THIS DOCUMENT IS IMPORTANT. If you are in any doubt about the contents of this document you should consult yourstockbroker, bank manager, accountant, solicitor or other independent professional adviser (being, if you are in the United Kingdom,an adviser authorised under the Financial Services and Markets Act 2000) who specialises in advising on the acquisition of shares andother securities, before taking any action.Your attention is also drawn to the section headed “Risk Factors” in Part II of this document.

This document constitutes an admission document and has been prepared in accordance with the AIM Rules. This document does notconstitute a prospectus for the purposes of sections 85 and 87 of FSMA and any offer to the public is exempt by virtue of section 86 of FSMA.A copy of this document has been delivered to the London Stock Exchange as an admission document in respect of the Shares. This documenthas been approved for issue in the United Kingdom as a financial promotion for the purposes of Section 21 of FSMA by King & ShaxsonCapital Limited, which is authorised and regulated by the Financial Services Authority.

The Company and the Directors, whose names appear on page 3, accept responsibility for the information contained in this document. To thebest of the knowledge of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in thisdocument is in accordance with the facts and contains no omission likely to affect the import of such information.

Application will be made for the Shares, issued and to be issued, to be admitted to trading on AIM.AIM is a market designed primarilyfor emerging or smaller companies to which a higher investment risk than that associated with established companies tends to beattached. AIM securities are not admitted to the Official List of the United Kingdom Listing Authority. A prospective investor shouldbe aware of the potential risks in investing in such companies and should make the decision to invest only after careful considerationand consultation with his or her own independent financial adviser. The rules of AIM are less demanding than those of the OfficialList. It is emphasised that no application is being made for admission of these securities to the Official List.

Further, the London Stock Exchange plc has not itself approved the contents of this document. It is anticipated that Admission willbecome effective and trading in the Shares will commence on AIM on 21 December 2006.

Walcom Group Limited(Incorporated in the British Virgin Islands with limited liability with IBC number 584063)

(ISIN No.VGG574851074)

Placing of 4,491,735 Shares at 35 pence per Shareand

Admission to trading on AIM

Nominated Adviser Broker

John East & Partners Limited King & Shaxson Capital Limited

The following table shows the authorised and issued share capital of the Company immediately following the Placing.

Authorised Issued and fully paidHK$ Number HK$ Number

1,500,000 150,000,000 Shares of HK$0.01 each 649,108.91 64,910,891

The Placing Shares rank pari passu in all respects, including the right to receive all dividends and other distributions declared, made or paidon the Shares after the date of this document.

This document constitutes an admission document in accordance with the rules of the AIM market of the London Stock Exchange.

John East & Partners Limited, which is authorised and regulated by the Financial Services Authority, is acting as Nominated Adviser toWalcom Group Limited. John East & Partners Limited is not acting for anyone else and will not be responsible to anyone other than WalcomGroup Limited for providing the protections afforded to clients of John East & Partners Limited or for providing advice in relation to thecontents of this document and the admission of the Shares to trading on AIM.

King & Shaxson Capital Limited, which is authorised and regulated by the Financial Services Authority, is acting as Broker to Walcom GroupLimited. King & Shaxson Capital Limited is not acting for anyone else and will not be responsible to anyone other than Walcom Group Limitedfor providing the protections afforded to clients of King & Shaxson Capital Limited or for providing advice in relation to the contents of thisdocument and the admission of the Shares to trading on AIM.

In particular, John East & Partners Limited, as Nominated Adviser to the Company, and King & Shaxson Capital Limited, as Broker to theCompany, owe certain responsibilities to the London Stock Exchange which are not owed to the Company or the Directors or to any otherperson in respect of his or her decision to acquire Shares in reliance on any part of this document.

No liability is accepted by John East & Partners Limited or King & Shaxson Capital Limited for the accuracy of any information or opinionscontained in or for the omission of any material information from this document, for which the Company and its Directors are solely responsible.

The Shares have not been and will not be registered under the securities legislation of any province or territory of Australia, Canada, Japan,South Africa or USA.

Accordingly, the Shares may not, subject to certain exceptions, be offered or sold, directly or indirectly in or into Australia, Canada, Japan,South Africa or USA, or to any national, citizen or resident of Australia, Canada, Japan, South Africa or USA. This document does notconstitute an offer to sell or issue, or the solicitation of an offer to buy or subscribe for, Shares in any jurisdiction or to any person in whichor to whom such offer or solicitation is unlawful.

Prospective investors are advised to read, in particular, Part I “Information on the Company” and Part II “Risk Factors”, for a morecomplete discussion of the factors that could affect the Company’s future performance and the industry in which it operates.

1

Contents

Page

Directors, secretary and advisers 3

Definitions 4

Glossary of terms 7

Expected timetable of principal events 8

Placing statistics 8

PART I Information on the Group 9History and background 9Walcom’s business 9Marketing strategy 10Intellectual property 11Competition 11Summary financial information 12Current trading 12Directors and senior management 12Employees 15Details of and reasons for the Placing and use of the proceeds 15Dealing restrictions 15Share Option Scheme 15Share Award Plan 16Warrants 16Taxation 16CREST 16Corporate governance 16Dividend policy 17Additional information 17

PART II Risk factors 18

PART III Competent Person’s Report 23

PART IV Financial information on the Company 74

Section A: Financial Information on the Company 75

Section B: Accountants’ Report on the Company 98

Section C: Unaudited Interim Financial Information for the six months ended 30 June 2006 100

PART V Unaudited pro-forma statement of net assets of the Group 104

Section A: Unaudited pro-forma statement of net assets of the Group 104

Section B: Accountants’ Report on the unaudited pro-forma statement of net assets of the Group 105

PART VI Additional information 107

2

Directors, secretary and advisers

DirectorsEddie Kin Man Chan (Non-Executive Chairman)

Francis Chi (Chief Executive Officer)Yong Chian Tan (Chief Executive Officer in the PRC)

Albert Siu Fai Wong (Chief Financial Officer)Frankie Yuet Leung Wong (Non-Executive Director)Royston Frederick Drucker (Non-Executive Director)

Timothy Robert Nelson (Non-Executive Director)

all of: Unit 613, 6/F West Wing Office Building, New World Centre, 20 Salisbury Road,

Tsimshatsui, Kowloon, Hong Kong

Company Secretary Principal Place of BusinessAlbert Siu Fai Wong FCCA CPA Unit 613, 6/F West Wing Office Building,

New World Centre, 20 Salisbury RoadTsimshatsui, Kowloon, Hong Kong

Nominated Adviser BrokerJohn East & Partners Limited King & Shaxson Capital Limited

Crystal Gate, 28-30 Worship Street, 6th Floor, Candlewick House,London EC2A 2AH 120 Cannon Street, London EC4N 6AS

Solicitors to the Nominated Adviser and BrokerFaegre & Benson LLP

7 Pilgrim Street, and Shanghai Centre, Suite 425,London EC4V 6LB 1376 Nanjing Road West,

Shanghai 200040, China

Solicitors to the CompanyAs to Hong Kong law As to English law

Richards Butler Richards Butler LLP20F Alexandra House, 16-20 Chater Road, Beaufort House, 15 St Botolph Street,

Central, Hong Kong London EC3A 7EE

As to Chinese law As to British Virgin Islands lawFangda Partners Maples & Calder

20/F Kerry Centre, 1515 Nanjing Road West, 1504 One International Finance Centre,Shanghai 200040, China 1 Harbour View Street, Hong Kong

Auditors Reporting AccountantsChu and Chu Certified Public Accountants Baker Tilly

Suite 2302-7, ING Tower, 2 Bloomsbury Street, London WC1B 3ST308 Des Voeux Road andCentral, Hong Kong Baker Tilly Hong Kong

12th Floor, China Merchants TowerShun Tak Centre, 168-200 Connaught Road

Central, Hong Kong

Registrars DepositaryComputershare Investor Services Computershare Investor Services PLC

(Channel Islands) Limited P O Box 82, The Pavilions,P O Box 83, Ordinance House, Bridgewater Road,

31 Pier Road, St Helier, Bristol BS99 7NHJersey JE4 8PW, Channel Islands

3

Definitions

The following definitions apply throughout this document unless the context requires otherwise:

“Admission” the admission of the Shares to trading on AIM inaccordance with the AIM Rules

“AIM” the AIM market of the London Stock Exchange

“AIM Rules” the rules for AIM companies as published by the LondonStock Exchange

“Bioglory” Bioglory International Limited

“Board” or “Directors” the directors of the Company whose names are set out onpage 3 of this document

“BVI” the British Virgin Islands

“Capitalisation” the capitalisation of certain sums standing to the credit ofthe share premium account of the Company further detailsof which are contained in paragraph 3 of Part VI of thisdocument

“Committee” a committee delegated from time to time by the Board

“Company” or “Walcom” Walcom Group Limited, a company incorporated in theBVI with limited liability on 2 March 2004

“Companies Act” the BVI Business Companies Act (No. 16 of 2004)

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws ofHong Kong)

“Computershare” Computershare Investor Services PLC

“Corporate Governance the Corporate Governance Guidelines for AIM Companies Guidelines” published by the Quoted Companies Alliance in July 2005

“CREST” the computerised settlement system to facilitate thetransfer of title of shares in uncertificated form, operatedby CRESTCo Limited

“CREST Regulations” the Uncertificated Securities Regulations 2001 of the UK(as amended)

“Donor” a person or organisation which allocates cash or gift sharesto the Trustee pursuant to the Share Award Plan Rules

“Enlarged Issued Share Capital” the Shares in issue immediately following Admission

“EU” the European Union

“Group” the Company and its subsidiaries or any of them or, wherethe context requires in respect of the period before theCompany became the holding company of its presentSubsidiaries, the present Subsidiaries of the Company

4

Definitions (continued)

“HK dollars” or “HK$” Hong Kong dollars and cents respectively, the lawful and “cents” currency of Hong Kong

“HKSE” Hong Kong Stock Exchange

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“John East & Partners” John East & Partners Limited

“King & Shaxson Capital” King & Shaxson Capital Limited

“Leadton” Leadton Resources Limited

“London Stock Exchange” London Stock Exchange plc

“Longain” Longain Trading Limited

“Omega” Omega-BioPharma Holdings Limited

“Options” or “Share Options” options to subscribe for new Shares under the Share OptionScheme

“Placing” the placing of the Placing Shares at the Placing Price

“Placing Price” 35 pence per Placing Share

“Placing Shares” the 4,491,735 new Shares being offered by the Companyfor subscription under the Placing

“PRC” or “China” the People’s Republic of China, and except where thecontext requires, references in this document to the PRC orChina do not include Hong Kong, the Macau SpecialAdministrative Region of the PRC and Taiwan

“R&D” Research and Development

“Renminbi” or “RMB” Renminbi, the lawful currency of the PRC

“Share Award Plan” the share award plan adopted by the Company on20 September 2006, the principal terms of which aresummarised in paragraph 12 of Part VI of this document

“Share Award Plan Rules” the rules accompanying the Share Award Plan

“Shareholders” the holders of Shares

“Shares” shares of HK$0.01 each in the capital of the Company

“Share Option Scheme” the Company’s 2006 unapproved executive share optionscheme rules adopted by the Company on 20 September2006, the principal terms of which are summarised inparagraph 11 of Part VI of this document

“Takeover Code” The City Code on Takeovers and Mergers of the UK asamended from time to time

“Trust Deed” in relation to the Share Award Plan, the trust deed enteredinto between (1) the Company and (2) the Trustee

5

Definitions (continued)

“Trustee” the trustee of the Share Award Plan, being Walcom ChinaStaff Incentive Limited

“UK” the United Kingdom of Great Britain and NorthernIreland

“UKLA” the UK Listing Authority, being the Financial ServicesAuthority acting in its capacity as the competent authorityfor the purposes of the UK Financial Services and MarketsAct, 2000

“USA” the United States of America

“Vuna” Vuna Capital Partners Limited

“Walcom International” Walcom International Limited, a company incorporated inthe BVI on 20 March 2001 and a wholly-owned subsidiaryof the Company

“Walcom Shanghai” Shanghai Walcom Bio-Chemicals Industrial Limited

“Warrantholder” in relation to a Warrant, the person in whose name suchWarrant is registered in the register of Warrantholders forthe time being

“Warrants” The warrants to subscribe for Shares issued pursuant to adeed, described on page 16 of Part I of this document anda summary of which is set out in paragraph 13 of Part VI

“US dollars” or “US$” United States dollars, the lawful currency of the USA

“£” pounds sterling, the lawful currency of the UK

On 14 December 2006 the last practical date before printing this document, the rate of exchangewas approximately HK$1 = £0.0655.

6

Glossary of terms

The following definitions apply throughout this document unless the context requires otherwise:

“aquaculture” the cultivation of the natural produce of water, such asfish, crustaceans and molluscs

“Aquanin” an aquaculture growth promotant

“Avianin” a poultry growth promotant

“Beta-agonist” beta-adrenergic agonists, a group of syntheticphenethanalomine derivatives that act as growth-modifyingagents

“Bovinin” a beef cattle growth promotant

“Cysteamine” a component of Co-enzyme A which is a natural metabolitegenerated in animals’ bodies and which participates inanimals’ physiological Growth Axis to stimulate theanimal’s natural GH level

“Eggronin” an egg laying rate promotant that also reduces egg shellbreakage

“exogenous” developed or originating outside the organism

“finisher” livestock bred for meat which is in the last few weeks ofgrowth before being taken to market

“GH” Growth Hormone, a protein secreted by the anteriorpituitary gland in all mammals although its structurediffers between species. It is a major participant in controlof several complex physiological processes, includinggrowth and metabolism

“Lactonin” a dairy cow milk production promotant

“metabolite” any substance produced by metabolism or by a metabolicprocess

“polyclonal” derived from different types of cells

“Porcinin” a swine growth promotant

“titer”or “antibody titer” a measurement of the amount of antibodies in the blood.The test to measure antibodies is usually performed bymaking a number of dilutions of the blood then measuringat which dilution there are sufficient antibodies to react tothat test

“Walstrong” a proprietary technology relating to the Cysteaminecomplex that retains the essential features of Cysteamine inan animal’s physiology, yet which is stable when subjectedto prolonged storage and industrial processing. Formerlyknown as CT2000

7

Expected timetable of principal events

Publication date of this document 15 December 2006

Admission and commencement of dealings on AIM and crediting of CREST accounts 21 December 2006

Share certificates in respect of Placing Shares expected to be despatched by no later than 29 December 2006

Placing statistics

Placing Price 35 pence

Number of Placing Shares 4,491,735

Number of Shares in issue immediately following the Placing 64,910,891Percentage of Enlarged Issued Share Capital being placed by the Company 6.92 per cent.

Amount being raised under the Placing for the Company (before expenses) £1.57 million

Estimated net proceeds of the Placing receivable by the Company £1.01 million

Market capitalisation at the Placing Price at Admission £22.72 million

8

PART I

Information on the Group

History and backgroundThe Group is actively engaged in the research, development, commercialisation, production andmarketing of animal feed additives. The Group’s feed additives improve the health of the animals,reduce mortality rates, shorten the time taken to reach maturity, increase the protein content in animalfood products, increase egg laying and reduce eggshell breakage and build resistance to disease.

The Group has developed technology which stimulates an animal’s natural physiological systems,without the undesirable side effects commonly associated with hormones, Beta-agonists andantibiotics. The Directors believe that the Company is the only animal science company to havedeveloped a “non hormonal”, “non antibiotic”, “non gene-altering” physiological regulation animalfeed additive and the only animal science company to have commercially launched a full range ofproducts in that sector. The Group is headquartered in Hong Kong with a research and manufacturingfacility in Shanghai.

Based on the discovery of the positive effect of Cysteamine, a natural metabolite existing in plants andanimals, on animal health and productivity, the Group originally directed its research efforts towardsstabilising Cysteamine, a naturally unstable compound, for commercial use in animal feed products. TheGroup has successfully developed Walstrong, a patented and proprietary Cysteamine compound, whichretains the essential effects of Cysteamine in a way which is stable when subjected to prolonged storageand industrial processing.

Walstrong, which is not a hormone, assists an animal to increase secretion of its own Growth Hormone,to enhance growth and general well-being of animals. GH injection is a popular treatment in the US.However, as it is administered by injection it also raises concerns about possibly harmful residues whichmight be left behind by an externally introduced GH. Walstrong is an attractive alternative in that it isin powder/granule form and can be easily administered as a feed additive.

Walcom’s businessProduct RangeThe Group has successfully produced a series of animal health and productivity enhancing products. Atpresent, the Group has commercialised products which can be used to enhance productivity in swine(Porcinin) and broilers (Avianin), increase the yield and quality of milk (Lactonin) and promote higherlaying and lower egg shell breakage ratios (Eggronin).

The Group develops its Walstrong compound into feed additive and feed additive premix. Feed additiveis the basic raw product to which buyers are able to add other vitamins before mixing with theirstockfeeds (i.e. corn). Feed additive premix includes a dosage of vitamins which can be mixed directlyinto stockfeeds. Feed additive premix is more attractive to smaller farmers who do not have theknowledge or resources to add other products. Feed additive is attractive to feed integrators who preferto mix all their own raw ingredients.

The Directors believe that the Group’s products have a positive effect on the cost of animal husbandry.Based on trial evidence, the Directors have found that Porcinin and Avianin increase the average weightgain of swine and broilers by up to 14.3 per cent. and 17.8 per cent. respectively over a trial period of54 and 43 days, respectively. Further trials have demonstrated that Porcinin can increase the lean meatpercentage of swine by up to 4.6 per cent., Avianin can increase the breast yield of broilers by up to 6.3per cent., Eggronin can improve the egg laying rate by up to 11.1 per cent. and reduce breakage by upto 49 per cent. and Lactonin can improve milk production by up to 4.9 per cent. whilst increasing theprotein content of milk by up to 3.9 per cent. Two new products, Aquanin and Bovinin, are not currentlybeing marketed.

9

Walcom Shanghai received approval from the PRC Ministry of Agriculture to manufacture feedadditives in 2002.

The Group has also received approval for its core Walstrong technology from the PRC Ministry ofAgriculture, for production and usage in the livestock industry, and the product series based on thiscompound. Any new animal product derived from the approved Walstrong compound needs only to beregistered with the local feed authorities in order to be granted PRC product approval.

Sales of Avianin, Eggronin and Porcinin commenced in the PRC and, in the Philippines in 2002. Salesof Walstrong branded products commenced in Malaysia in 2002, in Taiwan in 2003, in Korea in 2004and in Thailand in 2005.

Avian InfluenzaThe avian influenza threat is present and serious. Different countries are adopting different methods tostop it spreading from wild birds to farm poultry and thence to humans. The two most common are themass slaughter of farm poultry on any occurrence of the disease in the flock and vaccination of farmpoultry with H5N1 vaccine. The latter course is the one adopted by the PRC.

Walcom has two products which solve part of the problem. They are the Walstrong Specific VaccineAdjuvent, which increases the H5N1 antibody titer and is effective against the H5N1 virus, and theWalstrong Immunity Enhancer which is added to poultry feed and enhances the bird’s immunity to thedisease.

Research and DevelopmentThe Group has adopted a strict set of guidelines in its R&D department; no research is undertaken intoexogenous hormones and antibiotics; all research is focused on physiological related areas in order tomaintain its leading position in that field; and any research undertaken is designed to give rise to newintellectual property. All initial research is undertaken by the Group’s internal R&D team to ensure thatWalcom is entitled to all intellectual property rights. Once a patent application has been submitted, theGroup engages universities and other institutions to perform further testing.

New Products There are several potentially rewarding R&D projects in the pipeline. These include new formulationsof Walstrong tailored for specific feed markets to enable the Group to diversify its product range. TheGroup has recently been awarded a UK patent relating to the development of antibodies to pig fat tissuesto increase the percentage of lean meat. This is the first non-Cysteamine based patent to be awarded toWalcom.

The Group has also developed Bovinin, a Cysteamine based growth promotant for beef cows at thefinishing stage. Tests show that it can increase daily weight gain by as much as 15.9 per cent. Thisproduct has not been launched in the PRC because the local price of beef is only slightly higher thanthat of pork and therefore the use of Bovinin cannot demonstrate a high economic benefit. In due coursethe Board expects to launch Bovinin in Europe and Japan where beef fetches much higher prices thanin the PRC.

Aquanin has been developed as a Cysteamine based growth promotant in the aquaculture market andtests have shown that it can increase the weight gain of eel and grouper by up to 77.9 per cent. and 107.9per cent., respectively. The Group has also developed a shrimp growth promotant which in trialsincreased the weight gain of shrimp by up to 11.9 per cent.

Marketing strategyThe Group’s strategy is to focus its marketing efforts principally in the PRC which, with a populationof approximately 1.3-1.4 billion people, is believed to account for one third of the world’s total outputof livestock products. To serve this market, Walcom has employed its own sales force, as well asengaging independent sales agents, to conduct direct sales of Walstrong products to large-scaleintegrators, feed manufacturers and large-scale farmers.

10

In Asia, outside the PRC, the Directors have entered into exclusive distribution or agency arrangementswith local and/or regional distributors. Sales operations have been established in Korea, Malaysia, thePhilippines, Taiwan, and Thailand where the Group’s products are marketed through local feeddistributors. The Group also intends to expand its distribution into Brazil.

Intellectual PropertyThe Group has applied for some 96 patents across six technology areas. Those areas comprise (i) itscore Cysteamine stabilised technology, as well as inventions specifically relevant to (ii) poultry feed;(iii) dairy cow feed and (iv) fish feed. The other areas are (v) antibodies to adipose tissues (as referredto in the section headed “New Products” above) and (vi) compositions for enhancing immunity todisease.

Patent applications have been made throughout the World including in the Group’s target Asian markets,including the PRC, Taiwan, Korea, Malaysia, the Philippines and Thailand. They have also been filedin countries in, amongst other places, Europe, North and South America and Australasia.

To date, the Group has been granted 11 patents in respect of:

l its core Cysteamine technology in the PRC, Hong Kong, North Korea and New Zealand;

l poultry feed in the UK, North Korea, Taiwan and Hong Kong;

l dairy cow feed in New Zealand and the UK; and

l antibodies to adipose tissues in the UK.

The Directors propose to continue the Group’s policy of pursuing wide patent coverage for the Group’snew inventions, in particular, where the Directors believe that there will be significant potential demandfor products that may result from those inventions.

To accompany its patented technology, the Group has registered a number of trademarks, in the marketsto which it sells and proposes to sell, including that of Walstrong, which mark is associated with its coreCysteamine-stabilised compound.

In addition to the intellectual property rights described above, which are owned by the Group, it has alsoassigned and licensed certain intellectual property to Omega and its subsidiaries.

Omega is a company owned by many of the existing shareholders of the Company and has been set upto pursue technology that may ultimately produce human applications. Omega is a private company andno shares in that company are being placed pursuant to this document.

The features of products that could be developed by Omega may include (amongst others) immuno-enhancement, metabolic syndrome improvement qualities and so-called ‘anti-ageing’ qualities. Todevelop products for humans is invariably a more expensive and time-consuming process than todevelop animal applications and it was for this reason that Francis Chi and other shareholders commonto both the Company and Omega chose to develop the technologies separately and to proceed with alisting of the Company as a priority.

Subsidiaries of Omega have licensed the Group to use certain Cysteamine compositions designed toimprove immunity in animals. The license is on an exclusive perpetual royalty free basis.

Further details of these arrangements are set out in paragraph 10 of Part VI of this document.

CompetitionThe Directors are aware of only one other company presently producing animal health and productivitysolutions based on compounds similar to Walstrong, however, there are many companies involved in theproduction, development and research into animal health and productivity solutions.

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Summary Financial InformationThe table below, which has been extracted from, and should be read in conjunction with, the financialinformation, set out in Part IV of this document, sets out a summary of the audited consolidated incomestatement of the Company for the three years ended 31 December 2005 and the unaudited interimincome statement for the six month period ended 30 June 2006.

Six monthsYear ended 31 December ended

30 June2003 2004 2005 2006

HK$’000 HK$’000 HK$’000 HK$’000

Turnover 3,196 4,650 5,046 4,832Cost of sales (2,636) (3,008) (2,595) (1,693)

Gross profit 560 1,642 2,451 3,139Other revenue 18 – 108 –Gain on disposal of subsidiary 56 – – –Research and development expenses (1,251) (1,089) (1,121) (693)Selling and distribution expenses (3,559) (3,387) (5,484) (2,659)Administrative and other operating expenses (10,998) (6,461) (8,738) (3,809)Share of loss in associates (1) – (22) –

Loss from operations (15,175) (9,295) (12,806) (4,022)Net finance costs (Note 1) (1,323) (1,236) (1,977) (7,762)

Loss before taxation (16,498) (10,531) (14,783) (11,784)

Turnover and operating losses are derived from continuing operations.

This table should be read in conjunction with the financial information set out in Part IV of thisdocument.

Note 1: Finance costs include a charge of HK$6.86 million relating to the issue of US$4.65 million ofconvertible loan notes during the period. The charge is required under IAS 32 and IAS 39 to reflect thediscount arising on the conversion of the loan notes into the Company’s shares. Further details relatingto the convertible loan notes are set out in paragraph 4 of Part VI of this document.

Current trading The Directors believe that the Group is now enjoying the benefits of its investment in R&D andpersonnel over the past eight years. There has been increased awareness of the Group’s products whichhas led to a considerable upturn in the number of enquiries being received and a consequentialsignificant increase in the Group’s sales. Initial orders have been received from one of the world’slargest feed groups to supply five of its feed mills in the PRC and one of its mills in Thailand, whichis expected to lead to further substantial orders in the future. Sales for the six months to 30 June 2006amounted to HK$4.832 million compared to HK$5.046 million for the whole of the previous year. TheDirectors believe that sales will continue to increase and they look forward to the future withconfidence.

Directors and Senior ManagementDirectorsEddie Kin Man Chan, aged 45, (Non-Executive Chairman) is a practising accountant and a graduate ofthe Hong Kong Polytechnic University. In 1989, Mr Chan founded Chan, Wong, Chung & Co., a firmof certified public accountants. He is a Vice-President of the China Tax Society and a Fellow of TheAssociation of Chartered Certified Accountants and a Fellow of the Hong Kong Institute of CertifiedPublic Accountants. Eddie Chan originally joined the Group in 2002 as a part-time finance director.

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Francis Chi, aged 45, (Chief Executive Officer) founded the Group and has played a leading role indeveloping the Company’s direction in pursuit of its business and operational objectives. He isresponsible for business development and the commercial activities of the Group, including themanufacturing and marketing of all product applications. He holds a Bachelor of Arts degree inBusiness Administration from the University of Seattle, in the USA. Mr Chi has over 22 years ofentrepreneurship experience, of which he has spent 16 years in the fields of organic and inorganicchemicals, fertilizers, pharmaceuticals, bio-chemicals and animal feeds.

Yong Chian Tan, aged 43, (Chief Executive Officer in the PRC) holds a Bachelor of Science degree inCivil Engineering from the University of Seattle, in the USA. Prior to joining the Company in 2001, heworked for the Walsin Lihwa Group which is listed in Taiwan and has diversified operations in power,telecommunications, cable and wire, steel, electronic components and semiconductors. His most recentroles with the Walsin Lihwa Group were as President of HannHann Corporation and DongGuangHannstar Electronics Company Limited where he was responsible for establishing operations in thePRC. He has had over 10 years senior experience in project management, and the operation andmanagement of new businesses in the PRC and Taiwan.

Albert Siu Fai Wong, aged 46, (Chief Financial Officer) has over 20 years financial and accountingexperience. He is a Fellow of The Association of Chartered Certified Accountants and a member of theHong Kong Institute of Certified Public Accountants. He has been group chief accountant of a businessconglomerate and then finance director of a venture capital fund. Prior to joining Walcom in 2005 hewas a consultant, assisting clients to prepare for listing on the HKSE. He is currently an independentnon-executive director of TC Interconnect Holdings Limited, a company listed on the HKSE.

Frankie Yuet Leung Wong, aged 57, (Non-Executive Director) holds a Master of Arts degree from theUniversity of Lancaster and a Bachelor of Science degree in Economics from the London School ofEconomics and Political Science. Mr Wong joined the Shui On group of companies in 1981 and is theManaging Director of Shui On Holdings Limited, a position he has held since 1991. He is also ChiefExecutive Officer of Shui On Construction and Materials Limited, a company listed on the HKSE. Priorto his service in the Shui On group of companies, he had worked for a number of years for several majorinternational banks in Hong Kong. He was appointed a Non-Executive Director in 2003.

Royston Frederick Drucker, aged 53, (Non-Executive Director) graduated in Natural Sciences andwas awarded a MA by Cambridge University. He qualified there as a physician being awarded MB,BChir, MRCS and LRCP. He is, inter alia, a Fellow of the Faculty of Pharmaceutical Medicine, aFounder and Honorary Member of the Association for Human Pharmacology in the PharmaceuticalIndustry, a Fellow of the Royal Society of Medicine, a member of the British Association ofPharmaceutical Physicians and a member of the Securities & Investment Institute, London. Followingan eight year clinical career, he joined Sterling-Winthrop’s research and development division,becoming a senior departmental manager of its department of biochemistry, Alnwick UK withresponsibilities for clinical pharmacology, drug metabolism and bioanalysis in Europe. In 1985 hejoined the Pharmaceutical Research Laboratories of the Upjohn Company and was appointedEuropean head of Clinical Pharmacology. He was also appointed an Honorary Research Fellow inClinical Pharmacology at Guy’s Hospital, London. He then became Executive Director andsubsequently Corporate Vice President of drug development. Since 1996 he has acted as a consultantto life science companies worldwide through Technomark Consultancy Services Limited. He wasappointed a Non-Executive Director in 2006.

Timothy Robert Nelson, aged 33, (Non-Executive Director) has an MBA from Business School,Lausanne. He has worked in the insurance industry in Australia and in corporate finance in SouthAfrica. He is chief executive of the Vuna Group, a London based finance and project developmentcompany. He was a founder director of Madagascar Oil Limited, an oil exploration company, and a co-founder of Oxford Pharma Limited, a drug discovery and development company associated with theDepartment of Pharmacology of Oxford University. He was appointed a Non-Executive Director in 2006.

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Senior ManagementDr Jiang Shulin, aged 50, (Group Chief Marketing Officer) has a Bachelor’s degree in AnimalHusbandry, a Master’s degree in Animal Nutrition, an MBA in Managerial Science and Engineering anda Doctorate in Western Economy and Human Resources Management. A former visiting professor atthe food faculty of Jiangnan University and member of the National Feed Industry Technical StandardsCommittee of the PRC he has also been a researcher in Animal Nutrition at the Research Institute ofSichuan University (PRC) and head of the aquatic feed research project of the Sichuan Science andTechnical Committee. Apart from his academic posts he has held managerial and sales roles withseveral PRC companies. He joined the Group in 2004.

Wei Chi, aged 61, (General Manager of Shanghai Walcom) graduated with a Bachelor of Science degreein Mechanical Engineering from Shanghai University. He has over 30 years of factory managementexperience, of which over 10 years was spent in setting up manufacturing plants and establishingfacilities in Shanghai, Wuhan, Nanjing and Guangdong for Walsin (China) Investment HoldingCompany Limited. He is responsible for Group manufacturing operations and factory design. He joinedthe Group in 2001.

Professor Chen Jie, aged 68, (Chief Research Officer) is a director of Shanghai Walcom. He is aProfessor of Animal Physiology at Nanjing Agricultural University and a doctoral supervisor teachingcourses for post-graduate students. He is also a Director of the Council of Teaching-Guidance inVeterinary Medicine, Degree Council of State Department of the PRC and a visiting scholar to thefarming graduate school of the Swiss Federal Research Centre in Switzerland. He has over 42 yearsexperience in the study of poultry nutrition physiology. He is head of Group new product research anddevelopment. Professor Chen joined the Group in 2001.

Wen Qin Tang, aged 65, (Chief Engineer) is a director of Shanghai Walcom. He graduated fromTsinghua University, with a bachelor’s degree in chemistry. In 1967, he joined the PRC NationalDefence Ministry where he was a research officer working on the transformation of nuclear materials to industrial use. He then joined Wuxi Chemical Industrial Research and Design Institute, assenior engineer, later as deputy director, where he focused on chemical research for the electronicindustry. He also spent six years as deputy head of Wuxi City Council Economic Research Centre. He joined the Group in 2001 and is primarily responsible for the Group’s production and technologydivision.

Professor Lu Tian Shui, aged 70, (Senior Researcher) is a director of Shanghai Walcom and has over40 years experience in animal physiology and feed nutrition. He is a former Professor of NanjingAgricultural University, where he was engaged in teaching and research in animal physiology. He wasalso a visiting scientist at Cornell University in the USA. He is Secretary General of Shanghai Branchof the Animal Physiology and Biochemistry Academy of Farming and Veterinary Medicine of China.Due to his expertise in the animal husbandry industry and hands-on experience in the animal nutrition,feed, veterinary practice and farming industries he is involved in the Group’s research into animalgrowth. Professor Lu joined the Group in 2001.

Xu Jinxian, aged 32, (Product Development) has bachelor’s and master’s degrees in agronomy and iscurrently a doctoral student attached to Nanjing Agricultural University. He joined the Group in 2001and is a member of the research and development team.

ConsultantsProfessor Shen Zan Ming, aged 56, is a senior research officer to the Group and is an AssociateProfessor at Nanjing Agricultural University where she teaches courses for undergraduate and post-graduate students. She has a doctorate in agriculture and was a visiting scholar at Bern University,Switzerland, in 2001 and was one of the co-researchers in the Research Institute of Biology for FarmAnimals in Germany for almost four years. Professor Shen specialises in nutritional physiology andbiological regulation for cows and became a consultant to the Group in 2001.

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Professor Zhao Ru Qian, aged 42, is a senior research officer to the Group. She graduated with a Ph.Din Animal Physiology and Biochemistry from Nanjing Agricultural University where she remains aProfessor and head of the laboratory. Professor Zhao was a visiting scientist at the Federal AgriculturalResearch Center in Cella, Germany in 1994 and 1998, a research officer at Prince Henry’s Institute ofMedical Research in Australia in 2000 and a Tang scholar and visiting professor at Cornell University, USA,in 2005. She specialises in Growth Axis studies in animals and became a consultant to the Group in 2001.

EmployeesApart from the Directors, senior management and consultants, the Group employs approximately 73people, including 8 employees in Hong Kong and 65 employees in the PRC. The Group is an equalopportunities employer and protects and respects the statutory rights of all its employees.

Details of and reasons for the Placing and use of the proceedsUnder the Placing Agreement (details of which are set out in paragraph 10.2 of Part VI of thisdocument) King & Shaxson Capital has agreed, as agent for the Company, to use all reasonableendeavours to procure placees for the Placing Shares at the Placing Price to raise £1.57 million(approximately £1.01 million net of expenses) for the benefit of the Company. The Placing isconditional (amongst other things) upon Admission and the Placing Agreement becoming unconditionaland not being terminated in accordance with its terms. The Placing Shares, when issued and fully paid,will rank equally in all respects with the existing Shares, including the right to receive all dividends andother distributions declared, made or paid after Admission. The Placing Shares will be allotted andissued prior to Admission credited as fully paid subject only to Admission. The allotment and issue willbecome wholly unconditional on Admission, which is expected to occur on 21 December 2006.

The Directors believe that the Placing and Admission will expand the Group’s capital base and enhanceits profile, thereby enabling the Group to attract high calibre research scientists and other professionals,to increase its sales and marketing division and to forge strategic alliances and/or partnerships for futuregrowth and development.

Based on the Placing Price, the net proceeds from the Placing, after deducting related expenses to beborne by the Company, are estimated to amount to approximately £1.01 million. It is the presentintention of the Directors to apply the net proceeds for general working capital purposes.

Dealing restrictionsOn Admission, the Directors will be interested in 36,581,767 Shares, representing 56.36 per cent. of theEnlarged Issued Share Capital of the Company which, on a fully diluted basis following exercise of theWarrants, would represent 50.10 per cent. of the further enlarged issued share capital. Details of theseinterests are set out in paragraph 7 of Part VI of this document.

The Directors on behalf of themselves, their families and other persons and companies deemed to beconnected with them (which for these purposes include Bioglory and Vuna), together with Longain, acompany controlled by Dr Jiang Shulin hold 36,581,767 and 1,082,431 Shares respectively, haveundertaken to John East & Partners and the Company, not to dispose of a total of 36,178,293 Shares(subject to certain limited exceptions) until 12 months after Admission and thereafter for a furtherperiod of 12 months without the prior written consent of John East & Partners, such consent not to beunreasonably withheld or delayed. Of their respective holdings, 390,967 Shares held by Longain and1,094,938 Shares held by Bioglory are freely transferable. Further details of these arrangements are setout in paragraph 10 of Part VI of this document.

Share Option SchemeThe Company has adopted the Share Option Scheme whereby full time and part time employees andDirectors of the Group may be granted options which entitle them to subscribe for Shares. The Directorsbelieve that the Share Option Scheme will assist the Group in its recruitment and retention of highcalibre professionals, executives, employees and consultants to the Group.

A summary of the principal terms of the Share Option Scheme is set out in the section headed “Options”in paragraph 11 of Part VI of this document.

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Share Award PlanIn order to encourage and facilitate the holding of Shares by employees of the Group in the PRC, theShare Award Plan was adopted by the Company on 20 September 2006. As at the date of this document,433,163 Shares, which were gifted by the existing Shareholders, have been awarded or agreed to beawarded pursuant to the Share Award Plan, a summary of which is set out in the section headed “ShareAward Plan” in paragraph 12 of Part VI of this document.

WarrantsOn 15 December 2006, the Company adopted a Warrant instrument constituting 8,107,320 Warrants.Each Warrant entitles the holder to subscribe for one new Share at the Placing Price. 214,286 Warrantswere issued to Vuna, 214,286 Warrants were issued to John East & Partners and 7,507,320 Warrantswere issued to existing Shareholders all of which may be exercised at any time up to five years from thedate of Admission. On the same day 171,428 Warrants were issued to King & Shaxson Capital whichmay be exercised at anytime up to two years from the date of Admission. The Warrants are transferablebut it is not the intention of the Directors to apply for the Warrants to be admitted to AIM. Furtherdetails of these are set out in paragraph 13 of Part VI of this document.

TaxationDetails of certain taxation implications, which may be relevant to holding or dealing in the Shares, areset out in paragraph 16 of Part VI of this document. If you are in any doubt as to your tax position youshould consult your own independent financial adviser immediately.

CRESTCREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by aphysical certificate and transferred otherwise than by written instrument. The Board has resolved thatthe Shares may be held and transferred both in certificated form and in uncertificated form inaccordance with the CREST Regulations and the Company’s memorandum and articles of associationcontains provisions implementing this.

The Shares will not themselves be admitted to CREST; rather the Company has arranged forComputershare (“issuer”) to issue Depository Interests in respect of the underlying Shares (the “DepositoryInterests”) and which are expected to be admitted to CREST with effect from Admission. These DepositoryInterests may be held and transferred within CREST. The Depository Interests will be created and issuedpursuant to a Deed Poll executed by Computershare under English law, copies of which are available fromthem, and the provisions of the Deed Poll are expressed to bind all holders present and future.

In CREST, the Depository Interests will carry the same ISIN (“International Securities IdentificationNumber”) as the Shares. It will of course remain open to members, should they wish to do so, tocontinue to hold the Walcom Shares as they now do and make use of the residual settlement mechanism.

If CREST members wish to hold Depository Interests in CREST, they can do so by inputting a stock depositin the usual way. The Company has informed CRESTCo that (1) a CREST transfer form ordematerialisation form lodged as a stock deposit will be deemed to constitute a transfer of the Shares to theissuer, who will issue corresponding Depository Interests in CREST to the depositing member/transferee;and (2) in a similar way, a stock withdrawal will be deemed to constitute an instruction to the issuer to cancelthe Depository Interest and effect a transfer of the Shares to the person specified in the instruction.

Corporate GovernanceThe Board recognises the importance of sound corporate governance and the Board intends to ensurethat, following Admission, the Company complies with the Corporate Governance Guidelines.

The Company has established an Audit Committee and a Remuneration Committee with formallydelegated duties and responsibilities. The Audit Committee comprises Albert Wong, Eddie Chan,Frankie Wong, Timothy Nelson and Royston Drucker. The Remuneration Committee comprises EddieChan, Timothy Nelson and Royston Drucker.

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The duties of the Audit Committee include reviewing, in draft form, the Company’s annual and half-yearly report and accounts and providing advice to the board of Directors. In this regard, members ofthe Audit Committee will liaise with the Directors, senior management and the Company’s auditors. TheAudit Committee will also consider any significant or unusual items that are, or may need to be,reflected in such reports and accounts and give consideration to any matters that may have been raisedby the Company’s chief finance officer or auditors. Members of the Audit Committee are alsoresponsible for reviewing and supervising the financial reporting process and internal control system ofthe Group.

The Remuneration Committee will review the scale and structure of the executive Director’sremuneration and the terms of their service contracts, including share option schemes and any bonusarrangements. The terms and conditions of the arrangements, including remuneration, with Non-Executive Directors will be set by the entire Board.

The Board intends to comply with Rule 21 of the AIM Rules relating to Directors’ dealings as applicableto AIM companies and will also take all reasonable steps to ensure compliance by any of the Group’sfuture employees.

Dividend PolicyThe Board’s objective is to maximize the capital value of the Company and it is not their presentintention to recommend the payment of dividends, bearing in mind the financial resources which willbe required for the development of the Company.

Additional informationYour attention is drawn to the Risk Factors set out in Part II and to the information contained in PartsIII, IV, V and VI of this document.

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PART II

Risk factors

An investment in the Shares is speculative and involves a high degree of risk. This documentcontains, in addition to historical information, forward-looking statements that involve risks anduncertainties, from which the Company’s actual performance could differ materially. There are variousrisk and other factors associated with an investment of the type described in this document. The riskslisted below do not necessarily comprise all those associated with an investment in the Companyand are not set out in any particular order of priority. In addition to the other information included inthis document, the following specific factors should be considered carefully in evaluating whether tomake an investment in the Company:

History of losses and possibility of continuous lossesAs the Group only began commercial sales of Porcinin, Avianin and Eggronin in October 2002 and hasbeen testing the acceptance of the products by the market in terms of its efficacy and pricing over thepast 3 years, its full revenue and profit potential remain unproven. Since the Group was established, ithas incurred operating losses although its operating revenues have been improving. For the period sinceincorporation up to 31 December 2005 the Group had accumulated losses of approximately HK$58.951million.

The Directors consider that the net proceeds of the Placing, together with the Group’s internally generatedrevenues, will be sufficient to finance the planned development of the Group. In the event that the Groupcannot attain its projected level of revenues, the Group may be required to raise additional fundingthrough equity and debt markets and bank financing or through a combination of those methods. In suchan event a failure to obtain additional funding would have a material adverse effect on the Group.

There is no certainty that all or any of the elements of the Group’s current strategy will develop asanticipated, or that the Group will be profitable.

Liquidity and possible price volatility of the SharesAIM is not the Official List of the UKLA. The value of the Shares may go down as well as up.Furthermore, an investment in a share that is traded on AIM may carry a higher risk than an investmentin a share listed on the Official List of the UKLA.

The market for shares in smaller public companies is less liquid than for larger public companies.Accordingly the Company’s share price may be subject to greater fluctuation and the shares may bedifficult to buy and sell.

An active trading market for the Shares may not develop and the trading price for the Shares mayfluctuate significantly. Prior to the Placing, there has been no public market for any of the Shares. ThePlacing Price may not be indicative of the price at which Shares will trade following listing. In addition,there is no assurance that an active trading market for Shares will develop, or, if it does develop, that itwill be sustained following listing of the Shares, or that the market price of the Shares will not declinebelow the Placing Price.

The trading price of the Shares could also be subject to significant volatility in response to, among otherfactors:

l investors’ perceptions of the Group and the Group’s business plans;

l variations in operating results of the Group;

l announcements of new products;

l technological innovations;

l changes in pricing made by the Group, the Group’s competitors or the Group’s suppliers;

l changes in senior management or key personnel; and

l general economic and other factors.

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Reliance on the Walstrong compound

Reliance is placed on the successful commercialisation and customer acceptance of Walstrong, aproprietary compound which is applied for the development of different products for enhancing animalhealth and productivity. Failure to commercialise it could adversely affect the Group’s sales andoperations significantly and the Group could continue to incur a loss.

There are various factors which could affect the success of the Walstrong compound and the productsderived there from, such as external competition, wider acceptance of other animal science solutions,failure to obtain approval or patents in some countries and lack of marketing and distribution supportfor the Group’s products. Although sales of the products have commenced in China, Thailand, thePhilippines and some other Asian countries, the Group’s plans to sell its products into the USA and theEU have yet to be implemented.

Product and technological advances

Technologies similar in some respects to the Walstrong compound may become available in the marketin the future. Developments in animal science processes and products are also expected to continue ata rapid pace. It is extremely difficult to predict the effect of future technological changes and discoverieson the competitiveness of the Group’s products. It is important for the Group to respond to technologicalchanges by developing new and high quality products in a timely and cost efficient manner. TheDirectors consider that the Group must adopt and modify development methods, programs andprocesses in response to emerging technologies and new discoveries. If the Group fails to respondrapidly, the Group’s performance, reputation and viability could suffer. Furthermore, third parties maydevelop comparable or superior animal science technologies, processes or products with pricescomparable to or lower than those developed and provided by the Group.

Reliance on continuing research and development

The market in which the Group operates is characterised by rapidly changing technology, evolvingindustry standards, frequent introduction of new technologies or products, and changing demands andrequirements. Accordingly, the Group’s success in the future will depend on its ability to adapt to therapidly changing technologies, to continue its research and development work, to improve, enhance andbroaden the use of the Walstrong compound and to develop new technologies and products, which couldopen up new markets and business opportunities.

Limited distribution network

The Directors consider that success in commercialising the Group’s technologies and products is, to acertain extent, dependent on the coverage and effectiveness of its distribution network and therelationship with its distributors. However, the Group currently has limited sales, marketing anddistribution capabilities. Developing a sales and marketing network may be expensive and timeconsuming. The Group is currently marketing its products directly in the PRC. Although there is a trendof increasing sales over the past 3 years, the Group’s business will suffer if it is unable to establish aneffective marketing and sales network.

In markets outside of the PRC, the Group will need to enter into arrangements with third parties tomarket, sell and distribute its products. Although sales in the Asian countries over the past 3 years havemade significant progress, the Group’s revenues may depend on the terms of any such arrangements andthe efforts of others.

Reliance on the PRC market

The Directors anticipate that sales of the Group’s products in the PRC will represent a significantproportion of the turnover of the Group in the near future. As a result, the Group may be affected by anyadverse changes in the economic, political and social conditions in the PRC. There is no assurance thatany such changes will not adversely affect the business and profitability of the Group.

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Taxation

Under current relevant PRC laws, Shanghai Walcom, as a foreign invested manufacturing enterprise, issubject to the preferential enterprise income tax rate of 15 per cent. on its assessable profits. However,it was granted exemption from paying the PRC enterprise income tax for two years commencing fromits first profit-making year of operations to be followed by a 50 per cent. reduction on the PRCenterprise income tax for the three years thereafter.

There is no guarantee that the above preferential tax treatments will not change in the future. Anychange in the preferential tax treatments may have an adverse impact on the Group’s performance andprofitability.

No assurance on successful patent and product registrations

For the Group’s newly developed products, the Group’s policy has been to file patent applications incountries where sales are anticipated. In addition, certain product registrations or approvals may berequired to be made in such countries. Despite the fact that some patents have already been granted andcertain product registrations have already been made in China and some Asian countries, there is noassurance that such patent or product registrations will be granted, and in the event that a patent orproduct registration is rejected, there may be an impact on the profitability and prospects of the Group.In addition, the scope of the patent claims, as granted, may be narrowed, thus limiting the scope of thepatent rights.

Limitations and infringement of intellectual property rights

Although the Group has been granted patent protection for certain of its inventions from whichproducts have been developed, no assurance can be given that the patents granted will be sufficientlybroad in their scope to provide protection against competitors with similar products. In addition, evenwhen the Group’s patents are granted, the patents may still be susceptible to revocation, rectificationor challenge by third parties, albeit the Group has no such experience ever since the patents had beengranted.

In addition, the Group employs, and has entered into employment contracts with, a number of scientistswho are PRC Citizens and who worked in the PRC prior to their employment by the Group. Althoughthe directors believe that the Group’s processes and products were all developed by the Group’sscientists after they had joined the Group, the relevant regulatory bodies in the PRC may consider thegroup’s products or processes as incorporating the products or processes previously developed by suchscientists in the PRC. As a result, such scientists or the Group could be found to be in breach of the lawsand regulations restricting or prohibiting the transfer of intellectual property rights, including patentsand patent applications, in respect of inventions developed in the PRC, from PRC citizens to foreignparties without having obtained approval from the relevant PRC regulatory bodies. Were this to be thecase, there is a risk that the Group may not be able to obtain patent protection for such products orprocesses in the PRC. In addition, there is a risk that the Group may not be able to enforce the restrictivecovenants in such scientist’s employment contracts with the Group and other contracts with the Groupin the PRC courts.

Majority Shareholder’s influence

Immediately after the completion of the Placing, Francis Chi and his family members willbeneficially own approximately 19,660,290 Shares, representing approximately 30 per cent. of theEnlarged Issued Share Capital of the Company. Accordingly, Francis Chi will have significantinfluence in determining the outcome of any corporate transaction or other matters submitted toshareholders for approval, including mergers, consolidations and sale of all or substantially all of theGroup’s assets, and will have the power to prevent or cause a change in control. Francis Chi hasentered into a relationship agreement with the Company details of which are set out in paragraph 10of Part VI of this document.

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Reliance on the Group’s management team and key personnelThe Group’s success is to a certain extent, attributable to the expertise and experience of its ExecutiveDirectors and key personnel. Each of the Executive Directors has entered into a service agreement withthe Group for an initial term of three years commencing from the date of Admission which willautomatically continue unless and until terminated in accordance with the terms of their respectiveservice agreements. Each of the Executive Directors has also undertaken to the Group not to divulgeconfidential information or to engage in a competing business with the Group during the term of hisservice agreement and for a period of six months thereafter. If any of the Executive Directors and/or keypersonnel ceases to be involved in the Group’s management and/or operations in the future and theGroup fails to find any suitable personnel to replace him/her or them, the Group’s operations,profitability and prospects may be materially and adversely affected.

CompetitionThe animal science industry is highly competitive and subject to significant and rapid technologicalchanges. There are a number of other companies that provide the animal husbandry industry withanimal growth promotion solutions based on hormone and genetically engineered products. Thesecompanies, either alone or together with their customers, may have substantially greater financialresources and research and development capabilities and product commercialisation experience than theGroup. Accordingly, the Group may be competing against companies with greater resources and in areasin which the Group has limited or no experience.

The Group is aware that it may be subject to competition from other companies for agreements withmultinational animal nutrition and husbandry companies, for relationships with academic and researchinstitutions, and for licences to proprietary technology. These competitors, either alone or with theircustomers, may succeed in developing technologies or products that are more effective than those of theGroup and there is no assurance that the Group will be able to compete successfully with these or otherpotential competitors. The Group’s business plans have also been formulated on the assumption thatthere will be no material changes in the technological development of the animal husbandry and feedindustries and competition within the animal science industry. The failure of the Group to respondrapidly to changing technologies, new discoveries and increases in competition could have a materialadverse impact on the Group’s business.

Whilst Cysteamine is a product widely available to others, it is chemically unstable and must first bemade stable to enable it to be used. The Group has a patent on the method it uses to make Cysteaminestable and useable. The Directors are not aware of any other company which has identified a procedurefor stabilising Cysteamine, and therefore they consider that Walcom has no direct legal competitors.However, the Directors are aware of a number of ‘copy cat’ products on the market. The Directorsbelieve that to undertake litigation to prevent this would be costly and would not prevent new ‘copy cats’from starting up. Therefore, the Company is promoting Walstrong as a trademarked brand making itmore difficult for ‘copy cats’ to market their own products.

Foreign Currency risksThe Group’s sales are denominated in US$ and Renminbi while its major costs are denominated in HK$and Renminbi. At present, the Group has associate companies in Thailand and the Philippines. In thefuture, the Group may expand its business into other jurisdictions. This may result in revenues, expensesand liabilities in some other currencies. Accordingly, any exchange rate fluctuations with respect to anyof these currencies could have a material adverse effect on the business, financial condition andoperations of the Group.

Increased administrative burden and restrictions on overseas and cross-border investment due tonew regulationsRecent PRC regulations relating to offshore investment activities by PRC residents may increase theGroup’s administrative burden and restrict its overseas and cross-border investment activity and couldadversely affect its business, financial condition and results of operations.

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In October 2005, the PRC State Administration of Foreign Exchange, or State Administration of ForeignExchange (“SAFE”), issued a circular entitled “Circular on several issues concerning foreign exchangeregulation of corporate finance and roundtrip investments by PRC residents through special purposecompanies incorporated overseas”, or Circular No. 75. Circular No. 75 states that if PRC residentsestablish or acquire control of an offshore company for the purposes of financing that offshore companywith assets or equity interests in an onshore enterprise located in the PRC, they must register with localSAFE branches in advance with respect to their overseas investment in that offshore company and mustalso file amendments to their registrations with respect to any injection of equity interest or assets of anonshore enterprise into the offshore company or any overseas equity financing by such offshorecompany, or any other material events involving capital variation of the offshore company, such aschanges in share capital, share transfers, mergers and acquisitions, spin-off transactions, long-termequity or debt investments or uses of assets in China to guarantee offshore obligations. Circular No. 75also applies retroactively. As a result, PRC residents who have established or acquired control ofoffshore companies that have made onshore investments in the PRC in the past, were required tocomplete the relevant registration procedures with local SAFE branches by 31 March 2006.

The Directors believe that Circular No. 75 does not apply to the Group’s shareholders who are PRCresidents. However, as the regulations are relatively new, and it is unclear how these regulations, and anyfuture legislation concerning offshore or cross-border transactions, will be interpreted, amended andimplemented by the relevant government authorities, the Group cannot assure investors that allShareholders who are PRC residents will not fall into the governance of, or be required to comply with,relevant requirements under Circular No. 75. If SAFE determines that Circular No. 75 applies toShareholders who are PRC residents, any failure by any Shareholder who is a PRC resident orcontrolled by a PRC resident to comply with relevant requirements under Circular No. 75 could subjectthe Group to fines or sanctions imposed by the PRC government, including restrictions on WalcomShanghai’s ability to pay dividends and the Group’s ability to increase investment in Walcom Shanghai.

Forward-looking statements contained in this document may not materialiseIncluded in this document are various forward-looking statements which can be identified by the use offorward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “continue”,“believe” and other similar words. The Group has made forward-looking statements with respect to thefollowing, among other things:

l the objectives and strategies of the Group;

l the importance and expected growth in the development of animal science products and themarkets in which they are sold;

l the growth in demand for the Group’s products;

l the ability of the Group to execute its expansion plans; and

l the ability of the Group to implement its plans for the proposed use of proceeds from the Placing.

Such forward-looking statements involve known risks, uncertainties and other factors which may causethe actual results, performance or achievements of the Group to be materially different from any futureresults, performance or achievements expressed or implied by such forward-looking statements. Suchforward-looking statements are based on numerous assumptions regarding the present and the futurebusiness strategies of the Group and the environment in which the Group will operate in the future.Important factors that could cause the Group’s actual results, performance or achievements to differmaterially from those in the forward-looking statements include, among others, the loss of its keypersonnel, failure to obtain grants of patent registrations or regulatory approvals, changes relating to theanimal science industry and changes in general economic and business conditions. Additional factorsthat could cause actual results, performance or achievements to differ materially include, but are notlimited to, those discussed above in this section.

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PART III

Competent Person’s Report

Techno-commercial Due Diligence Report on Walcom Group LimitedPrepared by:

Dr Derek A. TerrarResearch Director

CCTT LtdThe Oxford Science ParkRobert Robinson Avenue

Oxford OX4 4GAUnited Kingdom

Tel: +441865784065The DirectorsWalcom Group LimitedRoom 6136/F West WingNew World Centre20 Salisbury RoadTsimshatsuiKowloonHong Kong

and

The Directors John East & Partners LimitedCrystal Gate28-30 Worship StreetLondon EC2A 2AH 15 December 2006

CCTT LtdSetting standards for the investigation of drug effects on cardiac tissue

Fulfilling specific research needs in

l Safety Pharmacology

l Drug Development

l Consultancy Services

CCTT Ltd: Company profileCCTT Ltd was set up to provide expert research support to the pharmaceutical industry, supplying expertise thatis not commonly available at other contract research organisations by specialising in electrophysiological andfluorescence techniques, CCTT Ltd specialises in research on the heart, and is proud to have provided uniqueresearch services, research expertise and advice to leading pharmaceutical companies over the last three years.

The initial focus of CCTT Ltd was to provide tests for potential toxicity of New Chemical Entities on the heart,which is a matter that concerns drug regulatory authorities throughout the world for any new therapeutic compound,whatever its intended target in the body. However, the company also provides expert advice on drug development.

CCTT Ltd offers Consultancy Services to the Pharmaceutical and Life Science industries.

Key PersonnelResearch Scientists at CCTT have 20 years experience in academic research within Oxford University. ResearchScientists at CCTT Ltd have extensive experience, particularly in the use of electrophysiological and fluorescentexperimental techniques.

l Sally Terrar Managing Director, CCTT Ltd

l Dr Derek Terrar Research Director, CCTT Ltd Reader in Pharmacology, University of Oxford Departmentof Pharmacology

l Dr Simon Bryant Research Manager, CCTT Ltd Previously Senior Research Fellow, University of OxfordDepartment of Cardiovascular Medicine

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Specialists in cardiac researchOffering a wide range of contract research services using a variety of cardiac preparations that include:

l Repolarisation assays in rabbit/dog/pig Purkinje fibres

l Repolarisation assays in ventricular myocytes (many species)

l Voltage-clamp studies of ion currents in ventricular myocytes

l hERG channel assay (expressed in HEK293 or CHO cells)

l Native IKr channel assay in cardiac myocytes (many species)

l Papillary muscle preparations (many species)

l Atrial muscle preparations (many species)

l Isolated Langendorff heart preparations (many species)

l Fluorescence measurements of cytosolic calcium

An individual approachWe encourage a personalised flexible approach to each study. Close consultation with clients means that allprotocols are specifically designed and validated by scientists at CCTT Ltd for each project.

With this approach CCTT Ltd can devise the best and most cost effective experimental design for the client’sindividual needs.

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Derek A. TerrarB.Sc., M.A., Ph.D.

Research Director CCTT LtdReader in Pharmacology, Department of Pharmacology

University of Oxford

Dr Terrar is a world leading Pharmacologist with extensive research and teaching experience. He has taught on avariety of undergraduate and postgraduate courses in Pharmacology in universities in the USA and UK since1972. He is currently Reader in Pharmacology at the University of Oxford where he has carried out research andteaching for the last 21 years. During that time Dr Terrar has also been Tutorial Fellow in Physiological Sciencesat Worcester College, Oxford, taking responsibility for all aspects of medical student admissions and teaching.

In addition to his research and teaching activities at the University of Oxford, Dr Terrar was a founding memberof CCTT Ltd, a company based in the Oxford Science Park, at the Magdalen Centre on the outskirts of Oxford.CCTT Ltd specialises in research on the heart. The company was set up to provide expert research support to thepharmaceutical industry. CCTT Ltd specialises in electrophysiological and fluorescence techniques, providingexpertise that is not commonly available at other contract research organisations. CCTT Ltd is proud to haveprovided specialist research services, research expertise and advice to leading pharmaceutical companies over thelast three years. The initial focus of the company was to provide tests for potential toxicity of New ChemicalEntities on the heart, which is a matter that concerns drug regulatory authorities throughout the world for any newtherapeutic compound, whatever its intended target in the body. However, the company also provides expert adviceon drug development.

Although the main focus of Dr Terrar’s research has been the heart, he has wide interests and expertise inPharmacology and Physiology. He has taught over a broad range of Pharmacological subjects at Oxford over thelast 21 years, both for preclinical medical student teaching and in the advanced Final Honours School (for whichhe has acted as Chairman of Examiners at The University of Oxford). Dr Terrar also helped set up the new MScin Pharmacology at Oxford, and has contributed extensively to postgraduate teaching. He has extensive experiencein examining PhD and DPhil candidates both at Oxford and in many other universities where he has been askedto carry out examining duties.

Dr Terrar gained his BSc (Hons) and PhD at University College London (1969 and 1972). He has published over60 research papers in leading scientific journals (one paper cited 434 times, three further papers with over 100citations, and an additional ten papers with over 50 citations). He is a member of learned societies (The BritishPharmacological Society, since 1976, The Physiological Society, since 1976 and The Biophysical Society, since1994). He has been a member of the Editorial Board of The British Journal of Pharmacology (1985-1991) andExperimental Physiology (1997-2004). He has also acted as editor and referee for a variety of other scientificjournals including Journal of Physiology, Current Biology, Circulation Research, Cardiovascular Research,Pflugers Archiv, American Journal of Physiology, Molecular Pharmacology, Journal of Pharmacology andExperimental Therapeutics, British Journal of Anaesthesia, Anesthesiology.

DisclaimerThis report has been produced by CCTT Ltd and reflects the judgement of CCTT Ltd in the light of informationavailable to it at the time of preparation.

We accept, and take seriously, our responsibility to exercise all due care and skill in the preparation of our reports.Beyond that, we do not accept responsibility for any mis-statement or omission of whatever nature.

Any use that an intended third party makes of this report, or any reliance on the report, or any decisions to be madebased on it, are the responsibility of the intended third party. CCTT Ltd accepts no responsibility for damages, ifany, suffered by CCTT Ltd or any intended third party as a result of decisions made or actions taken based uponthe content of this report.

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ContentsPage

Dr Derek A. Terrar 23

CCTT Ltd: Company Profile 23

Derek A. Terrar 25

Disclaimer 25

1. EXECUTIVE SUMMARY 29

2. INTRODUCTION 30

3. CYSTEAMINE PROPERTIES AND EFFECTS ON GROWTH HORMONE RELEASE 313.1 Background 313.2 Cysteamine 313.3 Cysteamine hydrochloride 313.4 Chemical actions of cysteamine and cysteamine HCI 323.5 Uses of cysteamine and cysteamine hydrochloride in man 32

3.5.1 Effects in nephropathic cystinosis 323.5.2 Treatment of paracetamol (acetoaminophen) poisoning 323.5.3 Radioprotective effects 32

3.6 Cysteamine: a component of Co-enzyme A 333.7 Biological effects relating to veterinary use of cysteamine by Walcom 33

3.7.1 Somatostatin and its influence on Growth Hormone 333.7.2 Growth Hormone 333.7.3 Growth Hormone Releasing Hormone (GHRH) and GH release 343.7.4 Somatostatin (SS) 34

3.8 Actions of Growth Hormone (GH) 363.9 Growth Hormone and Immunity 373.10 Summary 38

4. FORMULATION OF WALCOM PRODUCTS CONTAINING WALSTRONG 384.1 Formulation of the Walcom products Walstrong 39

5. EVIDENCE FOR EFFECTIVENESS OF WALCOM COMPOUNDS 415.1 Evidence showing effects of Walcom products 415.2 Effects of Avianin in birds 41

5.2.1 Effects in Broiler chickens 415.2.2 Economic analysis of Avianin effects 47

5.3 Effects of Eggronin 485.4 Effects of Porcinin 515.5 Effects of Lactonin 575.6 Effects of Aquanin 585.7 Effects of cysteamine-containing products on the immune systems of animals and birds 59

5.7.1 Effects of cysteamine-containing products on stress associated with surgery and birds 595.7.2 Effects of cysteamien compound and the immune response in a murine model 605.7.3 Effects of cysteamine compound on IL-2 levels and Stimulation Index of T-cells in cows 605.7.4 Effects of cysteamine on immune function in mice 615.7.5 Effects of cysteamine on antibody production in SPF chickens exposed to

Newcastle Disease vaccine 615.7.6 Effects of cysteamine on antibody production in AA broiler chickens

exposed to H5N1 vaccine 625.8 Possible effects of yolk antibodies against adipocyte plasma membranes on

growth and fat deposition in the rat 63

6. TOXICITY OF CYSTEAMINE IN WALCOM PRODUCTS 646.1 Recommendation of the European Medicine Evaluation Agency (EMEA) 666.2 Conclusion of the EMEA report 666.3 Toxicity tables from National Library of Medicine 67

7. MARKET, MARKETING STRATEGY AND COMPETITORS 707.1 Marketing Strategy 707.2 Competitors 70

8. REFERENCES 71

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Table of FiguresPage

Figure 3.1 The structure of Cysteamine 31

Figure 3.2 The structure of Cysteamine hydrochloride 31

Figure 3.3 Relationship of Cysteamine of Co-enzyme A 33

Figure 3.4 Summary diagram of inhibitory effect of SS (the target of SS) on GH release and actions of GH/IGF-1 36

Figure 3.5 Effects of GH on the immune system 37

Figure 4.1 Structure of cystamine 38

Figure 4.2 Structure of beta cyclodextrin; (a) chemical structure and (b) toroidal structure 39

Figure 4.3 Structural model of beta-cyclodextrin 40

Figure 4.4 Graphs showing the stability of Cysteamine microencapsulated granules with time and during the heat treatment 41

Figure 5.1 Broiler – Yangzhou University (II), PRC 42

Figure 5.2 Broiler – Changzhou Lihua, Jangsu, PRC 42

Figure 5.3 Chinese Gongting Yellow Broiler 43

Figure 5.4 Broiler – Lagman Farm 43

Figure 5.5 Broiler – University of Philippines, Los Banos 44

Figure 5.6 Broiler – Red Dragon 1 44

Figure 5.7 Broiler – Red Dragon 2 44

Figure 5.8 Broiler (Cobb) – LAO Farm, Vitarich 45

Figure 5.9 Broiler – Beijing Huadou, China 45

Figure 5.10 Broiler – Beijing Dafa, China 45

Figure 5.11 Broiler (Cobb) – LAO Farm, Vitarich 46

Figure 5.12 Broiler – Beijing Huadou, China 46

Figure 5.13 Broiler – Beijing Dafa, China 47

Figure 5.14 Broiler – Changzhou Lihua, Jangsu, PRC 47

Figure 5.15 Beijing Dafa Zhengda Trial: Economic Benefit Analysis 47

Figure 5.16 Breeder Layer – Shanghai, PRC 48

Figure 5.17 Breeder Layer – Shanghai, PRC 48

Figure 5.18 Commercial Egg Layer – Nanjing, PRC 49

Figure 5.19 Commercial Egg Layer – Nanjing, PRC 49

Figure 5.20 Breed Layer – Henan, PRC 50

Figure 5.21 Henan Xiping Baiao Breeder Layer Trial Economic Benefit Analysis 50

Figure 5.22 Grower – Hangzhou, PCR 51

Figure 5.23 Finisher – Hangzhou, PCR 51

Figure 5.24 Effect of Porcinin on weaned piglets and fattened pigs 52

Figure 5.25 Economic evaluation of Porcinin 52

Figure 5.26 Weaned Piglet – Shamus Farm (Bukidnon) 1 53

Figure 5.27 Weaned Piglet – Shamus Farm (Bukidnon) 2 53

Figure 5.28 Weaned Piglet – Shamus Farm (Bukidnon) 3 53

Figure 5.29 Weaned Piglet-Lopez Farm (Dipolog) 1 54

Figure 5.30 Weaned Piglet-Lopez Farm (Dipolog) 2 54

Figure 5.31 Weaned Piglet-Lopez Farm (Dipolog) 3 54

Figure 5.32 Weaned Piglet-Lopez Farm (Dipolog) 4 55

Figure 5.33 Weaned Piglet-Lopez Farm (Dipolog) 5 55

Figure 5.34 Weaned Piglet – Dalian, PRC 55

Figure 5.35 Piglet weight gain, Shanghai Min Hang 56

Figure 5.36 Food consumption and weight gain cost analysis 56

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Table of Figures (continued)Page

Figure 5.37 Pork Quality Enhancement-Shanghai, PRC 57

Figure 5.38 Pork Quality Enhancement-Ning Bo, PRC 57

Figure 5.39 Lactonin® on Dairy Cattle 57

Figure 5.40 Lactonin® on Dairy Cattle, 2 58

Figure 5.41 Anguilla japonica (Eel) – Shenzhen, PCR 58

Figure 5.42 Anguilla japonica (Eel) – Guangdong, PCR 58

Figure 5.43 Epinephelus coioides (Grouper) – Guangdong, PCR 59

Figure 5.44 Penaeus vannamei (Shrimp) 59

Figure 5.45 Effects of cysteamine of IL-2 levels after surgery in goats 60

Figure 5.46 Effects of cysteamine on thymus weight in mice 60

Figure 5.47 Effects of cysteamine of IL-2 levels in cows 61

Figure 5.48 Effects of cysteamine of Stimulation Index in cows 61

Figure 5.49 Effects of cysteamine of antibody production in mice 61

Figure 5.50 Effects of cysteamine of antibody production in chickens exposed to Newcastle Disease vaccine 62

Figure 5.51 Effects of cysteamine on antibody production in chickens exposed to H5N1 influenza vaccine 62

Figure 5.52 Effects of cysteamine on antibody production with time in chickens exposed to H5N1 influenza vaccine 63

Figure 6.1 Cysteamine content in foodstuffs 64

Figure 6.2 Cysteamine levels in the normal human and animal tissue 64

Figure 6.3 Metabolic pathway of Cysteamine 64

Figure 6.4 Excretion Pathway of Cysteamine 65

Figure 7.1 Scheme representing the sales and distribution network of Walcom 70

Table of TablesPage

Table 1 Summary of the differences between pure cysteamine and Walstrong 39

Table 2 Table of Toxicity of Cysteamine taken from National Library of Medicine ChemIDplus 67

Table 3 Table of Toxicity of Cysteamine HC1 taken from National Library of Medicine ChemIDplus 69

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1. EXECUTIVE SUMMARYWalcom Group Limited (Walcom) is a company specialising in food additives for the livestock industry. There isa large market for products that improve animal growth or health, particularly if the additives avoid the use ofsubstances that might be regarded as suspicious by the general public, such as hormones, conventional drugs andgenetically modified material. There is particular sensitivity to the possibility of unwanted residues in the meat,fish, milk or eggs that are to be sold to the public. Walcom products are available for use with poultry (both formeat and egg production), pigs, lactating cows and fish. These products have the desirable characteristic ofpromoting animal growth and health with an active ingredient that is not itself a hormone, and is a naturallyoccurring substance in the bodies of humans, other mammals, fish and birds. In the case of such a naturallyoccurring substance, the possibility of residues in the food to be sold to the public is not an issue. The activeingredient, cysteamine, acts by an indirect mechanism to promote the release of the naturally occurring GrowthHormone from the anterior pituitary gland of mammals, birds and fish. This increase in Growth Hormone releaseis thought to result from suppression by cysteamine of the inhibitory influence of somatostatin, a neuropeptide inthe hypothalamus of the brain that is an important component of the normal control of Growth Hormone levels.The evidence both under experimental conditions and from large farm trials supports the contention that theWalcom products do indeed increase growth, often measured as daily weight gain. Quality of meat (in terms ofthe ratio of lean meat to fat) can also be improved by administration of the Walcom products. In addition, there isconvincing evidence that under appropriate conditions the Walcom products can decrease mortality (for examplein litters of piglets). In the particular cases of milk and egg production, the Walcom products can have beneficialeffects (such as increasing milk yield and quality, and decreasing the tendency for eggs to break). The use ofWalcom products can therefore be shown to have clear economic benefits to farmers under the conditions tested.

A question arises concerning Intellectual Property since the active ingredient, cysteamine, is well known.However, the pure substance has several disadvantages that make it difficult to store and use (including oxidationin air to an inactive product, heat instability, and a bad odour). Walcom has developed a proprietary formulationof cysteamine (encapsulated in granules with an enteric coating to protect the product from acid in the stomachand containing cyclodextrin molecules to enclose the cysteamine). This formulation stabilises the cysteaminemaking it easy to store and use as a feed additive. Cyclodextrin also suppresses the bad odour of cysteamine, andadditional flavourings are included in the final products if required. Walcom has been granted patents for thisformulation of cysteamine in China, Hong Kong, New Zealand and North Korea. A more specific patent for theuse of this formulation of cysteamine in poultry has been granted in the UK and North Korea. Consideration ofany possible legal issues relating to the patents is beyond the scope of this report.

Potential toxicity of the compounds must also be considered, although this appears not to be a concern at therecommended doses. Since cysteamine is a natural constituent of animal tissues, and indeed of many naturalfoods, at least low concentrations of this substance are expected not to be harmful. Cysteamine may also bereleased naturally in animal tissues as a consequence of a variety of metabolic reactions. High concentrations ofcysteamine can nevertheless be toxic, and should be avoided, but Walcom products are not expected to produceadverse effects in animals when used in the amounts recommended for each species.

In addition to effects on growth, cysteamine has been shown to enhance the activity of the immune system. Suchactions are expected in the light of the observation that cysteamine promotes the release of Growth Hormone,since there is increasing evidence that Growth Hormone, and the subsequently formed Insulin-Like-Growth-Factor-1 (IGF-1) have a powerful influence on immunity. Walcom products containing cysteamine therefore haveadditional benefits in the context of the livestock industry. As well as contributing to the reduced mortality andgeneral well being of animals when Walcom products are used primarily to enhance growth, a boosting of theimmune system may be marketed for specific effects. For example, Avian Flu is a particular concern at the presenttime, and such infections have been especially problematic in Asian countries. Use of Walcom products tominimise the risk of Avian Flu therefore appears to be a very promising area for future sales of Walcom products.

For development of future products, Walcom has a team of scientists with strong links with universities in China,particularly Nanjing Agricultural University (and with additional collaborations with universities in the USA andEurope). One project which is the subject of current patent applications concerns the development of antibodiesto adipose (fat) tissue. Components of the adipose tissue are injected into hen’s eggs to provoke formation ofpolyclonal antibodies. The antibodies are isolated and administered to animals of other species with the aim ofreducing fat content. Other products under development include anti-viral and anti-stress agents.

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2. INTRODUCTIONWalcom develops and markets products for the livestock industry. It has headquarters in Hong Kong and a branchin Shanghai which is the site of Product Manufacturing, Research and Development. The company will be referredto below as Walcom.

There is a very large market for food additives and other products intended to increase the efficiency of farmingpractices in the livestock industry, for example by increasing animal growth, reducing mortality or increasinganimal health through improved immunity.

One example of the potential profits to be earned in this context is provided by the Monsanto company who marketbovine somatotropin (Posilac, bST). The product has been used very successfully to improve milk production.Gross profits for this product were 200 million USD in 1999, estimated to be 500 million USD for 2002. Bovinesomatotropin (bST) is another name for the bovine form of Growth Hormone.

Although bST has been very successful in the marketplace, there is still considerable hesitancy, particularly incertain sections of the public, in accepting food products where hormones have been used. There is often aparticular resistance to accepting food products in cases where genetically modified material has been used in thefood production process. In addition, there is also public concern about the use of conventional drugs in thelivestock industry. The possibility of residues in the food products, whether hormone or drug, is an issue thatworries many consumers.

In this context, it is a particularly attractive aspect of Walcom’s marketing strategy that the food additives thecompany produces for a variety of purposes do not contain hormones, conventional drugs or genetically modifiedmaterial. Many of the key products marketed by Walcom increase Growth Hormone levels in livestock by anindirect mechanism. The active constituent is cysteamine which depletes the levels of somatostatin (SS) inspecialised secretory cells. The SS released from these secretory cells in the hypothalamus in the brain normallyreduces the output of Growth Hormone by an inhibitory influence on other specialised secretory cells in theanterior pituitary gland that release Growth Hormone. Depletion of SS therefore removes this inhibitory influenceand consequently increases Growth Hormone release. The cysteamine has the advantage that it is a naturallyoccurring substance in plant and animal tissues. It is therefore reasonable to argue that supplementation of animalfeed with an appropriate formulation of the naturally occurring cysteamine can have the same final effect as bST,without the use of hormones, conventional drugs or genetically modified material. It is also much more convenientto administer cysteamine as a feed additive than would be the case for injection of bST.

In addition to the use of appropriately formulated cysteamine to enhance milk output and quality, this substancecan be used to increase farming efficiency in a number of other ways that are of financial benefit to the farmer.Since the principal effect of cysteamine is to increase Growth Hormone, it can be used in many animal species. Aseries of products containing cysteamine are marketed by Walcom. The effects will be discussed in detail inSection 5, but a brief summary of the products is listed here. Avianin is used to promote the growth of poultry,which can be beneficial in terms of growth, daily weight gain and food conversion efficiency (FCR, expressed asthe weight of food necessary for a particular gain in weight of the livestock so that more efficient conversion isindicated by a lower FCR).

Eggronin is used to improve production and quality of eggs. Porcinin is used in pig production, giving a desirableincrease in the lean rather than fat meat as well as promoting growth. Lactonin is used to increase milk yield andimprove milk quality. Aquanin is used to promote fish growth. In all cases an additional commercially importantbenefit is a decrease in mortality in poultry, pigs or fish, possibly as a consequence of an enhanced immunity inanimals and fish treated with cysteamine containing products. Such an effect would not be surprising in the lightof the known effects of Growth Hormone on the immune system.

It is important to note that Walcom has developed a proprietary formulation of cysteamine that has been protectedby several granted patents, with many more related patent applications under consideration in countries around theworld. The pure cysteamine compound is very difficult to store and administer, since it is readily oxidised onexposure to air to an inactive compound. It also has the severe disadvantage for a feed additive of having a remarkablybad odour, akin to that of bad eggs. Cysteamine in the Walcom products is encapsulated in a proprietary formulationthat includes cyclodextrin. This Walcom formulation gives granules in which the cysteamine is very stable (notreadily oxidised in air and tolerant of the heat treatment that is routinely applied to feed additives). The granules areeasy to add to feed and are very palatable for the livestock, since the cyclodextrin molecules that enclose thecysteamine also mask the bad odour. Additional flavourings appropriate for each species can also be included.

China is among the countries where a patent has already been granted, and this is important not only because thisis the location of Walcom but also because China forms a very large fraction of the world livestock market,particularly in pigs and poultry. In 2003 revenues for the food processing industry were over 122 billion USD. Thisis likely to continue to grow in parallel with strong economic growth combined with increasing disposable incomeof Chinese consumers. The population of China is 1.3 billion with an annual growth of nearly 10 million (0.57 percent.). Per capita GDP is approximately 1,100 USD and the China economy is growing at 9 per cent. annually.

30

The following quotation is from a GAIN (Global Agricultural Information Network) report from the USDepartment of Agriculture Foreign Agricultural Service:

China is one of the world’s largest consumers of food. For example China consumes 51 percent of the world’s pork,33 percent of rice, 19 percent of ice cream, 19 percent of poultry and 12 percent of beef. In raw figures Chinaconsumes 8.5 million tons of meat per year, 40 million tons of vegetables and over 12.5 million tons of fruit. Thefood sector accounted for approximately 28 percent of total consumer expenditure in 2003. Food categories suchas milk, cheese & eggs, fish, vegetables, fruit and non-alcoholic beverages grew strongly in the range of 10 percentto 12 percent from 2002 to 2003.

It is clear from this information that China provides a huge and increasing market for livestock, withcorresponding potential for sales of Walcom products.

The following sections of this report provide a scientific background to the actions of cysteamine (Section 3), adescription of the proprietary formulation devised by Walcom for its cysteamine-containing compounds (Section4), a discussion of evidence for the actions of Walcom products on livestock (Section 5), a discussion of thepotential toxicity of cysteamine-containing products (Section 6) and a brief summary of the market strategy andcompetition faced by Walcom (Section 7).

3. CYSTEAMINE PROPERTIES AND EFFECTS ON GROWTH HORMONE RELEASE3.1 Background

Cysteamine is a sulphhydryl compound with biological effects that have been investigated since 1898(Gabriel). Before listing the biological effects that are especially relevant to Walcom, other actions,particularly in man, will be briefly presented. Cysteamine is listed in Merck Index as entry 2785, from whichthe following chemical information is derived. Additional information is taken from the National Library ofMedicine ChemIDplus web site (http://chem.sis.nlm.nih.gov/chemidplus).

Synonyms: Cysteamine is also known as 2-aminoethanethiol, mercaptamine, ß-mercaptoethylamine, 2-aminoethyl mercaptan, thioethanolamine, decarboxycysteine, MEA, mercamine, L-1573, Becaptan andLambratene. Additional synonyms are listed in the Toxicity section.

The active substance in Walstrong (the name used by Walcom for the active ingredient in many of itsproducts) is cysteamine hydrochloride.

The chemical properties of cysteamine and cysteamine hydrochloride are listed below.

3.2 CysteamineThe chemical formula of cysteamine is C2H7NS

The molecular weight of cysteamine is 77.15 (C 31.14 per cent., H 9.15 per cent., N 18.16 per cent., S 41.56per cent.).

The structure of cysteamine is HS-CH2-CH2-NH2.

Figure 3.1 The structure of Cysteamine

Crystals of cysteamine are formed by sublimation in vacuo. It has a disagreeable odour. Melting point 97-98.5 degrees C. It oxidises to cystamine on standing in air. It is freely soluble in water, giving an alkalinereaction.

3.3 Cysteamine hydrochlorideThe chemical formula of the hydrochloride is C2H7NS.HCl.

The molecular weight of cysteamine hydrochloride is 113.61.

The structure is HS-CH2-CH2-NH2.HCl

Figure 3.2 The structure of Cysteamine hydrochloride

The hydrochloride forms crystals from alcohol and has a melting point of 70.2-70.7 degrees C. Cysteaminehydrochloride is soluble in water and alcohol.

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22HH NNSHSH

22HHNNHSHS

HCI

3.4 Chemical actions of cysteamine and cysteamine HClWhether as the free base or as the hydrochloride, cysteamine has several key chemical properties thatunderlie its main biological effects. These are listed below.

l Cysteamine is an antioxidant and scavenger of free radicals including oxygen.

l Cysteamine is a reducing agent

l Cysteamine has nucleophilic properties resulting in its ability to interact with electrophilic substancessuch as paracetamol (acetoaminophen) metabolites.

l Cysteamine contains a thiol (SH) group that is important for many of its functions. Depending on theredox state, the thiol can either promote breakage of disulphide bonds or can interact with other SHgroups allowing the cysteamine to form disulphide bonds with target molecules. Thiol–disulphideexchange reactions via redox active disulphides are essential in the control of protein function via theredox state of structural SH groups. This mechanism of thiol-redox control is a major regulatorymechanism in cell and tissue signalling, since reactive oxygen species oxidizing protein thiols have awide range of functions in cellular physiology and pathological conditions.

Cysteamine interactions with disulphide bonds are particularly important for its actions since thesedisulphide bonds often bridge pairs of cysteine amino acids in a peptide or protein. These disulphide bridgesare crucial for the function of the peptides or proteins since they determine the shape of these molecules.This is because the disulphide bonds hold different parts of a peptide chain in a particular configuration,forming precise links between specific strategically placed cysteine amino acids in the polypeptide chains.Shape is crucial for function since it determines how the proteins interact with ligands that bind to proteinsor with other proteins. For example in the case of the peptide somatostatin, breakage of the disulphide bondin its structure will completely change its shape and therefore its ability to act on target receptors on cells,leading to inactivation of function.

3.5 Uses of cysteamine and cysteamine hydrochloride in man3.5.1 Effects in nephropathic cystinosis

Cysteamine is used to lower the intracellular cystine content of cells. Cystinosis appears to involveimpaired transport of cystine from lysosomes. The gene coding for the normal transporter protein isknown, and many mutations of this gene leading to the impaired cystine transport underlyingcystinosis have been described. Cysteamine depletes cells of cystine by combining with cystine toproduce cysteine and a cysteine-cysteamine mixed disulfide, which can be transported by a lysinecarrier that remains functional in cells of cystinosis patients (Gahl et al, 1982; Pisoni et al, 1985;Kleta et al, 2004). Cysteamine delays renal glomerular deterioration, enhances growth, preventshypothyroidism, and lowers muscle cystine content (Yudkoff et al, 1981; Gahl, 2003; Kleta and Gahl,2004).

3.5.2 Treatment of paracetamol (acetoaminophen) poisoningToxicity of paracetamol (acetoaminophen) is thought to result from metabolic activation to formreactive arylating intermediate compounds. These toxic intermediates are targeted by sulphhydrylcompounds, such as cysteamine, leading to conjugation and inactivation of the metabolites. Earlytreatment with cysteamine can therefore greatly reduce liver damage, renal failure resulting fromoverdose with paracetamol (Prescott, 1976; Harris, 1982; Peterson and Brown, 1992).

3.5.3 Radioprotective effectsIt has been proposed that cysteamine might be used to treat the symptoms of acute radiationsyndrome, after first using other methods to promote chelation and elimination of radioactive heavymetals. It is thought that cysteamine actions as a reducing agent may help prevent the formation ofdamaging free radicals (Bird, 1980; Koch and Howell, 1981; Bump et al, 1992).

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3.6 Cysteamine: a component of Co-enzyme ACysteamine can also be viewed as a component of Co-enzyme A, as shown in the following diagram.

Figure 3.3 Relationship of Cysteamine to Co-enzyme A

Cysteamine – Constituent of Co-enzyme A

3.7 Biological effects relating to veterinary use of cysteamine by WalcomCysteamine was first found to deplete somatostatin concentration by Szabo, S and Reichlein, S (1981)Endocrinology 109:2255. In these experiments, cysteamine was administered to rats via a stomach tube, andsomatostatin was measured by a radioimmunoassay technique. After cysteamine administration,somatostatin levels were found to fall in the hypothalamus and pancreas, in addition to the plasma, gastricmucosa and duodenal mucosa. It was suggested that the effects of cysteamine resulted from the in situbreakdown of the granule storage form of somatostatin, perhaps through activation of lysosomal activity. Inthe context of the Walcom products, the implication of these findings is that a fall in somatostatin levelswould be expected to lead to increased levels of growth hormone, since somatostatin inhibits growthhormone release, as described in more detail below.

A dose-dependent reduction of somatostatin levels in the hypothalamus caused by cysteamine administrationwas also observed by Sagar et al (1982). It appears from subsequent experiments that cysteamine reducessomatostatin levels by at least two mechanisms. There is evidence for an uptake of cysteamine, and onceinside nerve terminals, cysteamine appears to cause chemical inactivation of somatostatin, probablyinvolving a reducing action of cysteamine on SS bonds in the somatostatin molecules as described above(Widmann R, Sperk G. 1987; Kwok, RPS et al 1992). In addition there may be a short lived inhibition ofsomatostatin formation (Kwok et al, 1992) in the hypothalamus.

3.7.1 Somatostatin and its influence on Growth HormoneSince, as mentioned above, a major effect of cysteamine is depletion of somatosatin in thehypothalamus, and since this is thought to lead to an increase in the circulating levels of GrowthHormone (GH) as a consequence of release of GH from the anterior pituitary, the direct and indirectactions of GH will be discussed in detail below. The increase in GH levels is thought to be crucial forthe actions of Walcom products containing Walstrong (the formulation of cysteamine HCl with beta-cyclodextrin and other substances that is discussed in detail in Section 4).

3.7.2 Growth HormoneGrowth Hormone (GH) is the most abundant of the hormones of the anterior pituitary gland. It issecreted by somatotropes that make up about 40 per cent. of hormone-secreting cells and these cellscluster in the lateral wings of the gland.

GH is a peptide of 191 amino acids, with two 2 disulphide bridges linking cysteines. The major formhas a MW of 22 kDa, though there is also a minor component of GH that is slighter shorter versionwith a MW of approximately 20 kDa. GH is a member of the cytokine family.

33

Pantetheine - 4’- phosphate

Coenzyme A

Pantothenic acid (B5)

HS-CH2-CH2-NH -C-CH2-CH2-NH -C-CH-C-CH2-0 -P-O-P-O

HO CH3 O O

Cysteamine Beta-Alanine Pantoic acid

O O OH OHCH3

ADP

CH2

HCO

H

H

H

H

P

O

O

HC

N

N

N N

NH2

Cysteamine - Constituent of Co-enzyme A

(Robishaw & Neely, 1985; Scott & Eagleson, 1988)

A healthy adult human secretes 19 nmol of GH per day, while growing adolescents secrete about 33nmol per day. About half of the circulating GH is bound to binding proteins in the plasma (GHBPs).GH has a half life in the plasma of 20-50 minutes.

Reviews of GH control and functions can be found in Brook and Marshall (2001), Greenspan andGardner (2004) and Brunton, Lazo and Parker (2005). Information derived from these sources is notreferenced specifically in the text below, though additional references are cited where appropriate.

3.7.3 Growth Hormone Releasing Hormone (GHRH) and GH releaseThe release of GH from the anterior pituitary is stimulated by Growth Hormone Releasing Hormone(GHRH) from the hypothalamus.

The anterior pituitary is connected to the hypothalamus via a portal system of blood vessels so thatGHRH released from neurosecretory cells in the hypothalamus is carried in the blood through thisportal circulation to cause release of GH by the somatotropes in the anterior pituitary gland.

The cellular mechanism by which GHRH stimulates GH release involves cAMP-dependent pathwaysin the somatotrope cells. GHRH is a 44 amino acid peptide that binds to a specific receptor in thesomotatrope cell membrane. The GHRH receptor is a member of the G-protein coupled receptor(GPCR) family. Receptors of this family mediate many cellular responses, and the generalmechanism is that occupation of the receptor by a specific ligand, in this case GHRH, causesactivation of a G protein which in turn sets in train a sequence of cellular events usually mediated byactivation or inhibition of an enzyme in the cell membrane. There are a variety of such enzymes, aswell as many different types of G proteins. Gs is a stimulatory G protein that can interact with theenzyme adenylyl cyclase, which in turn catalyses the formation of cyclic AMP (cAMP) from ATP.The GHRH receptor is an example of a GPCR coupled through Gs to adenylyl cyclase, and thereforethe presence of GHRH causes elevation of cAMP. This elevation of cAMP is accompanied by a risein cytosolic Ca2+ and secretion of GH.

The elevation of cAMP also leads to activation of catalytic subunits of protein kinase A which in turnphophorylate a cAMP response element binding protein (CREB) at serine-133, leading to CREBactivation and enhanced transcription of the gene encoding pituitary-specific transcription factor (Pit-1). This leads to stimulation of transcription of the GH gene, leading to formation of the mRNAcoding for GH to replenish stores of this hormone.

The rise in cytosolic Ca2+ that triggers GH release occurs partly from activation of voltage-gated Ca2+

channels allowing Ca2+ entry across the surface membrane from the extracellular solution to thecytosol and partly from Ca2+ release from Ca2+ stores within the cell. The Ca2+ entry through voltage-gated Ca2+ channels occurs because somatotropes are electrically excitable cells that fire spontaneousaction potentials, and GHRH causes depolarization of the somatotrope. The depolarization increasesfiring of action potentials and consequently Ca2+ entry though the activated Ca2+ channels. The Ca2+

release from intracellular stores occurs because an additional action of GHRH at its G proteincoupled receptor is to activate phospholipase C, which in turn leads to the formation of inositoltrisphosphate (IP3), a potent activator of Ca2+ release channels in the intracellular stores. The rise incytosolic Ca2+ triggers GH release from secretory granules in the cell. The mechanism involves a‘porosome’, which is a structure at the cell surface where the GH secretory vesicles dock andtransiently fuse to expel the contents of the vesicle so that the GH is released from the somatotropecell (Lussier et al, 1991; Giustina and Veldhuis, 1998; Muller et al, 1999; McMahon et al, 2001;Moller et al, 2003; Anderson et al, 2004; Yunker and Chang, 2004; Scanes et al, 2005).

It appears that nitric oxide (NO) pathways coupled to the synthesis of cGMP may also play a role inGH release (Anderson et al, 2004; Luque et al, 2005).

Dopamine, a neurotransmitter, also stimulates GH release.

GH may be released in response to another pathway (not mediated by the GHRH receptor but byanother ‘orphan’ receptor, termed growth hormone secretagogue receptor or GHS-R). Ghrelin hasrecently been identified as an endogenous ligand for this receptor. Ghrelin (a 28 amino acid peptidewith an octanoylated serine at residue 3) is synthesised predominantly in stomach, but lower levelsare found at other sites (Yoshihara et al 2002; Anderson et al, 2005).

3.7.4 Somatostatin (SS)A major pathway for inhibition of GH secretion is mediated by the peptide hormone somatostatin(SS). Somatostatin partially blocks the effects of GHRH, though it inhibits both basal and GHRH-stimulated secretion of GH. SS can also inhibit GHRH release providing an additional pathway forsuppression of GH release.

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SS is found in neurons and neuroendocrine cells in the brain, gut and pancreas. SS acts on a familyof 5 different SS receptors. These receptors for SS are coupled to Gi causing an inhibition of adenylylcyclase and therefore a reduction of cAMP formation. SS also causes inhibition of voltage-gated Ca2+

channels activation of potassium ion channels and activation of phosphotyrosine phosphatases. Someof the actions of SS are therefore the reverse of GHRH and would be expected to hyperpolarize thesomatotrope cells and reduce spontaneous action potentials. This would be expected to reducecytosolic Ca2+ and therefore discharge of GH from the secretory vesicles. There may, however, beadditional inhibitory effects of SS to reduce GH release that are not dependent on reducing cytosolicCa2+ (Yunker and Chang, 2004). The SS receptors most important for regulating GH secretion areSSTR2 and SSTR5.

The secretions of GHRH and of SS are both under the control of the Central Nervous System so thatvarious stresses can increase GH in plasma. Bursts of GH secretion occur during sleep.

SS is found: in the hypothalamus; in D (r) cells of pancreatic islets; in the gastro-intestinal mucosa;and in C cells (parfollicular cells) of the thyroid gland.

The major form of SS (at least in the context of the hypothalamus) is a tetradecapeptide (14 aminoacids, SS-14), but there is also amino terminal extended form containing 28 amino acids(somatostatin-28), predominantly in the gut.

SS is formed from a larger precursor peptide of approximately 100 amino acids (see Benoit et al,1990; Jenecka et al, 2001).

SS-14 contains one disulphide bridge between two cysteines.

SS secretion is increased by increased levels of GH and of Insulin-like-growth-factor-1 (IGF-1, seebelow), as part of a negative feedback pathway.

In addition to inhibiting GH secretion, SS also has an important inhibitory influence on otherhormones, growth factors and cytokines that include: TSH from the pituitary gland; gastrin, motilin,VIP, gilectin and gastrointestinal peptide from the gut; insulin, glucagons and pancreatic polypeptidefrom the pancreas.

Somatostatin analogues (such the octopeptide, octreotide) are used to treat the unwanted growth inacromegaly (for example as a consequence of excessive GH secretion by an adenoma tumor).Octreotide binds preferentially to SSTR-2 and SSTR-5 receptors (see Moller et al, 2003). SS-mimetics are considered for eye diseases associated with excessive proliferation and inflammationand systemic diseases associated with inflammation, such as rheumatoid arthritis. Other recentevidence for an involvement of SS in inflammation is provided by Abdel Salam (2002).

3.8 Actions of Growth Hormone (GH)The major actions of GH are a stimulation of bone and muscle formation. Bone growth is promoted byeffects that include differentiation of chodrocytes and osteoblasts that are essential for bone formation. Inthe case of muscle, GH causes differentiation of the myoblasts that are the precursors of muscle fibres, andalso promotes an increase in muscle mass. GH also has a potent anti-insulin action on liver and at peripheralsites such as adipocytes and muscle.

GH has been implicated in the development and function of the immune system (see below).

The actions of GH are both direct (influencing tissues by an action on GH receptors) or indirect (bystimulation of the production of additional growth factors, predominantly in the liver, with subsequent actionof the growth factors on growth factor receptors in the tissues).

Direct actions of GH include the following: reduced glucose transport and metabolism (with a reduction ininsulin receptors); effects on adipocytes to increase lipolysis (with a localised decrease in adipose tissue, and arelease of free fatty acids that then provide an energy source for muscle); increased amino acid transport (intomuscle, liver and adipose cells); increased protein synthesis (as a consequence of increases in transcription andtranslation, for example in the liver); actions on hepatocytes to stimulate gluconeogenesis; and increasedfibroblast differentiation that leads to formation of chondrocyte, osteoblast and adipocyte formation.

The direct effects of GH generally antagonise those of insulin, giving rise to diabetogenic properties of GH;the direct effects also tend to show synergy with those of cortisol.

The growth promoting effects of GH are largely mediated by insulin-like-growth-factor 1 (IGF-1), which ispredominantly formed in liver but is also produced locally in many tissues critical for growth. Major effectsof IGF-1 produced in the liver are growth promotion of bones and increases in muscle mass. An example ofadditional GH stimulated local production of IGF-1 is in bone where autocrine and paracrine actions of the

35

released IGF-1 lead to clonal expansion of chondrocytes. An additional insulin-like-growth-factor (IGF-2) isalso formed in the liver. IGF-I and IGF-II both have a MW of about 7.5 kDa. The indirect actions of GH viaIGF-1 and IGF-II (for example on adipocytes) are often insulin like and antagonised by cortisol. There are sixbinding proteins for IGF in plasma. Insulin-like-growth factors were formerly known as somatomedins.

There is a also family of GH binding proteins that serve as transport proteins, though they may also mediatesome aspects of IGF-1 signalling – see Firth & Baxter (2002).

The cell surface receptor for GH receptor belongs to the Class I cytokine receptor superfamily that alsoincludes receptors for prolactin and erythropoietin, as well as several interleukins. The GH molecule firstbinds to one molecule of its receptor, and then to a second molecule of receptor to form a ternary complex.The dimerisation of the cytoplasmic regions of the two receptor molecules is important for signaltransduction. The GH-receptor ternary complex then provides docking for two JAK-2 molecules leading totransphosphorylation and autoactivation of JAK-2, with consequent tyrosine phosphorylation of STATproteins. These STAT proteins are so called because they have the dual function of signal transduction in thecytoplasm followed by activation of transcription in nucleus. These STAT proteins are latent transcriptionfactor proteins that are activated by phosphorylation. The phosphorylated STAT proteins dissociate from thereceptor kinase complex and form homo and heterodimers in the cytosol (note that there are different formsof STAT). The dimerisation of STAT proteins is necessary for translocation of these proteins into nucleus.

In the nucleus, STAT dimers activate immediate early response genes that regulate proliferation, or otherspecific genes that control differentiation of target cells.

GH may additionally activate MAPK and PI3-kinase pathways in the target cells.

In the case of the insulin-like-growth-factors, the IGF-1 receptor is closely related to the insulin receptor.The IGF-1 receptor pe-exists in a dimer form, even in the absence of the ligand, IGF-1. The dimercomprises two glycoprotein subunits (MW 450 kDa) that span the membrane and have integral cytoplasmictyrosine protein kinase domains. Occupation by an IGF-1 molecule of the ligand-binding pocket formed bythe two alpha subunits of the receptor causes activation of the tyrosine kinase in the cytoplasmic domain.The IGF-1 receptor is said to be present in all tissues. The IGF-II receptor is single chain structure (somesequence homology with mannose 6-phosphate which has a role in transferring lysosomal enzymes fromthe Golgi apparatus to lysosomes).

Figure 3.4 Summary diagram of inhibitory effect of SS (the target of SS) on GH release and actions of GH/IGF-1

Note that depletion of SS by cysteamine would be expected to increase release of GH and therefore topromote growth and development. (Note that actions of grhelin are omitted for simplicity, and would not beexpected to prevent the consequences of SS depletion by cysteamine.)

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stimulates inhibitsHypothalamus

Anterior Pituitary

LiverMuscle, Skeleton

andAdipose tissue

IGF-1

Growth anddevelopment

SS

GH

GHRH

3.9 Growth Hormone and ImmunityAbundant evidence supports a role for GH in modulating the immune system (reviewed by Clark, 1997). It isargued that GH controls growth, maintenance, repair, and function of the immune system by mechanisms thatparallel effects of GH on other tissues in the body. The figure below is adapted from Clark (1997). Just as foreffects described above, there appear to be both direct effects of GH and indirect effects resulting from GH-stimulated synthesis of IGF-1 in the liver. In addition, IGF-1 may be synthesized locally in other tissues inresponse to GH. Both GH and IGF-1 are thought to act on the haemopoietic tissues such as bone marrow,spleen and thymus. For example, there is evidence that IGF-1 acts to promote both proliferation andmaturation of B cells. The Clark (1997) review also summarises evidence that IGF-I treatment increases T andB cell number and improves antibody responses, suggesting that it might have a normal role in B and T cellfunction. Although many of the early experiments were on rodents, these effects have been seen in many otherspecies. For example GH increased thymus weight in ‘middle-aged’ dogs (Monroe et al, 1987). Actions of GHand IGF-1 have also been observed in monkeys (LeRoith, 1996). It has been argued that GH may be a ‘naturalantagonist’ of glucocorticoids in immunoregulation (Kelly & Dantzer, 1991, noting that glucorticoids are wellrecognised as having potent immunosuppressant activity). The view that GH may enhance the activity of theimmune system in this way is becoming widely accepted, and it follows that GHRH and somatostatin byregulating GH release may also have an effect on immune function. Campbell & Scanes (1995) have referredto endocrine peptides, including somatostatin and GHRH as ‘moonlighting’ as immune modulators.

The Clark (1997) review concludes:

Aging, stress, and nutrition affect blood concentrations of the anabolic hormones GH and IGF-I, which inturn modulate immune function. Recent studies show that IGF-I plays an important role in the maturationof lymphocytes in bone marrow and assists their function in the periphery. In rodents, treatment with IGF-Ican restore age-related thymic involution, increase lymphocyte number and activity and improve the reducedantibody response to an antigen challenge, and accelerate lymphoid reconstitution after radiation and bonemarrow transplantation. IGF-I may act on lymphoid tissues via its potent anti-apoptotic effects. Perhaps theanabolic hormones have a dual role in regulating lymphopoiesis. First, in the well-fed, nonstressed state,normal bone marrow may utilize the IGFs as cofactors for ongoing lymphopoiesis. Second, during stress,IGF may be protective from tissue damage, but if damage occurs it may also help restore a damaged immunesystem. For these latter effects there may be a requirement for endocrine IGF-I. These results imply thatIGF-I may be useful as a therapeutic in immunodeficient states.

Further recent evidence (Savin et al, 2003) supports a role for GH in improving the function of the thymus,acting on T cells to increase their proliferation and ability to migrate. Actions of GH on B cell differentiationand maturation have also been recently described (Sumita et al, 2005).

Figure 3.5 Effects of GH on the immune system

The scheme above (based on Clark, 1997) summarises effects of GH either directly or indirectly via theproduction of IGRF-1 on the main sources of cells involved in the immune system (spleen, bone marrow andthymus).

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GH

SpleenLiver Bone Marrow Thymus

+ + + +

+++

+

IGF-1

Hypothalamus

Pituitary

-GHRH Somatostatin

3.10 SummaryThe discussion above provides evidence for the direct and indirect actions of Growth Hormone both innormal growth (controlling animal size, muscle mass and lean/fat ratio) and in the control of the immunesystem. Since somatostatin from the hypothalamus inhibits release of Growth Hormone and sincecysteamine (the active ingredient of many Walcom products) depletes active somatostatin in hypothalamicneurons, cysteamine is expected to increase Growth Hormone release. Cysteamine would therefore beexpected to increase growth and immunity by indirectly increasing Growth Hormone levels.

The next section (Section 4) describes the proprietary formulation of cysteamine in Walcom products, andSection 5 discusses evidence for the actions of cysteamine in Walcom products on a variety of commerciallyimportant livestock animals.

4. FORMULATION OF WALCOM PRODUCTS CONTAINING WALSTRONGA crucial part of the proprietary technology of Walcom products concerns the formulation of the active ingredientcysteamine hydrochloride. This proprietary formulation is referred to by Walcom as Walstrong.

The active ingredient cysteamine HCl has a number of properties that make it very difficult to use as a puresubstance. The proprietary formulation of cyteamine products devised by Walcom is therefore a crucialcomponent of the intellectual property of Walcom.

The first property of cysteamine HCl that makes it difficult to use as a pure substance is that it is chemicallyunstable, since it is easily oxidised on standing in air to inactive cystamine (in effect two molecules of cysteaminejoined together in such a way that their SH groups form a linking disulphide bond with very different chemicalproperties). The structure of cystamine below can be contrasted with that of cysteamine shown in Section 2.

Figure 4.1 Structure of cystamine

In addition, cysteamine is sensitive to light and humidity. It also dissolves easily in water. As a consequence of allthese properties, the pure cysteamine and cysteamine hydrochloride are difficult to store.

Another factor that might make the pure substance unsuitable as a feed substance is that it has a strong bad odor(perhaps resembling bad eggs) and the pure substance is therefore likely to be unpalatable.

In the context of feed substances and feed additives, it is also important for the substance to withstand heattreatment. This is not the case with pure cysteamine or cysteamine hydrochloride, since high temperatures promotedegradation.

As a consequence of all the above properties, pure cysteamine and cysteamine hydrochloride are very difficult touse as feed additives. The instability of the pure compounds also causes problems in ensuring that the requireddose is given consistently.

A further problem with pure cysteamine or cysteamine hydrochloride concerns gastrointestinal toxicity. The purecompound can have local effects on the stomach to increase acid secretion leading to duodenal ulceration. It isargued that at least the direct effects are avoided in a formulation that passes through the stomach before releaseof the active substance.

The Walcom product with its chemical formulation and coating is thought to avoid or minimize all the aboveproblems.

The table below summarises differences between pure cysteamine and Walstrong, and is based on informationsupplied by Walcom.

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SSHH22NN

NHNH22SS

Table 1 Summary of the differences between pure cysteamine and Walstrong

Comparison of Cysteamine and Walstrong

Cysteamine(during the fundamental research period) Walstrong Product

Physical and White tiny granule with bad odor Encapsulated particle chemical Oxidized easily Fragrant properties Sensitive to light Good fluidity

Sensitive to humidity Good stability Dissolves in water and alcohol easily Resists oxidation Not easy to store Absorption in intestine rather than stomach Cannot endure high temperature (slow release)Sensitive to metal Easy to store for long (one year) periods

Tolerates exposure to high temperature

Pathway for In Water Can be take every day application By injection Can be added directly to feed stuff

Every six days, inconvenient ConvenientCannot be added in feed stuff directly Can be easily incorporated in feed granules

Side effects Local side effects in stomach No local side effects in stomach

Dosage Difficult to determine because of Dosage determined with specific poor stability recommendations for different kinds of

animals, different ages and differentproductive purposes

Efficiency Unstable StableCannot be used as feed additives directly Can be used as feed additive directly to

enhance animals growth and immunity

4.1 Formulation of the Walcom product WalstrongA key component of the Walcom product Walstrong is beta cyclodextrin. Cyclodextrins are ring shapedmolecules which are formed from several sugar molecules. In the case of beta cyclodextrin there are sevensugar molecules forming the ring. This molecular structure provides a central cavity within the ring, andappropriate additional molecules can fit in this cavity. The size and shape of cysteamine hydrochloridemolecule are well suited for it to fit well in the cavity of the beta cyclodextrin.

Diagrams of the structure of beta cyclodextrin are shown below (note the cavity for inclusion of cysteaminehydrochloride).

Figure 4.2 Structure of beta cyclodextrin; a, chemical structure and b, toroidal structure

(From: Loftsson T & Brewster ME. (1996) Pharmaceutical applications of cyclodextrins. 1. Drug solubilization and stabilization. J Pharm Sci. 85:1017-25.)

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Figure 4.3 Structural model of beta-cyclodextrin

(From National Library of Medicine ChemIDplus website.)

Although beta cyclodextrin appears to be well suited in size and shape to contain the cysteamine molecules,the patent specification of the formulation (see below for more details) is sensibly drafted in very broadterms referring to a ‘macromolecular substance having inclusion property’. Where the micro-encapsulationmethod in the patent refers to a cyclic polysaccharide more precisely, it mentions cyclodextrins with between6 and 12 glucose molecules, again a sensibly broad definition in the context of Intellectual Property claims. In addition to beta cyclodextrin (or similar microencapsulation molecule) the formulation also refers tobinders and disintegrants including hydropropyl starch, microbial alginate, microcrystalline cellulose andstarch.

Another important component of the formulation is an enteric coating that is designed to remain un-dissolved in the acid of the stomach (pH 1.5 to 3.5) but to allow release of cysteamine in an alkalineenvironment (as would be the case as the food passes from the stomach to the rest of the gut). This isdesigned to minimize unwanted effects on the stomach including excessive acid secretion (see above).

The formulation also allows the granules containing cysteamine to be mixed with a suitable amount offlavouring and smelling agents.

The formulation contains one other ingredient that was disclosed to the author of this report, and I confirmthat this additional substance is well known and without adverse effects under the conditions used.

The granules formed by the manufacturing process are said to be between 0.28 and 0.90 mm in diameter.

Microencapsulation of cysteamine in these granules avoids many of the undesirable properties of the purecysteamine or cysteamine hydrochloride. The compound is said to show excellent stability. The propertiesremain unchanged after one year of storage in sealed plastic bags in a cool, dark, dry place. Therecommended shelf life of Walcom products containing cysteamine is 12 months for premix products and18 months for feed additives (with the recommendation that products are stored in a dry, cool place avoidingdirect sunlight).

Walcom has been granted patents for its proprietary formulation of cysteamine (encapsulated in granuleswith an enteric coating to protect the product from acid in the stomach and containing cyclodextrinmolecules to enclose the cysteamine) in China, Hong Kong, New Zealand and North Korea. A more specificpatent for the use of this formulation of cysteamine in poultry has been granted in the UK and North Korea.Other patent applications have been submitted. Consideration of any possible legal issues relating to thepatents is beyond the scope of this report.

Cysteamine microencapsulated in the granules is also stable during heat treatment.

The following graphs illustrate the stability of the granules over time and during heat treatment.

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Figure 4.4 Graphs showing the stability of Cysteamine microencapsulated granules with time and during heat treatment

Walstrong Stability – Shelf Life

Walstrong Stability – Heat Resistance

5. EVIDENCE FOR EFFECTIVENESS OF WALCOM COMPOUNDS5.1 Evidence showing effects of Walcom products

The actions of cysteamine that lead indirectly to increased levels of hormones, particularly GrowthHormone, as outlined in the previous section, are thought to underlie the beneficial effects of Walcomproducts in a variety of animal species. Evidence supporting beneficial effects of cysteamine in Walcomproducts is presented below. In the data presented, particular attention should be paid to the measuredvariables that could indicate a beneficial effect. In some cases a beneficial effect of cysteamineadministration might be on final weight of the animal, but in many cases other commercially relevantfeatures are important, such as average daily weight gain (and related to this the time taken for an animal toreach a target weight), as well as the efficiency with which food is converted into animal weight (expressedas a Food Conversion ratio, FCR, determined as weight of feed divided by animal weight, so that a reducedFCR reflects more efficient conversion of animal feed to animal weight). Other commercially importantvariables that might be improved by Walcom products are the ratio of protein to fat, and survivability (forexample in the case of a greater number of piglets surviving to maturity). In addition there may be effectsthat relate to particular animals such as increased lactation in cows, or in the case of poultry, effects on egglaying and egg shell thickness.

5.2 Effects of Avianin in birds5.2.1 Effects in Broiler chickens

Evidence concerning effects of Avianin to be presented below has been collected in two settings.Some experiments are done under well controlled conditions, often in a university setting, whereindividual measurements allow a rigorous statistical analysis. These observations are supplementedby extensive farm trials, where although statistical variability has not been analysed in detail, the verylarge numbers of animals make it possible to draw reliable conclusions, particularly when data frommany such trials are available

Experiments at Yangzhou University (I), PRC provide evidence of effects of Avianin on broilergrowth. In preliminary experiments it appeared that timing of application and concentration ofAvianin were important. Following on from these experiments, a trial with 100 broilers per group wasundertaken. The observations from this trial are summarized in Fig 5.1. The trial appeared to becarefully planned, and the experimental conditions were well controlled.

41

Walstrong Stability - Shelf Life

29.75 29.68 29.45 29.39 29.21

0

5

10

15

20

25

30

0 3 6 9 12

Storage duration (months)

Cys

team

ine

HC

IC

onte

nt(%

)

100 °C

30.2 30.0

0

10

20

30

40

Walstrong Stability – Heat Resistance

0120 °C

Cys

team

ine

HC

IC

onte

nt(%

)

Figure 5.1 shows that at the end of the treatment period there were increases both in body weight, andin body weight gain in broilers fed with a diet supplemented with Avianin as compared to controls ona normal diet without Avianin. These changes were statistically significant (a 7.3 per cent. increasein the case of the increase in body weight from 2.38 ± 0.02 to 2.34 ± 0.02 kg for the most favourablefeeding regime; P < 0.01, Student’s ‘t’ test; mean ± SE of mean). Timing was again important, and itappeared that the largest weight gain occurred when Avianin was administered after day 22. TheAvianin was added as 400 mg/kg of feed.

Figure 5.1 Broiler – Yangzhou University (II), PRC

Broiler – Yangzhou University (II), PRCTrial with 100 birds per group

In the same experiments there was a trend towards a decrease in Food Conversion Ratio (FCR), inother words a more efficient conversion of feed weight to body weight (data not shown in Table) butthis did not reach statistical significance (taken as P < 0.05) with the number of observations made.However, in large farm trials it was consistently found that broilers on a diet of food supplementedwith Avianin showed increases both in weight gain and in Food Conversion Ratio compared to controlanimals fed on the same diet but without Avianin (and this is illustrated in more detail below). Similarfindings were made in another trial with 1000 birds per group, as illustrated in Figure 5.2.

Figure 5.2 Broiler – Changzhou Lihua, Jangsu, PRC

Broiler – Changzhou Lihua, Jangsu, PRCTrial with 1000 birds per group (endemic breed)

It can be seen that in this second trial, Avianin (400 mg/kg feed) treatment caused a increases in thefinal weight of the broilers (from 1137 ± 3 to 1200 ± 3 g, mean ± SE of mean), and in the averagebody weight gain (from 348 ± 3 to 410 ± 3). These effects were statistically significant (P < 0.01).There was again a fall in the FCR (from 7.05 to 5.81) supporting a more efficient conversion of feedweight to body weight, but statistics were not collected for this measurement, since feed per bird wasnot measured separately. It appears, however, that this observation of a fall in FCR with Avianintreatment is reliable since it has been made consistently in the farm trials listed below.

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In a third trial with 100 birds illustrated in Figure 5.3 below, Avianin treatment again caused a rise inbody weight (in this case by approximately 8 per cent., from 679 ± 4 to 732 ± 4 g for day 31-50, P < 0.01). Once more FCR was reduced from 3.70 to 3.48, but again statistical analysis was notpossible because feed per bird was not measured separately.

Figure 5.3 Chinese Gongting Yellow Broiler

Chinese Gongting Yellow BroilerTrial with 100 birds per group

The three trials described above with broiler chickens have been supplemented with several largefarm trials. In these additional trials, very large numbers of birds have been investigated, increasingthe confidence in the observations, though it was the nature of these trials that measurements ofindividual birds were not made and so statistical analysis cannot be applied in the way that was doneabove. These observations are shown in Figures 5.4 to 5.10. They include the following trials (withthe numbers of birds in the Avianin treated group listed in brackets): Lagman farm (5758 birds); LosBanos (500 birds in AA broiler study, 350 birds in Cobb study); Red Dragon 1 (3660 birds); RedDragon 2 (3744 birds); LAO farm,Vitarich (4996 birds); Beijing, Huadu (19,498 birds). In everycase, Avianin treatment caused an increase in the weight gain, and a reduction in the FCR (with theexception of the Red Dragon 2 trial, where the birds were harvested at a particular weight, which wasreached sooner in the Avianin-treated group, though obviously there was still a decrease in FCR). Thereliability of these observations does not depend just on the large numbers of birds involved: a simplesign test can be applied to the observations made, with the argument that the probability of observinga decrease in FCR seven times in a row (the seven farm trials) is less than 5 per cent. (in other words,P < 0.05), provided that we can take these trials as representative (as we are assured is the case).

Figure 5.4 Broiler – Lagman Farm

Broiler – Lagman FarmCommercial trial: large number of birds studied, but lack of individual measurements for statistics

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Figure 5.5 Broiler – University of Philippines, Los Banos

Broiler – University of Philippines, Los BanosLarge number of birds studied, but lack of individual measurements for statistics

Figure 5.6 Broiler – Red Dragon 1

Figure 5.7 Broiler – Red Dragon 2

Broiler – Red Dragon 2Commercial trial: large number of birds studied, but lack of individual measurements for statistics

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Figure 5.8 Broiler (Cobb) – LAO Farm, Vitarich

Broiler (Cobb) – LAO Farm, VitarichCommercial trial: large number of birds studied, but lack of individual measurements for statistics

Figure 5.9 Broiler – Beijing Huadou, China

Broiler – Beijing Huadou, ChinaCommercial trial: large number of birds studied, but lack of individual measurements for statistics

Figure 5.10 Broiler – Beijing Dafa, China

Broiler – Beijing Dafa, ChinaCommercial trial: large number of birds studied, but lack of individual measurements for statistics

It therefore appears from the broiler trials described above that Avianin treatment can cause anincrease in the weight gain and a reduction in FCR (reflecting a more efficient conversion of feedweight to broiler body weight).

45

Another point from the Changzhou Lihua, Jangsu trial shown in Fig. 5.2 above is that Avianintreatment also reduced mortality from 16 to 2 per cent. This is further illustrated in Figure 5.11 to5.13. In the LAO Farm, Vitarich trial (Fig 5.11), 373 of 6349 birds died in the control group, whereasin Avianin treated group 204 died from an initial population of 5200 (representing a decrease inmortality of 33 per cent.). In the Beijing Huadou trial (Fig 5.12) 1,853 of 19,265 birds died in thecontrol group, whereas in the Avianin treated group 932 of 19,498 birds died (a decrease in mortalityof 50 per cent.). In the Beijing Dafa trial (Fig. 5.13), 163 of 6,350 control group birds died, while 119of the 6,226 Avianin treated group died (an improvement in mortality rate of 26 per cent.). Althoughthese observations are not easily amenable to statistical treatment, the consistency with which areduction in mortality has been observed, together with the very large numbers of birds in the trialsgive reason for confidence in the conclusion that Avianin reduces mortality rates under theseconditions, while also increasing weight gain and reducing FCR.

Figure 5.11 Broiler (Cobb) – LAO Farm, Vitarich

Broiler (Cobb) – LAO Farm, VitarichCommercial trial: large number of birds studied, but lack of individual measurements for statistics

Figure 5.12 Broiler – Beijing Huadou, China

Broiler – Beijing Huadou, ChinaCommercial trial: large number of birds studied, but lack of individual measurements for statistics

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Figure 5.13 Broiler – Beijing Dafa, China

Broiler – Beijing Dafa, ChinaCommercial trial: large number of birds studied, but lack of individual measurements for statistics

5.2.2 Economic analysis of Avianin effects

Figure 5.14 Broiler – Changzhou Lihua, Jangsu, PRC

Broiler – Changzhou Lihua, Jangsu, PRCTrial with 1000 birds per group (endemic breed)

Figure 5.15 Beijing Dafa Zhengda Trial: Economic Benefit Analysis

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5.3 Effects of EggroninEggronin is the Walcom product used to improve farming practice concerning egg production. In the BreederLayer, Shanghai trial illustrated in Fig 5.14, a large number of birds (1,200 in the control group and 842 inthe Eggronin treated group) were investigated. Eggronin treatment caused statistically significant (P < 0.01)increases in both Laying Rate (from 79.0 ± 0.1 per cent. to 82.0 ± 0.1 per cent., mean ± SE of mean) andBreed Egg Rate (from 75.7 ± 0.1 per cent. to 80.0 ± 0.1 per cent.). There were also larger percentageimprovements in breakage rate (from 1.33 ± 0.01 per cent. to 0.68 ± 0.01 per cent.) and abnormal egg rate(from 2.80 ± 0.03 per cent. to 1.83 ± 0.01 per cent.). In the broiler trials described above, Avianin caused aconsistent reduction in FCR, and the observations with Eggronin also show a statistically significant (P < 0.01) decrease in FCR (from 2.78 ± 0.01 to 2.51 ± 0.01) reflecting a 9.7 per cent. improvement in theefficiency of converting feed weight to egg weight.

Figure 5.16 Breeder Layer – Shanghai, PRC

Breeder Layer – Shanghai, PRC

The improvement in Breed Egg Rate is shown with time of exposure to Eggronin in Fig. 5.17. The enhancingeffect of Eggronin is clearly evident, particularly in the second half of the trial.

Figure 5.17 Breeder Layer – Shanghai, PRC

Eggronin® for Layer/breeder (Hailan)

The Laying Rate over time of exposure to Eggronin is shown in Fig. 5.18 for another larger trial, with 500birds in the control group and 500 birds treated with Eggronin. The improvement in Laying Rate (amountingto 11.1 per cent. at the end of the trial) is clear throughout the period of Exposure to Eggronin.

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Figure 5.18 Commercial Egg Layer – Nanjing, PRC

Commercial Egg Layer – Nanjing, PRC500 birds in control group and 500 birds in Eggronin treated group

Further details of this trial are shown in Fig. 5.19. It can be seen that Eggronin treatment also statisticallysignificant (P < 0.01) decreases in egg breakage rate and FCR (an 11 per cent. improvement from 2.92 ± 0.01 to 2.60 ± 0.01, mean ± SE of mean).

Figure 5.19 Commercial Egg Layer – Nanjing, PRC

Commercial Egg Layer – Nanjing, PRC

Observations from a large commercial trial (with 4,969 birds in the control group and 2,516 birds in theEggronin treated group) are shown in Fig. 5.20. It can be seen that Eggronin treatment again causedimprovements in Egg Laying Rate (increased by 2.9 per cent.), Breakage Rate (decreased by 14.3 per cent.),Mortality Rate (decreased by 31.8 per cent.) and FCR (decreased by 3.3 per cent.).

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Figure 5.20 Breed Layer – Henan, PRC

Breed Layer – Henan, PRCCommercial trial: large number of birds studied, but lack of individual measurements for statistics

The improvements caused by Eggronin treatment are expected to be associated with economic gains. Figure5.21 shows an economic analysis based on the trial shown in Fig. 5.20.

Figure 5.21 Henan Xiping Baiao Breeder Layer Trial Economic Benefit Analysis

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5.4 Effects of PorcininPorcinin is the Walcom product prepared for use in pig farming, and has been used for piglets, grower pigsand finisher pigs. The trial in Fig 5.22 shows Porcinin use in grower pigs with 96 animals in the treatmentgroups. Although there were trends for improvement in FCR, the statistically significant change (P < 0.05)was for an increase in Average Daily Weight Gain (ADG).

Figure 5.22 Grower – Hangzhou, PCR

Grower – Hangzhou, PCRTrial with 96 animals per group

In the case of finisher pigs, the Porcinin treated pigs again showed statistically significant (P < 0.05)increases (5 per cent. and 4 per cent.) in Average Daily Weight Gain (Fig. 5.23).

Figure 5.23 Finisher – Hangzhou, PCR

Finisher – Hangzhou, PCRTrial with 96 animals per group

Similar findings were made in a trial in the Philippines with 100 pigs in the control and Porcinin treatmentgroups (Fig. 5.24). Observations showing effects of Porcinin on piglets (80 animals per group) are alsoshown on the same figure. Although statistics are not available for these trials, both showed that there wasan increase in the daily weight gain in the Porcinin treated groups compared with controls, and the economicbenefits of these effects of Porcinin are shown in Fig. 5.25.

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Figure 5.24 Effect of Porcinin on weaned piglets and fattened pigs

Figure 5.25 Economic evaluation of Porcinin

Economic evaluation of Porcinin:

• On the weaned piglets, during the 28 days of treatment with Porcinin, each piglet had consumed 19.028 kg offeeds, and each kg of feeds had input 500 mg of Porcinin, totaling 9.514 g.

• On the fattening pigs, during the 95 days of treatment with Porcinin, each pig had consumed 190.216 kg of feeds,and each kg of feeds had input 700 mg of Porcinin, totaling 133.1512 g.

• The 2 stages of growth have totally consumed 142.67 g of Porcinin.

• Assuming the final price of Porcinin to the farmers is US$6.024/kg (RMB49.82/kg), the 2 stages togetherconsumed US$0.859 (RMB7.11) of Porcinin.

• The Porcinin treated piglets and fattening pigs had increased weight by 1.6 kg and 9.3 kg respectively, totaling10.9 kg (actually it may not be entirely appropriate to add the 2 numbers together). Usually the slaughtering ratioof pigs is 70 %, therefore the 10.9 kg will come down to a carcass weight of 7.63kg. As far as we know, theaverage pork price in the Philippines is approximately US$1.4/kg, the additional carcass weight of 7.63 kg willcome out as an additional economic value of USD10.682 (RMB87.24).

• In another words, the input and output ratio is 1 :12.44. Within a treating period of 4 months, USD1 worth ofPorcinin can yield additional pork value of USD12, we believe this experiment has clearly demonstrated theeconomic value of Porcinin.

• Moreover, each pig can reduce the consumption of feeds by (0.432 kg + 24.18 kg) 24.61 kg, and also saving thebreeding time from weaned piglet to ready for slaughter by half a month, this represents a tremendous savings onlabour, farm facilities/equipment, energy and sanitary/veterinary consumables.

• The above trial of Porcinin performed on Swine has shown remarkable combined growth effect and economicvalues for the pig farms.

In the case of piglets, a series of trials is shown in Figures 5.26 to 5.34. An increase in Average Daily WeightGain (ADG) was consistently seen, and the increases in these trials were: 28 per cent., 28 per cent., 7 percent., 14 per cent., 33 per cent., 23 per cent., 18 per cent., 36 per cent., 5 per cent. Decreases in FCR(showing a more efficient conversion of feed weight to pig body weight) were also seen in the trials wherethis was measured, and the decreases were: 18 per cent., 22 per cent., and 20 per cent. In the Porcinin treatedgroups in these trials mortality rates, as compared to the corresponding control groups, were reduced by: 71 per cent., 45 per cent., 75 per cent., 100 per cent., 0 per cent., 60 per cent., 0 per cent., 44 per cent. and59 per cent. (and in the cases where the change was 0 per cent., mortality was already low with 0 pigs dyingin one study and two in the other so that there was little scope for improvement with Porcinin). Takentogether these studies (on a total of 1000 piglets treated with Porcinin) show clear effects of Porcinin toincrease Average Daily Weight Gain and reduce Mortality.

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Figure 5.26 Weaned Piglet – Shamus Farm (Bukidnon) 1

Weaned Piglet – Shamus Farm (Bukidnon) 1

Figure 5.27 Weaned Piglet – Shamus Farm (Bukidnon) 2

Weaned Piglet – Shamus Farm (Bukidnon) 2

Figure 5.28 Weaned Piglet – Shamus Farm (Bukidnon) 3

Weaned Piglet – Shamus Farm (Bukidnon) 3

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Figure 5.29 Weaned Piglet – Lopez Farm (Dipolog) 1

Weaned Piglet – Lopez Farm (Dipolog) 1

Figure 5.30 Weaned Piglet – Lopez Farm (Dipolog) 2

Weaned Piglet – Lopez Farm (Dipolog) 2

Figure 5.31 Weaned Piglet – Lopez Farm (Dipolog) 3

Weaned Piglet – Lopez Farm (Dipolog) 3

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Figure 5.32 Weaned Piglet – Lopez Farm (Dipolog) 4

Weaned Piglet – Lopez Farm (Dipolog) 4

Figure 5.33 Weaned Piglet – Lopez Farm (Dipolog) 5

Weaned Piglet – Lopez Farm (Dipolog) 5

Figure 5.34 Weaned Piglet – Dalian, PRC

Weaned Piglet – Dalian, PRC

In the piglet trial shown in Fig 5.35, there is an increase in Average Daily Weight Gain in the animals treatedwith Porcinin as compared to controls, and the economic benefits of this are shown in Fig. 5.36.

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Figure 5.35 Piglet weight gain, Shanghai Min Hang

Piglet weight gain, Shanghai Min Hang

Figure 5.36 Food consumption and weight gain cost analysis

Another factor that is of interest to the pig farmer, in addition to simple weight gain of the pigs, is the qualityof the meat produced. Figures 5.37 and 5.38 show observations concerning the effect of Porcinin treatmenton Pork Quality. In Fig. 5.37, it can be seen that the higher dose of Porcinin caused statistically significant(P < 0.05) increases in lean meat percentage and decreases in fat percentage. Similar statistically significantimprovements in pork quality (an increase in percentage of lean meat and a decrease in fat) were also seenin the trial shown in Fig. 5.38.

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Figure 5.37 Pork Quality Enhancement – Shanghai, PRC

Pork Quality Enhancement – Shanghai, PRC

Figure 5.38 Pork Quality Enhancement – Ning Bo, PRC

Pork Quality Enhancement – Ning Bo, PRC

5.5 Effects of LactoninThe effects of Lactonin in milk production in cows are illustrated in Figure 5.39. In this trial of 30 animalsper group, both doses of Lactonin caused statistically significant (P < 0.05) increases in milk yield, 3.5 percent. FCM and milk protein yield. In another study with 8 animals per group (Fig 5.40), Lactonin againcaused statistically significant increases in milk yield and 4 per cent. FCM.

Figure 5.39 Lactonin® on Dairy Cattle

Lactonin® on Dairy Cattle

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Figure 5.40 Lactonin® on Dairy Cattle, 2

Lactonin® on Dairy Cattle, 2

5.6 Effects of AquaninWalcom products are also available for fish farming, and in this case the product of interest is Aquanin. Twotrials with eels (Anguilla Japonica) are shown in Figs 5.41 (study with 150 fish per group) and 5.42 (studywith 750 fish per group). In both cases, treatment with Aquanin caused statistically significant increases infinal body weight and body weight gain as compared with untreated controls. The Aquanin treated groups alsoshowed significantly reduced FCR reflecting a more efficient conversion of feed weight to fish body weight.

Figure 5.41 Anguilla japonica (Eel) – Shenzhen, PCR

Anguilla japonica (Eel) – Shenzhen, PCR

Figure 5.42 Anguilla japonica (Eel) – Guangdong, PCR

Anguilla japonica (Eel) – Guangdong, PCR

Effects of Aquanin were also studied on the grouper fish (Epinephelus Coioides), and the results of this trialare shown in Fig 5.43. There were substantial increases in final body weight and in weight gain that werestatistically significant (P < 0.05) in the fish treated with Aquanin as compared with the control untreatedfish. There were also large reductions in the FCR in Aquanin treated fish as compared to untreated controls(reflecting a more efficient conversion of feed weight to fish weight), although the feed data were notcollected in a way that would allow statistical analysis.

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Figure 5.43 Epinephelus coioides (Grouper) – Guangdong, PCR

Epinephelus coioides (Grouper) – Guangdong, PCR

Note : * indicates P < 0.05; **indicates P < 0.01

Studies were also carried out on the shrimp (Penaeus vannamei). It can be seen from the observations in Fig. 5.44 that Aquanin treatment caused statistically significant (P < 0.05) increases in final body weight andweight gain. In the case of FCR, there was a trend towards reduction, but this did not reach significance.

Figure 5.44 Penaeus vannamei (Shrimp)

Penaeus vannamei (Shrimp)

Note : * indicates P < 0.05

5.7 Effects of cysteamine-containing products on the immune systems of animals and birds.In Section 3.9 it was pointed out that extensive experimental evidence supports the contention that theimmune system is regulated by both Growth Hormone and IGF-1 (formed from Growth Hormone,particularly in the liver). Since cysteamine promotes Growth Hormone release by suppressing the inhibitoryinfluence of somatostatin, (and since increased levels of Growth Hormone are also expected to lead toincreased levels of IGF-1), it would be expected that cysteamine administration should increase the activityof the immune system. Evidence supporting actions of cysteamine-HCl-containing Walcom products on theimmune systems of animals is presented in the following paragraphs.

5.7.1 Effects of cysteamine-containing products on stress associated with surgery in goatsStress accompanying surgery may lead to increased levels of cortisol (a hormone associated withstress) and to decreased levels of interleukin-2 (IL-2). It was reported that, in goats not exposed tocysteamine (control group), surgery caused a decrease in IL-2 levels. When the same surgicalprocedures were carried out on goats that had received the cysteamine-HCl-containing Walcomproduct (45 mg/kg), IL-2 levels were observed not to be reduced following surgery and appeared tobe higher than the IL-2 levels in the control group that did not receive cytsteamine-HCl-containingWalcom compound (8 goats in both the control untreated group and in the group in whichcysteamine-HCl-containing Walcom compound was administered).

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Figure 5.45 Effects of cysteamine on IL-2 levels after surgery in goats

Cysteamine effect on IL-2 serum concentration in pre-, post-operation periods

After 1stOperation

Group Pre-operation (mg/L) After 2nd Operation

Roughage Concentrate (n=8) phase Phase Day 10 Day 6 Day 17

Control 1.21 ± 0.10 0.80 ± 0.05 0.65 ± 0.05 0.49 ± 0.07* 0.52 ± 0.11

Treatment 0.92 ± 0.11 0.97 ± 0.15 1.32 ± 0.10 0.95 ± 0.06 1.02 ± 0.08

Note: * indicates P < 0.05 compared to pre-operation level (concentrate phase)

In the same series of experiments on goats, it was also reported that in both the control and treatmentgroups, surgery caused a decrease in the transformation rate of lymphatic cells (P < 0.05); the decreasein transformation rate was, however, significantly smaller in the animals treated with cysteamine-HCl-Walcom compound than was the case in the control group (P < 0.05). Six days after suregery, thelymphatic transformation rate of the control group decreased to 12 per cent. of the rate before theoperation, while in the animals treated with cysteamine-HCl-containing Walcom compound the rate oflymphatic cell transformation had increased by 3.5 fold (P < 0.05) when compared to the rate of thecontrol group. In the following days, the lymphatic transformation rate started to recover (controlgroup P < 0.05) and the difference between the two groups eventually disappeared (P > 0.05).

The experimental observations support an effect of cysteamine to enhance immune system function.

5.7.2 Effects of cysteamine compound and the immune response in a murine modelIn an experiment on mice, the effects of cysteamine (40 mg/kg in Treatment Group 1 and 80 mg/kgin Treatment Group 2) on the weight of the thymus and spleen organs was investigated. 8 mice wereused for each group. Treatment with cysteamine increased the weight of the thymus (P < 0.05 for 40mg/kg as compared with control, and P < 0.01 for 80 mg/kg).

Figure 5.46 Effects of cysteamine on thymus weight in mice

Note: * indicates P < 0.05 compared to control and ** indicates P < 0.01 compared to control

In the same series of experiments, lymphocyte transformation rate was increased (1.10 ± 0.05 incontrol group, 1.15 ± 0.02 in Treatment Group 1 given 40 mg/kg cysteamine compound and 1.24 ± 0.05 in Treatment Group 2 given 80 mg/kg cysteamine compound; P < 0.05 for TreatmentGroup 1 as compared with control and P < 0.01 for Treatment Group 2).

The experimental observations support an effect of cysteamine to enhance immune system function.

5.7.3 Effects of cysteamine compound on IL-2 levels and Stimulation Index of T-cells in cowsThe effects of cysteamine (50 mg/kg) on IL-2 plasma levels were investigated in cows (50 cows pergroup). Cysteamine caused a significant (P < 0.05) increase in plasma IL-2 levels. In another seriesof experiments (32 cows per group), blood samples were taken from the cows, and lymphocytesgrown in tissue culture. The Stimulation Index of the lymphocytes was measured as the increase inlymphocyte cell number in tissue culture following exposure to phytohaemaglutinin. The StimulationIndex was significantly greater (P < 0.01) for lymphocytes from cows treated with cysteamine.

The experimental observations again support an effect of cysteamine to enhance immune systemfunction.

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Organ Control Treatment 1 Treatment 2Thymus 534 ± 5 549 ± 2* 567 ± 7**

Spleen 290 ± 6 298 ± 5 296 ± 8

Measurement of Organ Weight (mg/100g of body weight)

Figure 5.47 Effects of cysteamine on IL-2 levels in cows

Note: ** indicates P < 0.01 compared to control

Figure 5.48 Effects of cysteamine on Stimulation Index in cows

Note: * indicates P < 0.05 compared to control

5.7.4 Effects of cysteamine on immune function in miceEffects of cysteamine on immune function in mice were investigated in another experiment in whichantibody production was measured in response to immunization in C3H mice. The antigen wasalbumin and antibody production was measured from blood samples using an appropriateimmunoassay technique. The animals were divided into three groups (n = 10 animals per group).Animals in the control group received 0.4 mL of saline injected by the intraperitoneal route. In thetwo Treatment Groups the 0.4 mL saline was supplemented by cysteamine using one of the followingtwo recipes. For Treatment Group 1, the saline was supplemented using the following formulation:cysteamine 300 g, vitamin C 5.0 g, mannan-oligosaccharide 20.0 g dissolved and mixed in 300 mLsaline in a sealed plastic bottle. For Treatment Group 2, the saline was supplemented using thefollowing formulation: cysteamine hydrochloride 450 g, taurine 50.0 g, vitamin C 5.0 g, water solublevitamin E 10.0 g, mannan-oligosaccharide 10.0 g, D-ribose 15.0 g dissolved and mixed in 1000 mLsaline in a sealed plastic bottle.

The observations are shown in Figure 5.49. It can be seen that both treatments caused substantial andstatistically significant (P < 0.01) increases in antibody production, again supporting an action ofcysteamine to enhance immune function.

Figure 5.49 Effects of cysteamine on antibody production in mice

Note: ** indicates P < 0.01 compared to control

5.7.5 Effects of cysteamine on antibody production in SPF chickens exposed to Newcastle Disease vaccineIn view of the prevalence and commercial significance of viral infections in chickens, it is importantto determine whether the observations reported above concerning enhancement by cysteamine ofimmune function in a variety of animal species can be repeated in birds. In another series ofexperiments, the effects of cysteamine on antibody production were investigated in SPF chickensimmunized with Newcastle Disease vaccine. Birds in the Control group were injected with 0.5 mLsaline before immunization. In the case of Treatment Group 1, the 0.5 mL saline injection solutiongiven before immunization was supplemented using the following formulation: cysteamine 300 g,vitamin C 5.0 g, mannan-oligosaccharide 20.0 g dissolved and mixed in 300 mL saline in a sealedplastic bottle. In the case of Treatment Group 2, the 0.5 mL saline injection solution given beforeimmunization was supplemented using the following formulation: cysteamine hydrochloride 450 g,taurine 50.0 g, vitamin C 5.0 g, water soluble vitamin E 10.0 g, mannan-oligosaccharide 10.0 g, D-ribose 15.0 g dissolved and mixed in 1000 mL saline in a sealed plastic bottle. 20 chickens wereused for each group.

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IL-2 (ng/mL) Leukocytes 109/L IL-6 in plasma(pg/mL)

Control cows 4.3 ± (n=50) 10.8 (n=15) 252 ± 21 (n=39)

Test cows 5.5 ± 0.3 (n=50)** 9.1 (n=20) 309 ± 21 (n=37)

Control Group Test GroupStimulation Index 21.9 ± 2.1 29.7 ± 3.5*

Group Antibody (mean ± SE) ( per cent.)Control 563 ± 33 100Treatment 1 986 ± 43** 175Treatment 2 992 ± 35** 176

After 7 days, the level of antibody produced in response to the Newcastle Disease vaccine wasmeasured in the three groups (shown as 14-day-old antibody level), and the observations are shownin Figure 5.50. It can be seen that injection with cysteamine-containing formulation significantly (P < 0.01) increased antibody production in response to Newcastle Disease vaccine.

Figure 5.50 Effects of cysteamine on antibody production in chickens exposed to Newcastle Disease vaccine

Note: ** indicates P < 0.01 compared to control

These observations in birds again support an action of cysteamine to enhance immune function thatwas observed in other animal species.

5.7.6 Effects of cysteamine on antibody production in AA broiler chickens exposed to H5N1 vaccine‘Bird flu’ is a current concern with high commercial significance. In another series of experiments,the effects of cysteamine on antibody production were investigated in AA broiler chickensimmunized with H5N1 influenza vaccine. 120 broilers were divided into three groups (40 birds pergroup). In the Treatment Group 1, broiler chickens were fed a basal diet supplemented withcysteamine-containing Walcom compound (using a formulation in which cysteamine is associatedwith cyclodextrin, and the pellets encased in an enteric coating, in a similar manner to that describedin Section 4 of this report). The amount of the supplement was 200 mg/kg for the first 20 days(approximately 4.5 mg cysteamine per kg body weight per day), and 400 mg/kg from day 21 onwards.Chickens in the Control Group were fed basal diet supplemented with the carrier mixture without anyactive ingredient.

The observations are shown in Table form in Figure 5.51 and in the form of a graph in Figure 5.52.It can be seen that treatment with cysteamine-containing formulation significantly (P < 0.01)increased antibody production in response to H5N1 influenza vaccine.

Figure 5.51 Effects of cysteamine on antibody production in chickens exposed to H5N1 influenza vaccine.

Note: * indicates P < 0.05 compared to control, ** indicates P < 0.01 compared to control and *** indicates P < 0.001 compared to control

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Group 8-day-old antibody level 14-day-old antibody level

Control 1.04 ± 0.12 2.01 ± 0.16 Treatment 1 1.05 ± 0.10 2.86 ± 0.09** Treatment 2 1.10 ± 0.15 2.94 ± 0.14**

Day-old Control 1 Treatment 1 1 1.09 ± 0.30 1.09 ± 0.3014 3.80 ± 0.12 3.50 ± 0.4619 2.84 ± 0.27 2.23 ± 0.3124 4.50 ± 0.26 2.53 ± 0.33***29 5.54 ± 0.16 7.81 ± 0.20***34 5.50 ± 0.26 6.06 ± 0.3539 5.22 ± 0.21 6.17 ± 0.31**44 5.19 ± 0.18 6.29 ± 0.29**49 6.08 ± 0.18 6.93 ± 0.27*

Figure 5.52 Effects of cysteamine on antibody production with time in chickens exposed toH5N1 influenza vaccine

Note: * indicates P < 0.05 compared to control, ** indicates P < 0.01 compared to control and *** indicates P < 0.001 compared to control

These observations in birds again support an action of cysteamine to enhance immune function thatwas observed in other animal species.

5.8 Possible effects of yolk antibodies against adipocyte plasma membranes on growth and fat depositionin the ratInteresting observations have also been reported by Walcom scientists concerning a new approach in whichantibodies were raised against adipocyte plasma membranes. It was proposed that these antibodies mighthave beneficial effects on fat content when administered to livestock animals. The effects of IgY antibodyagainst adipocyte cell membranes were investigated in rats (90 animals allotted randomly to four groups, twocontrol groups, one given yolk IgY antibody by subcutaneous injection and another given yolk IgY antibodyby oral administration). Walcom scientists report that there were significant (P < 0.05) beneficial effects onfat content, as well as a significant reduction (P < 0.01) in serum leptin levels in rats given the yolk IgYantibody by oral administration. In contrast, while IgY antibody given by subcutaneous injection did causea significant reduction in leptin levels (P < 0.01), there were no significant changes in fat content in theseanimals. This is very surprising given that the antibody is not expected to survive in the gut (since gastricpH and peptidases in other parts of the gut would be expected to degrade the peptide antibody) and thereforeif there were an effect of antibody this would be expected to be seen in the subcutaneous rather than in theoral administration group. The reported beneficial effects on fat content of yolk IgY antibody given by oraladministration are nevertheless interesting and perhaps reflect an unknown mechanism (possibly involvingbreakdown products of the IgY antibody) that require further experimental observation.

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6. TOXICITY OF CYSTEAMINE IN WALCOM PRODUCTSCysteamine is a natural constituent of animal tissues, and indeed of many natural foods, and therefore lowconcentrations are expected not to be harmful. Cysteamine may also be released naturally in animal tissues as aconsequence of a variety of metabolic reactions.

Figure 6.1 Cysteamine content in foodstuffs

Cysteamine in Food

Estimated values of cysteamine from natural concentration of pantotheic acid (Schaz & Senser, 1994; Finglas etal., 1988; Johnston et al., 1981)

Figure 6.2 Cysteamine levels in the normal human and animal tissue

Cysteamine levels in the normal human and animal tissue

Figure 6.3 Metabolic pathway of cysteamine

Metabolic Pathway of Cysteamine

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Figure 6.4 Excretion Pathway of Cysteamine

Excretion Pathway of Cysteamine

Cysteamine is also used for various conditions in man, as well as being a possible treatment for ketosis in cows.

The European Medicine Evaluation Agency (EMEA) report (EMEA/MRL/518/98-FINAL) on veterinary use ofmercaptamine (cysteamine) makes the following recommendation:

For cattle and horses, maximal recommended doses of mercaptamine (cysteamine) administered with thecombined products are 0.75 g mercaptamine (cysteamine) hydrochloride (equivalent to 0.51 g mercaptamine(cysteamine) base)/animal intravenous route, 1 to 3 doses at intervals of 24 to 36 hours) and for pigs (sows andgilts) 0.38 g mercaptamine (cysteamine) hydrochloride (equivalent to 0.20 g mercaptamine (cysteamine)base)/animal (intramuscular route, each injection is divided over two sites, 2 to 3 doses at intervals of 24 hours).The dose ranges per kg bw for cattle or horses weighing 200 to 700 kg or pigs weighing 100 kg are approximately1 to 3.8 mg mercaptamine (cysteamine) hydrochloride (equivalent to 0.7 to 2.5 mg mercaptamine (cysteamine)base)/kg bw. However, mercaptamine (cysteamine) is known to be used in younger pigs (bodyweight 20 to 50 kg)at doses of 3.6 to 9 mg (as the hydrochloride)/kg bw.

In human patients, mercaptamine (cysteamine) has been used to protect against hepatotoxic compounds and it isused orally to reduce cystine levels in cystinosis patients. Therapaeutic doses in humans are 50 mg/kg bw/day andhigher.

Mercaptamine (cysteamine) is present in the normal diet as it occurs naturally in animal tissue and vegetable foods.

Other information concerning therapeutic doses of cysteamine for use in man is listed below.

For the treatment of nephropathic cystinosis, cysteamine is used at doses of 60-90 mg/kg/day, for example as 20mg/kg every 8 hours (Yudkoff et al, 1981; Kleta and Gahl, 2004). British National Formulary quotes a dose ofapproximately 50 mg/kg/day.

In the case of treatment of paracetamol (acetoaminophen) poisoning, cysteamine has been used at doses of up to500 mg/kg (Prescott, LF, 1976; Harris, 1982). The risks of harm to the patient are high in this context, so a highconcentration applied acutely may be justified.

High concentrations of cysteamine can nevertheless be toxic, and should be avoided, but Walcom products are notexpected to produce adverse effects in animals when used in the amounts recommended for each species(commonly in the range 10 to 30 mg/kg).

When cysteamine is used for human therapy for the conditions described above (for cystinosis and againsthepatotoxic compounds) some side effects have been observed after oral administration of cysteamine at doses ofapproximately 50-60 mg/kg per day (Corden et al., 1981; Gahl et al., 1995; Thoene, 1995), particularlygastrointestinal side-effects, including nausea, vomiting, abdominal cramps, flushing, irritability, meningism andlethargy. However, the EMEA report quoted above notes that in patients experiencing side effects at highconcentrations of cysteamine ‘these patients tolerated daily doses of 10 mg/kg’.

Tests carried commissioned by Walcom and carried out by the Shanghai Institute of Chemical Toxicity show LD50values for male and female mice as over 2000 mg/kg. An Ames test was used to detect mutagenicity and wasconcluded to be negative (no effect at up to 5 mg per plate). In another test at the same institute a test ofchromosomal aberration was concluded to be negative up to the maximum tested dose of 395 mg/kg.

Cysteamine has been used as an experimental tool to provoke duodenal ulceration (an effect originally attributedto the excessive production of growth hormone, but more recently found to be associated with additional redox-dependent regulatory mechanisms) though the concentrations used are normally 250 mg/kg or above (Szabo,1981, 1982; Khomenko et al, 2004).

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Although such ulceration can occur at high concentrations of cysteamine, ulceration was not observed under thefollowing conditions: a chromic oral application, three times per day (up to 5 weeks), at a dose of 25 mgcysteamine hydrochloride/kg b.w. of 4 years old children (Da Silva et al., 1985); an oral daily application at a doseof 30 mg (4 weeks) followed by 60 mg (4 weeks), and 90 mg (28 month) cysteamine/kg b.w. of 2-7 years oldchildren (Yudkoff et al., 1981); a 2-3 times daily intravenous administration in cows, at a dose of 750 mgcysteamine hydrochloride (Bach & Hibbit, 1960).

A further point is that the Walcom poduct formulation is specifically designed, with its enteric coating, to avoiduptake in the stomach. This would be expected to minimise any local effects of absorbed cysteamine onsomatostatin containing cells in the stomach. The avoidance of high local concentrations of cysteamine followingabsorption from the stomach may perhaps be beneficial in reducing excessive acid secretion that would otherwiseresult from removal of the inhibitory influence of somatostatin. However, presumably cysteamine absorbed in theduodenum and passing into the bloodstream could reach the somatostatin containing cells in the stomach, just asthe cysteamine reaches the somatostatin containing cells in the hypothalamus to cause its beneficial effects.Nevertheless it remains possible that potentially harmful effects of cysteamine involving excessive acid secretionand ulceration could be reduced when absorption in the stomach is avoided.

6.1 Recommendation of the European Medicine Evaluation Agency (EMEA)

The European Medicine Evaluation Agency (EMEA) has categorised cysteamine as an organic substance forwhich it is not required to establish “Maximum Residue Level” (MRL) and that it can be used for allmammalian food producing species. The EMEA report (EMEA/MRL/518/98-FINAL) includes the following:

Mercaptamine (cysteamine) and some of its precursors are normal consitituents of the daily diet inappreciable amounts, and because mercaptamine (cysteamine) is also produced endogenously a purelytoxicological approach was not considered to be justified in this case.

Published data indicate that concentrations (expressed as mercaptamine/cysteamine base) in untreatedbovines were: liver 1.5 to 4.0 mg/kg. Concentrations (expressed as mercaptamine/cysteamine base) inuntreated pigs were: liver 0.08 to 0.35 mg/kg, kidney 0.77 to 2.3 mg/kg and heart 0.12 mg/kg. In untreatedsheep a concentration of 0.93 mg (as base)/kg was found in liver. Based on these data, the estimated dailyintake from tissues of untreated animals is about 1 mg/day.

No residue data in target animals treated in accordance with recommendations were available. Consideringthe available data, it is unlikely that residues in mercaptamine (cysteamine) treated animals would representa significant risk for human health, provided that they do not increase the normal total daily intake by morethan 1 mg.

6.2 Conclusion of the EMEA report

The EMEA report (EMEA/MRL/518/98-FINAL) on veterinary use of mercaptamine (cysteamine) concludes:

Conclusions and recommendation

Having considered the criteria laid down by the Committee for Veterinary Medicinal Products for theinclusion of substances in Annex II of Council Regulation (EEC) No 2377/90 and in particular that:

l mercaptamine (cysteamine) is a compound of the normal diet,

l mercaptamine (cysteamine) hydrochloride is intended for treatment of individual animals,

l mercaptamine (cysteamine) is rapidly and extensively metabolised and excreted, mercaptamine(cysteamine) is produced enedogenously in the human body and in animals;

the Committee for Veterinary Medicinal Products concludes that there is no need to establish an MRL formercaptamine (cysteamine) hydrochloride and recommends its inclusion in Annex II of Council Regulation(EEC) No 2377/90 in accordance with the following table:

Pharmacologically active substance(s) Animal species Other provisions

Mercaptamine (cysteamine) hydrochloride All mammalian food producing species

In addition to the above categorization, residues of cysteamine would be expected to be small. Experimentsin rats show that, following parenteral administration of cysteamine at doses of 200 mg/kg, cysteamine levelsin the tissues are depleted quickly to physiological levels (with half-time of less than 0.5 h). For humanstreated by cysteamine at doses of 5 or 10 mg/kg (patients with nephropathic cystinosis), half-times for lossof cysteamine from the plasma were approximately 20 min. Although similar information is not available forlivestock, such as cattle and pigs, the rate of loss of cysteamine is unlikely to be far from this range.

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6.3 Toxicity tables from National Library of Medicine

Table 2Table of Toxicity of Cysteamine taken from National Library of Medicine ChemIDplus

Test Reported Dose Organism Type Route (Normalized Dose) Effect Source

mouse LD50 intraperitoneal 250mg/kg Journal of Medicinal(250 mg/kg) Chemistry. Vol. 12,

Pg. 510, 1969.

mouse LD50 intravenous 190mg/kg Comptes Rendus des (190 mg/kg) Seances de l’Academie

des Sciences, Serie D:Sciences Naturelles.Vol. 262, Pg. 206,1966.

mouse LD50 oral 625mg/kg Journal of Medicinal

(625 mg/kg) Chemistry. Vol. 18, Pg. 798, 1975.

mouse LD50 subcutaneous 84mg/kg PERIPHERAL NERVE Osaka Shiritsu (84 mg/kg) AND SENSATION: Daigaku Igaku Zasshi.

SPASTIC PARALYSIS Journal of the Osaka WITH OR WITHOUT City Medical Center. SENSORY CHANGE Vol. 5, Pg. 128, 1956.

SKIN AND APPENDAGES (SKIN): HAIR: OTHER

BEHAVIORAL: CONVULSIONS OR EFFECT ON SEIZURETHRESHOLD

mouse LD50 unreported 350mg/kg Arzneimittel-Forschung. (350 mg/kg) Drug Research. Vol. 5,

Pg. 421, 1955.

rabbit LD50 intravenous 150mg/kg Arzneimittel-Forschung. (150 mg/kg) Drug Research. Vol. 5,

Pg. 421, 1955.

rat LD50 intraperitoneal 232mg/kg Arzneimittel-Forschung. (232 mg/kg) Drug Research. Vol. 5,

Pg. 421, 1955.

rat LD50 subcutaneous 84mg/kg PERIPHERAL NERVE Osaka Shiritsu (84 mg/kg) AND SENSATION: Daigaku Igaku Zasshi.

SPASTIC PARALYSIS Journal of the Osaka WITH OR WITHOUT City Medical Center. SENSORY CHANGE Vol. 5, Pg. 128, 1956.

BEHAVIORAL: CONVULSIONS OR EFFECT ON SEIZURE THRESHOLD

SKIN AND APPENDAGES (SKIN): HAIR: OTHER

67

Names and Synonyms MeSH Heading i Cysteamine

Name of Substance i Cysteamine i Cysteamine [USAN:BAN]

Synonyms i (2-Mercaptoethyl)amine i 1-Amino-2-mercaptoethylamine i 2-Amino-1-ethanethiol i 2-Aminoethanethiol i 2-Aminoethyl mercaptan i 2-Mercaptoethanamine i Becaptan i CCRIS 3083 i Cisteamina [Italian] i Cystagon i Cysteamin i Cysteamine i Cysteinamine i DRG-0003 i Decarboxycysteine i EINECS 200-463-0 i L 1573 i L-1573 i Lambraten i Lambratene i MEA i MEA (mercaptan) i Mercamine i Mercaptamina [INN-Spanish] i Mercaptamine i Mercaptaminum [INN-Latin] i Mercaptoethylamine i NSC 647528 i Riacon i Thioethanolamine i WR 347 i beta-Aminoethanethiol i beta-Aminoethylthiol i beta-Mercaptoethylamine

Systematic Name i Cysteamine i Ethanethiol, 2-amino- i Mercaptamine

Registry Numbers CAS Registry Number i 60-23-1

Other Registry Number i 139720-70-0

Related Registry Number i 156-57-0 (hydrochloride) i 16904-32-8 (di-hydrochloride) i 27761-19-9 (tartrate (1:1)) i 3037-04-5 (tosylate) i 42954-15-4 (hydrobromide) i 93965-19-6 (maleate (1:1))

System Generated Number i 000060231

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Table 3Table of Toxicity of Cysteamine HCl taken from National Library of Medicine ChemIDplus

Test Reported Dose Organism Type Route (Normalized Dose) Effect Source

mouse LD50 intraperitoneal 250mg/kg Journal of Medicinal(250 mg/kg) Chemistry. Vol. 12,

Pg. 510, 1969.

mouse LD50 oral 1352mg/kg Chemical and(1352 mg/kg) Pharmaceutical

Bulletin. Vol. 20, Pg. 721, 1972.

mouse LD50 unreported 244mg/kg Pharmazie. Vol. 14, (244 mg/kg) Pg. 132, 1959.

mouse LDLo subcutaneous 900mg/kg BEHAVIORAL: Acta Biologiae (900 mg/kg) SOMNOLENCE Experimentalis

(GENERAL DEPRESSED Vol. 12, Pg. 142, ACTIVITY) 1938.

Names and Synonyms Name of Substance i Cysteamine HCl i Cysteamine hydrochloride [USAN]

Synonyms i 1-Amino-2-mercaptoethane hydrochloride i 1-Aminoethane-2-thiol hydrochloride i 2-Aminoethanethiol hydrochloride i 2-Mercaptoethylamine hydrochloride i 2-Mercaptoethylammonium chloride i 2-Thioethylamine hydrochloride i A-889 i AI3-26089 i Bekaptan i CCRIS 3926 i CI 9148 i Cysteamine chlorohydrate i Cysteamine hydrochloride i Cysteaminhydrochlorid [German] i Cysteaminium chloride i EINECS 205-858-1 i Ethylamine, 2-mercapto-, hydrochloride i Mercamine hydrochloride i Mercaptoethylamine hydrochloride i Merkamin hydrochloride i NSC 21116 i USAF EE-3 i beta-Mercaptoaethylamin chlorhydrat [German] i beta-Mercaptoethylamine hydrochloride

Systematic Name i Cysteamine hydrochloride i Ethanethiol, 2-amino-, hydrochloride i Mercaptamine hydrochloride

Registry Numbers CAS Registry Number i 156-57-0

Other Registry Number i 116962-86-8

Related Registry Number i 60-23-1 (Parent)

System Generated Number i 000156570

69

7. MARKET, MARKETING STRATEGY AND COMPETITORSThe following quotation (already mentioned in Section 2, but worth repeating in this context) is from a GAIN(Global Agricultural Information Network) report from the US Department of Agriculture Foreign AgriculturalService:

China is one of the world’s largest consumers of food. For example China consumes 51 percent of the world’spork, 33 percent of rice, 19 percent of ice cream, 19 percent of poultry and 12 percent of beef. In raw figuresChina consumes 8.5 million tons of meat per year, 40 million tons of vegetables and over 12.5 million tons offruit. The food sector accounted for approximately 28 percent of total consumer expenditure in 2003. Foodcategories such as milk, cheese & eggs, fish, vegetables, fruit and non-alcoholic beverages grew strongly in therange of 10 percent to 12 percent from 2002 to 2003.

It is clear from this information that China provides a huge and increasing market for livestock, withcorresponding potential for sales of Walcom products. In addition Walcom is already marketing its products in avariety of other countries in Asia, and has plans to develop sales worldwide.

7.1 Marketing Strategy

For sales in China the marketing strategy is aimed at several categories of target companies: FeedCompanies, Big Farms, Group Companies and Integrators. The intention is to build a Walcom NationwideSales and Distribution network to augment these distributors’ efforts. In the last two years, Walcom hasdeveloped a range of appropriate product lines to target different groups of consumers ranging from thesophisticated big farmers/integrators to individual backyard farmers. Walcom feels that with their own salesand distribution network, Walcom would be able to distribute their products both in bulk and in small packsof animal- and solution-specific formulations. These formulations efficiently combine the Walcom core“Walstrong” technology with other nutritional ingredients. Walcom expects to be able to monitor customers’needs effectively and develop a closer working relationship with the customers throughout China.

In relation to sales structures, Walcom is adopting a strategy of direct sales to the feed mill and integratormarket sector, while for the backyard market sector Walcom is cooperating with local distributors. Inaddition, Walcom is also building up a kind of strategic partnership relationship with certain feed mills, andWalcom believes that this approach will make sure that these companies buy Walcom products in long term.

In other countries, Walcom relies on local distributors to take care of marketing activities. At the presenttime, Walcom has distributors in Korea, Malaysia, Taiwan, Philippines, and Thailand. Plans are in place fordistributors in Pakistan, Brazil, and Australia, where the trials are under preparation. For USA and EU,Walcom is looking for strategic partners to develop the market.

Figure 7.1 Scheme representing the sales and distribution network of Walcom

Sales and Distribution

7.2 Competitors

Following consultation with Walcom it is clear that Walcom are of the opinion that they do not have anydirect competitors in the market place as a consequence of the special nature of their product.

However, it could be argued that companies providing food additives for the livestock industry might beconsidered as competitors.. There are a large number of such companies .

In addition companies using injectable growth hormone e.g. Monsanto might also be considered to becompetitors.

70

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PART IV

Financial Information on the Company

FINANCIAL INFORMATION RELATING TOWALCOM GROUP LIMITED

The consolidated historical financial information for the Company for the three years ended 31 December 2005is set out in Section A of Part IV of this document.

The consolidated financial information in respect of the three years ended 31 December 2005 does not constitutestatutory accounts for each of the years. The Company has not published consolidated statutory accounts for thethree years ended 31 December 2005.

The non-statutory accounts of the Company, for the three years ended 31 December 2005, have been audited byChu and Chu Certified Public Accountants (the Company’s auditors) who have issued an unqualified audit reportthereon.

The Directors are required to prepare the financial information in a form consistent with that which will beadopted in the issuer’s next published annual financial statements having regard to the accounting standards andpolicies and legislation applicable to such annual financial statements. The financial information is required togive a true and fair view of the state of affairs of the Group for that period. In preparing that financial information,the Directors are required to:

(a) select suitable accounting policies and apply them consistently;

(b) make judgements and estimates that are reasonable and prudent; and

(c) prepare the financial information on the going concern basis unless it is inappropriate to presume that theGroup will continue in business.

Section B of Part IV of this document sets out a report from Baker Tilly, the Reporting Accountants, required byParagraph 20.1 of Annex I of the AIM Rules and is given for the purpose of complying with that paragraph andfor no other purpose.

The unaudited consolidated interim financial information for the Company for the six months ended 30 June 2006is set out in Section C of Part IV of this document.

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PART IV SECTION A – FINANCIAL INFORMATION ON THE COMPANY

CONSOLIDATED INCOME STATEMENTSFor the year ended 31 December

2003 2004 2005Note HK$’000 HK$’000 HK$’000

Turnover (7) 3,196 4,650 5,046Cost of sales (2,636) (3,008) (2,595)

Gross profit 560 1,642 2,451Other revenue (8) 18 – 108Gain on disposal of a subsidiary (25) 56 – –Research and development expenses (9b) (1,251) (1,089) (1,121)Selling and distribution expenses (9c) (3,559) (3,387) (5,484)Administrative and other operating expenses (9d) (10,998) (6,461) (8,738)Share of loss in associates (1) – (22)Net finance costs (9e) (1,323) (1,236) (1,977)

Loss before taxation (9) (16,498) (10,531) (14,783)Income taxes (10) – – –

Net loss for the year attributable to shareholders (23) (16,498) (10,531) (14,783)

Loss per share– Basic (11) HK$(429) HK$(250) HK$(330)

Turnover and operating losses are derived from continuing operations.

CONSOLIDATED BALANCE SHEETSAs at 31 December

2003 2004 2005Note HK$’000 HK$’000 HK$’000

Assets and liabilitiesNon-current assetsProperty, plant and equipment (12) 2,155 1,703 1,225Interests in associates (14) – – 49Patents (15) 2,089 4,229 4,927

4,244 5,932 6,201

Current assetsInventories (16) 810 551 559Trade and other receivables (17) 690 2,312 2,293Cash and cash equivalents (18) 291 11,325 430

1,791 14,188 3,282

Current liabilitiesConvertible loan notes (19) – – 11,460Trade and other payables (20) 8,884 5,320 6,916

8,884 5,320 18,376

Net current (liabilities)/assets (7,093) 8,868 (15,094)

Total assets less current liabilities (2,849) 14,800 (8,893)

Non-current liabilitiesInterest-bearing borrowings (21) 11,920 8,970 –

Net (liabilities)/assets (14,769) 5,830 (8,893)

EquityCapital and reservesShare Capital (22) 1 1 1Reserves (23) (14,770) 5,829 (8,894)

(14,769) 5,830 (8,893)

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFor the year ended 31 December

Share Share Merger Exchange Accumulatedcapital premium reserve reserve losses Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1/1/2003 1 – 18,899 (32) (17,139) 1,729

Net loss for the year – – – – (16,498) (16,498)

Total recognised income and expense for the period – – – – (16,498) (16,498)

At 31/12/2003 1 – 18,899 (32) (33,637) (14,769)

Exchange differences on translation of financial information of overseas subsidiaries – – – 8 – 8

Expenses incurred for shares issued – (1,138) – – – (1,138)Net loss for the year – – – – (10,531) (10,531)

Total recognised income and expense for the period – (1,138) – 8 (10,531) (11,661)

Equity raised by a subsidiary prior to Group reorganisation – – 4,953 – – 4,953

Issue of shares – 27,307 – – – 27,307

At 31/12/2004 1 26,169 23,852 (24) (44,168) 5,830

Exchange differences on translation of financial information of overseas subsidiaries – – – 60 – 60

Net loss for the year – – – – (14,783) (14,783)

Total recognised income and expense for the period – – – 60 (14,783) (14,723)

At 31/12/2005 1 26,169 23,852 36 (58,951) (8,893)

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CONSOLIDATED CASH FLOW STATEMENTSFor the year ended 31 December

2003 2004 2005Note HK$’000 HK$’000 HK$’000

Cash flows from operating activitiesCash used in operations (26) (12,837) (8,669) (8,742)Interest received 12 54 40Interest paid – – (804)

Net cash used in operating activities (12,825) (8,615) (9,506)

Cash flows from investing activitiesPayment to acquire an associate (1) – (71)Payments to acquire property, plant and equipment (439) (368) (173)Sale proceeds from disposal of property, plant and equipment – – 1Payments to acquire patents (1,528) (2,314) (944)Advances to associates (80) (667) (1,038)

Net cash used in investing activities (2,048) (3,349) (2,225)

Cash flows from financing activitiesEquity raised by a subsidiary prior to Group Reorganisation – 4,953 –Issue of shares by the Company – 27,307 –Expenses incurred for shares issued – (1,138) –Proceeds from issue of convertible loan notes – – 3,900Advances from/(to) related companies 7,831 (2,054) (1,678)Advances from Directors – – 954Repayment of advances from a related company – (3,120) –Loans received from a related company 1,000 – –Repayments of loans from a related company – (2,950) (2,340)

Net cash from financing activities 8,831 22,998 836

Net (decrease)/increase in cash and cash equivalents (6,042) 11,034 (10,895)

Cash and cash equivalents at the beginning of the year 6,333 291 11,325

Cash and cash equivalents at the end of the year (18) 291 11,325 430

77

NOTES TO THE FINANCIAL INFORMATIONFor the three years ended 31 December 2005

(1) GeneralThe Company was incorporated in British Virgin Islands on 2 March 2004 with limited liability. The addressof its registered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British VirginIslands. The principal place of business of the Company is Unit 613, 6/F., West Wing Office Building, NewWorld Centre, 20 Salisbury Road, Tsimshatsui, Kowloon.

The principal activities of the Group during the year were the manufacture, distribution and selling of bio-chemical products in Hong Kong and the People’s Republic of China.

(2) Adoption of International Financial Reporting StandardsThe Company’s consolidated financial information has been prepared in accordance with InternationalFinancial Reporting Standards (“IFRSs”), which collective terms includes all applicable individualInternational Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretationsissued by the International Accounting Standards Board. IFRS 1 “First-time Adoption of InternationalFinancial Reporting Standards” has been applied in preparing this financial information. This consolidatedfinancial information is the Group’s first financial information prepared in accordance with IFRSs.

In preparing this financial information in conformity with IFRSs since the financial year ended 31 December2003, the Group has adopted/early adopted all the new and revised IFRSs, which are effective for annualaccounting periods beginning on or after 1 January 2006 and are relevant to its operations.

The Group has not early adopted any new or revised IFRSs, which have been issued and are effective forannual accounting periods beginning subsequent to 1 January 2006, in the financial information for the yearended 31 December 2005.

Up to the date of issue of the financial information, the IASB has issued the following new or revised IFRSwhich are not yet effective for the annual accounting period beginning on or after 1 January 2006 and whichhave not been adopted in the financial information:

Effective foraccounting period

beginning on or after

IFRS 7, Financial instruments: disclosures 1 January 2007

IFRS 9, Operating segments 1 January 2009

IFRIC 7, Applying the restatement approach under IAS 29,Financial reporting in hyperinflationary economies 1 March 2006

IFRIC 8, Scope of IFRS 2 1 May 2006

IFRIC 9, Reassessment of embedded derivatives 1 June 2006

IFRIC 10, Interim Financial Reporting and Impairment 1 November 2006

IFRIC 11, Group and treasury share transactions 1 March 2007

Amendment to IAS 1, Presentation of financial statements: capital disclosures 1 January 2007

The Group is in the process of making an assessment of what the impact of these amendments, newstandards and new interpretations is expected to be in the period of initial application. Up to the date of issueof the financial information, the Group believes that the adoption of the above amendments, new standardsand new interpretations is unlikely to have a significant impact on the Group’s results of operations andfinancial position.

(3) Critical accounting estimates and judgementsThe preparation of financial information in conformity with IFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applying theGroup’s accounting policies. The estimates and assumptions that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Recoverability of patents

The carrying amount of patents representing mainly legal costs for application of patents in respect ofthe various uses of formulation of cysteamine in various regions is HK$4,927,386 (2003:HK$2,089,355, 2004: HK$4,228,725). The Group carried an impairment test based on a variety ofassumptions of the possibilities that the pending patents could be circumvented and concluded that no

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impairment was required. Should the pending patents be circumvented for example by an alternativeformulation of cysteamine, then an impairment might arise and could have significant effect on thecarrying amount of the patents stated at the balance sheet date.

(b) Realisation of convertible loan notesDuring the year, the Group initiated an exercise of Placing and Admission in order to finance the futureexpansion of operations. Prior to any new funds received from a successful Placing and Admission ofthe Group, short-term convertible loan notes as further detailed in note (19) to the financialinformation were raised to fund the daily business operations, the further development of the productsand the preparation cost of the Placing and Admisison. The Group considered that it is highly likelythat the Placing and Admission will take place in December 2006 and the short-term convertible loannotes were converted to shares on 30 November 2006 as described in Note (31) below. Managementbelieves that the Group would not be in any predicament in seeking new funds for the future operationsand expansion.

(4) Group reorganisationPrior to 22 April 2004, Walcom (BVI) Company Limited (“WBVICL”) was the parent company of theGroup. On 22 April 2004, pursuant to a group reorganisation scheme (“Group Reorganisation”) torationalise the structure of the Group in preparation for the proposed subscription of shares from potentialinvestors, 38,441 shares of HK$0.01 each were issued by the Company (being Walcom Group Limited) andwere allotted and issued, all credited as fully paid, to the shareholders of WBVICL in proportion to theirrespective shareholdings in WBVICL in consideration and in exchange for the assets and liabilities ofWBVICL including the entire issued share capital of Walcom International Limited (“WIL”). The Companythereby became the holding company of the Group.

The Group resulting from the Group Reorganisation is regarded as a continuing entity. Accordingly, theconsolidated financial information for the year ended 31 December 2005, together with the comparativefigures, has been prepared as if the current Group structure had been in existence throughout the periodspresented by using the principles of merger accounting.

(5) Significant accounting policies The financial information has been prepared under the historical cost convention, except that, as disclosedin accounting policies below, certain financial assets and liabilities are stated at fair value.

The accounting policies set out below have been applied consistently to all periods presented in thefinancial information and in preparing the Group’s opening IFRS balance sheet at the date of transition ofIFRSs for the purposes of the transition to IFRSs as further explained in notes (2) and (4) to the financialinformation.

(a) Basis of preparation of financial informationThe financial information has been prepared on a going concern basis.

(b) Basis of consolidationThe consolidated financial information comprise the financial information of the Company and itssubsidiaries made up to 31 December each year.

An investment in a controlled subsidiary is consolidated into the consolidated financial informationfrom the date that control commences until the date that control ceases.

All intra-group transactions and balances, and any unrealised profits arising from intra-grouptransactions, are eliminated in full on consolidation. Unrealised losses resulting from intra-grouptransactions are eliminated in the same way as unrealised gains but only to the extent that there is noevidence of impairment.

(c) SubsidiariesSubsidiaries are entities controlled by the Company. Control exists when the Company has the power,directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtainbenefits from their activities.

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(d) AssociatesAn associate is an entity, in which the Group or Company has significant influence, but does not havecontrol or joint control over its management, including participation in the financial and operatingpolicy decisions.

An investment in an associate is accounted for in the consolidated financial information using theequity method and is initially recorded at cost and adjusted thereafter for the post acquisition changein the Group’s share of the associate’s net assets. The consolidated income statement includes theGroup’s share of the post-acquisition, post-tax results of the associates for the year, including anyimpairment loss on goodwill relating to the investment in associates recognised for the year.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reducedto nil and recognition of further losses is discontinued except to the extent that the Group has incurredlegal or constructive obligations or made payments on behalf of the associate. For this purpose, theGroup’s interest in the associate is the carrying amount of the investment under the equity methodtogether with the Group’s long-term interests that in substance form part of the Group’s net investmentin the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates areeliminated to the extent of the Group’s interest in the associate, except where unrealised losses provideevidence of an impairment of the asset transferred, in which case they are recognised immediately inthe income statement.

(e) GoodwillGoodwill represents the excess of the cost of a business combination or any investment in an associateover the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities andcontingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment as set out in note (5)(j) below. In respect ofassociates, the carrying amount of goodwill, if any, is included in the carrying amount of the interestin the associate.

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilitiesand contingent liabilities over the cost of a business combination or an investment in an associate isrecognised immediately in the income statement.

On disposal of a cash generating unit or an associate during the year, any attributable amount ofpurchased goodwill is included in the calculation of the profit or loss on disposal.

(f) Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and accumulatedimpairment losses as stated in note (5)(j) below. The cost of an asset comprises its purchase price andany directly attributable costs of bringing the asset to working condition and location for its intendeduse.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flowto the Company and the cost of the item can be measured reliably. All repairs and maintenance arenormally expensed in profit or loss in the period in which they are incurred.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less theirestimated residual value, if any, over their estimated useful lives using the straight-line method. Theannual rates used are as follows:

Leasehold improvements 20 per cent. or over the lease terms, if shorterFurniture and fixtures 20 per cent.Office equipment 20 per cent. Plant and machinery 10 per cent. to 30 per cent.Motor vehicles 30 per cent.

The useful life of an asset and its residual value, if any, are reviewed and adjusted if appropriate,annually at the balance sheet date.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment aredetermined as the difference between the net disposal proceeds and the carrying amount of the itemand are recognised in the income statement on the date of retirement or disposal.

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(g) Construction in progressConstruction in progress represents leasehold improvements under construction. It is included inproperty, plant and equipment and stated at cost less accumulated impairment losses as set out in note(5)(j) below. Cost comprises direct costs of construction during the period of construction.

Capitalisation of these costs ceases and the construction in progress is transferred to the relevant classof property, plant and equipment when the asset is substantially ready for its intended use.

(h) Research and development expenditureExpenditure on research activities is recognised as an expense in the period in which it is incurred.Expenditure on development activities is capitalised if the product or process is technically andcommercially feasible and the Group has sufficient resources and the intention to completedevelopment. The expenditure capitalised includes the costs of materials, direct labour and anappropriate proportion of overheads. Capitalised development costs are stated at cost less accumulatedamortisation and accumulated impairment losses as set out in note (5)(j) below. Other developmentexpenditure is recognised as an expense in the period in which it is incurred.

Amortisation of development costs is charged to the income statement on a straight line basis over theestimated commercial lives of the underlying products.

(i) PatentsPatents are stated in the balance sheet at cost less accumulated amortisation and accumulatedimpairment losses as set out in note (5)(j) below.

Amortisation of patents is charged to the income statement on a straight-line basis over the assets’estimated useful lives unless such lives are indefinite. The patents with finite useful lives are amortisedfrom the date they are available for use and their estimated useful lives are 20 years.

Both the period and method of amortisation and any conclusion that the useful life of a patent isindefinite are reviewed annually at the balance sheet date.

(j) Impairment of assetsAt each balance sheet date, an assessment is made of whether there is any indication that property,plant and equipment, investments in subsidiaries and associates, goodwill, capitalised developmentcosts and patents have suffered an impairment loss. If such an indication exists, the recoverable amountof the asset is estimated in order to determine the extent of the impairment loss, if any.

The recoverable amount is the higher of the fair value less costs to sell and value in use of an asset.The fair value less costs to sell is the amount that could be obtained from the sale of an asset in anarm’s length transaction between knowledgeable and willing parties less the costs of disposal, whilevalue in use is the present value of future cash flows expected to be derived from an asset. Where anasset does not generate cash inflows largely independent of those from other assets, the recoverableamount is determined for the smallest group of assets that generates cash inflows independent (i.e. acash-generating unit).

If the recoverable amount of an asset or a cash-generating unit is estimated to be less than its carryingamount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generatingunit is increased to the revised estimate of its recoverable amount, which is restricted to the carryingamount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised as income immediately.An impairment loss in respect of goodwill is not reversed.

(k) InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined on a weightedaverage cost method and includes all costs of purchase, costs of conversion and other costs incurred inbringing the inventories to their present location and condition. Net realisable value is based on theestimated selling price in the ordinary course of business less the estimated costs of completion andthe estimated costs necessary to make the sale.

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(l) Trade and other receivablesTrade and other receivables are recognised initially at fair value and subsequently measured atamortised cost using the effective interest method, less impairment losses. An impairment loss ofreceivables is established when there is objective evidence that the Company will not be able to collectall amounts due according to the original terms of receivables. The amount of the impairment loss isthe difference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the effective interest rate. The amount of the impairment loss is recognised in the incomestatement.

(m) Trade and other payablesTrade and other payables are initially recognised at fair value and thereafter stated at amortised costusing the effective interest method.

(n) Interest-bearing borrowingsInterest-bearing borrowings are recognised initially at fair value less attributable transaction costs.Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with anydifference between cost and redemption value being recognised in the income statement over theperiod of the borrowings using the effective interest method.

(o) Convertible loan notesLoan notes issued by the Company on which conversion occurs on flotation are classified as financialliabilities. The convertible loan note is recognised initially at fair value less attributable transactioncosts. Subsequent to initial recognition, the convertible loan note is stated at amortised cost with anydifference between the proceeds of issue of the convertible loan note and the redemption value, takinginto account the probability of the occurrence of the contingent settlement provision, being recognisedin the income statement over the life of the contract using the effective interest method.

(p) Income taxesIncome taxes for the year comprise current tax and movements in deferred tax assets and liabilities.Current tax and movements in deferred tax assets and liabilities are recognised in the income statementexcept to the extent that they relate to items recognised directly in equity, in which case they arerecognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted orsubstantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previousyears.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively,being the differences between the carrying amounts of assets and liabilities for financial reportingpurposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused taxcredits.

Generally all deferred tax liabilities, and all deferred tax assets to the extent that it is probable thatfuture taxable profits will be available against which the asset can be utilised, are recognised.

The amount of deferred tax recognised is measured based on the expected manner of realisation orsettlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantivelyenacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced tothe extent that it is no longer probable that sufficient taxable profits will be available to allow therelated tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probablethat sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately fromeach other and are not offset. Current tax assets are offset against current tax liabilities, and deferredtax assets against deferred tax liabilities if, and only if, the Group or the Company has the legallyenforceable right to set off current tax assets against current tax liabilities. The principle of offsettingusually applies to income taxes levied by the same tax authority on the same taxable entity.

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(q) Translation of foreign currenciesItems included in the financial information of each of the Group’s companies are measured using thecurrency of the primary economic environment in which the entity operates (“the functionalcurrency”). The consolidated financial information is presented in Hong Kong dollars (“HKD”), whichis the Company’s functional and presentation currency.

Foreign currency transactions during the year are translated into functional currency at the foreignexchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreigncurrencies are translated into functional currency at the foreign exchange rates ruling at the balancesheet date. Exchange differences resulting from the settlement of transactions denominated in foreigncurrency are included in the income statement using exchange rates ruling on that date.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currencyare translated into functional currency using the foreign exchange rates ruling at the transaction dates.Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value aretranslated into functional currency using the foreign exchange rates ruling at the dates the fair valuewas determined.

The results of foreign operations are translated into presentation currency at the exchange ratesapproximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet itemsare translated into presentation currency at the foreign exchange rates ruling at the balance sheet date.The resulting exchange differences are recognised directly in a separate component of equity.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised inequity which related to that foreign operation is included in the calculation of the profit or loss ondisposal.

(r) Borrowing costsBorrowing costs are expensed in the income statement in the period in which they are incurred, exceptto the extent that they are capitalised as being directly attributable to the acquisition, construction orproduction of an asset which necessarily takes a substantial period of time to get ready for intendeduse or sale.

(s) Provisions, contingent liabilities and contingent assetsA provision is recognised when the Group has a present legal or constructive obligation as a result ofa past event, it is probable that an outflow of resources embodying economic benefits will be requiredto settle the obligation, and a reliable estimate of the amount of obligation can be made. Expendituresfor which a provision has been recognised are charged against the related provision in the year in whichthe expenditures are incurred. Provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimate. Where the effect of the time value of money is material, the amount providedis the present value of the expenditures expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial information. They are disclosed unless thepossibility of an outflow of resources embodying economic benefits is remote. A contingent asset isnot recognised in the consolidated financial information but disclosed when an inflow of economicbenefits is probable.

(t) Revenue recognition(i) Sales of goods

Revenue is recognised when goods are delivered to the customers which is taken to be the pointin time when the customer has accepted the goods and the related risks and rewards of ownership.Revenue excludes value added tax or other sales taxes and is after deduction of any tradediscounts.

(ii) Interest incomeInterest income is recognised as it accrues using the effective interest method.

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(u) Operating leasesLeases where substantially all the risks and rewards of ownership of assets remain with the lessor areaccounted for as operating leases.

Payments made under operating leases are accounted for in the income statement on a straight linebasis over the periods of the respective leases.

(v) Employee benefitsSalaries, annual bonuses, paid annual leave, contributions to defined contribution plans and the cost ofnon-monetary benefits are accrued in the year in which the associated services are rendered byemployees. Where payment or settlement is deferred and the effect would be material, these amountsare stated at their present values.

(w) Related partiesParties are considered to be related to the Group if the Group has the ability, directly or indirectly, tocontrol the party or exercise significant influence over the party in making financial and operatingdecisions, or vice versa, or where the Group and the party are subject to common control or commonsignificant influence. Related parties may be individuals (being members of key managementpersonnel, significant shareholders and/or their close family members) or other entities and includeentities which are under the significant influence of related parties of the Group where those partiesare individuals, and post-employment benefit plans which are for the benefit of employees of theGroup or of any entity that is a related party of the Group.

(x) Cash and cash equivalentsCash and cash equivalents comprise cash on hand, deposits with banks, and short-term, highly liquidinvestments that are readily convertible into known amounts of cash and which are subject to aninsignificant risk of changes in value, having been within three months of maturity at acquisition. Bankoverdrafts that are repayable on demand and form a integral part of the Group’s cash management arealso included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(y) SegmentsA segment is a distinguishable component of the Group that is engaged either in providing products orservices (business segment), or in providing products or services within a particular economicenvironment (geographical segment), which is subject to risks and rewards that are different from thoseof other segments.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis to that segment. For example,segment assets may include inventories, trade receivables and property, plant and equipment. Segmentrevenue, expenses, assets, and liabilities are determined before intra-group balances and intra-grouptransactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segmentpricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (bothtangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing borrowings, taxbalances, corporate and financing expenses.

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(6) Business and geographical segments (a) Business segments – primary reporting format

The Group is principally engaged in the manufacture, distribution and sale of bio-chemical products.All of the Group’s products are of a similar nature and subject to similar risk and returns. Accordinglythe Group’s activities are attributable to a single business segment.

(b) Geographical segments – secondary reporting formatThe Group’s operations are located in Hong Kong and PRC. The following table provides an analysisof the Group’s geographical segment information.

(i) Sales revenue by geographical location of customers

2003 2004 2005HK$’000 HK$’000 HK$’000

PRC 2,478 2,703 3,203Taiwan 318 1,438 751Thailand – – 465The Philippines 384 – 463Others 16 509 164

3,196 4,650 5,046

(ii) Segment assets by geographical location of the assets

2003 2004 2005HK$’000 HK$’000 HK$’000

Hong Kong 2,806 16,092 7,009PRC 3,229 4,028 2,474

6,035 20,120 9,483

(iii) Capital additions by geographical location of the assets

2003 2004 2005HK$’000 HK$’000 HK$’000

Hong Kong 1,535 2,349 1,057PRC 432 333 60

1,967 2,682 1,117

(7) TurnoverTurnover represents the value of goods supplied to customers less returns, discounts, value added tax andsales taxes.

(8) Other revenue 2003 2004 2005HK$’000 HK$’000 HK$’000

Exchange gain 18 – –Sundry income – – 108

18 – 108

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(9) Loss before taxationLoss before taxation is arrived at after charging:

2003 2004 2005HK$’000 HK$’000 HK$’000

(a) Cost of salesEmployee benefit expenses:Contribution to defined contribution retirement plans 10 12 3Other employee benefit expenses 365 339 353

375 351 356Depreciation 511 495 441Purchase of raw materials 809 1,296 1,192Rent 285 243 235Others 916 882 379Change in inventory level (260) (259) (8)

2,636 3,008 2,595

2003 2004 2005HK$’000 HK$’000 HK$’000

(b) Research and development expensesEmployee benefit expenses:Contribution to defined contribution retirement plans 10 10 10Other employee benefit expenses 835 731 703

845 741 713Depreciation 83 85 54Exchange loss – 1 2Rent 41 39 39Others 282 223 313

1,251 1,089 1,121

2003 2004 2005HK$’000 HK$’000 HK$’000

(c) Selling and distribution expensesEmployee benefit expenses:Contribution to defined contribution retirement plans 43 42 60Other employee benefit expenses 1,742 1,278 2,476

1,785 1,320 2,536Amortisation of patents 82 175 245Trade receivables written off 28 33 471Depreciation 19 21 71Exchange loss – – 5Rent 34 34 44Others 1,611 1,804 2,112

3,559 3,387 5,484

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(9) Loss before taxation (continued)2003 2004 2005

HK$’000 HK$’000 HK$’000(d) Administrative and other operating expenses

Employee benefit expenses:Contribution to defined contribution retirement plans 103 102 88Other employee benefit expenses 4,030 3,767 2,993

4,133 3,869 3,081Amount due from a related company written off – – 553Auditors’ remuneration 197 180 180Depreciation 263 211 123Exchange loss – 22 5Impairment loss on amount due from an associate – – 1,712Loss on disposal of property, plant and equipment 6 8 11Prelisting expenses on abortive Initial Public Offer 4,335 187 –Rent 682 560 626Others 1,382 1,424 2,447

10,998 6,461 8,738

2003 2004 2005HK$’000 HK$’000 HK$’000

(e) Net finance costsInterest income (12) (54) (40)Interest on convertible loan notes – – 1,213Interest on loans from a related company 1,335 1,290 804

1,323 1,236 1,977

(10) Income taxesThe Company, its subsidiaries and an associate are subject to income tax on an entity basis on income arisingin or derived from the tax jurisdiction in which they operate.

Pursuant to the relevant laws and regulations in the People’s Republic of China (“PRC”), Shanghai WalcomBio-Chem Co. Ltd. which is a subsidiary of the Company is exempted from PRC income tax for two yearsstarting from the first profit-making year, followed by a 50 per cent. reduction for the next three years. Noprovision for PRC income tax has been made in the financial information as the subsidiary incurredoperating losses during each of the three years ended 31 December 2005.

Provision for Hong Kong profits tax has not been made as the companies in the Group incurred operatinglosses during each of the years ended 31 December 2005

Reconciliation between actual tax expense and accounting loss at applicable rate:

2003 2004 2005HK$’000 HK$’000 HK$’000

Loss before taxation (16,498) (10,531) (14,783)

Notional tax credit on loss before taxation calculated at the applicable tax rate of 17.5 per cent. (2003: 16 per cent.) (2,639) (1,843) (2,587)Tax effect of non-deductible expenses in determining taxable profit 956 325 896Tax effect of non-taxable revenue (5) (9) (6)Tax effect of tax losses not recognised 1,598 1,449 1,576Tax effect of unrecognised temporary difference 55 14 61Effect of different tax rates of subsidiaries and associates operating in other jurisdictions 35 64 60

Tax expense for the year – – –

Details of the deferred taxation are shown in note (24) to the financial information.

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(11) Loss per share Under merger accounting, the 38,441 ordinary shares issued by the Company to the shareholders ofWBVICL to effect the group reorganisation described in note (4) are deemed to be issued on 1 January 2003for the purpose of calculating the loss per share.

The calculation of basic loss per share for the year was based on the loss attributable to shareholders ofHK$14,783,189 (2003: HK$16,497,695, 2004: HK$10,530,739) and on the weighted average number of44,851 (2003: 38,441, 2004: 42,203) shares in issue during the year. No diluted loss per share is presentedas there were no dilutive potential shares during each of the three years ended 31 December 2005.

(12) Property, plant and equipment Leasehold Furniture Office Plant and Motor Construction

Improvements and fixtures equipment machinery vehicles in progress TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

CostAt 1/1/2003 795 77 366 897 585 587 3,307Additions 9 – 161 269 – – 439Disposal – – (9) – – – (9)Transfer from construction in progress to leasehold improvements 587 – – – – (587) –

At 31/12/2003 1,391 77 518 1,166 585 – 3,737Additions – – 77 57 234 – 368Disposal – – (18) – – – (18)

At 31/12/2004 1,391 77 577 1,223 819 – 4,087Additions 95 1 77 – – – 173Disposal (61) – (30) – – – (91)Exchange realignment 37 1 9 31 7 – 85

At 31/12/2005 1,462 79 633 1,254 826 – 4,254

Accumulated depreciationAt 1/1/2003 206 22 77 176 228 – 709Provided for the year 307 16 98 291 164 – 876Written back on disposal – – (3) – – – (3)

At 31/12/2003 513 38 172 467 392 – 1,582Provided for the year 259 15 106 303 129 – 812Written back on disposal – – (10) – – – (10)

At 31/12/2004 772 53 268 770 521 – 2,384Provided for the year 277 15 118 213 66 – 689Written back on disposal (61) – (18) – – – (79)Exchange realignment 15 – 3 16 1 – 35

At 31/12/2005 1,003 68 371 999 588 – 3,029

Carrying amountAt 31/12/2003 878 39 346 699 193 – 2,155

At 31/12/2004 619 24 309 453 298 – 1,703

At 31/12/2005 459 11 262 255 238 – 1,225

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(13) Interests in subsidiaries Particulars of the subsidiaries at the respective balance sheet dates are as follows:

Issued and Percentage offully paid equity interest

Place of share capital/ attributable toincorporation/ Registered the Group as

Name of subsidiaries establishment capital at December 31 Principal activity2003 2004 2005

Walcom International British Virgin Islands 4,000,000 100 100 100 InvestmentLimited ordinary shares holding

of US$1 each

Shanghai Walcom People’sRepublic US$1,500,000 100 100 100 Manufacturing ofBio-Chem Co. Ltd. of China registered capital chemical feed and

additive products

Walcom Bio-Chemicals Hong Kong 100 ordinary 100 100 100 Investment Industrial Limited shares of HK$1 holding and

each trading of 10,000 non-voting chemical feed anddeferred shares additive productsof HK$1 each(Note)

Walcom Nutritions Hong Kong 2 ordinary shares 100 100 100 Investment International Limited of HK$1 each holding

Walcom Bio-Chemicals Delaware US$100 100 100 100 Investment (USA) LLC United States of registered capital holding

America

Walcom Animal Science Republic of 1 ordinary share 100 100 100 Holding of patents(I.P.) Limited Mauritius of US$1 each

Walcom Animal Science Republic of 1 ordinary share 100 100 100 Holding of patents(I.P. 2) Limited Mauritius of US$1 each

Walcom Animal Science Republic of 1 ordinary share 100 100 100 Holding of patents(I.P. 3) Limited Mauritius of US$1 each

Walcom Animal Science Republic of 1 ordinary share 100 100 100 Holding of patents(I.P. 4) Limited Mauritius of US$1 each

Walcom Animal Science Republic of 1 ordinary share 100 100 100 Holding of patents(I.P. 5) Limited Mauritius of US$1 each

Note: The deferred shares, which are not held by the Group, carry practically no rights to dividends nor to receive noticeof nor attend or vote at any general meeting of the subsidiary nor to participate in any distribution or winding up.

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(14) Interests in associates 2003 2004 2005HK$’000 HK$’000 HK$’000

Share of net assets – – 49

Particulars of the associates at the respective balance sheet dates are as follows:

Percentage ofequity interest

Place of Issued and attributable toincorporation fully paid the Group as

Name of associate and operation share capital at December 31 Principal activity2003 2004 2005

Walcom Bio-Chemicals The Philippines PHP10,000 40 40 40 Trading ofPhilippines Inc. ordinary shares chemical feed and

(PHP: Philippine additive productsPeso)

Walcom Bio-Chem Thailand THB1,000,000 – – 37 Trading of(Thailand) Company ordinary shares chemical feed andLimited (THB: Thai Baht) additive products

The Group’s share of post-acquisition losses not recognised were HK$304,341 (2003: HK$37,373, 2004:HK$243,397). The accumulated post-acquisition losses not recognised were HK$585,110 (2003:HK$37,373, 2004: HK$280,770). The Group has no obligation in respect of these losses.

Summary of management financial information on the associates:

2003 2004 2005HK$’000 HK$’000 HK$’000

Assets – 73 1,627Liabilities (93) (775) (2,956)Equity (93) (702) (1,328)Turnover – – 359Loss for the year (95) (608) (821)

(15) Patents 2003 2004 2005HK$’000 HK$’000 HK$’000

CostAt the beginning of the year 717 2,197 4,512Additions 1,528 2,314 944Exchange realignment – 1 –Transfer out due to disposal of a subsidiary (48) – –

At the end of the year 2,197 4,512 5,456

Accumulated amortisationAt the beginning of the year 25 108 283Provided for the year 83 175 246

At the end of the year 108 283 529

Carrying amountAt the beginning of the year 692 2,089 4,229

At the end of the year 2,089 4,229 4,927

90

(16) Inventories 2003 2004 2005HK$’000 HK$’000 HK$’000

Raw materials 109 220 193Work in progress – – 35Finished goods 701 331 331

810 551 559

The cost of inventories recognised as expenses and included in cost of sales amounted to HK$2,475,490(2003: HK$2,609,213, 2004: HK$2,974,237).

(17) Trade and other receivables 2003 2004 2005HK$’000 HK$’000 HK$’000

Trade receivables from associates – – 928Other trade receivables 292 1,334 773Other amounts due from associates 80 747 74Deposits and prepayments 291 214 505Other receivables 27 17 13

690 2,312 2,293

All of the trade and other receivables are expected to be recovered within one year and as the discountingeffect will be immaterial, their carrying amounts are reasonable approximations of their fair values.

The amounts due from associates are unsecured, interest free and with no fixed terms of repayment.

Included in amounts due from associates, an impairment loss of HK$1,712,019 (2003: Nil; 2004: Nil) hasbeen provided.

(18) Cash and cash equivalents 2003 2004 2005HK$’000 HK$’000 HK$’000

Cash and bank balances 291 11,325 430

(19) Convertible loan notes 2003 2004 2005HK$’000 HK$’000 HK$’000

12 per cent. convertible loan notes – – 7,3128 per cent. convertible loan notes – – 4,148

– – 11,460

During 2005, the Company issued two types of convertible loan notes, namely 8 per cent. convertible loannote and 12 per cent. convertible loan notes.

The 8 per cent. convertible loan note was issued on 29 September 2005 with the principal amount ofUS$500,000 (approximately HK$3,900,000). The note bears interest at the rate of 8 per cent. per annum andwith a maturity date of 30 September 2006.

The 12 per cent. convertible loan notes were originally issued by a related company of the Group whoprovided interest-bearing loans to the Group as stated in note (21) to the financial information. On 1 October2005, the remaining principal balance of the convertible loan notes amounting US$850,000 (approximatelyHK$6,630,000) in total from this related company were assigned to the Company. Thus, pursuant to theterms of the convertible loan notes, these notes bear interest at the rate of 12 per cent. per annum and witha maturity date of 30 September 2006.

All the loan notes were converted into Shares on 30 November 2006, as described in note 31 below.

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(20) Trade and other payables 2003 2004 2005HK$’000 HK$’000 HK$’000

Trade payables 542 488 407Accruals 1,661 2,003 3,866Amounts due to Directors – – 954Amount due to related companies 6,640 2,757 1,633Other payables 41 72 56

8,884 5,320 6,916

All of the trade and other payables are expected to be settled within one year and as the discounting effectwill be immaterial, their carrying amounts are reasonable approximations of their fair values.

The amounts due to related parties are unsecured, interest-free and with no fixed terms of repayment.

(21) Interest-bearing borrowings 2003 2004 2005HK$’000 HK$’000 HK$’000

Unsecured loans from a related company with no fixed terms of repayment and interest-bearing at annual rate of:– 7 per cent. 1,000 – –– 12 per cent. 10,920 8,970 –

11,920 8,970 –

As at 31 December 2003 and 2004, in the opinion of the Company’s Directors, the above loans were notexpected to be settled within one year from the balance sheet date.

(22) Share capital Numberof shares HK$

Issued and fully paid shares of HK$0.01 eachIssue of new shares as at 31/12/2002 and 31/12/2003 36,000 360

Issued and fully paid shares of HK$0.01 eachIssue of new shares on incorporation and on 22/4/2004 (note i, ii and iii) 38,442 384Issue of new shares on 29/4/2004 (note iv) 5,493 55Issue of new shares on 26/10/2004 (note v) 916 9

At 31/12/2004 and 31/12/2005 44,851 448

(i) On incorporation, the authorised share capital of the Company was HK$50,000 and one share ofHK$0.01 each was allotted and issued nil paid (“Initial Share”).

(ii) On 3 February 2004, new equity funds were raised by WBVICL, before the Group Reorganisation asset out in note (4) to the financial information, by the issue of 2,441 shares of HK$0.01 each at asubscription price of approximately HK$2,029 each for an aggregate amount of HK$4,952,789.

(iii) On 22 April 2004, 38,441 shares of HK$0.01 each of and in the Company were allotted and issued, allcredited as fully paid, to the shareholders of WBVICL in proportion to their respective shareholdingsin WBVICL and crediting as fully paid at par the Initial Share in consideration and in exchange for theassets and liabilities of WBVICL including the entire issued share capital of WIL.

(iv) On 29 April 2004, the Company issued 5,493 shares of HK$0.01 each at a subscription price ofHK$4,260.75 (equivalent to US$546.25) each for an aggregate consideration of approximatelyHK$23,404,300 to provide additional capital for expansion. The share capital account and the sharepremium account were credited by HK$55 and HK$23,404,245 respectively.

(v) On 26 October 2004, the Company issued 916 shares of HK$0.01 each at a subscription price ofHK$4,260.75 (equivalent to US$546.25) each for an aggregate consideration of HK$3,902,847 toprovide additional capital for expansion. The share capital account and the share premium accountwere credited by HK$9 and HK$3,902,838 respectively.

(vi) The shareholders are entitled to receive dividends as declared from time to time and are entitled to onevote per share at meetings of the Company. All shares rank equally with regard to the Company’sresidual assets.

92

(23) Reserves Share Merger Exchange Accumulatedpremium reserve reserve losses TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1/1/2003 – 18,899 (32) (17,139) 1,728Net loss for the year – – – (16,498) (16,498)

At 31/12/2003 – 18,899 (32) (33,637) (14,770)Equity raised by a subsidiary prior to Group Reorganisation (note i) – 4,953 – – 4,953Issue of shares 27,307 – – – 27,307Expenses incurred for share issued (1,138) – – – (1,138)Exchange differences on translation of financial information of overseas subsidiaries – – 8 – 8Net loss for the year – – – (10,531) (10,531)

At 31/12/2004 26,169 23,852 (24) (44,168) 5,829Exchange differences on translation offinancial information of overseas subsidiaries – – 60 – 60Net loss for the year – – – (14,783) (14,783)

At 31/12/2005 26,169 23,852 36 (58,951) (8,894)

(i) On 3 February 2004, new equity funds were raised by WBVICL, before the Group Reorganisation asset out in note (4) to the financial information, by the issue of 2,441 shares of HK$0.01 each at asubscription price of approximately HK$2,029 each for an aggregate amount of HK$4,952,789.

(24) Deferred taxationDeferred tax assets are recognised for tax loss carried forward to the extent that the realisation of the relatedtax benefit through the future taxable profits is probable. At 31 December 2005, the Group did not recognisedeferred tax assets of HK$7,356,000 (2003: HK$4,001,000, 2004: HK$5,757,000) approximately in respectof losses amounting to HK$43,395,000 (2003: HK$25,313,000, 2004: HK$33,956,000) approximately thatcan be carried forward against future taxable income. Losses of HK$1,556,000 approximately will expire atthe end of year 2007, HK$3,397,000 approximately will expire at the end of year 2008, HK$2,596,000approximately will expire at the year of 2009, HK$1,980,000 approximately will expire at the end of year2010. Other losses may be carried forward indefinitely.

At 31 December 2005, the Group did not have any material deferred tax liabilities.

(25) Disposal of subsidiary(i) On 8 November 2003, the Group sold a subsidiary, Walcom Animal Science (I.P.6) Ltd. The fair value

of assets disposed of and liabilities assumed at the date of disposal were as follows:

2003HK$’000

Intangible assets 47Other payable (75)

(28)Gain on disposal 56

Deemed sale proceeds 28

93

(26) Reconciliation of loss before taxation to cash used in operations

2003 2004 2005HK$’000 HK$’000 HK$’000

Loss before taxation (16,498) (10,531) (14,783)Adjustments for:Depreciation 876 812 689Amortisation of patents 83 175 245Amount due from a related company written off – – 553Impairment loss on amount due from an associate – – 1,712Loss on disposal of property, plant and equipment 6 8 11Gain on disposal of a subsidiary (56) – –Share of loss in associates 1 – 22Interest income (12) (54) (40)Interest expenses 1,335 1,290 2,017Exchange realignment – 8 10

Operating loss before working capital changes (14,265) (8,292) (9,564)Decrease/(Increase) in inventories 260 259 (8)Decrease/(Increase) in other trade receivables 129 (1,042) 561(Increase) in trade receivables from associates – – (928)Decrease/(Increase) in deposits and prepayments 15 77 (291)Decrease in other receivables 146 10 4Increase/(Decrease) in trade payables 387 (54) (81)Increase in accruals 450 342 1,581Increase/(Decrease) in other payables 41 31 (16)

Cash used in operations (12,837) (8,669) (8,742)

(27) Commitments(a) Operating lease arrangements

The Group as leaseeThe amount charged to the income statement in relation to non-cancellable operating lease isHK$944,577 (2004: HK$876,473: 2003: HK$1,041,361).

At 31 December the Group had total future minimum lease payments in respect of property under non-cancellable operating leases as follows:

2003 2004 2005HK$’000 HK$’000 HK$’000

Within one year 876 809 907In the second to fifth years inclusive 157 – 433

1,033 809 1,340

The Group leases certain factory facilities and office premises under operating leases. The leasestypically run for period of one to three years, with an option to renew the lease when all terms arerenegotiated. None of these leases includes contingent rentals.

(b) Capital commitments outstanding at 31 December not provided for in the financial information wereas follows:

2003 2004 2005HK$’000 HK$’000 HK$’000

Contracted for 27 – –

94

(28) Related party disclosuresTransactions between the Company and its subsidiary which are related parties of the Company have beeneliminated on consolidation are not disclosed in this note.

The Directors considered the ultimate controlling party since date of incorporation to 31 December 2005was Mr Francis Chi.

The following were the material transactions carried out with related parties:

(i) Trading transactions 2003 2004 2005HK$’000 HK$’000 HK$’000

Trade sale to associates – – 928

Consultancy fee paid to a shareholder – – 288

These transactions are carried out on the basis determined by the parties concerned.

(ii) Year-end balances arising from trading transactions 2003 2004 2005HK$’000 HK$’000 HK$’000

Trade receivables from associates – – 928

(iii) Key management compensation 2003 2004 2005HK$’000 HK$’000 HK$’000

Salaries 2,101 2,101 2,131Provident fund contribution 24 24 24Consultancy fee 707 707 707

2,832 2,832 2,862

(iv) Total loans/advances from other related companies, (being companies that are controlled by Mr FrancisChi, the Group’s ultimate controlling party):

2003 2004 2005HK$’000 HK$’000 HK$’000

Beginning of the year 8,497 18,561 11,727Interest bearing borrowing from a related company 1,000 – –Repayment of loans from a related company – (2,950) (2,340)Interest-free advances from related companies 8,700 89 1,225Interest-free advances to related companies (869) (2,143) (3,707)Interest charged by a related company 1,336 1,290 804Repayment of advances from a related company – (3,120) –Sales proceeds agreed on disposal of a subsidiary (28) – –Other payables of the disposed subsidiary transferred to a related company (75) – –Interest-bearing borrowing swapping to convertible loan notes – – (6,630)Amount written off – – 553

End of the year 18,561 11,727 1,632

(v) Amount due from associates 2003 2004 2005HK$’000 HK$’000 HK$’000

Beginning of the year – 80 747Advances to associates 80 667 1,038Impairment loss – – (1,712)

End of the year 80 747 73

(vi) Amount due to Directors 2003 2004 2005HK$’000 HK$’000 HK$’000

Beginning of the year – – –Advances from Directors – – 954

End of the year – – 954

The terms of the loans/advances are set out in notes (17), (20) and (21) to the financial information.

95

(29) Contingent liabilitiesSince the financial year ended 31 December 2003, a subsidiary of the Company, Walcom Bio-ChemicalsIndustrial Limited (“WBCIL”), has been involved in a litigation regarding a dispute with one of its customersin Philippines who had filed a claim of PHP1,100,000 (approximately HK$160,000) against WBCIL. Thelitigation is still at the early stage of the proceedings and the outcomes cannot be determined at present.However, in the opinion of the Directors, the claim by the customer is unlikely to be successful and anypotential liability of WBCIL would be minimal.

(30) Financial risk managementThe Group has considered their mode of operation and summarised below the Group’s possible financial riskexposure and risk management policies:

Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Management is responsiblefor monitoring the exposures to these credit risks on an ongoing basis so as to ensure that sale of goods aremade to customers with an appropriate credit history.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset. TheGroup does not provide any other guarantees which would expose the Group to credit risk.

Foreign currency risk

The Group is exposed to foreign currency risk primarily through sales and purchases that are denominatedin a currency other than the functional currency of the operations to which the Group relate. The currenciesgiving rise to this risk are primarily Renminbi and United States Dollars. The Group monitors its policyclosely to reduce the foreign currency risk.

Interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows aresubstantially independent of changes in market interest rates.The Group’s interest rate risk arises from interest bearing borrowings. Borrowings issued at variable ratesexpose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fairvalue interest rate risk. Group policy is to maintain all of its borrowings in fixed rate instruments.

Liquidity risk

The basis of preparation of the consolidated financial information is set out in note (5)(a) to the financialinformation.

96

(31) Subsequent events(a) Subsequent to the balance sheet date, the Company issued several 8 per cent. convertible loan notes

with the principal amounts of US$1,650,000 (approximately HK$12,870,000) in total. One of theconvertible loan notes of US$800,000 (approximately HK$6,240,000) originally matured on 31 May2006, however it was extended to 30 September 2006 whereas the others matured on 30 September2006. The loan notes were converted into Shares on 30 November 2006 as described at note 31(e)below.

(b) Pursuant to a deed of variation made on 17 February 2006, a 12 per cent. convertible loan note withthe principal amount of US$100,000 (approximately HK$780,000) with a conversion price of 75 percent. of the issue price of the Company’s Shares for the purpose of Placing and Admission was variedto be an 8 per cent. convertible loan note with a conversion price of 50 per cent. of the issue price ofthe Company’s Shares for the purpose of Placing and Admission.

(c) On 19 September 2006, Walcom Bio-Chemicals Industrial Limited, a subsidiary of the Company,entered into a patent assignment agreement with its related companies to sell, assign and transfer thetechnology relating the Group’s existing inventions in the area of human application or consumptionin consideration of the sum of US$200,000 (approximately HK$1,560,000). The related parties havelicensed back to the Group the technology within the assigned patents, on an exclusive, perpetual androyalty free basis for use in the Group’s areas of business.

(d) On 19 September 2006 the Group entered into a licence agreement with a related party for the use oftechnology within the Group’s portfolio of patents, for use by the related party on an exclusive basisin the field of human application of the relevant technology. The initial licence term is for 5 years andthe consideration to be received is a 3 per cent royalty of net sales of the related party’s products.

(e) Subsequent events that will impact the share capital of the Group are as follows:

(i) On 20 September 2006 the then existing authorised share capital of the Company of HK$50,000divided into 5,000,000 Shares was increased to HK$1,500,000 by the creation of 145,000,000shares of HK$0.01 each.

(ii) Pursuant to a resolution passed at an EGM of the Company held on 20 September 2006, the sumof HK$523,848, standing to the credit of the Company’s share premium account, was capitalisedon 30 November 2006 by the issue of Shares to the Shareholders of the Company appearing onthe register of members on the date of the notice of such EGM, in proportion to their thenexisting shareholdings in the Company, credited as fully paid representing 1,168 Shares for eachShare held by each member, (with the exception of Leadton, as holder of the subscriber share,who agreed to waive its entitlement in respect of that share, to receive 1,167 Shares in respect ofanother share held by it and otherwise to receive 1,168 Shares for each of the balance of theShares so held by it).

(iii) On 30 November 2006, 7,989,506 Shares were allotted to the holders of convertible loan notes,referred to in notes 19 and 31(a) and 31(b) above.

(f) On 15 December 2006, the Company adopted a Warrant instrument constituting 8,107,320 Warrants.Each Warrant entitles the holder subscribe for one new Share at the Placing Price, exercisable for aperiod of up to five years from the date of Admission.

(g) On 20 September 2006, the Company approved the Share Option Plan and the Share Award Plan,which are described in paragraphs 11 and 12 of Part VI of the Admission Document.

97

PART IV SECTION B – ACCOUNTANTS’ REPORT

The following is the full text of a report on Walcom Group Limited from Baker Tilly, the Reporting Accountants,to the Directors of Walcom Group Limited.

2 Bloomsbury StreetLondon WC1B 3ST

www.bakertilly.co.uk

The DirectorsWalcom Group LimitedRoom 6136/F West WingNew World Centre20 Salisbury RoadTsimshatsuiKowloonHong Kong 15 December 2006

Dear Sirs

Walcom Group Limited(“the Company”)

together with its subsidiaries(“the Group”)

We report on the financial information set out in Part IV of Section A of this document. This financial informationhas been prepared for inclusion in the Company’s Admission Document dated 15 December 2006 (“AdmissionDocument”) on the basis of the accounting policies set out in note 5.

This report is required by Paragraph 20.1 of Annex I of the Prospectus Rules as applied by part (a) of ScheduleTwo to the AIM Rules and is given for the purpose of complying with that paragraph and for no other purpose.

Save for any responsibility arising under paragraph 20.1 of Annex I of the Prospectus Rules as applied by part (a)of Schedule Two to the AIM Rules to any person as and to the extent there provided, to the fullest extent permittedby law we do not assume any responsibility and will not accept any liability to any other person for any losssuffered by any such other person as a result of, arising out of, or in connection with this report or our statement,required by and given solely for the purposes of complying with paragraph 20.1 of Annex I of the ProspectusRules as applied by part (a) of Schedule Two to the AIM Rules, consenting to its inclusion in the AdmissionDocument.

ResponsibilitiesAs described in Section A of Part IV of this document the directors of the Company are responsible for preparingthe financial information on the basis of preparation set out in note 5 to the financial information and inaccordance with International Financial Reporting Standards (“IFRS”).

It is our responsibility to form an opinion as to whether the financial information gives a true and fair view, forthe purposes of the Admission Document, and to report our opinion to you

Basis of opinionWe conducted our work in accordance with the Standards for Investment Reporting issued by the AuditingPractices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts anddisclosures in the financial information. It also included an assessment of significant estimates and judgmentsmade by those responsible for the preparation of the financial information and whether the accounting policies areappropriate to the entity’s circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations we considered necessaryin order to provide us with sufficient evidence to give reasonable assurance that the financial information is freefrom material misstatement whether caused by fraud or other irregularity or error.

98

OpinionIn our opinion, the financial information gives, for the purposes of the Admission Document, a true and fair viewof the state of affairs of the Group as at the dates stated and of its profits, cash flows and changes in equity for theperiods then ended in accordance with the basis of preparation set out in note 5 and in accordance withInternational Financial Reporting Standards as described in note 2.

DeclarationFor the purposes of part (a) of Schedule Two to the AIM Rules we are responsible for this report as part of theAdmission Document and declare that we have taken all reasonable care to ensure that the information containedin this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affectits import.

Yours faithfully

Baker TillyRegulated for audit work by the Institute of Chartered Accountants of Scotland

99

PART IV SECTION C – UNAUDITED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2006

UNAUDTED CONSOLIDATED INCOME STATEMENTFor the six months ended 30 June 2006

2005 2006(Unaudited) (Unaudited)

HK$’000 HK$’000

Turnover 1,981 4,832Cost of sales (1,207) (1,693)

Gross profit 774 3,139Research and development expenses (563) (693)Selling and distribution expenses (2,376) (2,659)Administrative and other operating expenses (2,801) (3,809)Net finance costs (502) (7,762)

Loss before taxation (5,468) (11,784)Income taxes – –

Net loss for the year attributable to shareholders (5,468) (11,784)

Loss per share– Basic HK$(122) HK$(263)

Turnover and operating losses are derived from continuing operations.

UNAUDITED CONSOLIDATED BALANCE SHEETAs at 30 June 2006

As at31/12/2005 30/06/2006

(Audited) (Unaudited)Note HK$’000 HK$’000

Assets and liabilitiesNon-current assetsProperty, plant and equipment 1,225 1,108Interests in associates 49 49Patents 4,927 5,316

6,201 6,473Current assetsInventories 559 547Trade and other receivables 2,293 6,116Cash and cash equivalents 430 2,297

3,282 8,960Current liabilitiesConvertible loan notes (2) 11,460 31,187Trade and other payables 6,916 4,922

18,376 36,109

Net current liabilities (15,094) (27,149)

Net liabilities (8,893) (20,676)

EquityCapital and reservesShare capital 1 1Reserves (8,894) (20,677)

(8,893) (20,676)

100

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2006

Share Share Merger Exchange Accumulatedcapital premium reserve reserve losses Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31/12/05 and 01/01/2006 1 26,169 23,852 36 (58,951) (8,893)

Exchange differences on translation of financial information of overseas subsidiaries – – – 1 – 1Net loss for the period – – – – (11,784) (11,784)

Total recognised income and expenses for the period – – – 1 (11,784) (11,783)

At 30/06/2006 1 26,169 23,852 37 (70,735) (20,676)

UNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2006

2005 2006(Unaudited) (Unaudited)

Note HK$’000 HK$’000Cash flows from operating activitiesCash used in operations (1) (4,805) (8,126)Interest received 32 41Interest paid (533) (555)

Net cash used in operating activities (5,306) (8,640)

Cash flows from investing activitiesPayment to acquire property, plant and equipment (62) (152)Payments to acquire patents (322) (536)Advances to associates (638) (622)

Net cash used in investing activities (1,022) (1,310)

Cash flows from financing activitiesProceeds from issue of convertible loan notes – 12,870Advances to related companies (1,896) (100)Repayment of advance to Directors – (953)

Net cash (used in)/generated from financing activities (1,896) 11,817

Net (decrease)/increase in cash and cash equivalents (8,224) 1,867

Cash and cash equivalents at the beginning of the period 11,325 430

Cash and cash equivalents at the end of the period 3,101 2,297

101

NOTES TO THE UNAUDTED INTERIM FINANCIAL INFORMATION

(1) Reconciliation of loss before taxation to cash used in operationsFor the six months ended

30/06/2005 30/06/2006HK$’000 HK$’000

Loss before taxation (5,468) (11,784)Adjustment for:Depreciation 384 270Amortisation of patents 118 147Loss on disposal of property, plant and equipment 4 –Interest income (32) (40)Interest expenses 533 7,802Exchange realignment (1) –

Operating loss before working capital changes (4,462) (3,605)(Increase)/decrease in inventory (232) 12Decrease/(increase) in other trade receivables 311 (696)Increase in trade receivable from associates (75) (540)Decrease/(increase) in deposits and prepayments 5 (1,701)Decrease in other receivables – (265)Increase in trade payables 80 159Decrease in accruals (404) (1,493)(Decrease)/ increase in tax payables (28) 3

Cash used in operating (4,805) (8,126)

(2) Convertible loan notesDuring the period, the Company issued several 8 per cent. convertible loan notes with the principal amountsof US$1,650,000 (approximately HK$12,870,000) in total. One of the convertible loan notes of US$800,000(approximately HK$6,240,000) originally matured on May 31, 2006, however it was extended to September30, 2006 whereas the others matured on September 30, 2006.

Pursuant to a deed of variation made on February 17, 2006, a 12 per cent. convertible loan note with theprincipal amount of US$100,000 (approximately HK$780,000) with a conversion price of 75 per cent. of theissue price of the Company’s Shares for the purpose of Placing and Admission was varied to be an 8 per cent.convertible loan note with a conversion price of 50 per cent. of the issue price of the Company’s Shares forthe purpose of Placing and Admission.

The loan notes were converted into Shares on 30 November 2006, as described in note 3 below.

102

(3) Subsequent events(a) On 19 September 2006, Walcom Bio-Chemicals Industrial Limited, a subsidiary of the Company,

entered into a patent assignment agreement with its related companies to sell, assign and transfer thetechnology relating the Group’s existing inventions in the area of human application or consumptionin consideration of the sum of US$200,000 (approximately HK$1,560,000). The related parties havelicensed back to the Group the technology within the assigned patents, on an exclusive, perpetual androyalty free basis for use in the Group’s areas of business.

(b) On 19 September 2006 the Group entered into a license agreement with a related party for the use oftechnology within the Group’s portfolio of patents, for use by the related party on an exclusive basisin the field of human application of the relevant technology. The initial licence term is for 5 years andthe consideration to be received is a 3 per cent royalty of net sales of the related party’s products.

(c) Subsequent events that will impact the share capital of the Group are as follows:

(i) On 20 September 2006 the then existing authorised share capital of the Company of HK$50,000divided into 5,000,000 Shares was increased to HK$1,500,000 by the creation of 150,000,000shares of HK$0.01 each.

(ii) Pursuant to a resolution passed at an EGM of the Company held on 20 September 2006, the sumof HK$523,848, standing to the credit of the Company’s share premium account, was capitalisedon 30 November 2006 by the issue of Shares to the Shareholders of the Company appearing onthe register of members on the date of the notice of such EGM, in proportion to their thenexisting shareholdings in the Company, credited as fully paid representing 1,168 Shares for eachShare held by each member, (with the exception of Leadton, as holder of the subscriber share,who agreed to waive its entitlement in respect of that share, to receive 1,167 Shares in respect ofanother share held by it and otherwise to receive 1,168 Shares for each of the balance of theShares so held by it).

(iii) On 30 November 2006, 7,989,506 Shares were allotted to the holders of convertible loan notes.

(d) On 15 December 2006, the Company adopted a Warrant instrument constituting 8,107,320 Warrants.Each Warrant entitles the holder subscribe for one new Share at the Placing Price, exercisable for aperiod of up to five years from the date of Admission.

(e) On 20 September 2006, the Company approved the Share Option Plan and the Share Award Plan,which are described in paragraphs 11 and 12 of Part VI of the Admission Document.

103

PART V

Unaudited Pro Forma Statement of Net Assets of the Group

SECTION A – UNAUDITED PRO FORMA STATEMENT OF NET ASSETS OF THE GROUP

The following unaudited pro forma statement of net assets of the Group has been produced to illustrate the impactof the Placing which will have occurred since 31 December 2005 as if it had occurred on 31 December 2005.The unaudited pro forma financial information is based on:

(i) the financial information relating to the Group as at 31 December 2005 extracted from the audited financialinformation as at 31 December 2005 as set out in Section A of Part IV of this document;

(ii) the estimated impact of the conversion of loan notes into equity in the Company; and

(iii) the estimated net proceeds of the Placing adjusted for the matters set out below:

The unaudited pro forma statement of net assets has been prepared for illustrative purposes only and,because of its nature, may not give a true picture of the financial position or results of the Group.

Net assets of Pro forma netthe Group at assets of the31 December Conversion Group following

2005 of loan notes The Placing the PlacingHK$’000 HK$’000 HK$’000 HK$’000

AssetsNon-current assetsProperty, plant and equipment 1,225 – – 1,225Interest in associates 49 – – 49Patents 4,927 – – 4,927

6,201 – – 6,201Current assetsInventories 559 – – 559Trade and other receivables 2,293 – – 2,293Cash and cash equivalents 430 – 15,373 15,803

3,282 – 15,373 18,655

Total assets 9,483 – 15,373 24,856

Current liabilitiesConvertible loan notes 11,460 (11,460) – –Trade and other payables 6,916 – – 6,916

Total liabilities 18,376 (11,460) – 6,916

Net current (liabilities)/assets (15,094) 11,460 15,373 11,739

Net (liabilities)/assets (8,893) 11,460 15,373 17,940

Notes to the unaudited pro forma financial information1. The unaudited pro forma statement of net assets of the Group is shown as if convertible loan notes (as

described in note 19 of the financial information set out in Section A of Part IV of this document) had beenconverted into equity in the Company on 31 December 2005.

2. The unaudited pro forma statement of net assets of the Group is shown as if the Placing had taken place on31 December 2005. The proforma assumes that the net proceeds of the Placing, receivable by the Company,will amount to approximately £1.01 million net of costs amounting to approximately £560,000 (inclusive ofVAT). The net proceeds amount to approximately HK$15.373 million.

3. No adjustment has been made for any movement in net assets of the Group since 31 December 2005.

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PART V SECTION B – ACCOUNTANTS’ REPORT ON THE UNAUDITED PROFORMA STATEMENT OF NET ASSETS OF THE GROUP

2 Bloomsbury StreetLondon WC1B 3ST

www.bakertilly.co.ukThe DirectorsWalcom Group LimitedPO Box 957Offshore Incorporations CentreRoad TownTortolaBritish Virgin Islands 15 December 2006

Dear Sirs

Walcom Group Limited(“the Company”)

and its subsidiary undertakings(“the Group”)

We report on the Company’s unaudited Pro Forma Statement of Net Assets of the Group as at 31 December 2005(“Pro-forma Statement of Net Assets”), as set out in Part V of the Company’s AIM Admission Document(“Document”). The Pro Forma Statement of Net Assets has been prepared on the basis described in Part V forillustrative purposes only, to provide information about how the placing of new ordinary shares in the Company(“Placing”) and conversion of loan notes into new ordinary shares might have affected the Pro Forma Statementof Net Assets as if they had occurred on 31 December 2005, on the basis of the accounting policies to be adoptedby the Company in preparing its financial statements for the year ending 31 December 2006.

This report is required by paragraph 20.2 of Annex I of the Prospectus Rules as applied by part (a) of ScheduleTwo to the AIM Rules and is given for the purpose of complying with that paragraph and for no other purpose.

Save for any responsibility arising under paragraph 20.2 of Annex I of the Prospectus Rules if it had been appliedby part (a) of Schedule Two to the AIM Rules to any person as and to the extent there provided, to the fullest extentpermitted by law we do not assume any responsibility and will not accept any liability to any other person for anyloss suffered by any such other person as a result of, arising out of, or in connection with this report or ourstatement, and given solely for the purposes of complying with paragraph 20.2 of Annex I of the Prospectus Rulesas applied by part (a) of Schedule Two to the AIM Rules, consenting to its inclusion in the Admission Document.

ResponsibilitiesIt is the responsibility of the directors of Company to prepare the Pro Forma Statement of Net Assets in accordancewith paragraph 20.2 of Annex I of the Prospectus Rules as applied by part (a) of Schedule Two to the AIM Rules.

It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Rules asapplied by part (a) of Schedule Two to the AIM Rules, as to the proper compilation of the Pro Forma Statementof Net Assets and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on anyfinancial information used in compilation of the Pro Forma Statement of Net Assets, nor do we acceptresponsibility for such reports or opinions beyond that owed to those to whom those reports or opinions wereaddressed by us at the dates of their issue.

Basis of OpinionWe conducted our work in accordance with the Standards for Investment Reporting issued by the AuditingPractices Board in the United Kingdom. The work that we performed for the purpose of making this report, whichinvolved no independent examination of any of the underlying financial information, consisted primarily ofcomparing the unadjusted financial information with the source documents, considering the evidence supportingthe adjustments and discussing the Pro Forma Statement of Net Assets with the directors of the Company.

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We planned and performed our work so as to obtain the information and explanations we considered necessary inorder to provide us with reasonable assurance that the Pro Forma Statement of Net Assets has been properlycompiled on the basis stated and that such basis is consistent with the accounting policies of the Company.

OpinionIn our opinion:

(a) the Pro Forma Statement of Net Assets has been properly compiled on the basis stated; and

(b) such basis is consistent with the accounting policies of the Company.

DeclarationFor the purposes of part (a) of Schedule Two to the AIM rules we are responsible for this report as part of theAdmission Document and declare that we have taken all reasonable care to ensure that the information containedin this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affectits import.

Yours faithfully

Baker TillyRegulated for audit work by the Institute of Chartered Accountants of Scotland

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PART VI

Additional Information

1. ResponsibilityThe Directors accept responsibility for the information contained in this document. To the best of theknowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case),the information contained in this document is in accordance with the facts and does not omit anything likelyto affect the import of such information.

2. The Company2.1 The Company was incorporated in the BVI on 2 March 2004 under the International Business Companies

Act with registered number 584063 and will automatically be re-registered under the Companies Act on 1 January 2007. The liability of the members of the Company is limited. The Company’s principal activityis to act as a holding company in respect of the Group.

2.2 The Company currently has ten wholly owned subsidiaries:

Name Place of registration

Walcom International Limited BVIWalcom Bio-Chemicals Industrial Limited Hong KongShanghai Walcom Bio-Chem., Co Ltd PRCWalcom Bio-Chemicals (USA) LLC Delaware, USAWalcom Nutritions International Limited Hong KongWalcom Animal Science (I.P.) Limited Republic of MauritiusWalcom Animal Science (I.P.2) Limited Republic of MauritiusWalcom Animal Science (I.P.3) Limited Republic of MauritiusWalcom Animal Science (I.P.4) Limited Republic of MauritiusWalcom Animal Science (I.P.5) Limited Republic of Mauritius

The Company also has two associated companies, namely, Walcom Bio-Chemicals Philippines, Inc.(incorporated in the Philippines) and Walcom Bio-Chem (Thailand) Co., Ltd (incorporated in Thailand).

2.3 The registered office of the Company is at P.O. Box 957, Offshore Incorporations Centre, Road Town,Tortola, British Virgin Islands and the principal place of business of the Company is at Unit 613, 6/F WestWing Office Building, New World Centre, 20 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong(Telephone number: +852 24 94 01 33).

2.4 The principal legislation under which the Company operates is the International Business Companies Actand will, from 1 January 2007, be the Companies Act of the British Virgin Islands and regulations madethereunder.

3. Share Capital3.1 The authorised and issued share capital of the Company, which has been created under BVI law, at the date

of this document and as it will be following Admission is as follows:

At present Following AdmissionNumber of Nominal Number of Nominal

Shares Value Shares Value

Authorised share capital 150,000,000 HK$0.01 150,000,000 HK$0.01 Issued and fully paid up share capital 60,419,156 HK$0.01 64,910,891 HK$0.01

3.2 At the date of its incorporation, the authorised share capital of the Company was HK$50,000 divided into5,000,000 ordinary shares of HK$0.01 each of which one subscriber share was in issue, fully paid.

3.3 Since the date of incorporation, up to the date of this document there have been the following changes in theauthorised and issued share capital of the Company:

(a) On 8 March 2004, one Share was allotted for cash at par.

(b) On 22 April 2004, 38,441 Shares were allotted in consideration of the Company acquiring the entireissued capital of WIL.

(c) On 29 April 2004, 5,493 Shares were allotted at US$546.25 per Share.

(d) On 26 October 2004, 916 Shares were allotted at US$546.25 per Share.

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(e) Pursuant to a resolution passed at an EGM of the Company held on 20 September 2006 the thenexisting authorised share capital of the Company of HK$50,000 divided into 5,000,000 Shares wasincreased to HK$1,500,000 by the creation of 145,000,000 shares of HK$0.01 each.

(f) Pursuant to a resolution passed at an EGM of the Company held on 20 September 2006, the sum ofHK$523,848, standing to the credit of the Company’s share premium account, was capitalised on 30November 2006 by the issue of Shares to the Shareholders of the Company appearing on the registerof members on the date of the notice of such EGM, in proportion to their then existing shareholdingsin the Company, credited as fully paid representing 1,168 Shares for each Share held by each member(with the exception of Leadton, as holder of the subscriber share, who agreed to waive its entitlementin respect of that share, to receive 1,167 Shares in respect of another share held by it and otherwise toreceive 1,168 Shares for each of the balance of the Shares so held by it).

(g) On 30 November 2006, 7,989,506 Shares were allotted to the holders of the convertible loan notesreferred to in paragraph 4 below.

3.4 During the period covered by the Financial Information contained in Section A of Part IV of this document,more than 10 per cent. of the Company’s issued share capital has been allotted other than for cash. As set outin paragraph 3.3(b) above, 38,441 Shares (representing approximately 86 per cent. of the issued share capitalimmediately prior to the Capitalisation) were allotted in consideration for the acquisition of WalcomInternational.

3.5 Warrants will remain outstanding as at the date of Admission which entitle the holders (being Vuna, JohnEast & Partners, King & Shaxson and certain of the existing Shareholders) to subscribe for a total of8,107,320 Shares (representing approximately 12.49 per cent. of the issued share capital of the Company onAdmission) at the Placing Price, exercisable for a period of five years (in respect of Vuna, John East &Partners and the relevant Shareholders) and two years (in respect of King & Shaxson) from the date ofAdmission. Details of the Warrant instrument are set out in paragraph 13 of this Part VI.

3.6 Save as referred to in paragraph 3.5 above and paragraph 11 and 13 of this Part VI, no share or loan capitalof the Company is under option or has been agreed, conditionally or unconditionally, to be put under optionand no share capital of the Company is to be issued to capitalise outstanding fees owed by the Company.

3.7 The Placing Shares will rank pari passu in all respects with the existing Shares, including the right to receiveall dividends and other distributions declared, made or paid after Admission on the issued share capital.

4. Convertible loan notesThe Company issued convertible loan notes at 12 per cent. and eight per cent., details of which are set out below.All the loan notes were converted into 7,989,506 Shares on 30 November 2006.

Principal Interest Conversion ratevalue Payable (percentage of

Noteholder (US$) per annum Placing Price)

Associated Equipment Pte Ltd 100,000 12 per cent. 75 Mercator Ltd 100,000 12 per cent. 75 TAN Fook Ming Benedict 100,000 12 per cent. 75 CHAN Kin-Meng 100,000 8 per cent. 50 CHAN Wing-Cheng 200,000 12 per cent. 75 LU Chuang, Su-Kwang 250,000 12 per cent. 75 lll Tan Lai Suo (a PRC national) 500,000 8 per cent. 80 AOK International Holding Ltd* 800,000 8 per cent. 50 Bioglory International Limited* 350,000 8 per cent. 50Longain Trading Limited* 125,000 8 per cent. 50 Morval Bank & Trust Cayman Ltd* 15,000 8 per cent. 50 BNP Paribas (Suisse) SA* 160,000 8 per cent. 50 Mirage Asia Investment Limited* 50,000 8 per cent. 50 Silvia Albertoli* 5,000 8 per cent. 50 Benjamin Pierre Zumstein* 5,000 8 per cent. 50 BSI, SA* 140,000 8 per cent. 50

Note:1. Any outstanding interest was also converted into new Shares at the same rate as at the date of conversion.2. All interest was paid up to 30 June 2006 (save for those denoted by * which were issued in 2006). 3. The conversion formula was as follows:

No. of conversion shares = Y x £ /US$ exchange rate quoted by HSBC on the Conversion Date

No. of conversion shares = Conversion Price“Y” is the whole principal amount (in US$) of the convertible note and unpaid accrued interest thereon to be convertedinto conversion shares

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5. Memorandum and Articles of Association The objects of the Company as set out in clause 5 of its Memorandum of Association are unrestricted and theCompany shall have full power and authority to carry out any object not prohibited by the Companies Act and otherlaws of the BVI and, subject to the limitations set out in clause 6 of its Memorandum of Association, the Companyhas full power and authority to carry out any object not prohibited by the Companies Act or any law of the BVI.

The Articles of Association of the Company (the ‘Articles’), amended in anticipation of the Company’s automaticre-registration under the Companies Act on 1 January 2007, contain, inter alia, provisions to the following effect:

(i) DistributionsSubject to the provisions of the Companies Act, the Company may authorise a distribution by the Companyat a time, and of an amount and to any members they think fit, if the Directors are satisfied, on reasonablegrounds, that the Company will, immediately after the payment of the dividend, satisfy the solvency test asprescribed by the Companies Act. The directors may, before recommending any distribution, set aside out ofthe profits of the Company such sums as they think proper as a reserve fund, and may at their discretion,either be employed in the business of the Company or be invested in such investments as the Directors mayfrom time to time think fit.

Notice of any distribution that may have been declared shall be given to each member in the manner set outin the Articles and all distributions unclaimed for three years after having been declared may be forfeited bythe directors for the benefit of the Company.

(ii) Distribution of Assets on Winding UpThe Company may be voluntarily liquidated under the Companies Act if it has no liabilities and it is able topay its debts as they become due. If the Company shall be wound up, the liquidator may, in accordance witha resolution of members, divide amongst the members in specie or in kind the whole or any part of the assetsof the Company (whether they shall consist of property of the same kind or not) and may for such purposeset such value as he deems fair upon any such property to be divided as aforesaid and may determine howsuch division shall be carried out as between the members or different classes of members. The liquidatormay vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributorsas the liquidator shall think fit, but so that no member shall be compelled to accept any shares or othersecurities whereon there is any liability.

(iii) VotingVotes at general meetings may be given either personally or by proxy, whether on a show of hands or on apoll every holder of a voting share present in person or by proxy shall have one vote for every voting shareof which he is a holder. The chairman of a meeting at which there is an equality of votes shall be entitled toa second or casting vote.

(iv) Variation of RightsWhenever the share capital is divided into different classes of shares, the rights attached to any class may(unless otherwise provided by the terms of issue of the shares of that class) be varied with the consent inwriting of the holders of not less than three-fourths of the issued shares of that class, or with the sanction ofExtraordinary Resolution passed at a separate general meeting of the holders of the shares of that class.

(v) Alteration of Share CapitalThe Company may by a resolution of directors amend the Memorandum to increase or reduce its authorisedcapital and in connection therewith the Company may in respect of any unissued shares increase or reducethe number of such shares, increase or reduce the par value of any such shares or effect any combination ofthe foregoing. The Company may amend the Memorandum to :

(a) divide the shares, including issued shares, of a class or series into a larger number of shares of the sameclass or series; or

(b) combine the shares, including issued shares, of a class or series into a smaller number of shares of thesame class or series;

provided, however, that where shares are divided or combined under (a) or (b) above, the aggregate par valueof the new shares must be equal to aggregate par value of the original shares.

(vi) Allotment and Issue of SharesSubject to the provisions of its Articles and any resolution of members the unissued shares of the Companyshall be at the disposal of the directors who may, without limiting or affecting any rights previously conferredon the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwisedispose of shares to such persons, at such times and upon such terms and conditions as the Company mayby resolution of directors determine.

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(vii) Redeemable Shares and Purchase of Own Shares

Subject to the provisions of the Companies Act, any shares may be issued on the terms that they are, or areliable at the option of the Company or the holder, to be redeemed on such terms and in such manner as maybe provided by the Articles. Subject to the provisions of the Companies Act, the Company may purchase itsown shares (including redeemable shares) at any price but, if shares are in issue which are listed on theOfficial List of the London Stock Exchange or traded on AIM and are convertible into, or carry a right tosubscribe for, shares of the class to be purchased, the Company may not purchase them without the priorsanction of an Extraordinary Resolution passed at a separate meeting of the holders of the shares which areconvertible or carry that right to subscribe. Shares that the Company purchases, redeems or otherwiseacquires may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80per cent. of the issued shares of the Company in which case they shall be cancelled but they shall be availablefor reissue.

(viii) Transfer of Shares

Subject to any limitations in the Memorandum and Articles, registered shares in the Company may betransferred by a written instrument of transfer signed by the transferor and containing the name and addressof the transferee, but in the absence of such written instrument of transfer the directors may accept suchevidence of a transfer of shares as they consider appropriate. Subject to the Companies Act and anylimitations in the Memorandum and Articles, the Company must on the application of the transferor ortransferee of a registered share in the Company enter in the share register the name of the transferee of theshare save that the registration of transfers may be suspended and the share register closed at such times andfor such periods as the Company may from time to time by resolution of directors determine provided alwaysthat such registration shall not be suspended and the share register closed for more than 30 days in any periodof twelve months.

Where any class of share is, for the time being, a participate security, title to shares of that class which arerecorded on a register of members of a person approved by the UK Treasury under the EnglishUncertificated Securities Regulations 2001 (and any modifications to them and any substitutions for themfor the time being in force) (“Relevant System”) as being held in uncertificated form maybe transferred bymeans of the Relevant System concerned.

(ix) Borrowing Powers

The directors may by resolution of directors exercise all the powers of the Company to borrow money andto mortgage or charge its undertakings and property or uncalled capital or any part thereof, to issuedebentures, debenture stock and other securities whenever money is borrowed or as security for any debt,liability or obligation of the Company or of any third party.

(x) Directors’ Remuneration

Remuneration of directors (other than executive officers and alternate directors) shall be determined by theBoard (or a committee of the Board), such amount (excluding amounts payable under other provisions ofthese Articles) shall not exceed £100,000 per annum subject to upward-only adjustment (in line with thepercentage increase in the retail prices index published by the Department of Employment of Great Britain)(or by any government department upon which duties in connection with such index shall have devalued)after the date of the adoption of the Articles or a higher amount decided by ordinary resolution. The feesshall be divided amongst the directors entitled to them in the proportions and the manner the Boarddetermines or, in default of a determination, equally (except that, if a director holds office for less than thewhole of the period to which the fees relate, his share shall be reduced in proportion to the part of the periodfor which he did not hold office).

A director who does not hold executive office and serves on a committee or devotes special attention to thebusiness of the Company, or otherwise performs services which in the opinion of the Board are outside thescope of the ordinary duties of a directors, may be paid extra remuneration by way of salary, participation inprofits or otherwise as the Board determines.

The directors may be paid all expenses properly incurred by them in connection with their services.

A director appointed to hold an employment or executive office in accordance with the provisions of theArticles shall receive the remuneration (by way of salary, commission, participation in profits or otherwise)which the Board or a committee of the Board may decide, either in addition to, or in lieu of, his remunerationas a director.

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(xi) Company Meetings

There is no requirement under the Companies Act to hold an Annual General Meeting. The directors mayconvene meetings of the members of the Company at such times and in such manner and places as thedirectors consider necessary or desirable. Meetings may also be convened upon the written request ofmembers entitled to exercise at least ten percent of the voting rights in respect of the matter for which themeeting is requested. At least seven days’ notice specifying the place, the day and the hour of the meetingand general nature of the business to be conducted shall be given to such persons whose names on the datethe notice is given appear as members in the share register of the Company and are entitled to vote at themeeting.

No business shall be transacted at any meeting unless a quorum of members is present at the time when themeeting proceeds to business. A quorum shall consist of two persons (or in the case of a member being acorporation, its duly authorised representative) in person or by proxy.

If, within half an hour from the time appointed for the meeting (or such longer period as the chairman mayallow), a quorum is not present or if during the meeting a quorum ceases to be present, the meeting ifconvened by members, shall be dissolved and in any other case, it shall stand adjourned to the same day inthe next week at the same time and place, or to such other day, time and place as the chairman maydetermine. If at the adjourned meeting a quorum is not present within half an hour after the time appointedfor the meeting, any two persons entitled to be counted in a quorum at the meeting shall be a quorum.

(xii) Directors’ Interests

Notwithstanding his office, a director may, subject to the relevant provisions of the UK Companies Act 1985and provided that he has disclosed to the board of directors the nature and extent of any material interest ofhis (1) be a party to, or otherwise interested in, any contract, transaction or arrangement with the Companyor with a body corporate in which the Company is interested or any transaction or arrangement in which theCompany or any such body corporate is otherwise interested; (2) be a director or other officer and/or beemployed (and be remunerated) by or be otherwise interested in any such body corporate; and (3) act (andbe remunerated for acting) by himself or his firm in a professional capacity for the Company (otherwise thanas auditor).

A director shall not, by reason of his office, be accountable to the Company for any benefit which he (or hisfirm) derives from any such contract, transaction, action or arrangement or from any such office oremployment or from any interest in any such body corporate, and no such transaction or arrangement shallbe liable to be avoided by reason of his office.

6. BVI company law The Company was incorporated in the BVI under the International Business Companies Act and willautomatically be reregistered under the Companies Act on 1 January 2007. The Companies Act applies to allcompanies incorporated or reregistered under its provisions, and will be the principal companies legislation inforce in the BVI from 1 January 2007. The Company is subject to BVI law. Set out below is a summary of certainprovisions of the BVI company law. This summary does not purport to contain all applicable qualifications andexceptions or to be a complete review of all matters of BVI company law and taxation, which may differ fromequivalent provisions in jurisdictions with which interested parties may be more familiar.

(i) Shares and Share capital

The Companies Act provides that a company is required to state in its Memorandum of Association themaximum number of shares that it is authorised to issue. The Company is authorised to issue up to100,000,000 shares of HK$0.01 each. The concept of authorised share capital has been abolished in theBVI.

A company may divide its shares (including those shares already in issue) into a larger number of shares orcombine them into a smaller number of shares, provided that the maximum number of shares the companyis authorised to issue is not exceeded. On any such division or combination of shares, the aggregate par valueof the new shares must be equal to the aggregate par value of the original shares.

The directors of a company can, at their discretion, issue shares in registered or bearer form (although inorder to issue shares in bearer form, there must be an express authorisation in the company’s Memorandumof Association) for such consideration and on such terms as they may determine. In the case of the Company,it is only authorised to issue registered shares. Shares can be issued for consideration in any form, providedsuch consideration is not less than the par value.

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If so authorised by its Memorandum of Association, a company can issue more than one class of shares and,if so, the Memorandum of Association must also specify the rights, privileges, restrictions and conditionswhich attach to each class. The Companies Act provides that companies may issue redeemable shares, shareswith no rights, limited rights or preferential rights to share in distributions of capital or income, or shareswith no or special or limited or conditional voting rights. They may also, subject to their Memorandum andArticles of Association, issue bonus shares, partly paid or nil paid shares, and fractional shares.

(ii) Financial assistance to purchase shares of a company or its holding company

Subject to all applicable laws, a company may give financial assistance to directors and employees of thecompany, its subsidiaries, its holding company or any subsidiary of such holding company in order that theymay buy shares in the company or shares in any subsidiary or holding company. Further, subject to allapplicable laws, a company may give financial assistance to a trustee for the acquisition of shares in thecompany or shares in any such subsidiary or holding company to be held for the benefit of employees of thecompany, its subsidiaries, any holding company of the company or any subsidiary of any such holdingcompany (including salaried directors).

There is no statutory restriction in the BVI on the provision of financial assistance by a company to anotherperson for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, acompany may provide financial assistance if the directors of the company consider, in discharging theirduties of care and acting in good faith, for a proper purpose and in the interests of the company, that suchassistance can properly be given. Such assistance should be on an arm’s-length basis.

(iii) Companies may acquire their own shares

A company may, purchase, redeem or otherwise acquire its own shares, either in accordance with theprocedure set out in the Companies Act, or any other procedure as provided for in the company’s Articles ofAssociation.

Under the statutory provisions, the directors may make an offer to purchase, redeem or otherwise acquire theshares in the company provided that the offer is either (a) to all shareholders and would, if successful, leavethe relative voting and distribution rights unaffected, or (b) to one or more shareholders and consented to inwriting by all shareholders, or otherwise permitted by the Memorandum or Articles of Association. Wherethe offer is to one or more shareholders, the directors must have passed a resolution to the effect that in theiropinion the purchase, redemption or other acquisition would benefit the remaining shareholders, and that theproposed offer is fair and reasonable to the company and the remaining shareholders.

Where an acquisition by a company of its own shares would be treated as a distribution, the conditionsimposed on distributions must be met. The purchase, redemption or other acquisition by a company of itsown shares is not deemed to be a distribution where it is effected pursuant to, amongst other things, a rightof a shareholder to have his shares redeemed or exchanged for money or other property of the company orwhere the share is redeemable at the option of the company.

(iv) Dividends and distributions

The directors of a company may only declare a distribution (which includes a dividend) by the company ifthey are satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfythe solvency test. A company will satisfy the solvency test if the value of its assets exceeds its liabilities, andit is able to pay its debts as they fall due.

(v) Protection of minorities

The BVI court ordinarily would be expected to follow English case law precedents which permit a minorityshareholder to commence a representative action against or derivative actions in the name of the companyto challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud againstthe minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in thepassing of a resolution which requires a qualified (or special) majority.

Under the provisions of the Companies Act, where a company conducts some activity which breaches theCompanies Act, or the company’s Memorandum or Articles of Association, the court can issue a restrainingor compliance order. Members can also bring an action on the basis that the affairs of the company havebeen, are being or are likely to be conducted in a manner likely to be oppressive, unfairly discriminatory orunfairly prejudicial to him, he may now apply to the court for appropriate orders in relation to such conduct.

Any shareholder of a company may make an application to the court, which may make an order appointinga liquidator to the company if (a) the court is of the opinion that it is just and equitable that the companyshould be wound up, or (b) the court is satisfied that there is a prima facie case that the company is insolvent.

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The Companies Act provides that any member of a company is entitled to payment of the fair value of hisshares upon dissenting from any of the following:

(a) a merger, if the company is a constituent company, unless the company is the surviving company andthe member continues to hold the same or similar shares;

(b) a consolidation, if the company is a constituent company;

(c) any sale, transfer, lease, exchange or other disposition of more than 50 per cent. of the assets or businessof the company if not made in the usual or regular course of the business carried on by the company butnot including (i) a disposition pursuant to an order of the court having jurisdiction in the matter, (ii) adisposition for money on terms requiring all or substantially all net proceeds to be distributed to themembers in accordance with their respective interests within one year after the date of disposition or(iii) a transfer pursuant to the power of the directors to transfer assets for the protection thereof;

(d) a redemption of 10 per cent. or fewer of the issued shares of the company required by the holders of90 per cent. or more of the shares of the company pursuant to the terms of the Companies Act; and

(e) an arrangement, if permitted by the court.

Generally any other claims against a company by its shareholders must be based on the general laws ofcontract or tort applicable in the BVI or their individual rights as shareholders as established by thecompany’s Memorandum and Articles of Association.

(vi) ManagementThe Companies Act vests the power to manage, direct and supervise the business and affairs of the companyin its directors (subject to any modification or limitation in the company’s memorandum or Articles ofAssociation). At all times after the appointment of its first director(s), every company must have at least onedirector, and no person may be a director of a company unless he has consented in writing to being a director.The names and addresses of all directors are entered on a register of directors.

Directors are entitled to establish committees of directors, to which they may delegate their powers.However, the Companies Act specifies certain powers that may not be delegated, including the powers toamend the company’s Memorandum or Articles of Association, to appoint directors or agents, and to makea declaration of solvency or approve a liquidation plan. The directors retain responsibility for the exercise ofany power delegated to a committee, unless they believed on reasonable grounds that the committee wouldin fact exercise the power in accordance with the duties imposed on directors by the Companies Act. Thefiduciary duties of good faith, honesty and loyalty are enshrined in the Companies Act. Furthermore, theCompanies Act reflects the common law duties of care, skill and diligence, and imposes on directors the dutyto act for a proper purpose and not in a manner that contravenes either the Companies Act or the company’sMemorandum or Articles of Association.

A director is obliged to disclose any interests he may have in a transaction to be entered into by the company(although he remains entitled to vote on the transaction, attend meetings in relation to it and be counted forthe purposes of the quorum). Should he fail to do so, the transaction will be voidable by the company, unlessthe material facts of the interest are disclosed to the members and the members nevertheless ratify or approvethe transaction, or the company receives fair value for it.

(vii) Record-keepingThe Companies Act sets out the various records which a company must keep. Every company must keep atthe office of its registered agent in the BVI (a) its Memorandum and Articles of Association; (b) its registerof members (or a copy thereof, in which case the company must notify the registered agent in writing of thephysical location where the original is kept); (c) its register of directors (or a copy thereof, in which case thecompany must notify the registered agent in writing of the physical location where the original is kept); and(d) copies of all notices and documents filed by the company in the previous ten years.

A company is required to keep a register of members containing, inter alia, the names and addresses of thepersons who hold registered shares in the company. The share register may be in any form as the directorsmay approve but, if it is in magnetic, electronic or other data storage form, the company must be able toproduce legible evidence of its contents. The entry of the name of a person in the register of members as aholder of a share in a company is prima facie evidence that legal title to the share vests in that person.

A company is required to keep a register of directors containing, inter alia, the names and addresses of thepersons who are directors and the date on which each person whose name is entered on the register wasappointed and ceased to be a director. The register of directors may be in such form as the directors approve,but if it is in magnetic, electronic or other data storage form, the company must be able to produce legibleevidence of its contents. The register of directors is prima facie evidence of any matters directed orauthorised by the Companies Act to be contained therein.

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A company must keep minutes of all meetings and resolutions of the members and directors, either at theoffice of its registered agent or at such other place as the directors may determine (in which case thecompany must notify the registered agent in writing of the physical location where the original is kept). Inaddition, all companies must keep records that adequately show and explain the company’s transactions, andenable the financial position of the company to be determined with reasonable accuracy.

(viii) Exchange control

There are no exchange control regulations or currency restrictions in the BVI.

(ix) Loans to directors

There is no express provision in the Companies Act prohibiting the making of loans by a company to any ofits directors.

(x) Taxation in the BVI

The company is exempt from all provisions of the Income Tax Act of the BVI (including with respect to alldividends, interests, rents, royalties, compensation and other amounts payable by the company to personswho are not persons resident in the BVI).

Capital gains realised with respect to any/shares, debt obligations or other securities of a company by personswho are not persons resident in the BVI are also exempt from all provisions of the Income Tax Act of the BVI.

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who arenot persons resident in the BVI with respect to any shares, debt obligations or other securities of thecompany, save for interest payable to or for the benefit of an individual resident in the European Union.

(xi) Stamp duty on transfer

No stamp duty is payable in the BVI on a transfer of shares in a BVI international business company.

(xii) Inspection of corporate records

Members of the general public, on payment of a nominal fee, can inspect the public records of a companyavailable at the office of the BVI Registrar of Corporate Affairs which will include the company’s certificateof incorporation, its memorandum and articles of association (with any amendments) and the records oflicence fees paid to date and will also disclose any articles of dissolution, articles of merger and a registerof mortgages, charges and other encumbrances if the company has elected to file such a register.

A member of a company is entitled, on giving written notice to the company, to inspect and make copies of(a) the Memorandum and Articles of Association; (b) the register of members and/or the register of directors;and (c) minutes of meetings and resolutions of members and of those classes of members of which he is amember. This right of inspection is subject to the consent of the directors, who are entitled to refuseinspection if they consider it to be contrary to the company’s best interests. A member is entitled to challengeany such refusal by the directors by applying to court.

(xiii) Winding up

Different regimes apply to the winding up of a company, which depend on whether the company in questionis solvent or insolvent. The voluntary liquidation of solvent companies is governed by the Companies Act,whilst the voluntary liquidation of insolvent companies is governed by the provisions of the Insolvency Act2003. The latter Act also applies to all liquidations where the liquidator has been appointed by the court.

(xiv) Reconstructions

There are statutory provisions which facilitate arrangements which involve a plan of arrangement beingapproved by a resolution of directors of the company and application being made to the court for approvalof the proposed arrangement. Upon approval by the court, the directors of the company are required toapprove the plan of arrangement as approved by the court whether or not the court has directed anyamendments to be made thereto and give notice to the persons whom the court requires notice to be givenor submit the plan of arrangement to those person for such approval, if any, as the court order required.

(xv) Compulsory acquisition

Subject to any limitations in the Memorandum or Articles of Association of a company, members holding90 per cent of the votes of the outstanding shares may give a written instruction to a company directing thecompany to redeem the shares held by the remaining members. Upon receipt of the written instruction, thecompany is required to redeem the shares and give written notice to each member whose shares are to beredeemed stating the redemption price and the manner in which the redemption is to be effected.

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(xvi) Indemnification

The Companies Act entitles a company to indemnify against all expenses, including legal fees, and againstall judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal,administrative, or investigative proceedings any person who is or was a party to any threatened, pending orcontemplated proceedings, whether civil, criminal administrative or investigative, by reason of the fact thatthe person is or was a director of the company. This indemnity is only permissible if the indemnified personacted honestly and in good faith and in what he believed to be in the best interests of the company and, inthe case of criminal proceedings, the indemnified person had no reasonable cause to believe that his conductwas unlawful.

BVI law does not have a particular body of rules known as a ‘corporate governance regime’ with which theCompany is obliged to comply over and above the relevant provisions of the Companies Act.

7. Interests of the Directors and others7.1 The interests of the Directors and their associates in the share capital of the Company, all of which interests

are beneficial, are as follows:

As at the date of this document On AdmissionPercentage

Percentage of EnlargedNumber of of Existing Number of Issued

Director Shares Share Capital Shares Share Capital

Francis Chi1 19,660,290 32.54 19,660,290 30.29Frankie Yuet Leung Wong2 11,593,921 19.19 11,593,921 17.86Yong Chian Tan3 2,056,085 3.40 2,056,085 3.17Eddie Kin Man Chan4 1,233,652 2.04 1,233,652 1.90Timothy Robert Nelson5 1,572,890 2.60 1,572,890 2.42Albert Siu Fai Wong6 360,969 0.60 360,969 0.56Royston Frederick Drucker 103,960 0.17 103,960 0.16

Notes:

1 held by Leadton Resources Limited, a nominee company.

2 includes Shares held by Bioglory International Ltd, which is a subsidiary of Yangtze Ventures Limited, a companyof which he is a director.

3 held in Granfuture Holdings Limited, a nominee company.

4 held in Best Revenue Investments Limited, a nominee company.

5 Timothy Nelson’s holdings include Shares held by Vuna, a company of which he is a director.

6 held by Faiton Industrial Limited, a nominee company.

7.2 Save as disclosed in paragraph 7.1 above, as at the date of this document and immediately on Admission, sofar as the Directors are aware, the following persons are or will be, directly or indirectly, interested in 3 percent. or more of the issued share capital of the Company:

As at the date of this document On AdmissionPercentage

Percentage of EnlargedNumber of of Existing Number of Issued

Name Shares Share Capital Shares Share Capital

BSI SA 3,370,131 5.58 3,370,131 5.19AOK International Holding Ltd 2,979,182 4.93 2,979,182 4.59Fortune Success Holdings Ltd. – – 2,600,000 4.01BNP Paribas (Suisse) SA 2,313,787 3.83 2,313,787 3.56

7.3 Save as disclosed in paragraphs 7.1 and 7.2 above, the Directors are not aware of any interest in theCompany’s share capital which, at the date of this document and/or immediately on Admission, wouldamount to three per cent. or more of the Company’s issued share capital.

7.4 As at 15 December 2006 and save as disclosed in this paragraph 7, the Directors are not aware of any personor persons who, directly or indirectly, jointly or severally, exercise or could exercise control over theCompany.

7.5 Save as set out in this paragraph 7, following Admission none of the Directors or any connected person isexpected to have any interest, beneficial or non-beneficial, in the share or loan capital of the Company.

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7.6 Save as disclosed in this document, none of the Directors has any interest, direct or indirect, in any assetswhich have been or are proposed to be acquired or disposed of by, or leased to, the Company and no contractor arrangement exists in which a Director is materially interested and which is significant in relation to thebusiness of the Company.

7.7 There are no outstanding loans granted by the Company to any of the Directors, or any connected persons,nor are there any guarantees provided by the Company for their benefit.

7.8 Save as disclosed in this paragraph 7 and in paragraphs 10.5, 10.6 and 10.7 of this Part VI, none of theDirectors has any interest, whether direct or indirect, in any transaction which is or was unusual in its natureor conditions or significant to the business of the Company taken as a whole and which was effected by theCompany since its incorporation and which remains in any respect outstanding or unperformed.

7.9 None of the Directors, or member of their respective families, has a related financial product (as defined inthe AIM Rules) referenced to the Shares.

7.10 The Company is not aware of any person who, directly or indirectly, has an interest in the Company’s capitalor voting rights which is notifiable under the laws of the British Virgin Islands.

8. Directors’ Service Contracts8.1 Francis Chi has entered into a service agreement with the Company dated 20 July 2006, effective from

Admission. Under the service agreement, Mr Chi is appointed as an Executive Director and Chief ExecutiveOfficer of the Group and will carry out such duties and functions, exercise such powers and comply withsuch instructions in connection with the business of the Company as the Board reasonably determines fromtime to time. His remuneration is HK$1,500,000 per annum, to be reviewed from time to time. In addition,Mr Chi is entitled to an annual discretionary bonus as determined by the Board. The service agreement isfor a fixed period of three years and shall continue thereafter. The agreement may be terminated by eitherparty after the first year of service by serving on the other six months’ written notice or payment in lieu ofnotice.

8.2 Yong Chian Tan has entered into a service agreement with the Company dated 20 July 2006, effective fromAdmission. Under the service agreement, Mr Tan is appointed as an Executive Director of the Company andthe Chief Executive Officer (China) of the Group and will carry out such duties and functions, exercise suchpowers and comply with such instructions in connection with the business of the Company and the Groupas the Board reasonably determines from time to time. His remuneration is HK$1,000,000 per annum, to bereviewed from time to time. In addition, Mr Tan is entitled to an annual discretionary bonus as determinedby the Board. The service agreement is for a fixed period of three years and shall continue thereafter. Theagreement may be terminated by either party after the first year of service by serving on the other sixmonths’ written notice or payment in lieu of notice.

8.3 Albert Siu Fai Wong has entered into a service agreement with the Company dated 20 July 2006, effectivefrom Admission. Under the service agreement, Mr Wong is appointed as an Executive Director of theCompany, Chief Financial Officer and Secretary of the Group and will carry out such duties and functions,exercise such powers and comply with such instructions in connection with the business of the Group as theBoard reasonably determines from time to time. His remuneration is HK$1,000,000 per annum, to bereviewed from time to time. In addition, Mr Wong is entitled to an annual discretionary bonus as determinedby the Board. The service agreement is for a fixed period of three years and shall continue thereafter. Theagreement may be terminated by either party after the first year of service by serving on the other sixmonths’ written notice or payment in lieu of notice.

8.4 The Company has entered into a letter of appointment with Eddie Kin Man Chan dated 17 August 2006 witheffect from Admission in respect of his non-executive directorship of the Company. Under the letter ofappointment, Mr Chan is entitled to an annual fee of HK$120,000 and reimbursement of reasonableexpenses.

8.5 The Company has entered into a letter of appointment with Frankie Yuet Leung Wong dated 17 August 2006with effect from Admission in respect of his non-executive directorship of the Company. Under the letter ofappointment, Mr Wong is entitled to an annual fee of HK$120,000 and reimbursement of reasonableexpenses.

8.6 The Company has entered into a letter of appointment with Royston Frederick Drucker dated 17 August2006 with effect from Admission in respect of his non-executive directorship of the Company. Under theletter of appointment, Royston Drucker is entitled to an annual fee of £20,000 and reimbursement ofreasonable expenses.

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8.7 The Company has entered into a letter of appointment with Timothy Robert Nelson dated 17 August 2006with effect from Admission in respect of his non-executive directorship of the Company. Under the letter ofappointment, Timothy Nelson is entitled to an annual fee of £20,000 and reimbursement of reasonableexpenses.

8.8 The aggregate remuneration payable (and benefits in kind to be granted) to the Directors in the currentfinancial year ending 31 December 2006 under the arrangements in force at the date of this document isestimated to be HK$3,101,454.

8.9 There are no Directors’ service contracts, or contracts in the nature of services, with the Company, other thanthose which expire or are terminable without payment of compensation on no more than 12 months’ notice.

8.10 Save as referred to above none of the service contracts referred to in this paragraph have been amended inthe past six months.

9. Additional Information on the Directors9.1 In addition to the Company, the Directors hold or have held the following directorships or are or have been

partners in the following partnerships within the five years prior to the date of this document:

Past Directorships/Partnerships/ Name Current Directorships/Partnerships Dissolved Companies

Eddie Kin Best Revenue Investments Limited Chinainfobase.com Limited (Dissolved) Man Chan China Tax Society Limited Chinainfobase Limited (Dissolved)

Citiline Logistics Limited Didit Corporation (Dissolved)CWCC Co. Limited Edtoma Financial Consultants Limited (Dissolved)E.V. Services Limited Goldview Management Limited (Dissolved) Edtoma Consultancy Limited Hintway Investment Limited (Dissolved) Edtoma Nominees Limited Internet One Chinese Limited (Dissolved) Edtoma Secretarial Services Limited Leadton Resources LimitedFederal Consultants Limited LOSON Consultants Limited (Dissolved) Gateway (Macao Commercial Offshore) Majestic Associates Limited (Dissolved) Milly Investments Limited Ourflats Investments Company Limited Nong’s Corporation Limited (Dissolved) Omega Bio-Pharma (I.P.) LLC Polyman Investments Limited (Dissolved) Omega Bio-Pharma (I.P.1) Limited Walcom (BVI) Company Limited (Dissolved)Omega Bio-Pharma (I.P.2) Limited Wo Loong Ho Marine Products Co., Limited Omega Bio-Pharma (I.P.3) Limited (Dissolved)Omega-BioPharma Holdings LimitedPolyman Business Consultants LimitedPurapharm Corporation LimitedPurapharm Information Technology LimitedStockwell Consultants LimitedUnite Service LimitedWalcom Animal Science (I.P.) LimitedWalcom Animal Science (I.P.2) LimitedWalcom Animal Science (I.P.3) LimitedWalcom Animal Science (I.P.4) LimitedWalcom Animal Science (I.P.5) LimitedWalcom Bio-Chemicals (USA) LLCWalcom Bio-Chemicals Industrial LimitedWalcom (BVI) Company LimitedWalcom International LimitedWalcom Nutritions International LimitedWellson Nominees Limited

Francis Chi F&P International Limited Becoin Limited (Deregistered)Gatton Enterprises Limited F&P Industrial Limited (Deregistered)Glorytide Development Limited F&P Technologies Limited (Deregistered)Leadton Resources Limited Giancarlo International Limited (Dissolved)Link Asia Investment Limited Global Network Property Pty LimitedOmega Bio-Pharma (I.P.) LLC Kelfook Industrial Limited (Dissolved)Omega Bio-Pharma (I.P.1) Limited Mate Plaza Limited (Struck off)Omega Bio-Pharma (I.P.2) Limited Whittam Consultants Limited (Dissolved)Omega Bio-Pharma (I.P.3) Limited Wiseco Technologies Limited (Deregistered)Omega Bio-Pharma (USA) LLCOmega Bio-Pharma International LimitedOmega-BioPharma (H.K.) LimitedOmega-BioPharma Holdings Limited Shanghai Walcom Bio-Chem Co., LtdWalcom Animal Science (I.P.) LimitedWalcom Animal Science (I.P.2) LimitedWalcom Animal Science (I.P.3) Limited

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Past Directorships/Partnerships/ Name Current Directorships/Partnerships Dissolved Companies

Francis Chi Walcom Animal Science (I.P.4) Limited(continued) Walcom Animal Science (I.P.5) Limited

Walcom Bio-Chem (Thailand) Co., LtdWalcom Bio-Chemicals (Holdings) LimitedWalcom Bio-Chemicals (USA) LLCWalcom Bio-Chemicals Industrial LimitedWalcom Bio-Chemicals Philippines IncWalcom (BVI) Company LimitedWalcom Chemicals Industrial LimitedWalcom China Staff Incentive LtdWalcom International LimitedWalcom Nutritions International Limited

Yong Chian Tan Granfuture Holdings Limited China Pioneer Trading LimitedOmega Bio-Pharma (I.P.) LLC China United Investment LimitedOmega Bio-Pharma (I.P.1) Limited Dongguan Hannstar Electronic CorporationOmega Bio-Pharma (I.P.2) Limited HannHann.com Corporation Omega Bio-Pharma (I.P.3) LimitedOmega Bio-Pharma (USA) LLCOmega-BioPharma Holdings LimitedShanghai Walcom Bio-Chem Co., LtdTiger Concept International LimitedWalcom Animal Science (I.P.) LimitedWalcom Animal Science (I.P.2) LimitedWalcom Animal Science (I.P.3) LimitedWalcom Animal Science (I.P.4) LimitedWalcom Animal Science (I.P.5) LimitedWalcom Bio-Chemicals (USA) LLCWalcom Bio-Chemicals Industrial LimitedWalcom Chemicals Industrial LimitedWalcom China Staff Incentive LtdWalcom International LimitedWalcom Nutritions International Limited

Albert Siu Faiton Industrial Limited Fullness Limited (Dissolved)Fai Wong Phinic Hospitality Limited Grace Luck Limited (Dissolved)

TC Interconnect Holdings Limited L.V.O. Property Consultants Limited (Dissolved)Walcom China Staff Incentive Ltd Peipus Worldwide Limited (Dissolved)

Profit Access Group Limited (Dissolved)Tinkerbelle Services Limited (Dissolved)Winlok Assets Management Limited (Dissolved)

Frankie Yuet 1414 Holding LimitedLeung Wong 1441 Holding Limited

8808 Holding LimitedAce Achieve Investments LimitedAcme Partner International LimitedAdvantek Biologics LimitedApexone Microelectronics (Shanghai) Co.,

LimitedApexone Microelectronics Inc.Apexone Microelectronics LimitedAscoli Enterprises LimitedAsia Materials LimitedAsia Materials Trading Company LimitedAsia Trend Development LimitedAsiaMaterials Technologies LimitedAsiaMaterials Trading (Shanghai) Co., Ltd.Bellini LimitedBeijing Hua Wei Center Co. Ltd.Big Winner Enterprises Ltd.Billion Century LimitedBioglory Int’l LimitedBognor LimitedCapebridge Group LimitedCasa Growth LimitedChannel Pacific LimitedChina Infrastructure Group Holdings PLCChina National New Building Materials

Industry Investment LimitedChongqing Desheng Engineering Co., Ltd.Chongqing Foreign Investment Consultation

and Services Co., Ltd.Chongqing T.H. Holding Management Co., Ltd

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All Billion Limited (Deregistered)Asia Materials Enterprises Limited (Deregistered)Asia Materials Holdings Limited (Deregistered)Asia Materials Holdings Limited (Struck off)Asia Materials International Limited (Struck off)Asia Materials Limited (Struck off)Asia Materials Trading Corporation (Struck off)Asia Materials Trading Limited (Dissolved)AsiaMaterials Consulting (Shanghai) Co., LtdAsiaMaterials Informational Services (Wuhan)

Co., Ltd. (Deregistered)AsiaMaterials International Trading (Shenzhen)

Co., Ltd. (Deregistered)AsiaMaterials International Trading (Tianjin)

Co., Ltd. (Deregistered)AsiaMaterials Technologies (Beijing) Co. Ltd.

(Deregistered)AsiaMaterials Technologies (Hangzhou)

Co., Ltd. (Deregistered)AsiaMaterials Technologies (Shenzhen)

Co., Ltd. (Deregistered)AsiaMaterials Trading (Guangzhou) Co., Ltd.

(Deregistered)Asiamaterials.com Limited (Deregistered)Atlantic Best LimitedBonafide Profits Limited (Struck off)Bondwise Profits LimitedBrixworth International LimitedCentury Team LimitedCititop Pacific LimitedCostworth Investments LimitedEast Trend Limited

Past Directorships/Partnerships/ Name Current Directorships/Partnerships Dissolved Companies

Frankie Yuet Chongqing T.H. White Cement Co., Ltd.Leung Wong CIG International Limited(continued) CIG Yangtze Ports PLC.

Comtel Development LimitedCoral Waters (Barbados) SRLCosmedia Group Holdings LimitedDalian Xiwang Building Co., Ltd.Digital First International LimitedElite Crest Investments LimitedEquity Leader International LimitedEventful Time Investments LimitedExpert Aim Investments LimitedExtreme Performance LimitedFirst Direction LimitedFocus Well LimitedFortune Up Investments LimitedFran Vick & Co. Ltd.Gainsworth LimitedGlory Year Mark LimitedGlorycrest Holdings LimitedGoldcrest Development LimitedGrand More Management LimitedGreat Market LimitedGuangzhou Shui Yung Co. Ltd.Han Sheng Tang Herbal (Holdings) LimitedHan Sheng Tang Herbal Pharmaceutical

Co. LimitedHan Sheng Tang Herbal Technologies

Co. LimitedHarbour Master LimitedHonest Choice International LimitedHudson Waterfront CorporationHudson Westside CorporationHuanghe Venture Capital LimitedIdeanew Profits LimitedJade City International LimitedJesca LimitedJumbo Crown International LimitedKeygrow Investments LimitedKinford Enterprises LimitedKinscore LimitedKotemax LimitedKroner Investments LimitedLafarge Shui On Cement LimitedLamma Rock Products LimitedLandstar Development LimitedLenten Lily LimitedLokeren Company LimitedMax Advance Investments LimitedMountain Air (Barbados) SRLMountain Breeze (Barbados) SRLMountain Mist (Barbados) SRLMountain Sun (Mauritius) Ltd.Nanjing Jiangnan Cement Company LimitedNet Gain Group LimitedNew Rainbow Investments LimitedOmega-BioPharma Holdings LimitedOn Capital China Tech FundP.D. (Contractors) LimitedParadigm Finance S.A.Pat Davie LimitedPeak Fortune Assets LimitedPinetop LimitedPrime Allied Enterprises Limited (BVI)Prime Allied Enterprises Limited (Mauritius)Prosper Idea LimitedQingdas Zhongcheng Yinchu

Development Co. Ltd.Real Profit Enterprises I Inc.Real Profit Enterprises II Inc.Real Profit Enterprises III Inc.Real Profit Enterprises Inc.

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Focus Top LimitedForesight Profits LimitedGalore Profits LimitedGlobaland LimitedGlobe State Properties LimitedGlory Limited (Struck off)Guangan TH Cement Co. Ltd.Honest China LimitedInterchina International LimitedKindwin Investment Limited (Deregistered)Kinmax LimitedLandton LimitedLegend City LimitedLucky Gain LimitedMarble Way LimitedOnfair LimitedOnwin LimitedOriental Gain LimitedPortspin LimitedPrincemax LimitedProfitstock Holdings LimitedRich Development Limited (Deregistered)Shanghai Chengli Properties Co., Ltd.Shanghai Fu Ji Properties Co., Ltd.Shanghai Le Fu Properties Co., Ltd.Shanghai Li Xing Hotel Co., Ltd.Shanghai Tai Ping Qiao Properties

Management Co., Ltd.Shanghai Xing Qiao Properties Co., Ltd.Shui Bo Development Company Limited

(Deregistered)Shui On Cement Company LimitedShui On Land LimitedSino Eagle Limited (Deregistered)Sinoco LimitedSolomon Systech LimitedUnion Grow LimitedVictorious Run LimitedWealth Grand Development Limited

(Deregistered)

Past Directorships/Partnerships/ Name Current Directorships/Partnerships Dissolved Companies

Frankie Yuet Real Profit Enterprises IV Inc.Leung Wong Real Profit Enterprises V Inc.(continued) Rimmer Investments Limited

Rise Huge International LimitedSelfers LimitedShanghai City HotelShanghai Jiu Hai Rimmer Properties Co. Ltd.Shanghai Ruichen Property Co. Ltd.Shanghai Shui On Property Development

Management Co., Ltd.Shine Honest Investments LimitedShui On (Contractors) LimitedShui On Building Contractors LimitedShui On Building Materials LimitedShui On Centre Company LimitedShui On Company LimitedShui On Concrete Specialists LimitedShui On Construction and Materials LimitedShui On Construction Company LimitedShui On Contractors LimitedShui On Corporate Services LimitedShui On Finance Company LimitedShui On Graceton LimitedShui On Granpex LimitedShui On Holdings LimitedShui On Investment Company LimitedShui On Materials LimitedShui On Properties LimitedShui On Rock Products LimitedShui On Secretarial Services LimitedShui On Strategic Investments LimitedSinodon LimitedSO Hudson Westside Corp.SO Hudson Westside I Corp.SO Hudson Westside II Corp.SO Hudson Westside III Corp.SO Hudson Westside IV Corp.SO Hudson. Westside V CorpSOCAM.com LimitedSolomon Systech (International) LimitedSowin Enterprises LimitedStar Focus Investments LimitedSuper Asset International LimitedTH Cement Holdings LimitedTH Industrial Management LimitedTH Industry I LimitedTH Industry II LimitedTH Industry III LimitedThe Yangtze Ventures II LimitedThe Yangtze Ventures LimitedTotal Trend Investments LimitedTriprofit Enterprises LimitedTurbo Speed Technology LimitedUpper Aim Group LimitedVentureadd Investments LimitedVictory Fame Investment LimitedWalcom Animal Science (I.P.) LimitedWalcom Animal Science (I.P.2) LimitedWalcom Animal Science (I.P.3) LimitedWalcom Animal Science (I.P.4) LimitedWalcom Animal Science (I.P.5) LimitedWalcom International LimitedWalcom Nutritions International LimitedWininer Technologies LimitedWuhan Huali Environment Protection

Science & Technology Co. Ltd.Wuhan Int’l Container Transshipment

Company LimitedYunnian Shui On Construction Materials

Investment Holding Co. Ltd.

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Past Directorships/Partnerships/ Name Current Directorships/Partnerships Dissolved Companies

Royston Frederick Genesis Management Consulting NoneDrucker Services Pvt Ltd

Inrotis Ltd MDD Ltd Technomark Consulting Services Ltd

Timothy Robert Atholl Corporate Finance Ltd Madagascar Oil Limited Nelson Bonchar Resources LLC

Charbon Resources LLCGalene Resources LLCGrace Holdings LimitedIIBT International LimitedOxford Pharma LimitedRed Island Oil LtdVuna Capital Partners LtdVuna Energy Resources LtdWillis Holdings

9.2 None of the Directors has:

9.2.1 any unspent convictions in relation to indictable offences;

9.2.2 any bankruptcy order made against him or entered into any voluntary arrangements;

9.2.3 been a director of a company which has been placed in receivership, creditors’ voluntary liquidation,compulsory liquidation, administration, been subject to a voluntary arrangement or any compositionor arrangement with its creditors generally or any class of its creditors whilst he was a director of thatcompany or within the 12 months after he ceased to be a director of that company;

9.2.4 been a partner in any partnership which has been placed in compulsory liquidation, administration orbeen the subject of a partnership voluntary arrangement whilst he was a partner in that partnership orwithin the 12 months after he ceased to be a partner in that partnership;

9.2.5 been the owner of any assets or a partner in any partnership which has been placed in receivershipwhilst he was a partner in that partnership or within the 12 months after he ceased to be a partner inthat partnership;

9.2.6 been publicly criticised by any statutory or regulatory authority (including recognised professionalbodies); or

9.2.7 been disqualified by a court from acting as a director of any company or from acting in themanagement or conduct of the affairs of a company.

10. Material contracts The following contracts, not being contracts entered into in the ordinary course of business, have been entered intoby the Company or any of its subsidiaries within the two years preceding the date of this document and are, ormay be, material:

10.1 A Relationship Agreement dated 15 December 2006 between (1) the Company, (2) Francis Chi pursuant towhich, conditionally on Admission, Francis Chi (the “Major Shareholder”) has undertaken to exercise allhis powers and, so far as he is able, to procure that any related party of his and any other director who hasa material relationship, association or interest with him shall exercise their respective powers to ensure (a)when he is not an executive director, inter alia, that (i) the Company shall operate and make decisions andshall be managed by the Board in accordance with the memorandum and articles of association and allapplicable law for the benefit of shareholders as a whole and independently of the Major Shareholder; (ii)unless agreed between the Board and the nominated adviser a majority of directors on the Board and on allstanding committees of the Board and any other significant committees of the Board will have no materialrelationship, association or interest with the Majority Shareholder; (iii) the Remuneration Committee shallhave a majority of and shall be chaired by non-executive directors who have no material relationship,association or interest with the Major Shareholder; (iv) a Board quorum shall include at least one such non-executive director unless consented to by one such non-executive and the nominated adviser; (v) theCompany shall comply with the Corporate Governance Guidelines for AIM companies published by theQuoted Companies Alliance save with the consent of the nominated adviser and with the AIM rules and (b)at all times that no material agreement, arrangement or transaction between any Group Company and theMajor Shareholder and/or any related party of his shall be entered into, novated, varied or abrogated andno material amendments to any agreements between the Group and the Major Shareholder and/or any

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related party of his shall be made without a Board resolution on which the directors who have a materialrelationship, association or interest with him do not vote and in respect of which at least one non-executivedirector who has no material relationship, association or interest with the Majority Shareholder shall be inthe majority or approve the resolution in writing. In addition the Company has undertaken to, and toprocure each member of the Group shall, enforce all agreements with the Major Shareholder and anyrelated party of his in accordance with their terms unless approved by a Board resolution on which thedirectors who have a material relationship, association or interest with him do not vote and in respect ofwhich at least one non-executive director who has no material relationship, association or interest with theMajor Shareholder shall be in the majority or approve the resolution in writing.

10.2 A Placing Agreement dated 15 December 2006 between (1) the Company, (2) the Directors, (3) John East& Partners and (4) King & Shaxson, pursuant to which conditional upon, amongst other things, Admissionhaving occurred not later than 8.00am on 21 December 2006 or such later date as the Company, John East& Partners and King & Shaxson may agree, but in any event not later than 8.00am on 12 January 2006, King& Shaxson has agreed to use reasonable endeavours to procure subscribers for the Placing Shares at thePlacing Price. The agreement contains warranties and indemnities from the Company and certain of itsDirectors in favour of King & Shaxson and John East & Partners. It also contains provisions which enableJohn East & Partners and King & Shaxson to terminate the agreement before Admission including wherethe warranties are found not to be true and accurate in any material respect. The Company has agreed to paya fee to John East & Partners of £100,000, to King & Shaxson a broking fee of £10,000 and a commissionof 5 per cent on the aggregate value, at the Placing Price, of the Placing Shares placed by King & Shaxson.In addition, John East & Partners will be issued with warrants to subscribe for Ordinary Shares at the PlacingPrice up to an aggregate value of £75,000 and King & Shaxson will be issued with warrants to subscribe forOrdinary Shares at the Placing Price up to an aggregate value of £60,000, such warrants to be exercisable inthe case of John East & Partners Ltd at any time prior to the fifth anniversary of Admission and in the caseof King & Shaxson, at any time prior to the second anniversary of Admission.

10.3 A Broker Agreement dated 15 December 2006 between (1) the Company, (2) the Directors and (3) King &Shaxson pursuant to which, conditionally upon and with effect from Admission, the Company has appointedKing & Shaxson as its broker for the purposes of the AIM Rules for an initial term of one year and thereafteruntil terminated by either party giving the other two months’ notice in writing. The Company has agreed topay King & Shaxson an annual retainer of £20,000 (plus any applicable VAT) and out of pocket expensesreasonably and properly incurred. The agreement may also be terminated by the Company or King &Shaxson where a liquidator, receiver, administrative receiver or administrator is appointed over substantiallythe whole of the other’s assets. In addition King & Shaxson may terminate the appointment, inter alia, wherethe Company or any of the Directors commits an unremedied material breach of the agreement or theCompany or any Director commits any material breach of the AIM Rules or any other laws or regulations towhich the Company and/or the Directors are subject. The Company may also terminate the appointmentwhere King & Shaxson commits an unremedied material breach of the agreement.

10.4 A Nominated Adviser’s Agreement dated 15 December 2006 between (1) the Company (2) the Directors and(3) John East & Partners pursuant to which, conditionally upon Admission, the Company has appointed JohnEast & Partners as its Nominated Adviser for the purposes of the AIM Rules for an initial period of two yearsand thereafter until terminated on three months’ written notice by either party. The Company has agreed topay John East & Partners an annual fee of £25,000 (plus any applicable VAT) and out of pocket expensesreasonably and properly incurred. The agreement contains an indemnity in favour of John East & Partnersand may also be terminated by the Company or John East & Partners in the event of material breach by theother, if trading in the Company’s securities on AIM is cancelled (other than a temporary suspension orcancellation of trading in accordance with the AIM Rules) and by the Company if John East & Partners isremoved for any reason from the register of Nominated Advisers maintained by the London Stock Exchange.

10.5 Lock-ins and orderly market undertakings dated 15 December 2006 have been granted by the Directors, onbehalf of themselves, their families and other persons and companies deemed to be connected with them andby Dr Jiang Shulin , Bioglory and Vuna in favour of the Company, John East & Partners and King &Shaxson. Pursuant to the terms of these undertakings, each of the aforementioned has undertaken (subjectto certain limited exceptions including disposals by way of acceptance of a recommended takeover offer forthe entire issued share capital of the Company) not to dispose of the Shares held by him or persons connectedwith him (or any interest therein) at any time prior to the first anniversary of Admission nor for a period of12 months thereafter without the prior written consent of John East & Partners, for so long as John East &Partners is the Company’s nominated adviser, and, for so long as King & Shaxson is the Company’s broker,without the prior written consent of King & Shaxson, in every such case such consent not to be unreasonablywithheld or delayed.

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10.6 A patent assignment agreement dated 19 September 2006 (the “Patent Assignment”) between (1) WalcomIndustrial, (2) Omega-Biopharma (H.K.) Limited, (3) Omega Bio-Pharma (I.P.1) Limited, (4) Omega Bio-Pharma (I.P.2) Limited, (5) Omega Bio-Pharma (I.P.3) Limited and (6) Omega (2) to (6) together, the“Omega Companies”). Pursuant to the Patent Assignment:

(a) the patents that have been assigned in the Patent Assignment are patents which derived from theGroup’s core technology, but are in respect of potential human application, and which are not theGroup’s area of business focus. The patent applications themselves were originally filed in the nameof the relevant Omega Companies, and the Patent Assignment is to give effect to the assignment ofsuch patent rights with effect from their date of creation or filing of any patent applications;

(b) the total consideration for the patent assignment was US$200,000. In addition, the Omega Companiesare obliged to pay to the Group a royalty of three (3) percent of the net sales value (as defined in thePatent Assignment) of any products that are produced by the Omega Companies or their sub-licensee,in the human application field, arising from the benefit of the patents assigned. Such royalties arepayable for so long as the Omega Companies or their sub-licensees produce such products; and

(c) the Omega Companies have licensed back to the Group the technology within the assigned patents, onan exclusive, perpetual and royalty free basis for use in the Group’s area of business. There is also anobligation upon the Omega Companies to give disclosure to the Group of any invention by the OmegaCompanies in the human application field, and the Omega Companies have licensed the group therights to use such new inventions in the Group’s area of business.

10.7 An exclusive licence agreement dated 19 September 2006 (the “Licence Agreement”) between (1) WalcomIndustrial, (2) Walcom IP, (3) Walcom IP2, (4) Walcom IP3, (5) Walcom IP4, (6) Walcom IP5 and (7)Omega. Pursuant to the Licence Agreement:

(a) the Group has licensed Omega the technology within the Group’s portfolio of patents, for use by Omegaon an exclusive basis in Omega’s field of interest, namely, human application of the relevant technology;

(b) the initial term is for 5 years. Within the initial term Omega is expected to apply for food and drugsadministration (or equivalent) approval (“FDA Approval”) of products for human consumption usingthe technology in Omega’s own patents and with the benefit of the license from the Group. Failure toapply for FDA Approval would either mean an end of the license or a 1 year extension if Omega canprove to the Group’s satisfaction that FDA Approval will shortly be applied for;

(c) upon FDA Approval being granted or upon legal sales of products being achieved without FDAApproval, there is then a license of the Group’s patents for a sales term of 10 years. Renewal is subjectto further negotiation; and

(d) the consideration for the License Agreement is for the Group to receive a three (3) percent royalty ofnet sales of Omega’s products. In addition, the Group has an exclusive, perpetual and royalty freelicense back of Omega’s inventions for use by the Group in the Group’s area of business.

Note: The Omega Companies are related parties of Francis Chi, the Company’s largest indirect shareholder and its ChiefExecutive Officer. In addition, each of Eddie Kin Man Chan and Yong Chian Tan, who are also Directors, haveminority shareholding interests in Omega (and therefore indirect interests in the other Omega Companies).Accordingly, each of Mr Chi, Mr Chan and Mr Tan is interested in the Patent Assignment and the Licence Agreement.

10.8 An employment contract signed on 28 December 2004 between Walcom Bio-Chemicals Industrial Limited andDr Jiang Shulin as supplemented by an undated supplemental agreement between the same parties. Dr Jiangwas appointed as vice president in charge of sales and marketing from 1 January 2005 to 31 December 2007.The contract had an initial period of 12 months and is terminable on 3 months’ written notice thereafter subjectto 3 months’ notice of termination by either party. Dr Jiang’s remuneration comprises the following elements:

(i) a monthly after tax salary of HK$55,000, subject to annual review;

(ii) a monthly housing allowance of RMB5,000;

(iii) an entitlement to Shares equivalent to 3 per cent. of the Company’s issued share capital should theCompany achieve a listing on any stock exchange or should the Group’s profit before tax for 12 monthsreach RMB 5,000,000 (based on a valuation of the Company of US$24,000,000);

(iv) a cash bonus equal to 5 per cent. of the Group’s annual audited profit before tax if such profit is up toRMB5,000,000, or 3 per cent. if such profit is in excess of RMB5,000,000. In addition, he is entitledto a one-off cash bonus of RMB500,000 on the occasion that the Group’s annual audited profit beforetax exceeds RMB5,000,000 for the first time. To date, the Group has not made profits before tax, sono such bonus has been payable; and

(v) a discretionary annual bonus.

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The shares referred to in (iii) above, comprising a total of 691,464 Shares, were transferred to Longain, acompany controlled by Dr Shulin, shortly before Admission by certain of the existing shareholders of theCompany.

10.9 A shareholders’ agreement dated 15 August 2005 entered into between (1) Paitoon Buddhinunta-opas, (2)Walcom Bio-Chemicals Industrial Limited and (3) Walcom Bio-Chem (Thailand) Company Limited settingout the rights and obligations of the shareholders and provisions as to the management and operation ofWalcom Bio-Chem (Thailand) Company Limited.

Pursuant to the agreement, Walcom Bio-Chem (Thailand) Company Limited can only sell products ofWalcom Bio-Chemicals Industrial Limited and Paitoon Buddhinunta-opas cannot sell or distribute productsfor other companies in the feed industry in Thailand without the consent of Walcom Bio-ChemicalsIndustrial Limited. The agreement also provides that unless otherwise agreed in writing, no shareholder maysell, transfer, or otherwise dispose of shares in Walcom Bio-Chem (Thailand) Company Limited.

The agreement is valid for 15 years and may be extended 6 months prior to its expiration.

10.10 Pursuant to a Representative Agent Mandate Letter between Walcom Bio-chemical (Holdings) Limited(“Walcom Holdings”), whose obligations the Company has in practice agreed to assume and Vuna, dated 7October 2005 (and effective for a period of six months from 1 October 2005) it was agreed that on asuccessful listing of Walcom Holdings (but, now, in practice, the Company) on AIM, Walcom Holdingswould grant an option of 3 per cent. of the total pre-listing share capital to Vuna or its nominated companyat the exercise price of £0.01 per share, to be exercised within 5 years from the date of listing. In addition,it was also agreed that on Admission, Vuna would be entitled to be issued warrants to subscribe for newshares to the value of £75,000 (disclosed at paragraph 13 below), exercisable at any time from the date ofissue for a period of 5 years.

Pursuant to a Representative Agent Mandate Extension letter dated 5 April 2006 from Vuna to WalcomHoldings whose obligations the Company has in practice agreed to assume, it was agreed that the terms andconditions of the existing signed agreement be extended for a period of six months from 1 April 2006. Ratherthan proceed with the grant of the option referred to above, Vuna had transferred to it Shares equivalent to3 per cent. of the total issued share capital (before the allotment of Shares on conversion of the convertiblenotes referred to in paragraph 4 above) prior to Admission.

11. Options

A summary of the Share Option Scheme is as follows:

11.1 Eligibility

11.1.1 The Share Option Scheme is available for any director of any member of the Group who is in servicewith any such company or any employee of any member of the Group (other than one who is adirector).

11.1.2 No person shall be entitled as of right to participate in the Share Option Scheme.

11.2 Limitations on grant and rights to exercise

11.2.1 The maximum number of shares in respect of which options or right to subscribe for shares pursuantto the Share Option Scheme when aggregated with the number of shares in respect of which optionsor rights to subscribe for shares has been granted in previous years under the Shares Option Schemeand any other share option or share incentive plan adopted by the Company after the date ofAdmission shall not exceed 10 per cent. of the shares issued in the capital of the Company from timeto time.

11.2.2 An option shall only be exercisable (a) after three years from date of grant, (b) before the expiry ofthe option period, (c) at a time permitted by the Model Code and (d) if any performance conditionsimposed pursuant to the share option scheme rules have been fulfilled or obtained.

11.2.3 If a participant dies, his legal personal representatives may exercise his options granted under theShare Option Scheme within one year from the date of his death not withstanding the expiry of threeyears from the date of grant and notwithstanding that any performance conditions may not have beenfulfilled or attained.

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11.3 Grant of Options11.3.1 Subject to the restrictions and limitations imposed by the Share Option Scheme rules, at any time

while the Share Option Scheme is in operation, the Directors may at their discretion (subject to therecommendation of the Remuneration Committee) offer to grant options under the Share OptionScheme to participants at an option price determined by the Directors as the “Market Value” (beingif at the relevant time the shares are admitted to AIM, an amount equal to the middle market quotationof a share (as derived from the Daily Official List of the London Stock Exchange) or (as the case maybe) the last price of a share published in the Daily Official List of the London Stock Exchange on adealing day immediately preceding the date of grant or if the foregoing does not apply, the marketvalue of a share as determined by the Directors. If any share is to be subscribed for, then the optionprice shall be, not less than whichever shall be the greater of the market value and the nominal valueof a share provided that no option may be granted on the basis of the value of a share on a day earlierthan the first dealing day of the period of 42 days from the date of adoption of the Share OptionScheme or during each period of 42 days from the date of announcement of the Company’s resultsfrom the previous financial year, half year or other period.

11.4 Exercise of Options11.4.1 An option may be exercised by returning a notice in writing to the Company in the prescribed form

in respect of all or any of the shares to which it relates, but only in the multiples of 10,000 shares orthe whole of the balance (if less than that number), together with the payment for the aggregate optionprice together with the opinion certificate in the prescribed form.

11.4.2 As soon as practicable but in any event within 30 days of receipt of payment, the Directors shall,within 30 days, allot and issue the appropriate number of shares to the participant and deliver to hima definitive share certificate.

11.5 Alteration of Capital of the CompanyIn the event of issue of shares or reorganisation of the Company (i) the number of shares outstanding optionsand option price thereof and/or (ii) the number of shares in respect of which any option is capable of beingexercised in any period, and/or (iii) the aggregate maximum number and/or nominal value of shares availableunder the Share Option Scheme, shall be varied or adjusted by the Directors (on the recommendation of theRemuneration Committee) in such manner as the auditors shall have confirmed in writing to be fair andreasonable.

11.6 Takeover, liquidation or reconstruction of the CompanyIf at any time an offer is made to all the holders of fully-paid ordinary shares in the capital of the Company(or all such holders other than the offeror and/or any persons controlled by the offeror and/or persons actingin concert with the offeror) to acquire all or part of such ordinary shares held by them and such offer is,becomes, or is declared unconditional in all respects and as a result of such offer the offeror obtains“Control” (as defined therein) of the Company then (1) any outstanding options may, subject to the rules, beexercised within six months after the time when the offeror has obtained Control and any condition subjectto which the offer is made has been satisfied notwithstanding that any performance condition(s) may nothave been fulfilled or attained; and (2) if the offeror becomes bound or entitled to acquire any ordinaryshares pursuant to the take over provisions of the UK Companies Act 1985, the Directors shall notify alloption holders within fourteen days of the offeror becoming so bound or entitled and subject to the rules anyoutstanding options may be exercised at any time while the offeror remains so bound or entitlednotwithstanding that any performance condition(s) may not have been fulfilled or attained. If the outstandingOptions are not exercised during that period they shall lapse.

In the event of a winding up of the Company an Option Holder may, in respect of any option then capableof exercise by him by notice in writing to the Directors within 30 days of commencement of the winding upelect to be treated as if that option had been exercised in whole or in part immediately before thecommencement of the winding up notwithstanding that any performance condition(s) may not have beenfulfilled or attained.

If the Court sanctions a compromise or arrangement proposed for the purposes of or in connection with ascheme for the reconstruction of the Company or its amalgamation with any other company or companiesany outstanding option may subject to the relevant rules be exercised within six months of the Courtsanctioning the compromise or arrangement notwithstanding that any performance condition(s) may nothave been fulfilled or attained and if the outstanding Options are not exercised during that period they shalllapse.

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11.7 Governing Law

The Share Option Scheme is governed and construed in accordance with the laws of England.

12. Share Award Plan

A summary of the Share Award Plan is as follows:

12.1 Purpose and Objective

Prior to Admission, 433,163 Shares were transferred to the Trustee by certain of the existing shareholders ofthe Company to hold pursuant to the terms of the trust deed applicable to the Share Award Plan. These Shareswill be held on trust for selected PRC employees and officers of the Group (but excluding officers of theCompany).

12.2 Duration and Administration

The Share Award Plan shall be valid and effective for a term of ten years from the date of adoption and itshall be subject to the administration of a committee delegated from time to time by the Board (“theCommittee”) and the Trustee in accordance with the provisions of the Trust Deed and Share Award Planrules.

12.3 Source of award

The Shares available under this Share Award Plan will come from such Shares as may be gifted to the Trusteeby donors or pursuant to funds provided by such donors to the Trustee for the acquisition of Shares in theCompany.

12.4 Selection of an award to Selected Employees

The Committee may from time to time at its absolute discretion select a Selected Employee for participationin this plan and determine the number of shares to be awarded but no employee shall as of right be entitledto participate in this plan. In determining the award, the Committee may take into consideration matters setout in the rules relating to the Share Award Plan and the Committee shall be entitled to impose conditionswith respect to such award as it deems appropriate.

12.5 Plan Limits

In any given financial year of the Company, the maximum number of shares to be subscribed, purchased ortransferred by the Trustee pursuant to the Share Award Plan shall not exceed 1 per cent. of the total issuedshares of the Company as at the beginning of each such financial period. The Trustee shall not accept anyfunding to subscribe and/or purchase any Shares or transfer any Shares gifted to the Trustee for the purposesof this Plan when such subscription, purchase or transfer (as the case may be) will result in the said limit of1 per cent. being exceeded.

13. Summary of the Warrant instrument

The Warrants are constituted by a Warrant instrument dated 15 December 2006. Each Warrant entitles the holderto subscribe in cash at the Placing Price for one Share during the period set out in the relevant certificate (the“Subscription Period”). The Warrants will not be listed or dealt in on AIM, the market known as OFEX or anyrecognised investment exchange (as defined in the Financial Services and Markets Act 2000 of the UnitedKingdom).

Shares allotted on the exercise of Warrants will rank for all dividends and distributions declared on any date on orafter the date on which the relevant notice of exercise is lodged and otherwise shall have the rights and privilegesprescribed in the Articles in relation to Shares.

If, at the time of issue of Shares pursuant to the exercise of Warrants, the Shares are quoted on the Official Listor are traded on AIM or permission has been granted for dealings therein on any other recognised investmentexchange in any part of the world, the Company will apply to such body for permission to deal in or for quotationor admission of such Shares (as the case may be) and shall use its reasonable endeavours to secure suchpermission, quotation or admission, as the case may be.

The Warrant instrument contains provisions to adjust the subscription price and/or the number and/or nominalamount of Shares to be subscribed following a capitalisation or profits or reserves or a sub-division orconsolidation of the Shares and to allow warrant holders to participate in any offer or invitation made to theholders of Shares as if the subscription rights had been exercised before the record date of such offer or invitationor, in the case of a takeover offer, to exercise the Warrants.

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If, prior to the end of the Subscription Period, an order is made or an effective resolution is passed for winding upthe Company and there is a surplus available for distribution to the holders of Ordinary Shares exceeding thesubscription price, the Warrantholders will be treated as if they had exercised their subscription rights in full (lessan amount equal to the subscription price in respect of the relevant Shares arising).

Prior to the end of the Subscription Period the Company shall not, without the prior sanction of a resolution passedby a majority of not less than three-fourths of the Warrantholders voting, modify the rights attached to the Sharesin any way which has a material, adverse effect on the rights of the Warrantholders or the holder of Shares or therespective abilities of such persons to enjoy such rights (but so that such restriction shall not be a restriction orprohibition on sub-division or consolidation of shares) or amend any provision of its Articles (or pass anyresolution, whether by way of temporary or permanent relaxation or disapplication of any provision of its Articleshaving a like or similar effect) which will have a material, adverse effect on the rights of the Warrantholders orthe holder of Shares or the respective abilities of such persons to enjoy such rights

The Warrants may be freely transferred in whole or in part at any time.

The Company shall send to Warrantholders a copy of its Annual Report together with all documents required bylaw to be annexed thereto and copies of every statement, notice or circular issued to the members of the Companyconcurrently with the issue of the same to its members. Warrantholders shall have the right to attend and speak(but not to vote) at all meetings of members of the Company at which any business is to be moved which has anyeffect (actually or reasonably foreseeable) on the value of the Warrants or the rights attaching thereto or theenjoyment thereof.

14. LitigationThe Company is not involved in any legal or arbitration proceedings which may have or have had during the twelvemonths preceding the date of this document a significant effect on the Group’s financial position and, so far as theDirectors are aware, there are no such proceedings pending or threatened against the Group.

15. Working capitalThe Directors are of the opinion that, having made due and careful enquiry, the working capital available to theCompany, taking into account the estimated net proceeds of the Placing, will be sufficient for its presentrequirements, that is for at least twelve months from Admission.

16. Taxation16.1 Taxation implications for UK residents

16.1.1 IntroductionThe Company is in the process of applying to be registered for tax in Hong Kong. The statementsbelow are intended only as a general guide and UK resident shareholders and do not constitute adviceto any shareholder on his or her personal tax position and may not apply to certain classes of investor(such as dealers, charities or pension providers). The comments are based on current legislation andInland Revenue practice. Levels of taxation may change from time to time. Any investor who is inany doubt as to his or her tax position, or who may be subject to tax in any other jurisdiction, shouldconsult his or her professional adviser.

16.1.2 Taxation of DividendsWhere dividends are paid by the Company to a non-corporate shareholder, the taxation of theshareholder depends on their domicile situation. If the shareholder is UK domiciled they will be liableto UK income tax under Schedule D Case V on an arising basis. If they are non UK domiciled, theywill only be liable to UK income tax on amounts remitted to or received in the UK. Shareholders mustconsult their own tax advisors on their domicile, residence and ordinary residence status and on whatamounts to “remitted or received in” the UK. Non-corporate shareholders whose income, includingthe dividend, is within the lower or basic rate bands will be liable to “Schedule F Ordinary Rate” ofincome tax at 10 per cent. Individual shareholders who are liable to income tax at the higher rate oftax will be charged to “Schedule F Upper Rate” of tax of 32.5 per cent.

A UK corporate shareholder who receives a dividend paid by the Company will be taxable on thegross amount of the dividend under Schedule D Case V and taxed at the company’s marginal rate ofcorporation tax. The gross dividend includes withholding tax, if any, and underlying taxes, if a certainpercentage of the shares are held by the corporate shareholder. Relief may be given for anywithholding taxes paid or underlying taxes suffered overseas. Certain non-corporate shareholdersmay also be subject to UK tax on the group’s profits on an arising basis whether or not those profitsare distributed to shareholders by Company. To the extent that those profits are subsequently paid outas Company dividends relief should be available to avoid double taxation.

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16.1.3 Taxation of chargeable gains

If a UK resident (or ordinarily resident) shareholder disposes of all or any of the Shares acquired theymay, depending on their particular circumstances, incur a liability to UK taxation on chargeablegains.

Individuals, personal representatives and trustees may be entitled to taper relief, which will serve toreduce the chargeable gain. UK resident companies are not entitled to taper relief, but are dueindexation allowance, which may also reduce any chargeable gain, but will not create nor enhance acapital loss. UK domiciled non-corporate shareholders who, with connected persons, hold more thana 10 per cent. interest in the Company will be subject to the attribution of gains arising to theCompany, if the Company, if UK tax resident, would be regarded as a UK close company.

16.1.4 Stamp duty and stamp duty reserve tax

Generally, no UK stamp duty or stamp duty reserve tax will be payable by subscribers on the issue tothem of Shares pursuant to the Placing.

16.2 Taxation implications for Hong Kong Residents

Residents of Hong Kong will not be taxable on dividends received from the Company, or gains made on thedisposal of shares in the Company. No Hong Kong stamp duty will be payable on the issue or transfer ofshares in the Company.

16.3 Taxation Implications for PRC Residents

Individuals resident in PRC will be subject to Individual Income Tax at a rate of 20 per cent. on dividendsfrom the Company and on any gains that such individuals make from the disposal of shares in theCompany.

PRC domestic enterprises will be subject to Enterprise Income Tax at a rate of 33 per cent. on dividendsfrom the Company and gains made from the disposal of shares in the Company.

No PRC stamp duty will be payable on the issue or transfer of shares in the Company.

The above is a summary of certain aspects of current law and practice in the UK, Hong Kong and PRC, andis not tax advice to any Shareholder. Each prospective holder of Shares should consult that holder’s own taxadvisor with respect to the tax consequences of the ownership and disposal of Shares.

17. General17.1 The gross proceeds of the Placing are expected to be approximately £1.57 million. The total costs and

expenses relating to the Placing and Admission are payable by the Company and are estimated to amount toapproximately £0.56 million (including Value Added Tax where applicable).

17.2 Other than the current application for Admission, the Shares have not been admitted to dealings on anyrecognised investment exchange nor has any application for such admission been made nor are thereintended to be any other arrangements for there to be dealings in the Shares.

17.3 CCTT Ltd has given and not withdrawn its written consent to the inclusion of references to its name hereinin the form and context in which it appears and to the inclusion of its report in Part III of this document.

17.4 Baker Tilly has given and not withdrawn its written consent to the inclusion in this document of referencesto its name herein in the form and context in which it appears and to the inclusion of its report in Section Bof Part IV of this document.

17.5 Where information has been sourced from a third party, this information has been accurately reproduced andso far as the Directors are aware, and are able to ascertain from information published by that third party, nofacts have been omitted which would render the reproduced information inaccurate or misleading.

17.6 Each of John East & Partners and King & Shaxson Capital has given and not withdrawn their written consentto the inclusion in this document of references to its name in the form and context in which it appears.

17.7 The Placing Price represents a premium over nominal value of HK$5.34 (equivalent to approximately 34.9 pence) per Share.

17.8 It is expected that definitive share certificates will be despatched by hand or first class post by 29 December2006. In respect of shares in uncertificated form, it is expected that Shareholders’ CREST stock accountswill be credited on 21 December 2006.

17.9 The Directors are not aware of any exceptional factors which have influenced the Company’s activities.

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17.10 Save as set out in this document, the Directors are not aware of any patents or other intellectual propertyrights, licences or particular contracts which are or may be of fundamental importance to the Company’sbusiness.

17.11 Chu and Chu Certified Public Accountants, were auditors of the Company for the period relating to theaccounts set out in Part IV of this document.

17.12 Save as disclosed in this document, there has been no significant change in the trading or financial positionof Walcom since 31 December 2005, the date to which the Financial Information on the Company inSection A of Part IV of this document was prepared.

17.13 Save as disclosed in this document, as far as the Directors are aware there are no known trends,uncertainties, demands, commitments or events that are reasonably expected to have a material effect onthe Group’s prospects for at least the current financial year.

17.14 The Directors are not aware of any environmental issues that may affect the Group’s utilisation of itstangible fixed assets.

17.15 AOK International Holdings Limited was paid HK$212,000 in respect of consultancy services provided forthe period 1 January 2006 to 31 December 2006.

17.16 Save as disclosed at 17.15 no person directly or indirectly (other than the Company’s professional advisersand trade suppliers or save as disclosed in this document) has in the last twelve months received or iscontractually entitled to receive, directly or indirectly, from the Company on or after Admission:

17.16.1 fees totalling £10,000 or more;

17.16.2 or securities in the Company with a value of £10,000 or more calculated by reference to thePlacing Price; or

17.16.3 any other benefit with a value of £10,000 at the date of Admission.

17.17 Other than in the ordinary course of business, there are no significant investments in progress by theCompany.

17.18 The Directors are, or may be deemed to be, promoters of the Company.

17.19 The minimum amount which, in the opinion of the Directors, must be raised by the Company under thePlacing is approximately £1.57 million, which will be applied as follows:

(a) approximately £0.56 million (including VAT) in respect of the expenses of the Placing; and

(b) the balance of the proceeds of the Placing receivable by the Company after payment of the sumsdescribed above will be used as set out in the section headed “Details of and reasons for the Placingand use of the proceeds” in Part I of this document.

17.20 There are no amounts to be provided otherwise than from the proceeds of the Placing in respect of thematters specified in paragraph 17.19 above.

18. Availability of DocumentCopies of this Document are available, free of charge, from the registered office of the Company and the officeof John East & Partners, Crystal Gate, 28-30 Worship Street, London EC2A 2AH and King & Shaxson, 6th Floor,Candlewick House, 120 Cannon Street, London EC4N 6AS during normal business hours on any weekday(Saturdays and public holidays excepted) from the date of this document until at least one month after Admission.

Dated 15 December 2006

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