediately prior to Completion to the NxGen Shareholder. Resolution 6 means the ordinary resolution set out in the Notice of Meeting to approve the election of Mr Daryll Knowles as a Director.

Resolution 7 means the ordinary resolution set out in the Notice of Meeting to approve the election of Mr Michael John Tattersall as a Director.

Resolution 8 means the ordinary resolution set out in the Notice of Meeting to approve the election of Dr Alan Henry Amodeo as a Director.

Resolution 9 means the ordinary resolution set out in the Notice of Meeting to approve the election of Mr John Patrick Boyd as a Director.

Resolution 10 means the ordinary resolution set out in the Notice of Meeting to approve the election of Dr James Stevens Rowe as a Director.

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Resolution 11 means the special resolution set out in the Notice of Meeting to approve the change to the Company’s name to NxGen Pharmaceuticals Ltd.

Resolution 12 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 1,000,000 Options to Mr Daryll Knowles.

Resolution 13 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 900,000 Options to Mr Michael John Tattersall.

Resolution 14 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 900,000 Options to Dr Alan Henry Amodeo.

Resolution 15 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 900,000 Options to Mr John Patrick Boyd.

Resolution 16 means the ordinary resolution set out in the Notice of Meeting to approve the issue of up to 900,000 Options to Dr James Stevens Rowe.

Return of Capital Effective Date means 25 March 2009, which is the proposed dated for the return of capital to Return of Capital Eligible Shareholders to be approved by Shareholders under Resolution 2.

Return of Capital Eligible Shareholder means a Shareholder who is recorded on the Company’s Share register at 5.00pm Sydney time on 20 March 2009.

Second Instalment means the second instalment of consideration for the NxGen Acquisition which is payable in cash and/or by the issue of up to 101.5 million Consideration Shares (or 5.075 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal a maximum of 17.5% of the issued Share capital of NuSep on Completion within 15 Business Days of the close of the General Share Offer. The proportion of cash and Consideration Shares in the Second Instalment will depend on the proceeds raised by the General Share Offer and will be determined by the Board immediately before Completion.

Share means a fully paid ordinary share in the issued share capital of the Company.

Spin Out means the spin out of NuSep’s assets and liabilities into a new entity, Prime BioSeparations, in consideration for the issue of approximately 1.7 million Prime BioSeparations Shares.

Spin Out Agreement means the agreement between NuSep and Prime BioSeparations in relation to the Spin Out.

Shareholder means a holder of a Share.

SpermSep Instrument means a gradiflow based instrument used to isolate sperm for assisted reproductive technology.

Termination Event means any of the following:

• (a) if one party to the Implementation Deed breaches a term of the Implementation Deed;

• (b) if a warranty of the other party to the Implementation Deed becomes false, misleading or incorrect when made or regarded as made under the Implementation Deed;

• (c) if a material adverse change occurs in the business, assets, financial or trading position of NxGen since 30 June 2008 that was not disclosed in the Disclosure Material (as defined in the Implementation Deed).

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Third Instalment means the third instalment of consideration for the NxGen Acquisition comprising up to 87 million Consideration Shares (or 4.35 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that is equal to 15% of the total issued Share capital of NuSep immediately prior to Completion which will be issued to the NxGen Shareholder provided that NxGen reaches a pre-tax profit of 2.1 million. NxGen must reach this pre-tax profit prior to 30 June 2010. If the Consideration Shares in the Third Instalment are not issued by 30 September 2010, the Third Instalment will lapse.

Wholesale Supply Agreement means the supply agreement between ASA and ACP dated 1 July 2007 relating to the wholesale supply of compounding pharmaceutical raw ingredients to ACP.

2. Interpretation

For the purposes of interpreting the Explanatory Memorandum and the Notice of Meeting:

• (a) the singular includes the plural and vice versa;

• (b)

• words importing any gender include the other genders;

• (c) reference to any statute, ordinance, regulation, rule or other law includes all regulations and other instruments and all considerations, amendments, re-enactments or replacements for the time being in force;

• (d) all headings, bold typing and italics (if any) have been inserted for convenience of reference only and do not define, limit or affect the meaning or interpretation of the Chairman’s Letter, the Explanatory Memorandum and the Notice of Meeting;

• (e) reference to persons includes bodies corporate and government authorities and in each and every case, includes a reference to the person’s executors, administrators, successors and substitutes (including without limitation persons taking by novation and assignment); and

• (f) reference to $ , A$ , Australian Dollars or dollars is a reference to the lawful tender for the time being and from time to time of the Commonwealth of Australia.

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Section C – Notice of Extraordinary General Meeting

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Shareholders of NuSep Ltd ACN 120 047 556 will be held at 22 Rodborough Road, Frenchs Forest NSW 2086 on 13 March 2009 at 10.00am.

Defined terms used in this Notice of Meeting have the meanings given to them in the Glossary accompanying this Notice of Meeting.

BUSINESS

1. Resolution 1: Consolidation of Shares

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

"That in accordance with section 254H(1) of the Corporations Act and with effect from the Consolidation Date, the issued Share capital of the Company be consolidated on the basis that every twenty existing fully paid Shares in the capital of the Company be consolidated into one fully paid ordinary Share as more fully described in section 3.1 of the Explanatory Memorandum (Section D).”

2. Resolution 2: Return of capital

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to the passing of Resolutions 1, 3, 4 and 5, and in accordance with sections 256B and 256C of the Corporations Act and with effect from the Return of Capital Effective Date, the share capital of the Company be reduced by:

• (a) returning approximately 1.7 million Prime BioSeparation Shares to the Return of Capital Eligible Shareholders; and

• (b) debiting the Company’s Share capital account by approximately $233,000,

as more fully described in sections 2.1 and 3.2 of the Explanatory Memorandum (Section D).”

3. Resolution 3: Approval of issue of Shares under the General Share Offer

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to the passing of Resolutions 1, 2, 4 and 5 and for the purposes of Listing Rule 7.1 and all other purposes, the Company be permitted to issue up to 101.5 million Shares (or 5.075 million Shares on a post consolidation basis) to the Investors under the General Share Offer as more fully described in sections 2.2 and 3.3 of the Explanatory Memorandum (Section D).”

Note that if you have applied for Shares in the General Share Offer or intend to participate in the General Share Offer you cannot vote on Resolution 3

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4. Resolution 4: Approval of the NxGen Acquisition and the change to the nature and scale of NuSep’s activities

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to the passing of Resolutions 1, 2, 3 and 5, and for the purposes of Listing Rule 11.1.2 and item 7 of section 611 of the Corporations Act and all other purposes, approval is given for the proposed NxGen Acquisition and the change to the nature and scale of NuSep’s activities that will result from the Spin Out and the NxGen Acquisition as described more fully in sections 2.3 and 3.4 of the Explanatory Memorandum (Section D).”

5. Resolution 5: Approval of the issue of Consideration Shares to the NxGen Shareholders

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to the passing of Resolutions 1, 2, 3 and 4, and for the purposes of Listing Rule 10.11 and all other purposes, the Company be permitted to issue up to 507.5 million Consideration Shares (or 25.375 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that is equal to a maximum of 87.5% of the total issued Share capital of NuSep immediately prior to Completion to the NxGen Shareholder as more fully described in sections 2.3 and 3.5 of the Explanatory Memorandum (Section D).”

6. Resolution 6: Election of Mr Daryll Knowles as a Director

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and in accordance with article 64 of the Constitution, Mr Daryll Knowles be appointed as a Director of the Company on Completion of the NxGen Acquisition.”

7. Resolution 7: Election of Mr Michael John Tattersall as a Director

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and in accordance with article 64 of the Constitution, Mr Michael John Tattersall be appointed as a Director of the Company on Completion of the NxGen Acquisition.”

8. Resolution 8: Election of Dr Alan Henry Amodeo as a Director

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and in accordance with article 64 of the Constitution, Dr Alan Henry Amodeo be appointed as a Director of the Company on Completion of the NxGen Acquisition.”

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9. Resolution 9: Election of Mr John Patrick Boyd as a Director

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and in accordance with article 64 of the Constitution, Mr John Patrick Boyd be appointed as a Director of the Company on Completion of the NxGen Acquisition.”

10. Resolution 10: Election of Dr James Stevens Rowe as a Director

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and in accordance with article 64 of the Constitution, Dr James Stevens Rowe be appointed as a Director of the Company on Completion of the NxGen Acquisition.”

11. Resolution 11: Change of name of NuSep Ltd to NxGen Pharmaceuticals Ltd

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as a special resolution:

“That subject to Completion of the NxGen Acquisition and for the purposes of section 157(1) of the Corporations Act and all other purposes, the name of the Company be changed to NxGen Pharmaceuticals Ltd.”

12. Resolution 12: Issue of Options to Mr Daryll Knowles

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and for the purposes of Listing Rule 10.14 and all other purposes, the Company be permitted to issue up to 1,000,000 Options to Mr Daryll Knowles as more fully described in section 3.12 of the Explanatory Memorandum (Section D).”

13. Resolution 13: Issue of Options to Mr Michael John Tattersall

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and for the purposes of Listing Rule 10.14 and all other purposes, the Company be permitted to issue up to 900,000 Options to Mr Michael John Tattersall as more fully described in section 3.12 of the Explanatory Memorandum (Section D).”

14. Resolution 14: Issue of Options to Dr Alan Henry Amodeo

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and for the purposes of Listing Rule 10.14 and all other purposes, the Company be permitted to issue up to 900,000 Options to Dr Alan Henry Amodeo as more fully described in section 3.12 of the Explanatory Memorandum (Section D).”

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15. Resolution 15: Issue of Options to Mr John Patrick Boyd

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and for the purposes of Listing Rule 10.14 and all other purposes, the Company be permitted to issue up to 900,000 Options to Mr John Patrick Boyd as more fully described in section 3.12 of the Explanatory Memorandum (Section D).”

16. Resolution 16: Issue of Options to Dr James Stevens Rowe

Shareholders are asked to consider, and if thought fit, to pass the following Resolution as an ordinary resolution:

“That subject to Completion of the NxGen Acquisition, and for the purposes of Listing Rule 10.14 and all other purposes, the Company be permitted to issue up to 900,000 Options to Dr James Stevens Rowe as more fully described in section 3.12 of the Explanatory Memorandum (Section D).”

17. Voting exclusion statements

Resolution 3

If you have applied for Shares in the General Share Offer or intend to participate in the General Share Offer you are not permitted to vote on Resolution 3.

In accordance with the notice requirements of Listing Rule 7.3.8 for approval under Rule 7.1 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 3 by:

• (a) an Eligible Shareholder who has participated or intends to participate in the General Share Offer (a Participating Eligible Shareholder );

• (b) any associate of a Participating Eligible Shareholder; and

• (c) a person who might obtain a benefit, except a benefit solely in the capacity as a Shareholder of the Company, if Resolution 3 is passed, and an associate of any such person.

Resolution 4

In accordance with the notice requirements of Listing Rule 11.1.2 for approval under Listing Rule 11.1 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 4 by:

• (a) NxGen or the NxGen Shareholder;

• (b) any associate of NxGen or the NxGen Shareholder; and

• (c) a person who might obtain a benefit, except a benefit solely in the capacity as a Shareholder of the Company, if Resolution 4 is passed, and an associate of any such person.

Resolution 5

In accordance with the notice requirements of Listing Rule 10.13.6 for approval under Listing Rule 10.11 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 5 by:

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• (a) NxGen, the NxGen Shareholder or the NxGen Nominee Directors;

• (b) any associate of NxGen, the NxGen Shareholder or the NxGen Nominee Directors; and

• (c) a person who might obtain a benefit, except a benefit solely in the capacity as a Shareholder of the Company, if Resolution 5 is passed, and an associate of any such person.

Resolution 12

In accordance with the notice requirements of Listing Rule 10.15 for approval under Listing Rule 10.14 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 12 by Mr Daryll Knowles and his associates.

Resolution 13

In accordance with the notice requirements of Listing Rule 10.15 for approval under Listing Rule 10.14 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 13 by Mr Michael John Tattersall and his associates.

Resolution 14

In accordance with the notice requirements of Listing Rule 10.15 for approval under Listing Rule 10.14 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 14 by Dr Alan Henry Amodeo and his associates.

Resolution 15

In accordance with the notice requirements of Listing Rule 10.15 for approval under Listing Rule 10.14 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 15 by Mr John Patrick Boyd and his associates.

Resolution 16

In accordance with the notice requirements of Listing Rule 10.15 for approval under Listing Rule 10.14 and Listing Rule 14.11.1, the Company will disregard any votes cast on Resolution 16 by Dr James Stevens Rowe and his associates.

However, the Company will not disregard a vote on Resolutions 3, 4, 5, 12, 13, 14, 15 or 16 if it is cast by:

• (a) a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or

• (b) the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

18.

Determination of membership and voting entitlement

For the purpose of determining a person’s entitlement to vote at the Extraordinary General Meeting, a person will be recognised as a member of the Company and the holder of Shares if that person is registered as a holder of those Shares at 5.00pm Sydney time on Wednesday 11 March 2009, being the second Business Day prior to the date of the Extraordinary General Meeting.

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19. Votes of members

On a show of hands, each member present in person or by proxy or, in the case of a body corporate, by a corporate representative at the Extraordinary General Meeting shall have one vote.

On a poll, every member present in person or by attorney or by proxy or, in the case of a body corporate, by a representative shall have one vote for each Share held by him, her or it provided that all Shares are fully paid.

20. Proxies

Please note that:

• (a) a member entitled to attend and vote at the Extraordinary General Meeting is entitled to appoint no more than two proxies;

• (b) an instrument appointing a proxy must be in the form of the proxy form attached to this Notice of Meeting;

• (c) where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the member’s voting rights. If a member appoints two proxies, and the appointment does not specify the proportion of the member’s voting rights, each proxy may exercise one-half of the voting rights;

• (d)

• a proxy need not be a member of the Company;

• (e) if a member has or intends to participate in the General Share Offer their proxy cannot vote on Resolution 3;

• (f) a proxy form may specify the manner in which the proxy is to vote in respect of a particular Resolution and, where the proxy form so provides, the proxy is not entitled to vote on the Resolution except as specified in the proxy form;

• (g) a proxy has the authority to vote on the member’s behalf as he or she thinks fit, on any motion to adjourn the Extraordinary General Meeting, or any other procedural motion, unless the member gives a direction to the contrary;

• (h) a valid proxy form will be deemed to confer authority to demand or join in demanding a poll;

• (i) to be valid, a proxy form must be signed by the member or the member’s attorney or, if the member is a corporation, executed in accordance with the corporation’s constitution and the Corporations Act (and may be signed on behalf of the corporation by its attorney); and

• (j) to be valid, a proxy form and the power of attorney or other authority (if any) under which it is signed (or an attested copy of it) must be received by no later than 10.00am on 11 March 2009 :

by the Company:

• in person: NuSep Ltd 22 Rodborough Road Frenchs Forest NSW 2086

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• by mail: NuSep Ltd 22 Rodborough Road Frenchs Forest NSW 2086

• by facsimile: + 61 2 8977 9099

A form of proxy accompanies this Notice of Meeting and is set out in Section E (Proxy Form)

By order of the Board

==> picture [76 x 19] intentionally omitted <==

Prakash Patel Company Secretary

Dated: 13 February 2009

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Section D - Explanatory Memorandum

1. Introduction

This Explanatory Memorandum has been prepared to assist Shareholders of the Company in understanding the business to be put to Shareholders for their consideration at the forthcoming Extraordinary General Meeting on 13 March 2009.

Section 2 of this Explanatory Memorandum sets out the background to Resolutions 2 to 11 which relate to the Spin Out and the NxGen Acquisition.

Section 3 of this Explanatory Memorandum sets out further information in relation to each of the Resolutions.

All capitalised terms are defined in the Glossary in section B of this Explanatory Memorandum.

2. Background to Resolutions 2 to 11

2.1 Spin Out (Resolution 2)

Background

Prior to the NxGen Acquisition, NuSep proposes to spin out all of its assets and liabilities (including $900,000 of loans from Directors and former Directors of the Company) into a new unlisted entity, Prime BioSeparations.

Prime BioSeparations is currently a wholly-owned subsidiary of NuSep and was incorporated in Victoria on 21 November 2008.

NuSep and Prime BioSeparations have entered into an agreement by which Prime BioSeparations will acquire all of the assets and liabilities of the Company other than the shares in NxGen and a proportion of the cash raised under the General Share Offer. As part of the Spin Out, it is proposed that up to $1.2 million of the proceeds raised by the General Share Offer will be transferred to Prime BioSeparations under the above agreement to be used to repay liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from Directors and former Directors of NuSep and for working capital for Prime BioSeparations. The transfer of these funds is contingent on the amount of proceeds raised under the General Share Offer.

Completion of the Spin Out is subject to the fulfilment of a number of conditions including the passing of Resolutions 1 to 5.

In consideration for the Spin Out, NuSep will be issued with approximately 1.7 million Prime BioSeparations Shares.

Return of Capital

NuSep proposes to distribute pro rata the 1.7 million Prime BioSeparations Shares that it receives as consideration for the Spin Out to the Return of Capital Eligible Shareholders (i.e. a Shareholder who is recorded on the Company’s Share register at 5.00pm Sydney time on 20 March 2009) by conducting a return of capital.

The proposed date of the return of capital is the Return of Capital Effective Date.

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The Prime BioSeparations Shares will be distributed to Return of Capital Eligible Shareholders on the basis of one Prime BioSeparations Share for every 100 NuSep Shares held by each Eligible Shareholder (or 5 NuSep Shares on a post consolidation basis).

Return of Capital Eligible Shareholders will retain the Shares they hold in NuSep prior to the Spin Out. The NxGen Shareholder will not be entitled to participate in the return of capital.

After the return of capital is completed, NuSep will hold no Prime BioSeparations Shares.

Legal Requirements

Section 256B(1) of the Corporations Act provides that a company may reduce its share capital if the reduction:

• (a) is fair and reasonable to the company’s shareholders as a whole;

• (b) does not materially prejudice the company’s ability to pay its creditors; and

• (c) is approved by shareholders under section 256C of the Corporations Act.

The Directors consider that the proposed reduction of capital is fair and reasonable to the Company’s shareholders as a whole as:

• (a) it is to be undertaken on a pro rata basis and will affect all Shareholders equally;

• (b) Prime BioSeparations will have lower operating costs as it will be an unlisted public company; and

• (c) Prime BioSeparations will receive up to $1.2 million from the proceeds of the General Share Offer to be used for the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from Directors and former Directors of NuSep and for working capital for Prime BioSeparations. However, this is contingent on the amount of proceeds raised by the General Share Offer.

The Directors consider that the proposed reduction of capital when considered in conjunction with the proposed NxGen Acquisition will not materially prejudice the Company’s ability to pay its creditors or result in the Company becoming insolvent.

The advantages and disadvantages of the Spin Out are set out below.

Resolution 2 seeks Shareholder approval for the proposed capital return. Further details of the capital return are set out in section 3.2 of this Explanatory Memorandum.

Prime BioSeparations

On completion of the Spin Out, Prime BioSeparations will hold all of NuSep’s assets and liabilities and will conduct the business currently being conducted by NuSep of selling life sciences products to the global bioseparations market.

Further details of NuSep’s business (which will be conducted by Prime BioSeparations after the Spin Out) are set out in section 2.3.1 of this Explanatory Memorandum.

It should be noted that Prime BioSeparations does not intend to change the nature or scope of its business after the Spin Out.

The board of Prime BioSeparations is the current board of NuSep – Mr John Manusu, Dr Hari Nair and Mr Iain Sorrell. A brief profile of each director is set out below:

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Mr John Manusu - Executive Chairman

Mr Manusu has over 20 years experience running biotechnology companies. He has been involved with start-ups, turnarounds and mature organisations in the biotechnology space. He was an Executive Director of Life Therapeutics Limited and was, with Dr Hari Nair, responsible for the turnaround of that company. Mr Manusu has undertaken a number of significant acquisitions and divestures, as well as raising over $100 million in public funding and $10 million of peer reviewed government research and development grants. Mr Manusu has a degree in Commerce and is a Fellow of the Financial Services Institute of Australasia. Mr Manusu has worked in the biotechnology industry in Australia and the US and is best described as a biotechnology entrepreneur.

Dr Hari Nair - Managing Director

Dr Hari Nair has a PhD in Medicine and Clinical Science from the Australian National University. Dr Nair has run biotechnology companies in Australia and the US. Dr Nair was formerly the CEO and Managing Director of Life Therapeutic Limited. In the last decade, he has been involved in the strategy and implementation of global expansion policies in biotechnology. Dr Nair has been heavily involved in mergers and acquisitions especially in the US and in Europe and has US financial strategy experience.

Mr Iain Sorrell - Non-Executive Director

Mr Iain Sorrell is based in the United States and has over 20 years experience in the life sciences arena. He has held senior sales and marketing positions in both corporate and start-up businesses in Europe and the US. In addition to his extensive knowledge of the separations industry he has also set-up and operated a successful import and distribution organisation in the US. He is a graduate of the University of Plymouth in Applied Biology. In addition to on-going consultative roles he is also actively involved on the board of trustees for non-profit organisations. He is best recognised for his ability to develop new markets and co-ordinate international distribution.

Advantages and disadvantages of the Spin Out

Advantages

The main advantages associated with the Spin Out are:

• (a) Shareholders will retain their interest in the assets held by NuSep prior to the NxGen Acquisition through their individual pro rata shareholdings in Prime BioSeparations;

• (b) all Shareholders are able to participate in the ownership of Prime BioSeparations; and

• (c) Prime BioSeparations will receive up to $1.2 million from the proceeds of the General Share Offer which will be used for the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from Directors and former Directors of NuSep and for working capital for Prime BioSeparations. However, this will depend on the proceeds raised by the General Share Offer.

Disadvantages

The main disadvantages associated with the Spin Out are:

• (a) Shareholders will not have a ready market in which to sell their Prime BioSeparations shares as Prime BioSeparations is an unlisted public company. Accordingly, it would be likely to be difficult for shareholders to realise the value of their investment. The

20

circumstances in which investments could be realised are likely to be limited to an initial public offering of Prime BioSeparations which includes a facility for shareholders to sell down their shares, a takeover of the company by a third party or the sale of Prime BioSeparations for cash;

• (b)

• there is no guarantee that shares in Prime BioSeparations will increase in value;

• (c) Prime BioSeparations will acquire all of the liabilities held by NuSep prior to the NxGen Acquisition including $900,000 in loans from Directors and former Directors of NuSep (although these loans are proposed to be repaid from the $1.2 million in funds raised by the General Share Offer that is to be transferred to Prime BioSeparations under the Spin Out. However, the transfer of the $1.2 million to Prime BioSeparations is contingent on the amount of proceeds raised under the General Share Offer);

• (d) the assets of NuSep that will be acquired by Prime BioSeparations under the Spin Out are currently held in a listed public company and certain information regarding these assets is required to be made publicly available on a continuous basis pursuant to the ASX Listing Rules. If the Spin Out is completed, the board of Prime BioSeparations will be required to provide information to Prime BioSeparations’ shareholders in accordance with the Corporations Act. However, it is likely that this information will be more limited, and be released less frequently, than for a listed investment;

• (e) as an ASX listed company, NuSep is subject to strict requirements in relation to the procedures and standards adopted by the Board. If the Spin Out is implemented, the directors of Prime BioSeparations will not be subject to these corporate governance rules. However, the directors of Prime BioSeparations will act in the best interests of the Prime BioSeparations shareholders and will continue to be subject to the directors’ duties imposed by the Corporations Act and the common law; and

• (f) Shareholders may incur additional transaction costs if they wish to dispose of their investment in Prime BioSeparations.

Financial information

Set out below is a pro forma balance sheet for Prime BioSeparations as at 28 February 2009 which sets out the company’s balance sheet pre and post the Spin Out. Under the Spin Out, it is proposed that up to $1.2 million of the funds raised under the General Share Offer will be transferred to Prime BioSeparations. However, this will depend on the proceeds received under the General Share Offer. Accordingly, set out below is a proforma balance sheet for Prime BioSeparations with:

• (a) the first column setting out the actual financial position of Prime BioSeparations prior to the Spin Out;

• (b) the second column setting out the financial position of Prime BioSeparations on a pro-forma basis post the Spin Out assuming no Shares are subscribed for under the General Share Offer and none of the $1.2 million is transferred to Prime BioSeparations under the Spin Out; and

• (c) the third column setting out the financial position of Prime BioSeparatiopns on a proforma basis post the Spin Out assuming the General Share Offer is fully subscribed.

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CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Secured other payables Short-term provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Long-term provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES	Actual pre Spin Out- 28 February 2009 $	Pro Forma post Spin Out (assuming no cash raised under the General Share Offer) - 1 March 2009 Pro Forma post Spin Out (assuming General Share Offer is fully subscribed and $5.075 million is raised) - 1 March 2009 $ $ 1,200,000 90,000 90,000 185,000 185,000	Pro Forma post Spin Out (assuming no cash raised under the General Share Offer) - 1 March 2009 Pro Forma post Spin Out (assuming General Share Offer is fully subscribed and $5.075 million is raised) - 1 March 2009 $ $ 1,200,000 90,000 90,000 185,000 185,000
		275,000	1,475,000
		300,000 300,000 575,000 420,000 900,000 155,000 1,475,000 67,000 67,000 1,542,000	300,000
			300,000
			1,775,000
			420,000 900,000 155,000
			1,475,000
			67,000
			67,000
			1,542,000

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NET ASSETS

	22
NET ASSETS NET EQUITY		(967,000) (967,000)	233,000
			233,000

2.2 General Share Offer (Resolution 3)

The Company is proposing to conduct a General Share Offer of up to 101.5 million Shares (or 5.075 million Shares on a post consolidation basis) to raise up to $5,075,000 million under the Prospectus.

Priority will be given to Eligible Shareholders under the offer on a first come first served basis.

The funds raised under the General Share Offer will be used to fund:

• (a) the expenses of the General Share Offer;

• (b) the cash component of the consideration for the NxGen Acquisition;

• (c) the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from Directors and former Directors of NuSep and for working capital for Prime BioSeparations; and

• (d) NxGen’s working capital and expansion of its products in the US market.

The General Share Offer will not be underwritten. However, brokers that refer successful applicants to the General Share Offer will receive a fee of 6% of the relevant applicant’s application money. The fee will be paid on applications which include a broker’s stamp.

The funds raised under the General Share Offer will first be used to pay the expenses of the General Share Offer. These costs are expected to be approximately $700,000.

On the assumption that the General Share Offer is fully subscribed,

• (a) $3.1 million of the proceeds raised will be used to fund the cash component of the Second Instalment and NxGen’s working capital and expansion into the US; and

• (b) $1.2 million will be transferred to Prime BioSeparations under the Spin Out to be used by Prime BioSeparations for the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from Directors and former Directors of NuSep and for working capital for Prime BioSeparations.

If the General Share Offer is not fully subscribed, after the expenses of the offer are paid, any remaining proceeds will be split evenly between:

• (a) the payment of the Second Instalment and NxGen’s working capital and US expansion; and

• (b) the transfer of up to $1.2 million to Prime BioSeparations.

Resolution 3 seeks Shareholder approval to issue up to 101.5 Shares (or 5.075 Shares on a post consolidation basis) to Investors under the General Share Offer. Further information is set out in section 3.3 of this Explanatory Memorandum.

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2.3 NxGen Acquisition (Resolutions 4 to 11)

On 1 October 2008, the Directors announced that NuSep had entered into a Heads of Agreement to acquire 100% of the issued share capital of NxGen. The Company and NxGen then entered into an Implementation Deed in relation to the NxGen Acquisition and announced it to the market on 1 December 2008.

Consideration for the NxGen Acquisition will be paid to the NxGen Shareholder in the following three instalments:

• (a) by the issue of 319 million Consideration Shares (or 15.95 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal to 55% of the total issued Share capital of NuSep immediately prior to Completion on Completion of the NxGen Acquisition (i.e. the First Instalment);

• (b) by the payment of cash and/or the issue of up to a maximum of 101.5 million Consideration Shares (or 5.075 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal up to a maximum of 17.5% of the issued Share capital of NuSep on Completion within 15 Business Days of the close of the Company’s General Share Offer (i.e. the Second Instalment). In the event that the General Share Offer is fully subscribed the Second Instalment shall be paid in cash. In the event that the General Share Offer is not subscribed or partly subscribed, the proportion of cash and Consideration Shares in the Second Instalment shall be determined by the Board immediately prior to Completion (i.e. the proportion of cash and Consideration Shares in the Second Instalment will depend on the amount of proceeds raised by the General Share Offer); and

• (c) by the issue of 87 million Consideration Shares (or 4.35 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal to 15% of the total issued Share capital of NuSep immediately prior to Completion provided that NxGen reaches a pre-tax profit of $2.1 million (i.e. the Third Instalment). Such pre-tax profit must be reached prior to or on 30 June 2010. If the Consideration Shares in the Third Instalment are not issued by 30 September 2010, the Third Instalment will lapse.

The Consideration Shares will not be issued until the Company has met the requirements in Chapters 1 and 2 of the ASX Listing Rules and been re-admitted to the Official List.

The issue of the Consideration Shares to the NxGen Shareholder will result in the NxGen Shareholder holding up to a maximum of 87.5% of the total issued Share capital in NuSep. As noted above, the number of Consideration Shares issued will depend on the level of proceeds raised by the General Share Offer and whether NxGen reaches a pre-tax profit of $2.1 million by 30 June 2010. The NxGen Acquisition and the Spin Out are interconditional. It is proposed that the NxGen Acquisition will be completed shortly after the Spin Out assuming that Shareholders approve the relevant resolutions.

2.3.1 Company’s Business

NuSep is a publicly listed life sciences company that sells products to the global bioseparatons market. The Company has offices in Sydney and Atlanta, US.

With a 30 year heritage in biological separations, NuSep has forged a reputation for its innovative yet simple biological separation techniques including the world’s first IVF sperm separation device.

NuSep’s research team has developed an extensive portfolio of patented products. In all, NuSep currently manufactures, distributes and sells 55 products to customers in Australia, Europe, Asia and the US.

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NuSep’s products include:

• (a) Gels – NuSep manufacturers and sells precast gels including the innovative iGels, with a 2 year shelf life;

• (b) separation instruments – NuSep has developed two unique biological separation instruments. The first instrument released in February 2008 can separate biological samples into eight fractions for use in the proteomic market. The second instrument separates sperm for fertility treatments such as IVF and is presently undergoing clinical trials; and

• (c) biological products – NuSep supplies research grade biological products manufactured using its unique separation technologies.

As a result of the Spin Out, all of NuSep’s assets and liabilities other than the shares being acquired in NxGen and a proportion of the cash raised under the General Share Offer will be acquired by Prime BioSeparations and Prime BioSeparations will conduct the business currently being conducted by NuSep.

2.3.2 NxGen’s Business

NxGen is a fully diversified pharmaceutical business and the largest developer and licensor of custom pharmaceuticals in Australia. The company has two wholly-owned subsidiaries – ASA and NxGen Australia. A structure diagram of the NxGen Group is set out below:

==> picture [343 x 118] intentionally omitted <==

----- Start of picture text -----

NxGen
ASA NxGen Australia
----- End of picture text -----

ASA is a wholesale distributor of chemicals and other compounding supplies and is operating through a licence from the NSW Department of Health. ASA is the exclusive Australian and New Zealand distributor for Medisca Inc.’s fine chemicals and active pharmaceutical ingredients and has over 200 customers in Australia.

NxGen Australia conducts market research, training and educational services for NxGen.

NxGen has experienced solid growth over the past couple of years, partly as a result of the expansion of its scientific formulation and analytical capabilities which have resulted in the commercialisation of a number of new products. In addition, NxGen has a solid pipeline of new products which it will bring to the market over the next few years. The company’s development pipeline includes a number of novel products such as a slow release implant designed to overcome substance abuse including opiate, amphetamine and alcohol addiction.

NxGen is the dominant market player in the Australian custom pharmaceuticals development market. NxGen has focused its expertise on several niche markets including:

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• (a) pharmaceutical;

• (b) sexual dysfunction;

• (c) veterinary pharmaceuticals;

• (d) innovative cosmetics and peptide therapies; and

• (e) drug development formulation.

Sources of 30 June 2008 Revenue*

==> picture [30 x 12] intentionally omitted <==

----- Start of picture text -----

50%
----- End of picture text -----

==> picture [399 x 248] intentionally omitted <==

----- Start of picture text -----

10%
10%
Pharmaceutical
Cosmetics
Sexual Dysfunction
Veterinary Pharmaceutical
20% Drug Development and
Formulation
10%
----- End of picture text -----

• This diagram shows the sources of NxGen’s revenue as at 30 June 2008

To date, sales of NxGen’s sexual dysfunctional products have been limited to the Australian market. NxGen will use some of the funds raised under the General Share Offer to open the US market for its nasal spray products. The US market is approximately 20 times the size of the Australian market. In addition, NxGen’s major Australian client is currently expanding into the UK market, which is approximately 3 times the size of the Australian market. NxGen is also considering distributing its products into other parts of the world.

NxGen recently developed and licensed a prostate herbal mixture which is sold exclusively in Australia. As part of the development process NxGen assisted its client who licensed this product, to obtain a TGA license to market it worldwide. Furthermore, NxGen has recently begun to develop a local anaesthetic gel for minor surgical procedures and injections for children. Phase 1 clinical trials are scheduled to start shortly in a major Australian teaching hospital and initial results of these trials should be available in approximately 12 months time. Pre-release orders have already been received for this product from a number of overseas distribution companies.

Currently, NxGen is in negotiations to produce cosmetics for worldwide distribution with several international cosmetic companies.

NxGen’s potential future pipeline of products comes from several growth areas including substance abuse medications. One of these potential products is a slow release product to

26

overcome addiction to “ICE” (i.e. methamphetamine) and cocaine. While this project is still in its early stages initial tests have been promising.

Off Label Regulatory Provisions

NxGen develops products that range from nutritional supplements through to prescription pharmaceuticals that need to be prescribed by doctors. The pharmaceutical products developed by NxGen for the custom pharmaceutical market are exempt from the Therapeutic Goods Act 1989 under section 5, item 6 of the Therapeutic Goods Regulations 1990 and Schedule 8(2) of the Therapeutics Goods Regulations 1990. This exemption allows doctors to prescribe NxGen’s custom pharmaceuticals. This is often called ‘Off Label’ use.

NxGen develops products that are prescribed by doctors. The doctor specifies the active constituents required for a specific patient on the prescription and NxGen then develops a product incorporating these active constituents. This approach allows the doctor to prescribe an individual medication specific to the patient’s needs rather than trying to make a patient fit a predefined therapeutic regimen. Also, this approach allows doctors to prescribe medications where there is no commercial product available.

NxGen and its founders have been creating and developing products for doctor prescriptions both in Australia and overseas for over 15 years. Pharmacy compounding is a well established business worldwide. One of NxGen’s core competencies is its ability to quickly develop stable and effective products to meet the exact demands of individually tailored prescriptions.

Each of the active constituents in NxGen’s products have previously been approved by a regulatory authority such as the FDA and have been commonly used to treat ailments for many years. These active constituents have been the subject of extensive clinical trials over the years, albeit using different dose formulations. These clinical trials have confirmed that the medications are clinically effective and have provided detailed data on safety and efficacy.

NxGen’s custom pharmaceutical products have not been approved for over the counter sales. This means that its products cannot be sold under a brand name nor can they be sold through a retail pharmacy.

The provision of NxGen’s developed medications through pharmacies on an individual prescription basis is lawful in Australia, the United Kingdom, the United States and most other countries around the world.

The use of custom pharmaceuticals is a common practice and allows doctors to individualise the medication to the patient’s requirements and to prescribe drugs to address aliments not otherwise covered by mainstream medications. NxGen’s founders have successfully operated a number of compounding organisations within the Australian regulatory environment for over 25 years.

The US custom pharmaceutical market works along the same principles as the Australian compounding market. There are numerous compounding pharmacies in the US and the US compounded or “Off Label” regulations are similar to the Australian regulations. In addition, NxGen has received advice that its proposed operations in the US will comply with all relevant legal requirements including FDA regulations.

Individual Tailored Medications – The NxGen Advantage

One of NxGen’s core competencies is its ability to develop and formulate ‘one off’ medications for patients. This is a skill that the founders of NxGen have developed over a 25 year period, both in the Australian and overseas markets.

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Individual medication offers many advantages to a patient, not least of which is the speed and efficacy of the treatment. Proteomics is opening up the individual medication area by offering individual health profiling. This will enable people to know if they are predisposed to certain diseases, particularly hereditary diseases. NxGen is a leader in the preparation of medications for this individual medicine future.

It is NxGen’s business model to develop individually tailored medication for its clients thus offering a long-term individual therapeutic regimen which the patient can safely utilise for many years. NxGen will advertise its services to the general public and use different media to send out different product offerings thereby breaking the market into a number of niches.

NxGen has developed more than 20 proprietary compound formulations using previously approved ingredients. These products are provided in a number of delivery formats including nasal spray, lozenges and gel formulation. NxGen has developed a number of different products and delivery mechanisms which allow doctors to prescribe and pharmacies to dispense a tailored individual product for each patient. This approach fundamentally differentiates NxGen’s business model and sets it apart from other pharmaceutical organisations.

Finally, the range of treatment options open to NxGen allows the company to tailor treatment to a patient’s particular needs. This is particularly important for a number of patient groups who can’t use existing products or require different treatment regimes.

Market for NxGen’s Products

This section sets out the markets for NxGen’s main products in more detail.

(a) Drug Development and Formulation

Drug development, formulation and stability are critical in the development of a new pharmaceutical product. Less than 1 in every 3 drugs finally reaches the market and even those that do often require reformulation and stability testing to overcome short comings such as shelf life. NxGen, through its many years of product development and the formulation experience of its expert team has built up a significant skill base in developing stable and effective pharmaceutical formulations.

Drug development as discussed here relates to the development, formulation, small scale manufacture (non-TGA) and regulatory processing of new products for the pharmaceutical market. NxGen undertakes drug development and formulation for many of Australia’s top niche market and contract pharmaceutical companies. In addition NxGen has also developed high tech skin treatments and transdermal topical creams.

• (b) Sexual Dysfunction Markets

The sexual dysfunction markets covers erectile dysfunction, premature ejaculation and female sexual dysfunction. In these markets NxGen only has direct competition in the erectile dysfunction market.

In the 12 months ended 30 June 2008, NxGen received $220,000 from the sales of its sexual dysfunction products.

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Erectile Dysfunction Market

Erectile dysfunction affects the lives of many middle-aged men.

There have been a number of studies on the prevalence of erectile dysfunction. As an example, in the Massachusetts Male Aging Study (MMAS) it was revealed that 52% of men aged 40 – 70 years report some degree of erectile dysfunction.[1] It is estimated that about 150 million men worldwide suffer from erectile dysfunction. According to the MMAS study, age is a significant factor in the rate of erectile dysfunction. Between the ages of 40 to 70 years, the incidence of moderate erectile dysfunction doubles from 17% to 34%, whereas that of severe erectile dysfunction triples from 5% to 15%.

Previously, doctors thought erectile dysfunction was primarily caused by psychological factors. While thoughts and emotions always play a role in getting an erection, erectile dysfunction is usually caused by a physical cause, such as a chronic health problem or the side effects of medication.

Common causes of erectile dysfunction include:

• (a) heart disease;

• (b) clogged blood vessels (atherosclerosis);

• (c) high blood pressure;

• (d) diabetes;

• (e) obesity; and

• (f) metabolic syndrome.

In some cases erectile dysfunction is one of the first signs of an underlying medical problem.

Despite this significant growth, it is estimated that 85 – 90% of men with erectile dysfunction remained untreated[2] . In 2005, the erectile dysfunction market was estimated to be US$1.95 billion[3] and by 2006, the market had grown to US$3.8 billion. It is forecast to increase by 74% to US$6.6 billion by 2012.[4] This report also notes that growth could be greater if a drug could address the 30% of people for whom the current treatments available fail. The NxGen product addresses this unmet need.

The NxGen erectile and other sexual dysfunction developed products are distributed via AMI Australia and ACP with AMI Australia marketing the products and ACP compounding the products.

NxGen’s commercial relationship with ACP is particularly important. A pharmaceutical licence is required to compound NxGen’s sexual dysfunction products. As NxGen does not hold a pharmaceutical licence it relies on ACP which holds a pharmaceutical licence to compound its products.

1 E Medicine Erectile Dysfunction. www.emedicine.com/MED/topic3023.htm

2 Jan 2008 Erectile Dysfunction Market Assessment and Analysis 2007 to 2022 , BioPortfolio Limited

3April 2007 Commercial opportunity awaits in erectile dysfunction market www.pharmaceutical-businessreview.com/article_feature.asp?guid=92C3C6D3-3E02-4783-9A68-7DA3FE5982B9

4 April 2006 Erectile Dysfunction Market Shows Flaccid Growth, but VIVUS may rise high (PFE, LLY, GSK, VVUS, NEXM) http://seekingalpha.com/article/9731-erectile-dysfunction-market-shows-flaccid-growth-but-vivus-may-rise-high-pfe-lly-gsk-vvus-nexm

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AMI Australia is a subsidiary of AMI Inc. which is a US over the counter company with the code AVMD. NxGen does not currently have a formal contractual agreement with AMI Australia.

If NxGen’s relationship with either AMI Australia or ACP were to break down NxGen would be unable to distribute its sexual dysfunction products to the market until other suitable arrangements were established. In particular, if NxGen’s relationship was to break down with ACP, NxGen would be required to find another pharmaceutical licensee to compound its products. Without the services of a pharmaceutical licensee, NxGen could not sell its sexual dysfunction products to the market. It should be noted that ACP is a wholly-owned company of Mr Daryll Knowles who is the CEO of NxGen and a NxGen Nominee Director.

NxGen’s products compete directly with products such as Viagra, Cialis and Levitra.

NxGen’s licence fee for these product sales by AMI Australia and ACP for the 12 months ended 30 June 2008 was $220,000.

(c) Premature Ejaculation Market

Premature ejaculation is one of the most common of all male sexual dysfunctions. This is a more common problem in younger men but older men can also suffer from it.

Contrary to the perceptions given by the increased awareness of erectile dysfunction, premature ejaculation is the most common form of male sexual dysfunction. Even though it is a common problem that can be treated, many men feel embarrassed to talk to their doctors about it or seek treatment. Once thought to be purely psychological, experts now know that biological factors also play an important role in premature ejaculation. In some men, premature ejaculation is related to erectile dysfunction.

Experts believe a number of biological factors may contribute to premature ejaculation, including:

• (a) abnormal hormone levels;

• (b) abnormal levels of brain chemicals called neurotransmitters;

• (c) certain thyroid problems;

• (d) inflammation and infection of the prostate or urethra; and

• (e) inherited traits.

According to “Sexual behaviour and sexual dysfunctions after age 40: The global study of sexual attitudes and behaviours”[5] , 14% of the male population suffers from premature ejaculation compared with 10% of the male population who suffer from erectile dysfunction. This suggests that the market for premature ejaculation treatment is larger than the US$3.8 billion erectile dysfunction market. Treatment options for premature ejaculation are limited and there are no labelled treatments available.

Female Sexual Dysfunction Market

Female sexual dysfunction affects as many as four in every 10 women at some point in their lives.

5 Sexual behaviour and sexual dysfunctions after age 40: the global study of sexual attitudes and behaviours. Urology 2004 64: 991997.

30

Female sexual dysfunction has many possible symptoms and causes most of which are treatable. Women can suffer female sexual dysfunction at any age, but sexual problems are most common when hormones are in flux for example, when having a baby or during the menopause transition.

(d) Pharmaceutical, Veterinary and Cosmetic Markets

These markets account for 30% of NxGen’s sales. They cover a number of different products including animal hormone preparations for the equine and canine market, antiparasitic preparations for poultry and antibiotics and gastric products for horses.

NxGen’s Proposed US Market Entry Strategy

NxGen’s proposed US market entry strategy is based on its successful Australian business model. NxGen proposes to establish a US based compounding organisation to formulate products for use in the sexual dysfunction and other core products markets from ingredients already approved by the Food and Drug Administration (FDA) under the ‘Off Label’ provisions. It is proposed that a US call centre be established to direct potential customers to a doctor’s clinic for a consultation. The doctors will prescribe the appropriate individual medication which will be filled by the US based compounding organisation.

NxGen is currently in negotiations with a potential US partner and believes that it will enter the US market later this year. However, there is no guarantee that this will occur and if it does it may be some time before any US based operations are profitable.

For the initial push into the US market NxGen will concentrate on the sexual dysfunction market and in particular, NxGen will offer treatments for:

• (a) erectile dysfunction; and

• (b) premature ejaculation.

As set out above, NxGen believes that its extensive product offering provides it with advantages over licensed competing products. NxGen will focus on those people for whom the existing products have failed to work. This latter group represents approximately 30% of all men who have tried the existing products[6] .

Once NxGen has established its US compounding facility it will start advertising in selected geographic markets. The potential customers phone a call centre and a consultation with a doctor will be organised. If the NxGen products are appropriate, the doctor will write a prescription for the patient that will be filled by the NxGen US compounding organisation. Once the prescription has been manufactured it will be couriered directly to the patient.

NxGen aims to build a long term relationship with its patients. This relationship can only be maintained on the basis of an individual medication plan that meets the patient’s needs rather than trying to make all patients use the one tablet. Treatment programs can extend to up to 24 months.

NxGen intends to establish operations in several core states and to then expand into additional markets. Its initial target markets are New York, New Jersey, Connecticut, California and Florida. These markets have been selected for a number of reasons. The New York Tri State area and California were chosen as these states have large populations and high per capita incomes. Further, NxGen intends to establish its US compounding

6 April 2007 Commercial opportunity awaits in erectile dysfunction market www.pharmaceutical-businessreview.com/article_feature.asp?guid=92C3C6D3-3E02-4783-9A68-7DA3FE5982B9

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facilities in the New York and Arizona areas. Florida was chosen as this state has an older population which should offer a higher rate of people with a need for the NxGen product offering.

Material Contracts and Arrangements

A summary of the material contracts that NxGen is a party to are set out below.

• (a) Implementation Deed

The Company entered into an Implementation Deed with the NxGen Shareholder, NxGen, Michael John Tattersall, Alan Henry Amodeo, John Patrick Boyd and James Steven Rowe and announced it to the ASX on 1 December 2008. Under the Implementation Deed, the Company agreed to acquire the entire issued share capital of NxGen in consideration for cash and the issue of a number of ordinary shares in the capital of the Company (i.e. the Consideration Shares), equal to a maximum of seven times the number of ordinary shares issued in the capital of the Company at the close of business on the day immediately prior to Completion.

The Implementation Deed contains the following material terms and conditions:

• (i) ( Conditions ) – the completion of the transaction contemplated under the Implementation Deed is subject to a number of conditions including completion of due diligence by the Company to the Board’s satisfaction, the receipt of an independent expert’s report by the Board, the holding of the Extraordinary General Meeting and the passing of the resolutions necessary to complete the proposed transaction, receipt by the Company of all necessary ASX, ASIC and regulatory approvals, lodgement of the Prospectus and the completion of the Spin Out;

• (ii) ( Consideration ) the consideration under the Implementation Deed shall be payable to the NxGen shareholder in three instalments. The first instalment shall be paid on Completion by the issue of such number of shares that equals 55% of the total issued share capital of the Company immediately prior to Completion. The second instalment shall be paid within 15 days Business Days of the close of the General Share Offer by the payment of cash (the amount determined by the total amount raised under the General Share Offer) and/or the issue of such number of Consideration Shares that equals a maximum of 17.5% of the issued share capital of the Company on Completion. The third instalment shall be paid by the issue of such number of shares that equals 15% of the total issued share capital of the Company immediately prior to Completion when NxGen reaches a pre-tax profit of $2.1 million. Such pre-tax profit must be reached prior to or on 30 June 2010 or the NxGen Shareholder’s entitlement to the third instalment will lapse;

• (iii) ( Completion ) – Completion will occur on the later of 2 Business Days after the conditions set out at paragraph (i) have been completed or 27 February 2009. Under clause 8 of the Implementation Deed, the Company and the NxGen Shareholder may agree in writing any other time for Completion;

• (iv) ( Warranties ) – both the Company and the NxGen Shareholder have given the other party warranties in respect of its authority and capacity to enter into the Implementation Deed and in respect of requisite actions to implement the proposed transaction. In addition the NxGen Shareholder has provided standard warranties in respect of the shares of NxGen and the NxGen business. If applicable, each party has three years to notify the other party of a claim under the warranties and up to 5 years in relation to a claim regarding taxation;

• (v) ( NxGen Shareholder indemnity ) - save for items expressly excluded under the Implementation Deed the NxGen Shareholder indemnifies the Company and NxGen

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against any claim or liability which it may incur as a result of any matter or thing in respect of NxGen being other than as represented in the Implementation Deed; where there is a breach of warranty, a share being worth less had there been no such breach; any liability of NxGen in respect of the period, or relating to or arising from events or circumstances that occurred prior to Completion; and any breach of the Implementation Deed by the NxGen Shareholder;

• (vi) ( Company indemnity ) – save for items expressly excluded under the Implementation Deed the Company indemnifies the NxGen Shareholder against any breach of the Implementation Deed by the Company;

• (vii) ( Termination ) – either party will have a right to delay Completion or terminate the Implementation Deed if a Termination Event occurs and the party in default is notified and unable to rectify the situation within 10 Business Days of such notification; and

• (viii) ( Restrictive covenant ) – the NxGen Shareholder, each of the Jehega Directors and their affiliates is restricted from directly or indirectly competing with and soliciting staff, suppliers and customers from NxGen for a period of up to 2 years in New South Wales or Australia. Under the restrictive covenant they may not divulge any information to a third party relating to NxGen.

(b) Wholesale Supply Agreement

ASA entered into the Wholesale Supply Agreement on 1 July 2007. Under the Wholesale Supply Agreement, ASA has been engaged to provide by wholesale, the raw ingredients used by ACP in its day-to-day compounding activities. The term of the Wholesale Supply Agreement is 5 years, plus an option to extend for a further period of 5 years, unless terminated in accordance with the terms of the agreement (summarised below).

ASA generated $1,439,414 in revenue for the financial year ended 30 June 2008 from ACP under the agreement. The Wholesale Supply Agreement contains the following material terms and conditions:

• (i) ( Termination for breach ) - either party may terminate the Wholesale Supply Agreement if the other party breaches, or fails to comply with, any provision of the agreement and fails to remedy the breach or non-compliance within 14 days of receiving written notice specifying the breach or non-compliance;

• (ii) ( Termination for insolvency event ) – either party may terminate the Wholesale Supply Agreement if the other party makes a general assignment for the benefit of creditors, has a receiver or trustee appointed, applies for relief under any insolvency law, enters into liquidation in respect of the whole or part of its business or assets or a mortgagee takes possession of the whole or part of its business or assets;

• (iii) ( Termination by ASA ) – ASA may terminate the Wholesale Supply Agreement if ACP fails to provide guidance on future product introduction to the reasonable satisfaction of ASA and fails to remedy such failure within 14 days of receiving written notice from ASA;

• (iv) ( Termination by ACP ) – ACP may terminate the Wholesale Supply Agreement if ASA fails to perform the services to the reasonable satisfaction of ACP and fails to remedy such failure within 14 days of receiving written notice from ACP;

• (v) ( Intellectual property ) – ASA owns all intellectual property rights in all information relating to raw ingredients supplied by ASA. ASA indemnifies ACP against any action, claim, suit or demand in respect of any breach of a third party’s intellectual

33

property rights relating to the provision of goods or services under the Wholesale Supply Agreement;

• (vi) ( Guidance on advertising ) – ASA will be responsible to ACP for providing guidance on advertising and professional standards in advertising so as to comply with the ACCC code of conduct for advertising;

• (vii) ( Indemnity and damages ) – ASA releases and indemnifies ACP and its employees and agents from any damages, costs, expenses, loss or damage which they may incur and all actions, proceedings, claims and demands which may be brought against them, arising out of:

• the provision of the services by ACP under the Wholesale Supply Agreement;

• any negligence or other wrongful act or omission of ACP;

• death, injury, loss of or damage to ACP; or

• any breach of the Wholesale Supply Agreement by ACP.

ASA’s liability is reduced to the extent that any action, proceeding, claim or demand arises out of any negligence or other wrongful act or omission of ACP; and

• (viii) ( Obligation to pay staff ) - ASA indemnifies ACP against:

• any obligation to make any payment to ASA staff and other personnel engaged in the provision of the Wholesale Supply Agreement; and

• any obligation to pay any related statutory taxes, fees, levies or charges.

• (c) ACP Service Agreement

NxGen Australia entered into the ACP Service Agreement on 1 July 2007. Under the agreement, NxGen Australia has been engaged to provide marketing services to ACP. The term of the ACP Service Agreement is 5 years, plus an option to extend for a further period of 5 years, unless terminated in accordance with the terms of the agreement (summarised below). During the remainder of the term of the ACP Service Agreement, NxGen Australia expects to receive $300,000 in revenue from the agreement.

The ACP Service Agreement contains the following material terms and conditions:

• (i) ( Termination for breach ) - either party may terminate the ACP Service Agreement if the other party breaches, or fails to comply with, any provision of the agreement and fails to remedy the breach or non-compliance within 14 days of receiving written notice specifying the breach or non-compliance;

• (ii) ( Termination for insolvency event ) – either party may terminate the ACP Service Agreement if the other party makes a general assignment for the benefit of creditors, has a receiver or trustee appointed, applies for relief under any insolvency law, enters into liquidation in respect of the whole or part of its business or assets or a mortgagee takes possession of the whole or a substantial part of its business or assets;

• (iii) ( Termination by NxGen Australia ) – NxGen Australia may terminate the ACP Service Agreement if ACP fails to provide guidance on future products to the reasonable satisfaction of NxGen Australia and fails to remedy such failure within 14 days of receiving written notice from NxGen Australia;

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• (iv) ( Termination by ACP ) – ACP may terminate the ACP Service Agreement if NxGen Australia fails to perform the services to the reasonable satisfaction of ACP and fails to remedy such failure within 14 days of receiving written notice from ACP;

• (v) ( Intellectual property ) – ACP owns all intellectual property rights in all information relating to products compounded by ACP. ACP indemnifies NxGen Australia against any action, claim, suit or demand in respect of any breach of a third party’s intellectual property rights relating to the provision of goods or services under the ACP Service Agreement;

• (vi) ( Indemnity and damages ) – NxGen Australia releases and indemnifies ACP and its employees and agents from all damages, costs, expenses, loss or damage which they may incur and all actions, proceedings, claims and demands which may be brought against them, arising out of:

• the provision of the services by ACP under the ACP Service Agreement;

• any negligence or other wrongful act or omission of ACP;

• death, injury, loss of or damage to ACP; and

• any breach of the ACP Service Agreement by ACP.

NxGen Australia’s liability is reduced to the extent that any action, proceeding, claim or demand arises out of any negligence or other wrongful act or omission of ACP; and

• (vii) ( Obligation to pay staff ) – NxGen Australia indemnifies ACP against:

• any obligation to make any payment to NxGen Australia staff and other personnel engaged in the provision of the ACP Service Agreement; and

• any obligation to pay any related statutory taxes, fees, levies or charges.

• (d) ASA Service Agreement

NxGen Australia entered into the ASA Service Agreement on 1 July 2007. Under the agreement, NxGen Australia has been engaged to provide marketing services to ASA. The term of the ASA Service Agreement is 5 years, plus an option to extend for a further period of 5 years, unless terminated in accordance with the terms of the agreement (summarised below). During the remainder of the term of the ASA Service Agreement, NxGen Australia expects to receive $180,000 in revenue from the agreement.

The ASA Service Agreement contains the following material terms and conditions:

• (i) ( Termination for breach ) – either party may terminate the ASA Service Agreement if the other party breaches, or fails to comply with, any provision of the agreement and fails to remedy the breach or non-compliance with 14 days of receiving written notice specifying the breach or non-compliance;

• (ii) ( Termination for insolvency event ) – either party may terminate the ASA Service Agreement if the other party makes a general assignment for the benefit of creditors, has a receiver or trustee appointed, applies for relief under any insolvency law, enters into liquidation in respect of the whole or part of its business or assets or a mortgagee takes possession of the whole or a substantial part of its business or assets;

35

• (iii) ( Termination by NxGen Australia ) – NxGen Australia may terminate the ASA Service Agreement if ASA fails to provide guidance on future product introduction to the reasonable satisfaction of NxGen Australia and fails to remedy such failure within 14 days of receiving written notice from NxGen Australia;

• (iv) ( Termination by ASA ) – ASA may terminate the ASA Service Agreement if NxGen Australia fails to perform the services to the reasonable satisfaction of ASA and fails to remedy such failure within 14 days of receiving written notice from ASA;

• (v) ( Intellectual property ) – ASA owns all intellectual property in all information relating to raw material ingredient supplied by ASA. ASA indemnifies NxGen Australia against any action, claim, suit or demand in respect of any breach of a third party’s intellectual property rights relating to the provision of goods or services under the ASA Service Agreement;

• (vi) ( Indemnity and damages ) – NxGen Australia releases and indemnifies ASA and its employees and agents from all damages, costs, expenses, loss or damage which they may incur and all actions, proceedings, claims and demands which may be brought against them, arising out of:

• the provision of the services by ASA under the ASA Service Agreement;

• any negligence or other wrongful act or omission of ASA;

• death, injury, loss of or damage to ASA; and

• any breach of the ASA Service Agreement by ASA.

NxGen Australia’s liability is reduced to the extent that any action, proceeding, claim or demand arises out of any negligence or other wrongful act or omission of ASA; and

• (vii) ( Obligation to pay staff ) – NxGen Australia indemnifies ASA against:

• any obligation to make any payment to NxGen Australia staff and other personnel engaged in the provision of the ASA Service Agreement; and

• any obligation to pay any related statutory taxes, fees, levies or charges.

• (e) AMI Australia

ACP currently uses AMI Australia to market and distribute its erectile dysfunction and premature ejaculation products. NxGen receives a licence fee from ACP for the development of these products. NxGen currently does not have a formal contractual agreement with AMI Australia.

NxGen’s licence fee for products sold by ACP to AMI Australia for the 12 months ended 30 June 2008 was $220,000.

• (f) Medisca Inc.

ASA, a member of the NxGen Group, entered into an agreement with Medisca Inc. on 1 July 2005. Under the agreement, ASA has been appointed as the exclusive agent for the importation, distribution and sales of Medisca Inc.’s chemicals, devices and equipment in Australia and New Zealand. The agreement is due to terminate on 30 June 2010.

The agreement does not contain the type of terms that are usually found in an agreement of its kind. For example, it does not include any warranties or indemnities, any provisions

36

regarding the ownership of intellectual property used in respect of the agreement or the fees to be received by ASA for performing its obligations (if any) under the agreement.

ASA received $248,000 under the agreement for the 12 months ended 30 June 2008.

2.3.3 Appointment of the NxGen Nominee Directors, issue of the Options and change to the Company’s name

Subject to the approval of Shareholders, it is proposed to appoint the NxGen Nominee Directors to the Board on completion of the NxGen Acquisition. Resolutions 6 to 10 seek approval for the appointment of the NxGen Nominee Directors to the Board.

Details of each of the NxGen Nominee Directors are set out in sections 3.6 to 3.10 of this Explanatory Memorandum.

Approval is also being sought to issue Options to each of the NxGen Nominee Directors under the Company’s Director and Employee Option Plan. Resolutions 12 to 16 seek this approval. Further information regarding the issue of the Options to the NxGen Nominee Directors is set out in sections 3.12 to 3.16 of this Explanatory Memorandum.

The Board is also seeking Shareholder approval to change the Company’s name to NxGen Pharmaceuticals Ltd on the basis that it will more accurately reflect the proposed future operations of the Company. Resolution 11 seeks this approval.

2.3.4 Effects of the NxGen Acquisition and the issue of the Consideration Shares

In summary, the effect of the NxGen Acquisition if completed and Resolutions 1, 2, 3, 4 and 5 are passed is:

• (a) NxGen will become a wholly-owned subsidiary of the Company;

• (b) a maximum of 507.5 million Consideration Shares (or 25.375 million Consideration Shares on a post consolidation basis) will be issued to the NxGen Shareholder so that the NxGen Shareholder holds up to a maximum of 87.5% of the issued Shares of the Company (the number of Consideration Shares issued and proportion of the Company held by the NxGen Shareholder will depend on the proceeds raised by the General Share Offer which will influence the proportion of cash and Consideration Shares in the Second Instalment and whether NxGen reaches a pre-tax profit of $2.1 million by 30 June 2010.) See section 2.3 of this Explanatory Memorandum for further details;

• (c) Shareholders will hold between 12.5% and 37% of NuSep (the proportion of the Company held by Shareholders will depend on the number of Consideration Shares that are issued to the NxGen Shareholder as consideration for the NxGen Acquisition. See section 2.3 of this Explanatory Memorandum for further details);

• (d) the current board of NuSep will resign and the NxGen Nominee Directors will be appointed to the Board of the Company; and

• (e) the Company will change its name to NxGen Pharmaceuticals Ltd.

2.3.5 Financial Statements

Set out below are the consolidated financial statements for the NxGen Group for the year ended 30 June 2008. The notes to the consolidated financial statements are set out in the Investigating Accountant’s Report at Annexure B.

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NXGEN PHARMACEUTICALS PTY LTD

and Controlled Entities

37	37	37	37	37	37	37	37	37
NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities
	CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT
					Actual results for
					the year ended:
						30 June 2008
						$
	Revenue					3,233,330
	Cost of Sales					(863,962)
	Gross profit					2,369,368
	Other revenues					234,759
	Finance costs					(11,754)
	Occupancy expenses					(93,477)
	Other expenses					(1,462,262)
	Profit before income tax					1,036,634
	Income tax expense_(See note below)_					(291,176)
	Profit after income tax					745,458

==> picture [446 x 102] intentionally omitted <==

38

38	38	38	38	38	38	38	38	38	38
NXGEN PHARMACEUTICALS PTY LTD
and Controlled Entities
CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY
	Share Capital						Retained			TOTAL
							Earnings
	$		$				$			$
Actual balance at 30 June 2007	110									522,680
							522,570
Revaluation increment : 2008			1,492,500						1,492,500
Profit attributable to entity							745,458		745,458
Dividends paid or provided for							(200,000)		(200,000)
Actual balance at 30 June 2008	110		1,492,500					2,560,638
							1,068,028

39

39	39	39
NXGEN PHARMACEUTICALS PTY LTD
and Controlled Entities
CONSOLIDATED BALANCE SHEET
	Actual results
		as at
	30 June 2008
	$
ASSETS
CURRENT ASSETS
Cash and cash equivalents	4,202,855
Cash from capital raised	‐
Trade and other receivables	848,042
Inventories	458,391
TOTAL CURRENT ASSETS	5,509,288
NON‐CURRENT ASSETS
Financial Assets	253,286
Property, plant and equipment	339,597
Intangible assets – Technology, product formulations, rights and licences (at directors valuations) –(see notes)	1,769,592
TOTAL NON‐CURRENT ASSETS	2,362,475
TOTAL ASSETS	7,871,763

40

40
LIABILITIES
CURRENT LIABILITIES
Trade an other payables	4,426,891
Financial Liabilities – Income in advance_(see notes)_	474,325
Provisions	80,000
Tax liabilities	186,807
TOTAL CURRENT ASSETS	5,168,023
NON‐CURRENT LIABILITIES
Trade and Other payables	143,102
Financial Liabilities	‐
TOTAL NON‐CURRENT LIABILITIES	143,102
TOTAL LIABILITIES	5,311,125
NET ASSETS	2,560,638
EQUITY
Issued Capital	110
Reserves	1,492,500
Retained Earnings	1,068,028
TOTAL EQUITY	2,560,638

2.3.6 Investigating Accountant’s Report

Pinn Deavin & Associates, the Investigating Accountant, has prepared an Investigating Accountant’s Report on historical and forecast financial information of NxGen for inclusion in the Notice of Meeting at Annexure B.

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2.3.7 Interests of the NxGen Nominee Directors

Shareholdings

Each of the following NxGen Nominee Directors hold a 20% shareholding in the NxGen Shareholder, Jehega Pty Ltd, through an associated company:

• (a) Mr Michael John Tattersall;

• (b) Dr James Stevens Rowe;

• (c) Dr Alan Henry Amodeo;

• (d) Mr John Boyd; and

• (d) Mr Daryll Knowles.

Directorships

Each of the following NxGen Nominee Directors are also directors of the NxGen Shareholder:

• (a) Mr Michael John Tattersall;

• (b) Dr James Stevens Rowe;

• (c) Dr Alan Henry Amodeo; and

• (d) Mr John Patrick Boyd.

Contractual relationships with NxGen

The NxGen Group is closely associated with ACP which is wholly-owned by Mr Daryll Knowles, a NxGen Nominee Director. ACP provides compounding services to the NxGen Group and ACP has engaged a member of the NxGen Group to provide marketing services to ACP.

Historically, based on the percentage of sales to ACP of the total sales of the NxGen Group, the NxGen Group is considered to have been economically dependent on ACP.

ACP is a party to two material contracts with members of the NxGen Group – the ACP Supply Agreement and the Wholesale Supply Agreement.

The NxGen Group expects to receive $300,000 in revenue from the ACP Supply Agreement during the remainder of the term of the agreement.

The NxGen Group generated $1,439,414 in revenue for the financial year ending 30 June 2008 from ACP under the Wholesale Supply Agreement.

The key terms of the ACP Supply Agreement and the Wholesale Supply Agreement are set out in section 2.3.2 of this Explanatory Memorandum.

2.3.8 Recommendations of the Board

No NuSep Director has a material personal interest in the outcome of Resolutions 4 to 16 (i.e. the Resolutions relating to the NxGen Acquisition, the appointment of the NxGen Nominee Directors and the issue of Options to the NxGen Nominee Directors) by virtue of his or any associate’s interest in NxGen or the NxGen Shareholder, save for any interest

42

they may have solely in their capacity as an officer of NuSep or a Shareholder which they hold in common with all NuSep Shareholders.

Each of the Directors considers himself justified in making a recommendation in relation to Resolutions 4 to 16 and each intends to vote any Shares he holds in favour of Resolutions 4 to 16.

Based on the information available, including that contained in this Explanatory Memorandum and the risks outlined in section 2.3.10, all of the Directors consider the NxGen Acquisition to be in the best interests of the Company.

In making their recommendations, the Directors have considered:

• (a) the rationale for the benefits of the NxGen Acquisition as set out in section 2.3.8 of this Explanatory Memorandum;

• (b) the risks associated with the NxGen Acquisition as set out in section 2.3.10;

• (c) the advantages and disadvantages of the NxGen Acquisition as set out in section 2.3.9; and

• (d) the reasoning and conclusions of Innovations Dynamic in the Independent Expert’s Report set out in Annexure A.

2.3.9 Conclusion of the Independent Expert

Innovations Dynamics, the Independent Expert, has concluded that the NxGen Acquisition is fair and reasonable to NuSep’s Shareholders. A copy of this report is set out in Annexure A.

2.3.10 Reasons why the Board consider the NxGen Acquisition to be in the best interests of the Company and Shareholders

The Directors unanimously consider that the NxGen Acquisition is in the best interests of the Company and Shareholders.

The principal reasons why the Directors recommend that Shareholders vote in favour of Resolutions 4 to 16 are that they believe that:

• (a) the NxGen Acquisition will return more value to Shareholders than the current business. Directors have reached this difficult decision in light of the Company’s inability to raise the funds required to complete its development activities including development of the SpermSep Instrument;

• (b) by spinning out the NuSep business into an unlisted public company called Prime BioSeparations, it will reduce the cost of running the business and enable it to compete and market its developments;

• (c) by acquiring the NxGen business NuSep’s Shareholders will be shareholders in a profitable, growing business in the same industry. NuSep’s Directors believe this will provide more return to Shareholders than if the Company did not complete this acquisition; and

• (d) NxGen, like NuSep, only develops and markets products which meet the standard for ethical investments. This is important to NuSep’s Directors as many Shareholders have invested in NuSep because of the ethical products it is developing including the SpermSep instrument.

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2.3.11 Advantages and Disadvantages associated with the NxGen Acquisition and issue of the Consideration Shares

Advantages

The main advantages associated with the NxGen Acquisition and the issue of the Consideration Shares are:

• (a) ( access to the sexual dysfunction, anti-aging medicine and addiction markets ) the NxGen Acquisition will allow the Company to access the sexual dysfunction, antiaging medicine and addiction markets and offer the products currently being offered by NxGen to these markets;

• (b) ( consideration for the NxGen Acquisition ) the acquisition of NxGen will largely be paid for by the issue of Shares, thereby reducing the cash cost of this acquisition. This is an important factor in the current financial climate. It also means that NuSep has been able to acquire a significantly larger company than it would have been able to if the consideration had to be paid only in cash;

• (c) ( 15% of the Consideration is subject to achievement of $2.1m profit ) 15% of the acquisition price will only be paid if NxGen achieves a profit of $2.1m on or before 30 June 2010. This provides both an incentive to the NxGen Shareholder and also reduces the price that NuSep has to pay should this target not be achieved;

• (d) ( NxGen makes ethically and socially responsible products ) NxGen develops and markets products which are socially and ethically responsible. Both the sexual dysfunction and the implants to overcome addiction meet this criteria;

• (e) ( NxGen is a profitable Company ) in the current financial climate only profitable companies are being positively rated on the worlds stock markets. NxGen is a profitable company and has significant growth potential offering NuSep Shareholders the potential of positive returns on their investment; and

• (f) ( NuSep Shareholders will not have to continue funding NuSep ) if this acquisition does not proceed then Shareholders will have to continue funding NuSep in its current form.

Disadvantages

The main disadvantages associated with the NxGen Acquisition and the issue of the Consideration Shares are:

• (a) ( dilutionary impact ) the proposed issue of the Consideration Shares to the NxGen Shareholder will have a dilutionary effect on the shareholding of current Shareholders;

• (b) ( relevant interest of the NxGen Shareholder ) on Completion of the NxGen Acquisition and the issue of the Consideration Shares, the NxGen Shareholder will hold up to a maximum of 87.5% of the Company (the proportion of the Company held by the NxGen Shareholder will depend on the proceeds raised by the General Share Offer which will influence the proportion of cash and Consideration Shares in the Second Instalment and whether NxGen reaches a pre-tax profit of $2.1 million by 30 June 2010). As a result, voting control will have passed from the current Shareholders to the NxGen Shareholder;

• (c) ( speculative nature of investment ) an investment in NxGen should be regarded as being speculative; and

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• (d) ( If the NxGen Acquisition is not approved then Shareholders will probably be asked to fund another Share issue ) by acquiring the NxGen business only those Shareholders who wish to continue funding NuSep’s current business will be required to do so.

2.3.12 Investment Risks associated with the NxGen Acquisition

General risks associated with the NxGen Acquisition and the proposed issue of Consideration Shares are:

• (a) ( economic conditions ) the performance of NxGen and NuSep following the NxGen Acquisition may be significantly affected by changes in economic conditions, particularly conditions which affect the pharmaceutical industry. The profitability of the business may be affected by factors such as market conditions, interest rates, inflation and consumer demand;

• (b) ( geo-political factors ) NxGen may be affected by the impact that geo-political factors have on the various world economies or the Australian economy or on financial markets and investments generally or specifically;

• (c) ( share market conditions ) NuSep, being a company listed on ASX, will continue to be subject to market forces that influence broad share market trends and the price of securities of individual companies. Accordingly, the price of the Consideration Shares when quoted on ASX will be subject to varied and often unpredictable influences on the market for equities in general;

• (d) ( no guarantee of future earnings risk ) there is no guarantee of profitability, dividends, return of capital, or the price at which the Consideration Shares will trade on ASX after quotation;

• (e) ( uncontrollable factors ) NxGen and NuSep will be exposed to general risks factors that are associated with conducting a business including litigation resulting from the breach of agreements or in relation to employees (through personal injuries, industrial matters or otherwise), strikes, lockouts, loss of service of key management or operational personnel, non-insurable risks, delay in the resumption of activities after reinstatement following the occurrence of an insurable risk, acts of terrorism and acts of God and other matters or force majeure events that may interfere with the business or trade of the Company; and

• (f) ( product market factors ) NxGen and NuSep may be affected by shifts in product markets and/or new products which replace existing product markets. Such shifts may replace existing products in an extremely short period of time making it impossible for the Company to replace these sales.

Specific risks associated with the NxGen Acquisition and the issue of the Consideration Shares are:

• (a) ( technical risks ) NxGen has a number of projects that could give rise to products. However, no assurances can be given that NxGen’s research and development will give rise to the development of a commercially successful product;

• (b) ( compulsory acquisition ) the NxGen Shareholder may be issued with up to 507.5 million Consideration Shares (or 25.375 million Consideration Shares on a post consolidation basis) as consideration for the NxGen Acquisition. If the NxGen Shareholder is issued with all 507.5 million Consideration Shares, it will hold approximately 87.5% of the Company’s issued Share capital. Under the Corporations Act, if the NxGen Shareholder increases its stake in the Company to 90% it may compulsorily acquire the remaining Shares in NuSep;

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• (c) ( Completion risk ) the NxGen Acquisition is subject to the risk that it may not complete as Completion is subject to a number of conditions precedent, including satisfactory due diligence. Completion of the NxGen Acquisition will not go ahead if the Company is not satisfied with its due diligence investigations on NxGen;

• (d) ( liquidity ) the liquidity of Shares may be affected if the NxGen Shareholder holds a significant stake in the Company and/or the Consideration Shares are subject to escrow restrictions. Under the NxGen Acquisition, the NxGen Shareholder will hold up to 87.5% of the Company’s Shares and ASX has advised that the Consideration Shares will be subject to escrow restrictions for 24 months from the date that the Company has complied with Chapters 1 and 2 of the ASX Listing Rules and been readmitted to the Official List. Future investors may be reluctant to acquire Shares in these circumstances;

• (e) ( intellectual property – GTN Erectile Dysfunction Gel ) NxGen has been using intellectual property relating to the GTN Erectile Dysfunction Gel which was coinvented by Dr James Rowe, a NxGen Nominee Director. AMI Australia has made a patent application in relation to this intellectual property which if successful will mean AMI Australia is the sole owner of that intellectual property. Dr Rowe is currently in negotiations with AMI Australia to be included in the patent application. If Dr Rowe is successful he has agreed to assign his rights in relation to the intellectual property to NxGen. If this does not occur, it may have an impact on NxGen’s business;

• (f) ( joint venture arrangement ) the NxGen Shareholder entered into a joint venture arrangement in January 2008 which was subsequently rescinded. Surplus funds received by the NxGen Shareholder under the arrangement were applied to ongoing liabilities as a result of the arrangement. NxGen’s directors are of the opinion that the NxGen Shareholder and NxGen have no liability to the other joint venture party. However, there could be a potential liability for NxGen arising from the original parties to the transaction having provided personal guarantees, which in turn could be counterclaimed against NxGen. If action was taken under these guarantees, NxGen’s estimated liability under these guarantees is not expected to exceed $500,000. These guarantees have an expected expiry date of September 2009;

• (g) ( Resolutions 1, 2, 3, 4 and 5 ) the NxGen Acquisition and the issue of the Consideration Shares is conditional on Shareholders approving Resolutions 1, 2, 3, 4 and 5;

• (h) ( competitor risks ) no assurances can be given that any products that NxGen will offer will successfully compete with other products either currently on the market or expected to enter the market in the future;

• (i) ( ACP ) NxGen has a close relationship with ACP which has a pharmaceutical licence and provides pharmaceutical compounding services to NxGen for its products. As NxGen does not hold a pharmaceutical licence and cannot compound its products, it requires ACP to compound and distribute its products. Historically, based on the percentage of sales to ACP of the total sales of NxGen, NxGen is also considered to have been economically dependent on ACP;

If NxGen’s relationship with ACP breaks down, NxGen will be required to find another pharmaceutical licensee to compound and distribute its products to the market and it is likely to have a negative impact on NxGen’s revenue

ACP is wholly-owned by Daryll Knowles who is the CEO of NxGen and a NxGen Nominee Director;

• (j) ( AMI Australia ) NxGen currently uses AMI Australia (and ACP) to market and distribute its sexual dysfunction products. NxGen does not have a formal contractual

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agreement with AMI Australia. If NxGen’s relationship were to break down with AMI Australia it would be unable to distribute its sexual dysfunction products until other suitable distribution arrangements could be established;

• (k) ( material contracts ) the following material contacts entered into by members of the NxGen Group contain provisions which may be considered to be one-sided in favour of the non NxGen Group party – the Wholesale Supply Agreement, ACP Services Agreement and the ASA Services Agreement. For example, under these agreements the relevant member of the NxGen Group releases and indemnifies the other party from all damages, costs, expenses, loss or damage which that other party incurs as a result of the provision of services by the relevant NxGen Group member other than any action arising out of any negligence or wrongful act of the other party under the agreement. A reciprocal release and indemnity is not provided by the other party to the relevant NxGen Group member;

• (l) ( Medisca Inc. ) the agreement between ASA (a member of the NxGen Group) and Medisca Inc. does not contain the type of terms that are usually found in an agreement of its kind. For example, it does not include any warranties or indemnities, any provisions regarding the ownership of intellectual property used in respect of the agreement or the fees to be received by ASA for performing its obligations (if any) under the agreement. Accordingly, if there was a dispute regarding this agreement it would be difficult to establish the key terms of the agreement between the parties;

• (m) ( financial risks ) the ability of NxGen to implement its business strategy may require it or the Company to raise additional funds. No assurances can be given that such funding will be available or that it will be available on terms attractive to NxGen or the Company;

• (n) ( impairment contingency ) the Investigating Accountant has expressed some doubt as to NxGen’s ability to continue to carry the following items in its balance sheet at their current carrying values given that on Completion of the NxGen Acquisition, NxGen will have to prepare general purpose financial reports and adopt a more restrictive and prescriptive accounting and reporting policy framework:

• (i) a financial investment in Redwood Anti-Aging Pty Limited currently valued at $224,000;

• (ii) intangible assets including technology, product formulations, rights and licences currently valued at $1,769,592; and

• (iii) a financial liability for income received as a result of the joint venture arrangement that NxGen entered into in January 2008 which was subsequently rescinded valued at $474,325. The Investigating Accountant’s Report provides that it is proposed that NxGen, through an associated entity, will provide in the future research and development, analytical and testing services to its former joint venture partner in lieu of repayment of these funds.

See the Investigating Accountant’s Report at Annexure B for further details;

• (o) ( lease ) the lease for the premises that NxGen operates its business from is not registered. While the lease remains unregistered, a subsequent owner of the premises will not be subject to the lease. If NxGen is required to find a new premises, the business will be disrupted until a new suitable premises is located. The permitted use of the lease also does not cover the manufacturing activities conducted by NxGen;

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• (p) ( key employee risk ) the future success of NxGen may depend in part on its continued access to highly qualified scientific, technical and managerial personnel. The loss of key staff could have a material adverse effect on the company. While NxGen will seek to ensure that the services of key personnel are retained, no assurances can be given that NxGen will continue to retain and attract key staff as required by the business;

• (q) ( investigations ) it has been reported in the press that the NSW Office of Fair Trading and the Victorian Office of Consumer Affairs are examining the operations of AMI Australia regarding complaints of alleged unconscionable contracts and undeliverable guarantees. AMI Australia currently markets NxGen’s sexual dysfunction products. It has also been reported in the press that AMI Australia has received attention from the Australian Competition and Consumer Commission over allegedly misleading claims relating to the sexual dysfunction products and AMI’s guarantees. If a regulator does pursue AMI Australia, it may have a negative impact on NxGen’s business;

• (r) ( clinical trials ) NxGen’s sexual dysfunction products have not been subject to clinical trials;

• (s) ( litigation ) NxGen’s subsidiary, ASA, is a defendant to litigation that is currently being conducted in the Supreme Court of NSW. The plaintiff is claiming $66,000 plus interest, damages and costs from ASA. If ASA is unsuccessful in defending this claim it will more than likely be required to pay an amount to the plaintiff that will be determined by the Court;

• (t) ( regulatory risks ) major changes in regulatory legislation, particularly in relation to the pharmaceutical market may affect NxGen. No guarantee can be given that the regulatory environment will not change and that as a result, NxGen will be required to undertake costly new regulatory processes or clinical trials;

• (u) ( non-performance ) non-performance of significant contracts by other parties;

• (v) ( failure to achieve sales growth ) failure to achieve sales growth from existing products;

• (w) ( difficulties with product launches ) difficulties or delays in completing product developments or product launches;

• (x) ( difficulties with regulatory approval ) difficulties or delays in receiving regulatory approval or certification for products or processes;

• (y) ( competition ) the existence of any competition for the products currently offered by NxGen or to be developed by the company after the NxGen Acquisition;

• (z) ( substitute products ) the existence of substitute or improved products developed by competing companies;

• (aa) ( research and development programs ) the success or failure of existing research and development programs of NxGen;

• (bb) ( market development ) the pace of market development for NxGen products and the costs involved in achieving market penetration and brand awareness;

• (cc) ( change in markets ) changes in the markets for the products sold by NxGen;

• (dd) ( litigation ) litigation arising from the business conducted by NxGen.

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2.3.13 Risks for the Company if the NxGen Acquisition is not approved or does not go ahead

If the NxGen Acquisition and the issue of the Consideration Shares are not approved by Shareholders or does not go ahead for any other reason, the Company intends to continue to develop its existing business. The Directors may also review other projects and acquisition opportunities that are considered to be in the best interests of the Company and Shareholders.

Further, if the acquisition does not go ahead then NuSep will probably undertake a capital raising to support the current NuSep business. In the current environment this would probably require a significant discount to the current share price which would be dilutionary to existing shareholders. There is also no guarantee that such a capital raising would be successful in the current economic climate.

3. Further Information relating to each of the Resolutions

3.1 Resolution 1 - Consolidation of Shares

3.1.1 Purpose of Resolution 1

The purpose of Resolution 1 is to enable the Company to consolidate its Shares into a smaller number. Specifically, the resolution will reduce the number of Shares on issue by a factor of 20 from 45,965,467 Shares to approximately 2,298,273 Shares post the consolidation. After the NxGen Acquisition the number of Shares will reduce from 174 million to 8.7 million Shares post the consolidation.

Section 254H of the Corporations Act allows a company to convert all or any of its shares into a smaller number by way of a resolution of the members. There are currently 45,965,467 Shares on issue and approximately 2,041 Shareholders in the Company.

The consolidation is also required so that NuSep will comply with the requirements in Chapters 1 and 2 of the ASX Listing Rules on Completion of the NxGen Acquisition.

3.1.2 Fractional entitlements

Where a Shareholder’s holding is not a multiple of twenty and would result in a fraction of a Share after the consolidation takes place, the Company proposes to issue that Shareholder, for no consideration, the additional fraction of the Share which is required to increase their holding to the next whole number.

3.1.3 Effect on Shareholdings

There are currently 45,965,467 Shares on issue.

The proposed consolidation will have the effect of reducing the number of Shares on issue to approximately 2,298,273 (based on the number of Shares on issue before the NxGen Acquisition). The consolidation will only have an effect on the number of Shares held by Shareholders. Shareholders’ proportionate interest in the Company’s Share capital will remain unchanged by the consolidation.

3.1.4 Effect on Optionholders

There are currently no Options on issue in the Company. The Company cancelled all Options that were on issue as at 31 January 2009 under the terms of the Director and Employee Option Plan.

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However, Shareholders are now being asked to consider and approve the issue of Options to the NxGen Nominee Directors at the Extraordinary General Meeting.

The effect of the proposed consolidation if:

• (a) Shareholders approve the proposed consolidation by passing Resolution 1 at the Extraordinary General Meeting; and

• (b) Shareholders approve the issue of the Options to the NxGen Nominee Directors by approving Resolutions 12 to 16 at the Extraordinary General Meeting,

will be to reduce the number of Shares that the Optionholder will receive when they exercise their Options by the same ratio that NuSep’s Shares will be reduced by when the consolidation becomes effective.

3.1.5 Holding statements

From the date of the consolidation all holding statements for Shares will cease to have any effect, except as evidence of an entitlement to a certain number of Shares on a postconsolidation basis. After the consolidation becomes effective, the Company will arrange for new holding statements to be issued to Shareholders.

3.1.6 Timetable

Timetable
Event	Date
Snapshot date for eligibility to vote at the Extraordinary General Meeting	5.00pm on 11 March 2009
Approval of consolidation at Extraordinary General Meeting	13 March 2009
Last day for entity to register transfers on a pre-consolidation basis and record date for the consolidation	20 March 2009
First day for entity to register Shares on a post-consolidation basis and to send Shareholder notice	23 March 2009
Last day for entity to register Shares on a post-consolidation basis and to send Shareholder notice	27 March 2009

3.2 Resolution 2 – Return of Capital

Prime BioSeparations is a wholly-owned subsidiary of NuSep and was incorporated in Victoria.

NuSep and Prime BioSeparations have entered into a Spin Out Agreement by which Prime BioSeparations will acquire all of the assets and liabilities of NuSep prior to the Completion of the NxGen Acquisition.

In consideration for the Spin Out, NuSep will be issued with approximately 1.7 million Prime BioSeparations Shares.

The Company proposes to make an in-specie distribution of the 1.7 million Prime BioSeparations Shares that it will hold in Prime BioSeparations to Return of Capital Eligible Shareholders on a pro rata basis pursuant to an equal reduction of capital under sections 256B and 256C of the Corporations Act. This represents a distribution by the Company of

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100% of the shares that it will hold in Prime BioSeparations to NuSep’s Eligible Shareholders.

Each Eligible Shareholder will receive one Prime BioSeparations Share for every 100 NuSep Shares held by that Eligible Shareholder (or 5 NuSep Shares on a post consolidation basis).

The pro rata distribution will be made on the Return of Capital Effective Date, which will be 25 March 2009. The NxGen Shareholder will not participate in the pro rata distribution.

3.2.1 Legal requirements

Section 256B of the Corporations Act provides that a company may reduce its capital if the reduction:

• (a) is fair and reasonable to the company’s shareholders as a whole;

• (b) does not materially prejudice the company’s ability to pay its creditors; and

• (c) is approved by shareholders under section 256C of the Corporations Act.

The Directors consider the proposed capital reduction is fair and reasonable to NuSep’s Shareholders as:

• (a) it is to be undertaken on a pro rata basis and will effect all Shareholders equally;

• (b) Prime BioSeparations will have less operating costs as an unlisted public company; and

• (c) Prime BioSeparations will receive up to $1.2 million from the proceeds of the General Share Offer to be used for working capital purposes. However, this is contingent on the amount of proceeds raised by the General Share Offer.

The Directors consider that the proposed capital return when considered in conjunction with the NxGen Acquisition does not materially prejudice the Company’s ability to pay its creditors nor will it result in the Company becoming insolvent as a result of the return of capital.

The advantages and disadvantages of the Spin Out are set out in section 2.1 of this Explanatory Memorandum.

Resolution 2 seeks Shareholder approval of the return of capital in accordance with section 256C of the Corporations Act.

3.2.2 Impact of the proposed return of capital on Shareholders

As an example of the impact of Resolution 2 on NuSep’s Shareholders, an Eligible Shareholder who holds 10,000 NuSep Shares (or 500 Shares on a post consolidation basis) will receive a distribution of 100 Prime BioSeparations Shares under the proposed capital return.

3.3 Resolution 3 – Approval of issue of Shares under the General Share Offer

The Company seeks Shareholder approval for the issue of up to 101.5 million Shares (or 5.075 million Shares on a post consolidation basis) to Investors under the General Share Offer.

The funds raised by the issue of the Shares will be used to fund:

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• (a) the expenses of the General Share Offer;

• (b)

• the cash component of the consideration for the NxGen Acquisition;

• (c) the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from directors and former directors of NuSep and for working capital for Prime BioSeparations; and

• (d) NxGen’s working capital and expansion of its products into the US market which is expected to occur in the next 12 months.

Further details of the NxGen Acquisition and NxGen are set out in sections 2.3 and 3.4 of this Explanatory Memorandum.

Under Listing Rule 7.1 the Company must not (subject to certain exceptions) issue or agree to issue securities where such an issue would cause the number of securities issued by the Company in the past 12 months to exceed 15% of its fully paid ordinary securities on issue 12 months before the date of the issue, without the prior approval of Shareholders in general meeting.

As the issue and allotment of the Shares issued under the General Share Offer will exceed 15% of the Company’s existing issued Share capital, Shareholder approval is required for the issue and allotment of the Shares under Listing Rule 7.1.

The information required to be given to Shareholders for the purposes of approval of the issue of the Shares under Listing Rule 7.1 is set out below.

Number of securities allotted

A maximum of 101.5 million Shares (or 5.075 million Shares on a post consolidation basis).

Issue Date: The Shares will be issued on 18 March 2009 (or in any event within 3 months of the date of the Extraordinary General Meeting). Issue Price: A minimum price of $0.05 per Share.

Terms of Securities: The Shares will be fully paid ordinary shares in the capital of the Company and will rank equally with the existing Shares on issue. Names of allottees: Allottees of the Shares will be the Investors. The use of the funds raised: The funds raised by the issue of the Shares will be used to fund: • the expenses of the General Share Offer;

• the cash component of the consideration for the NxGen Acquisition;

• the repayment of liabilities that are to be transferred to Prime BioSeparations under the Spin Out including $900,000 in loans from directors and former directors of NuSep and for working capital for Prime BioSeparations; and

• • NxGen’s working capital and expansion of

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its products into the US market.

Allotment date:

The date of allotment of the Shares is 18 March 2009.

Voting exclusion statement:

Yes.

3.4 Resolution 4 – Approval of the NxGen Acquisition and the change to the nature and scale of NuSep’s activities

3.4.1 General

Resolution 4 seeks Shareholder approval for the NxGen Acquisition and the change that will occur to the nature and scale of NuSep’s activities as a result of the NxGen Acquisition.

As outlined in section 2.3 of the Explanatory Memorandum, on 1 December 2008 the Company announced that it had executed an Implementation Deed with NxGen to acquire 100% of the issued share capital of NxGen (subject to Shareholder approval).

As a result of the NxGen Acquisition, NuSep will pursue a different direction and provide the pharmaceutical products currently offered by NxGen to the Australian sexual dysfunction, anti-aging medicine and addiction markets. In particular, the Company will offer hormone replacement therapies and erectile dysfunction products and some of the proceeds raised by the General Share Offer will be used to fund the expansion of these and other products into the US market (this will depend on whether the General Share Offer is fully subscribed). See section 2.3.2 of this Explanatory Memorandum for further details of the change to the nature and scale of NuSep’s activities.

3.4.2 Listing Rule 11.1

Listing Rule 11.1 provides that where an entity proposes to make a significant change, either directly or indirectly, to the nature or scale of its activities, it must provide full details to ASX as soon as practicable and comply with the following:

• (a) the entity must provide to ASX information regarding the change and its effect on the company’s future potential earnings, and any information that ASX asks for;

• (b) if ASX requires, the entity must obtain the approval of holders of its shares and comply with any requirements of ASX in relation to the notice of meeting; and

• (c) if ASX requires, the company must meet the requirements of Chapters 1 and 2 of the Listing Rules as if the company were applying for admission to the official list of ASX.

ASX has indicated to the Company that the change in the nature and scale of NuSep’s activities requires the Company to:

• (a) obtain Shareholder approval;

• (b) issue the Prospectus setting out details of the proposed change to the nature and scale of NuSep’s activities as a result of the NxGen Acquisition; and

• (c) re-comply with the admission requirements set out in Chapters 1 and 2 of the Listing Rules.

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3.4.3 Item 7 of section 611 of the Corporations Act

Section 606(1) of the Corporations Act provides that a person must not acquire a relevant interest in issued voting shares in a company if:

• (a) the company is a listed company;

• (b) the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person; and

• (c) because of the transaction, that person’s or someone else’s voting power in the company increases from 20% or below to more than 20% or from a starting point that is above 20% and below 90%.

Item 7 of section 611 of the Corporations Act provides an exception to the prohibition in section 606(1) if an acquisition is approved previously by a resolution passed by shareholders at a general meeting of the company.

The NxGen Acquisition will result in the NxGen Shareholder acquiring a voting power in NuSep of up to a maximum of 87.5%. Accordingly, Shareholder approval of the NxGen Acquisition is required.

The information required to be given to Shareholders for the purposes of approval of the NxGen Acquisition under item 7 of section 611 of the Corporations Act is set out below.

Identity of person making the NxGen The NxGen Shareholder Acquisition: The maximum extent of the increase The voting power of the NxGen Shareholder will in the voting power of the NxGen increase from 0% to a maximum of 87.5%. Shareholder as a result of the NxGen Acquisition: The voting power that the NxGen A maximum voting power of 87.5%. Shareholder will have as a result of the NxGen Acquisition: The maximum extent of the increase Not applicable. in the voting power of the associates of the NxGen Shareholder as a result of the NxGen Acquisition: The voting power that the associates Not applicable. of the NxGen Shareholder will have as a result of the NxGen Acquisition:

3.5 Resolution 5 – Approval of the issue of Consideration Shares to the NxGen Shareholder

The Company seeks Shareholder approval for the proposed issue of Consideration Shares to the NxGen Shareholder. The Consideration Shares form part of the consideration for the proposed NxGen Acquisition.

The consideration for the NxGen Acquisition will be paid in the following three instalments:

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• (a) by the issue of 319 million Consideration Shares (or 15.95 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal 55% of the total issued Share capital of NuSep immediately prior to Completion on Completion of the NxGen Acquisition (i.e. the First Instalment);

• (b) by the payment of cash and/or the issue of up to a maximum of 101.5 million Consideration Shares (or 5.075 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal up to a maximum of 17.5% of the issued Share capital of NuSep on Completion within 15 Business Days of the close of the Company’s General Share Offer (i.e. the Second Instalment). In the event that the General Share Offer is fully subscribed the Second Instalment shall be paid in cash. In the event that the General Share Offer is not subscribed or partly subscribed, the proportion of cash and Consideration Shares in the Second Instalment shall be determined by the Board immediately prior to Completion (i.e. the proportion of cash and Consideration Shares in the Second Instalment will depend on the amount of proceeds raised by the General Share Offer); and

• (c) by the issue of 87 million Consideration Shares (or 4.35 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal 15% of the total issued Share capital of NuSep immediately prior to Completion when NxGen reaches a pre-tax profit of $2.1 million (i.e. the Third Instalment). Such pre-tax profit must be reached prior to or on 30 June 2010. If the Consideration Shares in the Third Instalment are not issued by 30 September 2010, the Third Instalment will lapse.

The Consideration Shares will not be issued until the Company has met the requirements in Chapters 1 and 2 of the ASX Listing Rules and been re-admitted to the Official List.

The issue of the Consideration Shares to the NxGen Shareholder will result in the NxGen Shareholder holding up to a maximum of 87.5% of the total issued Share capital in NuSep. As noted above, the number of Consideration Shares issued will depend on the level of proceeds raised by the General Share Offer and whether NxGen reaches a pre-tax profit of $2.1 million by 30 June 2010.

ASX Listing Rule 10.11 requires shareholder approval for the issue of securities by a company to a related party or a person whose relationship with the entity or a related party is, in ASX’s opinion, such that approval should be obtained.

Considering the relationship between the NxGen Nominee Directors, NxGen and the NxGen Shareholder (see below) and that it is proposed that the NxGen Nominee Directors will be appointed to the Board shortly after the issue of the First Instalment and Second Instalment of the Consideration Shares but before the issue of the Third Instalment (provided that Shareholders approve Resolutions 6 to 10), Shareholder approval is being sought for the issue of the Consideration Shares to the NxGen Shareholder under Listing Rule 10.11.

The information required to be given to Shareholders for the purposes of approval of the proposed issue of Consideration Shares under Listing Rule 10.11 is set out below.

Name of person: The Consideration Shares will be issued to the NxGen Shareholder, Jehega Pty Ltd (ACN 125 224 508). Maximum number of securities to A maximum of 507.5 million Consideration Shares be issued: (or 25.375 million Consideration Shares on a post consolidation basis) or such number of Consideration Shares that equal a maximum of 87.5% of the total issued Share capital of NuSep

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immediately prior to Completion.

Issue Date:

The First Instalment of Consideration Shares will be issued on Completion of the NxGen Acquisition on 30 March 2009 (or in any event within 1 month of the date of the Extraordinary General Meeting).

The Second Instalment of Consideration Shares will be issued by 3 April 2009 (i.e. within 15 Business Days of the closing date of the General Share Offer) (or in any event within 1 month of the date of the Extraordinary General Meeting).

The Third Instalment of Consideration Shares will be issued by 30 September 2010 provided that NxGen reaches a pre-tax profit of $2.1 million prior to or on 30 June 2010. If the Third Instalment is not issued by 30 September 2010 it will lapse.

Relationship between the NxGen Each of the following NxGen Nominee Directors are Shareholder, the NxGen Nominee also directors of the NxGen Shareholder - Mr M Directors and NuSep Tattersall, Dr J Rowe, Dr A Amodeo and Mr J Boyd.

Each of the following NxGen Nominee Directors hold a 20% shareholding in the NxGen Shareholder through an associated company - Mr M Tattersall, Dr J Rowe, Dr A Amodeo, Mr J Boyd and Mr D Knowles.

Resolutions 6 to 10 seek Shareholder approval to appoint the NxGen Nominee Directors to the Board of NuSep. Issue Price: A minimum price of $0.05 per Consideration Share. Terms of Securities: The Shares will be fully paid ordinary shares in the capital of the Company and will rank equally with the existing Shares on issue. The use of the funds raised: No funds will be raised by the issue of the Consideration Shares. Voting exclusion statement: Yes.

ASX has advised the Company that all of the Consideration Shares to be issued to the NxGen Shareholder in accordance with Resolution 5 will be restricted from trading for a period of 24 months from the date that the Company has complied with Chapters 1 and 2 of the ASX Listing Rules and been re-admitted to the Official List.

Shareholder approval is not required under ASX Listing Rule 7.1 for the issue of the Consideration Shares, in accordance with ASX Listing Rule 7.2, Exception 14.

ASX Waiver

ASX has granted NuSep a waiver from ASX Listing Rule 10.13.3 to allow Shareholders to approve the issue of the 87 million Consideration Shares (or 4.35 million Consideration Shares on a post consolidation basis) in the Third Instalment later than 1 month after the date of the Extraordinary General Meeting on the following conditions:

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• (a) that this Notice provides that the 87 million Consideration Shares in the Third Instalment will be issued no later than 30 September 2010 provided that NxGen reaches a pre-tax profit of $2.1 million prior to or on 30 June 2010; and

• (b) that the Company provides ASX with an undertaking to include in each annual report during the period in which the 87 million Consideration Shares in the Third Instalment may be issued that the Third Instalment will be issued no later than 30 September 2010 provided that NxGen reaches a pre-tax profit of $2.1 million prior to or on 30 June 2010.

3.6 Resolution 6 – Election of Mr Daryll Knowles as a Director

Resolution 6 relates to the election of Mr Daryll Knowles as a Director of the Company. Mr Knowles is currently the Managing Director and Chief Executive Officer of NxGen.

Mr Knowles graduated from Sydney University with a Bachelor of Pharmacy and has over 20 years experience in compounding and pharmaceutical formulation. He has owned or been in partnership in 7 retail pharmacies and was awarded the Australian Institute of Pharmacy Management Pharmacist Manager of the year in 1995.

Mr Knowles is currently a candidate to become a Fellow of the Australasian Association of Anti Aging Medicine in Integrative and Functional Medicine. He is a board member of the Australasian Association of Anti Aging Medicine (A5M) and a Consultant Pharmacist to Australian Implant Technologies. Mr Knowles is also a Life Fellow of the Sydney University Pharmacy Practice Foundation, Associate Fellow of Australian Institute of Pharmacy Management, Member of the Pharmaceutical Society of Australia and a Member of the Australian Society of Cosmetic Chemists.

3.7 Resolution 7 – Election of Mr Michael John Tattersall as a Director

Resolution 7 relates to the election of Mr Michael John Tattersall as a Director of the Company. Mr Tattersall is currently the Chief Operations Officer of NxGen.

Mr Tattersall graduated form the University of Western Sydney with a Diploma of Business in 2000 and is a licensed real estate agent with an extensive history of management and training. He was a Specialist Civilian Contractor with the Royal Australian Navy specialising in mechanical engineering and during this period was part of a team that provided a turnkey installation for the IMASAT satellite communications system.

Mr Tattersall has had extensive management experience ranging from being a foreman in an engineering company to a Sales and Rentals Manager for one of the world’s largest providers of satellite communication systems. He also acquired a long haul transport company in 1994.

Mr Tattersall holds directorships in the following business: NxGen, NxGen Australia Pty Ltd, NxGen Properties Pty Ltd, TAT Consulting Services Pty Ltd, Rejuvaderm Pty Ltd, Jehega Pty Ltd (i.e. the NxGen Shareholder) and Jehegajuni Pty Ltd.

3.8 Resolution 8 – Election of Dr Alan Henry Amodeo as a Director

Resolution 8 relates to the election of Dr Alan Henry Amodeo as a Director of the Company. Dr Amodeo is currently the Chairman of NxGen.

Dr Amodeo has 25 years experience in the health care industry, both in the private and public sectors. He has experience in sales, marketing and business development at senior levels in domestic and international markets and is experienced in liaising with Government Health Departments.

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Dr Amodeo has a Doctorate in Medicine with a Bachelor of Science in Biology, Chemistry and Physics. He has studied at St John’s University (New York), the University of Perugia (Italy) and Sydney University.

Dr Amodeo has a strong commitment to the community including many years in various positions on the Board of Telstra Child Flight. He was Chairman of the Child Flight Board of Management and Chief Executive Officer. He has also held the positions of CEO of Tuta Healthcare P/L, Australian Medical Imaging P/L and Hydebrae Private Hospital. Dr Amodeo is also on the Clinical Excellency Commission.

3.9 Resolution 9 – Election of Mr John Patrick Boyd as a Director

Resolution 9 relates to the election of Mr John Patrick Boyd as a Director of the Company. Mr Boyd is currently the Chief Financial Officer of NxGen.

Mr Boyd has extensive knowledge of business and management. Throughout his career Mr Boyd has held positions within middle and senior management as well as board positions, providing specialist knowledge in finance, operations, logistics and manufacturing. He is currently a member of AIMM.

Mr Boyd has travelled extensively throughout his career both nationally and internationally supporting strategic alliances within the biotech and pharmaceutical industries.

Mr Boyd currently holds directorships in the following businesses: NxGen, Locfinn Pty Ltd, NxGen Australia, ASA , Jehega Pty Ltd (i.e. the NxGen Shareholder), Jehegajuni Pty Ltd, Rejuvaderm Pty Ltd, International Pharmaceuticals Pty Ltd, Advanced Implant Technology Pty Ltd and Pharmaceutical Registrations Australia Pty Ltd.

3.10 Resolution 10 – Election of Dr James Stevens Rowe as a Director

Resolution 10 relates to the election of Dr James Stevens Rowe as a Director of the Company. Dr Rowe is currently a Scientific Director of NxGen.

Dr Rowe graduated with a Bachelor of Pharmacy from the University of Sydney in 1966. He then went on the complete a Masters in Science in 1976 and a Doctorate of Philosophy in 1980 from the University of London. Both of these degrees were in the fields of pharmaceutical formulation and the elevation of novel drug delivery systems. He also completed a Pharmaceutical Compounding Course at the University of Florida in 2004.

Dr Rowe has 35 years experience in both the multi-national pharmaceutical industry and academia in the development, testing, manufacturing and marketing of both novel and existing drug dosage forms for the pharmaceutical and veterinary markets worldwide. This includes 15 years experience in the United Kingdom. Dr Rowe’s industrial experience includes senior positions at Abbott Laboratories, Eli Lilly and Riker Laboratories in Australia as well as ER Squibb & Sons Ltd in the United Kingdom. He has also held academic positions at the University of Sydney and the University of London. Dr Rowe has been credited with a number of publications in peer reviewed journals as well as being the author or co-author of a range of patents relating to drug delivery and pharmaceutical formulation. Dr Rowe also has had significant experience in the commercialisation of pharmaceutical products in his previous role as Marketing Planning Manager for ER Squibb & Sons Ltd in the United Kingdom.

Dr Rowe is a member of various societies including the Pharmaceutical Society of Australia, The Royal Pharmaceutical Society of Great Britain, The Royal Australian Chemical Institute, Sydney University Chemical Society and the Australian Academy of Forensic Scientists. Dr Rowe is a registered pharmacist and Chartered Chemist.

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3.11 Resolution 11 – Approval of change of company name from NuSep Ltd to NxGen Pharmaceuticals Ltd

Subject to Completion of the NxGen Acquisition, Resolution 11 seeks Shareholder approval to change the Company’s name to NxGen Pharmaceutics Ltd. The Company is required to pass this resolution under Section 157 of the Corporations Act as a special resolution.

The Board proposes this change of name on the basis that it will more accurately reflect the proposed future operations of the Company. Prime BioSeparations will continue to use the NuSep name in conjunction with its Gels and the MF10 Separation Instrument.

3.12 Resolutions 12 to 16 – Issue of Options to the NxGen Nominee Directors

Listing Rule 10.14 prohibits the granting of equity securities (which includes Options) to Directors unless the approval of Shareholders has been obtained.

Accordingly, Resolutions 12 to 16 propose the issue of the following Options to the NxGen Nominee Directors for nil consideration under the Company’s Director and Employee Option Plan, subject to the approval of Shareholders:

• (a) Resolution 12 proposes the issue of 1,000,000 Options to Mr Daryll Knowles;

• (b) Resolution 13 proposes the issue of 900,000 Options to Mr Michael John Tattersall;

• (c) Resolution 14 proposes the issue of 900,000 Options to Dr Alan Henry Amodeo;

• (d) Resolution 15 proposes the issue of 900,000 Options to Mr John Patrick Boyd; and

• (e) Resolution 16 proposes the issue of 900,000 Options to Dr James Stevens Rowe.

The resolutions are also subject to Completion of the NxGen Acquisition.

The Options are proposed to be issued to the NxGen Nominee Directors in three tranches. The terms of the Options proposed to be issued to the NxGen Nominee Directors are as follows:

Tranche I

Vesting date: 1 March 2010 Expiry date: 1 March 2014 Exercise price: $0.07 per Option to acquire one Share in the Company Exercise period: Options may be exercised any time after the vesting date up to expiry Listing: The Company does not intend to seek listing of the Options Date of Issue: If approved, the Company will seek to issue the Options within one month of the Extraordinary General Meeting

Tranche 2

Vesting date: 1 March 2011 Expiry date: 1 March 2014 Exercise price: $0.09 per Option to acquire one Share in the Company

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Exercise period: Options may be exercised any time after the vesting date up to expiry Listing: The Company does not intend to seek listing of the Options Date of Issue: If approved, the Company will seek to issue the Options within one month of the Extraordinary General Meeting Tranche 3 Vesting date: 1 March 2012 Expiry date: 1 March 2014 Exercise price: $0.11 per Option to acquire one Share in the Company Exercise period: Options may be exercised any time after the vesting date up to expiry Listing: The Company does not intend to seek listing of the Options Date of Issue: If approved, the Company will seek to issue the Options within one month of the Meeting

The Director and Employee Option Plan is designed to provide an incentive to participants.

Under Exception 4 of ASX Listing Rule 10.12, an issue of securities under an employee incentive scheme is an exception to Listing Rule 10.11 (which contains the restrictions relating to issues to related parties such as Directors).

Pursuant to the requirements of ASX Listing Rule 10.15, the following information is provided with regard to the NxGen Nominee Directors and Resolutions 12 to 16:

Maximum number of securities to be acquired:	A maximum number of 1,000,000 Options to be issued to Mr Daryll Knowles A maximum number of 900,000 Options to be issued to Mr Michael John Tattersall A maximum number of 900,000 Options to be issued to Dr Alan Henry Amodeo A maximum number of 900,000 Options to be issued to Mr John Patrick Boyd A maximum number of 900,000 Options to be issued to Dr James Stevens Rowe
Issue price:	The Options will be issued at no cost under the Director and Employee Option Plan
Past issues under the Employee Share	Not applicable

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Option Plan:

Option Plan:
Persons entitled to participate in the Director and Employee Option Plan:	All of the Directors of the Company which include each of Mr J Manusu, Dr H Nair and Mr I Howard-Sorrell (with the approval of Shareholders), executives and employees approved by the Board. If the NxGen Nominee Directors are appointed to the Board they will also be entitled to participate in the Director and Employee Option Plan. The NxGen Nominee Directors are Mr D Knowles, Mr M Tattersall, Dr A Amodeo, Mr J Boyd and Dr J Rowe.
Loan in relation to Options:	There is no loan in relation to the acquisition of the Shares upon exercise of the Options
Date of issue:	The Company expects to issue the Options within 1 month of the date of the Meeting however confirms that they will be issued within 12 months of the Meeting
Voting exclusion statement:	Yes

Shareholder approval is not required under ASX Listing Rule 7.1 for the issue of the Options, in accordance with ASX Listing Rule 7.2, Exception 9.

The Directors recommend that Shareholders vote in favour of Resolutions 12 to 16.

Registered Office and Registration of this form to: 22 Rodborough Road Frenchs Forest NSW 2086 Telephone: (02) 8977 9000 Facsimile: (02) 8977 9099

NuSep Ltd ABN 33 120 047 556 PROXY FORM

www.NuSep.com

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Appointment of Proxy

If appointing a proxy to attend the Extraordinary General Meeting on your behalf, please complete the form and submit it in accordance with the directions on the reverse of the page.

I/We being a shareholder/shareholders of NuSep Ltd pursuant to my/our right to appoint not more than two proxies, appoint

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----- Start of picture text -----

�
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The Chairman of the Write here the name of the person you are appointing Meeting OR if this person is someone other than the Chairman (mark with an “X”) of the Meeting. or failing him/her Write here the name of the other person you are appointing.

or failing him/her, (or if no proxy is specified above), the Chairman of the meeting, as my/our proxy to vote for me/us and on my/our behalf at the Extraordinary General Meeting to be held at the NuSep Ltd’s registered office at 22 Rodborough Road, Frenchs Forest NSW on 13 March 2009 at 10:00 am and at any adjournment of that meeting.

This proxy is to be used in respect of

% of the ordinary shares I/we hold.

If you do not wish to direct your proxy how to vote, please place a mark in the box. If you have appointed the Chair of the meeting to exercise your proxy, by marking this box, you acknowledge that the Chairman of the meeting may exercise your proxy even if he has an interest in the outcome of a particular resolution and votes cast by him other than as proxy holder will be disregarded because of that � interest. The Chair intends to vote 100% of all open proxies in favour of the resolution.

If you do not mark this box, and you have not directed your proxy how to vote, the Chairman will not cast your votes on the resolution and your votes will not be counted in calculating the required majority if a poll is called on the resolution.

Note in relation to Resolution 3: If you have participated or intend to participate in the Company’s general share offer under the Prospectus for the General Share Offer, you and your proxy must abstain from voting on Resolution 3.

Voting directions to your proxy– mark⌧or�to indicate	Voting directions to your proxy– mark⌧or�to indicate	your directions
RESOLUTION	For Against Abstain	RESOLUTION	For Against Abstain
1. Consolidation of Shares	� � �	9. Election of Mr John Patrick Boyd as a Director	� � �
2. Return of Capital	� � �	10. Election of Dr James Stevens Rowe as a Director	� � �
3. Approval of issue of Shares under the General Share Offer (If you have participated or intend to participate in the Company’s general share offer under the Prospectus for the General Share Offer, you and your proxy must abstain from voting on this Resolution)	� � �	11. Approval of change of name from NuSep Ltd to NxGen Pharmaceuticals Ltd	� � �
4. Approval of the NxGen Acquisition and the change to the nature and scale of NuSep’s activities	� � �	12. Issue of Options to Mr Daryll Knowles	� � �
5. Approval of the issue of Consideration Shares to the NxGen Shareholder	� � �	13. Issue of Options to Mr Michael John Tattersall	� � �
6. Election of Mr Daryll Knowles as a Director	� � �	14. Issue of Options to Dr Alan Henry Amodeo	� � �
7. Election of Mr Michael John Tattersall as a Director	� � �	15. Issue of Options to Mr John Patrick Boyd	� � �
8. Election of Dr Alan Henry Amodeo as a Director	� � �	16. Issue of Options to Dr James Stevens Rowe	� � �

If you mark the “Abstain” box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

NUSEP LIMITED

Proxy Form

PLEASE SIGN HERE

This section must be signed in accordance with the instructions below to enable your directions to be implemented. Executed in accordance with section 127 of the Corporations Act:

Individual or Shareholder 1 Sole Director & Sole Company Secretary Dated this	Joint Shareholder 2 Director / Company Secretary day of	Joint Shareholder 3
		Director 2009

INSTRUCTIONS FOR COMPLETING PROXY FORM

1. Your pre-printed name and address is as it appears on the share register of the Company. Please note, you cannot change ownership of your securities using this form.

2. Completion of a proxy form will not prevent individual shareholders from attending the Meeting in person if they wish. Where a shareholder completes and lodges a valid proxy form and attends the Meeting in person, then the proxy’s authority to speak and vote for that shareholder is suspended while the shareholder is present at the Meeting.

3. A shareholder of the Company entitled to attend and vote is entitled to appoint not more than two proxies. Where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the shareholder’s voting rights. If the shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half of the votes.

5. A proxy need not be a shareholder of the Company.

6. If you mark the “Abstain” box for a particular item, you are directing your proxy not to vote on that item on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.

7. If a representative of a company shareholder is to attend the Meeting, a properly executed original (or certified copy) of the appropriate “Certificate of Appointment of Corporate Representative” should be produced for admission to the Meeting. Previously lodged “Certificates of Appointment of Corporate Representative” will be disregarded by the Company.

8. If a representative as Power of Attorney of a shareholder is to attend the meeting, a properly executed original (or originally certified copy) of an appropriate Power of Attorney should be produced for admission to the Extraordinary General Meeting. Previously lodged Powers of Attorney will be disregarded by the Company.

9. Signing Instructions

You must sign this form as follows in the spaces provided:

Individual:

Where the holding is in one name, the holder must sign.

Where the holding is in more than one name, all of the shareholders should sign.

Joint Holding: Where the holding is in more than one name, all of the shareholders should sign. Power of Attorney: If you are signing under a Power of Attorney, you must lodge an original or certified photocopy of the appropriate Power of Attorney with your completed Proxy Form. Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

1. Lodgement of a Proxy

This Proxy Form (and any Power of Attorney under which it is signed) must be received at the address below not later than 10.00 am on 11 March 2009 (48 hours before the commencement of the meeting). Any Proxy Form received after that time will not be valid for the scheduled meeting.

Postal address: In person at: NuSep Ltd NuSep Ltd PO Box 6126 22 Rodborough Road Frenchs Forest, NSW 2086 Frenchs Forest, NSW 2086 Fax number: (02) 8977 9099

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Annexure A – Independent Expert’s Report

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5th February 2009

Mr John Manusu Executive Chairman NuSep Limited 22 Rodborough Road Frenchs Forest, NSW 2086

Dear Mr Manusu,

As requested by the Directors of NuSep Limited (“NuSep”), we have prepared this independent Expert’s Report to assist the NuSep shareholders in their consideration of resolutions to be put to a General Meeting of Shareholders on or around 13 March 2009. This report is to be included in a Prospectus to be provided to NuSep’s shareholders prior to that meeting.

NuSep announced on 1 October 2008 that it had entered into a binding Heads of Agreement to acquire 100% of the shares in NxGen Pharmaceuticals Pty Ltd (“NxGen” or the “Company”) in return for shares and cash and subject to approval by NuSep shareholders. NxGen is a private Australian company that is wholly owned by Jehega Pty Ltd and has diverse activities in pharmaceutical product development and formulation, contract research, and specialty chemical wholesaling and manufacturing.

This report provides our opinion on the transaction and whether it is fair and reasonable in all the circumstances to the non-associated shareholders of NuSep. At the conclusion of this transaction NxGen Shareholders will hold the majority of the shares in NuSep and this is therefore a reverse takeover of NuSep by NxGen. According to Section 611 (Item 7) of the Corporations Act 2001 and Regulatory Guide 74 (“Acquisitions agreed to by shareholders”) of the Australian Securities and Investments Commission, an analysis of whether the proposal is fair and reasonable to non-associated shareholders must be provided to shareholders as part of proper and full disclosure where control of the company may change. In addition, Regulatory Guide 111 describes the accepted meaning of “fair” and “reasonable” in Australian mergers and acquisitions practice. [1]

A transaction is regarded as “fair” if the assessed value of the shares acquired is greater or equal to the consideration given. The transaction is considered “reasonable” if the offer is “fair” and the potential advantages of entering the agreement outweigh the disadvantages to NuSep shareholders, or, in the absence of the transaction being “fair”, that the offer should be accepted if there is no higher offer. We understand from NuSep management that there has been no higher offer to date.

In arriving at our fair and reasonable opinion we have determined a value range of NxGen based on its assets and projected discounted cash flow (DCF) analysis and examined the likely advantages and disadvantages of the transaction to NuSep shareholders. We have also considered this valuation against the ASX industry price earnings (PE) multiple to triangulate this valuation. The sole

1 ASIC Regulatory Guide 111, Content of Expert Report, Page 7 Section RG 111.9 – RG 111.11

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purpose of this report is to provide this independent opinion to the NuSep shareholders and it should not be used in any other context.

In conclusion, having regard to the offer of AU$20.8 million plus a performance payment of $4.2 million falling within our estimate of the fair value of NxGen being AU21.4 million to AU35.1 million, and considering the advantages and disadvantages, in our opinion the takeover is fair and reasonable to the non-associated NuSep shareholders.

The Proposed Transaction

NuSep is an Australian-based life science company listed on the Australian Stock Exchange Limited (ASX:NSP) and focussing on the development and sales of biological separations technology. NuSep was founded on 1[st] December 2006 from the divesture of certain Australian assets of Life Therapeutics Ltd (ASX:LFE). NuSep’s core competency is in precast gels and laboratory separation processes, namely the iGels the MF10 Separator instrument and biological products such as human immunoglobulin (IgG) and albumin.

NxGen has two subsidiary companies: ASA Pharmaceuticals Pty Ltd, which is a pharmaceutical wholesaling company and the exclusive Australian distributor of Medisca, Inc.’s fine chemicals and active pharmaceutical ingredients (APIs); and NxGen Australia Pty Ltd, which is responsible for the research and development as well as analytical, product development, training and marketing services in NxGen. The consolidation of these companies into NxGen occurred in January 2008. The company is also closely associated with Australian Custom Pharmaceuticals Pty Ltd (ACP), which is owned by NxGen CEO and shareholder, Daryll Knowles, and provides pharmaceutical compounding services. The group of companies is headquartered in rented facilities at Taren Point, New South Wales.

Prior to completion of the NxGen acquisition, the Board of NuSep is proposing to spin out the existing separations business of the Company into a new public, unlisted entity, “Prime BioSeparations Pty Ltd”, in which existing NuSep Shareholders will receive a pro rata shareholding. The Board of NuSep also proposes to raise up to $5,075,000 under a general share offer (the Offer) pursuant to a prospectus to be issued by NuSep. The consideration for the NxGen Acquisition will be paid to NxGen’s shareholder in the following three instalments:

1. by the issue of 319 million NuSep shares (Shares) at 5¢ per share or such number of Shares that equal 55% of the total issued Share capital of NuSep immediately prior to completion of the NxGen Acquisition (Completion) on Completion (i.e. the first instalment);

2. by the payment of cash and/or the issue of up to a maximum of 101.5 million Shares at 5¢ per share that equal a maximum of 17.5% of the issued Share capital of NuSep on Completion within 15 business days of the close of the Offer (i.e. the second instalment). The proportion of cash and Shares paid in the second instalment will depend on the proceeds raised by the Offer and will be determined by the NuSep board immediately before Completion;

3. by the issue of 87 million Shares at 5¢ per share or such number of Shares that equal 15% of the total issued capital of NuSep immediately prior to Completion when NxGen reaches a pre-tax profit of $2.1 million (i.e. the third instalment). NxGen must reach this pre-tax profit prior to or on 30 June 2010. If the Shares in the third instalment are not issued by 30 September 2010, the third instalment will lapse.

The final value of the transaction will total $29 million, which will result in the NxGen Shareholder holding between 70% and 87.5% of the total shares in NuSep depending on the

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Innovation Dynamics Pty Ltd

take up of the Offer. The NuSep shareholders will retain 12.5% of the issued capital of the company and so the cost to them of the NxGen acquisition is $25.3 million. If NxGen do not achieve the $2.1 million profit forecast the additional 15% shares will lapse and the value of the company to NuSep shareholders will be $21 million. The majority ownership of NuSep will then pass to NxGen Shareholder.

Table 1: Structure and effects of takeover

	Percent of total shares	Number of shares
Current NuSepIssued Capital	8.60%	46,000,000
NuSepBonus Shares	3.9%	26,500,000
NxGengeneral share offer	17.50%	101,500,000
NxGen first installment Shares	55%	319,000,000
Total Issued Capital after acquisition		493,000,000
NxGen third installment Shares based on achieving $2.1m profit	15%	87,000,000
Total Issued Capital after issue of Performance Shares	100.00%	580,000,000

The takeover will be funded by cash raised by the Offer which aims to raise $5.075 million to cover costs of the capital raising activity, support the cash component of the acquisition, expand the NxGen business into the US market, working capital needs of NxGen and Prime BioSeparations Pty Limited, and fund the spin out of the existing NuSep business. The NxGen acquisition is contingent on first gaining approval by NuSep shareholders for the spin out of NuSep’s current business into Prime BioSeparations. NuSep shareholders then need to approve the issue of NuSep shares to acquire the NxGen business. This report deals with the second of these steps, namely the purchase by NuSep of NxGen and whether this is fair and reasonable to the NuSep shareholders.

The NuSep share price has fallen progressively since listing on the ASX approximately eighteen months ago, from a high of $0.52 in June 2007 to a low of $0.04 in September 2008. The Company’s current share price is $0.05 and its market capitalisation is $2 million. We have not investigated the reasons for the change in the price of NuSep shares and this may have been influenced, among other things, by the effects of the recent deteriorating global economic conditions.

The Board of Directors of NuSep views the proposed takeover as the best current option for preserving and increasing the value of NuSep shareholders’ investment. The NuSep Board believes this proposal offers the best opportunity to raise the necessary funds to complete the development of the SpermSep instrument while offering shareholders an investment in a complementary profitable business. In particular this allows NuSep to become a pharmaceutical development and supplier company with positive cash flow and profit and provides a separate vehicle for further development of the separations business as a private entity. The NuSep management has stated that a major part of the business of NxGen is in sexual dysfunction and therefore related to the current business of NuSep.

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Innovation Dynamics Pty Ltd

Overview of NxGen

NxGen is a diversified pharmaceutical development and manufacturing business with a focus on the design of formulations that will be manufactured as “compounded” or “off label” pharmaceuticals. NxGen specialises in formulating products that treat sexual dysfunction and has products in development for drugs of addiction. NxGen also manufactures cosmetics and over-the-counter pharmaceuticals and sells wholesale ingredients through the NxGen subsidiary ASA Pharmaceuticals Pty Ltd. Most of the current business is generated in Australia and manufacturing is carried out through Australian Custom Pharmaceuticals Pty Ltd (ACP) which holds a pharmacy licence in accordance with Australian regulations. NxGen is entering agreements with pharmacy groups overseas to significantly expand their operation.

NxGen’s staff have expertise in formulation chemistry, drug delivery mechanisms and the behaviour and action of pharmaceutical drugs. To support this development, the company has testing facilities to determine the composition and stability of the product and conducts clinical trials on new formulations. Once developed, they either license the appropriate formulations to contract manufacturers and compounding pharmacies to prepare the products and receive royalties in return or receive a pre agreed fee for formula development and testing. It is important to note that ACP is a separate legal entity to NxGen and the transaction with NuSep does not include any transfer of ownership of ACP, which acts solely as the strategic partner to NxGen. Because the company’s pharmaceuticals are individually compounded from previously approved drugs, and their safety and efficacy is not independently proven through specific clinical trials for that particular use, they are prescribed “off-label”. ACP claims to have a dominant share of the Australian market for compounded pharmaceuticals with the remainder mostly carried out by individual pharmacists.

The NxGen intellectual property is embodied mostly in formulations (or recipes) and in the use of particular excipients to meet the requirements of the physician. NxGen claims to have over 1,500 different proprietary formulations, including various delivery formats that have been devised by the company pharmacists based on their specialist compounding knowledge. These formulations are significant assets and are held as trade secrets rather than as patents. All NxGen’s pharmacist staff are responsible for developing these proprietary formulations, but most are attributed to Drs James Rowe and Daryll Knowles and held in secure databases. NxGen also has considerable knowledge of the sourcing of raw ingredients and the testing of them and of manufactured products.

Pharmaceutical Compounding

Off-label products are special formulations of known active compounds that have been prepared to meet individual patients’ needs and prescribed by a licensed physician. Offlabel prescriptions may be prepared from a registered medicine for a disease, indication, age, dosage or route of administration that is not included in its approved product information or registration.[2] They may be prescribed to treat conditions other than those approved by regulators. Doctors may choose to prescribe a medication off-label because their patient has exhausted all other available treatments, is intolerant of the required medication in its normal format, requires a different dosage to benefit from the effects of the drug, or many other reasons. The doctor writes the prescription based on their assessment of the needs of that particular patient and must accept responsibility for prescribing the

2 Kron J (2005). Label Conscious: Are there legal risks for doctors when they prescribe drugs offlabel? Australian Doctor, 13 January 2005

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Innovation Dynamics Pty Ltd

medication and monitoring the patient. They must also be convinced that the off-label product better suits their patient’s needs and that there is good clinical evidence or experience that indicates the medication is safe and efficacious.[3] Pharmaceutical compounding of custom drugs has a long history but this activity decreased as mass manufactured dosage forms became available and pharmacists dispensed pre-packaged medicines. It is a common legal practice undertaken by 95% of surveyed Australian GPs.[4]

Regulatory Environment

Under the regulations of the Australian Therapeutic Goods Act, the pharmaceuticals developed by NxGen must be produced or “compounded” by a pharmacist and cannot be sold off-the-shelf or over-the-counter in retail pharmacies or elsewhere. Companies that manufacture compounded pharmaceuticals must be owned by a pharmacist and NxGen have a close relationship with ACP which is owned by Dr Daryll Knowles who is a pharmacist, the CEO of NxGen and a shareholder.

ACP is a custom compounding pharmacy providing a range of formulations for dental, dermatological, geriatric, nausea, paediatric, podiatric and pain indications. Individual doses, flavour specification and veterinary products are available in a range of delivery and packaging formats. All products are manufactured at the Taren Point facility, with 48 hour script turnaround. At the patient’s request ACP retains repeats, and the majority of business comes from personal, repeat prescriptions. ACP also publishes, through NxGen Australia’s marketing arm, information guides about compounding for doctors and physicians, in an effort to educate their target market as to the uses and benefits of prescribing custom compounded products.

NxGen currently provides advice and formulations to ACP for compounding. All pharmaceutical products are tightly regulated and the processes, equipment and facilities used by ACP are regularly inspected to meet the standards of the State Pharmacy Board and also come under the jurisdiction of a number of other State regulations and boards. The Therapeutic Goods Act[5] provides exemption for extemporaneous dispensing (pharmaceutical compounding) and ACP is not required to be licensed by the Australian Therapeutic Goods Administration (TGA) to manufacture and market its pharmaceuticals. This allows the company’s pharmacists to prepare pharmaceutical formulations for individual patient prescriptions, without requiring the company to meet the compliance obligations of TGA certification. The testing facility is registered by the National Association of Testing Authorities (NATA).

Although pharmaceutical compounding is well established there has been discussion by the Australian Government to change the regulatory environment under which this operates. A Discussion Paper was released in 2008 on the regulation of prescription compounded Medicines in Non-Hospital Pharmacies,[6] recommending that a tiered structure of approval be set up depending on the complexity of the products and size of the operation. NxGen and ACP management believe such a structure would be of competitive benefit to them since they are already preparing to operate to TGA requirements. We agree that this could benefit NxGen but the regulations have yet to be determined.

3 Gaxarian M et al (2006). Off-label use of medicines: consensus recommendations for evaluating appropriateness. MJA, 185;10 pp544-548

4 Kron J (2005). op cit

5 Under Section 5 of the Therapeutic Goods Act 1989 and Item 6 and Schedule 8(2) of the Therapeutic Goods Regulations 1990

6 A Discussion Paper on Regulation of Extemporaneously Prepared Medicines in Non -Hospital Pharmacies, National Coordinating Committee on Therapeutic Goods 10 April 2008

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The UK and USA have analogous laws to those in Australia relating to access to off-label pharmaceuticals. The Food and Drug Administration (FDA) has clearly indicated that offlabel prescribing is considered legal in the US, and provides guidelines for doctors to make decisions about off-label prescribing. Analyses of prescribing patterns in the US have indicated that 25-75% of prescriptions for some of the top selling drugs are prescribed for off-label uses.[7]

Several countries have different regulations to those in Australia in terms of who can manufacture bespoke formulations and in the way drugs are marketed. Most notable is the US where a compounding pharmacy does not have to be owned by a registered pharmacist and a number of compounding companies exist and operate. NxGen sees this as a market opportunity for certain of its product formulations and we understand that it is their intention in time to acquire such compounding business overseas enabling it to own this part of the value chain.

Contributions to value

NxGen has signed contracts and are in negotiation with a number of other companies in Australia and overseas. According to the Company business model, all products developed and offered by NxGen are individually prepared (or compounded only) by pharmacists for specific patients. Several initiatives are intended to allow NxGen to manufacture and market products in the US, Asia and Europe. Many of these arrangements are projected to be operating in 2009 and it is our understanding that they will contribute significantly to the cash flow of NxGen. Although we cannot guarantee that these events will occur as planned and in the time proposed, we believe the company has the capability and, with the new listed entity, the resources to bring them about.

Australian market

In Australia, prescriptions for compounded products come directly from Australian doctors to ACP who then contracts NxGen to develop appropriate formulations and delivery systems. NxGen and ACP have been successfully carrying out this work and have an effective monopoly position in the Australia market. We assume that this will continue. NxGen also have developed specialist formulated products for treatment of sexual dysfunction, drugs of abuse and several other areas and intends to expand this work through license arrangements with companies in larger overseas markets.

AMI Australia Pty Ltd

NxGen has a marketing and distribution relationship with AMI for all the products related to sexual dysfunction in the Australian and UK markets. AMI is a 100% subsidiary of Advanced Medical Industries Inc. which is incorporated in Nevada, USA, and whose shares are offered on an Over-The-Counter Bulletin Board through NASDAQ.[8] In this arrangement, AMI markets the NxGen products to fill prescriptions for products prescribed by AMI doctors through their clinics and call centres specialising in sexual dysfunction. AMI has operated since 1993 in Australasia and now has more than 30 treatment clinics.[9] The arrangement with AMI is important for NxGen but the agreement is verbal. To address this issue NxGen is currently negotiating a world wide supply agreement with AMI. In the absence of this arrangement NxGen would have to build this service themselves.

7 Moskowitz D (2007). Off-label Prescribing: Strategies, Risks and Market Challenges. Informa UK Ltd, Reference No. BS1346

8 Advanced Medical Institute, Inc. (2008) Website http://www.avmd.com.au

9 US SEC Filings

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NxGen intend to enter several overseas markets with business structures and facilities that will enable it to sell directly to patients and to manufacture off-label products. Negotiations with several companies in the US, UK, Malaysia and other Asian countries are advanced and NxGen expects these to generate cash flow in 2009. In several cases NxGen is seeking to acquire companies in these countries which will be paid through shares or cash raised from the market. We have reviewed these opportunities and negotiations and where we have considered it appropriate, have included these in our valuation sensitivity analysis of cash flows. The operation of NxGen and its future expansion depends on successfully concluding a number of agreements and acquisitions but there is no guarantee that these will be completed in the timeframe proposed.

NxGen business growth areas

NxGen is focusing on treatments for sexual dysfunction, drugs of dependence and skin treatments, which fit its business strategy and marketing through clinics and specialists requiring close and confidential consultation between the prescribing physician and the patient. Whilst there are competing products in each of the areas targeted, the approach to these niche markets is a familiar and profitable business area for NxGen. NxGen also provides contract research to develop new formulations in other areas and they also conduct a wholesaling business of imported cosmetics and other products.

1. Sexual dysfunction treatments

NxGen has developed treatments for premature ejaculation (PE) and erectile dysfunction (ED) in men, and sexual dysfunction in women (female sexual dysfunction or FSD). The active ingredients are currently available and may use a range of application systems including a nasal spray, gel, lozenges and injectable formulation. The benefit of these delivery mechanisms is that they each bypass the gastrointestinal tract and kidneys, allowing faster action, elimination of gastric and hepatic drug degradation. Lower doses can therefore be administered with fewer side effects.

The products are currently sold through Advanced Medical Institute (AMI) in Australia, New Zealand, China, Japan, Indonesia and Europe. In other markets, such as Indonesia, the base material is shipped and the API is added to the mixture and distributed in-country.

Funds from the NuSep capital raising and NxGen acquisition will be used to enter the US market with these products.

Market size and approach

Over 150 million men worldwide reportedly suffer from erectile dysfunction and this is expected to double by 2020. Around 85% of cases remain undiagnosed and incidence is related to age, systemic disease, neurogenic or vascular factors, drug inducement and psychology.[ 10] Few men seek treatment and the overall market could expand with better education and less confronting consultations. Within the erectile dysfunction area there are niche markets with a high prevalence, such as diabetics.[11]

Currently three phosphodiesterase V inhibitor products dominate the erectile dysfunction market: Viagra (Pfizer), Cialis (Eli Lilly/ICOS) and Levitra (GSK/Bayer), which together generate revenues of over US$3 billion annually growing at 4.9% p.a. Sales in Australia,

10 Visiongain (2007). The ED Market Report: Erectile Dysfunction Market Assessment and Analysis 2007 to 2022.

11 Pharmaceutical Business Review (2007). Commercial Opportunity Awaits in Erectile Dysfunction Market. Progressive Media Group, 25 April 2007

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were $63 million in 2006.[12] The US remains the largest single market and new erectile dysfunction products are being developed by a number of companies, including Abbott, Pfizer, Inotek, Schering-Plough, Vivus and EK Chemicals.

The market for pharmacological treatments for premature ejaculation is relatively underdeveloped, with little statistical reporting and few effective products on the market. Premature ejaculation can affect men from a much younger age than erectile dysfunction, and the market is estimated to be at least as large (about 30% of all men reportedly suffer from premature ejaculation on a consistent basis).[13] Currently there are no competing drugs to NxGen’s premature ejaculation treatment, with only off-label anti-depressants, home remedies and internet-marketed solutions on offer. The UK company, Plethora Solutions, is developing a spray-on treatment (PSD502) which is expected to reach the market in late 2009.[14]

Female sexual dysfunction (FSD) is another poorly recognised condition, believed to affect up to 45% of all women. FSD encompasses symptoms such as problems with desire, arousal, achieving orgasm and pain during intercourse. With an estimated 84 million women in the seven major markets suffering some form of FSD, and only a few approved treatments available, there is significant unmet need in this market.[15]

Procter & Gamble markets Intrinsa, a testosterone patch which is approved in parts of Europe but not Australia or the USA. Organon testosterone implants are available in Australia, and many other testosterone formulations are available off-label. The FDA cited the potential for off-label use as one of the reasons for rejecting the drug, Intrinsa, in the US, and is indicated for use only by surgically menopausal women (hysterectomy patients). PBN Pharma LLC has launched ApoGyn onto the market as a prescription medication to cause sexual arousal in women, without side effects. Other companies with products in development and clinical trials include Antares/BioSante (LibiGel), Boehringer Ingelheim (Flibanserin), Novavax (Androsorb), Pharmos (VPI013) and Recordati (REC 2615).

Risk Assessment

Major competitors dominate the global erectile dysfunction market and many new products are in development. Whilst AMI has a significant market share in Australia, there is no guarantee that the company will be able to establish such effective distribution arrangements in other markets such as the US or maintain its share in Australia. The AMI offer is not competitive on price, but the marketing approach and relative anonymity of the prescribing and drug delivery methods are key advantages.

NxGen does not currently have a formal contractual agreement with AMI. Whilst the two companies are understood to have a close relationship and NxGen shares all IP relating to the sexual dysfunction products prescribed by AMI doctors, if this relationship were to break down the company would be at least temporarily unable to receive license fees for these products. Without the assistance of a distributor such as AMI other approaches to the market would have to be implemented and this represents an increased risk to the timing and success of the expansion.

12 Visiongain (2007). op cit

13 Lewcock A (2007). Premature ejaculation spray coming to clinical climax. Decision News Media SAS, 31 October 2007

14 Lewcock A (2007). op cit

15 Datamonitor (2007). Female Sexual Dysfunction: Prescription Drug Pipeline Overview 2007.

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Value comparables

We note the following transactions which may offer some insight into current comparable valuations for NxGen in these markets:

• GlaxoSmithKline (NYSE:GSK) licensed co-development rights in 2006 from Futura Medical plc (AIM:FUM) for a gel and spray topical formulation based on their DermaSys® delivery system as treatment for erectile dysfunction. GSK also licensed from Futura the rights to two other early-stage products for female sexual dysfunction and premature ejaculation. GSK agreed to pay 65% of the development costs (approximately £2.4 million), plus royalties. In 2007 GSK cancelled the deal unexpectedly, and Futura signed a similar agreement with SSL International plc. under similar terms (SSL pays 65% of the approximate £3.8 million development costs, plus royalties and up to £18 million in regulatory and sales milestone payments).[16] Futura develops novel products for sexual health and pain relief using existing chemical entities only; none of their products are compounded. Futura has a market capitalisation of £14.6 million (or AU$32 million at 14 December 2008).[17]

• Acrux Ltd (ASX:ACR) is an Australian company developing pharmaceutical products for global markets. The company’s pipeline of non-occlusive topical sprays and liquids includes treatments for decreased libido in women, menopause, hypogonadism, contraception, pain and nicotine addiction. In 2004 Acrux signed an exclusive licensing agreement with VIVUS, Inc. (NASDAQ:VVUS) for the development and commercialisation of topical testosterone spray, Testosterone MDTS, for decreased libido in women and Estradiol MDTS, for menopausal symptoms. Vivus agreed to pay Acrux combined licensing fees of US$3 million, clinical development milestone payments of US$4.3 million, product approval milestone payments of US$6 million, plus undisclosed royalties.[18] Acrux’s current market capitalisation is AU$76 million.[19]

• In 2002, Nastech Pharmaceutical Company Inc. (NASDAQ:NSTK)[20] signed a development and marketing agreement with Pharmacia Corporation (NYSE: PHA) for their proprietary erectile dysfunction and female sexual dysfunction treatments. The nasally delivered apomorphine product had completed Phase II trials in men with erectile dysfunction and was being tested in Phase II studies in women with FSD. Pharmacia paid Nastech US$3 million upfront, plus future development costs up to US$45 million and sales milestones and escalating royalties. Costs of US$3.4 million were reimbursed to Nastech, and Pharmacia also purchased US$5 million of common stock in Nastech.[21]

2. Anti-addiction treatment

NxGen is in the final stages of developing an implantable, slow-release pellet formulation of the generic, non-addictive, medication naltrexone. Naltrexone is an opiate antagonist commonly used to treat addicts. NxGen will be manufacturing naltrexone initially for

16 NATAP (National AIDS Treatment Advocacy Project) (2006). GSK licenses OTC erectile dysfunction product, 5 July 2006

17 www.futuramedical.co.uk/ Quoted on the AIM market of the London Stock Exchange

18 Vivus, Inc. (2004). Press Release: VIVUS Expands Sexual Health Product Pipeline Through Deal With Acrux, 12 February 2004

19 Commsec (2008). ASX:ACR Last updated 19 December 2008

20 In 2008 Nastech was renamed MDRNA, Inc.

21 MDRNA, Inc. (2002). Press Release: Nastech And Pharmacia Reach Worldwide Agreement To Develop And Market Nasally Administered Apomorphine, 4 February 2002

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alcohol addiction, and will then target opiate and amphetamine dependence. The implant is inserted under the skin of the patient’s abdomen, and slowly releases the medication for up to six months.

Market size and approach

The global market for all anti-addiction pharmaceuticals is currently valued at approximately US$1 billion per annum and expected to increase as a wider range of treatments become available and addiction continues to be a major societal issue. Nicotine addiction and obesity are projected to be the biggest markets, based on the increasing incidence of obesity globally and community pressure to quit smoking.[22] The global market for alcohol dependence drugs is about US$100 million and expected to reach US$300 million by 2016.[ 23]

The anti-addiction treatment market is relatively untapped but highly competitive, with a range of generic medications already available. A number of targeted therapies are in preclinical or clinical development and expected to reach the market over the next few years. Several major pharma companies are increasingly active.[24] Although Naltrexone has been used for many years in a range of formulations as a generic anti-addiction drug, this increasingly competitive anti-addiction market will require a new approach to capture share. Patients differ in their requirements and individual formulation, directed by the physician in consultation with the patient, in a dedicated clinic is seen as a distinct advantage.

Value comparable

• Alkermes (NASDAQ:ALKS) markets Vivitrol, an extended release injectable formulation of naltrexone for alcohol dependence and now in clinical trials for opioid dependence. In 2005 Alkermes, Inc. entered into an agreement with Caphalon, Inc. (NASDAQ:CEPH) to develop and commercialise a long lasting naltrexone injection, Vivitrex, for the treatment of alcohol and opioid dependence. Cephalon agreed to pay US$160 million upfront, plus US$110 million on FDA approval and up to an additional US$220 million in milestone payments based on sales.[25] In January 2008 Alkermes licensed the rights to the product, Vivtrol, outside the US, to Johnson and Johnson subsidiary Cilag GmbH International. Cilag will pay up to US$39 million in milestone payments plus royalties for rights in the Russian and Commonwealth of Independent States (CIS) region.[26] Alkermes is a much larger well established USbased company, with multiple products in the market and is further advanced than NxGen with a correspondingly high valuation.

22 Visiongain (2006). Anti-addiction Therapies, 2006-2011 – The Pharmaceutical Industry’s Next Viagra?

23 McBride R (2008). Big pharmas target addiction as depression drugs come off patent. Mass High Tech: The Journal of New England Technology, 11 July 2008

24 Datamonitor (2008). MedTRACK Database, viewed 5 November 2008

25 Alkermes, Inc. (2005). Press Release: Cephalon and Alkermes Announce Agreement for the Commercialization of Vivitrex for the Treatment of Alcohol Dependence; Companies to Share Profits from Future Sales of Vivitrex Equally, 24 June 2005

26 Alkermes, Inc. (2008). Press Release: Alkermes Announces Agreement for the Commercialization of VIVITROL in Russia/CIS, 7 January 2008

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3. Contract services

NxGen provides contract drug development and formulation services to the pharmaceutical and consumer products sectors. They assist drug developers and manufacturers (in both human and veterinary markets) to produce novel products and reformulate old products, with a range of delivery formats available including tablets and capsules, lozenges, injectables, nasal sprays, suppositories and gel formulations. Examples of the company’s work in consumer products include soap, skin cream and other cosmetic formulations.

NxGen does not retain the formulation developed through its contract research work but it does increase the technology base and diversification within NxGen and positions NxGen as a major source of knowledge in formulation. Following formulation, NxGen may retain the contract to manufacture the product and in other cases the clients may pass the formulation on to a separate contract manufacturing organisation (CMO). Reflecting their strong position in the industry, ASA will also run educational courses covering the theoretical and practical aspects of extemporaneous compounding.

Formulation is a critical but under-serviced niche area of pharmaceutical contracting where NxGen has specific expertise. In general this contract and educational work helps to maintain the strength of the company and competitiveness in formulation know-how, and reflects market leadership. There is a risk in loss of key staff with formulation knowledge and critical company know-how may be disseminated to other companies through this work. It is also a low revenue area relative to the other key business lines.

Value Comparable

• No comparable companies were identified for contracted formulation services

4. Specialty Pharmaceutical Wholesaling

ASA Pharmaceuticals Pty Ltd (ASA) is wholly owned by NxGen and is a wholesale distributor of chemicals and other compounding supplies operating through a licence from the NSW Department of Health. ASA is the exclusive Australian distributor for Medisca Inc., a North American supplier of bases, fine chemicals, active pharmaceutical ingredients (APIs), controlled substances, natural flavours and oils, and equipment and devices sourced from US FDA-inspected[27] manufacturers worldwide. ASA also sources goods from alternative suppliers, including empty capsules, nutraceuticals and other fine chemicals. ASA already has a number of significant Australian compounding pharmacies as customers. This is a relatively simple business for NxGen to operate, with low overheads and expenses.

Value comparable

• A major player in the pharmaceutical wholesaling market in Australia is Australian Pharmaceutical Industries Ltd (API). API is considerably larger than NxGen and, whilst not a direct comparable, API is worth noting because it currently holds about 90% of the market and has a number of corporate pharmacy licences. API is listed on the ASX with a market capitalisation of $102 million (27 December 2007).[28] The company is not only a pharmaceutical wholesaler (over the counter[29] and PBS[30] medicines), but also owns the Priceline, Soul Pattinson and Pharmacist Advice pharmacy brands, and provides services to the retail health and beauty markets.

27 FDA = Food and Drug Administration of America

28 Commsec (2008). ASX:API, Last Updated 22 December 2008

29 OTC = over-the-counter medications that can be purchased without a prescription, such as headache and common cold medications.

30 PBS = Pharmaceutical Benefits Scheme,

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Additionally, API has a partnership with the generic medicines distributor Alphapharm Pty Ltd.[31]

6. Corporate pharmacy licence in Australia

The New South Wales Government provides an exemption to the regulation in the Pharmacy Act to allow wholesale manufacturing companies to hold “corporate” pharmacy licences and own a pharmacy provided it is operated by a qualified pharmacist. Around half of the current 30 licenses are owned by pharmaceutical wholesaler Australian Pharmaceutical Industries Limited. NxGen is seeking to purchase a corporate pharmacy licence which would allow the ACP business to be combined with the NxGen group. However there is no guarantee that this will take place or under what terms.

Value comparable

• In March 2006 Coles Myer (now the Coles Group, owned by Wesfarmers) acquired Sydney retail pharmacy business Sydney Drug Stores Pty Ltd (trading as Pharmacy Direct). The acquisition included a retail store in Western Sydney and an online, mail, fax and phone order pharmacy business with a 430,000 customer base, 100 employees and $44 million in annual sales. The purchase of Pharmacy Direct also included the corporate pharmacy licence under which the company operated. The total value of the acquisition was $48 million (excluding merchandise), and was paid in full in Coles Myer shares.[32,33]

Assessment of fairness

In our assessment of the proposed transaction being fair we have considered whether our independently assessed value of the technology, IP and other assets held by NxGen exceeds the consideration in the proposal to acquire these assets.

Several methods may be used to estimate the current value of NxGen, and their suitability depends on the circumstances of the company, the transaction and the available data in the particular industry sector. These are outlined in ASIC Practice Note 43, 111 & 112 and information on them is available widely. These methods include multiples of earnings, market based comparisons with recent transactions of similar companies (or recent quoted price of listed securities) or calculation of Net Present Value (NPV) from an analysis of Discounted Cash Flow (DCF) projections.

We have used a DCF analysis as our primary valuation methodology and have compared this with the values of companies developing or selling similar products together with multiples of their earnings.

Discounted cash flow valuation

A DCF analysis is used to determine the Net Present Value of the business as a going concern. We regard the DCF methodology to be most appropriate because it captures many variables in the operating business and is based on future projected earnings. The disadvantage of DCF is the inherent uncertainty of the future projected cash flow, including future revenues and the level of discounting applied.

31 Alphapharm Ltd (2008). Website http://www.alphapharm.com.au

32 Coles Myer Ltd (2006). Press Release: Coles Myer Acquires Pharmacy Direct, 31 March 2006 33 Subsequent to the Coles takeover the Pharmacy Guild commenced proceedings against Coles because the licence was held by Coles but the pharmacy was operated by a subsidiary. The NSW Supreme Court found against Coles in April 2008.

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We have considered each of the main product and technology areas in NxGen to form an aggregate valuation and have applied a sensitivity analysis aimed to account for variation in discount rates, variation of performance to milestones and possible changes in market conditions. We have also considered the values of recent transactions announced by several companies with products in sexual dysfunction and addiction therapy markets.

Table 2: Sensitivity analysis

Discount rate	High	Medium	Low
Base case	30.5 m	32.7 m	35.1 m
Sensitivity2: Low sales	24.1 m	26.2 m	28.4 m
Sensitivity3: Delayed US entry	21.4 m	22.8 m	24.3 m
**Range **	21.4 million to 35.1 million
Midpoint	28.3 million

Assumptions

1. According to the NxGen unaudited balance sheet of 30 September 2008 the current assets comprising cash plus trade receivables and inventory minus current liabilities will be used in the ongoing business and has not been taken into account in the valuation of the Company. The book value of plant and equipment is $337,629 and NxGen currently rents space and will continue to do so for the foreseeable future.

2. NxGen is composed of several companies that have been operating semi-independently up to 2008 when they were combined into NxGen Pharmaceuticals. Historical financial statements are available for individual companies but the combined statements for NxGen only cover the Q1 and Q2 of FY2008 with projections to the full 2008/09 year.[34]

3. NxGen management have provided financial statements for the current business and have provided their projections for cash flows for the operation of overseas activities. We have used the after tax cash flow projections provided by NxGen management based on the operating history and the expected revenues from expansion of the business into other world markets over a 5 year period (2009 to 2013). NuSep has over $10m of carried forward tax losses and we have incorporated these carried forward tax losses in our calculations.

4. In our analysis we have applied variations to the cash flows to reflect possible alternative scenarios related to timelines of market entry and penetration and these form our sensitivity analyses. In particular we have developed 3 models. The first is the base case as provided by the NxGen management. In the second model we have discounted the Australian business, while allowing for the projected overseas sales. In the third model we have discounted the overseas sales while allowing the projected Australian sales.

5. We have applied a range of discount rates between 24% and 40% uniformly to different cash flows. These values were selected according to the Weighted Average Cost of Capital (WACC) using a risk free rate of return as the current 10 year bond rate of 4.0% and a risk premium of 16%-30%. Handley[35] has calculated the Equity Risk Premium

34 See the Investigative Accountants report elsewhere in this prospectus

35 John C. Handley, A Note on the Historical Equity Risk Premium , Report prepared for the Australian Energy Regulator, 17 October 2008

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from historical data to be around 6.2% and, given the uncertainty of the market entry for several of NxGen ventures and achieving milestones, we have used a higher range. NxGen has a number of separate revenue streams and the Company has increasing profit from products that are in increasing demand. The risk is therefore less than if the Company relied on one or two sources of revenue.

1. We have relied on information provided by NxGen and have sought independent information to verify some of their claims, however this has not been comprehensive. We have evaluated and analysed this information but have not audited any accounts or carried out due diligence on the technology or markets.

Comparable valuations

NxGen products and formulas hold a dominant percentage share of the Australian pharmaceutical compounding market and, in our view, there are no companies that are directly comparable to NxGen and no sales of companies that could be used as exact comparables. There are also no directly similar listed securities and we have also not found any international companies or sales with publicly available financial data on which to base a comparable valuation.

We have noted above several transactions involving pharmaceutical companies that may assist us in providing a general industry benchmark indication for the valuation of NxGen. Three of these companies are developing products that will be used as over-the-counter products or ethical pharmaceuticals in the same medical areas as NxGen. These products are not compounded pharmaceuticals which would be analogous to NxGen and their manufacture and marketing will therefore follow more traditional routes for pharmaceuticals. Typically the value of such companies is closely associated with the intellectual property held in patents and their value relies on successful clinical trials and licensing to gain future earnings. In addition, several of these companies are currently not making profit and data is unavailable to calculate their EBIT and PE multiples. API is a major pharmaceutical wholesaler in Australia and may represent the type of organisation that NxGen could grow into.

Table 3: Summary of comparable valuations

Company	Value	Value(AU$)	PE Ratio	EBIT Multiple
Futura Medical	£14.6 m	$32 m	NA	NA
Acrux Ltd	AU$67 m	$67 m	NA	NA
API Ltd	AU$126 m	$126 m	8.4	5.9

Multiples of earnings

Methodologies involving multiples of earnings (these are mostly quoted as EBIT or earnings before interest and tax) or cash flows are used where these are known historically to be stable and the Company will continue to operate profitably and with predictable growth. Several of the NxGen precursor companies have operated for several years and the owners have considerable experience in this market.

We have considered the multiple of EBIT that NxGen would need to have for it to be valued at the acquisition price of $25 million. Company EBIT for the year, normalised to account for abnormal items, is $3.3 m and therefore indicates a multiple of 7.7, which would value the Company at $25 million. We have also considered the future growth through new activities, such as the launch of products into US and UK, and using the EBIT projected by management after one year (in 2010) of $9.8 million this gives a multiple of 2.6.

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As a further indication of value, the average PE ratio for all companies listed on the ASX health, pharmaceutical and biotech index is 12.74[36] . On this basis and using the $2.1 million profit hurdle required for the NxGen Shareholders to earn their 15% performance bonus the value of NxGen is $27 million.

Overall Valuation of the NxGen Technologies

We estimate that the offer price for NxGen of AU$25 million is within the range of our DCF valuation analysis between AU$21.4 million to AU$35.1 million. This value is also supported by our arguments based on comparables and multiples of earnings. We also note that the initial payment for NxGen is $21 million, which is less than our DCF valuation analysis of NxGen. We consider the proposal to acquire these assets is fair to NuSep shareholders.

Assessment of Reasonableness

The NuSep share price has fallen progressively since listing on the ASX approximately eighteen months ago, from a high of $0.52 in June 2007 to a low of $0.04 in September 2008. The Company’s current share price is $0.05 and its market capitalisation is $2 million. The Board of Directors of NuSep views the proposed takeover as the best current option for preserving and increasing the value of the shareholders’ investment. In particular this would allow NuSep to become a pharmaceutical development and supplier company with positive cash flow and profit and provides a separate vehicle for further development of the separations business as a private entity.

Likely advantages to NuSep shareholders if the takeover is approved:

• NuSep has seen its share price deteriorate to a small fraction of its listing price in 2007 and its operating profit decrease. The potential upside in value that could be achieved in the acquisition of NxGen considerably out-weighs the costs of continuing the NuSep operation.

• NuSep Directors have investigated a number of alternative opportunities and have selected this course of action as the most beneficial to its shareholders.

• NxGen is already a profitable business with good management and there are opportunities to increase income and value. This represents more certainty to the NuSep shareholders.

• NxGen has multiple businesses that are consolidated under the new structure. NuSep shareholders will also retain share in the existing NuSep business lines through spinout pro rata allotment of shares in Prime BioSeparations.

• NxGen forecasts strong growth (and hence investor returns) through expansion of the business to the US. The new product lines in sexual dysfunction and addiction are rapidly growing and suit a compounding business structure as operated by NxGen.

Likely disadvantages to NuSep shareholders if the takeover is approved:

• The percentage share held by NuSep shareholders in the new company will decrease as a result of the takeover.

36 Comsec 16th January 2009

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• There will be less liquidity of shares held by current NuSep shareholders in the new spin-out business containing the separation assets. (However the shareholders can participate in a listed business, NxGen, that is already in profit and is expanding into markets that have strong demand for their products.)

Likely advantages to NuSep shareholders if the takeover is not approved:

• The existing shareholders will retain a higher percentage of the NuSep business and possibly have greater influence on decision making.

• If the NuSep business is separated from the listed company into an unlisted entity as proposed, the listed company is still available for a merger or takeover, possibly under more favourable terms. There is therefore still potential for NuSep Directors to identify a better deal or opportunity for the company. However this has not occurred so far and appears less likely, especially if the company has no management and assets and would be of low value to shareholders.

Likely disadvantages to NuSep shareholders if the takeover is not approved:

• The present NuSep cash burn will significantly curb operations without injection of capital and will limit expansion and this may decrease the value further. The current international financial crisis will make further capital raising uncertain and shareholders may be expected to inject cash to keep the business afloat.

• It is unlikely that NuSep would make the bonus share distribution if this takeover was not approved by shareholders.

• Liquidity of funds in NuSep as a cash-box company will be limited.

Based on our assessment of the potential advantages and disadvantages, we consider that the proposed acquisition is reasonable to the non-associated shareholders of NuSep.

Conclusions

The NxGen Pharmaceuticals group of companies has evolved over several years and the revenue streams come from several niche areas that involve complex marketing and regulations. It is well placed in the specialist market of pharmaceutical compounding which addresses patient specific medicines or personalised medicine under current regulations. The consolidation of these companies into NxGen and the subsequent takeover by NuSep provides the opportunity to streamline the operation considerably to focus on major global revenue areas and to benefit from additional management and direction. Further, the spun out Prime BioSeparations business will have a reduced cost base enhancing its ability to achieve profitability.

In our opinion, the proposed takeover of NxGen by NuSep as presented is fair and reasonable to the non-associated NuSep shareholders.

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Disclaimer

This report is provided solely for inclusion in the Prospectus and the Notice of Meeting issued by NuSep on or about 13 February 2009. All comments, forecasts and recommendations made in this report are made in good faith on the basis of information available to Innovation Dynamics at the time including information from NuSep and NxGen. NuSep has given permission to include the information as presented. Innovation Dynamics has prepared this independent report according to the Regulatory Guides from the Australian Securities and Investments Commission (ASIC), including RG56, RG75, RG111 and RG112, and the ASX Listing Rules. Innovation Dynamics holds an Australian Financial Services Investment Advisors Licence (No. 295107).

There are risks in bringing NxGen’s technologies to market and Innovation Dynamics does not guarantee that the actions noted in this report will actually come to pass because of possible changes in the markets and general business environment, and actions by NxGen, which occur over time subsequent to this report and are outside our control to know. Innovation Dynamics has not audited any financial forecasts of NxGen and has not analysed the legal status of agreements NxGen has entered into or patent applications filed or granted. However, in our independent assessment we have not identified anything that would indicate that this is materially misstated. A draft report was issued to the due diligence committee of NuSep to confirm factual accuracy and changes were made in the final report to reflect these.

We have given our written consent to the issue of this report as appearing in the Prospectus in the form and context in which it appears. We have been involved only in the preparation of this Report and not in any other part of this Prospectus, and specifically disclaim liability to any person in respect of any statements included elsewhere in this Prospectus. We have not, other than as set out above, been involved in the preparation, nor authorised or caused the issue of, this Prospectus. This report does not make any recommendations regarding purchase of shares in NuSep or NxGen.

Innovation Dynamics has acted independently in preparing this report and neither its directors nor staff has any pecuniary or other interest in NuSep or NxGen, or their associates that could reasonably be regarded as affecting its ability to give an unbiased opinion. Innovation Dynamics will receive a fixed professional fee for the preparation of this report, irrespective of whether or not the proposed takeover is successful. With the exception of this fee, it will not receive any other benefits, either directly or indirectly, from the preparation of this report.

Yours Faithfully,

INNOVATION DYNAMICS PTY LTD

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Kelvin Hopper PhD Executive Chairman

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Innovation Dynamics Pty Ltd

65

Annexure B – Investigating Accountant’s Report

& ASSOCIATES - CERTIFIED PRACTISING ACCOUNTANTS

The Directors NxGen Pharmaceuticals Pty Ltd and NuSep Limited 22 Rodborough Road Frenchs Forest NSW 2086

3 February 2009

Dear Sirs

INVESTIGATING ACCOUNTANT’S REPORT

Introduction

We have prepared this Investigating Accountant’s Report (“Report”) at the request of the Directors of the NxGen Group (“NxGen” or “the Company”) which includes the following entities:

• NxGen Pharmaceuticals Pty Ltd;

• NxGen Australia Pty Ltd;

• ASA Pharmaceuticals Pty Ltd.

for inclusion in the Notice of Meeting and the Prospectus to be dated on or around 13[th] February 2009.

We specifically note that we have not investigated or reported upon NuSep Limited or Prime BioSeparations Ltd and any historical and/or forecast financial statements or information for those companies.

We have also specifically not investigated or reported on the proposed Nusep Ltd - Prime BioSeperations Ltd spinout transaction or working capital transaction as reported in the Prospectus.

Proposed Acquisition and Spin Out

The Board of NuSep Limited (NuSep) has agreed to acquire 100% of the issued share capital of NxGen. Prior to the NxGen acquisition, NuSep proposes to spin out all of its assets and liabilities other than the shares held in NxGen and a proportion of cash raised under the general share offer (see below) into a new unlisted company, Prime BioSeparations Ltd (Prime BioSeparations).

In consideration for the spin out, NuSep will be issued with approximately 1.7 million Prime BioSeparations shares. These shares will ultimately be passed onto existing NuSep shareholders, and will not be an asset of NuSep post capital raising.

Consideration for the NxGen acquisition

The consideration for the NxGen acquisition will be paid to NxGen’s shareholder in the following three instalments:

1. by the issue of 319 million NuSep shares at 5c per share or such number of shares that equal 55% of the total issued share capital of NuSep immediately prior to completion of the NxGen acquisition on completion (the first instalment);

2. by the payment of cash and/or the issue of up to a maximum of 101.5million NuSep shares at 5c per share that equal a maximum of 17.5% of the issued share capital of NuSep on completion within 15 business days of the close of the Company’s general share offer which is described below (the second instalment). The proportion of cash and shares in the second instalment will depend on the proceeds raised by the general share offer and will be determined by NuSep’s board immediately before completion; and

3. by the issue of 87 million NuSep shares at 5c per share or such number of shares that equal 15% of the total issued share capital of NuSep immediately prior to completion when NxGen reaches a pre-tax profit of $2.1 million (the third instalment). To be eligible to receive the third instalment NxGen must reach this

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pre-tax profit prior to or on 30 June 2010. If the shares in the third instalment are not issued by 30 September 2010, the third instalment will lapse.

Consolidation of Share Capital

As part of the acquisition of NxGen, NuSep is seeking shareholder approval to consolidate its share capital on a 1:20 basis. Further information is to be found in Section 1 of the Prospectus.

The NxGen acquisition and the spin out are conditional on the shareholders of NuSep approving the transaction at a General meeting to be held in March 2009.

The terms of the NxGen acquisition and the spin out are summarised in sections 1 and 2 of the Prospectus.

General Share Offer under a prospectus

The board is also proposing to raise up to $5,075,000 under a general share offer pursuant to a prospectus to be issued shortly after this Notice of Meeting with priority being given to existing NuSep shareholders on a first come first served basis. As part of the general share offer, successful applicants will receive one option for every four shares applied for and issued under the general share offer. Successful applicants will also receive a pro rata entitlement with existing shareholders to a total 26.5 million bonus shares (Bonus Shares).

The proceeds raised under the general share offer are intended to be used to fund:

• the expenses of the general share offer;

• the cash component of the consideration payable for the NxGen Acquisition;

• working capital for Prime BioSeparations; and

• NxGen’s expansion of its sexual dysfunction products into the US market which is expected to occur in the next 12 months.

Financial Information

Background

NxGen was incorporated on 27 August 2007 and is a diversified pharmaceutical business which provides pharmaceutical products to the Australian sexual dysfunction, anti-aging and addiction markets. The company also develops and licenses custom made pharmaceuticals.

On 1 October 2008, the Directors of NuSep announced that they had entered into a Heads of Agreement relating to the acquisition of all the issued share capital of NxGen. NuSep and NxGen then entered into an Implementation Deed in relation to the NxGen acquisition and announced it to the market on 1 December 2008.

Prior to the NxGen acquisition, NuSep proposes to spin out all of its assets and liabilities into a new unlisted entity.

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Historical Financial Information

The Historical Financial Information of NxGen (“Financial Information”) as detailed in the Implementation Deed (NuSep Limited and Jehega Pty Limited and others) is provided at Section 8 in the Prospectus and comprises:

• Income Statement for the year ended 30 June 2008;

• Statement of Changes in Owners Equity as at 30 June 2008;

• Balance Sheet as at 30 June 2008.

Scope of our Report

Pinn Deavin & Associates has been requested to prepare an Investigating Accountant’s Report dealing with the Financial Information of NxGen.

The Directors of the Company are responsible for the preparation and presentation of the Financial Information, and have determined that the basis of accounting used is appropriate. The NxGen companies are private companies and as such have historically prepared special purpose financial reports as a non-reporting entity. The shareholders of the NxGen companies have not required that the companies’ financial statements of previous years be audited. We have conducted an independent review of the unaudited Financial Information of NxGen.

The scope of our review specifically does not include any review, evaluation or comment as to the content of the independent expert’s report prepared by Innovation Dynamics and included in this Prospectus.

Our review was conducted in order to state whether, on the basis of the procedures described, anything has come to our attention that would indicate that the Financial Information is not presented fairly in accordance with the recognition and measurement requirements, but not all of the disclosure requirements, of applicable Australian Accounting Standards and other mandatory professional reporting requirements in Australia.

Our review was conducted in accordance with Australian Auditing Standard AUS 902 “Review of Financial Report" and was limited to enquiries of Company personnel, review of the unaudited financial statements of the entities, reading of contracts and other documents, analytical review procedures applied to the financial data, performance of certain limited verification procedures and establishment of consistency in application of accounting standards and policies.

These review procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than that given in an audit. We have not performed an audit and accordingly, we do not express an opinion on the Income Statement for the year ending 30 June 2008, the Balance Sheet as at 30 June 2008, nor on the Notes to the Financial Information.

Statements

Historical Income Statement

Based on our review which, was not an audit, and other than issues as detailed in this report, nothing has come to our attention that causes us to believe that the Income Statement (formerly Statement of Financial Performance) of NxGen for the year ending 30 June 2008 does not present fairly the results of its operations in accordance with the recognition and measurement requirements, but not all of the disclosure requirements, of applicable Australian Accounting Standards and other mandatory professional reporting requirements in Australia, have been included. The Income Statement has been prepared as if the relevant individual entities were owned and operated by NxGen since 1 July 2007.

Historical Balance Sheet

Based on our review, which was not an audit, and other than issues as detailed in this report, nothing has come to our attention that causes us to believe that the Balance Sheet (formerly Statement of Financial Position) of NxGen as at 30 June 2008 does not present fairly the Company’s financial position in accordance with the recognition and measurement requirements, but not all of the disclosure requirements, of applicable Australian Accounting Standards and other mandatory professional reporting requirements in Australia, have been included. The Balance Sheet has been prepared as if the relevant individual entities were owned and operated by NxGen since 1 July 2007.

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Pro Forma Forecasts Financial Information

Background

The pro forma forecast financial information comprises:

• Pro Forma Forecast Income Statement for the year ended 30 June 2009; (the Pro Forma Forecast Financial Information).

The Directors are solely responsible for the preparation and presentation of the Pro Forma Forecast Financial Information and the information contained therein, including the assumptions on which they are based.

The Pro Forma Forecast Financial Information has been prepared by management and adopted by the directors of the Company in order to provide prospective investors with a guide to the potential financial performance of the Company for the year ending 30 June 2009. There is a considerable degree of subjective involvement in preparing forecasts. The underlying assumptions are also subject to uncertainties and contingencies which are often outside the control of the Company. The Pro Forma Forecast Financial Information has been prepared using best-estimate assumptions relating to future events that management and the Directors expect to occur and actions that management and the directors expect to take. The Pro Forma Forecast Financial Information is therefore only indicative of the financial performance which may be achievable.

Prospective investors should be aware of the material risks and uncertainties relating to an investment in the Company, which are detailed in the prospectus and the inherent uncertainty relating to the Pro Forma Forecast Financial Information. Accordingly prospective investors should have regard to the investment risks set out in the Prospectus.

Scope

We have reviewed the Pro Forma Forecast Financial Information as set out in Section 8 of the Prospectus together with the assumptions on which the Pro Forma Forecast Financial Information is based in order to provide a statement thereon to the directors of the Company.

Our review of the Pro Forma Forecast Financial Information has been conducted in accordance with AUS 902 “Review of Financial Reports” applicable to review engagements. Our review consisted primarily of enquiry, comparison, and analytical review procedures including discussion with management and Directors of the Company of the factors considered in determining their assumptions. Our procedures included examination, on a test basis, of evidence supporting the assumptions, amounts and other disclosures in the Pro Forma Forecast Financial Information and the evaluation of accounting policies used in the Pro Forma Forecast Financial Information. These procedures have been undertaken in order to state whether anything has come to our attention, which causes us to believe that:

• i) the Directors’ best-estimate assumptions, as set out in the Prospectus, do not provide reasonable grounds for the preparation of the Pro Forma Forecast Financial Information;

• ii) in all material respects, the Pro Forma Forecast Financial Information is not properly compiled on the basis of the Directors’ best-estimate assumptions and are not presented fairly in accordance with the recognition and measurement principles prescribed in applicable Australian Accounting Standards and mandatory professional reporting requirements, and consistent with the accounting policies adopted and used by the Company; and

• iii) the Directors’ Pro Forma Forecast Financial Information is unreasonable.

Our review is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards and provides less assurance than an audit. In addition, prospective financial information, such as the Pro Forma Forecast Financial Information, relates to events and actions that have not yet occurred and may not occur. While evidence may be available to support the assumptions on which the Pro Forma Forecast Financial Information is based, those assumptions are generally future orientated and therefore speculative in nature. Accordingly, actual financial performance may vary from the prospective financial information presented in the Prospectus and such variations may be material. We have not performed an audit and we do not express an audit opinion on the Pro Forma Forecast Financial Information.

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Statements

Based on our review of the Pro Forma Forecast Financial Information, which is not an audit, and based on an investigation of the reasonableness of the best estimate assumptions giving rise to the Pro Forma Forecast Financial Information, nothing has come to our attention which causes us to believe that:

• i) the Directors best-estimate assumptions, as set out in the Prospectus, do not provide reasonable grounds for the preparation of the Pro Forma Forecast Financial Information;

• ii) the Pro Forma Forecast Financial Information is not properly compiled on the basis of the Directors’ best-estimate assumptions and are not presented fairly in accordance with the recognition and measurement principles prescribed in applicable Australian Accounting Standards and mandatory professional reporting requirements, and is consistent with the accounting policies adopted and used by the Company; and

• iii) the Directors’ Pro Forma Forecast Financial Information itself is not unreasonable.

Actual financial performance is likely to be different from the Pro Forma Forecast Information since anticipated events frequently do not occur as expected and the variations may be material. Accordingly, we express no opinion as to whether the Pro Forma Forecast Financial Information will be achieved.

Subsequent Events

Apart from the matters dealt with in this report, and having regard to the scope of our report, to the best of our knowledge and belief, no material transactions or events outside of the ordinary business of the Company have come to our attention which would require comment on, or adjustment to, the information referred to in our report or that would cause such information to be misleading or deceptive.

Emphasis

Dependency relationship

As outlined in Section 11of this Prospectus, attention needs to be drawn to the fact that NxGen is closely associated with Australian Custom Pharmaceuticals Pty Ltd (ACP) which provides pharmaceutical compounding services. ACP is wholly owned by NxGen CEO and shareholder, Mr Daryll Knowles. Historically, based on the percentage of sales to ACP of the total sales of NxGen, NxGen is considered to have been economically dependant on ACP. As the Company evolves, it is anticipated that this dependency will decrease with a growing customer base and sales volumes, as has been forecast.

Both NxGen and ACP have their headquarters in rented facilities at Taren Point, New South Wales.

Impairment contingency

There is some doubt as to the ability of the Company to continue to carry certain items in its balance sheet at their current carrying values given that on the completion of this transaction, the company will be required to prepare general purpose financial reports and adopt a more restrictive and prescriptive accounting and reporting policy framework.

The items in question are:

• a financial investment $ 224,000

• • Intangible assets – Technology, product formulations, rights and licences (at directors valuations) (see extract of notes to the financial accounts included below) $ 1,769,592

• • a financial liability - income received in advance held to be applied in future years (see extract of notes to the financial accounts included below) ($ 474,325)

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Other contingencies

NxGen entered into a joint venture arrangement in January 2008 which was subsequently rescinded. Surplus funds were applied to ongoing liabilities as a result of the arrangement. The Company directors are of the opinion that the Company has no liability to the other party in the venture. There could however be a potential liability arising from original parties to the transaction having provided personal guarantees, which in turn could be counterclaimed against NxGen. If action was taken under these guarantees, NxGen’s estimated liability under these guarantees is not likely to exceed $500,000. These guarantees have an expiry date of September 2009.

Declaration

The involvement of Pinn Deavin & Associates in the preparation of the Prospectus is limited solely to the preparation of this report.

Except as disclosed in this Prospectus, no director nor employee of Pinn Deavin & Associates or any of its associated companies, has at the date of this report, any interest in, or financial relationship with NxGen other than receipt of a fee, at normal professional rates, for the work described above. No other pecuniary or other benefit, direct or indirect, has been or will be received by Pinn Deavin & Associates for or in connection with this offering of Shares.

Pinn Deavin & Associates has previously provided taxation and accounting services to the following related and interested parties to this transaction:

• NxGen Pharmaceuticals Pty Ltd; and

• ASA Pharmaceuticals Pty Ltd; and

• NxGen Australia Pty Ltd; and

• Australian Custom Pharmaceuticals Pty Ltd (ACP); and

• Daryll Knowles and other personal entities; and

• John Boyd and other personal entities; and

• Michael Tattersall and other personal entities.

Other

Pinn Deavin & Associates is responsible for this Investigating Accountant’s Report. This report is strictly limited to the matters contained in this Report and is not to be read as extending, by implication or otherwise, to any other matter contained in the Prospectus.

We do not assume any responsibility of liability for losses suffered by NxGen or other parties as a result of circulation, publication, reproduction or use of our report contrary to these provisions.

Yours faithfully

PINN DEAVIN & ASSOCIATES

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MICHAEL L PINN (CPA, CA, IP) Director

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NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT

	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL AND PRO FORMA FORECAST INCOME STATEMENT
			Actual results for			Pro Forma forecast
			the year ended:				results for the
				30 June 2008			year ended:
							30 June 2009
				$			$
	Revenue			3,233,330			7,004,971
	Cost of Sales			(863,962)			(1,820,683)
	Gross profit			2,369,368			5,184,288
	Other revenues			234,759			366,000
	Finance costs			(11,754)			0
	Occupancy expenses			(93,477)			(93,393)
	Other expenses			(1,462,262)			(2,860,250)
	Profit before income tax			1,036,634			2,596,645
	Income tax expense(See note below)			(291,176)			(778,994)
	Profit after income tax			745,458			1,817,652

Note: Whilst we have not reviewed the accounts of NuSep Limited we have been informed that the company has substantial prior year tax losses. If these losses are able to be recouped after the proposed transaction, then the Pro Forma Forecast income tax expense included in the above Pro Forma Forecast Results for 30 June 2009, will reduce from $ 778,994 to $ NIL.

NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY

	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY	NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities CONSOLIDATED ACTUAL STATEMENT OF CHANGES IN EQUITY
		Share Capital				Retained Earnings		TOTAL
		$		$		$		$
	Actual balance at 30 June 2007	110				522,570		522,680
	Revaluation increment : 2008			1,492,500			1,492,500
	Profit attributable to entity					745,458	745,458
	Dividendspaid orprovided for					(200,000)	(200,000)
	Actual balance at 30 June 2008	110		1,492,500		1,068,028	2,560,638

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NXGEN PHARMACEUTICALS PTY LTD
and Controlled Entities
CONSOLIDATED BALANCE SHEET
		Actual results
		as at
		30 June 2008
		$
ASSETS
CURRENT ASSETS
Cash and cash equivalents		4,202,855
Cash from capital raised		-
Trade and other receivables		848,042
Inventories		458,391
TOTAL CURRENT ASSETS		5,509,288
NON-CURRENT ASSETS
Financial Assets		253,286
Property, plant and equipment		339,597
Intangible assets – Technology, product formulations, rights and licences(at directors valuations)–(see notes)		1,769,592
TOTAL NON-CURRENT ASSETS		2,362,475
TOTAL ASSETS		7,871,763
LIABILITIES
CURRENT LIABILITIES
Trade and other payables		4,426,891
Financial Liabilities – Income in advance(see notes)		474,325
Provisions		80,000
Tax liabilities		186,807
TOTAL CURRENT ASSETS		5,168,023
NON-CURRENT LIABILITIES
Trade and Other payables		143,102
Financial Liabilities		-
TOTAL NON-CURRENT LIABILITIES		143,102
TOTAL LIABILITIES		5,311,125
NET ASSETS		2,560,638
EQUITY
Issued Capital		110
Reserves		1,492,500
Retained Earnings		1,068,028
TOTAL EQUITY		2,560,638

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NXGEN PHARMACEUTICALS PTY LTD and Controlled Entities ABN: 45 127 297 143

EXTRACT OF NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008

1 Statement of Significant Accounting Policies

This financial report is a special purpose report prepared for use by the directors and members of the comp The directors have determined that the company is not a reporting entity.

The financial report has been prepared in accordance with the requirements of the following applicable Australian Accounting Standards:

AASB 110: Events after the Balance Sheet Date AASB 116: Property, Plant and Equipment AASB 138: Intangible Assets AASB 1031: Materiality

No other Accounting Standards, Australian Accounting Interpretations or other authoritative pronouncements of the Australian Accounting Standards Board have been applied.

The financial report has been prepared on an accruals basis and is based on historic costs and does not take into account changing money values or, except where specifically stated, current valuations of non-current assets.

The following specific accounting policies, which are consistent with the previous period unless otherwise stated, have been adopted in the preparation of this report:

Property, Plant and Equipment

Property, plant and equipment are carried at cost, independent or directors' valuation. All assets, excluding freehold land and buildings, are depreciated over their useful lives to the company.

Intangibles

Other intangibles

The company acquired a significant number of compound formulae during the year for no cash consideration. These formulae were acquired from a related party and consideration was the issue of shares in Jehega Pty Limited, the company's parent entity. The directors have revalued these formulae to reflect an applicable market value as at balance date.

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Recognition of Financial Liabilities - Income in Advance

The company has entered into a contract, through an associated entity, whereby under the contract the company will provide R & D, analytical and testing services required to support the registration of products under the Australian TGA legislation. The company has received amounts in the sum of $474,325 in advance for those services, which are to be provided in future financial years.

Comparative figures - Prior years

The year ended 30th June 2008 is the company's first year of operations. The company was incorporated on 29th August 2007, and commenced trading on 21st September 2007. There are no comparative figures for prior periods.

Investment in Related Companies.

During the year the company acquired 100% of the shares in ASA Pharmaceuticals Pty Limited and NxGen Australia Pty Limited, as part of the restructuring of the related companies. The consideration for the acquisition was the issue of shares in the ultimate parent company, Jehega Pty Limited. The net tangible asset values at the 30th June 2008 of the companies acquired are as follows: ASA Pharmaceuticals Pty Limited - $867,303 and NxGen Australia Pty Limited - $134,784. At the request of the shareholder, the accounts for the year were consolidated.

Principles of Consolidation.

A controlled entity is any entity controlled by NxGen Pharmaceuticals Pty Limited.

Control exists where NxGen Pharmaceuticals Pty Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with NxGen Pharmaceuticals Pty Limited to achieve the objectives of NxGen Pharmaceuticals Pty Limited. A list of controlled entities is contained in a note to the financial statements.

All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation.

Outside interests in the equity and results of the entities that are controlled have not been shown as a separate item in the consolidated financial report, as the outside interests are all associated parties of NxGen Pharmaceuticals Pty Ltd.

The controlled entities represented in these financial statements are NxGen Australia Pty Limited and ASA Pharmaceuticals Pty Limited.

For the purposes of these consolidated accounts these entities are taken to be controlled entities of NxGen Pharmaceuticals Pty Ltd from the 1st July 2007.

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