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Cartucho Group Ltd (CTGP)

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Monday 31 July, 2006

Cartucho Group Ltd

Interim Results

Cartucho Group Ltd
31 July 2006


Press Release                                                       31 July 2006

                               Cartucho Group Ltd

                          ('Cartucho' or 'the Group')

            Interim results for the eight months ended 30 June 2006

Cartucho Group Ltd (AIM: CTGP), a growing developer and manufacturer of ink
refill kiosks, today announces its maiden interim results for the eight months
ended 30 June 2006.


Highlights

•    Turnover £0.5 million
•    Cash balances of £2 million
•    472 Kiosks manufactured
•    Increased European sales
•    Additional US trials underway
•    US service and support partnership contract signed
•    Strengthened Board and senior management


Commenting on the 2006 interim results, Mike Willcocks, Chief Executive of
Cartucho Group, said: 'We are seeing continued significant interest from US
retailers and are pleased with the dedication shown from our major customer. We
have achieved our goal of filling positions in our senior management team which
will continue to have a direct impact on the Group's future development.'


For further information, please contact:


Cartucho Group Limited

Mike Willcocks, Chief Executive                        Tel: +44 (0) 799 0505 999
[email protected]

Collins Stewart Limited

Stephen Keys, Corporate Finance                        Tel: +44 (0) 20 7523 8312
[email protected]                              www.collins-stewart.com



Media enquiries:

Abchurch

Chris Lane / Franziska Bohnke                          Tel: +44 (0) 20 7398 7700
[email protected]                          www.abchurch-group.com



Chairman's statement


I am pleased to report that revenues for the eight months to 30 June 2006 are
£0.5million which is a significant achievement from a near-zero starting point.
Revenues are substantially all from the revenue share deal with OfficeMax. The
Group has reported an operating loss of £2.4million and a loss before tax of
£2.3million for the eight month period.


The consolidated interim financial statements have been prepared in accordance
with International Accounting Standard 34 'Interim Financial Reporting' as
stated in note 1. Whilst AIM listed companies are not required to prepare
accounts under IFRS until 2007 the Directors believe that, in keeping with its
policy to adhere to best practice, an early adoption is in the best interests of
the shareholders, so that a fairer comparison with other listed companies can be
made. Under IFRS we have made provision during this period for £200,000 for
share based payments in respect of the options granted at the time of admission
and in respect of which details were included in the admission document.


The Group has invested in the production of its ink refill kiosks to fulfil the
OfficeMax revenue share contract, as detailed in the admission document and, as
at 30 June 2006, had 254 kiosks fully deployed in stores and refilling
cartridges. A further 218 kiosks were either en-route to, or were at the
pre-installation/training stage for OfficeMax. The net increase in cash of
£2.0million in the period reflects the fund raising through the share placement
and the cost of investment in these assets, which are revenue generating,
supplies of consumable items and inks required to service the kiosks and the
step-up in production and operational capability of the Group. In relation to
this the Group carried out an operational and process review of its production
facility in Malaga, Spain. Following this, Chris Dietemann was appointed as Head
of Supply Chain and Engineering to implement the changes identified under the
review and to enable the company to further increase its production capacity and
quality levels. I am pleased to report that substantial progress has been made
in these areas and that this will continue to be a focus of the Group. In
addition the Group has appointed Robert Clark to the position of Director of
Field Engineering. Bob, operating from a newly established small office in
Dallas, USA, is responsible for all service and support activities for the Group
and manages both in-house and outsourced engineering resources. The Dallas
office is also now the centre of operations for all North American logistics and
kiosk training activities. In addition, the Group is investigating the prospect
of contract manufacturing within the Texas region.


Cartucho's business model remains one of a blend of kiosks sold outright to
operators and retailers and kiosks under revenue share agreements, such as with
OfficeMax. Under the latter category, whilst the Directors have been
disappointed that average refill rates have been below expectations, as detailed
in the announcement dated 20 July 2006, the manufacturing and service
infrastructure are established, with the Group having proper structures in place
and adequate cash resources.


Further to the announcement of the re-scheduling of the deployment in kiosks to
our largest US customer, I can confirm that the Group remains committed to the
completion of the full roll-out of the balance of the kiosks under its revenue
share agreement and is looking forward to recommencing higher levels of kiosk
deployment and installation once the average refill rates of the installed
kiosks reach an acceptable level over a reasonable period of time and will scale
down its production to meet specific production requirements for existing and
new customers.


The ink refill kiosk continues to attract significant interest from retailers
and the Group has recently completed initial deployments of 10 kiosks each in
two major US chains in the drug store and supermarket/grocery sectors on a
revenue share basis. There have also been sales in the period of four kiosks
making a total of five deployed in a major U.K. supermarket chain, and two
kiosks in a major French retailer.


The Group is also addressing potential opportunities with resellers and
distributors in the U.S. and other territories.


Strategy

As mentioned the Group has launched two new kiosk trials with US based retailers
during the period as well as having its kiosk evaluated by other companies in
the retail and ink sectors.


The Board has developed a strategy for the installation of kiosks in three
sectors:

•    Dedicated office supplies retailers
•    Convenience stores e.g. US drug stores, pharmacies, niche stores
•    High (consumer) footfall areas e.g. large supermarkets, shopping malls etc


It is in each of these three areas that retailers can attract customers through
three simple messages about the benefits of the ink refill kiosk, which are:

•    Price competitiveness
•    Quality
•    Convenience


By limiting the size of trials in both kiosk numbers and geography, and working
closely with retailers to ensure their operators are fully trained in kiosk
operation and refill sales, the Group expects to guide retailers through
evaluation to trial to initial deployment to full roll-out.


Sales to European retailers have shown that the return of investment for
purchasers of kiosks is rapid and that high refill volumes are achievable
through a combination of location, promotion/advertising, dedicated and fully
trained operators and competitive pricing. Similar levels of refill volumes
equally make revenue share arrangements attractive for the Group.


New Product Development

As previously reported, the Group continues to explore areas of product
development and this interim statement provides an ideal opportunity to inform
shareholders of developments to date. On-line access to kiosks is now available,
where stores are able to provide broadband/ASDL internet connectivity. Our new
servers are able to download and track kiosk performance individually and across
territories. A new version of the kiosks operating software was completed during
the period and the latest software is being remotely uploaded into kiosks
already deployed and has proved successful, where operational, in further
driving the quality delivery of ink and the refill process in kiosks.


Work continues on the deployment of voice over-IP (VoIP) communications between
kiosk operators and our call centre as well as the call centre and our R&D
facility in Spain. Development and additional engineering improvements continue
in many areas of the kiosk design and performance. For example, earlier this
year we swapped from a 10 pump delivery system to a 4 pump system by utilising 3
channel synchronised peristaltic pumps; not only does this enable accurate ink
delivery for colour (3 ink) cartridges it also simplifies the engineering and
reduces configuration/calibration and maintenance issues.


Outlook

Following the trading update issued on 20 July 2006 the Group is working very
closely with and is delighted with the commitment being shown by our major US
customer and I believe that the focus on existing kiosks will produce positive
results and endorse the Group's business model. The expected increase in refill
rates and opportunities that exist for the Group, mean that the board view the
future with confidence.


Ian Diery

Chairman


CONSOLIDATED INCOME STATEMENT

for the eight months ended 30 June 2006

                                                Notes                                      8 months
                                                                                              ended
                                                                                            30 June
                                                                                               2006
                                                                                          Unaudited
                                                                                              £'000

Revenue                                                1                                        539
Cost of sales                                                                                 (355)
Gross profit                                                                                    184
Administrative expenses                                3                                    (2,547)
Operating loss                                                                              (2,363)
Interest receivable                                                                              70
Loss before taxation                                                                        (2,293)
Income tax expense                                     4                                          -
Loss after taxation                                                                         (2,293)
Basic loss per ordinary share - pence                  5                                       2.55
Diluted loss per ordinary share - pence                5                                       2.55


CONSOLIDATED BALANCE SHEET

as at 30 June 2006

                                         Notes           30 June                31 October
                                                            2006                      2005
                                                       Unaudited                 Unaudited
                                                           £'000                     £'000

Assets
Non-current assets
Intangible assets                          6                 163                         -
Property, plant and equipment              7               3,027                        16
                                                           3,190                        16

Current assets
Inventories                                                1,102                       322
Receivables and prepayments                                  582                       113
Cash and cash equivalents                                  2,008                        25
                                                           3,693                       460
Total assets                                               6,882                       476

Current liabilities
Trade and other payables                                     464                       785
Total liabilities                                            464                       785

Capital and reserves
Share capital                              8                 900                       400
Share premium                              8               8,050                         -
Retained earnings                                        (2,637)                     (344)
Merger reserve                                             (365)                     (365)
Share based payment reserve                3                 470                         -
Total equity                                               6,418                     (309)
Total equity and liabilities                               6,882                       476



CONSOLIDATED CASH FLOW STATEMENT

for the eight months ended 30 June 2006

                                                                8 months ended
                                                                  30 June 2006
                                                                     Unaudited
                                                                         £'000

Operating Activities
Results for the period before tax                                      (2,293)
Depreciation                                                               128
Amortisation                                                                20
Share based payment provision                                              200
Interest received                                                         (70)
Increase in inventories                                                  (780)
Increase in receivables                                                  (469)
Decrease in trade payables and other liabilities                         (321)
Net cash from operating activities                                     (3,585)

Investing activities
Additions to property, plant and equipment                             (3,139)
Additions to intangible fixed assets                                     (183)
Interest received                                                           70
Net cash from investing activities                                     (3,252)

Financing activities
Proceeds from share issue                                                8,820
Net cash from financing activities                                       8,820

Cash and cash equivalents at the beginning of the period                    25
Net increase in cash and cash equivalents                                1,983
Cash and cash equivalents at the end of the period                       2,008



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the eight months ended 30 JUNE 2006


                          Share        Share      Retained          Share       Merger         Total
                        capital      premium      Earnings  based payment      reserve        equity
                                                                  reserve
                          £'000        £'000         £'000          £'000        £'000         £'000

Balance at 31
October 2005                400            -         (344)              -        (365)         (309)
Loss for the period           -            -       (2,293)              -            -       (2,293)
Share based payment
provision                     -            -             -            200            -           200
Shares issued               500        9,500             -              -            -        10,000
Share issue costs             -      (1,450)             -            270            -       (1,180)
Balance at 30 June
2006                        900        8,050       (2,637)            470        (365)         6,418
                            

NOTES TO THE INTERIM FINANCIAL STATEMENTS

for the eight months ended 30 June 2006


1 PRINCIPAL ACCOUNTING POLICIES


Basis of preparation

The financial information has been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The financial information has been prepared on the
historical cost basis. The principal accounting policies adopted are set out
below.


The reporting period in this statement is eight months to 30 June 2006 as the
last reported figures were to 31 October 2005 which were detailed in the
Company's admission document. No comparative results are presented as the Group
had not traded in the comparative period. A comparative balance sheet at the
previous period end is presented on page 10.


Statement of compliance

The consolidated interim financial statements have been prepared in accordance
with IAS 34 'Interim Financial Reporting'. The Group will prepare its first full
set of IFRS financial statements for the period ending 31 December 2006.  A
summary of the accounting policies applied in the preparation of the financial
statements is given below. These policies have been consistently applied to all
the periods presented, unless otherwise stated.


Basis of consolidation

The Group financial statements consolidate the results of the Company and of its
subsidiary undertakings drawn up to 30 June 2006. On 9 December 2005 Cartucho
Group Limited assumed ownership of Cartucho Holdings Limited via a share for
share exchange, there being no change in the ultimate ownership of that company.
This transaction was therefore a group reorganisation and not a business
combination. Accordingly, it has been accounted for using merger accounting
giving rise to a merger reserve in the Group balance sheet. The Company's other
subsidiary undertakings had not traded prior to this reorganisation.


Income and expense recognition

Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured. The
following specific recognition criteria must also be met before revenue is
recognised:


Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the
goods have passed to the buyer and the amount of revenue can be measured
reliably.


Revenue Share

Fee income arising on the installation of Ink Refilling kiosks into locations
where the Group retains ownership of the kiosk, is accounted for as it is earned
during the term of the customer contract.


Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any
recognised impairment loss. Kiosks which have been placed with customers are
carried at manufacturing cost less subsequent depreciation and impairment
losses. Depreciation is charged so as to write off the cost of assets less
residual value over their estimated useful lives, using the straight line method
at a rate of 33.3 per cent per annum for Ink Refilling kiosks and 25 per cent
for all other assets. The gain or loss arising on the disposal or retirement of
an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in income.


Intangible assets

Externally purchased intellectual property and similar intangible items are
capitalised at historic cost, net of any provision for impairment and amortised
on a straight line basis over their estimated useful economic lives of five
years.


Inventories

Inventories comprise raw materials, supplies and purchased consumable goods
valued at purchase cost. Financing costs are not taken into consideration. At
the balance sheet date, inventories are carried at the lower of cost and net
realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less any applicable selling expenses.


Taxation

Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
periods, that are unpaid at the balance sheet date. They are calculated
according to the tax rates and tax laws applicable to the fiscal periods to
which they relate, based on the taxable result for the year. All changes to
current tax assets or liabilities are recognised as a component of tax expense
in the income statement.


Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets and
liabilities in the consolidated financial statements with their respective tax
bases. In addition, tax losses available to be carried forward as well as other
income tax credits to the group are assessed for recognition as deferred tax
assets. Deferred tax liabilities are always provided for in full. Deferred tax
assets are recognised to the extent that it is probable that they will be able
to be offset against future taxable income. Deferred tax assets and liabilities
are calculated, without discounting, at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date. Most changes in deferred tax
assets or liabilities are recognised as a component of tax expense in the income
statement. Only changes in deferred tax assets or liabilities that relate to a
change in value of assets or liabilities that is charged directly to equity
(such as the revaluation of land) are charged or credited directly to equity.


Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand as well as short term
highly liquid investments such as money market instruments and bank deposits.


Financial instruments

Financial assets are recognised in the balance sheet initially at fair value net
of transaction costs and subsequently at amortised cost. All financial assets
fall within the category of loans, deposits and receivables. Provision is made
for impairment where appropriate. Income and expenditure arising on financial
instruments is recognised on the accruals basis under the effective interest
method and credited or charged to the profit and loss account in the financial
period to which it relates. Trade receivables are initially stated at fair
value. They do not carry any interest and are stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable amounts. Trade
payables are not interest bearing and are initially stated at their nominal
value and subsequently measured at amortised cost less settlement payments.


Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Non-monetary
assets and liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value is determined. Gains and losses arising on retranslation are included in
net profit or loss for the year, except for exchange differences arising on
non-monetary assets and liabilities where the changes in fair value are
recognised directly in equity.


Share based payment

For all the share options granted an expense is recognised in the income
statement with a corresponding credit to equity. The equity share based payment
is measured at the fair value at the grant date. If vesting periods or other
vesting conditions apply, the expense is allocated over the vesting period,
based on the best available estimate of the number of share options expected to
vest.


Equity

Share capital is determined using the nominal value of shares that have been
issued. Additional paid-in capital includes any premiums received on the initial
issuing of the share capital. Any transaction costs associated with the issuing
of shares are deducted from additional paid-in capital, net of any related
income tax benefits. Retained earnings include all current and prior period
results as disclosed in the income statement.


2 SEGMENT ASSETS AND LIABILITIES

The majority of the Group's operations to date are in respect of the revenue
share agreement with a single customer in the US. The Board treats the Group as
one unit for management purposes and hence no segmental reporting is considered
applicable.


3 ADMINISTRATIVE EXPENSES

Administrative expenses for the eight month period are broken down as follows:


                                                           Administrative expenses
                                                              for the eight months
                                                               ended  30 June 2006
                                                                             £'000

Transportation                                                                 451
Salaries and other fees                                                        973
Office costs                                                                   316
Legal and professional                                                         169
Travel and expenses                                                            290
Depreciation and amortisation                                                  148
Share based payments                                                           200

Total                                                                        2,547


The provision for share based payments of £200,000 has been provided in
accordance with IFRS2.


4 TAXATION

There is no current tax charge in view of the losses incurred in the period.


Tax losses have been carried forward to be off set against profits in future
years.  No deferred tax asset has been recognised in respect of these losses.


5 EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year. Share options outstanding have no dilutive
effect in view of the loss for the period. Reconciliations of the earnings and
weighted average number of shares used in the calculations are set out below:


                                      Basic Loss per Ordinary Share  Diluted loss per Ordinary Share

Loss for the period (£'000)                                 (2,293)                          (2,293)
Average Number of Ordinary Shares                        90,000,200                       90,000,200
Loss per Ordinary Share (pence)                                2.55                             2.55

                                                               
6 INTANGIBLE ASSETS

During the period the group acquired intellectual property assets for £183,000.
Amortisation of £20,000 for the eight months has been charged.


7 PROPERTY, PLANT AND EQUIPMENT

During the period the Group acquired property, plant and equipment with a cost
of £3,155,000, substantially all representing revenue share kiosks. Depreciation
of £128,000 has been charged. There have been no disposals.


8 EQUITY

On December 9, 2005 the company issued 40,000,000 ordinary shares of 1p each at
par in consideration for the acquisition of Cartucho Holdings Limited.


On December 16, 2005 the company issued 50,000,000 ordinary shares of 1p each at
a premium of 19p per share. These shares were issued on admission to AIM on
December 16, 2005.


9 RELATED PARTY TRANSACTIONS

Details of related party transactions and period end balances are as follows:


Related party                 Transaction type Expensed/Loaned in the          Balance as at
                                                               period           30 June 2006
                                                                £'000                  £'000
                                                                                       
Chris Burton and Hamilton
Marketing Inc                                a                    206                      -
                                            
Cartuchos y Toners
Reciclados Espana S.L                        b                      -                     27
                                             
David Scanlan                                c                     50                      -

Adrian Jones (BOP
International Ltd)                           d                    200                      -
                                             
Roger Pellew                                 e                    456                      -

North Essex Signs Ltd                        f                  1,047                      7


Transaction type


a          Chris Burton is a shareholder of Hamilton Marketing Inc and Hamilton
Marketing Inc is a shareholder in the Company.  During the period Chris Burton
incurred expenses of £155,748 on behalf of the Group on which no interest was
payable. Chris Burton was paid a fee for consultancy services and commissions
payable under his sales and marketing agreement of £50,000.



b          Chris Burton is a shareholder of Cartuchos y Toners Reciclados Espana
S.L. During the period the group sold kiosks to Cartuchos y Toners for £27,500



c          David Scanlan is a shareholder in the Company. During the period
David Scanlan was paid a fee for consultancy services and commissions payable
under his sales and marketing agreement of £50,000.



d          Adrian Jones is a shareholder of BOP international Ltd and BOP
International Ltd is a shareholder in the Company.  During the period Adrian
Jones provided the company an interest free loan of £200,000.



e          Roger Pellew is a shareholder and director of the Company. During the
period Roger Pellew provided the company with an interest free loan of £456,280.



f           Anthony Irwin is both a shareholder in North Essex Signs Ltd and
Cartucho Group Ltd.  Certain materials used in the manufacture of the Ink
Refilling Kiosks are purchased from North Essex Signs Ltd.  North Essex Signs
Ltd have also paid for certain expenses on behalf of the company.  No interest
is payable on the balance outstanding.



10 PREPARATION OF INTERIM STATEMENTS

The interim statement is unaudited but has been reviewed by the auditors and
their report is set out on pages 7 and 8. The financial information does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act.



11 APPROVAL OF INTERIM STATEMENT

The interim statement was approved by the Board of Directors on 28 July 2006.
Copies of this statement will be available to members of the public, free of
charge, from the Company at 47 Esplanade, St. Helier, Jersey JE1 0BD.


                                    - Ends -


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