Half-yearly Report

Walcom Group Limited ("Walcom" or "the Company") Half yearly unaudited results for the six months ended 30 June 2007 The Board of Walcom Group Limited presents the Company's unaudited half yearly results for the six months ended 30 June 2007. Highlights * Loss per share down by 77 per cent. * Turnover and gross profit increased by 58 per cent. and 63 per cent. respectively * Sales in the PRC increased by 81 per cent. * Overseas sales increased by 42 per cent. * Examining opportunities for developing veterinary drugs Enquiries: Walcom Group Ltd +852 2494 0133 Albert Wong (Chief Financial Officer) John East & Partners Limited +44 20 7628 2200 Jeffrey Coburn CHAIRMAN'S STATEMENT Introduction The six month period under review is the first half year following the Company's Admission to AIM. Significant improvements in the Company's results have been seen due to increases in sales and savings in interest costs over the period. Results for the Period The Company showed increases of 58 per cent. and 63 per cent. in turnover (Jun 2007: HK$7.6m; Jun 2006: HK$4.8m) and gross profits (Jun 2007: HK$5.1m; Jun 2006: HK$3.1m) respectively compared to the same period last year. Although making a loss of HK$0.05 per share (Jun 2006: HK$0.22), this is a 77 per cent. improvement over the loss per share for the same period in 2006. The group had no debt during the period and thus no interest charges were incurred. Review of Activities There was a sharp increase of 81 per cent. (Jun 2007: HK$3.6m; Jun 2006: HK$2.0m) in sales in the PRC during the period as more customers appreciated the immunity enhancing effect of our products, coupled with the increasing threat of pig diseases which are becoming more serious in the PRC. Overseas sales increased by 42 per cent. (Jun 2007: HK$4.0m; Jun 2006: HK$2.8m) due to the broadening of our customer base, particularly in the Philippines. Outlook Due to the increasing outbreaks of animal diseases in the PRC and some South East Asian countries, as well as continuing to develop our animal feed additives, we are exploring opportunities for developing veterinary drugs. We are actively examining collaboration opportunities with Omega-BioPharma Holdings Limited, a company owned by some of our directors and major shareholders, which is engaged in antiviral technology. Eddie K M Chan Chairman 6 September 2007 UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2007 Note Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 Turnover 3 7,634 4,832 14,169 Cost of sales (2,513) (1,693) (4,795) Gross profit 5,121 3,139 9,374 Other income 4 83 --- 1,659 Research and development (546) (693) (1,278) expenses Selling and distribution (3,028) (2,659) (5,492) expenses General and administrative (5,612) (3,809) (16,006) expenses Operating loss 5 (3,982) (4,022) (11,743) Net finance costs 6 226 (7,762) (18,433) Share of profit in associated 321 --- 533 companies Loss before taxation (3,435) (11,784) (29,643) Income tax 7 --- --- --- Loss attributable to (3,435) (11,784) (29,643) shareholders Loss per share - basic 8 HK$(0.05) HK$(0.22) HK$(0.56) (Restated) UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2007 Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 ASSETS NON-CURRENT ASSETS Property, plant and equipment 983 1,109 1,006 Patents 6,730 5,315 5,563 Interests in associated 10 720 49 583 companies 8,433 6,473 7,152 CURRENT ASSETS Inventories 1,260 547 607 Trade and other receivables 11 2,324 3,951 2,777 Amount due from associated 10 3,966 2,163 3,557 companies Cash and cash equivalents 9,144 2,297 19,205 16,694 8,958 26,146 Total assets 25,127 15,431 33,298 EQUITY AND LIABILITIES EQUITY Share capital 12 649 1 649 Reserves 21,890 (20,677) 25,228 22,539 (20,676) 25,877 CURRENT LIABILITIES Trade and other payables 13 2,588 2,716 6,920 Amount due to a related company --- 1,532 --- Bank overdrafts - unsecured --- --- 501 Convertible loan notes 14 --- 31,859 --- 2,588 36,107 7,421 Total equity and liabilities 25,127 15,431 33,298 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30 JUNE 2007 Share Share Merger Exchange Accumulated capital premium reserve reserve losses Total HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 At 01/01/2006 1 26,169 23,852 36 (58,951) (8,893) Exchange differences on translation of financial information of overseas --- --- --- 1 --- 1 subsidiaries Net loss for the --- --- --- --- (11,784) (11,784) period Total recognized --- --- --- 1 (11,784) (11,783) income and expense for the period At 30/06/2006 1 26,169 23,852 37 (70,735) (20,676) At 01/01/2007 649 89,843 23,852 126 (88,593) 25,877 Exchange differences on translation of financial information of overseas --- --- --- 97 --- 97 subsidiaries Net loss for the --- --- --- --- (3,435) (3,435) period Total recognized --- --- --- 97 (3,435) (3,338) income and expense for the period At 30/06/2007 649 89,843 23,852 223 (92,028) 22,539 UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 30 JUNE 2007 Note Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 Cash flows from operating activities Cash used in operations 15 (8,466) (8,126) (12,024) Interest paid --- (555) (555) Net cash used in operating (8,466) (8,681) (12,579) activities Cash flows from investing activities Purchases of property, plant and (143) (152) (157) equipment Purchases of patents (1,341) (536) (945) Accounts with associated --- (622) (444) companies Interest received 206 41 50 Dividends received from 184 --- --- associated companies Net cash used in investing (1,094) (1,269) (1,496) activities Cash flows from financing activities Proceeds from issue of new --- --- 22,065 shares Proceeds from issuance of --- 12,870 12,870 convertible loan notes Accounts with related companies --- (100) (1,632) Accounts with directors --- (953) (954) Net cash from financing --- 11,817 32,349 activities Net (decrease)/increase in cash (9,560) 1,867 18,274 and cash equivalents Cash and cash equivalents at the 18,704 430 430 beginning of the period/year Cash and cash equivalents at the 9,144 2,297 18,704 end of the period/year NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2007 (1) BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES The unaudited condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The unaudited condensed consolidated financial statements have been prepared under the historical cost convention. The same accounting policies, presentation and methods of computation are followed in these unaudited condensed consolidated financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2006. (2) SEGMENT REPORTING (a) Business Segment The Group is principally engaged in the manufacture, distribution and sale of chemical feed and additive products. All of the group's products are of a similar nature and subject to similar risk and returns. Accordingly, the group's activities are attributable to a single business segment. (b) Geographical Segment The group's operations are located in Hong Kong and PRC. The group's sales revenue by geographical location of customers are analysed as follows: Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 PRC 3,588 1,982 6,591 Taiwan 162 272 596 Thailand 2,216 1,827 5,185 The Philippines 1,516 281 1,124 Others 152 470 673 7,634 4,832 14,169 (3) TURNOVER Turnover represents gross invoiced sales to the customers less returns, discounts, value added tax and sales taxes. (4) OTHER INCOME Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 Gain on assignment of patent --- --- 1,560 Management fee income --- --- 69 Technical support fee income 33 --- 30 Sundry income 50 --- --- 83 --- 1,659 (5) OPERATING LOSS Operating loss is stated after charging the following items :- Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 Amortisation of patents 174 147 309 Auditors' remuneration 140 267 202 Cost of inventories sold 2,513 1,693 4,795 Depreciation 189 292 506 Exchange losses, net --- 97 19 Rental charges under operating 629 619 1,256 leases in respect of land and buildings Staff costs (including directors' emoluments) - wages and salaries 3,772 2,853 6,317 - contributions to defined 176 144 289 contributions retirement plans - other staff benefits 1,148 666 1,483 Expenses for admission to the AIM 832 --- 8,695 9,573 6,778 23,871 (6) NET FINANCE COSTS Unaudited Unaudited Audited 6 months 6 months year ended ended ended 30 June 31 December 30 June 2006 2006 2007 HK$'000 HK$'000 HK$'000 Bank interest income (226) (40) (50) Interest on convertible loan --- 7,796 18,463 notes Interest on loans from related --- 6 19 parties Other interest --- --- 1 (226) 7,762 18,433 (7) INCOME TAX No provision for income tax has been made (Jun 2006 : HK$nil; 2006 : HK$nil) as the group companies have no assessable profit for Hong Kong profits tax purposes in the period/year. Taxation on overseas profits has been calculated on the estimated assessable profit for the period/year at the rate of taxation prevailing in the countries in which the group companies operate. (8) LOSS PER SHARE The calculation of the basic earnings per share for the period ended 30 June 2007, is based on the loss attributable to shareholders of HK$3,435,101 (Jun 2006 : HK$11,785,064; 2006 : HK$29,642,731) during the period and the weighted average number of 64,910,891 (Jun 2006 : 52,429,650; 2006 : 53,265,469) ordinary shares in issue during the period/year. (9) DIVIDENDS No payment of dividend was recommended for the first half of 2007 (Jun 2006 : nil; 2006 : nil). (10) ASSOCIATED COMPANIES Unaudited Unaudited Audited 30 June 30 June 2007 2006 31 December 2006 HK$'000 HK$'000 HK$'000 Share of net assets 720 49 583 Amounts due from associated companies * Trade receivables 3,633 1,814 3,040 * Current account 2,045 2,061 2,229 * Impairment losses on current (1,712) (1,712) (1,712) account balances 3,966 2,163 3,557 The amounts due from associated companies are unsecured, interest free and have no fixed terms of repayment. (11) TRADE AND OTHER RECEIVABLES Unaudited Unaudited Audited 30 June 30 June 31 December 2007 2006 2006 HK$'000 HK$'000 HK$'000 Trade receivables 1,902 1,469 2,324 Prepayments and deposits 422 2,482 453 2,324 3,951 2,777 (12) SHARE CAPITAL Unaudited Unaudited Audited 30 June 30 June 2006 31 December 2007 2006 HK$'000 HK$'000 HK$'000 Authorised 150,000,000 (Jun 2006 : 5,000,000 1,500 50 1,500 and Dec 2006 : 150,000,000) ordinary shares of HK$0.01 each Issued and fully paid 64,910,891 (Jun 2006 : 44,851 and 649 1 649 Dec 2006 : 64,910,891) ordinary shares of HK$0.01 each (13) TRADE AND OTHER PAYABLES Unaudited Unaudited Audited 30 June 30 June 2006 31 December 2007 2006 HK$'000 HK$'000 HK$'000 Trade payables 768 566 664 Other payables and accrued 1,820 2,150 6,256 expenses 2,588 2,716 6,920 (14) CONVERTIBLE LOAN NOTES All convertible loan notes were converted into ordinary shares on 30 November 2006. (15) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS Unaudited Unaudited Audited 6 months 6 months year ended ended ended 31 December 30 June 2007 30 June 2006 2006 HK$'000 HK$'000 HK$'000 Loss before taxation (3,435) (11,784) (29,643) Adjustments for: Depreciation 189 292 410 Amortisation of patents 174 147 309 Share of profit in associated (321) --- (533) companies Interest income (226) (40) (50) Interest expenses --- 7,802 18,482 Exchange realignment 75 (22) 56 Operating loss before working (3,544) (3,605) (10,969) capital changes (Increase) /Decrease in (654) 12 (47) inventories Decrease /(Increase) in trade 556 (2,662) (1,487) and other receivables (Increase) in trade receivables (492) (540) (2,112) from associates (Decrease) /Increase in trade (4,332) (1,331) 2,591 and other payables Cash used in operations (8,466) (8,126) (12,024) The half yearly report will be posted shortly to all shareholders on the share register at 31 August 2007. Copies of the report will be available in our Hong Kong office at Room 613, 6/F, West Wing Office Building, New World Centre, 20 Salisbury Road, TST, Hong Kong after 15 September 2007.

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