<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F


         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                      For the Year Ended December 31, 2002

                         Commission File Number 0-25322

                        GENSCI REGENERATION SCIENCES INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                      Province of British Columbia, Canada
--------------------------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

         Suite 1000, 1235 Bay Street, Toronto, Ontario, Canada, M5R 3K4
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


               Securities registered  or to be  registered  pursuant  to Section
                          12(b) of the Act:

          Title of each class    Name of each exchange on which registered
          -------------------    -----------------------------------------
              (None) (None)

Securities registered or to be registered pursuant to Section 12(g) of the Act:




                                  Common Shares
--------------------------------------------------------------------------------
                                (Title of Class)



Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act:

                                     (None)
--------------------------------------------------------------------------------
                                (Title of Class)


Indicate the number of outstanding shares of each of the Registrant's classes of
capital  or common  stock as of the close of the  period  covered  by the annual
report:

                                   52,574,459

--------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter  period that the  registrant  was
    required to file such reports), and (2) has been subject to such filing
                       requirements for the past 90 days.

                                    Yes X No
                                       ---

Indicate by check mark which financial statement item the registrant has elected
to follow:

                                Item 17 X Item 18
                                     ---
<PAGE>


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                            Page
                                                                       ----

<S>                                                                     <C>
Financial Statement Presentation                                         3

                                     Part I

ITEM 1 -   Identity of Directors, Senior Management and Advisors         4
ITEM 2 -   Offer Statistics and Expected Timetables                      4
ITEM 3 -   Key Information                                               4
ITEM 4 -   Information on the Company                                    8
ITEM 5 -   Operating and Financial Review and Prospects                 18
ITEM 6 -   Directors, Senior Management and Employees                   31
ITEM 7 -   Major Shareholders and Related Party Transactions            41
ITEM 8 -   Financial Information                                        41
ITEM 9 -   The Offer and Listing                                        43
ITEM 10 -  Additional Information                                       45
ITEM 11 -  Quantitative and Qualitative Disclosures About Market Risk   53
ITEM 12 -  Description of Securities Other than Equity Securities       53



                                     Part II

ITEM 13 -  Defaults, Dividend Arrearages and Delinquencies              54
ITEM 14 -  Material Modifications to the Rights of Security Holders
           And Use of Proceeds                                          54
ITEM 15 -  Controls and Procedures                                      54
ITEM 16 -  Reserved                                                     54


                                    Part III

ITEM 17 -  Financial Statements                                         54
ITEM 18 -  Financial Statements                                         54
ITEM 19 -  Exhibits                                                     54

</TABLE>




                                       2

<PAGE>




                        FINANCIAL STATEMENT PRESENTATION

GenSci(R) reports  consolidated  financial  statements in Canadian dollars.  All
dollar  amounts  set forth in this  report are in  Canadian  dollars,  except as
otherwise indicated.

The information set forth in this Form 20-F is as of December 31, 2002 unless an
earlier or later date is indicated.

Unless otherwise noted, the term "GenSci" refers to GenSci Regeneration Sciences
Inc. and its  predecessors,  the term "GenSci  OrthoBiologics"  refers to GenSci
OrthoBiologics,   Inc.  (formerly  GenSci  Regeneration  Laboratories,  Inc.)  a
wholly-owned  U.S.  subsidiary,  the term "GOCF" refers to GenSci OCF Inc. a 60%
owned  subsidiary,  and  the  term  the  "Company"  refers  to  GenSci  and  its
subsidiaries.

                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain  statements  in this  Report  on Form 20-F  constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  forward  looking  statements  involve  known and unknown  risks,
uncertainties and other factors which may cause the actual results,  performance
or achievements of the Company, or industry results, to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such forward looking statements. Such factors include: among others, the Company
is operating under the protection of Chapter 11 of the U.S.  Bankruptcy Code and
there is  substantial  doubt about the Company's  ability to continue as a going
concern;  the  Company  is  currently  involved  in  patent  litigation  with  a
competitor  and has an adverse jury  verdict  pending  against the Company;  the
Company has agreed to certain  settlement terms related to the patent litigation
but the  settlement  has  not  been  finalized;  the  Company  has  submitted  a
Disclosure Statement and Plan of Reorganization to the Bankruptcy Court but such
filings  have not yet been  approved by the Court;  the Company has  experienced
significant operating losses and expects that its operating losses may continue;
the capital requirements  associated with the development and  commercialization
of the Company's  products have been and will continue to be significant;  there
can be no  assurance  that any patent  applications  will be granted or that any
current or future  patent  will be broad  enough to  protect  the  Company  from
competitors with similar  technologies;  up until 2001 the Company had generated
limited  revenues  primarily  from the  commercialization  of two of its product
lines; the development,  manufacture and distribution of the Company's  products
are subject to regulation by governmental authorities;  the Company is dependent
upon  others for the  supply of tissue;  all the  Company's  current  revenue is
derived  from  newly  introduced  products;  the  markets  in which the  Company
operates are highly  competitive  and continue to undergo rapid and  significant
technological  change;  product  liability  claims may be  asserted  against the
Company; the Company's financial results are subject to fluctuations in exchange
rates between  Canadian and U.S.  dollars;  potential  conflicts of interest may
arise as a result  of  certain  directors  and  officers  of the  Company  being
directors and officers of other  publicly-listed  companies;  the loss of one or
more of the Company's key officers or scientists  could have a material  adverse
effect on the Company;  the Company has never declared or paid cash dividends on
its common shares and does not anticipate  doing so in the  foreseeable  future;
and the  market  price of the  common  shares  of the  Company  may be  affected
significantly by fluctuations in the Company's  operating  results,  among other
factors. See ITEM - 3.D (Risk Factors).










                                       3
<PAGE>



PART I

ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLES

Not applicable.

ITEM 3 - KEY  INFORMATION  (All  dollar  amounts set forth below are in Canadian
dollars, except as otherwise indicated)

On December  20, 2001 [the  "Petition  Date"],  GenSci and its U.S.  subsidiary,
GenSci OrthoBiologics,  Inc. ["GenSci OrthoBiologics"]  collectively referred to
as the "Debtors", voluntarily filed petitions for relief under Chapter 11 of the
U.S.  Bankruptcy  Code  ["Chapter  11"] in the  U.S.  Bankruptcy  Court  Central
District of California, Santa Ana Division [the "Bankruptcy Court"]. The Debtors
elected to take this action as a result of the verdicts in the patent litigation
proceedings as described in note 15 of the consolidated financial statements.

The Debtors are presently operating their businesses under bankruptcy protection
as  debtors-in-possession.  The bankruptcy  proceedings of the Debtors are being
jointly  administered  for  procedural  purposes,   but  are  not  substantively
consolidated.  Substantially  all the assets and  liabilities of the Company are
involved in the Bankruptcy proceedings.

Under the  provisions of Chapter 11, the Company is required to present,  to the
Bankruptcy  Court,  a plan  of  reorganization  setting  out  the  terms  of the
restructure of its obligations.  The Plan of  Reorganization  was filed with the
Bankruptcy Court on April 18, 2003 with a Disclosure Statement hearing scheduled
for May 30, 2003. The submitted plan proposes the following treatment:

     (a)  Shareholders  shall  retain  their  interests  in the  Debtors and are
          unimpaired.

     (b)  Allowed  Secured  Claims in the  amount of  U.S.$28,976  shall be paid
          under their original terms in the ordinary course of business.

     (c)  Allowed Priority Claims in the amount of U.S.$98,832 are to be paid in
          deferred cash payments in equal semi-annual installments over a period
          not exceeding six years, plus simple interest, at the Federal Judgment
          Rate,  from a date selected by the Debtors that is no later than sixty
          (60) days after the date of confirmation of the Plan of Reorganization
          by the Bankruptcy Court [the "Effective Date"] on the unpaid balance.

     (d)  All  Claim(s)  of  Osteotech  Inc.  ["Osteotech"]  are  covered by the
          proposed, and not yet finalized,  Settlement Agreement which calls for
          payment of U.S.$7.5 million of which Osteotech will receive an initial
          payment  of $1  million  on,  or  about,  the  Effective  Date  of the
          Company's Plan of  Reorganization,  and the remaining U.S.$6.5 million
          will be paid in twenty consecutive  quarterly payments of U.S.$325,000
          per quarter plus simple interest payable at the Federal Judgment Rate,
          capped for purposes of future interest  payments at 3% per annum.  The
          U.S.$6.5 million will be secured as follows:  the first U.S.$5 million
          in quarterly  payments shall be secured by a letter of credit or other
          security  and the last  U.S.$1.5  million  will be secured by a junior
          lien on the  assets of GenSci  OrthoBiologics,  subordinated  to liens
          granted  by  GenSci   OrthoBiologics   to  secure   indebtedness  from
          commercial   and/or   institutional   lenders  [see  note  15  of  the
          consolidated financial statements.].

     (e)  Administrative   Convenience   Class  [Allowed   Unsecured  Claims  of
          U.S.$6,000 or less] in the amount of U.S.$110,009 shall be entitled to
          a  distribution  of one  hundred  percent  [100%] of their  respective
          Allowed  Claims,  within 120 days after the Effective Date with simple
          interest  accruing,  at the Federal  Judgment Rate, from and after the
          Effective Date.

                                       4


<PAGE>


     (f)  Allowed  Unsecured  Claims of  unsecured  creditors  in the  amount of
          U.S.$6,694,784 have been given two options:

     a.   Option A: Creditors shall be entitled to a distribution of one hundred
          percent  [100%]  of  their  respective  Allowed  Claims,  with  simple
          interest  accruing,  at the Federal  Judgment Rate, from and after the
          Effective Date.  Distribution  shall be in twenty [20] equal quarterly
          installments  payable over five [5] years  commencing on the later [i]
          of the 60th day  after  the  Effective  Date or [ii] if such  Claim is
          Disputed,  such quarterly installments referenced above shall commence
          on the tenth  [10th]  Business  Day  after the entry of a Final  Order
          allowing the Claim, or [iii] such other time or times as may be agreed
          to by the holder of such Claim and the Debtors.  Debtors  shall retain
          any and all  rights  to object to such  claims,  and/or to assert  any
          setoff or counter  claim  thereto.  A 10% per annum  discount  [not to
          exceed a 20% total discount] will apply to  distributions  paid off in
          full at the sole discretion of the Debtors.

     b.   Option B:  Creditors  shall have their claim  fixed at a  distribution
          amount  proposed by the Company [the "proposed  distribution  amount"]
          set forth for each unsecured claim with simple interest  accruing,  at
          the Federal Judgment Rate, from and after the Effective Date.  Debtors
          shall  waive  and  release  any  right to  object  to their  "proposed
          distribution  amount",  or to assert  any setoff  thereto.  A creditor
          selecting  Payment Option B shall be entitled to a distribution of the
          "proposed   distribution   amount"   in  eight  [8]  equal   quarterly
          installments  payable  over two [2]  years  commencing  on the 60th or
          120th day after the Effective  Date. The total amount  proposed by the
          Company for all claims in this category is U.S.$2,194,248.

There is  substantial  doubt about the Company's  ability to continue as a going
concern because of the Chapter 11 bankruptcy  proceedings.  Although the Company
has filed a Plan of Reorganization  with the Bankruptcy  Court,  there can be no
assurance  that the Company will  successfully  receive Court  approval and meet
other conditions necessary to emerge from bankruptcy.  In addition,  the Company
has  incurred  significant  losses  during  the  last  three  years  and  has  a
shareholders'  deficiency of  $19,194,783  as at December 31, 2002. As such, the
realization of the Company's  assets and discharge of its liabilities is subject
to significant uncertainty.

At December 31, 2002, the Company had a cash balance of  $3,282,836,  short-term
investments of $90,000 and restricted cash of $856,534, which is classified as a
long term asset.  This  compares to a December 31, 2001 cash balance  $1,094,387
and restricted cash of $79,368.  The Company had a working capital deficiency of
($18,780,559) at December 31, 2001,  compared with a working capital  deficiency
of  ($22,043,381) at December 31, 2002,  which includes  liabilities  subject to
compromise of $32,627,785. Liabilities subject to compromise include $24,810,233
related to the patent litigation  liability accrual including the accrual of the
14% of the revenue derived from DynaGraft Gel and Putty. See Item 8. A. - "Legal
Proceedings".

A. SELECTED FINANCIAL DATA

The  following  table sets forth  selected  consolidated  financial  data of the
Company in Canadian  dollars as of and for the years ended  December  31,  2002,
2001,  2000, 1999, and 1998. The selected  consolidated  financial data has been
derived from the audited  consolidated  financial statements of the Company. All
information  contained in the following table should be read in conjunction with
the  audited  consolidated  financial  statements  of the  Company and the notes
thereto and  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations, included as Item 5 in this Form.





<TABLE>
<CAPTION>

AS AT DECEMBER 31ST               2002(3)(4)             2001           2000             1999            1998
                                  ----                    ----           ----             ----            ----
<S>                               <C>                    <C>             <C>               <C>             <C>
Amounts under Canadian

GAAP(1)

Operating Data:

Revenues                          $ 34,481,612    $ 40,444,833    $ 45,827,426    $ 30,571,305    $ 16,304,139

Stock-based compensation              (448,679)           --              --              --              --

Reorganization costs                (1,356,428)           --              --              --              --

Write-down of intangible assets       (457,955)     (1,470,578)           --              --              --

Reserve for litigation verdict      (1,705,265)    (23,098,189)           --              --              --

Loss from continuing operations   ($ 4,252,840)   ($36,362,757)   ($ 2,080,114)   ($ 5,919,421)   ($ 8,309,969)

Loss per share-continuing         ($      0.08)   ($      0.69)   ($      0.04)   ($      0.15)   ($      0.28)
</TABLE>


                                       5
<PAGE>

<TABLE>
<CAPTION>
AS AT DECEMBER 31ST                   2002(3)(4)          2001           2000             1999            1998
                                  ----------------  --------------  -------------   -------------   -------------
<S>                               <C>               <C>             <C>               <C>             <C>
Gain (loss) from
discontinued operations             $    415,000    ($   596,928)   ($ 4,928,623)   ($11,745,125)   ($ 2,461,887)

Loss per share-discontinued         $       0.01    ($      0.01)   ($      0.11)   ($      0.30)   ($      0.08)

Net loss                            ($ 3,837,840)   ($36,959,685)   ($ 7,008,737)   ($17,664,546)   ($10,771,856)

Loss per share (2)                  ($      0.07)   ($      0.70)   ($      0.15)   ($      0.45)   ($      0.36)

Weighted average number of
common shares outstanding             52,574,459      52,574,459      47,443,142      39,651,141      29,827,444

Balance Sheet Data:

Total assets                        $ 17,208,390    $ 17,615,481    $ 32,431,927    $ 23,776,675    $ 39,695,328

Total long-term debt                $          0    $    127,820    $          0    $          0    $  4,212,963

Capital stock                       $ 80,846,320    $ 80,846,320    $ 80,846,320    $ 67,147,728    $ 48,389,506

Shareholders' equity (deficiency)   ($19,194,783)   ($15,945,600)   $ 20,764,792    $ 13,793,359    $ 27,545,249
</TABLE>


<TABLE>
<CAPTION>

AS AT DECEMBER 31ST                   2002(3)(4)          2001           2000             1999            1998
                                  ----------------  --------------  -------------   -------------   -------------
<S>                               <C>               <C>             <C>               <C>             <C>
AMOUNTS UNDER U.S. GAAP(1)
OPERATING DATA:

Revenues                            $ 34,481,612    $ 40,444,833    $ 45,827,426    $ 30,571,305    $ 16,304,139

Reorganization costs                  (1,356,428)           --              --              --              --

Write-down of intangible assets         (457,955)     (1,470,578)           --              --              --

Reserve for litigation verdict        (1,705,265)    (23,098,189)           --              --              --

Loss from continuing operations     ($ 4,042,137)   ($36,499,163)   ($ 1,775,344)   ($ 4,867,507)   ($ 6,995,755)

Loss per share-continuing           ($      0.08)   ($      0.69)   ($      0.04)   ($      0.12)   ($      0.24)

Loss from discontinued operations   $    415,000    ($   596,928)   ($ 2,133,529)   ($ 1,745,125)   ($ 2,461,887)

Loss per share-discontinued         $       0.01    ($      0.01)   ($      0.04)   ($      0.04)   ($      0.08)

Net loss                            ($ 3,627,137)   ($37,096,091)   ($ 3,908,873)   ($ 6,612,632)   ($ 9,457,642)

Loss per share (2)                  ($      0.07)   ($      0.70)   ($      0.08)   ($      0.17)   ($      0.32)

Proforma loss per share -
change in accounting policy
- goodwill                          ($      0.07)   ($      0.70)   ($      0.08)   ($      0.16)   ($      0.31)

Weighted average number of
common shares outstanding             52,574,459      52,574,459      47,443,142      39,651,141      29,827,444

Balance Sheet Data:

Total assets                        $ 17,208,390    $ 17,615,481    $ 32,362,447    $ 20,298,001    $ 24,584,028

Capital stock                       $ 82,643,404    $ 82,405,428    $ 82,054,650    $ 68,184,857    $ 48,896,956

Shareholders' equity
(deficiency)                        ($19,194,783)   ($15,945,600)   $ 20,695,312    $ 10,314,685    $ 13,001,311

</TABLE>



(1)  In certain  respects,  Canadian GAAP differs from U.S.  GAAP.  Accordingly,
     certain line items with respect to  Operating  Data and Balance  Sheet Data
     differ as a result of the application of U.S. GAAP. For a discussion of the
     principal  differences  between  Canadian and U.S. GAAP, see Note 18 to the
     consolidated financial statements.

(2)  Basic and diluted loss per share.

(3)  Effective  January 1, 2002, the Company has adopted The Canadian  Institute
     of Chartered  Accountants issued Handbook Section 3062, "Goodwill and Other
     Intangible  Assets"  ["Section  3062"].  See note 4[a] to the  consolidated
     financial statements.

(4)  Effective  January 1, 2002, the Company has adopted The Canadian  Institute
     of  Chartered  Accountants  issued  Handbook  Section  3870,   "Stock-Based
     Compensation and Other Stock-Based  Payments"  ["Section  3870"].  See note
     4[b] to the consolidated financial statements.

Exchange Rate Information

The following  table sets forth certain  exchange rates based on the noon buying
rate in New York City for cable  transfers as certified for customs  purposes by
the Federal  Reserve Bank of New York (the "Noon Buying  Rate").  Such rates are
set forth as United States  dollars per Cdn.  $1.00 and are the inverse of rates
quoted by the Federal  Reserve  Bank of New York for  Canadian  dollars per U.S.
$1.00(1).




                                       6
<PAGE>



The high and low  exchange  rates for each  month  during the  previous  six (6)
months are as follows:
                                      HIGH     LOW
October, 2002                         0.6407   0.6272
November, 2002                        0.6440   0.6228
December, 2002                        0.6461   0.6329
January, 2003                         0.6570   0.6349
February, 2003                        0.6720   0.6530
March, 2003                           0.6822   0.6709

The  average  rates  for each of the five (5) most  recent  fiscal  years are as
follows:

<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                        2002          2001           2000          1999          1998
<S>                                     <C>           <C>            <C>           <C>           <C>
Average for period (2)                  0.6369        0.6457         0.6727        0.6731        0.6740
</TABLE>



(1)  On May 13, 2003,  the inverse of the Noon Buying Rate was Cdn. $1.00 = U.S.
     $0.7195.

(2)  The average of the exchange  rates on the last day of each month during the
     applicable period.

B. CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

D. RISK FACTORS

An investment in common shares of the Company  should be considered  speculative
due to the nature and stage of development of the Company's  business as well as
the Company's  status as operating its business  under the protection of Chapter
11 of the U.S.  Bankruptcy  Code.  In  evaluating  the  securities,  prospective
investors should consider the following  factors,  among others:  the Company is
operating  under the  protection of Chapter 11 of the U.S.  Bankruptcy  Code and
there is  substantial  doubt about the Company's  ability to continue as a going
concern;  the  Company  is  currently  involved  in  patent  litigation  with  a
competitor  and has an adverse jury  verdict  pending  against the Company;  the
Company has agreed to certain  settlement terms related to the patent litigation
but the  settlement  has  not  been  finalized;  the  Company  has  submitted  a
Disclosure Statement and Plan of Reorganization to the Bankruptcy Court but such
filings  have not yet been  approved by the Court;  the Company has  experienced
significant operating losses and expects that its operating losses may continue;
the capital requirements  associated with the development and  commercialization
of the Company's  products have been and will continue to be significant;  there
can be no  assurance  that any patent  applications  will be granted or that any
current or future  patent  will be broad  enough to  protect  the  Company  from
competitors with similar  technologies;  up until 2001 the Company had generated
limited  revenues  primarily  from the  commercialization  of two of its product
lines; the development,  manufacture and distribution of the Company's  products
are subject to regulation by governmental authorities;  the Company is dependent
upon  others for the  supply of tissue;  all the  Company's  current  revenue is
derived  from  newly  introduced  products;  the  markets  in which the  Company
operates are highly  competitive  and continue to undergo rapid and  significant
technological  change;  product  liability  claims may be  asserted  against the
Company; the Company's financial results are subject to fluctuations in exchange
rates between  Canadian and U.S.  dollars;  potential  conflicts of interest may
arise as a result  of  certain  directors  and  officers  of the  Company  being
directors and officers of other  publicly-listed  companies;  the loss of one or
more of the Company's key officers or scientists  could have a material  adverse
effect on the Company;  the Company has never declared or paid cash dividends on
its common shares and does not anticipate  doing so in the  foreseeable  future;
and the  market  price of the  common  shares  of the  Company  may be  affected
significantly by fluctuations in the Company's  operating  results,  among other
factors.  Please refer to the detailed discussion under the heading of Risks and
Uncertainties contained in Item 5.

ITEM 4. - INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY


                                       7
<PAGE>


GenSci Regeneration Sciences Inc. and its subsidiaries are involved in the field
known  as   orthobiologics,   which  is  the  use  of   biotechnology  to  treat
musculoskeletal  disease and injury. The Company applies an integrated  approach
to product research,  development,  and commercialization by leveraging internal
resources together with licensing agreements and strategic alliances.

GenSci was  incorporated  in the Province of British  Columbia,  pursuant to the
Company  Act  (British  Columbia)  on December  4, 1980 by  registration  of its
Memorandum  and  Articles  under the name of Shayna  Resources  Ltd. The current
business of GenSci began in November  1992 when the Company  changed its name to
Biocoll  Medical  Corp.  in  conjunction   with  the  acquisition  of  Regenetec
Biomatrix, Inc., a Washington State company that was developing a technology for
bone and  tissue  regeneration  in dental  surgical  applications.  The  Company
further  developed  this  technology  for the  spinal  and  orthopedic  surgical
markets.

GenSci has a wholly owned  operating  subsidiary,  GenSci  OrthoBiologics,  Inc.
(formerly GenSci  Regeneration  Laboratories,  Inc.,  "GenSci  OrthoBiologics"),
based in Irvine, California that manufactures and distributes bone graft implant
products.  In 1999,  GenSci  purchased  a  majority  ownership  interest  in its
distribution partner for the oral craniofacial market,  creating GenSci OCF Inc.
("GenSci OCF"), based in Montreal, Quebec. GenSci owns 60% of GenSci OCF.

The Company is focused on the  development  of products used by surgeons  during
surgical  procedures where bone and tissue repair or regeneration is needed. The
Company's  products to date consist  primarily of various types of demineralized
bone-based  allograft  implants,  of which the first  products  were launched in
August 1997.

The Company's initial products, DynaGraft(R) and OrthoBlast(R) bioimplants, were
a  line  of  allograft-based  bone  regeneration  implants.  DynaGraft  achieved
significant  revenue  growth from its late 1997  launch.  The Company  generated
revenues of $30,571,305 in 1999  primarily from  DynaGraft,  $45,827,426 in 2000
and $40,444,833 in 2001 from both the DynaGraft and OrthoBlast product lines.

GenSci and its  subsidiary,  GenSci  OrthoBiologics,  are  involved  in a patent
infringement  case  involving  claims that the  DynaGraft  Gel and Putty  brands
infringe two patents  owned by  Osteotech  Inc.  ("Osteotech").  On December 17,
2001, the jury found GenSci and GenSci OrthoBiologics liable for damages of U.S.
$14,533,634. As of May 7, 2003 the Court has not entered a judgment of liability
and accordingly, the actual liability could be different from amounts accrued by
the Company. On December 20, 2001, GenSci and GenSci OrthoBiologics, voluntarily
filed petitions for protection  under Chapter 11 of the U.S.  Bankruptcy Code in
the U.S. Bankruptcy Court Central District of California.  Both GenSci companies
elected  to take  action  as a  result  of the  verdicts  in  patent  litigation
proceedings.

In 2002,  operating  under the protection of Chapter 11, the Company retired all
prior products and  introduced  three new product  lines.  The Company  launched
Accell(R) DBM100,  the first product  utilizing the Company's  second-generation
technology,  in May 2002.  In August and  September  2002 the  Company  launched
improved second-generation product lines replacing DynaGraft and OrthoBlast. The
new,  improved  DynaGraft(R)  II has completely  replaced  DynaGraft in the U.S.
market as of September 16, 2002 and  OrthoBlast(R)  II was introduced in October
2002. With the transition to DynaGraft II the Company no longer  manufactures or
distributes  within the U.S.  market any of the  products  related to the patent
litigation  jury verdict.  However,  given the level of  investment  required to
develop  the market for its  products,  the  ongoing  research  and  development
investment  required to support its existing  products and  technologies and the
cost of patent  litigation  defense,  the Company has  incurred  losses in 1999,
2000, 2001 and 2002.

In 2002, the Company generated  $34,481,612 in revenue.  The Company's three new
product lines  accounted  for $7.7 million of 2002 revenue.  Of that amount $5.9
million was recognized in the fourth quarter of 2002.

Pursuant to the minute order entered on January 30, 2003,  the Federal  District
Court  assigned the Patent Action and other  related  cases to another  District
Court Judge for "settlement  proceedings." A formal settlement conference before
a Settlement Judge was held on March 6, 2003. At the Settlement Conference,  the
parties  reached a  conditional  settlement  of their  disputes  relating to the
Debtors'   bankruptcy   proceeding  and  the  Patent  Action,  that  includes  a
requirement for the Company to pay Osteotech U.S.$7.5 million.

The conditions yet to be resolved are: (i) Osteotech receives a letter of credit
or other security satisfactory to Osteotech for certain payments to be made over
time and (ii) GenSci  receives a covenant  from  Osteotech  not to



                                       8
<PAGE>

sue GenSci in connection with its newly introduced products. With respect to the
letter of credit or other  security,  GenSci  will seek to obtain  the  security
sought by Osteotech. However, there can be no assurance that GenSci will be able
to obtain an appropriate  security acceptable to Osteotech,  in which event, the
Company may enter into a transaction that would require substantial  dilution or
changes in stockholder rights in order to raise additional funds. There can also
be no assurance that the two sides can reach a settlement if GenSci is unable to
obtain the security required. With respect to the covenant not to sue, Osteotech
is in the process of evaluating  GenSci's  position that its new products do not
infringe  Osteotech's  patents.  There is no assurance that Osteotech will agree
with GenSci's position.  There can also be no assurance that, if a difference of
opinion exists, the two sides can reach a settlement.  In addition, there can be
no  assurance  of the time  frame  required  for the two  sides to  satisfy  the
conditions detailed above.

Under the  provisions of Chapter 11, the Company is required to present,  to the
Bankruptcy  Court,  a plan  of  reorganization  setting  out  the  terms  of the
restructure  of its  obligations.  The Debtors  are  presently  operating  their
businesses under bankruptcy protection as debtors-in-possession.  The bankruptcy
proceedings  of the  Debtors  are  being  jointly  administered  for  procedural
purposes, but are not substantively  consolidated.  A Plan of Reorganization was
filed with the  Bankruptcy  Court on April 18, 2003 with a Disclosure  Statement
hearing scheduled for May 30, 2003. The settlement described above is contingent
upon Bankruptcy Court approval.  Terms of the settlement have been  incorporated
into the terms of a Chapter 11 Plan of  Reorganization,  which must be confirmed
by  the  Bankruptcy  Court  to  become  effective.  See  Item  8.  A.  -  "Legal
Proceedings".

Discontinued Operations

In January 1997,  GenSci acquired 100% of the  outstanding  shares of Osteopharm
Limited ("Osteopharm"),  a private Canadian company established to commercialize
a series of compounds for the potential treatment and diagnosis of osteoporosis.
In 1999, GenSci formed a wholly owned  subsidiary,  Osteopharm Inc., to position
the Company's osteoporosis  technology for investment from strategic partners or
sale. On December 15, 2001, the Company, in deciding to focus on the development
of its bioimplant  products,  sold 100% of its interest in Osteopharm  Inc. to a
third party and retained the surgical rights to the technology.

Capital Expenditures

Capital  spending  requirements  in 2002 were  $501,230 and were  primarily  for
improvements  in production  operations.  Capital  spending was lower in 2001 at
$313,083 particularly when compared to $1,167,943 in 2000 when the Company added
fully integrated ERP computer  software to its California  production  facility.
Capital  spending  requirements  were $666,876 in 1999 as the Company  completed
construction of its new California production facility.

Registered office and records

The head  office  and  address  for  service of GenSci is Suite  1000,  1235 Bay
Street,  Ontario,  M5R 3K4, and its  registered and records office is located at
1100 - 888  Dunsmuir  Street,  Vancouver,  British  Columbia,  V6C 3K4. The head
office of GenSci OrthoBiologics is 2 Goodyear, Irvine, California, 92618.

B. BUSINESS OVERVIEW

The  Company  is  involved  in  the  general  field  of  regeneration  sciences,
specifically  focused in the area of orthobiologics (the use of biotechnology to
treat   musculoskeletal   disease  and  injury).   The   Company,   through  its
subsidiaries,  researches,  develops and manufactures orthobiologic products and
markets and  distributes  them to  surgeons  and  hospitals  for use in surgical
procedures.  Most products are subject to various regulatory  requirements prior
to commercialization and are marketed to different customers.






KEY EVENTS OF YEAR 2002

o    Entirely  replaced and upgraded the Company's  original  product  offerings
     with new technologies, introducing improved, non-infringing formulations of
     the company's original DynaGraft(R) and Orthoblast(R) product lines.




                                       9
<PAGE>



o    Launched  Accell(R)DBM100,  a second-generation  technology,  the first and
     only bone graft  putty on the market  composed of 100%  demineralized  bone
     matrix.

o    Signed a 2-year  contract with  HealthTrust  Purchasing  Group,  LP, one of
     America's    leading    membership-based    healthcare   group   purchasing
     organizations.

o    Continued to expand international presence.

o    GenSci OrthoBiologics obtained ISOTM certification.


KEY EVENTS TO START 2003

o    Entered into an agreement with  AlloSource(R),  one of the nation's largest
     non-profit  tissue bank  cooperatives,  for supply and  distribution of key
     allograft materials.

o    Continued market acceptance of new product lines.

o    Announced conditional agreement to settle legal issues.

o    Filed Plan of Reorganization in the U.S. Bankruptcy Court.

ORTHOBIOLOGICS

Nature of the Company's Operations

GenSci and its subsidiaries  are involved in the field known as  orthobiologics,
which is the use of biotechnology to treat  musculoskeletal  disease and injury.
The Company applies an integrated approach to product research, development, and
commercialization  by leveraging  internal  resources  together  with  licensing
agreements and strategic alliances.

The current  business of GenSci began in November 1992 when the Company  changed
its name to  Biocoll  Medical  Corp.  in  conjunction  with the  acquisition  of
Regenetec  Biomatrix,  Inc.,  which at that time was  developing a technology in
bone and tissue  regeneration  for dental  surgical  applications.  The  Company
further  developed  this  technology  for the  spinal  and  orthopedic  surgical
markets.

GenSci has a wholly owned operating  subsidiary,  GenSci  OrthoBiologics,  Inc.,
based in Irvine, California that manufactures and distributes bone graft implant
products.  In 1999,  GenSci  purchased  a  majority  ownership  interest  in its
distribution partner for the oral craniofacial market,  creating GenSci OCF Inc.
("GenSci OCF"), based in Montreal, Quebec.

The Company is focused on the  development  of products used by surgeons  during
surgical  procedures where bone and tissue repair or regeneration is needed. The
Company's  products to date consist  primarily of various types of demineralized
bone-based  allograft implants first launched in August 1997 to spinal surgeons,
in 1998 to oral surgeons, in 1999 to orthopedic (non-spine) surgeons and in 2000
to select international markets.

In January 1997,  GenSci acquired 100% of the  outstanding  shares of Osteopharm
Limited,  a private  Canadian  company  established to commercialize a series of
compounds for the potential  treatment and diagnosis of  osteoporosis.  In 1999,
GenSci  formed a wholly  owned  subsidiary,  Osteopharm  Inc.,  to position  the
Company's  osteoporosis  technology  for investment  from strategic  partners or
sale. On December 15, 2001, the Company, in deciding to focus on the development
of its bioimplant  products,  sold 100% of its interest in Osteopharm  Inc. to a
third party.





Principal Markets

By  1996,  the  Company  had  commercialized  a  series  of  proprietary  tissue
matrix-based  bone and soft tissue  regeneration  products intended for surgical
and other medical  applications.  In 1996, the Company launched,  in




                                       10
<PAGE>




Canada, its first product,  the TBM Sponge(TM),  a bioimplant designed primarily
for  periodontal  surgical  applications,  which  was  the  predecessor  to  the
DynaGraft line of bioimplants.

In 1997,  the Company  completed the  development  of its new line of bioimplant
products,   DynaGraft  bioimplants,   designed  primarily  for  spinal  surgical
procedures.  In  anticipation  of the launch of this product  line,  the Company
constructed production facilities in Irvine,  California and signed an exclusive
North American sales  agreement with DePuy AcroMed Inc.  ("DePuy").  DePuy began
selling the DynaGraft  bioimplant  product line to spinal surgeons in the United
States in August  1997,  and in Canada in 1998.  The  Company  concentrated  its
efforts  in 1998 on  increasing  market  share  and  gaining  awareness  for its
products.  In  addition,  the Company was  developing  new  products to meet the
demands of the surgical community and other surgical markets.

In 1998 the Company began  distribution to the OCF market.  In October 1999, the
Company acquired 55% of the outstanding  shares of GenSci OCF (increased in 2001
to 60%). GenSci OCF is well established in the oral  craniofacial  market with a
complete line of reconstruction products. Prior to this acquisition,  GenSci OCF
had acted as an independent  distributor  of the Company's  products to the oral
craniofacial market.

The Company's initial  products,  DynaGraft and OrthoBlast  bioimplants,  were a
line of  allograft-based  bone  regeneration  implants.  DynaGraft  had achieved
significant  revenue  growth since its late 1997 launch.  The Company  generated
revenues of $30,571,305 in 1999  primarily from  DynaGraft,  $45,827,426 in 2000
and $40,444,833 in 2001 from both the DynaGraft and OrthoBlast product lines.

In 2002,  operating  under the protection of Chapter 11, the Company retired all
prior products and  introduced  three new product  lines.  The Company  launched
Accell  DBM100,  the first product  utilizing  the  Company's  second-generation
technology  in May 2002.  In August  and  September  2002 the  Company  launched
improved second-generation product lines replacing DynaGraft and OrthoBlast. The
new, improved DynaGraft II has completely  replaced DynaGraft in the U.S. market
as of September 16, 2002 and OrthoBlast II was introduced in October 2002.  With
the transition to DynaGraft II the Company no longer manufactures or distributes
within the U.S. market any of the products related to the patent litigation jury
verdict.  However,  given the level of investment required to develop the market
for its products,  the ongoing research and development  investment  required to
support its existing products and technologies and the cost of patent litigation
defense, the Company has incurred losses in 1999, 2000, 2001 and 2002.

In 2002, the Company generated  $34,481,612 in revenue.  The Company's three new
product lines  accounted  for $7.7 million of 2002 revenue.  Of that amount $5.9
million was recognized in the fourth quarter of 2002.

The field of  orthobiologics  is based on the concept of using  biotechnology to
treat musculoskeletal injury and disease, and is one of the most rapidly growing
areas of orthopedics.  The global bone graft market reached  U.S.$732 million in
2001, with  synthetics and  demineralized  bone matrices  (DBMs)  accounting for
nearly  40% of these  sales  ("Market  Dynamics:  Bone  Substitutes  and  Growth
Factors" published by DataMonitor in December 2002). As technology  advances and
the global  population  ages, bone graft  substitutes  will continue to increase
penetration  of the bone graft  market,  achieving an estimated 50% share of the
market by 2006.  The fastest  growing area of the tissue  technology  segment is
allograft  based  products,   because  they  are  gaining  acceptance  over  the
traditional use of autograft materials.

The repair of tissue, whether resulting from degenerative  conditions or injury,
is normally  undertaken  through surgical  intervention.  In the past,  surgical
intervention  commonly involved the implant of mechanical devices such as plates
and screws to aid in the healing process. Through scientific advances, it is now
widely known that human tissue, and particularly bone, has a unique regenerative
ability, thus allowing for effective repair to occur with or without the implant
of mechanical  devices.  The development  and use of products and  technologies,
which  employ and  stimulate  this  regenerative  ability to aid in the  healing
process is an emerging field known as orthobiologics.

Bone has the ability to maintain its integrity and repair itself when  fractured
or  damaged,  due  to its  capacity  to  regenerate.  Facilitation  of the  bone
regeneration process may involve the interaction of two restorative  mechanisms,
osteoconduction  and  osteoinduction.  Osteoconduction  involves  the  use  of a
scaffold material for the in-growth of bone into the defect site. Osteoinduction
involves  the  "switching  on" of bone  precursor  cells,  initiated  by natural
proteins to accelerate bone formation. These natural protein substances commonly
referred  to  as  "growth  factors"  [and  which  include,  among  others,  bone
morphogenic  proteins  ("BMP") and transforming  growth factors  ("TGF(beta)")],
stimulate the precursor cells to  differentiate  into  osteoblasts  (bone growth
cells that rebuild bone), allowing for bone growth.




                                       11
<PAGE>





Bone grafts,  which are  supplemental  bone materials  used to replace  existing
natural  bone that has been  damaged  by trauma  or  disease,  have been used in
orthopedic  surgical  procedures  for many  years.  The most  common  method  of
assisting  the body's  regenerative  ability has been the use of  autograft,  in
which bone is harvested from the same patient, usually from the iliac crest (hip
area),  and implanted at or near the repair site.  The implanted  bone acts as a
scaffold for new bone growth  (osteoconduction),  allowing for the  in-growth of
cells  essential  for new bone  formation.  In addition,  such bone contains the
natural proteins (e.g., BMPs) that initiate bone formation (osteoinduction).

Seasonality

The  Company's  initial  allograft-based  bone implant  products are provided to
repair or regenerate  musculoskeletal  structures and are used in various spine,
joint repair and oral craniofacial  applications.  Based on the diversity of the
products and range of use, the Company has  experienced no material  seasonality
of the business at this time.

Supply

The Company's bioimplants are allograft-based implants, primarily in the form of
demineralized  bone  matrix  ("DBM").  The DBM is  obtained  from  tissue  banks
accredited  by the American  Association  of Tissue Banks  ("AATB")  after being
processed to essentially  remove the mineral content of the bone and then dried.
The resulting  granule or powder-like  substance acts as a scaffold,  and, since
the  natural  bone  growth  factors  are  maintained  in the  bone  through  the
demineralization  process, exhibits osteoinductive activity. In 2002 the Company
added the capability to perform  demineralization  of ground bone, which is also
obtained from AATB tissue banks. Some of the Company's  products contain non-DBM
allograft material, which acts only as an osteoconductive scaffold.

The  Company  relies on  tissue  banking  partners  accredited  by the  American
Association  of Tissue Banks to provide the  processed  tissue  required for its
products  and  attempts  to  maintain  a surplus on hand  should any  unforeseen
conditions  alter the availability of its key material  components.  The Company
has exclusive and  non-exclusive  agreements with a number of large tissue banks
in the United  States.  A decrease in the  availability  of  suitable  processed
tissue could lead to increases in cost of reimbursing the tissue banks for their
cost of  procurement  and  processing,  or the Company may not be able to locate
replacement sources on commercially reasonable terms.

The  Company has no key  industrial,  commercial  or  financial  contracts  with
customers at this time.

Marketing Channels

The Company relies on various  contracted  independent  sales networks to market
its allograft bone implant products. The Company provides for a portion of field
inventory in order to facilitate the availability of products for the patient in
surgery. Revenue from product sales is recognized when title to the products has
passed  and there has been a  transfer  of  significant  risks  and  rewards  of
ownership,  which  is  generally  at the  time  products  are  delivered  to the
Company's customers.

The  Company's  bioimplant  products  are  distributed  directly  to health care
professionals, clinics and hospitals. Decisions to purchase a particular product
are based on the  characteristics  of the product in  relation  to the  specific
application,  perception of efficacy and cost. The Company's products are priced
based  on  the  competitive  marketplace.   Marketing  is  accomplished  through
independent representation, supported by print advertising in trade journals and
attendance at industry conferences.

The Spine Surgery Marketing Infrastructure

In February 1997, the Company signed an exclusive North American  representative
agreement (the "DePuy  Agreement") with DePuy (at that time named DePuy Motech).
In November 1999,  DePuy settled claims  brought  against it by Osteotech,  Inc.
and,  as a result,  DePuy  agreed  that it would  not  represent  the  Company's
DynaGraft Gel and Putty after February 3, 2001 unless patent infringement claims
brought against the Company by Osteotech, Inc. were resolved by that time. DePuy
no longer represents any of the Company's products.



                                       12
<PAGE>




The Company developed its own independent  representation  network in the spinal
market to continue to represent the DynaGraft bioimplants commencing on February
4, 2001.  The Company  employs four  regional  managers to train and support the
activities of independent spine sales specialists.

The General Orthopedic Marketing Infrastructure

In  launching  its  OrthoBlast  bioimplant  products to the general  orthopedics
(total joint)  market in late 1999,  the Company chose to set up its own network
of independent representatives.  GenSci OCF represents these orthopedic products
in the Canadian market.  As in the spinal market,  the Company maintains control
in the general  orthopedics  market over  product  distribution,  marketing  and
product  training.  During  2002 the  management  of the Spinal  and  Orthopedic
markets were combined under the four regional managers, referred to above.

The Oral Craniofacial Marketing Infrastructure

For OCF applications, the target for the Company's bioimplant products is dental
professionals  and  other  related  specialists,   such  as  oral  surgeons  and
craniofacial  surgeons.  There are approximately 150,000 dental professionals in
North America within the Company's  targeted  market.  The Company  launched its
DynaGraft Bioimplants in North America for the OCF market in 1998 through GenSci
OCF, which had been an independent  distributor prior to the Company acquiring a
55% interest in 1999,  which was  increased to 60% in 2001.  The Company has its
own OCF sales representatives.  In addition to this sales force, the Company has
a  non-exclusive  agreement  with  Innova  Technology  Corporation,  a  Canadian
manufacturer  and  distributor  of  dental  implant  and  related  products,  to
distribute the Company's bioimplant products to this market segment.

Products

The majority of the Company's revenues are derived from sales of its products in
the United States. A description of the current product offering follows:

Accell DBM100, GenSci's next-generation  technology,  is the first and only bone
graft putty on the market  composed  of 100%  demineralized  bone matrix  (DBM).
Accell features an exclusive,  patent pending DBM processing technique that does
not require an  additive  carrier,  allowing  for a 100% bone  product  with the
handling characteristics of DBM putty.

DynaGraft II has a higher DBM content than the  original  DynaGraft  while still
featuring excellent handling characteristics favored by surgeons. The transition
from  DynaGraft  to  DynaGraft  II was  completed  in  September  2002,  and the
Company's  customers have rapidly adopted the new product line.  GenSci believes
these products to be among the most cost effective autograft extenders available
on the market, when considering osteoinductive performance and price.

OrthoBlast II, a synergistic combination of DBM and cancellous bone in a reverse
phase  medium  features  improved  handling  characteristics  and  replaced  the
original  OrthoBlast  product  line in the market  during the fourth  quarter of
2002.

OCF Products

In order to take advantage of the relationships established in the OCF community
and to leverage the use of the sales force,  GenSci OCF  distributes a number of
related  product  lines  developed  by third  parties to the OCF  market.  These
products include bioimplant systems and OCF surgical accessories.

Technologies Under Development

To develop new products the Company will utilize the same  technology as used in
Accell DBM100,  which is made from demineralized  bone matrix (DBM).  GenSci has
developed a proprietary  DBM  processing  technique  that allows for a 100% bone
product  with  handling  characteristics  of  DBM  putty  and  undiluted  by  an
additional  carrier.  DBM is  known  for  its  ability  to  stimulate  new  bone
formation.




                                       13
<PAGE>



The Company believes that it is changing the current DBM  osteobiologics  market
by releasing the next  generation  of DBM putty  products.  The Company  further
believes  that  Accell  is an  innovative  change in DBM  processing  technology
providing undiluted osteoinductivity1 with demineralized 100% bone.

The Accell technology supplements GenSci's current product offerings,  including
DynaGraft II and  OrthoBlast  II, in the spine and general  orthopedic  markets.
Accell gives surgeons a new,  technologically  advanced  option for bone growth,
fusion, repair, and is another alternative to fit specific surgical needs.

Competition

The Company operates in a highly competitive market.  Generally,  the market for
the Company's  bioimplant products is divided among practitioners who prefer the
traditional  autograft  method  of  recovering  bone  from the  patient  for the
required procedure,  and those  practitioners who use allograft-based  materials
consisting of donor tissue, such as the Company's  products.  Another portion of
the market uses  various  synthetic  products.  In order to increase  its market
share for bioimplants,  the Company and its representatives  must demonstrate to
practitioners who are currently using either autograft or competitive  allograft
products,  the  benefits of the  Company's  allograft-based  products.  Building
awareness of the advantages of allograft,  including reduced costs to the health
care system and reduced pain to the patient, along with overcoming concerns over
the safety of using donor tissue, is a long-term process.

A number of companies produce and sell products similar to those of the Company,
and these  competitors  are also  marketing  their  products  with the intent to
convert practitioners who currently favour autograft materials for their implant
procedures.  The Company's  competitors  include companies selling DBM and other
osteoinductive  and  osteoconductive  products  using various  technologies  for
delivery and placement.  The principal  competitors of the Company are Osteotech
Inc. ("Osteotech") (see "Legal Proceedings"),  Regeneration  Technologies,  Inc.
("RTI"),  the Musculoskeletal  Transplant  Foundation  ("MTF"),  Interpore Cross
International, Inc. ("Interpore"), Wright Medical Technologies, Inc. ("Wright"),
NeuColl Corporation  ("NeuColl"),  and Orquest,  Inc.  ("Orquest").  The Company
believes  that  currently  it,  Osteotech,  RTI,  MTF and  Wright  are the  only
companies which provide bioimplant products that are osteoinductive. Osteotech's
product, known as "Grafton", RTI's product, known as "Osteofil",  MTF's product,
known as "DBX", and Wright's  product,  known as "AlloMatrix",  all contain DBM.
NeuColl's  product,  known as "Collagraft",  which is marketed by Zimmer,  Inc.,
contains  bovine  collagen  and ceramic  beads.  Interpore's  product,  known as
"Pro-Osteon", is a synthetic material that can be used along with its autologous
growth factors "AGF" product.  Orquest's  product,  known as "Healos",  contains
bovine  collagen  strands.  In addition,  Interpore has introduced a new product
called  "Intergrow"  that  contains  DBM.  In 2001  several  new  products  were
introduced:  DePuy's Symphony, an autologous growth factors product, Orthovita's
"Vitoss", a synthetic product, and the Musculoskeletal  Transplant  Foundation's
(MTF) "DBX" an allograft product.

In  2002  the  United  States  Food  and  Drug  Administration   (FDA)  approved
InFuse(TM),  a combination of an absorbable collagen sponge and rhBMP-2, limited
to use in single level lumbar,  anterior  procedures  with the LT(TM) Cage only.
Also  Osteogenic  Protein 1, or OP-1,  received  humanitarian  device  exemption
status,  or HDE status,  from the FDA for use as an  alternative to autograft in
long-bone  nonunions  where  use of  autograft  is  unfeasible  and  alternative
treatments have failed.  These products are  manufactured  and marketed by firms
with much greater resources than the Company.

Autograft by itself,  although still widely used, has limitations  compared with
some of the alternatives  currently available,  including allograft  procedures.
The quantity or quality of autograft bone from the patient might be limited.  In
addition to  requiring  more  operating  room time,  it  lengthens  post-surgery
recuperation,  increases the risk of infection (due to secondary  procedure) and
most of all,  results  in  increased  pain  for the  patient  due to the  second
procedure  required  to harvest the bone  material.  The Company and others have
developed bioimplant products, as an alternative to autograft.  One such type of
product uses allograft bone,  which is bone that is obtained from a donor.  This
bone is harvested by tissue banks,  and is processed to minimize the possibility
of  disease   transmission.   Various  synthetic  bone   substitutes,   such  as
hydroxyapatite,  which often act only in the osteoconduction  process,  are also
used. These alternatives may be used alone or in conjunction with autograft.

Surgeons  evaluate  bone  graft  products  on the basis of a number of  factors,
including ease of handling, perception of safety, efficacy in regenerating bone,
and cost. The ease of handling of a product relates to the methodology  employed
to place the graft  material in the implant  site. A number of materials  may be


-------------
(1)  In a DBM containing product, the absence of carrier materials that have no
     osteoinductive potential is "undiluted osteoinductivity."

                                       14
<PAGE>


used for  application,  including those made from  human-based  products such as
collagen, other inactive materials or synthetics.  The efficacy of an implant in
bone  regeneration  depends  on the  level  of  osteoinduction  provided  by the
material.

The Company's products can be differentiated  from those of its competitors with
respect to the proprietary  methods by which the implant  material is maintained
in the implant site. The Company's  technologies include an inactive medium that
acts in a  reverse-phase  manner,  that is, the  product is  moldable  at cooler
temperatures and becomes more viscous,  or firmer, when its temperature rises to
body  temperature.  Thus,  surgeons can easily  manipulate  the product as it is
being implanted and as the allograft  material becomes more viscous,  or firmer,
it is better enabled to remain contained at the implant site.

The Company's  products can be further  differentiated  by the  proprietary  DBM
processing  technique  that  allows  for  a  100%  bone  product  with  handling
characteristics of DBM putty and undiluted by an additional carrier, as utilized
in Accell DBM100.

Advances in the field of orthobiologics are continuing at a rapid pace, focusing
on the  development of products that  eliminate the need for, while  maintaining
the  benefits  of,  autograft,  including  osteoinduction  and  osteoconduction.
Participants   in  the  industry  are  developing   products  that   incorporate
osteoconductive   or  scaffolding   materials  as  the  delivery  mechanism  for
synthetically  produced growth  factors.  Synthetic  growth  factors,  which are
considered to be more osteoinductive than the naturally occurring growth factors
in autograft or allograft bone, will be combined with scaffolding  materials for
implantation.  Once  developed,  these  products  could  speed the bone  healing
process.  The Company's  proprietary carrier technologies could be used in these
situations.

Manufacturing and Supply Agreements

To increase the likelihood that the Company's  bioimplant  product lines will be
successful,  the products  must be  manufactured  in commercial  quantities,  at
acceptable  costs and in compliance  with regulatory  requirements.  The Company
manufactures all of its products at its facility in Irvine, California (see Item
5.D. -  Facilities"),  which has  provided  the Company  with  control  over the
manufacturing  process  and the  quality  of its  products.  Such  controls  are
essential,  as the manufacturing  facilities of the Company or its licensees may
be subject to inspection and licensing by regulatory authorities,  including the
FDA, prior to and during the production process.

The production of most allograft-based  bioimplant products involves the initial
processing of donor tissue to create DBM and other bone matrices, preparation of
the material used to maintain  these in the implant site,  incorporation  of the
active  ingredients into the carrier  material,  sterilization and other quality
control  measures and  packaging.  The Company  relies upon tissue banks for its
supply of DBM, and uses a combination of internal  capabilities  and outsourcing
for the remainder of the processes.

The  Company's  bioimplants  require  donated  human tissue as the source of the
naturally  occurring bone grafting material or proteins.  In Canada,  the United
States and other  countries,  human  tissue is  procured  from  human  donors by
not-for-profit tissue banks, which are strictly regulated. In the United States,
human tissue  cannot be sold and is not the property of any entity.  The Company
has exclusive and  non-exclusive  agreements with a number of large tissue banks
in the United States to provide the Company with processed  tissue  required for
its products. All tissue banks which supply tissue to the Company are accredited
by the AATB.  Tissue  procurement  and  processing are subject to regulatory and
industry  regulations  and standards,  including those relating to prevention of
disease transmission.

Technology Licensing Agreements

None  of  the  Company's   current   products  are  dependent  upon  in-licensed
technologies.  The Company has licensed certain technologies from BioInterfaces,
Inc., a company that is partially owned by John Kay, Ph.D., a consultant  acting
as Vice  President of Research and  Development.  The Company plans to use these
technologies in future product development.

Government Regulation

The  Company's  products  are  subject to various  regulatory  and  governmental
oversight,  depending on the regulatory category - human tissue, medical device,
or pharmaceutical.  Separate regulations apply with respect



                                       15
<PAGE>



to each category. In addition,  the regulatory process varies in each country in
which the Company markets its products.

The Company's  products are currently  marketed in the United States and Canada.
In Canada, the Company's activities are regulated by Health Canada's Therapeutic
Products Programme ("TPP"). In the United States, these activities are regulated
by the Food and Drug Administration ("FDA").

Currently marketed products within the Company's  portfolio fall into either the
human tissue or the medical device  categories.  Some of the Company's  lines of
bioimplants are currently  marketed as human tissue while others may be marketed
as medical  devices in the future.  The regulatory  designation of the Company's
future products is unknown at present.

The  Company is also  involved in the  commercial  marketing  of its  bioimplant
products in countries outside of North America.  International sales are subject
to the import and regulatory  requirements  of each country.  The process varies
from country to country.

Regulatory Categories

Human Tissue:  Many human tissue-based  products are classified as "human tissue
intended for  transplantation"  and may be marketed in the United States without
prior agency approval, provided they are in compliance with FDA regulations. The
regulations  concerning human  tissue-based  products continue to be reviewed by
the FDA and other  regulatory  bodies.  Both  Canadian and  American  regulatory
bodies have prepared draft regulatory standards for human tissue-based products,
only some of which have been finalized.  The  regulations  with respect to human
tissue-based  products  are aimed at  protecting  the public  from  exposure  to
certain  diseases  and are,  therefore,  focused on reducing the risk of disease
transmission.   They  govern  such  matters  as  donor   screening  and  testing
procedures, tissue recovery, processing, storage and distribution, documentation
and record keeping.

Medical Device:  Unless exempted by regulations,  medical devices  generally may
not be commercially distributed unless they have been approved or cleared by the
appropriate  regulatory  body.  Some  of the  products  classified  as  "medical
devices" normally require  preclinical safety studies in animals.  In the United
States,  the Federal  Food,  Drug and  Cosmetic  Act (FFDCA)  provides two basic
review procedures for  approval/clearance  of medical devices.  Certain products
qualify for a submission  authorized by Section 510(k) of the FFDCA, wherein the
manufacturer   provides   the  FDA  with  a   premarket   notification   of  the
manufacturer's  intention  to market  the  product;  this  notification  must be
"cleared" by the agency prior to commencement of marketing by the  manufacturer.
If a device does not qualify for the 510(k)  procedure,  the  manufacturer  must
file a Premarket  Approval  Application (PMA)  application.  The PMA application
process is generally a much more complex submission than a 510(k)  notification.
In Canada, medical device regulations use a risk-based classification system. In
both the United States and Canada, preclinical studies are generally followed by
filing and  approval of an  application  to conduct  controlled  human  clinical
studies (if required). Results of the controlled clinical studies, together with
information related to the product and the manufacturing  process,  are detailed
in the filing of a formal submission requiring approval prior to marketing.

Intellectual Property

The  Company  considers  patent  protection  and  proprietary  technology  to be
materially  significant to its business.  The Company relies on certain  patents
and pending patent applications  relating to various aspects of its products and
technologies.  These  patents  and patent  applications  are either  owned by or
exclusively  licensed  to the  Company,  and it  pays  royalties  under  various
agreements for the use of certain of the technologies.

With respect to its orthobiologics technologies,  the Company currently owns the
exclusive rights under the 11 issued patents.

GenSci and its  subsidiary,  GenSci  OrthoBiologics,  are  involved  in a patent
infringement  case [Patent Action] involving claims that DynaGraft Gel and Putty
brands  infringe two patents owned by Osteotech  Inc. On December 17, 2001,  the
jury  found  GenSci  and  GenSci  OrthoBiologics  liable  for  damages  of  U.S.
$14,533,634. As of May 8, 2003 the Court had not entered a judgment of liability
and accordingly, the actual liability could be different from amounts accrued by
the Company. On December 20, 2001, GenSci and GenSci OrthoBiologics, voluntarily
filed petitions for protection  under Chapter 11 of the U.S.  Bankruptcy Code in
the U.S. Bankruptcy Court Central District of California.  Both GenSci companies
elected  to take  action  as a  result




                                       16
<PAGE>


of the verdicts in patent  litigation  proceedings.  The Company has agreed to a
conditional settlement, the terms of which have not yet been finalized.

Pursuant to motions by Osteotech and positions taken by the Company,  on May 16,
2002,  the  Bankruptcy  Court  modified the automatic  stay to permit the Patent
Action  to  proceed,  provided  that,  any  judgment,  whether  for  damages  or
injunctive relief,  issued against the Company could not be enforced without the
further  review  and  approval  by the  Bankruptcy  Court.  In order to  provide
adequate  protection to Osteotech,  the Company is required,  commencing on June
10, 2002,  to deposit into a restricted  cash account 14% of gross  revenue from
the  allegedly  infringing  products.  GenSci  was  required  to  file a Plan of
Reorganization  or cease the manufacture,  sale or distribution of the allegedly
infringing  products by September  16, 2002 or by November 18, 2002 if a plan is
submitted  but not  confirmed.  Consistent  with the  Bankruptcy  Court's May 17
Order,  the Debtors no longer  manufactured,  marketed,  distributed or sold the
infringing products [DynaGraft Gel and Putty] after September 16, 2002.

During 2002, the Company accrued and expensed  $1,705,265,  which represents 14%
of the revenue derived from DynaGraft Gel and Putty. In addition,  subsequent to
the  Bankruptcy  Court order  discussed  above,  the Company has  established  a
restricted  cash  account,  which  had a  balance  of  $856,534,  and  which  is
classified as a long term asset as at December 31, 2002.

At the Settlement  Conference,  the parties reached a conditional  settlement of
their  disputes  relating to the Debtors'  bankruptcy  proceeding and the Patent
Action,  that includes a requirement  for the Company to pay Osteotech  U.S.$7.5
million. See Item 8. A. - "Legal Proceedings".

In addition,  the Company has obtained trademarks for its bioimplant products in
the United States and has applied for trademark protection for them in Canada.

BIOPHARMACEUTICALS - DISCONTINUED OPERATIONS

Effective September 1, 1999, the Company  established  Osteopharm Inc. as a 100%
owned  subsidiary  in order to seek  third  party  investment  for the  anabolic
peptide technology  acquired with the purchase of Osteopharm  Limited,  which is
focused on the diagnosis and prevention or treatment of osteoporosis.

The Company assesses the carrying value of its patent and technology costs on an
ongoing basis. As a result of the Company's  decision to seek alternate  funding
for certain of its peptide  technologies,  management  had  determined  that the
prior  carrying  value of these  technologies  should  be  adjusted  to  reflect
estimated  market  values.  During  1999,  the  Company  reduced  the  value  of
technology by  $10,000,000  to reflect the value based on  negotiations  at that
time.  Subsequent  negotiations  during 2000 required  that the Company  further
reduce the carrying value of the  technology and patents  related to the peptide
technology by $2,795,094 and $504,906, respectively.

On December 15, 2001,  the Company,  in deciding to focus on the  development of
its bioimplant products, sold 100% of its interest in Osteopharm Inc. to a third
party for a total consideration of $1,440,000, consisting of a $700,000 accounts
receivable  and  a  $740,000  promissory  note,  which  are  included  as  other
receivables in the consolidated  balance sheets. The promissory note is secured,
non-interest  bearing and is repayable on monthly  installments of $100,000 each
starting February 1, 2002.

Subsequent to the year-end  2001, the Company  received the $700,000  receivable
and $200,000 of the note  receivable.  The Company has provided an allowance for
the balance of $540,000 due to uncertainty  relating to ultimate  collection and
will  recognize  this amount as income once  received.  Of that  allowance,  the
Company received  $240,000 in late 2002 and recognized the amount as income.  In
addition, the Company received $175,000 in 2003 as the final and closing payment
on the transaction.

The Company has  retained  the rights to use the  peptide  technology  solely as
medical  devices or treatments  delivered  locally in humans for tissue  repair,
limited to bone, cartilage,  meniscus,  ligaments or tendons and medical devices
or  treatments  for  coatings  on  prosthetics  as  part  of  invasive  surgical
procedures.



                                       17
<PAGE>




C. ORGANIZATIONAL STRUCTURE

The Company was  incorporated in the Province of British  Columbia,  pursuant to
the Company Act (British  Columbia) on December 4, 1980 by  registration  of its
Memorandum and Articles under the name of Shayna  Resources Ltd. The Company has
two principal  operating  subsidiaries,  GenSci  OrthoBiologics,  Inc.  ("GenSci
OrthoBiologics") and GenSci OCF Inc. ("GenSci OCF").

D. PROPERTY, PLANT AND EQUIPMENT

The Company leases  facilities,  with leases ranging from one to five years. The
currently used facilities are:

          o    A production,  laboratory  and  administrative  office  facility,
               comprising  approximately  26,000 square feet, for the production
               and distribution of the Company's bioimplant products, in Irvine,
               California.


          o    Administrative offices of approximately 700 square feet of office
               space at the Company's head office in Toronto, Ontario.

          o    A sales and distribution  facility of approximately  5,652 square
               feet  (2,777 sq. feet  office and 2,875  square foot  warehouse),
               located  in  Laval,   Quebec,   used  for  the   Company's   oral
               craniofacial "OCF" activities.


ITEM 5.  - OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of the financial condition,  changes in cash flows, and
results of  operations  of the company  should be read in  conjunction  with the
Company's 2002 consolidated  financial  statements and notes therein,  which are
prepared in accordance with Canadian  generally accepted  accounting  principles
(Canadian  GAAP).  These  principles  differ in certain  material  respects from
United  States  generally  accepted  accounting   principles  (U.S.  GAAP).  The
differences as they affect the consolidated  financial statements of the Company
are  described  in  Note  18  to  the  Company's  2002  consolidated   financial
statements. All amounts are in Canadian dollars, unless otherwise noted.



<TABLE>
<CAPTION>

Selected  Financial Information                                            YEAR ENDED
                                                 DEC. 31, 2002     DEC. 31, 2001    Dec. 31, 2000     Dec. 31, 1999
<S>                                             <C>                <C>              <C>               <C>
Revenues                                           $34,481,612       $40,444,833      $45,827,426       $30,571,305
Reorganization costs                               (1,356,428)                --               --                --
Write-down of intangible assets                      (457,955)       (1,470,578)               --                --
Reserve for litigation verdict                     (1,705,265)      (23,098,189)               --                --
Loss from continuing operations                   ($4,252,840)     ($36,362,757)     ($2,080,114)      ($5,919,421)
Loss from discontinued operations                     $415,000        ($596,928)     ($4,928,623)     ($11,745,125)
Net loss                                          ($3,837,840)    ($36,959,685)     ($7,008,737)      ($17,664,546)
Net working capital (deficiency)                 ($22,043,381)     ($18,780,559)      $14,984,643        $4,660,297
Total assets                                       $17,208,390       $17,615,481      $32,431,927       $23,776,675
Long-term debt                                              $0          $127,820               $0                $0
Shareholders' equity   (deficiency)              ($19,194,783)     $(15,945,600)      $20,764,792       $13,793,359
</TABLE>




                                       18
<PAGE>



A. OPERATING RESULTS

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

REVENUES
Revenues for the year ended  December  31, 2002 of  $34,481,612  decreased  from
$40,444,833  for the year ended December 31, 2001. The 14.7% decrease in revenue
mainly  reflects the  replacement  of the Company's  entire product line and the
transition phase for launching three new product lines.  During 2002 the Company
effectively  replaced  former  products  that  were the  subject  of  previously
disclosed patent litigation.

COST OF SALES
Cost  of  sales,  consisting  of the  expense  of  manufacturing  the  Company's
bioimplant  products,  decreased to $11,743,981  for the year ended December 31,
2002 from  $15,870,114  for the year ended December 31, 2001. Cost of sales as a
percentage  of  revenues  was 34% for 2002,  compared  with 39% in 2001.  The 5%
decrease in costs as a percentage of revenues resulted primarily from aggressive
cost cutting  initiatives during the reorganization of the Company's  operations
throughout  2002. The efficient use of the Company's  resources have resulted in
lower  costs  associated  with  manufacturing  despite  continued  increases  in
reimbursement of processing costs to tissue banks for donated tissue.

MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative expenses of $19,091,593 for the year ended
December 31, 2002  decreased  from  $31,281,351  in 2001.  The  decrease  mainly
reflects  the decline in legal  expenses  related to the higher  level of patent
litigation costs with Osteotech in 2001.  During 2002 legal costs related to the
Company  operating  under Chapter 11 are reported as  reorganization  costs.  In
addition,  the Company  reduced  spending in sales and  marketing as part of the
cost cutting initiatives applied to the Company's operations.

RESEARCH AND DEVELOPMENT EXPENSES
Research and  development  expenses  decreased to $3,406,232  for the year ended
December 31, 2002 from  $4,187,176 in 2001. The cost of research and development
as a percentage  of revenue  remained  consistent  at 10% in 2002 and 2001.  The
Company  continued  efforts in 2002 to support its near term product pipeline as
part of a planned product development program.

INTEREST INCOME (EXPENSE)
The  Company  generated  net  interest  expense  of  $13,179  for the year ended
December 31, 2002 compared to net interest income of $189,416 in 2001.  Although
cash  balances  increased  during  2002,  the  decrease in net  interest  income
compared to the prior year is primarily  due to the lower average level of funds
available for investment and lower yields on invested funds.

AMORTIZATION
Amortization  expense decreased to $959,819 for the year ended December 31, 2002
from $1,089,598 for the year ended December 31, 2001. The decrease resulted from
costs of previously  capitalized  intangible  assets  becoming  fully  amortized
during 2002 and 2001.

REORGANIZATION COSTS
Reorganization  costs include the Company's legal costs and administrative  fees
related to Chapter  11 and  additional  legal  fees  incurred  by the  Creditors
Committee paid for by the Company.

WRITE-DOWN OF INTANGIBLE ASSETS
Write-down of intangible  assets includes a write-down of technology of $315,553
due to the  discontinuation  of certain  products  and $142,402 for patent costs
that are not part of the Company's short-term development plans.

RESERVE FOR LITIGATION VERDICT
In 2002 the Company  continued  to reserve  14% of the sales of former  products
that were the subject of previously disclosed patent litigation.

LOSS FROM CONTINUING OPERATIONS
The loss from  continuing  operations  for 2002 is  $4,252,840  ($0.08 per share
loss).  The Company  reported a loss from  continuing  operations of $36,362,757
($0.69 per share loss) for the year 2001.



                                       19
<PAGE>



LOSS FROM DISCONTINUED OPERATIONS
The net gain from discontinued operations for 2002 was $415,000 ($0.01 per share
gain).  For  2001,  the net  loss  was  $596,928  ($0.01  per  share  loss)  for
discontinued operations related to the sold subsidiary,  Osteopharm Inc. In 2001
the Company provided a $540,000 allowance,  which represented the balance due on
the promissory  note related to the sale of the  subsidiary,  Osteopharm Inc. In
2002, the Company recognized $240,000 collected on the promissory note as a gain
from discontinued operations and $175,000 that was collected in 2003.

NET LOSS
The net loss for 2002 was $3,837,840  ($0.08 per share loss).  For 2001, the net
loss was $36,959,685  ($0.70 per share loss).  There was no change in the number
of common shares outstanding in 2002.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

REVENUES
Revenues for the year ended  December  31, 2001 of  $40,444,833  decreased  from
$45,827,426  for the year ended  December 31, 2000. The 12% decrease in revenues
mainly  reflects the loss, in February of 2001, of DePuy AcroMed Inc.  ("DePuy")
as a marketing  partner  for two of the  Company's  products  sold to the spinal
market.  The  company's  independent  sales  representative  network has assumed
responsibilities for the sale of those products to the spine market but has lost
some DePuy customers in the process.

COST OF SALES
Cost  of  sales,  consisting  of the  expense  of  manufacturing  the  Company's
bioimplant products,  increased from $14,144,268 for the year ended December 31,
2000 to  $15,870,114  for the year ended  December 31, 2001.  Cost of sales as a
percentage of revenues was 31% for 2000, compared with 39% in 2001. The increase
in costs as a  percentage  of  revenues  resulted  primarily  from a decrease in
economies of scale due to lower production levels,  higher costs associated with
manufacturing  related to increase in  reimbursement  of  processing  costs from
tissue banks and due to the change in product mix in 2001 compared to 2000.

MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative expenses of $30,174,661 for the year ended
December 31, 2000  increased to  $31,281,351  in 2001. The increase is primarily
due to the change in rate of translation of the Company's U.S.  operations  from
U.S.  currency to Canadian  currency,  which were  converted  at higher  average
exchange  rates in 2001  compared to 2000.  In U.S.  currency  these amounts are
substantially the same.

RESEARCH AND DEVELOPMENT EXPENSES
Research and development  expenses  increased from $2,744,708 for the year ended
December 31, 2000 to $4,187,176 in 2001. The Company's  efforts in 2001 included
a higher level of development  expenditures on new products scheduled to come to
market in 2002 and 2003,  including  Accell DBM100 launched in the first half of
2002 in addition to other products planned for  introduction  later in 2002. The
cost of research  and  development  as a  percentage  of revenue was 6% in 2000,
compared with 10% in 2001.

INTEREST INCOME (EXPENSE)
The  Company  generated  net  interest  income of  $538,065  for the year  ended
December  31, 2000  compared  to net  interest  income of $189,416 in 2001.  The
decrease in net interest  income  compared to the prior year is primarily due to
the lower availability of funds for investment and lower yields.

AMORTIZATION
Amortization  expenses decreased from $1,381,968 for the year ended December 31,
2000, to  $1,089,598  for 2001.  The decrease  resulted from costs of previously
capitalized intangible assets becoming fully amortized during 2000 and 2001.

WRITE-DOWN OF INTANGIBLE ASSETS
Write-down  of  intangible   assets  includes  a  write-down  of  technology  of
$1,076,178  for licensed  patents that are not part of the Company's  short-term
development plans and $384,000 for non-commercialized product development costs.

RESERVE FOR LITIGATION VERDICT
On December 17, 2001, the jury found that GenSci and GenSci  OrthoBiologics  are
liable for damages of U.S.$  17,533,634  for  infringement  by DynaGraft Gel and
DynaGraft  Putty of two patents held by  Osteotech.  The damages  include  U.S.$
12,423,248  for lost profits during  1997-1999 and royalties of U.S.$  5,110,386
calculated



                                       20
<PAGE>



at a royalty  rate of 14% for the years  2000-2001.  Payments  of  approximately
U.S.$ 3,000,000 made by DePuy in a prior settlement with Osteotech, are expected
to be deducted from the jury verdict  reducing the  potential  judgment to U.S.$
14,533,634.  The Company has  established a reserve in the amount of $23,098,189
(Canadian) representing the potential judgment of U.S.$14,533,634.

LOSS FROM CONTINUING OPERATIONS
The loss from  continuing  operations for 2001 is  $36,362,757  ($0.69 per share
loss).  The Company  reported a loss from  continuing  operations  of $2,080,114
($0.04 per share loss) for the year 2000.

LOSS FROM DISCONTINUED OPERATIONS
The net loss from  discontinued  operations for 2001 was $596,928 in 2001 ($0.01
per share loss).  For 2000, the net loss was  $4,928,623  ($0.11 per share loss)
for discontinued operations. Net loss from discontinued operations decreased due
to the  write-down  of  technology  in the prior year.  Discontinued  operations
relate  to the  sold  subsidiary,  Osteopharm  Inc.,  which  is  focused  on the
diagnosis  and  prevention  or  treatment of  osteoporosis.  The loss in 2001 is
comprised of an operating loss of $1,260,468 and a gain on disposal of $663,540.
The Company  recognized the gain on disposal of the  discontinued  operations to
the extent of cash received from the disposal subsequent to the year end and has
provided an allowance for $540,000 being the balance of the promissory  note due
in fiscal  2002 due to  uncertainty  relating to  ultimate  collection  and will
recognize this amount as income once received.

NET LOSS
The net loss for 2001 was $36,959,685  ($0.70 per share loss). For 2000, the net
loss was $7,008,737 ($0.15 per share loss). There was no change in the number of
common shares outstanding in 2001.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

REVENUES
Revenues for the year ended  December  31, 2000 of  $45,827,426  increased  from
$30,571,305  for the year ended  December 31, 1999. The 50% increase in revenues
mainly reflected the continuing acceptance of the Company's products by surgeons
in multiple bone regeneration markets.  Approximately one-third of the Company's
revenue increase was from continued  growth in the U.S. spine market.  More than
half of the  increase  in revenues  was from  growth in the  general  orthopedic
market (e.g.,  total joint  reconstruction),  which the Company  entered in late
1999. The remaining increase was due to continued growth in the OCF market.

COST OF SALES
Cost  of  sales,  consisting  of the  expense  of  manufacturing  the  Company's
bioimplant products,  increased from $10,412,007 for the year ended December 31,
1999 to $14,144,268 for the year ended December 31, 2000, to support the revenue
growth.  Cost of sales as a percentage  of revenues  was 31% for 2000,  compared
with 34% in 1999.  The  decrease in costs as a percentage  of revenues  resulted
primarily  from  improved  economies  of scale  and  continued  improvements  in
manufacturing efficiencies.

MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative expenses of $30,174,661 for the year ended
December 31, 2000 increased from $21,141,322 in 1999. The increase was primarily
due to funding  ongoing  litigation  and to  commission  expenses  increasing as
revenues  increase,  in  addition  to  the  cost  of  supporting  the  marketing
infrastructure.

RESEARCH AND DEVELOPMENT EXPENSES
Research and development  expenses stayed relatively level at $2,744,708 for the
year ended December 31, 2000 compared to $2,419,433 in 1999. The Company shifted
research  efforts in 2000 away from the  biopharmaceutical  market and broadened
its research  activities within the biosurgical market. The cost of research and
development as a percentage of revenue was 6% in 2000, compared with 8% in 1999.
The decrease in expenses as a percentage of revenues resulted primarily from the
rapid increase in revenue.

INTEREST INCOME (EXPENSE)
The  Company  generated  net  interest  income of  $538,065  for the year  ended
December  31, 2000  compared  to net  interest  income of $309,096 in 1999.  The
increase  in net  interest  income  compared to expenses  was  primarily  due to
interest  earned on proceeds of special  warrants,  which were received in March
and June 2000.



                                       21
<PAGE>


AMORTIZATION
Amortization  expenses  decreased to $1,381,968  for the year ended December 31,
2000, from  $2,827,060 for 1999. The decrease  resulted from costs of previously
capitalized intangible assets becoming fully amortized during 1999.

LOSS FROM CONTINUING OPERATIONS
The loss from  continuing  operations for 2000 was  $2,080,114  ($0.04 per share
loss).  The Company  reported a loss from  continuing  operations  of $5,919,421
($0.15 per share loss) for the year 1999.

LOSS FROM DISCONTINUED OPERATIONS
The net loss from discontinued operations for 2001 was $4,928,623 in 2001 ($0.11
per share loss).  For 1999, the net loss was $11,745,125  ($0.30 per share loss)
for  discontinued  operations.   Discontinued  operations  relate  to  the  sold
subsidiary, Osteopharm Inc., which is focused on the diagnosis and prevention or
treatment  of  osteoporosis.  During  1999,  the  Company  reduced  the value of
technology  held by the  discontinued  operation by  $10,000,000  to reflect the
value based on sale negotiations at that time.  Subsequent  negotiations  during
2000  required  that  the  Company  further  reduce  the  carrying  value of the
technology  and patents  related to the peptide  technology  by  $2,795,094  and
$504,906, respectively.

NET LOSS
The net loss  decreased  in part due to a 50%  increase  in revenue for the year
ended December 31, 2000 compared to 1999. In addition,  increased  manufacturing
efficiencies  and  investments in capital  equipment  contributed to an improved
gross margin of 69% in 2000  compared with 66% in 1999.  The Company  reported a
loss of $7,008,737  ($0.15 per share loss) in 2000. In 1999 the Company reported
a loss of $17,664,546 ($0.45 per share loss).

The number of common  shares  outstanding  in 2000  increased as a result of the
following:  (a) 39,964  common  shares  were  issued for the  exercise  of stock
appreciation  rights, (b) 10,344,828 common shares were issued upon the exercise
of special  warrants  issued in February  2000 and (c) 52,803 common shares were
issued upon the  exercise  of options.  The  weighted  average  number of shares
outstanding for 2000 was 47,443,142 compared with 39,651,141 for 1999.

B. LIQUIDITY AND CAPITAL RESOURCES

On December  20, 2001 [the  "Petition  Date"],  GenSci and its U.S.  subsidiary,
GenSci OrthoBiologics,  Inc. ["GenSci OrthoBiologics"]  collectively referred to
as the "Debtors", voluntarily filed petitions for relief under Chapter 11 of the
U.S.  Bankruptcy  Code  ["Chapter  11"] in the  U.S.  Bankruptcy  Court  Central
District of California, Santa Ana Division [the "Bankruptcy Court"]. The Debtors
elected to take this action as a result of the verdicts in the patent litigation
proceedings as described in note 15 to the consolidated financial statements.

The Debtors are presently operating their businesses under bankruptcy protection
as  debtors-in-possession.  The bankruptcy  proceedings of the Debtors are being
jointly  administered  for  procedural  purposes,   but  are  not  substantively
consolidated.  Substantially  all the assets and  liabilities of the Company are
involved in the Bankruptcy proceedings.

Under the  provisions of Chapter 11, the Company is required to present,  to the
Bankruptcy  Court,  a plan  of  reorganization  setting  out  the  terms  of the
restructure of its obligations.  The Plan of  Reorganization  was filed with the
Bankruptcy Court on April 18, 2003 with a Disclosure Statement hearing scheduled
for May 30, 2003. The submitted plan proposes the following treatment:

          (a)  Shareholders  shall retain their interests in the Debtors and are
               unimpaired.

          (b)  Allowed Secured Claims in the amount of U.S.$28,976 shall be paid
               under their original terms in the ordinary course of business.

          (c)  Allowed  Priority  Claims in the amount of U.S.$98,832  are to be
               paid in deferred cash payments in equal semi-annual  installments
               over a period not exceeding six years,  plus simple interest,  at
               the Federal  Judgment  Rate,  from a date selected by the Debtors
               that  is no  later  than  sixty  (60)  days  after  the  date  of
               confirmation  of the  Plan of  Reorganization  by the  Bankruptcy
               Court [the "Effective Date"] on the unpaid balance.


                                       22
<PAGE>



          (d)  All Claim(s) of Osteotech Inc.  ["Osteotech"]  are covered by the
               proposed, and not yet finalized, Settlement Agreement which calls
               for payment of U.S.$7.5  million of which  Osteotech will receive
               an initial payment of $1 million on, or about, the Effective Date
               of the  Company's  Plan  of  Reorganization,  and  the  remaining
               U.S.$6.5  million  will be paid in twenty  consecutive  quarterly
               payments of U.S.$325,000 per quarter plus simple interest payable
               at the  Federal  Judgment  Rate,  capped for  purposes  of future
               interest  payments at 3% per annum. The U.S.$6.5 million shall be
               secured  as  follows:  the  first  U.S.$5  million  in  quarterly
               payments will be secured by a letter of credit or other  security
               and the last U.S.$1.5 million will be secured by a junior lien on
               the  assets  of  GenSci  OrthoBiologics,  subordinated  to  liens
               granted  by GenSci  OrthoBiologics  to secure  indebtedness  from
               commercial  and/or  institutional  lenders  [see  note  15 to the
               consolidated financial statements].

          (e)  Administrative  Convenience  Class [Allowed  Unsecured  Claims of
               U.S.$6,000  or  less]  in the  amount  of  U.S.$110,009  shall be
               entitled to a distribution of one hundred percent [100%] of their
               respective  Allowed  Claims,  within 120 days after the Effective
               Date with simple interest accruing, at the Federal Judgment Rate,
               from and after the Effective Date.

          (f)  Allowed Unsecured Claims of unsecured  creditors in the amount of
               U.S.$6,694,784 have been given two options:

          a.   Option A: Creditors  shall be entitled to a  distribution  of one
               hundred percent [100%] of their respective  Allowed Claims,  with
               simple interest accruing,  at the Federal Judgment Rate, from and
               after the Effective  Date.  Distribution  shall be in twenty [20]
               equal  quarterly   installments   payable  over  five  [5]  years
               commencing  on the later [i] of the 60th day after the  Effective
               Date  or  [ii]  if  such  Claim  is  Disputed,   such   quarterly
               installments  referenced above shall commence on the tenth [10th]
               Business Day after the entry of a Final Order allowing the Claim,
               or [iii]  such  other  time or times as may be  agreed  to by the
               holder of such Claim and the  Debtors.  Debtors  shall retain any
               and all  rights to object to such  claims,  and/or to assert  any
               setoff or counter claim thereto. A 10% per annum discount [not to
               exceed a 20% total discount] will apply to distributions paid off
               in full at the sole discretion of the Debtors.

          b.   Option  B:   Creditors   shall  have  their   claim  fixed  at  a
               distribution  amount  proposed  by  the  Company  [the  "proposed
               distribution  amount"]  set forth for each  unsecured  claim with
               simple interest accruing,  at the Federal Judgment Rate, from and
               after the  Effective  Date.  Debtors  shall waive and release any
               right to object to their "proposed  distribution  amount",  or to
               assert any setoff thereto.  A creditor selecting Payment Option B
               shall be entitled to a distribution of the "proposed distribution
               amount" in eight [8] equal  quarterly  installments  payable over
               two [2]  years  commencing  on the 60th or 120th  day  after  the
               Effective  Date. The total amount proposed by the Company for all
               claims in this category is U.S.$2,194,248.

These  consolidated  financial  statements  have  been  prepared  on the  "going
concern"  basis,  which  presumes  that the Company  will be able to realize its
assets and  discharge its  liabilities  in the normal course of business for the
foreseeable future.

There is  substantial  doubt about the Company's  ability to continue as a going
concern because of the Chapter 11 bankruptcy  proceedings.  Although the Company
has filed a Plan of Reorganization  with the Bankruptcy  Court,  there can be no
assurance  that the Company will  successfully  receive Court  approval and meet
other conditions necessary to emerge from bankruptcy.  In addition,  the Company
has  incurred  significant  losses  during  the  last  three  years  and  has  a
shareholders'  deficiency of  $19,194,783  as at December 31, 2002. As such, the
realization of the Company's  assets and discharge of its liabilities is subject
to significant uncertainty.

The Company's ability to continue as a going concern is dependent upon continued
protection by the Bankruptcy Court,  confirmation of the Plan of Reorganization,
emergence from bankruptcy,  achieving and maintaining  profitable operations and
obtaining additional financing. The outcome of these matters cannot be predicted
at this time.  The  consolidated  financial  statements  have been prepared on a
going  concern  basis and do not  include  any  adjustments  to the  amounts and
classifications of the assets and liabilities that might be necessary should the
Company be unable to continue in business. Such adjustments could be material.

At December 31, 2002, the Company had a cash balance of  $3,282,836,  short-term
investments of $90,000 and restricted cash of $856,534, which is classified as a
long term asset. This compares to a December 31, 2001 cash balance of $1,094,387
and restricted cash of $79,368.  The Company had a working capital deficiency of




                                       23
<PAGE>



($22,043,381)  at December  31,  2002,  which  includes  liabilities  subject to
compromise of $32,627,785  and does not include  restricted cash classified as a
long  term  asset.   This  compared  with  a  working   capital   deficiency  of
($18,780,559)  at December  31,  2001,  which  includes  liabilities  subject to
compromise of $31,543,310. Liabilities subject to compromise include $23,320,738
related to the patent litigation liability accrual from fiscal year 2001.

In connection  with the Chapter 11 filing,  the Company  implemented  aggressive
cost cutting initiatives throughout 2002 to reduce cash used in operations.

Cash provided by operating  activities during 2002 was $2,764,102 as compared to
cash  used in  operating  activities  of  $8,638,447  in  2001.  Available  cash
increased as a result of reduced  litigation  costs and aggressive  cost cutting
initiatives  during the  reorganization of the Company's  operations  throughout
2002. Capital spending  requirements were higher in 2002 at $501,230 compared to
$313,083  in 2001.  The Company  invested  in key  machinery  and  equipment  to
increase  manufacturing  efficiency and capacity for its  California  production
facility.  The Company  expects that capital  spending in 2003 will proceed at a
similar pace to 2002 to continue to improve  production  efficiency and capacity
and will be funded out of the Company's cash flow.

Cash used in financing activities during 2002 was $215,801 primarily used to pay
down the  capital  leases  executed  by the  Company in 2001.  Cash  provided by
financing  activities  during 2001 was $343,101  primarily  from capital  leases
executed by the Company.

Net  increase  in cash from  continuing  operations  was  $1,048,449  in 2002 as
compared to a net decrease in cash from  continuing  operations of $8,105,349 in
2001.  Net  increase in cash from  discontinued  operations  was  $1,140,000  as
compared to a decrease in cash from discontinued operations of $707,889 in 2001.

As previously stated,  the conditional  settlement of the patent case requires a
letter of credit or other  security to secure  U.S. $5 million of the  quarterly
payments.  The  Company is  actively  working to obtain the  required  security.
However there can be no assurance that such external  sources of funding will be
available on terms favorable to the Company,  in which event, the Company may be
required to enter into a transaction that would require substantial  dilution or
changes in stockholder rights in order to raise additional funds. Alternatively,
the  Company  may  obtain  funds  through   entering  into   arrangements   with
collaborative  partners or others  that may  require  the Company to  relinquish
rights to certain of its  technologies  or potential  products  that the Company
would not otherwise  relinquish.  Likewise,  the Company may also  entertain the
possibility  of a merger or sale of the Company  either  within this  bankruptcy
proceeding or after  confirmation  of the Plan, to finance the above  referenced
obligations,  which may similarly  result in substantial  dilution or changes in
stockholder rights.

The  Company  has  $126,600  remaining  under the terms of capital  leases.  The
Company  believes  it will  be  able to  generate  sufficient  cash  flows  from
continuing operations to fund payment of the capital lease.

Bankruptcy Procedures

In the Chapter 11 proceedings,  substantially  all unsecured  liabilities of the
Debtors as of the Petition  Date are subject to  compromise  or other  treatment
under a plan of  reorganization  to be confirmed by the Bankruptcy  Courts after
submission  to a required vote and approval by affected  parties.  For financial
reporting  purposes,  those  liabilities  and  obligations  whose  treatment and
satisfaction  are  dependent on the outcome of the Chapter 11  proceedings  have
been  segregated  and  classified  as  liabilities  subject to compromise in the
consolidated  financial  statements.   Generally,  all  actions  to  enforce  or
otherwise  effect  repayment of  pre-Petition  Date  liabilities  as well as all
pending  litigation  against the Debtors are stayed  while the Debtors  continue
their business operations as debtors-in-possession.  The Bar Date, which was the
last  date by  which  claims  against  the  Company  had to be filed in the U.S.
Bankruptcy  Court if the  claimants  wished to receive any  distribution  in the
Chapter 11 proceedings, expired on May 13, 2002.

Differences  between  amounts shown by the Debtors and claims filed by creditors
will be  investigated  and  either  amicably  resolved,  adjudicated  before the
Bankruptcy Courts, or resolved through other resolution processes.  The ultimate
amount of  payment or  settlement  terms on any  allowed  claims is subject to a
confirmed   plan  of   reorganization   and,   accordingly,   is  not  presently
determinable.

Under  the U.S.  Bankruptcy  Code,  the  Debtors  may  elect to assume or reject
unexpired leases, employment contracts, service contracts and other pre-Petition
Date executory  contracts,  subject to U.S.  Bankruptcy Court approval including
those described in note 13 to the consolidated financial statements. Liabilities
related  to



                                       24
<PAGE>




executory  contracts  assumed by the Debtors are  recorded  as  liabilities  not
subject to compromise because they are entitled to administrative priority. If a
contract  or  lease  is  rejected,  liabilities  thereunder  are  deemed  to  be
pre-Petition Date, general unsecured claims and are subject to the payment terms
in a confirmed Chapter 11 plan. Claims for damages resulting from the rejection,
after May 13, 2002 of executory contracts will be subject to separate bar dates.
The Debtors have reviewed all executory contracts for assumption or rejection.

Obligations   classified  as  liabilities   subject  to  compromise   under  the
reorganization  proceedings  in total  may vary  significantly  from the  stated
amount of proofs of claim that are filed with the Bankruptcy  Courts, and may be
subject to future  adjustment  depending on  Bankruptcy  Court  action,  further
developments  with  respect  to  potential  disputed  claims  or  other  events.
Additional  claims may also arise from the  rejection of executory  contracts by
the Debtors.

As a  result  of the  Chapter  11  filing,  no  payments  will  be  made on most
pre-Petition Date debt obligations  without Bankruptcy Court approval or until a
plan of  reorganization  providing for the repayment terms has been submitted to
any required vote and approval of affected  parties,  has been  confirmed by the
Bankruptcy Courts and has become effective.

Critical Accounting Policies

The preparation of the Company's  consolidated  financial statements is based on
the selection and  application of critical  accounting  policies,  some of which
require management to make significant estimates and assumptions that affect the
reported amounts of assets and liabilities,  the disclosure of contingent assets
and  liabilities at the date of the  consolidated  financial  statements and the
reported  amounts of revenue and expenses during the reporting  periods.  Actual
results  could  differ  from these  estimates.  The  Company  believes  that the
following  are some of the critical  judgment  areas in the  application  of its
accounting  policies that currently affect the Company's financial condition and
results of operations.

The Company has a claim for  allegedly  infringing  products  and the jury found
GenSci and GenSci  OrthoBiologics  liable for damages as  discussed  above.  The
determination  of the estimated  liability  involves  significant  judgment.  In
assessing  the  reserve  for the  litigation  claim,  management  made  its best
estimate  considering  the jury  findings  and  accrued for  $23,320,738  in the
consolidated financial statements.  It is possible that adverse judgments in the
immediate or near-term future could include an injunction preventing the sale of
allegedly  infringing  products,  which  could  adversely  affect the  Company's
business  and  financial  condition.  Due to the  uncertainties  inherent in the
litigation process,  the ultimate outcome of these actions, or the likelihood of
an injunction, is not determinable at this time.

During 2002, the Company accrued and expensed  $1,705,265,  which represents 14%
of the revenue derived from DynaGraft Gel and Putty. In addition,  subsequent to
the  Bankruptcy  Court order  discussed  above,  the Company has  established  a
restricted cash account, which had a balance of $856,534, which is classified as
a long term asset as at December 31, 2002.

The Company makes  significant  judgments  about the  determination  of the fair
value  of its  reporting  units in order to  assess  whether  there  has been an
impairment  in the value of the  goodwill.  These  judgments  are dependent on a
number of factors  such as  projected  future cash flows,  general  economic and
competitive  conditions  and  appropriate  discount  rates.  A  change  in these
assumptions could result in material charges to income. During the current year,
the Company  determined  that no  impairment  in the value of the  goodwill  has
occurred.

The Company will periodically assess the recoverability of its intangible assets
by determining  whether projected  undiscounted cash flows will be sufficient to
cover the  carrying  value of such  assets.  This  requires  the company to make
significant judgments about the expected future cash flows that are dependent on
the general and economic conditions and are subject to change. A change in these
assumptions could result in material charges to income. During the current year,
the Company determined that a significant  impairment in the value of certain of
its intangible assets had occurred and recorded $457,955 a charge to earnings.

The Company  maintains  allowances  for doubtful  accounts for estimated  losses
resulting  from the  inability of its  customers to make  required  payments.  A
considerable   amount  of  judgment  is  required  in  accessing   the  ultimate
realization  of  these  receivables  including  the  credit-worthiness  of  each
customer.  If the financial condition of GenSci's customers were to deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances may be required.




                                       25
<PAGE>





Changes in Accounting Policies

Effective  January 1, 2002,  the Company has adopted The  Canadian  Institute of
Chartered   Accountants  issued  Handbook  Section  3062,  "Goodwill  and  Other
Intangible Assets" ["Section 3062"].

Previously,  goodwill was amortized on a straight-line  basis over the estimated
useful life of the asset over a period of seven years. In addition,  the Company
would  evaluate on an ongoing basis the carrying value of goodwill for potential
permanent  impairment  by  comparing  the  carrying  value  of  goodwill  to the
estimated related  undiscounted future net cash flows. Any permanent  impairment
in the value of goodwill was written off against  earnings in the year that such
impairment became evident.

Section 3062 changed the accounting  for goodwill and intangible  assets with an
indefinite  life from an  amortization  method to an  impairment-only  approach.
Thus,  amortization of goodwill,  including  goodwill  recorded in past business
combinations,  and amortization of intangibles  with an indefinite life,  ceased
upon  adoption  of Section  3062.  Upon  adoption of Section  3062,  the Company
determined that it has no intangible assets of indefinite life. As of January 1,
2002,  entities are required to perform a transitional test to ascertain whether
or not they should  recognize a decline in the  carrying  value of any  recorded
goodwill  balances  as  at  that  date.  Impairment  tests  are  required  to be
re-performed  on  at  least  an  annual  basis  and  any  subsequent  impairment
provisions would be charged to income.

The Company  completed a transitional  impairment  test to identify if there was
potential  impairment  to the goodwill as at January 1, 2002.  To determine  the
amount of the  impairment  at January 1, 2002,  the Company  used the fair value
methodology based on budget information to generate representative values of the
future cash flows  attributable  to its  reporting  unit.  This differs from the
undiscounted   cash  flow   methodology   utilized  by  the  Company  to  assess
recoverability  of  goodwill in prior  years.  The  Company  determined  that no
impairment in the value of goodwill has occurred.

The Company  has  selected  December  31 as the date it will  perform its annual
impairment  test, and has determined that there was no impairment of goodwill as
at December 31, 2002.

As required under Section 3062,  this change was adopted January 1, 2002 with no
restatement of prior period amounts.

Effective  January 1, 2002,  the Company has adopted The  Canadian  Institute of
Chartered  Accountants issued Handbook Section 3870,  "Stock-Based  Compensation
and Other Stock-Based Payments" ["Section 3870"].

Previously,  no compensation  expense was recognized for stock options and stock
appreciation rights issued to employees, directors and consultants.

Section 3870 requires  entities to measure stock  appreciation  rights that call
for settlement by the issuance of equity instruments and present them as equity.
Under  the  Company's  stock  option  plan,   described  in  note  9[d]  to  the
consolidated financial statements, all stock options granted can be exercised as
stock appreciation  rights. As permitted under Section 3870, the Company elected
to measure and recognize  stock  appreciation  rights based on the fair value of
the equity instrument. Accordingly, compensation expense is determined as of the
date of the grant and is then recognized on a consistent  basis over the vesting
period of the  options as an increase to  compensation  expense and  contributed
surplus.  When the options are exercised,  the proceeds received by the Company,
together  with the amount in  contributed  surplus,  will be  credited to common
share capital.  The Company estimates the fair value of a stock option using the
Black-Scholes option pricing model.

The impact of this change in accounting policy is detailed below:

Section 3870, requires that the cumulative amount relating to stock appreciation
rights outstanding at the beginning of the fiscal year of adoption be charged to
the opening retained earnings for that fiscal year, without restatement of prior
periods presented. Accordingly, the Company charged $3,985,870 to the deficit at
January 1, 2002 and an increase in contributed surplus of $3,985,870.

The fair value of the  options  granted  was  estimated  as of the date of grant
using the Black-Scholes  option pricing model. The weighted average  assumptions
for stock  appreciation  rights issued prior to January 1, 2002




                                       26
<PAGE>




were as follows:  risk free interest rate of 4.72%,  expected  dividend yield of
nil, expected volatility of 0.93 and expected option life of 4.87 years.

Other  effects  of  the  change  in  accounting   policy  were  an  increase  in
compensation expense,  contributed surplus and net loss for the year of $448,679
and an increase in loss per share of $0.01.

RISK FACTORS
An investment in common shares of the Company  should be considered  speculative
due to the nature and stage of development of the Company's  business as well as
the Company's  status as operating its business  under the protection of Chapter
11 of the U.S.  Bankruptcy  Code.  In  evaluating  the  securities,  prospective
investors should consider the following factors.

GOING CONCERN
There is  substantial  doubt about the Company's  ability to continue as a going
concern because of the Chapter 11 bankruptcy  proceedings.  Although the Company
has filed a Plan of Reorganization  with the Bankruptcy  Court,  there can be no
assurance  that the Company will  successfully  receive Court  approval and meet
other conditions necessary to emerge from bankruptcy.  In addition,  the Company
has  incurred  significant  losses  during  the  last  three  years  and  has  a
shareholders'  deficiency of  $19,194,783  as at December 31, 2002. As such, the
realization of the Company's  assets and discharge of its liabilities is subject
to significant uncertainty.

The Company's ability to continue as a going concern is dependent upon continued
protection by the Bankruptcy Court,  confirmation of the Plan of Reorganization,
emergence from bankruptcy,  achieving and maintaining  profitable operations and
obtaining additional financing. The outcome of these matters cannot be predicted
at this time.  The  consolidated  financial  statements  have been prepared on a
going  concern  basis and do not  include  any  adjustments  to the  amounts and
classifications of the assets and liabilities that might be necessary should the
Company be unable to continue in business. Such adjustments could be material.

LEGAL PROCEEDINGS - PATENT CASE
On December 17, 2001, the jury found that GenSci and GenSci  OrthoBiologics  are
liable for damages of  U.S.$17,533,634  for  infringement  by DynaGraft  Gel and
DynaGraft  Putty  of  two  patents  held  by  Osteotech.   The  damages  include
U.S.$12,423,248   for  lost   profits   during   1997-1999   and   royalties  of
U.S.$5,110,386  calculated at a royalty rate of 14% for the years 2000 and 2001.
Payments of approximately  U.S.$3,000,000  made by DePuy AcroMed Inc. in a prior
settlement  with  Osteotech,  are expected to be deducted  from the jury verdict
reducing the potential judgment to U.S. $14,533,634.

Pursuant to motions by Osteotech and positions taken by the Company,  on May 16,
2002,  the  Bankruptcy  Court  modified the automatic  stay to permit the Patent
Action  to  proceed,  provided  that,  any  judgment,  whether  for  damages  or
injunctive relief,  issued against the Company could not be enforced without the
further  review  and  approval  by the  Bankruptcy  Court.  In order to  provide
adequate  protection to Osteotech,  the Company is required,  commencing on June
10, 2002,  to deposit into a restricted  cash account 14% of gross  revenue from
the  allegedly  infringing  products.  GenSci  was  required  to  file a Plan of
Reorganization  or cease the manufacture,  sale or distribution of the allegedly
infringing  products by September  16, 2002 or by November 18, 2002 if a plan is
submitted  but not  confirmed.  Consistent  with the  Bankruptcy  Court's May 17
Order,  the Debtors no longer  manufactured,  marketed,  distributed or sold the
infringing products [DynaGraft Gel and Putty] after September 16, 2002.

During 2002, the Company accrued and expensed  $1,705,265,  which represents 14%
of the revenue derived from DynaGraft Gel and Putty. In addition,  subsequent to
the  Bankruptcy  Court order  discussed  above,  the Company has  established  a
restricted  cash  account,  which  had a  balance  of  $856,534,  and  which  is
classified as a long term asset as at December 31, 2002.

At the Settlement  Conference,  the parties reached a conditional  settlement of
their  disputes  relating to the Debtors'  bankruptcy  proceeding and the Patent
Action,  that includes a requirement  for the Company to pay Osteotech  U.S.$7.5
million. See Item 8. A. - "Legal Proceedings".

Although a conditional settlement has been negotiated,  the remaining conditions
may not be  resolved.  In  addition,  the  terms  of the  settlement  have  been
incorporated into the terms of a Chapter 11 Plan of  Reorganization,  which must
be confirmed by the Bankruptcy Court to become effective.



                                       27
<PAGE>




LEGAL PROCEEDINGS - CHAPTER 11
Under the  provisions  of Chapter  11, the Company is required to present to the
Bankruptcy  Court  a  plan  of  reorganization  setting  out  the  terms  of the
restructure  of  its  obligations.   GenSci  Regeneration  Sciences  and  GenSci
OrthoBiologics  [the "Debtors"] are presently  operating their  businesses under
bankruptcy   protection   as   debtors-in-possession.   Although   a   Plan   of
Reorganization  was filed  with the  Bankruptcy  Court on April 18,  2003 with a
Disclosure  Statement  hearing  scheduled  for May  30,  2003,  there  can be no
guarantee  that the Company  will be able to obtain  approval of the  Disclosure
Statement.  In addition,  if the Company does obtain  approval of the Disclosure
Statement  there is no guarantee that an  affirmative  vote can be obtained from
the  creditors or that the  Bankruptcy  Court will approve the Company to emerge
from Chapter 11.

CAPITAL REQUIREMENTS - WORKING CAPITAL
Capital  requirements   associated  with  the  development,   commercialization,
litigation  defense and working  capital to support the  Company's  products has
been, and will continue to be, significant. While the Company has earned revenue
to date, cash generated from operating activities may not be sufficient to cover
its  requirements.  The Company  may also  require  additional  funds to acquire
products or  technologies  that complement its existing  portfolio.  There is no
assurance  that the Company will be able to secure  additional  financing in the
future or that such  financing  will be  available  on  satisfactory  terms.  If
adequate  funds are not available,  the future  operations of the Company may be
restricted.

CAPITAL REQUIREMENTS - SETTLEMENT
As previously stated,  the conditional  settlement of the patent case requires a
letter of credit or other  security to secure  U.S.$5  million of the  quarterly
payments,  after the initial  U.S.$1  million  payment.  The Company is actively
working to obtain the required security.  However there can be no assurance that
such  external  sources of funding will be  available on terms  favorable to the
Company, in which event, the Company may be required to enter into a transaction
that would  require  substantial  dilution or changes in  stockholder  rights in
order to raise  additional  funds.  Alternatively,  the Company may obtain funds
through entering into  arrangements with  collaborative  partners or others that
may require the Debtors to relinquish  rights to certain of its  technologies or
potential  products that the Debtors would not otherwise  relinquish.  Likewise,
the  Company  may also  entertain  the  possibility  of a merger  or sale of the
Company either within this  bankruptcy  proceeding or after  confirmation of the
Plan, to finance the above referenced obligations, which may similarly result in
substantial dilution or changes in stockholder rights.

CONTINUING OPERATING LOSSES
From inception,  the Company has experienced losses, indicated by an accumulated
deficit at December 31, 2002 of approximately $105 million.  The Company expects
that its  operating  losses may  continue as it expands  its product  portfolio,
continues  its  research  and  development  activities,  and deals with  pending
litigation.  Future operating  results depend on a number of factors,  including
the demand for its products,  the level of competition,  regulatory  approval of
the  Company's  products  and the  ability of the  Company to control its costs.
Although the Company has had some success in the initial market  introduction of
its  product  lines  there is no  assurance  that the  Company  will  achieve  a
profitable  level of  operations,  which could leave the  Company  dependent  on
external sources of funding.

RELIANCE ON PATENTS
Patent  protection and  proprietary  technology are  significant  factors in the
success of the Company's  business.  The Company  relies on certain  patents and
pending  patent  applications  relating to various  aspects of its  products and
technology.  There can be no  assurance  that any patent  will be  upheld,  that
future patent applications will be granted, or that any current or future patent
will be broad  enough to protect  the  Company  from  competitors  with  similar
technologies.  In  addition,  there  can  be no  assurance  that  non-disclosure
agreements will not be breached permitting others access to trade secrets. There
can also be no assurance that others will not develop  similar  technologies  or
that the Company's  technologies will not infringe on patents or rights owned by
others. As a result the Company may not be able to produce sufficient revenue to
achieve profitability.

EARLY STAGE OF DEVELOPMENT
The Company has generated initial revenues from the commercialization of some of
its product lines.  Although the Company  introduced  three new product lines in
2002, other products have not been fully developed and tested,  and there can be
no assurance that any of its subsequent products will perform in accordance with
the  Company's  expectations  or that  necessary  regulatory  approvals  will be
obtained  in a  timely  manner.  There  can be no  assurance  of  timely  market
introduction of products for which the Company has invested  significant amounts
of capital.



                                       28
<PAGE>



GOVERNMENT REGULATION
The  development,  manufacture,  and  distribution  of certain of the  Company's
products  may be  subject  to  regulation  by the  United  States  Food and Drug
Administration  ("FDA") and other government  authorities in Canada,  the United
States, and other countries.  The process of obtaining  regulatory  approval can
take many years and requires  substantial  resources.  There can be no assurance
that any approvals  necessary to develop,  manufacture  and market the Company's
products will be obtained on a timely basis,  if at all. In addition,  delays or
rejections may be encountered  based on changes in regulatory  policy during the
period of product development; and laws or regulations,  which may be adopted in
the future,  may have a material adverse effect on the Company.  There can be no
assurance that the Company's  products will receive  regulatory  approvals.  The
regulatory process may delay the marketing of new products or it may prevent the
introduction  of future  products  altogether,  which  could  cause  revenues to
decline.

SOURCE OF SUPPLY
The Company  relies on tissue banks  accredited by the American  Association  of
Tissue Banks for the supply of tissue,  a crucial  component  of its  bioimplant
products.  The Company has no control over the  operation of the tissue banks or
competition for their services.  There can be no assurance that the tissue banks
will be able to fulfill the Company's requirements,  or that the Company will be
able to  successfully  negotiate  with other  accredited  tissue  facilities  on
satisfactory  terms.  There can be no assurance that the Company will be able to
maintain a supply of tissue or  maintain  a supply at  reasonable  terms,  which
could limit the ability of the Company to generate revenue.

DEPENDENCE ON THIRD PARTY REPRESENTATION
The Company has  developed  its own  independent  representation  network in the
spinal market and in the general  orthopedic  market to represent  their product
lines.  There  can be no  assurance  that  these  representation  networks  will
continue to be successful,  which could limit the revenue  generation ability of
the Company.

TECHNOLOGICAL CHANGE AND OBSOLESCENCE
The  markets  in which  the  Company  competes  continue  to  undergo  rapid and
significant technological change and innovation. The Company is aware of efforts
of other parties to develop alternative  methods for bone regeneration,  as well
as to develop potentially superior natural or synthetic  substitutes.  There can
be no assurance that  development  of these or other  products and  technologies
will  not  render  the   Company's   products  and   technologies   obsolete  or
uncompetitive.  As a result the  Company  may not be able to produce  sufficient
revenue to achieve profitability.

PRODUCT LIABILITY
The testing,  marketing,  and  distribution of the Company's  products entail an
inherent  risk that  liability  claims  may be  asserted  against  the  Company,
including  claims  resulting from the use of diseased  tissue.  The tissue banks
which  supply  tissue to the  Company  are  subject  to  stringent  regulations,
however, the Company cannot ensure that supplied tissue will be free of disease.
The Company is insured  against such liability  claims.  However,  the amount of
coverage  may prove to be  insufficient  should  claims  arise,  and there is no
assurance  that  continuing  insurance  will be available at acceptable  premium
rates.

COMPETITION
The medical,  dental,  and  orthopedic  industries  are highly  competitive  and
comprise  numerous large and  well-financed  companies and  institutions.  These
include large  pharmaceutical,  biotechnology,  and consumer goods  companies as
well as universities and research  institutions  that are constantly  developing
and acquiring the rights to new products. Many of these entities are larger than
the Company  and have  greater  financial  resources  to invest in research  and
development,  distribution,  and marketing  programs.  There can be no assurance
that one or more of the Company's competitors will not develop products that are
more  effective  or better  accepted  than  those that the  Company  has or will
develop,  which could  cause the  Company to lose market  share and be unable to
maintain revenue levels.

FOREIGN EXCHANGE
A majority of the Company's  revenue and operating  expenses is  denominated  in
U.S.  dollars.  The  Company's  financial  statements  are  reported in Canadian
currency and are subject to  fluctuations in exchange rates between the Canadian
and the U.S. dollar.




                                       29
<PAGE>




POTENTIAL CONFLICTS OF INTEREST
Certain  directors  and  officers of the Company are  directors  and officers of
other  privately  held and publicly  listed  companies.  As a result,  potential
conflicts  of interest may arise with respect to the exercise by such persons of
their respective duties with the Company.

DEPENDENCE ON KEY PERSONNEL
The  Company  is  heavily  dependent  upon the  expertise  of certain of its key
officers and scientists,  and the loss of one or more of these individuals could
have a material  adverse effect on the Company.  Furthermore,  it is anticipated
that the  Company's  continued  expansion  in  areas  and  activities  requiring
additional  expertise,   such  as  clinical  trials,  regulatory  approvals  and
marketing,  will require  additional  management and scientific  personnel.  The
Company's  ability  to  recruit  and  retain  highly  qualified  management  and
scientific personnel is critical to its success.  There can be no assurance that
the  Company  will  be  successful  in  attracting  and  retaining  skilled  and
experienced management and scientific personnel.

ABSENCE OF DIVIDENDS
The Company has no fixed dividend  policy and has not paid  dividends  since its
incorporation.  The payment of dividends in the future will depend,  among other
things, upon the Company's  earnings,  capital  requirements,  and operating and
financial  condition.  There can be no assurance  that the Company will generate
sufficient earnings to allow it to pay dividends.

VOLATILITY OF COMMON SHARE PRICE AND VOLUME
Shareholders of the Company may be unable to sell significant  numbers of common
shares of the  Company on the  Toronto  Stock  Exchange  (the  "TSX")  without a
significant reduction in the price of the shares, if at all. Furthermore,  there
can be no  assurance  that  the  Company  will  continue  to be able to meet the
listing  requirements  of the TSX or achieve listing on any other public trading
exchange.  The market price of the common  shares of the Company may be affected
significantly by factors such as fluctuations in the Company's status in Chapter
11,  operating  results,  announcements  of  technological  innovations  or  new
products  by the  Company  or  its  competitors,  action  by  the  FDA or  other
governmental   agencies   against  the  Company  or  the  industry  in  general,
developments with respect to patents or proprietary rights, public concern as to
the safety of  products  developed  by the  Company or others,  the  interest of
investors,  traders  and  others in public  companies  such as the  Company  and
general market conditions. In recent years, the securities markets in the United
States and Canada have experienced a high level of price and volume  volatility,
and the  market  price  of  securities  of many  companies,  particularly  small
capitalization   companies,   have  experienced   fluctuations  which  have  not
necessarily been related to the operating performances,  underlying asset values
or prospects of such companies.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

The Company is currently involved in research and development  activities in the
field of  orthobiologics.  Research and  development  spending was $3,406,232 in
2002,  $4,187,176 in 2001, and $2,744,708 in 2000. The Company's efforts in 2002
included  continued  development to support a near term product pipeline as part
of a planned technology  expansion program,  completely  upgrading and expanding
the Company's product offerings by launching three new product lines effectively
replacing and upgrading former products and  investigating  future  partnerships
and technology ventures.

In 2001,  GenSci sold its 100% interest in Osteopharm Inc., which was focused on
developing an anabolic  peptide  technology  for the diagnosis and prevention or
treatment  of  osteoporosis.  The  Company  has  retained  the rights to use the
peptide technology solely as medical devices or treatments  delivered locally in
humans for tissue repair,  limited to bone,  cartilage,  meniscus,  ligaments or
tendons and medical devices or treatments for coatings on prosthetics as part of
invasive surgical procedures.

In 2002, the Company incurred a write-down on capitalized patent cost related to
a  craniofacial  small bone  fixation  system and  abandoned  plans to develop a
medical  product  related to the patent.  In  addition,  the  Company  wrote off
capitalized  technology  costs  associated with former products  discontinued in
2002.

In 2001, the Company  incurred a write-down on the capitalized  technology value
associated  with certain patents  licensed by the Company.  In 2002, the Company
lost the right to license  this  technology,  accordingly  the cost were written
off.




                                       30
<PAGE>



D. TREND INFORMATION

SELECTED CONSOLIDATED QUARTERLY UNAUDITED FINANCIAL INFORMATION ($ 000'S)


<TABLE>
<CAPTION>
                               Mar-01    Jun-01    Sep-01    Dec-01    Mar-02    Jun-02    Sep-02    Dec-02
                               ------    ------    ------    ------    ------    ------    ------    ------
<S>                            <C>        <C>      <C>       <C>       <C>       <C>       <C>        <C>
Revenues                         10,581    10,445     9,363    10,055     9,695     8,768     8,497     7,522

Loss on continuing Operations   (1,855)   (1,068)   (3,006)  (30,434)     (544)     (428)     (743)   (2,538)

Loss on continuing
operations per share            ($0.04)   ($0.02)   ($0.06)   ($0.58)   ($0.01)   ($0.01)   ($0.01)   ($0.05)

Net loss                        (2,062)   (1,288)   (3,341)  (30,268)     (544)     (428)     (503)   (2,363)

Stock based                     --        --        --        --        --        --        --
   compensation                                                                                           449
   recognized at year end

Stock based                     --        --        --        --
   compensation                                                            (59)      (50)     (281)      (59)
   allocated quarterly

Adjusted net loss               --        --        --        --          (603)     (478)     (784)   (1,973)

Basic and diluted net
   loss per share               ($0.04)   ($0.02)   ($0.06)   ($0.58)   ($0.01)   ($0.01)   ($0.01)   ($0.05)
</TABLE>




Certain statements  contained herein are  forward-looking  within the meaning of
the Private  Securities  Litigation Reform Act of 1995. These statements include
the  future  performance  of  various  marketing  channels,  research  programs,
financing activities and legal actions. Such forward-looking  statements involve
known and unknown risks,  uncertainties,  and other factors, which may cause the
actual  results,  performance  or  achievements  of the company to be materially
different from those expressed or implied.  Forward-looking  statements  involve
risks and  uncertainties,  including,  but not  limited  to,  such  risks as are
described below.

 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following  table sets out certain  information  concerning the directors and
executive  officers of GenSci at May 15, 2003,  the term of all  Directors  will
expire as of June 26, 2003:

<TABLE>
<CAPTION>

  NAME                      AGE      POSITION
  ----                      ---      --------
<S>                         <C>     <C>
  James S. Trotman, MD      63       Chairman of the Board since September 2, 1992
  Douglass C. Watson        51       President and Chief Executive Officer and Director since August 2001
  Robert Bechard            44       Director (1)(3) since September 17, 1998
  Frank M. Clark            70       Director (2)  since March 29, 1999
  Darrell Elliott           56       Director (1)(3)  since December 2, 1999
  Daniel Kollin             61       Director (1)  since December 2, 1999
  Clifford A. Nordal        57       Director (2)(3) since April 2, 1997
  Peter Ludlum              48       Vice President and Chief Financial Officer
</TABLE>


(1)      Member of Audit and Finance Committee
(2)      Member of Compensation and Human Resources Committee
(3)      Member of the Corporate Governance and Nominating Committee

The  following  sets  forth  certain  information  regarding  each  of  GenSci's
executive  officers,  directors to be reelected on June 26, 2003 and significant
employees,  including his current  position and business  experience  during the
past five years.

                                       31
<PAGE>



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                                        NUMBER OF
NAME, RESIDENCE AND POSITION                                                                            SECURITIES
HELD IN THE COMPANY                                                          SERVED AS                  OWNED OR
                                 PRINCIPAL OCCUPATION FOR LAST FIVE YEARS    DIRECTOR SINCE             CONTROLLED AT
                                                                                                        PRESENT(1)
----------------------------------------------------------------------------------------------------------------------
<S>                              <C>                                         <C>                <C>
DOUGLASS WATSON                  Chief Executive Officer and President of          August 9, 2001         44,750
Trabuco Canyon, California       the Company since August 2001.  Executive
President, Chief Executive       Vice President of the Company from
Officer and Director             December 1999 to August 2001; President
                                 and   Chief   Operating   Officer   of   GenSci
                                 OrthoBiologics  since January 2000; Senior Vice
                                 President  of GenSci  OrthoBiologics  from June
                                 1996 to January 2000; formerly,  Vice President
                                 of  U.S.   Operations   and   Global   Business
                                 Development of  BioDynamics,  Inc. from 1994 to
                                 1996.

JAMES S. TROTMAN, M.D.           Chairman of the Company; formerly Chief           September 2,           46,328
Irvine, California               Executive Officer of the Company from             1992
Chairman and Director            1992 to January 2000 and President of the
                                 Company from 1992 to March 1999.  In
                                 addition Dr. Trotman acts as a private
                                 consultant to other unrelated biotech
                                 companies.

ROBERT BECHARD                   Partner, RBC Capital Partners since               September 17,           Nil
Montreal, Quebec                 February 1998; formerly, Investment               1998
Director                         Manager, SOFINOV from October 1996 to
                                 February  1998;  Director,  Corporate  Banking,
                                 CIBC from February 1992 to October 1996.

FRANK M. CLARK                   Chairman of Bio-One, Inc., Managing               March 29, 1999          Nil
Sarasota, Florida                Principal of C-D Holdings, since March
Director                         2000; Director of Surgical Safety
                                 Products, Inc. from June 1998 to April
                                 2000; President and Chief Executive
                                 Officer of Surgical Safety Products, Inc.
                                 from June 1998 to January 2000; Chairman
                                 of 1-800Healthy.com since January 1999;
                                 formerly Chairman & Chief Executive
                                 Officer of CCS Group, a management
                                 consulting company from July 1991 to
                                 December 1997.

DARRELL ELLIOT                   Senior Vice President of MDS Capital              December 2, 1999        Nil
North Vancouver, British         Corp. since August 1999 and President of
Columbia                         MDS Ventures Pacific Inc. since January
Director                         2000; Director, A.R.C. Resins
                                 International Corp., Biostar Inc.,
                                 Chromos Molecular Systems Inc., Inex
                                 Pharmaceuticals Corporation, Nortran
                                 Pharmaceuticals Inc.; formerly regional
                                 Vice President of Royal Bank Capital
                                 Corp. from December 1989 to November 1993
                                 and from August 1994 to July 1998;
                                 President of Isuma Strategies Inc. from
                                 August 1998 to present; previously a
                                 director of the Company from February
                                 1997 to September 1998.

</TABLE>



                                       32
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                                                        NUMBER OF
NAME, RESIDENCE AND POSITION                                                                            SECURITIES
HELD IN THE COMPANY                                                          SERVED AS                  OWNED OR
                                 PRINCIPAL OCCUPATION FOR LAST FIVE YEARS    DIRECTOR SINCE             CONTROLLED AT
                                                                                                        PRESENT(1)
----------------------------------------------------------------------------------------------------------------------
<S>                              <C>                                         <C>                <C>


DANIEL W. KOLLIN                 Managing Director of BioMed Capital               December 2, 1999        Nil
Livingston, New Jersey           Group, Ltd., a strategic and business
Director                         advisory firm since January 1990; Director,
                                 American Bio Medica Corporation  (NASDAQ-ABMC),
                                 an   immunoassay   diagnostics   company  since
                                 February  2003;   formerly  Vice  President  of
                                 Prudential-Bache  Capital  Funding from 1987 to
                                 1989.

CLIFFORD A. NORDAL               President and Chief Executive Officer of          April 2, 1997           Nil
Richmond Hill, Ontario           St. Joseph's Health Care, London, Ontario
Director                         since April 1, 1998; formerly President
                                 and Chief Executive Officer of the
                                 Rehabilitation Institute of Toronto.

PETER B. LUDLUM                  Vice President Finance, Chief Financial           N/A                     Nil
Irvine, California               Officer and Corporate Secretary of the
Vice President Finance, Chief    Company since December 1999; Chief
Financial Officer and            Financial Officer of Pacific Biometrics,
Corporate Secretary              Inc. from 1996 to 1999, Corporate
                                 Controller of Derlan Industries, Inc.
                                 from 1989 to 1996.
</TABLE>


(1) The information as to common shares  beneficially owned has been provided by
the directors.

B. COMPENSATION OF DIRECTORS AND OFFICERS

SUMMARY OF COMPENSATION

There are presently three Executive Officers of the Company. "Executive Officer"
means the president,  any  vice-president in charge of a principal business unit
such as sales, finance or production, any officer of the Company or a subsidiary
who performs a policy-making function for the Company whether or not that person
is also a director of the Company or the  subsidiary,  and the  chairman and any
vice-chairman  of the board of directors of the Company if that person  performs
the functions of that office on a full-time basis.

Set out below is a summary of  compensation  paid  during each of the three most
recently completed  financial years to all Executive Officers of the Company (or
companies controlled by them).





<TABLE>
<CAPTION>
                                             SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------  -----------------------------------
                                                                                   LONG TERM COMPENSATION
                                            ANNUAL COMPENSATION (US $)
                                       -------------------------------------
                                                                             -----------------------------------
                                                                                     AWARDS            PAYOUTS
                                                                             ----------------------  ----------
                                                                 OTHER       SECURITIES   RESTRICTED    LONG       ALL
                                                                 ANNUAL         UNDER     SHARES OR     TERM       OTHER
                                                                COMPENSATION  OPTIONS &   RESTRICTED  INCENTIVE  COMPENSATION
NAME AND PRINCIPAL POSITION   YEAR      SALARY      BONUS(4)                   SARS        SHARE       PLAN       ($)
                                                                    ($)        GRANTED      UNITS      PAYOUTS
                                           ($)          ($)                      (#)         ($)         ($)
------------------------------------- ----------   ------------ ----------  -------------- ----------- ---------- -----------
<S>                          <C>       <C>         <C>          <C>        <C>          <C>          <C>        <C>
Douglass C. Watson (1)(2)(3) 2002      249,402        Nil         Nil       200,000        Nil         Nil        Nil
                             2001      173,529        Nil         Nil       350,000        Nil         Nil        Nil
President and Chief          2000      208,015      67,000        Nil        75,000        Nil         Nil        Nil
Executive Officer
--------------------------------------------------------------------------------------------------------------------------
Peter Ludlum (2)(3)          2002      165,480        Nil         Nil        75,000        Nil         Nil        Nil
Chief Financial Officer and  2001      148,645        Nil         Nil        10,000        Nil         Nil        Nil
Corporate Secretary          2000      161,979      54,000        Nil        40,000        Nil         Nil        Nil
--------------------------------------------------------------------------------------------------------------------------
James S. Trotman (2)(3)      2002      100,483        Nil         Nil       100,000        Nil         Nil        Nil
Chairman                     2001      78,385         Nil         Nil        50.000        Nil         Nil        Nil
                             2000      75,569       40,000        Nil        60,000        Nil         Nil        Nil
--------------------------------------------------------------------------------------------------------------------------
</TABLE>




                                       33
<PAGE>


(1)  Mr.  Watson was  appointed  President  and Chief  Executive  Officer of the
     Company on August 8, 2001.
(2)  These Executive Officers are employed in the United States and compensation
     is paid in U.S. dollars.
(3)  Salary for 2002 includes pay for the period December 21, 2001 thru December
     31, 2001.
(4)  Bonus amounts listed as year 2000 compensation were paid during 2001.

OPTIONS AND STOCK APPRECIATION RIGHTS

The  following  table sets forth stock options  granted in  accordance  with the
Company's  stock  option plan to the  Executive  Officers  during the year ended
December 31, 2002.  The rights to purchase  shares under the options  granted in
2002  vest  over a  three-year  period,  with  one-third  vesting  on  granting,
one-third  vesting after one year and the remaining  third vesting on the second
anniversary  of  granting.  The  Company  granted  1,165,250  stock  options  to
directors,  officers,  employees and  consultants of the Company during the year
ended December 31, 2002,  including  options granted to certain of the Executive
Officers.



<TABLE>
<CAPTION>

                    OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
------------------------------------------------------------------------------------------------------
                                                                     MARKET VALUE OF
                                                                        SECURITIES
                      SECURITIES UNDER   % OF TOTAL                     UNDERLYING
                           OPTIONS         OPTIONS      EXERCISE OR   OPTIONS ON THE
                           GRANTED       GRANTED TO     BASE PRICE    DATE OF GRANT   EXPIRATION DATE
         NAME                (#)          EMPLOYEES    ($/SECURITY)    ($/SECURITY)
------------------------------------------------------------------------------------------------------
<S>                     <C>                <C>            <C>             <C>            <C>
Douglass C. Watson         200,000          17.2%          $0.40          $0.26        June 28, 2012
------------------------------------------------------------------------------------------------------
Peter Ludlum               75,000           6.4%           $0.40          $0.26        June 28, 2012
------------------------------------------------------------------------------------------------------
James S. Trotman           100,000          8.6%           $0.40          $0.26        June 28, 2012
------------------------------------------------------------------------------------------------------
</TABLE>

None of the Executive  Officers  exercised  stock options  during the year ended
December 31, 2002.  The following  table sets forth details of all stock options
held by each of the Executive  Officers as at December 31, 2002 and the year-end
value of unexercised options on an aggregated basis.

      Aggregated   option/SAR  exercises  during  the  most  recently  completed
financial year and financial year-end option/SAR values



<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------

                                                        UNEXERCISED OPTIONS         VALUE OF UNEXERCISED
                                                       AT DECEMBER 31, 2002       IN-THE-MONEY OPTIONS AT
                                                                                     DECEMBER 31, 2002
                                                  ------------- ----------------------------- --------------
                          SECURITIES   AGGREGATE
                           ACQUIRED      VALUE
          NAME                OR        REALIZED  EXERCISABLE    UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
                           EXERCISED       ($)        (#)             (#)            ($)           ($)
                              (#)
<S>                          <C>         <C>        <C>          <C>               <C>         <C>
------------------------------------------------------------------------------------------------------
Douglass C. Watson            Nil         N/A       593,175      391,825          Nil        Nil
------------------------------------------------------------------------------------------------------
Peter Ludlum                  Nil         N/A       179,985       70,015          Nil        Nil
------------------------------------------------------------------------------------------------------
James S. Trotman              Nil         N/A       551,970      120,030          Nil        Nil
------------------------------------------------------------------------------------------------------
</TABLE>

                                       34
<PAGE>





COMPENSATION OF DIRECTORS

Non-employee Directors are compensated for their services as directors through a
combination  of annual  retainer  fees and  meeting  and  attendance  fees.  The
Compensation   Committee   considers  and  recommends  to  the  Board  all  such
arrangements.  Remuneration for the directors consists of an annual retainer fee
for  non-employee  Directors at a rate of either  U.S.$12,000  or U.S.$6,000 for
Directors  representing specific  institutional  investors.  Attendance fees for
board  meetings of U.S.$1,000 per meeting or U.S.$500 if by  teleconference  are
paid  to  non-management   Directors.  In  addition,   non-management  Directors
attending  committee meetings not held on days of board meetings are paid at the
rate of U.S.$500 per meeting.  All Directors are reimbursed for travel and other
reasonable  expenses  incurred in attending  board and  committee  meetings.  On
December 20, 2001, the Company filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Under Chapter 11,  compensation  levels for executive  officers
requires  approval of the Court which may thereby limit the Committee's  ability
to independently establish compensation levels.

The Company provides  directors' and officers'  insurance with a policy limit of
U.S.$15  million  per  occurrence.  The total  annual  premium for the policy is
U.S.$155,000, which is paid by the Company.

For the year ended  December  31,  2002,  a total of  U.S.$103,500  was paid for
directors'  fees. The Company has granted the following  incentive stock options
to directors of the Company during the year ended December 31, 2002.


<TABLE>
<CAPTION>

       NUMBER OF OPTIONS GRANTED(1)                 EXERCISE PRICE PER SHARE                DATE OF GRANT
       -------------------------                    ------------------------                -------------
<S>                                                 <C>                                     <C>
                  300,000                                     $0.40                         June 28, 2002
</TABLE>


(1) Includes options granted to the Executive Officers as previously disclosed.

EMPLOYMENT CONTRACTS, CHANGE IN RESPONSIBILITIES AND TERMINATION OF EMPLOYMENT

Douglass C. Watson

Pursuant  to the  agreement  dated as of August  15th,  2001 and  amended  as of
January 15, 2003 between the Company and Douglass C. Watson,  the Company agreed
to employ  Douglass C. Watson as President  and CEO. The agreement is for a term
of 2 years.  Under the terms of the  agreement,  Mr.  Watson is  entitled  to be
compensated at the rate of  U.S.$232,200  annually.  In addition,  Mr. Watson is
eligible for an annual bonus up to $135,000, which is determined and approved by
the Board of Directors.  If the Company  terminates the agreement without cause,
or Mr. Watson terminates the agreement for cause, the Company is required to pay
to Mr.  Watson an amount  equal to two  times his  annual  salary at the date of
termination,  as well as any bonuses that he would have been entitled to receive
for that fiscal year. If Mr.  Watson  terminates  the  agreement for cause,  all
stock options granted to him will immediately  vest. In the event of a change of
control of the Company,  the Company is required to pay to Mr.  Watson an amount
equal  to three  times  his  annual  salary,  plus a bonus  equal to 40% of such
amount,  as well as any bonuses that he would have been  entitled to receive for
that fiscal year.

Dr. James S. Trotman

Pursuant to an agreement  dated as of September 1, 1997,  and amended  March 11,
1999  and  amended  as  of  January  1,  2003   between  the   Company,   GenSci
OrthoBiologics  and Dr.  James S.  Trotman,  the Company  currently  employs Dr.
Trotman as its Chairman. Dr. Trotman, as Chairman, will receive an annual salary
of  U.S.$90,000,  plus  any  performance  bonuses  awarded  by the  compensation
committee.  Pursuant to a reward for tenure  agreement  dated September 30, 1997
among the Company,  GenSci  OrthoBiologics  and Dr.  Trotman,  he is entitled to
receive from the Company an annual tenure allowance of U.S.$65,000 commencing in
2004. If the Company  terminates  the agreement  without  cause,  or Dr. Trotman
terminates  the  agreement  for cause,  the  Company is  required  to pay to Dr.
Trotman an amount equal to his annual salary at the date of termination, as well
as any bonuses that he would have been entitled to receive for that fiscal year.
If Dr. Trotman  terminates the agreement for cause, all stock options granted to
him will  immediately  vest. In the event of a change of control of the Company,
the  Company is  required  to pay to Dr.  Trotman an amount  equal to his annual
salary, plus a bonus equal to 40% of such amount, as well as any bonuses that he
would have been entitled to receive for that fiscal year.


                                       35
<PAGE>



Peter B. Ludlum

Pursuant  to the  agreement  dated as of April 1, 2003  between  the Company and
Peter B. Ludlum, the Company agreed to employ Peter B. Ludlum as Chief Financial
Officer.  The  agreement  is for a term of one  year.  Under  the  terms  of the
agreement,  Mr.  Ludlum  is  entitled  to be  compensated  at  annual  salary of
U.S.$140,000.  In addition,  Mr. Ludlum is entitled to  participate in an annual
Performance Bonus as approved by the Compensation and Human Resources  Committee
of the Board of  Directors.  If the Company  terminates  the  agreement  without
cause, or Mr. Ludlum terminates the agreement for cause, the Company is required
to pay to Mr.  Ludlum an amount equal to six months of his annual  salary at the
date of termination,  as well as any bonuses that he would have been entitled to
receive for that fiscal year. If Mr. Ludlum  terminates the agreement for cause,
all stock options granted to him will immediately vest. In the event of a change
of control of the  Company,  the  Company is  required  to pay to Mr.  Ludlum an
amount  equal to his annual  salary,  as well as any bonuses  that he would have
been entitled to receive for that fiscal year.

Each  of  the  employment  agreements  contains  other  provisions  relating  to
confidentiality, non-competition, vacations, group benefits and other provisions
usual for an agreement of its type.

C. BOARD PRACTICES

CORPORATE GOVERNANCE

The Toronto Stock Exchange (the "Exchange")  requires  disclosure by each listed
company in its information circular or annual report of its corporate governance
practices and to provide an explanation  where those  practices  differ from the
guidelines of the Exchange.

The Company's Board of Directors (the "Board") currently comprises seven persons
including  five  directors  who are not officers or employees of the Company and
are unrelated to management.  The Chairman and the President and Chief Executive
Officer  were  members of the Board  during  2002.  A  majority  of the board is
unrelated to management  and the Board is in the position to review and evaluate
management's  activities and to act  independently  of management.  Mr. Douglass
Watson is currently President and Chief Executive Officer of the Company.

The  Board is  empowered  by the  Company's  constating  documents  to manage or
supervise the  management of the affairs and business of the Company.  The Board
performs its function  through  quarterly and special meetings and has delegated
certain of its responsibilities to committees of the Board.

The Report  recommends that committees of the Board comprise persons who are not
officers or employees of the Company.  The  Company's  committees  consist of an
Audit and Finance  Committee,  Compensation  and Human  Resources  Committee and
Corporate Governance and Nominating  Committee.  Details of these committees and
the Company's policies on Corporate Governance are set out below.

The Board and senior management consider good corporate governance to be central
to the effective and efficient  operation of the Company and to the promotion of
enhanced  shareholder value. The following statement on Corporate Governance has
been adopted to guide the affairs of GenSci Regeneration Sciences Inc.

MANDATE OF THE BOARD

The responsibility of the Board is to oversee the conduct of business; to ensure
corporate  policies  are  in  compliance  with  laws,  regulations  and  ethical
practices;  to approve  the  Company's  strategic  plans;  to oversee and review
performance of corporate  programs;  and to guide  management in maintaining the
strength and integrity of the Company.

In fulfilling its mandate, the Board:

o    develops  long term goals and  strategies  for the Company.  This  includes
     evaluating and adopting  annual  business and operating  plans prepared and
     submitted by management.  This process affords directors the opportunity to
     gain a  full  appreciation  of  the  planning  priorities  and  to  provide
     constructive feedback

o    identifies the principal  risks to the Company's  business and monitors the
     management  of  these  risks  with  the   assistance   of  management   and
     specifically through the Audit and Finance Committee

o    appoints the Chairman, and the Chief Executive Officer



                                       36
<PAGE>



o    approves  on an  annual  basis  the CEO's  corporate  objectives,  assesses
     performance  of the Chief  Executive  Officer  on an  overview  basis,  and
     ensures  that  there is a  performance  management  system in place for the
     senior management team

o    commits  to  the  timely  dissemination  of  material  information  to  all
     investors

o    requires  annually,  through the Audit and Finance  Committee  and external
     auditor,  to be apprised of the integrity of the Company's  internal  audit
     controls and management information systems. In addition, regularly reviews
     the  Company's  performance  on  a  consolidated  basis,  as  well  as  the
     performance of individual subsidiaries

o    expects its  directors to act in the best interest of all  shareholders  to
     ensure public confidence

BOARD COMPOSITION

There are currently seven members of the Board of Directors. In keeping with the
guidelines,  a majority of directors are unrelated to and  independent  from the
day-to-day operations of the Company.

BOARD INDEPENDENCE FROM MANAGEMENT

It is  critical  to  investor  confidence  that the Board  include a majority of
outside  directors  and  that  members  be able to  make  independent  decisions
particularly in regard to evaluations of the Chief  Executive  Officer and other
senior management.

The Board of Directors discharges its responsibilities both directly and through
its committees.  At regularly scheduled  meetings,  members of the Board receive
and discuss reports on the company's overall financial position and investments.
Developments and issues of current relevance are also reviewed.

Board  meetings  are  scheduled  quarterly  with  additional  ad hoc meetings as
required.  Officers attend Board and Board Committee  meetings to enable them to
contribute to the overall  governance of the Corporation  and provide  unrelated
directors direct and frequent access to key people.

All  committees of the Board must have a majority of members who are  unrelated,
and in the  case  of the  Audit  and  Finance  Committee,  all  members  must be
unrelated  directors.  The composition of committees is reviewed annually by the
Board to ensure appropriate turnover, interest and diversity of expertise.

COMMITTEES

The establishment of Board committees is based on broad functional mandates that
ensure clearly  defined  responsibilities  and  accountabilities.  The scope and
mandates are defined below:

o    inherent  in the  establishment  of the  committees  is  the  principle  of
     independence.  Directors must be able to ask questions  without concern for
     interference in the exercise of judgment.

o    in  special  circumstances  the Board may  establish  an ad hoc or  special
     purpose committee to address a specific issue or transaction.

o    as required,  committees  have the right to co-opt  management from time to
     time and to engage  outside  advisors at the expense of the  Corporation in
     appropriate circumstances.

A brief  description of the mandate of each Board  committee and its composition
as at December 31, 2002 follows:

AUDIT AND FINANCE COMMITTEE

Membership is restricted to unrelated directors.  Its primary  responsibility is
to review the Company's  financial  statements  before they are presented to the
Board. In addition, the Committee reviews the adequacy of the Company's internal
controls,  evaluates  financial,  tax and corporate risk, reviews the annual and
long range financial plans of the Company,  reviews all  prospectuses  and other
public documents as requested by management,  oversees the funding of any profit
sharing and pension related plans,  and recommends  appointment and remuneration
of the auditors.  In  accordance  with the Company Act (British  Columbia),  the
Company is required to have an audit  committee  comprised  of three  directors.
During the year ended  December 31, 2002 the members of the committee  consisted
of:

Chair:            Robert Bechard
Members:          Darrell Elliott
                  Daniel Kollin



                                       37
<PAGE>



COMPENSATION AND HUMAN RESOURCES COMMITTEE

The Committee is comprised of unrelated directors of the Company.  The Committee
oversees the  implementation  of the Company's Amended and Restated Stock Option
Plan and  recommends  to the Board the award of options for Board  approval  and
allotment  subject  to  required   regulatory   approvals.   The  Committee  has
responsibility  to ensure an  appropriate  compensation  system is operative and
that performance oriented incentives are established.

Other duties of the Committee include:

o    setting of Chief Executive Officer's compensation and approving the overall
     executive  compensation  program for those  reporting to the  President and
     Chief Executive Officer

o    confirming the appointment of senior executive positions

o    reviewing adequacy and form of compensation for directors

o    ensuring the  Company's  ability to attract,  recruit and retain  motivated
     employees  by  reviewing  on an  annual  basis the  Company's  compensation
     program

o    overseeing succession planning

o    assessing annually the performance of the Chief Executive Officer

o    commissioning  of  external  advisors  to review  and  assess  compensation
     policies, if required

Chair:            Frank Clark
Members:          Clifford Nordal

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

The Board has established a Corporate Governance and Nominating Committee, which
is  comprised  of three  directors,  all of whom are  unrelated  directors.  The
responsibilities of the Corporate Governance and Nominating Committee include:

o    monitoring the quality and  effectiveness of the Governance  system and the
     relationship between management and the Board, and recommending changes

o    periodically  reviewing the  authorities,  mandates and  performance of the
     committees  |X| annually  reviewing the membership and chairs of committees
     of the Board and recommending  committee assignments |X| advising the Board
     on the application and effectiveness of Corporate Governance principles and
     policies

o    monitoring the credentials of each  individual  director |X| evaluating the
     performance of the Board |X| ensuring effective communication and reporting
     to shareholders, and reviewing annually reporting activities as required by
     good practice and regulatory requirements

Chair:            Darrell Elliott
Members:          Clifford Nordal
                  Robert Bechard

DECISIONS REQUIRING PRIOR APPROVAL OF THE BOARD

The Board has delegated to the Officers of the Company,  under the leadership of
the Chairman and the Chief Executive Officer and President, responsibilities for
the day-to-day management of the business and affairs of the Company, subject to
compliance with the business and strategic plans approved annually by the Board.
The Board and its committees retain  responsibility  for significant  changes to
the Corporation's affairs, such as approval of major capital expenditures,  debt
and equity financing arrangements,  significant acquisitions and approval of all
material contracts.

RECRUITMENT OF DIRECTORS AND ASSESSMENT OF BOARD OF DIRECTOR PERFORMANCE

The Corporate Governance and Nominating Committee is responsible for identifying
and selecting candidates for election as directors. The Chairman of the Board is
responsible for ensuring the effective  operation of the Board and for assessing
the  performance  and  contribution  of  individual   directors.   Criteria  for
evaluating  directors includes experience and advice given; quality of committee
work and state of  preparedness;  effectiveness  in  directing  business  to the
Company;  attendance at Board and  committee  meetings.  The Board  measures its
success,  in part,  on the basis of  achievement  of the  goals  and  objectives
identified through its mission, vision and strategic direction.


                                       38
<PAGE>



SHAREHOLDER COMMUNICATION

The Board has established  procedures to facilitate  shareholder  communication.
Shareholders  may  communicate  with the Company  through the office of Investor
Relations.  The  Company  communicates  to its  shareholders  through its Annual
Report,   quarterly  releases,  and  the  Annual  Meeting  of  Shareholders  and
Management Information Circular.

BOARD'S EXPECTATIONS OF MANAGEMENT

Management is expected to develop for approval by the Board,  an annual business
plan based on the premise of  shareholder  value  creation and  enhancement.  In
addition to financial performance, non-financial expectations are also important
including  vision,  values and  organizational  culture.  To that end, the Board
expects timely and effective information gathering,  analysis and reporting from
management.

CONFLICT

Any Director who has a conflict of interest or duty  directly or indirectly in a
proposed or existing  contract or  transaction  must declare that  interest at a
meeting of the Directors and abstain from voting on the approval of the contract
or transaction and such event shall be recorded in the minutes.

D. EMPLOYEES

Employees and Consultants

The Company has a total of 83 full-time  employees  and 1 part-time or temporary
employee in Canada and the United  States,  of which the 83 full-time  employees
include two senior  officers.  None of its  employees  is covered by  collective
bargaining  agreements.  The Company  believes that relations with its employees
are  good.  See  "Executive  Compensation  of  Directors  and  Officers"  for  a
description  of the  employment  agreements  with  the  senior  officers  of the
Company.

In addition,  the Company  engages  consultants,  from time to time,  to conduct
research  and  development  activities  and  to  provide  corporate  development
services.




                                       39
<PAGE>


<PAGE>


E. SHARE OWNERSHIP

The  following  table sets forth the direct stock  options of the  directors and
previously named executive officers as of May 15, 2003. Share holdings are shown
in Item 6. A.


<TABLE>
<CAPTION>

                                       DATE OF                      EXPIRATION
NAME AND PRINCIPAL    NUMBER GRANTED   GRANT          EXERCISE      OF GRANT
POSITION                                              GRANT                           TOTAL
------------------   ---------------   --------       --------      ------------     --------
<S>                  <C>               <C>            <C>           <C>              <C>
Ludlum, Peter              125,000     02-Dec-99      $0.40          02-Dec-09        250,000
                            40,000     07-Dec-00      $0.40          07-Dec-10
                            10,000     20-Nov-01      $0.40          20-Nov-11
                            75,000     06-Jun-02      $0.40          06-Jun-12
------------------   ---------------   --------       --------      ------------     --------
Watson, Douglass           110,000     01-Oct-97      $0.40          01-Oct-07        985,000
                            75,000     01-Oct-98      $0.40          01-Oct-08
                           175,000     02-Dec-99      $0.40          02-Dec-09
                            75,000     07-Dec-00      $0.40          07-Dec-10
                           350,000     20-Nov-01      $0.40          20-Nov-11
                           200,000     06-Jun-02      $0.40          06-Jun-12
------------------   ---------------   --------       --------      ------------     --------
Clark, Frank                25,000     09-Jun-99      $2.19          09-Jun-04         50,000
                            25,000     20-Nov-01      $0.40          20-Nov-11
------------------   ---------------   --------       --------      ------------     --------
Elliott, Darrell            25,000     08-Jun-00      $1.75          08-Jun-10         50,000
                            25,000     20-Nov-01      $0.40          20-Nov-11
------------------   ---------------   --------       --------      ------------     --------
Kollin, Daniel              25,000     27-Jan-00      $1.75          27-Jan-10         50,000
                            25,000     20-Nov-01      $0.40          20-Nov-11


------------------   ---------------   --------       --------      ------------     --------
Nordal, Cliff               25,000     01-Oct-97      $1.75          01-Oct-07         50,000
                            25,000     20-Nov-01      $0.40         20-Nov-11

------------------   ---------------   --------       --------      ------------     --------
Trotman, James             362,000     01-Oct-97      $0.40          01-Oct-07        672,000
                           100,000     02-Dec-99      $0.40          02-Dec-09
                            60,000     07-Dec-00      $0.40          07-Dec-10
                            50,000     20-Nov-01      $0.40          20-Nov-11
                           100,000     06-Jun-02      $0.40          06-Jun-12

                                                                    Total:          2,107,000
</TABLE>




                                                                 40
<PAGE>


<PAGE>


ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

So far as is  known  to  GenSci,  it is not  directly  or  indirectly  owned  or
controlled by another corporation or by any foreign government.

To the knowledge of the directors and senior officers of the Company,  as of the
date of this  Circular,  the following  persons  beneficially  own,  directly or
indirectly,  or exercise  control or direction over, more than 10% of the issued
and outstanding common shares of the Company:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                                        PERCENTAGE OF
                     MEMBER                       NUMBER OF SHARES      ISSUED CAPITAL
-----------------------------------------------------------------------------------------
<S>                                                      <C>               <C>
   BioCapital Biotechnology & Healthcare Fund         6,037,190             11.4%
     Canadian Medical Discoveries Fund Inc.           5,827,760             11.1%
-----------------------------------------------------------------------------------------
</TABLE>



B. RELATED PARTY TRANSACTIONS

Except as  described  elsewhere in this annual  report,  none of the persons who
were  directors or officers of the Company at any time during the Company's last
financial year, the proposed  nominees for election to the board of directors of
the Company,  the insiders of the Company or the  associates  or  affiliates  of
those  persons,  has  any  material  interest,  direct  or  indirect,  by way of
beneficial ownership of securities or otherwise,  in any transaction or proposed
transaction which has materially affected or would materially affect the Company
or any of its subsidiaries.


C. INTEREST OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8 - FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 17 - Financial Statements

LEGAL PROCEEDINGS

GenSci and its subsidiary, GenSci OrthoBiologics,  [collectively, "the Company"]
are involved in a patent  infringement  action in the United  District Court for
the  Central   District  of  California   ["District   Court"]  entitled  GenSci
Regeneration  Laboratories,  Inc. v.  Osteotech,  Inc. (and related  third-party
actions), Case No. CV99-10111-MRP, [the "Patent Action"].

This case involves claims by Osteotech that products sold under the DynaGraft(R)
Gel and DynaGraft(R)  Putty (DynaGraft Gel and Putty) brands allegedly  infringe
two patents owned by Osteotech.  These products involve the use of demineralized
bone matrix (DBM)  material in a carrier to facilitate the  regeneration  and/or
growth of damaged or diseased bone.

On  December  17,  2001,  the jury found that  GenSci and GenSci  OrthoBiologics
liable for damages of  U.S.$17,533,634  for  infringement  by DynaGraft  Gel and
Putty of two patents held by Osteotech.  The damages include U.S.$12,423,248 for
lost profits during  1997-1999 and royalties of  U.S.$5,110,386  calculated at a
royalty  rate of 14% for the years  2001 and  2002.  Payments  of  approximately
U.S.$3,000,000 made by DePuy AccroMed Inc. in a prior settlement with Osteotech,
are  expected  to be  deducted  from the jury  verdict  reducing  the  potential
judgment to U.S.$14,533,634. The Company has established a reserve in the amount
of $23,098,189 as at December 31, 2001,  representing the potential  judgment of
U.S.$14,533,634  and 14% of sales of  DynaGraft  Gel and Putty from  December 1,
2001 to December 31, 2001.

As of the Petition Date, Osteotech had a pending motion in the District Court to
permanently enjoin the Company's sales of the DynaGraft products,  scheduled for
hearing on December 21, 2001 [ the "Motion For




                                       41
<PAGE>




Permanent  Injunction"].  The entry into Chapter 11  protection  on December 20,
2001 resulted an automatic stay of all prior legal proceedings.

Pursuant to motions by Osteotech and positions taken by the Company,  on May 16,
2002,  the  Bankruptcy  Court  modified the automatic  stay to permit the Patent
Action  to  proceed,  provided  that,  any  judgment,  whether  for  damages  or
injunctive relief,  issued against the Company could not be enforced without the
further  review  and  approval  by the  Bankruptcy  Court.  In order to  provide
adequate  protection to Osteotech,  the Company is required,  commencing on June
10, 2002, to deposit into a restricted  cash account,  14% of gross revenue from
the allegedly  infringing  products.  Although no absolute deadline for filing a
plan  has  been  established,   the  Company  had  to  either  file  a  plan  of
reorganization  by  September  16,  2002 and  obtain  confirmation  of a plan by
November  18,  2002 or in the  alternative,  GenSci  was  required  to cease the
manufacture,  sale or  distribution  of the  allegedly  infringing  products  by
September  16,  2002 or by  November  18,  2002 if a plan is  submitted  but not
confirmed. Consistent with the Bankruptcy Court's May 17th Order, the Debtors no
longer  manufactured,  marketed,  distributed  or sold the  infringing  products
(DynaGraft Gel and Putty) after September 16, 2002.

During 2002 the Company accrued and expensed $1,705,265, which represents 14% of
the revenue derived from DynaGraft Gel and Putty. In addition, subsequent to the
Bankruptcy Court order discussed above, the Company has established a restricted
cash account, which had a balance of $856,534, as at December 31, 2002.

Pursuant to the minute  order  entered on January 30, 2003,  the District  Court
assigned the Patent  Action and other related  cases to another  District  Court
Judge for "settlement  proceedings." A formal  settlement  conference before the
Settlement  Judge was held on March 6, 2003. At the Settlement  Conference,  the
parties  reached a  conditional  settlement  of their  disputes  relating to the
Debtors' bankruptcy proceeding and the Patent Action.

As a result of the conditional settlement, an Amended Plan of Reorganization and
Amended  Disclosure  Statement were filed with the Bankruptcy Court on April 18,
2003  with a  Disclosure  Statement  hearing  scheduled  for May 30,  2003.  The
settlement  described above is contingent upon bankruptcy court approval.  Terms
of  the   settlement   have  been   incorporated   into  the  Amended   Plan  of
Reorganization,  which  must be  confirmed  by the  bankruptcy  court to  become
effective.

The conditions related to the settlement are: (i) Osteotech receives a letter of
credit or other security satisfactory to Osteotech of certain payments over time
and (ii)  GenSci  receives  a  covenant  from  Osteotech  not to sue  GenSci  in
connection  with its newly  introduced  products.  With respect to the letter of
credit or other  security,  GenSci  will seek to obtain the  security  sought by
Osteotech. However, there can be no assurance that GenSci will be able to obtain
an appropriate security acceptable to Osteotech, in which event, the Company may
enter into a transaction that would require  substantial  dilution or changes in
stockholder  rights  in order to raise  additional  funds.  There can also be no
assurance  that the two  sides  can  reach a  settlement  if GenSci is unable to
obtain the security required. With respect to the covenant not to sue, Osteotech
is in the process of evaluating  GenSci's  position that its new products do not
infringe  Osteotech's  patents.  There is no assurance that Osteotech will agree
with GenSci's position.  There can also be no assurance that, if a difference of
opinion exists, the two sides can reach a settlement.  In addition, there can be
no  assurance  of the time  frame  required  for the two  sides to  satisfy  the
conditions detailed above.

If the above two conditions  are  satisfactorily  resolved,  terms of settlement
include  payment  of  U.S.$7.5  million  by GenSci to  Osteotech.  GenSci  would
recognize the validity of the Osteotech  patents at issue in the trial completed
in December 2001.  GenSci would not be permitted to  re-introduce  products that
are the subject of the pending  litigation,  which have been  withdrawn from the
market,  and all other  litigation  between the two parties  would be dismissed.
Payments to Osteotech include U.S.$1 million to be paid on the effective date of
GenSci's plan of reorganization followed by payments of U.S.$325,000 per quarter
with interest  payable at the federal  judgment rate,  currently 1.3% capped for
purposes of future interest payments at 3% per annum. GenSci is seeking a method
to secure payment of U.S.$5 million of the settlement  amount and will provide a
subordinated lien on assets to assure payment of the remaining  U.S.$1.5 million
in payments.

Finally,  the settlement is contingent upon bankruptcy court approval.  Terms of
the  settlement  will be  incorporated  into the terms of a  Chapter  11 Plan of
Reorganization, which must be confirmed by the Bankruptcy Court.

If the proposed  settlement with Osteotech  incorporated  into the Plan does not
occur,  the Company  would  otherwise  vigorously  pursue  their right of appeal
before the Federal  Circuit Court of Appeals.  As of the date of




                                       42
<PAGE>


this  report,  a  judgment  has not been  issued in the  Patent  Action  and the
Settlement Agreement has not been finalized or executed.

GenSci  OrthoBiologics  has filed for  antitrust  and other claims in a separate
case against  Osteotech  for improper use of its  patent(s) in the  marketplace.
These antitrust claims have been stayed until the Patent Action is resolved.  In
addition,  a second  patent  infringement  filed in October,  2000  alleges that
GenSci  OrthoBiologic's  OrthoBlast product infringe two of Osteotech's  patents
including one patent at issue in the Patent Action.  In this second patent case,
no discovery has commenced  and the case has been stayed  pending  resolution of
the Patent  Action.  All legal  actions  between  GenSci and  Osteotech  will be
dismissed under the Settlement Agreement, when and if it becomes effective.

The Company, is also involved in a dispute before the Trademark Trial and Appeal
Board,  of the United  State Patent and  Trademark  Office,  entitled  Johnson &
Johnson,     Petitioner,     vs.    GenSci    Regeneration    Sciences,    Inc.,
Respondent/Registrant,  Registration No. 2,401,091,  Cancellation No. 31635. The
dispute  concerns the rights to the name, "The  OrthoBiologics  Company." In May
2002, the Company filed a Notice of Pending  Chapter 11 Case and Notice of Stay,
with respect to such proceeding.

B. SIGNIFICANT CHANGES

No  significant  changes have  occurred  since the date of the annual  financial
statements other than the conditional  settlement agreement and filing of a Plan
of Reorganization that have both been previously disclosed above.


ITEM 9 - THE OFFER AND LISTING

A. THE OFFER AND LISTING

Nature of Trading

From October 24, 1989 to April 26, 1999,  GenSci's  common shares were traded on
the Vancouver Stock Exchange ("VSE"),  Vancouver,  Canada. On March 16, 1999 the
Company's  common shares were listed for trading on The Toronto  Stock  Exchange
(the "TSX"). The Company delisted from the Vancouver Stock Exchange on April 26,
1999 at the request of the  Company.  The high and low sale prices and volume of
trading  for the  common  shares of GenSci on the VSE or TSX as the case may be,
for each quarterly  period within the three most recent fiscal periods of GenSci
are as follows:

Year Ended            High $ (CDN)        Low $ (CDN)                 Volume
----------            ------------        -----------                 ------
1997                      $2.50              $1.20                 5,741,607
1998                      $3.95              $1.40                 7,922,937
1999                      $3.45              $0.70                 5,781,169
2000                      $3.35              $0.48                16,901,207
2001                      $1.25              $0.10                23,310,235
2002                      $0.40              $0.11                10,573,882

Quarter Ended         High $ (CDN)        Low $ (CDN)                 Volume
-------------         ------------        -----------                 ------
Mar. 31/00                $3.35              $0.76                 8,501,943
Jun. 30/00                $2.10              $1.05                 2,326,891
Sept. 30/00               $2.00              $1.12                 2,241,811
Dec. 31/00                $1.49              $0.48                 3,830,562
Mar. 31/01                $1.25              $0.55                 2,233,476
Jun. 30/01                $0.75              $0.35                 1,474,698
Sept. 30/01               $0.37              $0.25                 1,611,802
Dec. 31/01                $0.56              $0.10                17,990,259
Mar. 31/02                $0.35              $0.11                 4,842,630
Jun. 30/02                $0.26              $0.16                 2,707,335
Sept. 30/02               $0.40              $0.23                 1,695,861
Dec. 31/02                $0.30              $0.20                 1,328,056



                                       43
<PAGE>

Month Ended           High $ (CDN)        Low $ (CDN)                 Volume
-----------           ------------        -----------                 ------
Nov. 2002                 $0.25              $0.22                   196,288
Dec. 2002                 $0.28              $0.20                   506,470
Jan. 2003                 $0.25              $0.20                   247,677
Feb. 2003                 $0.28              $0.22                   612,993
Mar. 2003                 $0.27              $0.23                   319,169
Apr. 2003                 $0.50              $0.24                 1,089,786


As of December 31, 2002,  there were  52,574,459  common shares of GenSci issued
and outstanding.  In accordance with Rule 12g5-1 of the Securities  Exchange Act
of 1934, at such date there were 1,443  registered and  unregistered  holders of
GenSci's common shares resident in the United States,  holding  8,577,852 common
shares.  This  number  represents  approximately  16% of the  total  issued  and
outstanding common shares of GenSci as at December 31, 2002.

PERFORMANCE GRAPH

The following  graph  compares the cumulative  change in shareholder  return for
Cdn$100  invested in common shares of the Company on December 31, 1997, with the
cumulative  change in the total return of the S&P/TSX  Composite  Index over the
same period. The Company obtained a listing on the TSX effective March 16, 1999.
Prior to that time,  the  Company's  shares were listed on the  Vancouver  Stock
Exchange,  subsequently the Canadian  Venture Exchange  ("CDNX") and now the TSX
Venture Exchange ("TSX Venture").

                          [GRAPHIC HERE IMAGE OMITTED]
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31
                             1997            1998             1999            2000            2001             2002
<S>                       <C>              <C>             <C>             <C>             <C>               <C>
Company                   $100.00         $111.11           $39.44          $35.55           $6.11           $11.11
TSX                       $100.00          $96.81          $125.59         $133.35         $114.76           $98.73
TSX Venture(1)            $100.00          $64.07          $377.93         $467.96         $167.59          $173.66
</TABLE>


(1)      In November  1999,  the Vancouver  Stock Exchange and the Alberta Stock
         Exchange  merged to form the CDNX.  The closing  value of the Vancouver
         Stock  Exchange  index on November 26, 1999, the last trading day prior
         to the merger,  was 400.20.  The opening value of the Canadian  Venture
         Exchange index on November 29, 1999, the first day of trading after the
         merger,  was 2000.00.  On December 10, 2001, the CDNX index was changed
         to the S&P/CDNX Composite index. The closing value of the CDNX index on
         December  7, 2001 was 3161.67  and the  opening  value of the  S&P/CDNX
         Composite index on December 10, 2001 was 1000.


                                       44
<PAGE>

B. PLAN OF DISTRIBUTION

Not applicable.

C. MARKETS

GenSci's stock is listed on the Toronto Stock Exchange under the symbol "GNS".

D. SELLING SHAREHOLDERS

Not applicable.

E. DILUTION

Not applicable.

F. EXPENSES OF THE ISSUE

Not applicable.

ITEM 10 - ADDITIONAL INFORMATION

A. SHARE CAPITAL

The Company  increased  its  authorized  capital on May 28, 1998 to  200,000,000
shares  divided  into  100,000,000  common  shares  without  par  value of which
52,574,459  are presently  issued and  outstanding,  and  100,000,000  preferred
shares without par value, none of which is issued and outstanding.

At the  beginning  of the year the  Company  had  52,574,459  shares  issued and
outstanding.  There are no shares not representing capital.  There are no shares
in the company  held by the Company.  There are no  outstanding  obligations  to
increase the issued capital of the Company.

There are  4,447,750  outstanding  options and 375,000  outstanding  warrants to
purchase  securities as of December 31, 2002.  The history of the issued capital
of the Company  for the past three years is detailed in Note 8 to the  financial
statements and is summarized as follows:

<TABLE>
<CAPTION>
                                                         #        $
-------------------------------------------------------------------------------
<S>                                                 <C>          <C>
     Balance, December 31, 1999                     42,136,864   67,147,728
     Pursuant to stock appreciation rights              39,964         --
     Pursuant to exercise of Special warrants, net  10,344,828   13,603,069
     For cash
       Pursuant to exercise of stock options            52,803       95,523
                                                    ----------   ----------
     Balance, December 31, 2000, 2001 and 2002      52,574,459   80,846,320
-------------------------------------------------------------------------------
</TABLE>


No shares were issued with any discounts, special terms or installment payments.

All shares  issued and to be issued in the future must be and have been approved
by  authorizing  resolution  consisting  of a simple  majority  of the  board of
directors.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

The  Company is  incorporated  in the  Province of British  Columbia,  Canada by
registration of its memorandum under incorporation number 548323.

The  Company  was  incorporated  on  December  4, 1980  under the name of Shayna
Resources  Ltd.  On April 14,  1988,  the  Company  changed  its name to Clipper
Minerals  Ltd.  On December  9, 1991,  the  Company  changed its name to Stormin
Resources  Inc.  On November  27,  1992 the Company  changed its name to Biocoll
Medical Corp. in conjunction with the acquisition of Regenetec Biomatrix,  Inc.,
renamed   GenSci   Regeneration   Laboratories,   Inc.,   later  renamed  GenSci
OrthoBiologics,  Inc., a subsidiary  of the  Company.  On January 16, 1997,  the
Company acquired all of the issued and outstanding shares of Osteopharm Limited,
with which it




                                       45
<PAGE>



amalgamated  effective August 12, 1997, and concurrently  therewith  changed its
name to its current name, GenSci Regeneration Sciences Inc.

Pursuant to the provisions of the Company Act a company may conduct any business
that it is not restricted by the terms of its memorandum  from  conducting.  The
Company's memorandum contains no such restrictions.

The  directors of the Company are required to disclose to the board of directors
the nature and extent of their interest in any proposed  transaction or contract
and must  thereafter  refrain  from  voting in respect  thereof.  An  interested
director may be counted in the quorum when a determination as to such director's
remuneration is being considered but may not vote in respect thereof.

The directors have an unlimited  power to borrow money,  issue debt  obligations
and  mortgage  or charge the assets of the  Company  provided  such  actions are
conducted bona fide and in the best interests of the Company.

There  are  no  mandatory   retirement   ages  for  directors  or  any  required
shareholdings.

All holders of common  shares are  entitled to receive  dividends  out of assets
legally  available  therefore  at such times and in such amounts as the board of
directors  may from time to time  determine.  All holders of common  shares will
share  equally on a per share  basis in any  dividend  declared  by the board of
directors.  The  dividend  entitlement  time limit will be fixed by the board of
directors at the time any such dividend is declared.

Each outstanding  common share is entitled to one vote on all matters  submitted
to a vote of our shareholders in general meeting. There are no cumulative voting
rights attached to any of our shares and, accordingly,  the holders of more than
half of the  shares  represented  at a  general  meeting  can  elect  all of the
directors to be elected in a general meeting.

All directors stand for re-election annually.

Upon any  liquidation,  dissolution or winding up, all common  shareholders  are
entitled to share  ratably in all net assets  available for  distribution  after
payment to creditors.  The common shares are not  convertible  or redeemable and
have no preemptive,  subscription or conversion rights. In the event of a merger
or consolidation,  all common  shareholders will be entitled to receive the same
per share consideration.

The holders of the common shares have no redemption, sinking fund, preemptive or
conversion  rights.  The holders of common shares are not entitled to cumulative
votes for the election of directors.  All of the common shares  currently issued
and outstanding are fully paid and non-assessable.

The rights of  shareholders  may only be altered by the  shareholders  passing a
special resolution at a general meeting. A special resolution may only be passed
when  it has  been  circulated  to  all  shareholders  by way of an  information
circular  and then must be passed by  seventy-five  percent of the votes cast at
the general meeting.

Annual and  extraordinary  general  meetings may be called when  required by the
board of directors.  One or more shareholders  holding in aggregate five percent
or more of the issued  shares of the Company may  requisition  an  extraordinary
meeting and the directors  are required to hold such meeting  within four months
of such requisition.  Only registered  shareholders or persons duly appointed by
proxy may be admitted to meetings unless otherwise  permitted by the chairman of
the meeting.

There are no national or international  limitations or restrictions on the right
to own the common shares of the Company.

There are no provisions in the  memorandum or articles of  incorporation  of the
Company that would have the effect of delaying, deferring or preventing a change
in control of the Company.

There are no provisions in the  memorandum or articles of  incorporation  of the
Company that establish any threshold for disclosure of ownership.

The  articles  of  incorporation  of the  Company  permit  the  increase  or any
alteration  in authorized  capital by the  shareholders  by ordinary  resolution
passed by 50% plus one vote at a general meeting.


                                       46
<PAGE>



Pursuant to applicable provisions of the Company Act (British Columbia) no right
or special  right  attached to shares  issued by the Company may be  prejudiced,
altered or otherwise  interfered with unless the members of that class approve a
special  resolution  by at least  75% of the  votes  cast  with  respect  to the
resolution.

A quorum for the transaction of business at a general meeting of shareholders of
the Company is one member or one proxy holder representing  members holding less
than one-twentieth of the be voted at the meeting.

The Articles of  Incorporation  of the Company  contain  provisions  whereby the
Company  has the power,  to the  maximum  extent  permitted  by the  Company Act
(British Columbia), to indemnify its officers and directors, former officers and
directors, or persons who act or acted at the Company's request as a director or
officer of a company of which the Company is or was a  shareholder  or creditor,
and their  heirs and legal  representatives,  against  all  costs,  charges  and
expenses, actually and reasonably incurred,  including amounts paid to settle an
action or satisfy a judgment in a civil,  criminal or  administrative  action or
proceeding  to which such  person is made a party,  by reason of being or having
been a director or officer,  including any action  brought by the Company or any
such corporation.  In addition,  the Company may purchase and maintain insurance
for the benefit of any officers or directors  against any liability  incurred in
their capacity as officers or directors of Issuer.

The  Company's  preferred  shares are issuable in series,  having such  specific
dividend,  redemption  and other rights as may be determined by the directors of
the  Company at the time of creation  of the  series.  The holders of  preferred
shares are not  entitled  to vote and have  priority  over the holders of common
shares with respect to the payment of dividends  and  distribution  of assets on
the  dissolution,  liquidation or winding up of the Company.  Subject to special
rights and restrictions  attached to a particular  series,  the preferred shares
are  redeemable and  retractable  and may be purchased for  cancellation  by the
Company.

C. MATERIAL CONTRACTS

During 2002 the Company terminated its research agreement with the University of
Toronto and its agreement with McGill University regarding technology rights.

D. EXCHANGE CONTROLS

There are no  governmental  laws,  decrees or regulations in Canada  relating to
restrictions on the export or import of capital,  or affecting the remittance of
interest, dividends or other payments to non-resident holders of GenSci's common
shares.  Any remittances of dividends to United States  residents are,  however,
subject to a  withholding  tax  pursuant to the  reciprocal  tax treaty  between
Canada and the United States. See "Item 10. E. - Taxation."

Except as provided in the Investment  Canada Act, there are no limitations under
the laws of Canada,  the  Province of British  Columbia or in the charter or any
other constituent documents of GenSci on the right of foreigners to hold or vote
the common shares of GenSci.

The  Investment  Canada Act  requires a  non-Canadian  making an  investment  to
acquire  control,  directly or  indirectly,  of a Canadian  business,  the gross
assets of which exceed certain defined  threshold levels, to file an application
for review  with  Investment  Canada,  the  federal  agency  created by the Act.
Provisions of the Investment Canada Act are complex and any non-Canadian citizen
contemplating  an  investment  to  acquire  control  of  GenSci  should  consult
professional  advisors  as to whether  and how the  Investment  Canada Act might
apply.

For purposes of the Act,  direct  acquisition of control means a purchase of the
voting interests of a corporation,  partnership, joint venture or trust carrying
on a Canadian  business,  or any  purchase  of all or  substantially  all of the
assets used in  carrying on a Canadian  business.  An  indirect  acquisition  of
control means a purchase of the voting  interest of a corporation,  partnership,
joint venture or trust,  whether a Canadian or foreign entity,  which controls a
corporation,  partnership, joint venture or trust Company carrying on a Canadian
business in Canada.




                                       47
<PAGE>



E. TAXATION

Certain Canadian Federal Income Tax Consequences

Management  of GenSci has been advised by its legal  counsel that the  following
general  summary  fairly  describes the principal  Canadian  federal  income tax
consequences applicable to a holder of common shares of GenSci who is a resident
of the United States and who is not a resident of Canada and who does not use or
hold,  and is not  deemed  to use or  hold,  his  common  shares  of  GenSci  in
connection with carrying on a business in Canada (a "non-resident shareholder").

This summary is based upon the current provisions of the Income Tax Act (Canada)
(the  "ITA"),  the  regulations  thereunder  (the  "Regulations"),  the  current
publicly  announced  administrative and assessing policies of the Canada Customs
and Revenue Agency,  and all specific  proposals (the "Tax  Proposals") to amend
the ITA and Regulations  announced by the Minister of Finance  (Canada) prior to
the date hereof.  This  description is not  exhaustive of all possible  Canadian
federal income tax consequences and, except for the Tax Proposals, does not take
into  account  or  anticipate  any  changes  in  law,  whether  by  legislative,
governmental  or judicial  action,  nor does it take into account  provincial or
foreign tax considerations  which may differ  significantly from those discussed
herein. The following  discussion is for general  information only and it is not
intended  to be, nor should it be  construed  to be,  legal or tax advice to any
holder or  prospective  holder of common  shares  of GenSci  and no  opinion  or
representation  with respect to the Canadian  Federal Income Tax consequences to
any such  holder  or  prospective  holder  is  made.  Accordingly,  holders  and
prospective holders of common shares of GenSci should consult with their own tax
advisors  about  the  federal,   provincial  and  foreign  tax  consequences  of
purchasing, owning and disposing of common shares of GenSci.

Dividends

Dividends paid on the common shares of GenSci to a  non-resident  holder will be
subject  to  withholding  tax.  The  Canada-U.S.  Income Tax  Convention  (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as GenSci) to residents
of the United States,  and also provides for a further reduction of this rate to
5% where the  beneficial  owner of the  dividends  is a  corporation  which is a
resident of the United  States  which owns at least 10% of the voting  shares of
the corporation paying the dividend.

Capital Gains

A  non-resident  of Canada is not  subject  to tax under the ITA in respect of a
capital gain realized upon the  disposition  of a share of a public  corporation
unless the share represents  "taxable Canadian  property" to the holder thereof.
GenSci is a public  corporation  for  purposes of the ITA and a common  share of
GenSci will be taxable  Canadian  property to a  non-resident  holder if, at any
time during the period of five years immediately preceding the disposition,  the
non-resident  holder,  persons with whom the non-resident holder did not deal at
arm's length,  or the non-resident  holder and persons with whom he did not deal
at arm's  length  owned not less than 25% of the  issued  shares of any class or
series  of  GenSci.  There are other  circumstances  in which a common  share of
GenSci will be taxable Canadian property to a non-resident holder.  Shareholders
who are former  residents of Canada or who  acquired  their shares in other than
open market  transactions  should  consult  their  Canadian tax  advisors  about
whether  the shares are  taxable  Canadian  property  to them.  In the case of a
non-resident holder to whom shares of GenSci represent taxable Canadian property
and who is resident in the United States and is not a former resident of Canada,
no Canadian  taxes will be payable on a capital gain  realized on such shares by
reason of the Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the
value of such  shares is derived  principally  from real  property  situated  in
Canada.  However,  in such a case, certain  transitional relief under the Treaty
may be available.

Certain United States Federal Income Tax Consequences

The following is a general  discussion of certain possible United States Federal
income tax  consequences,  under  current law,  generally  applicable  to a U.S.
Holder (as defined below) of common shares of GenSci.  This  discussion does not
address  all  potentially  relevant  Federal  income tax matters and it does not
address  consequences  peculiar  to persons  subject to  special  provisions  of
Federal  income tax law,  such as those  described  below as  excluded  from the
definition of a U.S.  Holder.  In addition,  this  discussion does not cover any
state, local or non-U.S. tax consequences.  See "Certain Canadian Federal Income
Tax Consequences" above.




                                       48
<PAGE>



The following discussion is based upon the sections of the Internal Revenue Code
of 1986,  as amended (the  "Code"),  Treasury  Regulations,  published  Internal
Revenue Service ("IRS") rulings,  published  administrative positions of the IRS
and court decisions that are currently applicable,  any or all of which could be
materially and adversely changed,  possibly on a retroactive basis, at any time.
Except as  specifically  set forth  herein,  this summary deals only with common
shares  purchased by a U.S.  holder (as defined  below) that are held as capital
assets within the meaning of Section 1221 of the Code. The following  discussion
is for general  information  only and it is not intended to be, nor should it be
construed  to be,  legal or tax  advice to any holder or  prospective  holder of
common  shares of GenSci and no opinion or  representation  with  respect to the
United States Federal income tax  consequences to any such holder or prospective
holder is made. Accordingly, holders and prospective holders of common shares of
GenSci should  consult their own tax advisors about the Federal,  state,  local,
and foreign tax  consequences  of  purchasing,  owning and  disposing  of common
shares of GenSci.

U.S. HOLDERS

As used herein,  a "U.S.  Holder" means a beneficial  holder of common shares of
GenSci  who or that is for U.S.  federal  income tax  purposes  (i) a citizen or
individual  resident of the United  States,  (ii) a corporation  or  partnership
created  or  organized  in or under the laws of the  United  States or any state
(including  the  District of  Columbia)  thereof,  (iii) an estate the income of
which is subject to U.S.  federal income taxation  regardless of its source,  or
(iv) a trust if both (A) a U.S.  court is able to exercise  primary  supervision
over the  administration of the trust, and (B) one or more U.S. persons have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding  sentence,  to the extent  provided in Treasury  Regulations,  certain
trusts in  existence on August 20, 1996,  and treated as United  States  persons
prior to such  dates,  that elect to  continue  to be  treated as United  States
persons will also be U.S.  holders.  The term U.S holder also  includes  certain
former citizens or residents of the United States.

Except as  specifically  set forth  herein,  this summary deals only with common
shares of GenSci  purchased by a U.S. holder (as defined below) that are held as
capital assets within the meaning of Section 1221 of the Code. This summary does
not discuss all of the tax consequences that may be relevant to holders in light
of their  particular  circumstances  or to holders subject to special tax rules,
such as  insurance  companies,  brokers  or  dealers  in  securities  or foreign
currencies,  tax-exempt investors, financial institutions, or persons subject to
the alternative minimum tax.

DISTRIBUTIONS ON COMMON SHARES OF GENSCI

U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common  shares of GenSci are required to include in gross income
for  United  States  Federal  income  tax  purposes  the  gross  amount  of such
distributions to the extent that GenSci has current or accumulated  earnings and
profits,  without  reduction  for any  Canadian  income tax  withheld  from such
distributions  equal to the U.S.  dollar value of such  dividends on the date of
receipt  (based on the  exchange  rate on such date).  In the case of a dividend
paid in Canadian  dollars  that is not  converted  by the U.S.  holder into U.S.
dollars  on the date of  receipt,  a U.S.  holder  will  have a tax basis in the
Canadian  dollars equal to their U.S.  dollar value on the date of receipt.  Any
gain or loss  recognized  upon a subsequent  sale or other  disposition  of such
Canadian  dollars,  including  an exchange  for U.S.  dollars,  will be ordinary
income or loss,  unless  held for more than one year in which  case such gain or
loss is capital. Such Canadian tax withheld may be credited,  subject to certain
limitations,  against  the  U.S.  Holder's  United  States  Federal  Income  tax
liability  or,  alternatively,  may be deducted in computing  the U.S.  Holder's
United States Federal taxable income by those who itemize deductions.  (See more
detailed  discussion  at  "Foreign  Tax  Credit"  below).  To  the  extent  that
distributions exceed current or accumulated earnings and profits of GenSci, they
will be treated  first as a return of capital up to the U.S.  Holder's  adjusted
basis in the common  shares and  thereafter as gain from the sale or exchange of
the  common  shares.  Preferential  tax rates for  long-term  capital  gains are
applicable to a U.S. Holder which is an individual,  estate or trust.  There are
currently  no  preferential  tax rates for  long-term  capital  gains for a U.S.
Holder which is a corporation.

Dividends paid on the common shares of GenSci will not generally be eligible for
the dividends received deduction  provided to corporations  receiving  dividends
from certain United States  corporations.  A U.S.  Holder which is a corporation
may, under certain  circumstances,  be entitled to a 70% deduction of the United
States source portion of dividends received from GenSci (unless GenSci qualifies
as a  "foreign  personal  holding  company"  or a  "passive  foreign  investment
company",  as defined  below) if such U.S.  Holder owns shares  representing  at
least 10% of the voting  power and value of  GenSci.  The  availability  of this
deduction is subject to several complex limitations,  which are beyond the scope
of this discussion.



                                       49
<PAGE>


FOREIGN TAX CREDIT

A U.S. Holder who pays (or has withheld from distributions)  Canadian income tax
with respect to the ownership of common shares of GenSci may be entitled, at the
option  of the U.S.  Holder,  to either a  deduction  or a tax  credit  for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit  because  a  credit  reduces  United  States  Federal  income  taxes on a
dollar-for-dollar  basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex  limitations which apply to the credit,  among which
is the general limitation that the credit cannot exceed the proportionate shares
of the U.S.  Holder's United States income tax liability that the U.S.  Holder's
foreign  source  income bears to his or its  worldwide  taxable  income.  In the
determination of the application of this limitation, the various items of income
and deduction  must be  classified  into foreign and domestic  sources.  Complex
rules govern this classification  process.  There are further limitations on the
foreign tax credit for certain types of income such as "passive  income",  "high
withholding tax interest",  "financial services income",  "shipping income", and
certain other  classifications  of income.  The  availability of the foreign tax
credit and the  application  of the  limitations on the credit are fact specific
and holders and  prospective  holders of common shares of GenSci should  consult
their own tax advisors regarding their individual circumstances.

DISPOSITION OF COMMON SHARES OF GENSCI

A U.S.  Holder will  recognize a gain or loss upon the sale of common  shares of
GenSci equal to the difference, if any, between the amount realized on such sale
or exchange (or its U.S. dollar equivalent,  determined by reference to the spot
rate  of  exchange  on the  date  of  disposition,  if the  amount  realized  is
denominated  in a foreign  currency)  and the  adjusted tax basis of such common
shares of GenSci. This gain or loss will be a capital gain or loss if the common
shares  are a capital  asset in the hands of the U.S.  Holder,  which  will be a
short-term or long-term  capital gain or loss  depending upon the holding period
of the U.S.  Holder.  Gains and  losses are netted  and  combined  according  to
special  rules in arriving at the overall  capital gain or loss for a particular
tax  year.  Deductions  for  net  capital  losses  are  subject  to  significant
limitations.  Generally,  for U.S.  Holders  which are  individuals,  any unused
portion of such net  capital  loss may be  carried  over to be used in later tax
years  until such net capital  loss is thereby  exhausted.  Generally,  for U.S.
Holders which are corporations (other than corporations  subject to Subchapter S
of the Code),  an unused net capital  loss may be carried  back three years from
the loss year and  carried  forward  five  years from the loss year to be offset
against capital gains until such net capital loss is thereby exhausted.

OTHER CONSIDERATIONS

In the following  circumstances,  the above sections of this  discussion may not
describe the United States  Federal income tax  consequences  resulting from the
holding and disposition of common shares of GenSci.

FOREIGN PERSONAL HOLDING COMPANY

For initial determination, if at any time during a taxable year more than 50% of
the total  combined  voting  power or the total  value of  GenSci's  outstanding
shares is owned,  actually or  constructively,  by five or fewer individuals who
are citizens or residents of the United States and 50% or more of GenSci's gross
income for such year was derived from certain passive  sources (e.g.,  dividends
and interest subject to certain  limitations when received from a related person
such as its  subsidiaries),  GenSci  would be  treated  as a  "foreign  personal
holding company".  In that event, U.S. Holders that hold common shares of GenSci
would be required to include in income for such year their allowable portions of
such gross passive income to the extent GenSci does not actually distribute such
income.

PASSIVE FOREIGN INVESTMENT COMPANY

As a foreign corporation with U.S. Holders,  GenSci could potentially be treated
as a passive foreign investment Company ("PFIC"),  as defined in Section 1297 of
the Code,  depending upon the percentage of GenSci's income which is passive, or
the  percentage  of GenSci's  assets  which is held for the purpose of producing
passive income.


                                       50
<PAGE>

Certain United States income tax legislation contains rules governing PFIC which
can have significant tax effects on U.S.  shareholders of foreign  corporations.
These  rules do not apply to  non-U.S.  shareholders.  Section  1297 of the Code
defines a PFIC as, a  corporation  that is not formed in the United  States and,
for any taxable  year  subsequent  to 1986,  either (i) 75% or more of its gross
income is "passive income", which includes interest, dividends and certain rents
and royalties or (ii) the average  percentage,  by fair market value (or, if the
Company is a  non-publicly  traded  controlled  foreign  corporation or makes an
election,  adjusted  tax basis),  of its assets that produce or are held for the
production of "passive income" is 50% or more.

A U.S.  shareholder who holds stock in a foreign  corporation during any year in
which such  corporation  qualifies as a PFIC is subject to U.S.  federal  income
taxation under one of two  alternative  tax regimes at the election of each such
U.S.  shareholder.  The  following is a discussion  of the two  alternative  tax
regimes applied to such U.S. shareholders of GenSci.

A U.S.  shareholder who elects in a timely manner to treat GenSci as a Qualified
Electing Fund ("QEF"), as defined in the Code, (an "Electing U.S.  Shareholder")
will be subject,  under Section 1293 of the Code, to current  federal income tax
for any taxable year in which GenSci  qualifies as a PFIC on his pro-rata  share
of GenSci's (i) "net  capital  gain" (the excess of net  long-term  capital gain
over net short-term capital loss), which will be taxed as long-term capital gain
to the Electing U.S.  Shareholder  and (ii)  "ordinary  earnings" (the excess of
earnings  and profits  over net capital  gain),  which will be taxed as ordinary
income to the Electing U.S.  Shareholder,  in each case,  for the  shareholder's
taxable year in which (or with which) GenSci's taxable year ends,  regardless of
whether such amounts are actually distributed.

The  effective QEF election  also allows the Electing  U.S.  Shareholder  to (i)
generally  treat any gain realized on the  disposition  of his common shares (or
deemed to be realized on the pledge of his common shares) as capital gain;  (ii)
treat his share of GenSci's net capital gain, if any, as long-term  capital gain
instead of ordinary income,  and (iii) either avoid interest  charges  resulting
from PFIC  status  altogether,  or make an annual  election,  subject to certain
limitations,  to defer payment of current taxes on his share of GenSci's  annual
realized net capital gain and ordinary earnings subject, however, to an interest
charge. If the Electing U.S. Shareholder is not a corporation,  such an interest
charge would be treated as "personal  interest" that is not deductible at all in
taxable years beginning after 1990.

The  procedure a U.S.  shareholder  must comply with in making an effective  QEF
election  will depend on whether  the year of the  election is the first year in
the U.S.  shareholder's  holding  period in which GenSci is a PFIC.  If the U.S.
shareholder  makes a QEF  election  in such  first  year,  i.e.,  a  timely  QEF
election,  then the U.S.  shareholder may make the QEF election by simply filing
the appropriate  documents at the time the U.S. shareholder files its tax return
for such first year. If,  however,  GenSci  qualified as a PFIC in a prior year,
then in  addition  to  filing  documents,  the  U.S.  shareholder  may  elect to
recognize (i) (under the rules of Section 1291 (discussed  below), any gain that
he would  otherwise  recognize  if the U.S.  shareholder  sold his  stock on the
application date or (ii) if GenSci is a controlled foreign corporation, the U.S.
shareholder will be deemed to have made a timely QEF election.

When a timely QEF election is made, if GenSci no longer qualifies as a PFIC in a
subsequent  year,  normal  code  rules  will  apply.  U.S.  shareholders  should
seriously consider making a new QEF election under those circumstances.

If a U.S. shareholder does not make a timely QEF election during a year in which
it holds (or is deemed to have held) the common shares in question and GenSci is
a PFIC (a "Non-electing  U.S.  Shareholder"),  then special taxation rules under
Section  1291 of the Code will apply to (i) gains  realized  on the  disposition
(actual or deemed  disposition)  of his common  shares and (ii) certain  "excess
distributions",  as specially  defined. A retroactive QEF election is available.
U.S. tax advice should be obtained.

Alternatively,  if the Company is a PFIC,  recently  enacted  legislation  would
permit a U.S.  holder who owns common shares of GenSci to generally elect out of
the tax  treatment  discussed two  paragraphs  above,  if a U.S.  holder makes a
mark-to-market  election  with  respect to common  shares of GenSci.  Under such
election,  a U.S. holder would  generally  recognize as ordinary income for each
taxable year an amount equal to the excess,  if any, of the fair market value of
common  shares  of  GenSci  as of the  close of the  taxable  year over the U.S.
holder's  adjusted tax basis in such stock.  A. U.S.  holder would  generally be
allowed an ordinary  deduction  (to the extent of any net  mark-to-market  gains
recognized for prior taxable years) for the excess,  if any, of the adjusted tax
basis of the common  shares of GenSci over its fair market value as of the close
of the taxable  year. A U.S.  holder's  adjusted tax basis of the common  shares
would  generally be adjusted to reflect the amounts



                                       51
<PAGE>


included or deducted under the mark-to-market election.  Additionally,  any gain
on the actual  sale or other  disposition  of the  common  shares  generally  be
treated as ordinary  income.  Ordinary loss treatment also would generally apply
to any loss  realized  on the  actual  sale or other  disposition  of the common
shares to the  extent  that the  amount of such  loss  does not  exceed  the net
mark-to-market gains previously included with respect to such stock. An election
to  mark-to-market  would  generally  apply  to the  taxable  year  made and all
subsequent taxable years. Both a QEF election and a mark-to-market  election are
subject to  complex  and  specific  rules and  requirements.  U.S.  holders  are
strongly urged to consult their tax advisors concerning the QEF election and the
mark-to-market election if the Company is classified as a PFIC.

A  Non-electing  U.S.  Shareholder  generally  would be required to pro-rate all
gains  realized  on  the  disposition  of  his  common  shares  and  all  excess
distributions over the entire holding period for the common shares. All gains or
excess  distributions  allocated to prior years of the U.S.  shareholder  (other
than  years  prior  to the  first  taxable  year  of  GenSci  during  such  U.S.
shareholder's  holding  period and beginning  after January 1, 1987 for which it
was a PFIC)  would be taxed at the  highest  tax rate for each such  prior  year
applicable to ordinary income.  The Non-electing U.S.  Shareholder also would be
liable for  interest on the  foregoing  tax  liability  for each such prior year
calculated  as if such  liability  had been due with  respect to each such prior
year. A Non-electing U.S.  Shareholder that is not a corporation must treat this
interest  charge as "personal  interest"  which,  as discussed  above, is wholly
non-deductible.  The  balance  of the gain or the  excess  distribution  will be
treated as ordinary income in the year of the disposition or  distribution,  and
no interest charge will be incurred with respect to such balance.

If  GenSci is a PFIC for any  taxable  year  during  which a  Non-electing  U.S.
Shareholder  holds common  shares,  then GenSci will continue to be treated as a
PFIC with respect to such common shares, even if it is no longer  definitionally
a PFIC. A Non-electing U.S. Shareholder may terminate this deemed PFIC status by
electing to  recognize  a gain  (which  will be taxed under the rules  discussed
above for Non-Electing U.S. Shareholders) as if such Common Shares had been sold
on the last day of the last taxable year for which it was a PFIC.

Under  Section  1291(f) of the Code,  the  Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing  U.S.  Shareholders that are generally not otherwise taxed, such
as gifts,  exchanges  pursuant to corporate  reorganizations,  and  transfers at
death.

Certain special,  generally adverse, rules will apply with respect to the common
shares  while  GenSci  is a PFIC  whether  or not it is  treated  as a QEF.  For
example,  under Section 1298(b)(6) of the Code, a U.S. shareholder who uses PFIC
stock as security for a loan  (including  a margin loan) will,  except as may be
provided in regulations, be treated as having made a taxable disposition of such
stock.

The foregoing  discussion is based on existing  provisions of the Code, existing
and proposed regulations hereunder, and current administrative rulings and court
decisions,  all of which are subject to change. Any such change could affect the
validity of this discussion.  In addition, the implementation of certain aspects
of the PFIC rules requires the issuance of  regulations  which in many instances
have not been promulgated and which may have retroactive effect. There can be no
assurance that any of these proposals will be enacted or promulgated, and if so,
the form  they will take or the  effect  that they may have on this  discussion.
Accordingly,  and due to the complexity of the PFIC rules,  U.S. persons who are
shareholders  of GenSci are  strongly  urged to consult  their own tax  advisors
concerning the impact of these rules on their investment in GenSci.

CONTROLLED FOREIGN CORPORATION

If more than 50% of the voting  power of all classes of stock or the total value
of the  stock of GenSci  is  owned,  directly  or  indirectly,  by  citizens  or
residents  of  the  United  States,  United  States  domestic  partnerships  and
corporations or estates or trusts other than foreign estates or trusts,  each of
whom own 10% or more of the total combined  voting power of all classes of stock
of GenSci or the total  value of the  stock of  ("United  States  shareholder"),
GenSci could be treated as a "controlled foreign corporation" under Subpart F of
the Code. This  classification  would effect many complex results  including the
required  inclusion by such United  States  shareholders  in income of their pro
rata shares of "Subpart F income" (as  specially  defined by the Code) of GenSci
and GenSci's earnings invested in U.S. property. In addition, under Section 1248
of the Code, gain from the sale or exchange of common shares of GenSci by a U.S.
person  who is or was a United  States  shareholder  (as  defined in the Code) a
holder of common shares of GenSci who is or was a United States  shareholder  at
any time during the five year period ending with the sale or exchange is treated
as  ordinary  dividend  income to the extent of  earnings  and profits of GenSci
attributable  to the stock  sold or  exchanged.




                                       52
<PAGE>


Because of the complexity of Subpart F, and because it is not clear that Subpart
F would apply to the holders of common shares of GenSci,  a more detailed review
of these rules is outside of the scope of this discussion.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general,  information  reporting  requirements  will apply to any payments of
dividends  in  respect  of  the  common  shares  and  proceeds  received  on the
disposition of the common shares,  and proceeds  received on the  disposition of
the common shares, paid within the United States (and in certain cases,  outside
the United States) to U.S. Holders other than certain exempt recipients (such as
corporations),  and 31% backup withholding may apply to such amounts if the U.S.
Holder  fails to  provide  an  accurate  taxpayer  identification  number  or is
otherwise subject to backup  withholding.  The amount of any backup  withholding
from a payment to a U.S.  Holder  will be allowed as a credit  against  the U.S.
Holder's U.S. federal income tax liability.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENTS BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

GenSci  Regeneration  Sciences  Inc.,  Suite  1000,  1235 Bay  Street,  Toronto,
Ontario, Canada, M5R 3K4

I. SUBSIDIARY INFORMATION

Not applicable.

ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE

A majority of the Company's  revenue and operating  expenses is  denominated  in
U.S.  dollars.  The  Company's  financial  statements  are  reported in Canadian
currency and are subject to  fluctuations in exchange rates between the Canadian
and the U.S. dollar.

INFLATION

The Company does not believe its  operations  have been  materially  impacted by
inflation.

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITITES

None.






                                       53
<PAGE>



PART II

ITEM 13 - DEFAULTS, DIVIDENDS ARREARAGES AND DELIQUENCIES

None.

     ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIY HOLDERS AND USE
     OF PROCEEDS

None.

ITEM 15 - CONTROLS AND PROCEDURES

The Company's  principal  executive officer and principal financial officer have
evaluated  the  effectiveness  of the  disclosure  controls and  procedures  (as
defined in  Exchange  Act Rules  13a-14 and  15d-14) of the Company as of a date
within 90 days prior to the filing  date of this  annual  report.  Based on such
evaluation, the conclusion of such officers is that such controls and procedures
are  effective  to ensure that  material  information  relating to the  Company,
including its consolidated subsidiaries,  is made known to them by others within
the Company and its consolidated subsidiaries, particularly during the period in
which this annual report is being prepared.

During  and after such  evaluation,  there  were no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
these  controls  subsequent  to the  date of  their  evaluation,  including  any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

ITEM 16 - RESERVED

PART III

ITEM 17 - FINANCIAL STATEMENTS

See the Consolidated  Financial Statements and Exhibits listed as Item 17 hereof
and filed as part of this Annual Report.

These financial  statements were prepared in accordance with generally  accepted
accounting  principles  in Canada and are  expressed in Canadian  dollars.  Such
financial  statements have been reconciled to United States  generally  accepted
accounting principles (see Note 17 therein).  For a history of exchange rates in
effect for Canadian dollars as against U.S. dollars, see Item 3.A of this Annual
Report.

ITEM 18 - FINANCIAL STATEMENTS

Not applicable

ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS

(a)  Consolidated Financial Statements

F-1. Auditors' Report.

F-2. Consolidated Balance Sheets as at December 31, 2001 and December 31, 2000.

F-3. Consolidated Statements of Loss and Deficit for the year ended December 31,
     2001, December 31, 2000 and December 31, 1999.

F-4. Consolidated Statements of Changes in Financial Position for the year ended
     December 31, 2001, December 31, 2000 and December 31, 1999.

F-5. Notes to Consolidated Financial Statements

F-26. Schedule II - Valuation and Qualifying Accounts

Pursuant to the  requirements  of section 12 of the  Securities  Exchange Act of
1934, the Registrant  certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused  this Annual  Report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                       54
<PAGE>



Dated at Irvine, California, this 15th day of May, 2003.

                        GENSCI REGENERATION SCIENCES INC.


                                                 By: /s/ Peter B. Ludlum
                                                     --------------------
                                                 Peter B. Ludlum
                                                 Chief Financial Officer





                                       55
<PAGE>



                                 CERTIFICATIONS

I, Douglass C. Watson,  President and Chief Executive Officer of the registrant,
certify  that:  I have  reviewed  this  annual  report  on Form  20-F of  GenSci
Regeneration Sciences Inc.;

Based on my knowledge,  this annual report does not contain any untrue statement
of a  material  fact or omit to  state a  material  fact  necessary  to make the
statements made, in light of the circumstances  under which such statements were
made, not  misleading  with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information
included in this annual  report,  fairly  present in all  material  respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report; The registrant's other
certifying  officers and I are  responsible  for  establishing  and  maintaining
disclosure  controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:

                  a)       Designed such  disclosure  controls and procedures to
                           ensure  that  material  information  relating  to the
                           registrant,  including its consolidated subsidiaries,
                           is made known to us by others within those  entities,
                           particularly  during the period in which this  annual
                           report is being prepared;

                  b)       Evaluated  the   effectiveness  of  the  registrant's
                           disclosure  controls  and  procedures  as  of a  date
                           within  90  days  prior  to the  filing  date of this
                           annual report (the "Evaluation Date"); and

                  c)       Presented in this annual report our conclusions about
                           the  effectiveness  of the  disclosure  controls  and
                           procedures   based  on  our   evaluation  as  of  the
                           Evaluation Date;

The registrant's  other certifying  officers and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

                  a)       All   significant   deficiencies  in  the  design  or
                           operation of internal  controls which could adversely
                           affect the registrant's  ability to record,  process,
                           summarize   and  report   financial   data  and  have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       Any fraud,  whether or not  material,  that  involves
                           management or other  employees who have a significant
                           role in the registrant's internal controls; and

The registrant's  other certifying  officers and I have indicated in this annual
report whether there were significant  changes in internal  controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent  evaluation,  including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  May 15, 2003         /s/ Douglass C. Watson
                            -------------------------------------------------
                                           Douglass C. Watson
                                 President and Chief Executive Officer


                                       56
<PAGE>



                                 CERTIFICATIONS

I,  Peter  B.  Ludlum,  Vice  President  and  Chief  Financial  Officer  of  the
registrant,  certify  that: I have  reviewed  this annual report on Form 20-F of
GenSci Regeneration Sciences Inc.;

Based on my knowledge,  this annual report does not contain any untrue statement
of a  material  fact or omit to  state a  material  fact  necessary  to make the
statements made, in light of the circumstances  under which such statements were
made, not  misleading  with respect to the period covered by this annual report;
Based on my knowledge, the financial statements, and other financial information
included in this annual  report,  fairly  present in all  material  respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report; The registrant's other
certifying  officers and I are  responsible  for  establishing  and  maintaining
disclosure  controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:

                  a)       Designed such  disclosure  controls and procedures to
                           ensure  that  material  information  relating  to the
                           registrant,  including its consolidated subsidiaries,
                           is made known to us by others within those  entities,
                           particularly  during the period in which this  annual
                           report is being prepared;

                  b)       Evaluated  the   effectiveness  of  the  registrant's
                           disclosure  controls  and  procedures  as  of a  date
                           within  90  days  prior  to the  filing  date of this
                           annual report (the "Evaluation Date"); and

                  c)       Presented in this annual report our conclusions about
                           the  effectiveness  of the  disclosure  controls  and
                           procedures   based  on  our   evaluation  as  of  the
                           Evaluation Date;

The registrant's  other certifying  officers and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

                  a)       All   significant   deficiencies  in  the  design  or
                           operation of internal  controls which could adversely
                           affect the registrant's  ability to record,  process,
                           summarize   and  report   financial   data  and  have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       Any fraud,  whether or not  material,  that  involves
                           management or other  employees who have a significant
                           role in the registrant's internal controls; and

The registrant's  other certifying  officers and I have indicated in this annual
report whether there were significant  changes in internal  controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent  evaluation,  including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  May 15, 2003            /s/ Peter B. Ludlum
                               -------------------------------------------------
                                               Peter B. Ludlum
                                  Vice President and Chief Financial Officer



                                       57
<PAGE>


                                AUDITORS' REPORT

To the Board of Directors of
GENSCI REGENERATION SCIENCES INC.

We have audited the consolidated balance sheets of GenSci Regeneration  Sciences
Inc. as at December 31, 2002 and 2001 and the  consolidated  statements  of loss
and deficit and cash flows for each of the years in the three-year  period ended
December 31, 2002.  Out audits also  included the financial  statement  schedule
listed in Item 19. These  financial  statements and the  accompanying  financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion on these  financial  statements and the
financial statements schedule based on our audits.

We conducted our audits in accordance with Canadian and United States  generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable  assurance whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the  results of its  operations  and its cash flows for each of the
years in the  three-year  period  ended  December  31, 2002 in  accordance  with
Canadian generally accepted  accounting  principles.  Also, in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the basic consolidated  financial statements taken as a whole,  presents fairly,
in all material  respects,  the information set forth herein. As required by the
Companies  Act  (British  Columbia)  we  report  that,  in  our  opinion,  these
principles  have been applied on a basis  consistent  with that of the preceding
year,  except  for the change in the  methods of  accounting  for  goodwill  and
intangible  assets  and  accounting  for stock  options  and  other  stock-based
compensation as explained in note 4 to the consolidated financial statements.


Toronto, Canada,                                    /s/ Ernst & Young LLP
                                                   ----------------------
April 18, 2003.                                    Chartered Accountants


              COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S.
                              REPORTING DIFFERENCE

In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  [following the opinion  paragraph] when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
note 2 to the consolidated financial statements.  Our report to the shareholders
dated  April  18,  2003 is  expressed  in  accordance  with  Canadian  reporting
standards  which do not permit a reference to such events and  conditions in the
auditors'   report  when  these  are  adequately   disclosed  in  the  financial
statements.



Toronto, Canada,                                    /s/ Ernst & Young LLP
                                                    ----------------------
April 18, 2003.                                     Chartered Accountants

                                      F-1
<PAGE>


GENSCI REGENERATION SCIENCES INC.
Incorporated under the laws of British Columbia

                           CONSOLIDATED BALANCE SHEETS
                              [in Canadian dollars]
   [See note 2 - Bankruptcy proceedings, going concern and subsequent events]


<TABLE>
<CAPTION>

As at December 31
                                                                          2002               2001
                                                                            $                  $
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>

ASSETS
CURRENT
Cash and cash equivalents [note 5]                                     3,282,836        1,094,387
Short-term investments [note 5]                                           90,000               --
Restricted cash [note 13[a]]                                                  --           79,368
Accounts receivable, net of allowance for doubtful
   accounts of $166,387 [2001 - $497,962]                              3,846,821        4,901,497
Other receivable [note 11]                                               175,000          900,000
Processing costs and inventory, net of provision
   of $867,680 [2001 - $1,775,972]                                     6,085,960        7,331,868
Prepaid expenses and deposits                                            879,175          345,582
----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                  14,359,792       14,652,702
----------------------------------------------------------------------------------------------------
Restricted cash [note 15]                                                856,534               --
Capital assets, net [note 6]                                           1,379,834        1,535,065
Goodwill                                                                 469,828          469,828
Intangible assets, net [note 7]                                          142,402          957,886
-------------------------------------------------------------------------------------------------
                                                                      17,208,390       17,615,481
====================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT
Accounts payable and accrued liabilities                               3,648,788        1,671,561
Current portion of obligations under capital leases [note 13[b]]         126,600          218,390
----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE                    3,775,388        1,889,951
Current liabilities subject to compromise [note 8]                    32,627,785       31,543,310
Obligations under capital leases [note 13[b]]                                 --          127,820
----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                     36,403,173       33,561,081
----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES [NOTES 13 AND 15]

SHAREHOLDERS' DEFICIENCY
Capital stock [note 9]
   Authorized
     100,000,000 common shares
     100,000,000 preferred shares
   Issued and outstanding
     52,574,459 common shares                                       80,846,320         80,846,320
Contributed surplus [note 10]                                        4,434,549                 --
Deficit                                                           (105,454,613)       (97,630,903)
Cumulative translation account                                         978,961            838,983
----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIENCY                                     (19,194,783)       (15,945,600)
----------------------------------------------------------------------------------------------------
                                                                    17,208,390         17,615,481
====================================================================================================
</TABLE>


See accompanying notes

<TABLE>
<CAPTION>
<S>                       <C>                                   <C>
On behalf of the Board:             Signed by                       Signed by

                                 Robert Bechard                  James S. Trotman, MD

                  Director, Chairman of the Audit Committee    Chairman of the Board
</TABLE>


                                                                F-2
<PAGE>


GenSci Regeneration Sciences Inc.


                   CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
                              [in Canadian dollars]

<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                          2002              2001             2000
                                                            $                $                 $
-------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>
REVENUES                                            34,481,612        40,444,833       45,827,426
-------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
Cost of sales                                       11,743,981        15,870,114       14,144,268
Marketing, general and administrative               19,091,593        31,281,351       30,174,661
Research and development                             3,406,232         4,187,176        2,744,708
-------------------------------------------------------------------------------------------------------
                                                    34,241,806        51,338,641       47,063,637
-------------------------------------------------------------------------------------------------------
Income (loss) before the following                     239,806       (10,893,808)      (1,236,211)

Interest income                                         30,940           205,909          538,065
Interest expense                                       (44,119)          (16,493)              --
Amortization                                          (959,819)       (1,089,598)      (1,381,968)
Reorganization costs [note 8]                       (1,356,428)               --               --
Write-down of intangible assets [note 7]              (457,955)       (1,470,578)              --
Reserve for litigation verdict [note 15]            (1,705,265)      (23,098,189)              --
-------------------------------------------------------------------------------------------------------
Loss from continuing operations                     (4,252,840)      (36,362,757)      (2,080,114)
Gain (loss) from discontinued operations [note 11]     415,000          (596,928)      (4,928,623)
-------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR                               (3,837,840)      (36,959,685)      (7,008,737)

Deficit, beginning of year                         (97,630,903)      (60,671,218)     (53,662,481)
-------------------------------------------------------------------------------------------------------
Adjustment for change in
   accounting policy [note 4[b]]                    (3,985,870)               --               --
-------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR                              (105,454,613)      (97,630,903)     (60,671,218)
=======================================================================================================
BASIC AND DILUTED LOSS PER SHARE
From continuing operations                               (0.08)           (0.69)            (0.04)
From discontinued operations                              0.01            (0.01)            (0.11)
-------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE                                       (0.07)           (0.70)            (0.15)
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
Weighted average number of common shares
   outstanding                                      52,574,459        52,574,459       47,443,142
=======================================================================================================
</TABLE>

See accompanying notes
                                       F-3

<PAGE>


GenSci Regeneration Sciences Inc.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              [in Canadian dollars]

<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>

OPERATING ACTIVITIES
Loss from continuing operations                     (4,252,840)      (36,362,757)      (2,080,114)
Add (deduct) items not involving cash
   Amortization                                        959,819         1,089,598        1,381,968
   Write-down of intangible assets                     457,955         1,470,578               --
   Stock-based compensation                            448,679                --               --
   Other                                                34,130            17,047           (1,309)
   Accrued litigation claim                          1,705,265        23,098,189               --
---------------------------------------------------------------------------------------------------------
                                                      (646,992)      (10,687,345)        (699,455)
Net change in non-cash working capital balances related
   to continuing operations [note 16]                3,411,094         2,048,898       (4,809,756)
---------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities      2,764,102        (8,638,447)      (5,509,211)
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Restricted cash                                       (848,674)               --               --
Purchase of short-term investments                     (90,000)               --          (16,000)
Sale of short-term investments                              --           516,000               --
Purchase of capital assets                            (501,230)         (313,083)      (1,167,943)
Acquisition of technology                                   --                --         (384,000)
---------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities     (1,439,904)          202,917       (1,567,943)
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares, net                              --                --       13,970,523
Proceeds from capital lease financing                       --           373,267               --
Repayment of capital lease debt                       (215,801)          (30,166)              --
Proceeds from line of credit                                --         1,448,845               --
Repayment of line of credit                                 --        (1,448,845)              --
Costs of financing                                          --                --         (271,931)
---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES       (215,801)          343,101       13,698,592
---------------------------------------------------------------------------------------------------------

Foreign exchange gain (loss) on cash held in
   foreign currency                                    (59,948)          (12,920)           1,674
---------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash from
Continuing operations                                1,048,449        (8,105,349)       6,623,112
Discontinued operations [note 11]                    1,140,000          (707,889)      (1,356,505)
---------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   DURING THE YEAR                                   2,188,449        (8,813,238)       5,266,607
Cash and cash equivalents, beginning of year         1,094,387         9,907,625        4,641,018
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year               3,282,836         1,094,387        9,907,625
---------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes

                                                                F-4
<PAGE>


GENSCI REGENERATION SCIENCES INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               [in Canadian dollars, except where otherwise noted]
                                December 31, 2002


1. NATURE OF BUSINESS

GenSci Regeneration  Sciences Inc. ["GenSci" or collectively with one or more of
its  subsidiaries,  the "Company"] is a publicly traded company whose shares are
listed on the Toronto Stock Exchange  ["TSX" -GNS] and trade over the counter in
the United States.  Corporate  headquarters are located in Toronto,  Canada with
subsidiaries based in Irvine, California and Montreal, Canada.

The Company provides surgeons with  biologically-based  products for bone repair
and regeneration.  Through its subsidiaries, the Company develops,  manufactures
and markets its products for orthopedics,  neurosurgery  and oral  maxillofacial
surgery.  The  Company is  focused  on  increasing  the  efficacy  and safety of
orthobiologic materials and developing innovative products to promote the body's
natural ability to repair and regenerate musculoskeletal tissue.

2. BANKRUPTCY PROCEEDINGS, GOING CONCERN AND SUBSEQUENT EVENTS

On December  20, 2001 [the  "Petition  Date"],  GenSci and its U.S.  subsidiary,
GenSci OrthoBiologics,  Inc. ["GenSci OrthoBiologics"]  collectively referred to
as the "Debtors", voluntarily filed petitions for relief under Chapter 11 of the
U.S.  Bankruptcy  Code  ["Chapter  11"] in the  U.S.  Bankruptcy  Court  Central
District of California, Santa Ana Division [the "Bankruptcy Court"]. The Debtors
elected to take this action as a result of the verdicts in the patent litigation
proceedings as described in note 15.

The Debtors are presently operating their businesses under bankruptcy protection
as  debtors-in-possession.  The bankruptcy  proceedings of the Debtors are being
jointly  administered  for  procedural  purposes,   but  are  not  substantively
consolidated.  Substantially  all the assets and  liabilities of the Company are
involved in the Bankruptcy proceedings.

Under the  provisions of Chapter 11, the Company is required to present,  to the
Bankruptcy  Court,  a plan  of  reorganization  setting  out  the  terms  of the
restructure of its obligations.  The Plan of  Reorganization  was filed with the
Bankruptcy Court on April 18, 2003 with a Disclosure Statement hearing scheduled
for May 30, 2003. The submitted plan proposes the following treatment:

(g)  Shareholders   shall  retain  their   interests  in  the  Debtors  and  are
     unimpaired.

(h)  Allowed  Secured  Claims in the amount of  U.S.$28,976  shall be paid under
     their original terms in the ordinary course of business.

(i)  Allowed  Priority  Claims in the  amount of  U.S.$98,832  are to be paid in
     deferred cash payments in equal semi-annual  installments over a period not
     exceeding six years,  plus simple  interest,  at the Federal Judgment Rate,
     from a date  selected by the Debtors  that is no later than sixty (60) days
     after  the  date  of  confirmation  of the  Plan of  Reorganization  by the
     Bankruptcy Court [the "Effective Date"] on the unpaid balance.

(j)  All   Claim(s)  of   Osteotech   Inc.   ["Osteotech"]   in  the  amount  of
     U.S.$7,500,000  are  covered  by  the  proposed,  and  not  yet  finalized,
     Settlement  Agreement which calls for payment of U.S.$7.5  million of which
     Osteotech will receive an initial  payment of $1 million on, or about,  the
     Effective Date of the Company's Plan of  Reorganization,  and the remaining
     U.S.$6.5 million will be paid in twenty  consecutive  quarterly payments of
     U.S.$325,000  per  quarter  plus  simple  interest  payable at the  Federal
     Judgment Rate,  capped for purposes of future  interest  payments at 3% per
     annum.  The U.S.$6.5 shall be secured as follows:  the first U.S.$5 million
     in  quarterly  payments  shall be  secured  by a letter  of credit or other
     security and the last U.S.$1.5  million will be secured by a junior lien on
     the  assets of

     GenSci   OrthoBiologics,   subordinated   to  liens   granted   by   GenSci
     OrthoBiologics to secure indebtedness from commercial and/or  institutional
     lenders [see note 15].

(k)      Administrative   Convenience   Class  [Allowed   Unsecured   Claims  of
         U.S.$6,000 or less] in the amount of U.S.$110,009  shall be entitled to
         a  distribution  of one  hundred  percent  [100%]  of their  respective
         Allowed  Claims,  within 120 days after the Effective  Date with simple
         interest  accruing,  at the Federal  Judgment Rate,  from and after the
         Effective Date.

                                      F-5
<PAGE>


(l)  Allowed   Unsecured  Claims  of  unsecured   creditors  in  the  amount  of
     U.S.$6,694,784 have been given two options:

  Option A:    Creditors  shall be  entitled  to a  distribution  of one hundred
               percent [100%] of their  respective  Allowed Claims,  with simple
               interest  accruing,  at the Federal Judgment Rate, from and after
               the Effective  Date.  Distribution  shall be in twenty [20] equal
               quarterly  installments payable over five [5] years commencing on
               the later [i] of the 60th day after the Effective Date or [ii] if
               such Claim is Disputed,  such quarterly  installments  referenced
               above shall  commence on the tenth [10th]  Business Day after the
               entry of a Final Order  allowing  the Claim,  or [iii] such other
               time or times as may be agreed to by the holder of such Claim and
               the Debtors. Debtors shall retain any and all rights to object to
               such  claims,  and/or  to assert  any  setoff  or  counter  claim
               thereto.  A 10% per  annum  discount  [not to  exceed a 20% total
               discount]  will  apply to  distributions  paid off in full at the
               sole discretion of the Debtors.

 Option B:     Creditors  shall have their claim fixed at a distribution  amount
               proposed by the Company [the "proposed  distribution amount"] set
               forth for each unsecured claim with simple interest accruing,  at
               the Federal  Judgment  Rate,  from and after the Effective  Date.
               Debtors  shall  waive  and  release  any right to object to their
               "proposed  distribution amount", or to assert any setoff thereto.
               A creditor  selecting  Payment  Option B shall be  entitled  to a
               distribution of the "proposed  distribution  amount" in eight [8]
               equal   quarterly   installments   payable  over  two  [2]  years
               commencing on the 60th or 120th day after the Effective Date. The
               total  amount  proposed  by the  Company  for all  claims in this
               category is U.S.$2,194,248.

These  consolidated  financial  statements  have  been  prepared  on the  "going
concern"  basis,  which  presumes  that the Company  will be able to realize its
assets and  discharge its  liabilities  in the normal course of business for the
foreseeable future.

There is  substantial  doubt about the Company's  ability to continue as a going
concern because of the Chapter 11 bankruptcy  proceedings.  Although the Company
has filed a Plan of Reorganization  with the Bankruptcy  Court,  there can be no
assurance  that the Company will  successfully  receive Court  approval and meet
other conditions necessary to emerge from bankruptcy.  In addition,  the Company
has  incurred  significant  losses  during  the  last  three  years  and  has  a
shareholders'  deficiency of  $19,194,783  as at December 31, 2002. As such, the
realization of the Company's  assets and discharge of its liabilities is subject
to significant uncertainty.

The Company's ability to continue as a going concern is dependent upon continued
protection by the Bankruptcy Court,  confirmation of the Plan of Reorganization,
emergence from bankruptcy,  achieving and maintaining  profitable operations and
obtaining additional financing. The outcome of these matters cannot be predicted
at this time.  The  consolidated  financial  statements  have been prepared on a
going  concern  basis and do not  include  any  adjustments  to the  amounts and
classifications of the assets and liabilities that might be necessary should the
Company be unable to continue in business. Such adjustments could be material.

3. SIGNIFICANT ACCOUNTING POLICIES

These  consolidated  financial  statements have been prepared in accordance with
Canadian  generally  accepted  accounting  principles  ["Canadian GAAP"] and are
stated in Canadian  dollars.  These  principles  are also in  conformity  in all
material respects with United States generally  accepted  accounting  principles
["U.S.  GAAP"]  except as  described  in note 18 to the  consolidated  financial
statements. The most significant accounting policies are as follows:

Principles of consolidation

These consolidated  financial  statements include the accounts of GenSci and its
wholly-owned subsidiaries, GenSci Orthobiologics, a U.S. company, and Osteopharm
Inc., a Canadian company, until disposed of on

                                      F-6
<PAGE>
December 15, 2002, and GenSci OCF Inc. ["GenSci OCF"], which is 60% [2001 - 60%]
owned by the Company.

All significant  intercompany  balances and  transactions,  including profits in
inventories, have been eliminated upon consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with Canadian
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  the
disclosure of contingent  assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual amounts could differ from those estimates.

Cash and cash equivalents and short-term investments

Cash  and cash  equivalents  consist  of all bank  accounts  and  highly  liquid
investments  with  original  maturities  of less than ninety days at the time of
purchase.

Short-term  investments  are  temporary  investments  with  original  maturities
greater than ninety days at the time of purchase.

Processing costs and inventory

Processing costs relate to the processing of human tissue. Inventory consists of
packaging supplies.  Processing costs and inventory are recorded at the lower of
average cost and estimated net realizable value.

Capital assets

Capital assets are recorded at cost less accumulated amortization.  Amortization
is provided on a straight-line basis designed to amortize the cost of the assets
over their estimated useful lives as follows:

Laboratory machinery and equipment               5 years
Leasehold improvements                           over the term of the lease
Computer equipment                               3 to 5 years
Office equipment                                 3 to 5 years

Assets under construction are not amortized until put into use.

Goodwill and intangible assets

Effective  January 1, 2002,  the  Company  adopted  The  Canadian  Institute  of
Chartered  Accountants  Handbook  Section 3062 - Goodwill  and Other  Intangible
Assets ["Section 3062"], see note 4 [a].

Goodwill  represents the excess of the  consideration  paid over the fair market
value of the  identifiable  net assets  acquired at the dates of  acquisition of
GenSci's  subsidiaries.  The  Company  performs  an  annual  impairment  test to
ascertain  whether  or not a  decline  in the  carrying  value  of any  recorded
goodwill balances should be recognized. The Company compares the carrying values
of its reporting  units to their fair values.  If the carrying value exceeds the
fair value for any of its reporting units, the goodwill of the reporting unit is
potentially impaired. In order to determine if such potential impairment exists,
the Company  compares the carrying  amount of goodwill of the reporting  unit to
its implied  fair value.  If the implied fair value of goodwill is less than the
carrying  value  the  Company   recognizes  an  impairment  loss  equal  to  the
difference. Such an impairment loss would be charged to earnings.

Intangible  assets include  patents and  technology  costs which are recorded at
cost less accumulated amortization.

The cost of  patents  is  amortized  on a  straight-line  basis over a period of
between fifteen to seventeen years.

                                      F-7

<PAGE>
Technology  represents  consideration paid for purchased  technology pursuant to
acquisitions  and  acquisitions  of licenses to use  technology.  Such costs are
amortized on a straight-line basis over the estimated useful lives of the assets
over a period of between three and fifteen years.

The Company continually  evaluates on an ongoing basis the carrying value of all
intangibles for potential  permanent  impairment by comparing the carrying value
of these intangible assets to the estimated  undiscounted  future net cash flows
to be generated by the related asset. If impairment  exists, a provision for the
difference  between the carrying value and estimated  undiscounted cash flows to
be generated by the related assets is recorded through earnings in the year that
such impairment became evident.

RESEARCH AND DEVELOPMENT COSTS

Research  costs are  expensed  in the  period  incurred.  Development  costs are
expensed  in the period  incurred  unless the Company  believes a project  meets
generally accepted accounting  criteria for deferral and amortization.  Deferred
development  costs  include  direct  materials,  labour and  overhead  expenses.
Deferred  development  costs are  amortized on a  straight-line  basis over five
years. No development costs were deferred as at December 31, 2002 and 2001.

REVENUE RECOGNITION

The Company derives  revenue from the sale of products used in surgery.  Revenue
from product sales is recognized when title to the products has passed and there
has been a transfer  of  significant  risks and rewards of  ownership,  which is
generally at the time products are delivered to the Company's customers.

FOREIGN CURRENCY TRANSLATION

GenSci's U.S.  subsidiary is considered a self-sustaining  foreign operation and
its accounts are  translated  using the current rate method.  Under this method,
the assets and  liabilities are translated at the rates of exchange in effect at
the consolidated balance sheet dates. Revenue and expenses are translated at the
average  exchange rate during the year.  Unrealized  gains and losses arising on
translation  are  charged  to the  cumulative  translation  account,  a separate
component of shareholders' deficiency.

The Company's monetary assets and liabilities  denominated in a foreign currency
are translated  into Canadian  dollars at the rates of exchange in effect at the
consolidated  balance sheet dates.  Revenue and expenses are translated at rates
of  exchange  prevailing  on the  transaction  dates.  Exchange  gains or losses
resulting from translation are included in net loss for the year.

INCOME TAXES

The Company  follows the liability  method of tax  allocation in accounting  for
income taxes.  Under this method,  future income tax assets and  liabilities are
determined  based on the  differences  between the  financial  reporting and tax
bases of assets and liabilities and are measured using the substantively enacted
tax rates and laws that are  expected  to be in effect in the years in which the
future income tax assets or liabilities  are expected to be realized or settled.
A valuation  allowance is provided to the extent that it is more likely than not
that future income tax assets will not be realized.

STOCK-BASED COMPENSATION

Effective  January 1, 2002,  the  Company  adopted  The  Canadian  Institute  of
Chartered Accountants Handbook Section 3870 - Stock-Based Compensation and Other
Stock-Based Payments ["Section 3870"], see note 4 [b].

The Company has a stock option plan,  which is described in note 9[d]. Under the
Company's stock option plan, all stock options granted can be exercised as stock
appreciation  rights.  The  Company  accounts  for its  employee,  director  and
consultant grants under this plan in accordance with the fair value-based method
of accounting for stock-based compensation.

Compensation  expense  is  determined  as of the date of the  grant  and is then
recognized  on a consistent  basis over the vesting  period of the options as an
increase to compensation expense and contributed


                                      F-8

<PAGE>
surplus.  When the options are exercised,  the proceeds received by the Company,
together  with the amount in  contributed  surplus,  will be  credited to common
share capital.  The Company estimates the fair value of a stock option using the
Black-Scholes option pricing model.

The Black-Scholes model, used by the Company to calculate option values, as well
as other  accepted  valuation  models were  developed to estimate  fair value of
freely tradable, fully transferable options without vesting restrictions,  which
significantly  differ from the Company's stock option awards.  These models also
require  four  highly  subjective  assumptions,  including  future  stock  price
volatility and expected time until exercise, which greatly affect the calculated
values.  Accordingly,  management  believes that these models do not necessarily
provide a  reliable  single  measure of the fair  value of the  Company's  stock
option awards.

LOSS PER SHARE

Basic loss per share has been determined by dividing net loss [the numerator] by
the weighted  average  number of common  shares  outstanding  [the  denominator]
during the year.  Diluted loss per share  reflects the dilution that would occur
if  outstanding  stock options and share  purchase  warrants  were  exercised or
converted into common shares using the treasury stock method. The computation of
diluted loss per share does not include stock options and warrants with dilutive
potential that would have an anti-dilutive  effect on loss per share.  Therefore
stock options and share  purchase  warrants are excluded  from the  computation.
Consequently,  there is no  difference  between basic loss per share and diluted
loss per share.

4. CHANGES IN ACCOUNTING POLICIES

[a] GOODWILL AND INTANGIBLE ASSETS

Effective  January 1, 2002,  the Company has adopted The  Canadian  Institute of
Chartered   Accountants  issued  Handbook  Section  3062,  "Goodwill  and  Other
Intangible Assets" [" Section 3062"].

Previously,  goodwill was amortized on a straight-line  basis over the estimated
useful life of the asset over a period of seven years. In addition,  the Company
would  evaluate on an ongoing basis the carrying value of goodwill for potential
permanent  impairment  by  comparing  the  carrying  value  of  goodwill  to the
estimated related  undiscounted future net cash flows. Any permanent  impairment
in the value of goodwill was written off against  earnings in the year that such
impairment became evident.

Section 3062 changed the accounting  for goodwill and intangible  assets with an
indefinite  life from an  amortization  method to an  impairment-only  approach.
Thus,  amortization of goodwill,  including  goodwill  recorded in past business
combinations,  and amortization of intangibles  with an indefinite life,  ceased
upon  adoption  of Section  3062.  Upon  adoption of Section  3062,  the Company
determined that it has no intangible assets of indefinite life. As of January 1,
2002,  entities are required to perform a transitional test to ascertain whether
or not they should  recognize a decline in the  carrying  value of any  recorded
goodwill  balances  as  at  that  date.  Impairment  tests  are  required  to be
re-performed  on  at  least  an  annual  basis  and  any  subsequent  impairment
provisions would be charged to income.

The Company  completed a transitional  impairment  test to identify if there was
potential  impairment  to the goodwill as at January 1, 2002.  To determine  the
amount of the  impairment  at January 1, 2002,  the Company  used the fair value
methodology based on budget information to generate representative values of the
future cash flows  attributable  to its  reporting  unit.  This differs from the
undiscounted   cash  flow   methodology   utilized  by  the  Company  to  assess
recoverability  of  goodwill in prior  years.  The  Company  determined  that no
impairment in the value of goodwill has occurred.

The Company  has  selected  December  31 as the date it will  perform its annual
impairment  test, and has determined that there was no impairment of goodwill as
at December 31, 2002.

As required under Section 3062,  this change was adopted January 1, 2002 with no
restatement of prior period amounts.

The following  outlines the net loss and basic and diluted loss per share impact
that these changes would have had on the year of initial  application  and prior
years ended December 31:


                                      F-9

<PAGE>


<TABLE>
<CAPTION>
                                                          2002              2001             2000
                                                            $                $                 $
----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>            <C>
Reported net loss                                   (3,837,840)      (36,959,685)      (7,008,737)
Amortization of goodwill                                    --            81,082          121,418
Related income tax effect                                   --                --               --
----------------------------------------------------------------------------------------------------------------
Adjusted net loss                                   (3,837,840)      (36,878,603)      (6,887,319)
================================================================================================================
Adjusted basic and diluted loss per share                (0.07)           (0.70)            (0.15)
================================================================================================================
</TABLE>

[b] STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION

Effective  January 1, 2002,  the Company has adopted The  Canadian  Institute of
Chartered  Accountants issued Handbook Section 3870,  "Stock-Based  Compensation
and Other Stock-Based Payments" ["Section 3870"].

Previously,  no compensation  expense was recognized for stock options and stock
appreciation rights issued to employees, directors and consultants.

Section 3870 requires  entities to measure stock  appreciation  rights that call
for settlement by the issuance of equity instruments and present them as equity.
Under the Company's stock option plan, described in note 9[d], all stock options
granted can be  exercised  as stock  appreciation  rights.  As  permitted  under
Section 3870, the Company  elected to measure and recognize  stock  appreciation
rights  based  on  the  fair  value  of  the  equity  instrument.   Accordingly,
compensation  expense  is  determined  as of the date of the  grant  and is then
recognized  on a consistent  basis over the vesting  period of the options as an
increase to compensation expense and contributed  surplus.  When the options are
exercised,  the proceeds  received by the Company,  together  with the amount in
contributed  surplus,  will be credited  to common  share  capital.  The Company
estimates  the fair  value of a stock  option  using  the  Black-Scholes  option
pricing model.

The impact of this change in accounting policy is detailed below:

Section 3870, requires that the cumulative amount relating to stock appreciation
rights outstanding at the beginning of the fiscal year of adoption be charged to
the opening retained earnings for that fiscal year, without restatement of prior
periods presented. Accordingly, the Company charged $3,985,870 to the deficit at
January 1, 2002 and an increase in contributed surplus of $3,985,870.

The fair value of the  options  granted  was  estimated  as of the date of grant
using the Black-Scholes  option pricing model. The weighted average  assumptions
for stock  appreciation  rights issued prior to January 1, 2002 were as follows:
risk free  interest  rate of 4.72%,  expected  dividend  yield of nil,  expected
volatility of 0.93 and expected option life of 4.87 years.

Other  effects  of  the  change  in  accounting   policy  were  an  increase  in
compensation expense,  contributed surplus and net loss for the year of $448,679
and an increase in loss per share of $0.01.

5. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash and cash equivalents  include  $2,976,708 [2001 - $917,807]  denominated in
U.S. dollars.

Short-term  investments  are  comprised  of $90,000  [2001 - nil]  invested in a
Guaranteed Investment  Certificate ["GIC"]. This GIC earns interest at 2.25% per
annum and matures in October 2003.

During 2001, GenSci  Orthobiologics  arranged a line of credit in the form of an
accounts receivable factoring facility permitting the subsidiary to transfer its
accounts  receivable to its bank within specified limits,  with a maximum amount
available  of U.S.  $1  million.  The line was  secured  by a  general  security
agreement and a floating  charge on certain assets of the Company.  The interest
rate  associated  with this line was 18% per annum.  During  2001,  the  Company
utilized  the line of credit,  however,  prior to the filing for Chapter 11, the
line of credit was closed and paid off in full.

                                      F-10
<PAGE>
6. CAPITAL ASSETS

Capital assets consist of the following:
                                                2002               2001
                                                  $                  $
------------------------------------------------------------------------------

Cost
Laboratory machinery and equipment         1,438,797        1,301,566
Leasehold improvements                       392,294          357,633
Computer equipment                           967,157          945,291
Office equipment                             228,450          228,731
Assets under construction                    275,752           29,204
------------------------------------------------------------------------------
                                           3,302,450        2,862,425
------------------------------------------------------------------------------

Accumulated amortization
Laboratory machinery and equipment           753,911          539,159
Leasehold improvements                       269,433          189,581
Computer equipment                           727,721          465,424
Office equipment                             171,551          133,196
------------------------------------------------------------------------------
                                           1,922,616        1,327,360
------------------------------------------------------------------------------
Net book value                             1,379,834        1,535,065
==============================================================================

The Company has  pledged  $422,667 of  laboratory  machinery  and  equipment  as
collateral  under the terms of capital  leases,  with a cost of $631,703 [2001 -
$637,790] and related accumulated amortization of $209,036 [2001 - $50,967].

7. INTANGIBLE ASSETS

Amortized intangible assets consist of the following:


<TABLE>
<CAPTION>


                                                     2002                           2001
                                            ----------------------         ----------------------
                                                       ACCUMULATED                    ACCUMULATED
                                             COST     AMORTIZATION         COST      AMORTIZATION
                                               $            $                $                $
---------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>            <C>            <C>

Patent costs                             1,752,388       1,609,986       1,759,815      1,223,507
Technology costs                         4,690,791       4,690,791       6,080,791      5,659,213
---------------------------------------------------------------------------------------------------
                                         6,443,179       6,300,777       7,840,606      6,882,720
Less accumulated amortization            6,300,777                       6,882,720
---------------------------------------------------------------------------------------------------
Net book value                             142,402                         957,886
---------------------------------------------------------------------------------------------------
</TABLE>

[a]  Patent costs  include  $175,000 of patent costs  related to a  craniofacial
     small bone fixation  system.  During 2002, the Company  abandoned  plans to
     develop  a  medical  product  related  to  this  patent.  Accordingly,  the
     unamortized balance of this patent cost of $142,402 has suffered impairment
     in value and was written off in 2002.

[b]  On July 2, 1998,  the Company  amended the terms of a royalty  agreement in
     respect of certain of the  Company's  products.  In return for amending the
     royalty rate on sales of certain of the Company's products from 5% to 2.5%,
     retroactive  to January 1, 1998, the Company agreed to issue 250,000 common
     shares. The Company recorded as technology an amount of $572,500 in respect
     of the 250,000  common  shares  determined  using the trading  price of the
     Company's  common shares at the time of the agreement.  These common shares
     were issued in 1999. In addition,  the Company granted 250,000 common share
     purchase  warrants  exercisable into 250,000 common shares with an exercise
     price of $1.89 per share until December 9, 2003, and granted 250,000 common
     share options on December 9, 1999,  which are  exercisable  for a period of
     five years at an exercise price of $1.00 per share, the market value of the
     Company's common shares at that date. Due to the discontinuation of certain
     products,  the remaining  unamortized balance of $315,553 was determined to
     have suffered an impairment and was written off in 2002.

                                      F-11
<PAGE>
[c]  On July 9, 1998,  the Company was granted an option,  which it exercised on
     March 15,  1999,  to acquire an exclusive  license for certain  patents and
     patent  applications from McGill University  ["McGill"].  The consideration
     for the option was a payment of $200,000 and the issuance of 500,000 common
     shares of the  Company.  The  payment  was made and the shares  were issued
     during  1999.  In 1999,  the Company  recorded as  technology  an amount of
     $1,390,000 in respect of the 500,000  common shares,  determined  using the
     trading price of the  Company's  common shares at the time of the agreement
     and $200,000  representing  the cash  obligation.  During 2001, the Company
     determined  that  the  unamortized   balance  of  the  McGill   capitalized
     technology  of  $1,076,178  had suffered an  impairment in value due to the
     Chapter 11 proceedings and the Company plans to focus its current resources
     on near-to-market  opportunities.  Accordingly,  the unamortized balance of
     $1,076,178  was written off in 2001. In 2002, the Company lost the right to
     license  this  technology.  Accordingly  the cost and  related  accumulated
     depreciation of $1,390,000 were removed from the records.

[d]  During 2000, the Company capitalized $384,000 in technology costs paid to a
     third party to develop a new medical product.  During 2001, the Company had
     not commercialized the medical product and,  therefore,  fully expensed the
     costs during fiscal 2001.

The remaining weighted average amortization period for patents is 14 years.

The amortization expense for the year ended December 31, 2002 was $331,338.  The
estimated  amortization  expense  for the next  five  years  and  thereafter  is
approximately as follows:

                                  $
-------------------------------------------------------

     2003                          10,294
     2004                          10,294
     2005                          10,294
     2006                          10,294
     2007 and thereafter          101,226
-------------------------------------------------------
                                  142,402
-------------------------------------------------------

8. LIABILITIES SUBJECT TO COMPROMISE

In the Chapter 11 proceedings,  substantially  all unsecured  liabilities of the
Debtors as of the Petition  Date are subject to  compromise  or other  treatment
under a plan of  reorganization  to be confirmed by the Bankruptcy  Courts after
submission  to a required vote and approval by affected  parties.  For financial
reporting  purposes,  those  liabilities  and  obligations  whose  treatment and
satisfaction  are  dependent on the outcome of the Chapter 11  proceedings  have
been  segregated  and  classified  as  liabilities  subject to compromise in the
consolidated  financial  statements.   Generally,  all  actions  to  enforce  or
otherwise  effect  repayment of  pre-Petition  Date  liabilities  as well as all
pending  litigation  against the Debtors are stayed  while the Debtors  continue
their  business  operations as  debtors-in-possession.  The Bar Date was May 13,
2002,  which was the last date by which  claims  against  the  Company had to be
filed in the U.S.  Bankruptcy  Court if the  claimants  wished  to  receive  any
distribution in the Chapter 11 proceedings.

Differences  between  amounts shown by the Debtors and claims filed by creditors
will be  investigated  and  either  amicably  resolved,  adjudicated  before the
Bankruptcy Courts, or resolved through other resolution processes.  The ultimate
amount of  payment or  settlement  terms on any  allowed  claims is subject to a
confirmed   plan  of   reorganization   and,   accordingly,   is  not  presently
determinable.

Under  the U.S.  Bankruptcy  Code,  the  Debtors  may  elect to assume or reject
unexpired leases, employment contracts, service contracts and other pre-Petition
Date executory  contracts,  subject to U.S.  Bankruptcy Court approval including
those described in note 13. Liabilities  related to executory  contracts assumed
by the Debtors are recorded as  liabilities  not subject to  compromise  because
they  are  entitled  to  administrative  priority.  If a  contract  or  lease is
rejected,  liabilities  thereunder are deemed to be pre-Petition  Date,  general
unsecured claims and are subject to the payment terms in a confirmed  Chapter 11
plan.  Claims for damages  resulting from the rejection,  after May 13, 2002, of
executory  contracts  will be subject to separate  bar dates.  The Debtors  have
reviewed all executory contracts for assumption or rejection.

Obligations   classified  as  liabilities   subject  to  compromise   under  the
reorganization  proceedings  in total  may vary  significantly  from the  stated
amount of proofs of claim that are filed with the Bankruptcy  Courts, and may be

                                      F-12
<PAGE>
subject to future  adjustment  depending on  Bankruptcy  Court  action,  further
developments  with  respect  to  potential  disputed  claims  or  other  events.
Additional  claims may also arise from the  rejection of executory  contracts by
the Debtors.

Litigation  claims against GenSci and GenSci  OrthoBiologics  as of December 20,
2001  and  any  additional  liabilities  related  thereto  will  be  subject  to
compromise.  The principal  categories of obligations  classified as liabilities
subject to compromise under the reorganization proceedings are as follows:
\
                                                         2002               2001
                                                           $                  $
--------------------------------------------------------------------------------

Accounts payable and accrued liabilities              7,817,552        8,222,572
Accrued post-petition litigation claim [note 15]      1,712,044               --
Accrued litigation claim [note 15]                   23,098,189       23,320,738
--------------------------------------------------------------------------------
                                                     32,627,785       31,543,310
================================================================================

As a  result  of the  Chapter  11  filing,  no  payments  will  be  made on most
pre-Petition Date debt obligations  without Bankruptcy Court approval or until a
plan of  reorganization  providing for the repayment terms has been submitted to
any required vote and approval of affected  parties,  has been  confirmed by the
Bankruptcy Courts and has become effective.

Reorganization costs were $1,356,428 [2001 - nil; 2000 - nil] and were comprised
of the Company's legal costs related to Chapter 11, legal costs of the Creditors
Committee and administrative fees payable to the U.S. Trustee' Office.

9. CAPITAL STOCK

[a]  Authorized

     100,000,000 common shares without par value.
     100,000,000 preferred shares.

     The  preferred  shares are  non-voting,  issuable  in series,  having  such
     specific dividend,  redemption and other rights as may be determined by the
     Board of Directors at the time of the creation of the series. The preferred
     shares  shall have  priority  over the  holders of the common  shares  with
     respect  to the  payment of  dividends  and  distribution  of assets on the
     dissolution,  liquidation  or  wind-up of the  Company.  Subject to special
     rights and  restrictions  attached to a particular  series,  the  preferred
     shares are redeemable and retractable and may be purchased for cancellation
     by the Company.

[b] Issued and outstanding - common shares


<TABLE>
<CAPTION>

                                                                            #                  $
----------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>
     Balance, December 31, 1999                                       42,136,864       67,147,728
     Pursuant to stock appreciation rights                                39,964               --
     Pursuant to exercise of Special warrants, net [note 9[c]]        10,344,828       13,603,069
     For cash
       Pursuant to exercise of stock options                              52,803           95,523
----------------------------------------------------------------------------------------------------
     Balance, December 31, 2000, 2001 and 2002                        52,574,459       80,846,320
----------------------------------------------------------------------------------------------------
</TABLE>

[c]  Special warrants

     Pursuant  to an Agency  Agreement  dated  February  25,  2000,  the Company
     completed a private placement of 10,344,828 Special warrants at $1.45 each,
     for gross proceeds of $15,000,000.  Each Special warrant was exercisable at
     no additional  cost into one common share.  The agents were granted 517,241
     agents'  warrants  to  purchase  one  common  share at a price of $1.60 per
     common share which expired, unexercised, on February 26, 2001.

                                      F-13
<PAGE>
     On March 1, 2000, the Company received  $2,625,000  representing 25% of the
     gross  proceeds,  net of agents' fees of $1,050,000 and agent's legal costs
     of $75,000.  On June 29, 2000, having satisfied the conditions on which the
     net proceeds of the Special  warrants  would be released  from escrow,  the
     proceeds of $11,250,000 plus accrued interest were released to the Company.
     The difference  between the total net proceeds of  $13,875,000,  which were
     released to the Company,  and the $13,603,069  recorded as Special warrants
     represents  additional  expenses of the  offering.  On June 29,  2000,  the
     10,344,828  Special warrants were exchanged for 10,344,828 common shares of
     the Company.

 [d] Stock options

     [i] On May 9, 1997,  the  shareholders  approved a stock  option  plan [the
         "1997 Plan"] for employees,  directors and consultants.  Under the 1997
         Plan,  as amended,  the Company may grant  options for up to  4,100,000
         common  shares.  During 2000, the  shareholders  approved an additional
         1,200,000 common shares to be reserved for issuance, bringing the total
         to 5,300,000  common  shares.  The exercise  price is determined by the
         Board of  Directors,  with such  price not to be lower  than the market
         price on the date of grant.  An  option's  maximum  term under the 1997
         Plan is 10 years.  Vesting  of options  is  determined  by the Board of
         Directors, and is one-third at the time of grant, and one-third at each
         of the first and  second  anniversary  of the  grant  date for  options
         currently  outstanding.  The 1997 Plan also  provides  for the grant of
         stock appreciation rights, which allow the holder to receive, in stock,
         the  difference  between the  exercise  price and the fair value of the
         stock at the date of  exercise.  The  stock  appreciation  right is not
         separate from the  underlying  stock option  originally  granted and is
         only an alternate method of exercising the stock option.

         At the Annual Shareholders Meeting of the Company on June 28, 2002, the
         1997 Plan was amended whereby the exercise price of certain outstanding
         stock options issued under the 1997 Plan for which the current exercise
         price  exceeded  $0.40  was  reduced  to an  exercise  price of  $0.40.
         Pursuant  to  Section  3870,  incremental  compensation  expense in the
         amount of $171,080 was  recognized  as  compensation  expense in fiscal
         2002  related to this  repricing.  As at  December  31,  2002,  625,882
         options remain available for grant under the 1997 Plan.

     [ii]A summary of the status of the 1997 Plan as at  December  31,  2002 and
         the changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>
                                                                                      Weighted
                                                                                       average
                                                                      Number       exercise price
                                                                    outstanding       per share
                                                                         #                $
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>
         Options outstanding, December 31, 1999                        4,095,666             1.76
         Granted                                                       1,017,500             1.12
         Exercised                                                       (76,033)            1.82
         Forfeited                                                      (150,633)            1.92
--------------------------------------------------------------------------------------------------------
         Options outstanding, December 31, 2000                        4,886,500             1.62
         Granted                                                         710,000             0.44
         Forfeited                                                      (920,500)            1.61
--------------------------------------------------------------------------------------------------------
         Options outstanding, December 31, 2001                        4,676,000             1.44
         Granted                                                       1,165,250             0.40
         Repriced - former price                                      (3,103,250)          (1.61)
         Repriced - amended price                                      3,103,250             0.40
         Expired                                                        (956,250)            1.44
         Forfeited                                                      (437,250)            0.40
--------------------------------------------------------------------------------------------------------
         Options outstanding, December 31, 2002                        4,447,750             0.40
--------------------------------------------------------------------------------------------------------
</TABLE>

         The compensation expense related to the 1997 Plan for the year amounted
         to $277,599 of which $94,305 related to options granted during the year
         that was  measured  using the fair  value of the  options  at the grant
         dates.  The fair value of the options granted was estimated at the date
         of the grant using the Black-Scholes option pricing model. The weighted
         average  assumptions for stock  appreciation  rights issued during 2002
         were as follows:  risk free interest rate of 3.91%,  expected  dividend
         yield of nil, expected  volatility of 1.15, and expected option life of
         5.11 years.

                                      F-14
<PAGE>
         The weighted  average fair value of options granted during the year was
$0.17 per option.

         The following  table  summarizes  information  with respect to the 1997
Plan stock options outstanding at December 31, 2002:


<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                             WEIGHTED        WEIGHTED
                                              AVERAGE        AVERAGE
          EXERCISE            NUMBER         REMAINING      EXERCISE         NUMBER      EXERCISE
            PRICES          OUTSTANDING        LIFE           PRICE        EXERCISABLE     PRICE
               $                 #            [YEARS]           $               #            $
-------------------------------------------------------------------------------------------------------
<S>         <C>                 <C>             <C>            <C>            <C>             <C>
             0.40            4,447,750         6.04           0.40         3,449,753         0.40
-------------------------------------------------------------------------------------------------------
</TABLE>

[e]  Warrants

A summary of the status of the Company's share purchase  warrants as at December
31, 2002 and changes during the years ended on those dates is presented below:


<TABLE>
<CAPTION>

                                                                                      WEIGHTED
                                                                                       AVERAGE
PURCHASE WARRANTS                                                                  EXERCISE PRICE
                                                                            #             $
-------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
Warrants outstanding, December 31, 1999                             11,333,332               2.93
Warrants issued [note 9[c]]                                            517,241               1.60
Warrants expired                                                    (9,433,332)              3.00
-------------------------------------------------------------------------------------------------------
Warrants outstanding, December 31, 2000                              2,417,241               2.61
Warrants issued [i]                                                    125,000               0.30
-------------------------------------------------------------------------------------------------------
Warrants expired                                                    (2,167,241)              2.53
Warrants outstanding, December 31, 2001 and 2002                       375,000               1.36
-------------------------------------------------------------------------------------------------------
</TABLE>

[i]  As part of the separation  agreement with a former  executive,  the Company
     converted 722,500 options granted under the 1997 Plan into 125,000 warrants
     with an exercise price of $0.30 and a term of two years.

The  following  table  summarizes  information  relating  to the share  purchase
warrants outstanding and exercisable as at December 31, 2002:

<TABLE>
<CAPTION>

                                                                                         WEIGHTED
                                                                                          AVERAGE
  EXERCISE                                                     NUMBER                    REMAINING
   PRICE                                                     OUTSTANDING                   LIFE
      $                                                           #                       [YEARS]
--------------------------------------------------------------------------------------------------------
<S>                                                               <C>                        <C>
1.89                                                            250,000                      0.94
0.30                                                            125,000                      0.60
--------------------------------------------------------------------------------------------------------
                                                                375,000                      0.83
========================================================================================================
</TABLE>

10. CONTRIBUTED SURPLUS

Contributed surplus consists of the following:


<TABLE>
<CAPTION>
                                                                          2002               2001
                                                                            $                  $
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>                     <C>
Balance, beginning of year                                                  --                --
Cumulative amount related to the fair value of stock
   options outstanding at the beginning of the year [note 4[b]]      3,985,870                --
Incremental repricing compensation expense [note 9[d]]                 171,080                --
Compensation expense of stock options
----------------------------------------------------------------------------------------------------
   vested during the year [note 9[d]]                                  277,599                --
----------------------------------------------------------------------------------------------------
Balance, end of year                                                 4,434,549                --
====================================================================================================
</TABLE>

                                      F-15
<PAGE>
11. DISCONTINUED OPERATIONS

Effective September 1, 1999, the Company  established  Osteopharm Inc. as a 100%
owned  subsidiary  in order to seek  third  party  investment  for the  anabolic
peptide technology  acquired with the purchase of Osteopharm  Limited,  which is
focused on the diagnosis and prevention or treatment of osteoporosis.

The Company assesses the carrying value of its patent and technology costs on an
ongoing basis. As a result of the Company's  decision to seek alternate  funding
for certain of its peptide  technologies,  management  had  determined  that the
prior  carrying  value of these  technologies  should  be  adjusted  to  reflect
estimated  market  values.  During  1999,  the  Company  reduced  the  value  of
technology  costs by $10,000,000 to reflect the value based on  negotiations  at
that time. Subsequent negotiations during 2000 required that the Company further
reduce the carrying  value of the  technology  and patent  costs  related to the
peptide technology by $2,795,094 and $504,906, respectively.

On December 15, 2001,  the Company,  in deciding to focus on the  development of
its bioimplant products, sold 100% of its interest in Osteopharm Inc. to a third
party for a total consideration of $1,440,000. At December 31, 2001, the Company
provided an allowance for the balance of $540,000 due to uncertainty relating to
ultimate  collection,  and the  balance  of  $900,000  were  included  as  other
receivables.

During 2002, the Company received  $1,140,000 and in 2003 the Company received a
final payment of $175,000,  which in aggregate exceeded the initial estimated of
recoverability  of $900,000 and accordingly a gain of $415,000 was recorded as a
gain on disposal of discontinued operations in 2002.

The Company has  retained  the rights to use the  peptide  technology  solely as
medical  devices or treatments  delivered  locally in humans for tissue  repair,
limited to bone, cartilage,  meniscus,  ligaments or tendons and medical devices
or  treatments  for  coatings  on  prosthetics  as  part  of  invasive  surgical
procedures.

The revenues, operating loss and loss from discontinuance,  net of income taxes,
are as follows:


<TABLE>
<CAPTION>

                                                          2002              2001             2000
                                                            $                $                 $
--------------------------------------------------------------------------------------------------------
REVENUES                                                    --                --               --
--------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>               <C>
Loss from discontinued operations                           --        (1,260,468)      (4,928,623)
Income taxes                                                --                --               --
--------------------------------------------------------------------------------------------------------
                                                            --        (1,260,468)      (4,928,623)
--------------------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations            415,000           663,540               --
Income taxes                                                --                --               --
--------------------------------------------------------------------------------------------------------
                                                       415,000           663,640               --
--------------------------------------------------------------------------------------------------------
Total net gain (loss) from discontinued
--------------------------------------------------------------------------------------------------------
   operations                                          415,000          (596,928)      (4,928,623)
--------------------------------------------------------------------------------------------------------
</TABLE>


Net increase  (decrease) in cash and cash  equivalents  related to  discontinued
operations,  which  exclude  the  $175,000  received  in  2003,  consist  of the
following:
<TABLE>
<CAPTION>

                                                          2002              2001             2000
                                                            $                $                 $
--------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>             <C>
OPERATING ACTIVITIES
Cash flow from (used in) operations                         --        (1,123,304)      (1,131,798)
Net change in non-cash working capital                      --           646,848          (25,316)
--------------------------------------------------------------------------------------------------------
                                                            --          (476,456)      (1,157,114)
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of discontinued operations        1,140,000                --               --
Purchase of capital assets                                  --            (5,277)          (4,977)
Acquisition of patents                                      --          (208,159)        (194,414)
Acquisition of technology                                   --           (17,997)              --
--------------------------------------------------------------------------------------------------------
                                                     1,140,000          (231,433)        (199,391)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash from
--------------------------------------------------------------------------------------------------------
   discontinued operations                           1,140,000          (707,889)      (1,356,505)
--------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-16

<PAGE>
12. INCOME TAXES

At December 31, 2002,  the  GenSci's  U.S.  subsidiary  had net  operating  loss
carryforwards  for U.S. federal income tax purposes of approximately  U.S. $15.1
million, which expire as follows:

<TABLE>
<CAPTION>

Year of expiry             U.S.
                             $
---------------------------------------------
<S>                   <C>
2009                  1,228,000
2010                  1,474,000
2011                  2,522,000
2012                  2,232,000
2018                    269,000
2019                    619,000
2020                      3,000
2021                  6,089,000
2022                    685,000
---------------------------------------------
                     15,121,000
---------------------------------------------
</TABLE>


Further,  utilization of these net operating  losses may be subject to an annual
limitation due to ownership  change  constraints set forth in Section 382 of the
Internal Revenue Code of 1986 and similar state provisions.

At December  31,  2002,  GenSci and its  Canadian  subsidiary  have  accumulated
non-capital  losses  totaling  approximately  $8.9 million for Canadian  federal
income tax  purposes  and  approximately  $8.6  million for  Ontario  income tax
purposes,  which are  available to offset  future  years'  taxable  income which
expire as follows:


<TABLE>
<CAPTION>

Year of expiry   Federal             Ontario
                    $                    $
-------------------------------------------------------
<S>                 <C>             <C>
2003              1,569,005        1,724,616
2004                650,988          840,436
2005              2,742,308        3,141,882
2006              2,110,722        2,017,440
2007                711,961                -
2008                423,168          254,128
2009                670,067          670,067
-------------------------------------------------------
                  8,878,219        8,648,569
-------------------------------------------------------
</TABLE>

The Company  also has  approximately  $5.5  million of  Scientific  Research and
Experimental   Development   expenditures   available  to  be  carried   forward
indefinitely,  investment tax credits of approximately $1 million that expire in
varying amounts to 2010, and deductible  temporary  differences of approximately
$3.9 million relating primarily to capital assets,  cumulative eligible capital,
and  financing  fees  available  to offset  future  years'  taxable  income.  In
addition,  the Company has a capital loss  carryforward  of  approximately  $5.7
million.

The  Company  has  provided a full  valuation  allowance  against its future tax
assets due to uncertainties  surrounding their realization.  No future tax asset
related  to the U.S.  and  Canadian  losses  and  other  tax  balances  has been
recognized in the  consolidated  financial  statements as the realization of the
losses does not meet the more likely than not recognition criteria.

The tax effects of temporary  differences that give rise to significant portions
of the future tax assets and future tax  liabilities as at December 31, 2002 are
presented below by jurisdiction:



                                      F-17

<PAGE>

<TABLE>
<CAPTION>


                                                                          2002               2001
                                                                            $                  $
-------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>
Canada
Future tax assets
Non-capital loss carryforward                                          2,810,000        3,112,000
Capital loss carryforward                                              1,730,000                -
Scientific Research and Experimental Development Expense               1,679,000        1,776,000
Accounting depreciation in excess of tax depreciation                  1,175,000        1,179,000
-------------------------------------------------------------------------------------------------------
Future tax assets before valuation allowance                           7,394,000        6,067,000
Less valuation allowance                                              (7,394,000)      (6,067,000)
-------------------------------------------------------------------------------------------------------
                                                                             --                  --
-------------------------------------------------------------------------------------------------------
                                                                          2002               2001
=======================================================================================================
                                                                         U.S. $             U.S. $
United States
Future tax assets
Non-operating loss carryforward                                        6,180,000        6,368,000
Section 267 deferred expenses                                            809,000        1,311,000
Reserve for litigation                                                 6,791,000        5,856,000
Other                                                                  1,007,000          871,000
-------------------------------------------------------------------------------------------------------
                                                                      14,787,000       14,406,000
Future tax liabilities
Future state taxes                                                       881,000          372,000
Tax depreciation in excess of book depreciation                          134,000          186,000
-------------------------------------------------------------------------------------------------------
                                                                       1,015,000          558,000
Net future tax asset before valuation allowance                       13,772,000       13,848,000
Less valuation allowance                                             (13,772,000)     (13,848,000)
-------------------------------------------------------------------------------------------------------
                                                                             --                  --
=======================================================================================================
</TABLE>



13. COMMITMENTS

[a]  Operating leases

     As permitted under the U.S.  Bankruptcy Code,  effective  January 31, 2002,
     the Company has terminated  two operating  leases for premises and included
     approximately $470,000 in the claims filed in the U.S. Bankruptcy Court. No
     accrual  for this  amount  has been  made in these  consolidated  financial
     statements,  as  management  does not expect that the leasor will incur any
     losses in connection with these amounts.

     Future  minimum  annual lease  payments,  under  non-cancellable  operating
leases expiring through 2006, are approximately as follows:

                            $
-----------------------------------------

     2003                621,000
     2004                234,000
     2005                 91,000
     2006                 70,000
-----------------------------------------
                       1,016,000
=========================================

     Total  expense  incurred  under these  operating  leases for the year ended
     December 31, 2002 was $660,360 [2001 - $706,643; 2000 - $665,927].

     The Company has subleased certain  facilities  relating to these continuing
     lease  obligations for total annual sublease rental income of approximately
     $15,500 in 2002 [2001 - $437,000; 2000 - nil].

                                      F-18
<PAGE>
     The Company had a bank deposit of $79,368 as at December 31, 2001 which was
     being  held in  escrow  as  collateral  against  an  operating  lease  that
     terminated in 2002.

[b] Capital leases

     During  2001,  the Company  entered into three  capital  leases for certain
     equipment.  The future minimum annual payment under these capital leases is
     as follows:

                                                             $
-----------------------------------------------------------------------------

     2003                                                     135,283
-----------------------------------------------------------------------------
                                                              135,283
     Less amount representing interest at approximately 17%     8,683
-----------------------------------------------------------------------------
                                                              126,600
-----------------------------------------------------------------------------
     Less current portion                                     126,600
-----------------------------------------------------------------------------
                                                                    --
-----------------------------------------------------------------------------

[c] Royalty agreements

     In December 1999,  the Company  amended the terms with respect to a royalty
     agreement  with an inventing  scientist to limit the total  royalty to U.S.
     $2,500,000.  As at December 31, 2002, U.S. $838,186 [2001 - U.S.  $838,186]
     has been paid against this commitment.  Payments have not been made on this
     commitment while under Chapter 11.

14. SEGMENTED INFORMATION

The Company currently operates in a single segment, bioimplants. The bioimplants
segment  develops  and   manufactures   bone  graft  products  and  markets  and
distributes them to surgeons and hospitals for use in surgical procedures.

The  biopharmaceuticals  segment  disclosed  separately  in prior years has been
disposed of as described in note 11.

The Company has no individual  customer whose accumulated sales represented more
than ten percent of total sales during the current or prior years.

Geographic information

The following information relates to geographic segments of the Company:


<TABLE>
<CAPTION>

                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>                <C>
Revenues based on the location of the customer
Canada                                               1,912,944         2,149,761        2,917,286
United States                                       30,930,940        37,392,603       42,910,140
Other                                                1,637,728           902,469               --
---------------------------------------------------------------------------------------------------------
                                                    34,481,612        40,444,833       45,827,426
---------------------------------------------------------------------------------------------------------

                                                                          2002               2001
                                                                            $                  $
---------------------------------------------------------------------------------------------------------

Capital assets and intangible assets
Canada                                                                   197,404          750,650
United States                                                          1,324,832        1,742,301
---------------------------------------------------------------------------------------------------------
                                                                       1,522,236        2,492,951
---------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-19
<PAGE>

<TABLE>
<CAPTION>

                                                                          2002               2001
                                                                            $                  $
---------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                  <C>
Goodwill
Canada                                                                   469,828          469,828
United States                                                               --                 --
---------------------------------------------------------------------------------------------------------
                                                                         469,828          469,828
---------------------------------------------------------------------------------------------------------

                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------

Capital assets additions
Canada                                                  10,298            11,492            1,708
United States                                          490,932           301,591        1,166,235
---------------------------------------------------------------------------------------------------------
                                                       501,230           313,083        1,167,943
---------------------------------------------------------------------------------------------------------

                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------

Amortization of capital assets
Canada                                                  17,871            38,002          129,089
United States                                          610,610           398,160          304,688
---------------------------------------------------------------------------------------------------------
                                                       628,481           436,162          433,777
---------------------------------------------------------------------------------------------------------

                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------

Amortization of intangible assets
Canada                                                 126,613           162,261          303,062
United States                                          204,725           410,093          523,711
---------------------------------------------------------------------------------------------------------
                                                       331,338           572,354          826,773
---------------------------------------------------------------------------------------------------------

                                                          2002              2001             2000
                                                            $                $                 $
---------------------------------------------------------------------------------------------------------

Write-down of intangible assets
Canada                                                 457,955         1,470,578               --
United States                                               --                --               --
---------------------------------------------------------------------------------------------------------
                                                       457,955         1,470,578               --
---------------------------------------------------------------------------------------------------------
</TABLE>

15. CONTINGENCIES AND LEGAL CLAIMS

GenSci and its subsidiary, GenSci OrthoBiologics  [collectively,  "the Company"]
are involved in a patent  infringement  action in the United  District Court for
the  Central   District  of  California   ["District   Court"]  entitled  GenSci
Regeneration  Laboratories,  Inc. v.  Osteotech,  Inc. (and related  third-party
actions), Case No. CV99-10111-MRP [the "Patent Action"].

This case involves claims by Osteotech that products sold under the DynaGraft(R)
Gel and DynaGraft(R)  Putty (DynaGraft Gel and Putty) brands allegedly  infringe
two patents owned by Osteotech.  These products involve the use of demineralized
bone matrix (DBM)  material in a carrier to facilitate the  regeneration  and/or
growth of damaged or diseased bone.

On December 17, 2001, the jury found GenSci and GenSci OrthoBiologics liable for
damages of  U.S.$17,533,634  for  infringement by DynaGraft Gel and Putty of two
patents held by Osteotech.  The damages include U.S.$12,423,248 for lost profits
during 1997-1999 and royalties of U.S.$5,110,386 calculated at a royalty rate of
14% for the years 2001 and 2002.  Payments of approximately  U.S.$3,000,000 made
by DePuy AccroMed Inc. in a prior  settlement  with Osteotech are expected to be
deducted   from  the  jury   verdict,   reducing


                                      F-20
<PAGE>


the potential judgment to U.S.$14,533,634. The Company has established a reserve
in the amount of $23,320,738 as at December 31, 2001, representing the potential
judgment of  U.S.$14,533,634  and 14% of sales of  DynaGraft  Gel and Putty from
December 1, 2001 to December 31, 2001.

As of the Petition Date, Osteotech had a pending motion in the District Court to
permanently  enjoin the Company's  sales of the DynaGraft  products,  originally
scheduled   for  hearing  on  December  21,  2001  [the  "Motion  For  Permanent
Injunction"]. The entry into Chapter 11 protection on December 20, 2001 resulted
in an automatic stay of all prior legal proceedings.

Pursuant to motions by Osteotech and positions taken by the Company,  on May 16,
2002,  the  Bankruptcy  Court  modified the automatic  stay to permit the Patent
Action  to  proceed,  provided  that,  any  judgment,  whether  for  damages  or
injunctive relief,  issued against the Company could not be enforced without the
further  review  and  approval  by the  Bankruptcy  Court.  In order to  provide
adequate  protection to Osteotech,  the Company is required,  commencing on June
10, 2002,  to deposit into a restricted  cash account 14% of gross  revenue from
the allegedly  infringing  products.  Although no absolute deadline for filing a
plan  has  been  established,   the  Company  had  to  either  file  a  plan  of
reorganization  by  September  16,  2002 and  obtain  confirmation  of a plan by
November  18,  2002 or in the  alternative,  GenSci  was  required  to cease the
manufacture,  sale or  distribution  of the  allegedly  infringing  products  by
September  16,  2002 or by  November  18,  2002 if a plan is  submitted  but not
confirmed.  Consistent with the Bankruptcy  Court's May 17 Order, the Debtors no
longer  manufactured,  marketed,  distributed  or sold the  infringing  products
[DynaGraft Gel and Putty] after September 16, 2002.

During 2002, the Company accrued and expensed  $1,705,265,  which represents 14%
of the revenue derived from DynaGraft Gel and Putty. In addition,  subsequent to
the  Bankruptcy  Court order  discussed  above,  the Company has  established  a
restricted  cash  account,  which had a balance of $856,534  as at December  31,
2002.

Pursuant to the minute  order  entered on January 30, 2003,  the District  Court
assigned the Patent  Action and other related  cases to another  District  Court
Judge for "settlement  proceedings".  A formal settlement  conference before the
Settlement  Judge was held on March 6, 2003. At the Settlement  Conference,  the
parties  reached a  conditional  settlement  of their  disputes  relating to the
Debtors' bankruptcy proceeding and the Patent Action.

As a result of the conditional settlement, an Amended Plan of Reorganization and
Amended  Disclosure  Statement were filed with the Bankruptcy Court on April 18,
2003  with a  Disclosure  Statement  hearing  scheduled  for May 30,  2003.  The
settlement  described above is contingent upon Bankruptcy Court approval.  Terms
of  the   settlement   have  been   incorporated   into  the  Amended   Plan  of
Reorganization,  which  must be  confirmed  by the  Bankruptcy  Court to  become
effective.

The conditions related to the settlement are: [i] Osteotech receives a letter of
credit or other security satisfactory to Osteotech of certain payments over time
and [ii]  GenSci  receives  a  covenant  from  Osteotech  not to sue  GenSci  in
connection  with its newly  introduced  products.  With respect to the letter of
credit or other  security,  GenSci  will seek to obtain the  security  sought by
Osteotech. However, there can be no assurance that GenSci will be able to obtain
an appropriate security acceptable to Osteotech, in which event, the Debtors may
enter into a transaction that would require  substantial  dilution or changes in
stockholder  rights  in order to raise  additional  funds.  There can also be no
assurance  that the two  sides  can  reach a  settlement  if GenSci is unable to
obtain the security required. With respect to the covenant not to sue, Osteotech
is in the process of evaluating  GenSci's  position that its new products do not
infringe  Osteotech's  patents.  There is no assurance that Osteotech will agree
with GenSci's position.  There can also be no assurance that, if a difference of
opinion exists, the two sides can reach a settlement.  In addition, there can be
no  assurance  of the time  frame  required  for the two  sides to  satisfy  the
conditions detailed above.

If the above two conditions  are  satisfactorily  resolved,  terms of settlement
include  payment  of  U.S.$7.5  million  by GenSci to  Osteotech.  GenSci  would
recognize the validity of the Osteotech  patents at issue in the trial completed
in December 2001.  GenSci would not be permitted to  re-introduce  products that
are the subject of the pending  litigation,  which have been  withdrawn from the
market,  and all other  litigation  between the two parties  would be dismissed.
Payments to Osteotech include U.S.$1 million to be paid on the effective date of
GenSci's plan of reorganization followed by payments of U.S.$325,000 per quarter
with interest  payable at the federal  judgment rate,  currently 1.3% capped for
purposes of future interest payments at 3% per annum. GenSci is seeking a method
to secure payment of U.S.$5 million of the settlement  amount and will provide a
subordinated lien on assets to assure payment of the remaining  U.S.$1.5 million
in payments.


                                      F-21

<PAGE>

Finally,  the settlement is contingent upon Bankruptcy Court approval.  Terms of
the  settlement  will be  incorporated  into the terms of a  Chapter  11 Plan of
Reorganization, which must be confirmed by the Bankruptcy Court.

If the proposed  settlement with Osteotech  incorporated  into the Plan does not
occur,  the Debtors  would  otherwise  vigorously  pursue  their right of appeal
before the Federal  Circuit Court of Appeals.  As of the date of this report,  a
judgment has not been issued in the Patent Action and the  Settlement  Agreement
has not been finalized or executed.

GenSci  OrthoBiologics  has filed for  antitrust  and other claims in a separate
case against  Osteotech  for improper use of its  patent(s) in the  marketplace.
These antitrust claims have been stayed until the Patent Action is resolved.  In
addition, a second patent infringement filed in October 2000 alleges that GenSci
OrthoBiologic's  OrthoBlast(R)  product  infringe  two  of  Osteotech's  patents
including one patent at issue in the Patent Action.  In this second patent case,
no discovery has commenced  and the case has been stayed  pending  resolution of
the Patent  Action.  All legal  actions  between  GenSci and  Osteotech  will be
dismissed under the Settlement Agreement, when and if it becomes effective.

The  Debtor,  GenSci  Regeneration,  is also  involved  in a dispute  before the
Trademark  Trial and Appeal  Board,  of the United  State  Patent and  Trademark
Office,  entitled  Johnson  &  Johnson,   Petitioner,  vs.  GenSci  Regeneration
Sciences, Inc., Respondent/Registrant,  Registration No. 2,401,091, Cancellation
No.  31635.  The dispute  concerns the rights to the name,  "The  OrthoBiologics
Company." In May 2002, the Debtor filed a Notice of Pending  Chapter 11 Case and
Notice of Stay, with respect to such proceeding.

16. CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in  non-cash  working  capital  balances  related  to  operations
consists of the following:


<TABLE>
<CAPTION>

                                                          2002              2001             2000
                                                            $                $                 $
-----------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>             <C>
Restricted cash                                         79,368           148,632               --
Accounts receivable                                  1,003,957         2,649,360       (2,336,407)
Processing costs and inventory                       1,197,167         1,265,755       (3,732,317)
Prepaid expenses and deposits                         (534,577)           55,140         (119,022)
Accounts payable and accrued liabilities             1,665,179        (2,069,989)       1,377,990
-----------------------------------------------------------------------------------------------------------
                                                     3,411,094         2,048,898       (4,809,756)
===========================================================================================================
</TABLE>

During the year ended  December  31,  2002,  the  Company  paid  $44,119 in cash
interest [2001 - $16,493; 2000 - nil]. No income taxes were paid during the year
ended December 31, 2002 [2001 and 2000 - nil].

During  the year ended  December  31,  2002,  the  Company  paid  $1,218,628  of
reorganization costs in cash [2001 - nil; 2000 - nil].






                                      F-12




<PAGE>



17. FINANCIAL INSTRUMENTS

Fair values

The fair values of cash and cash equivalents, short-term investments, restricted
cash,  accounts  receivable and current  liabilities  approximate their carrying
values due to their short-term nature. The fair value of the liabilities subject
to compromise as of December 31, 2002 and 2001 is not  determinable,  due to the
uncertainties  surrounding  the repayment  terms of this debt as a result of the
Chapter 11 proceedings.

Concentration of credit risk

Financial  instruments  that  potentially  subject  the  Company to  significant
concentrations  of credit  risk  consist  principally  of cash  investments  and
accounts  receivable.  The Company maintains cash and cash equivalents with high
quality  financial  institutions.  Concentrations of credit risk with respect to
accounts  receivable are limited because a large number of customers make up the
Company's customer base. No single customer represents greater than 10% of total
accounts  receivable.  The Company mitigates customer credit risk through credit
approvals and monitoring procedures.

As at December 31, 2002 and 2001, the Company's accounts receivable are recorded
as the amounts  invoiced to customers  less an allowance for doubtful  accounts.
Management  estimates  the allowance  based on a review of the portfolio  taking
into consideration  historical  collection  patterns,  the economic climate, and
aging statistics based on contractual due dates. Accounts are written off to the
allowance once collection efforts are exhausted.

18. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Company  prepares its consolidated  financial  statements in accordance with
Canadian  GAAP which,  as applied in these  consolidated  financial  statements,
conform in all material respects to U.S. GAAP, except as follows:

[a]  Bankruptcy accounting

     Since the  Chapter 11  bankruptcy  filing,  the  Company  has  applied  the
     provisions in the Statement of Position  ["SOP"] 90-7 "Financial  Reporting
     by Entities in Reorganization Under the Bankruptcy Code". SOP 90-7 does not
     change  the  application  of U.S.  GAAP  in the  preparation  of  financial
     statements.  However,  it does require that the financial  statements,  for
     periods  including  and  subsequent  to filing  the  Chapter  11  petition,
     distinguish  between  transactions and events that are directly  associated
     with the reorganization from the ongoing operations of the business.

[b]  Development costs

     Development  costs  that have been  deferred  under  Canadian  GAAP must be
     expensed under U.S. GAAP.

[c] Stock-based compensation

For reconciliation  purposes to U.S. GAAP, the Company has elected to follow the
intrinsic  value approach of APB 25,  "Accounting for Stock Issued to Employees"
in accounting for its employee stock options.  All stock options  granted can be
exercised as stock appreciation rights, accordingly the Company accounts for its
stock  appreciation  rights  grants using the variable  accounting  method under
which compensation  expense is recognized to the extent that the market price of
the shares of the Company's stock exceeds the exercise price of the grant. Since
the exercise  price of the Company's  employee stock options was higher than the
market price of the underlying  stock during the year, no compensation  has been
recognized.  Also under U.S.  GAAP,  the Company uses the  Black-Scholes  option
pricing  model to determine  the fair value of options  granted to  consultants,
advisors and non-employees.

Under  Canadian  GAAP,  compensation  expense  has been  recorded  for all stock
options granted to employees,  consultants and  non-employees in accordance with
the fair value-based method of accounting for stock-based compensation using the
Black-Scholes  option  pricing  model to  determine  the fair  value of  options
granted.  In


                                      F-23
<PAGE>

prior years,  no  compensation  expense was recorded  under  Canadian  GAAP with
respect to stock options granted to employees, consultants and non-employees.

[d] Comprehensive income

     Comprehensive  income  includes  all  changes in equity  during the periods
     presented  except  shareholder  transactions.  For the  periods  presented,
     accumulated  other  comprehensive  income  comprises the Company's  foreign
     currency translation account.

[e] In-process technology

     Under U.S. GAAP,  approximately  $16,252,000 of the  consideration  paid to
     acquire  Osteopharm  in  January  1997 has  been  allocated  to  in-process
     research  and  development  and  expensed  at the time of the  acquisition.
     Accordingly,  the write-down of nil in 2002 [2001 - nil; 2000 - $2,795,094]
     is not required for U.S. GAAP purposes.

     If U.S. GAAP were followed,  the effects on the consolidated  statements of
     loss and deficit would be the following:


<TABLE>
<CAPTION>

                                                          2002              2001             2000
                                                            $                $                 $
-------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>               <C>
     Loss from continuing operations,
       Canadian GAAP                                (4,252,840)      (36,362,757)      (2,080,114)
     Adjustment for in-process research and
       development costs and amortization thereof           --                --          254,100
     Adjustment for deferred development costs
       and amortization thereof                             --           214,372          360,000
     Compensation with respect to stock options
       granted to consultants                               --          (345,070)        (309,330)
     Compensation with respect to stock options
       granted to employees                            210,703                --               --
     Compensation with respect to stock warrants
       granted to non-employees                             --            (5,708)              --
-------------------------------------------------------------------------------------------------------
     Loss from continuing operations, U.S. GAAP     (4,042,137)      (36,499,163)      (1,775,344)
     Gain (loss) from discontinued operations,
       Canadian GAAP                                   415,000          (596,928)      (4,928,623)
     Adjustment for write-down of technology                --                --        2,795,094
-------------------------------------------------------------------------------------------------------
     Loss from discontinued operations, U.S. GAAP      415,000          (596,928)      (2,133,529)
-------------------------------------------------------------------------------------------------------
     Net loss for the year                          (3,627,137)      (37,096,091)      (3,908,873)
     Change in cumulative translation account
      adjustment                                       139,977           104,402          281,578
     Comprehensive loss, U.S. GAAP                  (3,487,160)      (36,991,689)      (3,627,295)
=======================================================================================================
     Loss per share, U.S. GAAP
       From continuing operations                       (0.08)            (0.69)            (0.04)
       From discontinued operations                       0.01            (0.01)            (0.04)
-------------------------------------------------------------------------------------------------------
     Net loss per share                                 (0.07)            (0.70)            (0.08)
=======================================================================================================
     Weighted average number of common
       shares outstanding, U.S. GAAP                52,574,459        52,574,459       47,443,142
=======================================================================================================
</TABLE>



                                  F-24

<PAGE>

     Consolidated balance sheet items that vary under U.S. GAAP are as follows:

                                                       2002               2001
                                                         $                  $
-------------------------------------------------------------------------------

     Trade accounts payable                         1,972,577          340,321
     Accrued compensation                             677,665          641,342
     Accrued liabilities                              998,546          689,898
     Capital stock                                 82,643,404       82,405,428
     Deficit                                     (102,672,255)     (99,045,119)
     Accumulated other comprehensive income           834,069          694,092
-------------------------------------------------------------------------------








                                      F-25

<PAGE>





GenSci Regeneration Sciences Inc.                                   Schedule II


                        VALUATION AND QUALIFYING ACCOUNTS
                              [in Canadian dollars]

<TABLE>
<CAPTION>
                                        BALANCE AT                     WRITE-OFFS OF    BALANCE AT
                                        BEGINNING       CHARGED TO      ACCOUNTS          END OF
                                        OF PERIOD        EXPENSES      RECEIVABLE         PERIOD
                                            $                $              $                $
<S>                                           <C>            <C>            <C>           <C>
Allowance for doubtful accounts,
deducted from accounts receivable
Year ended December 31, 2002              497,962      269,067          (600,642)         166,387
Year ended December 31, 2001              637,600      235,255          (374,893)         497,962
Year ended December 31, 2000              147,320      490,280                --          637,600
=======================================================================================================
</TABLE>

                                      F-26



<PAGE>