WALCOM GROUP LIMITED (Incorporated in the British Virgin Islands with limited liability)

=============

CHAIRMAN’S STATEMENT REPORT OF THE DIRECTORS

and FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2012

CONTENTS

PAGE

Directors and Advisers 1 Chairman’s Statement 4 Report of the Directors 8 Independent Auditor’s Report 14 Financial Statements 16 Notes to the Financial Statements 22 Five Year Financial Review 58 Biographies of the Directors 59 Summary of Patents Held 61 Notice of Annual General Meeting 63

1

WALCOM GROUP LIMITED

DIRECTORS

Eddie 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 and Secretary)

Prof. Hong Xun Yang (Chief Technical Officer and Chief Operating Officer in the PRC)

Frankie Yuet Leung Wong (Non -Executive Director)

Timothy Robert Nelson (Non-Executive Director)

Albert Chi Chiu Wong (Non-Executive Director)

COMPANY SECRETARY

Albert Siu Fai Wong FCPA, ACA

PRINCIPAL PLACE OF BUSINESS

Part D, Mingtai Bldg.

No. 351 Guo Shou Jing Road, ZJ Hi-tech Park

Shanghai 201203

People’s Republic of China

AUDITOR

Lau & Au Yeung C.P.A. Limited

21st Floor

Tai Yau Building

181 Johnston Road

Wanchai

Hong Kong

2

SOLICITOR

Reed Smith Richards Butler

20/F Alexandra House

16-20 Chater Road

Central

Hong Kong

NOMINATED ADVISER

and

BROKER

Sanlam Securities UK Limited

10 King William Street

London

EC4N 7TW

UK

REGISTRAR

Computershare Investor Services (Jersey) Limited

Queensway House

Hilgrove Street

St Helier

Jersey

JE1 1ES

DEPOSITARY NOMINEE

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

UK

3

PRINCIPAL BANKERS

Shanghai Commercial Bank Limited

Shop 83, Level 1, Uptown Plaza

9 Nam Wan Road, Tai Po, N.T.

Hong Kong

Shanghai Pudong Development Bank

509 Jingang Road

Jinqiao Export Processing Zone

Shanghai 201206

People’s Republic of China

Bank of Communications Shanghai

230 Xinjinqiao Road

Shanghai 201206

People’s Republic of China

4

WALCOM GROUP LIMITED

CHAIRMAN’S STATEMENT

On behalf of the board of directors (the “Board”), I am pleased to present the final results for the year

ended 31 December 2012.

Results

Despite the weak world economy and slow growth in the PRC market during 2012, the Company’s

sales momentum was maintained during the period. With the impact of increasing production costs

and operating expenses, the Company finished the year under review with a slightly reduced profit

attributable to the equity shareholders of HK$0.9 million (2011: Profit HK$1.3 million). Turnover

and gross profit levels for the year under review increased by 7 per cent. (2012: HK$47.2 million;

2011: HK$44.2 million) and 5 per cent. (2012: HK$29.6 million; 2011: HK$28.0 million)

respectively compared to the previous year. Net profit for the year decreased by 15 per cent. to

HK$1.7 million (2011: HK$2.0 million) and EBITDA decreased by 11 per cent. to HK$6.4 million

from HK$7.3 million for the same period last year.

A summary of the results for the period is set out below:

Year ended Year ended Change 31 December 31 December 2012 2011 HK$’000 HK$’000 per cent. Turnover 47,239 44,208 7 Gross profit 29,556 28,091 5 Operating profit 3,725 3,946 (6) EBITDA 6,444 7,258 (11) Net finance expense (109) (116) (6) Profit for the year 1,701 1,997 (15) Earnings per share - basic (HK cents) - diluted (HK cents)

1.24 1.24

1.88 1.88

(34) (34)

Net asset value per share (HK cents) 27.82 25.84 8

5

Operation and market review

Although the Chinese economy slowed down in 2012，the Company maintained its sales momentum

in the region. However, the escalating production costs lowered the gross profit margin to 62.6% in

2012 from 63.5% in 2011, and the increasing operating expenses lowered the net profit of the

Company during the year. The Company continued and compounded its strategy of marketing directly

to potential customers which was originally adopted in 2010. The PRC sales produced approximately

the same level as last year, although 2012 was a difficult year for the animal feed industry in China.

As mentioned in my statement in last year’s annual report, the ‘Alpha’ project, which was designed to

promote the energy saving efficacy in feedstuffs of the Company’s products, continues to play a

major role in new business development and sales.

As the political situation in Thailand became more stable during 2012, sales in the country increased

by 40 per cent. Some customers are increasing the frequency of use of our products in their

production which contributes to the higher demand in the country. The Company’s product for

improving milk production in cows, launched in late 2011, is still undergoing testing but this is

necessary to enhance the Company’s products’ brand reputation. As a result of the focused effort

made over the past few years, the Company’s products have become a trusted brand in the Thai

market and, accordingly, the Directors are expecting further improvement in the country due to higher

recognition and confidence in our products.

Sales in the Philippines were disappointing owing to the continuing poor economy in the country. The

Company ceased the operations of its associate company in the Philippines at the end of 2012.

However, the Company has appointed a sales distributor in the Philippines to keep the presence of

Company’s products in the country.

Recent Developments

As it has been in previous years, China continues to be the major market for the Company’s products

and it is expected to continue as such in the future. Since 2011, the Company has built up better

channels of communication with and gained more trust from potential customers after adopting a new

sales strategy aimed at building up a direct and personal relationship with them. The Company

utilized its data and technology to develop new techniques to solve common problems encountered in

the feed industry, and has helped our customers to improve their knowledge particularly in areas of

6

feed formulation, production management and management of sales team.

Patents

At the end of 2012 the Group held 52 granted patents in respect of:

its core Cysteamine technology in China, Hong Kong, North Korea, New Zealand, Ukraine,

Russia, South Africa, Australia, India, South Korea and Vietnam;

poultry feed in the UK, North Korea, Taiwan, Hong Kong, Russia, China, Australia and

Philippines;

dairy cow feed in New Zealand, the UK, Hong Kong, Europe, Mexico, India, China, Russia,

Australia and Malaysia;

fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand, Philippines, Vietnam and

Taiwan; and

shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines and China.

Most of the patents the Company applied for in the past years have been granted. The Directors

believe that there is wide patent coverage in places where they expect that there will be significant

demand for the Company’s products. Some patents which the Directors believe have a reduced chance

of commercialisation were dropped during the year.

Debt

As at the year end, the Group had a short term bank loan of HK$2.5 million, which was used to

finance the Group’s general working capital.

Dividend

The Directors do not recommend any dividend payment for the year ended 31 December 2012.

Annual General Meeting

The Annual General Meeting will be held at the offices of the Company’s solicitors, Reeds Smith

Richards Butler in Hong Kong at 2:30pm on Tuesday 18 June 2013.

7

Outlook

The Company achieved a net profit of HK$1.7 million and EBITDA of HK$6.4 million in 2012.

Looking to 2013, it will be another challenging year for the Company. Slower growth in the Chinese

economy has been confirmed by the new leadership of the Chinese government. The prolonged

effects of the debt crisis in the United States and Europe’s currency threat on the European Union

introduce further volatility in the global economy. Escalating production costs and operating expenses

will continue to be the major difficulties affecting the Company’s operation. However, the Directors

are optimistic that with the increasing portfolio of the Company’s business partners and customers,

the Company will produce another set of fruitful results in 2013.

On behalf of the Board, I would like to express our sincere thanks to the management team and staff,

professional advisers and shareholders for their continued support during the year.

Eddie K.M. Chan

Chairman

9 May 2013

8

WALCOM GROUP LIMITED

REPORT OF THE DIRECTORS

The Directors present their Annual Report, together with the Audited Financial Statements of the

Company and its subsidiaries for the year ended 31 December 2012.

Principal Activity

The Group is actively engaged in the research, development, commercialisation, production and

marketing of animal feed additive products.

Results and dividends

Details of the Group’s results for the year ended 31 December 2012 are set out in the Consolidated

Income Statement on page 16 and the Consolidated Statement of Comprehensive Income on page 17.

The Directors do not recommend the payment of any dividend for the year.

Financial Summary

A summary of the results and of the assets and liabilities of the Group for the past five financial years

is set out on page 58 of the Annual Report.

Non-current Assets

The major non-current assets of the Group consist of land and building, plant and equipment, and

patents, the movement of which are set out in Notes 13 and 14 to the financial statements on pages 41

and 42 respectively. A summary of the patents held as at 31 December 2012 is also included in pages

61 and 62.

Share Capital

Detailed movements in the share capital of the Company during the year are set out in Note 23 to the

financial statements on page 49.

9

Directors

Eddie Kin Man Chan Non-Executive Chairman

Francis Chi Executive Director

Yong Chian Tan Executive Director

Albert Siu Fai Wong Executive Director and Secretary

Prof. Hong Xun Yang (appointed on 2 March 2012) Executive Director

Frankie Yuet Leung Wong Non -Executive Director

Timothy Robert Nelson Non -Executive Director

Albert Chi Chiu Wong Non -Executive Director

In accordance with the Company’s Articles of Association, Mr Albert Siu Fai Wong and Mr Timothy

Robert Nelson retire by rotation and, being eligible, offer themselves for re-election at the

forthcoming annual general meeting.

Brief biographies of each of the Directors are shown on pages 59 and 60.

Directors’ Service Contracts

Mr Francis Chi, Mr Yong Chian Tan, Mr Albert Siu Fai Wong and Prof. Hong Xun Yang each

entered into a service agreement with the Company with indefinite term of service and determinable

by either party by giving six months’ prior written notice.

Each of the non-executive Directors entered into a letter of appointment with the Company for a

continued term of one year from 21 December 2012, determinable by the director by giving a written

notice to the Company before its expiration.

10

Directors’ Emoluments

Directors’ emoluments for the year ended 31 December 2012 are set out as follows:

(expressed in HK$’000)

Fees

Salaries and other benefits

Share-based

payments

Retirement benefits scheme

contribution Total 2012

Total 2011

Eddie K.M. Chan

40

-

-

-

40

30

Francis Chi 792 1,300 - 14 2,106 1,824 Yong Chian Tan 494 900 136 - 1,530 1,411 Albert S.F. Wong 595 800 67 14 1,476 1,321 Hong Xun Yang 357 1,167 190 69 1,783 - Frankie Y.L. Wong 40 - - - 40 30 Timothy R. Nelson 40 - - - 40 30 Albert C.C. Wong 40 - - - 40 30 _____ _____ _____ _____ _____ _____ Total 2012

2,398

4,167

393

97

7,055

Total 2011

1,357

2,991

304

24

4,676

Share Option Scheme

A share option scheme (“the scheme”) was adopted pursuant to a resolution passed at an

extraordinary general meeting of the Company held on 20 September 2006 for the purpose of

providing incentives or rewards to any director of any member of the group who is in service with

any such company or any employee of any member of the group, other than one who is a director.

The maximum number of shares in respect of which options or rights to subscribe for shares pursuant

to the scheme when aggregated with number of shares in respect of which options or rights to

subscribe for shares has been granted in previous years under the scheme and other share option or

share incentive plans adopted by the Company shall not exceed 10% of the shares issued by the

Company from time to time. An option share shall only be exercisable (a) after one year

from date of grant, (b) before the expiry of the option period, (c) at a time permitted by the Model

Code for Securities Transactions by Directors of Listed Issuers, and (d) if any performance

11

conditions imposed pursuant to the scheme rules have been fulfilled or obtained.

There are 4,870,000 share options outstanding as at 31 December 2012, details of which are set out in

Note 24(a) to the financial statements on page 52.

Directors’ Interests in Contracts of Significance

Save as disclosed in Note 27 to the financial statements on page 54, no contract of significance, to

which the Company or its subsidiaries was a party and in which a Director of the Company had a

material interest, whether directly and indirectly, subsisted at the end of the year or at any time during

the year.

Directors’ Interests in Shares

At 31 December 2012, the interests of the Directors and their associates in the shares and underlying

shares of the Company and its associated corporations, as recorded in the register maintained by the

Company, or as otherwise notified to the Company, were as follows:

No. of issued ordinary shares held

Shareholding percentage

Eddie K.M. Chan1

1,233,652

1.79%

Francis Chi2 19,660,290 28.56% Yong Chian Tan3 2,056,085 2.99% Albert S.F. Wong4 360,969 0.52% Hong Xun Yang5 220,000 0.32% Frankie Y.L. Wong6 11,593,921 16.84% Timothy R. Nelson7

1,572,890 2.29%

1held by Best Revenue Investments Limited, a nominee company. 2held by Leadton Resources Limited, a nominee company. 3held by Granfuture Holdings Limited, a nominee company. 4held by Faiton Industrial Limited, a nominee company. 5held by Walcom China Staff Incentive Limited, a nominee company. 6includes 11,521,727 shares held by Bioglory International Ltd, which is a subsidiary of The Yangtze Ventures Limited, a

company of which he is a director. The remaining 72,194 shares are held in his own name. 7held by Vuna Capital Partners Ltd., a company of which he is a director.

12

Corporate Governance

The Board recognises the importance of sound corporate governance and complies with the

Corporate Governance Guidelines for Smaller Quoted Companies published by the Quoted

Companies Alliance in September 2010 and applies them to the extent considered appropriate by

the Board given the size of the Group.

The Board currently comprises four executive Directors and four non-executive Directors. The

Chairman is a non-executive member of the Board. There is a clear division of responsibilities in

running the Board and the Group’s business.

The Board receives and reviews on a regular basis such financial and operating information

appropriate to the Directors being able to discharge their duties. An annual budget is approved by

the Board with revised forecast being prepared at the half year stage.

Directors retire by rotation and offer themselves for re-election pursuant to the Articles of

Association of the Company.

The Board complies with Rule 21 of the AIM Rules relating to directors’ dealings as applicable to

AIM companies and have also taken all reasonable steps to ensure compliance by any of the

Group’s employees.

The Company has established an Audit Committee and a Remuneration Committee with formally

delegated duties and responsibilities.

Audit Committee

The Audit Committee comprises Mr Eddie K.M. Chan, Mr Frankie Y.L. Wong, Mr Timothy R.

Nelson, Mr Albert C.C. Wong and Mr Albert S.F. Wong.

The duties of the Audit Committee include reviewing, in draft form, the Company’s annual and

half-yearly report and financial statements and providing advice to the Board. Members of the Audit

Committee are also responsible for reviewing and supervising the financial reporting process and

internal control system of the Group.

The terms of reference of the Audit Committee are available on the Company’s website

www.walcomgroup.com.

13

Remuneration Committee

The Remuneration Committee comprises Mr Eddie K.M. Chan, Mr Timothy R. Nelson and Mr Albert

S.F. Wong.

The Remuneration Committee is responsible for reviewing the scale and structure of the executive

Directors’ remuneration and the terms of their service contracts, including share option schemes and

any bonus arrangements. The terms and conditions of the arrangements, including remuneration, with

non-executive Directors are set by the entire Board.

The terms of reference of the Remuneration Committee are available on the Company’s website

www.walcomgroup.com.

By Order of the Board,

Albert S.F. Wong

Secretary

9 May 2013

14

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF WALCOM GROUP LIMITED (Incorporated in the British Virgin Islands with limited liability) We have audited the consolidated financial statements of Walcom Group Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 16 to 57, which comprise the consolidated and the Company balance sheets as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. DIRECTORS’ RESPONSIBLITY FOR THE FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”), and for such internal control as the directors determine is necessary to enable preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (“IAASB”). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

15

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF WALCOM GROUP LIMITED (CONTINUED) (Incorporated in the British Virgin Islands with limited liability) OPINION In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2012 and of the Group’s profit and cash flows for the year then ended in accordance with International Financial Reporting Standards. Lau & Au Yeung C.P.A. Limited

Certified Public Accountants

Hong Kong, 9 May 2013

Franklin Lau Shiu Wai Director Practising Certificate Number P1886

16

Walcom Group Limited Consolidated income statement For the year ended 31 December 2012 (Expressed in Hong Kong dollars)

Note 2012 2011 HK$ HK$ Revenue 4 47,239,167 44,207,817 Cost of sales (17,683,088 ) (16,116,325 )

Gross profit 29,556,079 28,091,492 Other income 5 379,894 124,556 Research and development expenses ( 1,434,131 ) ( 1,580,780 ) Selling and distribution expenses (10,905,767 ) (10,712,894 ) General and administrative expenses (13,870,697 ) (11,976,400 )

Profit from operations 3,725,378 3,945,974 Net finance expense 6 ( 108,922 ) ( 116,477 ) Profit before income tax 7 3,616,456 3,829,497 Income tax expense 8 ( 1,915,658 ) ( 1,832,990 )

Profit for the year 9 1,700,798

1,996,507

Profit attributable to: Owners of the Company 850,980 1,291,396 Non-controlling interests 849,818 705,111

Profit for the year 1,700,798

1,996,507

Earnings per share - basic, HK cents 11 1.24 1.88 - diluted, HK cents 1.24 1.88

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

17

Walcom Group Limited Consolidated statement of comprehensive income For the year ended 31 December 2012 (Expressed in Hong Kong dollars)

Note 2012 2011 HK$ HK$ Profit for the year 9 1,700,798

1,996,507

Other comprehensive income Exchange difference on translation of

financial statements of overseas subsidiaries 111,796 631,579 Total comprehensive income for the year 1,812,594

2,628,086

Total comprehensive income attributable to: Owners of the Company 915,274 1,996,312 Non-controlling interests 897,320 631,774

Total comprehensive income for the year 1,812,594

2,628,086

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

18

Walcom Group Limited Consolidated balance sheet as at 31 December 2012 (Expressed in Hong Kong dollars)

Note 2012 2011 HK$ HK$ ASSETS

NON-CURRENT ASSETS Property, plant and equipment 13 1,841,668 2,153,287 Patents 14 3,097,696 4,003,839

Goodwill 15 - - Investment in associate 17 - -

4,939,364 6,157,126 CURRENT ASSETS Inventories 18 1,418,664 1,221,152 Trade and other receivables 19 9,422,778 7,985,454 Amounts due from associate 17 - 753,163 Tax recoverable 163,616 410,238 Cash and cash equivalents 20 14,831,853 11,736,464

25,836,911 22,106,471

TOTAL ASSETS 30,776,275 28,263,597

EQUITY Share capital 23 688,344 688,344 Reserves 18,463,809 17,101,037

TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY

19,152,153

17,789,381

Non-controlling interests 1,696,306 1,398,458

TOTAL EQUITY 20,848,459 19,187,839

CURRENT LIABILITIES Trade and other payables 21 6,457,925 5,705,808 Tax payables 1,003,496 902,946 Bank borrowings 22 2,466,395 2,467,004 9,927,816 9,075,758 TOTAL LIABILITIES 9,927,816 9,075,758

TOTAL EQUITY AND LIABILITIES 30,776,275 28,263,597

NET CURRENT ASSETS 15,909,095 13,030,713

TOTAL ASSETS LESS CURRENT LIABILITIES 20,848,459 19,187,839

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

19

Walcom Group Limited Balance sheet as at 31 December 2012 (Expressed in Hong Kong dollars)

Note 2012 2011 HK$ HK$ ASSETS NON-CURRENT ASSETS Investments in subsidiaries 16 384 384

CURRENT ASSETS Amounts due from subsidiaries 16 - - Other receivables 25,199 17,616 Cash and cash equivalents 20 22,299 22,899

47,498 40,515

TOTAL ASSETS 47,882 40,899

EQUITY

CAPITAL AND RESERVES Share capital 23 688,344 688,344 Reserves 23 (1,036,915 ) (1,010,075 )

CAPITAL DEFICIENCY ( 348,571 ) ( 321,731 ) CURRENT LIABILITIES Other payables 396,453 362,630

TOTAL EQUITY AND LIABILITIES 47,882 40,899

NET CURRENT LIABILITIES (348,955 ) (322,115 )

TOTAL ASSETS LESS CURRENT LIABILITIES (348,571 ) (321,731 )

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

20

Walcom Group Limited Consolidated statement of changes in equity For the year ended 31 December 2012 (Expressed in Hong Kong dollars) Share-based Non- Share Share Merger compensation Exchange Accumulated controlling Total capital premium reserve reserve reserve losses Total interests equity HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ (Note 23(b)(i)) (Note 23(b)(ii)) (Note 23(b)(iii))

At 1 January 2011 688,344 95,298,644 23,852,469 1,379,181 1,418,169 (107,512,376) 15,124,431 1,042,541 16,166,972 Comprehensive income Profit for the year - - - - - 1,291,396 1,291,396 705,111 1,996,507 Other comprehensive income Exchange difference on translation of

financial statements of overseas subsidiaries - - - - 704,916 - 704,916 (73,337) 631,579

Total comprehensive income for the year - - - - 704,916 1,291,396 1,996,312 631,774 2,628,086 Recognition of equity-settled share-based payments - - - 668,638 - - 668,638 - 668,638 Dividends to non-controlling interests - - - - - - - (275,857) (275,857) At 31 December 2011 688,344 95,298,644 23,852,469 2,047,819 2,123,085 (106,220,980) 17,789,381 1,398,458 19,187,839 At 1 January 2012 688,344 95,298,644 23,852,469 2,047,819 2,123,085 (106,220,980) 17,789,381 1,398,458 19,187,839 Comprehensive income Profit for the year - - - - - 850,980 850,980 849,818 1,700,798 Other comprehensive income Exchange difference on translation of

financial statements of overseas subsidiaries - - - - 64,294 - 64,294 47,502 111,796

Total comprehensive income for the year - - - - 64,294 850,980 915,274 897,320 1,812,594 Recognition of equity-settled share-based payments - - - 447,498 - - 447,498 - 447,498 Lapse of share options - - - (39,909) - 39,909 - - - Dividends to non-controlling interests - - - - - - - (599,472) (599,472) At 31 December 2012 688,344 95,298,644 23,852,469 2,455,408 2,187,379 (105,330,091) 19,152,153 1,696,306 20,848,459

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

21

Walcom Group Limited Consolidated statement of cash flows For the year ended 31 December 2012 (Expressed in Hong Kong dollars) Note 2012 2011 HK$ HK$ Cash flow from operating activities Profit before income tax 3,616,456 3,829,497 Amortisation of patents 7(b) 335,728 376,251 Bad debts written off 7(b) 2,011 - Interest received 6 ( 66,971 ) ( 47,796 ) Depreciation 13 620,951 690,874 Foreign exchange loss, net 7(b) 3,021 419,720 Interest paid 6 175,893 164,273 Loss on disposal of property, plant and equipment 7(b) 77,451 9,336

Loss on cessation of a subsidiary’s assets - 11,540 Provision for impairment losses on amounts due from associate 7(b) - 752,000 Written off of amounts due from associate 7(b) 580,273 -

Impairment loss on goodwill 7(b) - 127,857 Patents written off 7(b) 655,021 653,581 Inventories written off 18,740 103,029 Share-based compensation 7(a) 447,498 668,638

Operating profit before working capital changes 6,466,072 7,758,800 Increase in inventories ( 216,252 ) ( 451,832 ) Increase in trade and other receivables (1,439,335 ) (1,763,721 ) Decrease in amounts due from associate – trade related - 320,684 Increase in trade and other payables 796,967 1,596,760

Net cash generated from operations 5,607,452 7,460,691 Corporate income tax paid (1,568,486 ) (1,696,602 ) Interest paid ( 175,893 ) ( 164,273 )

Net cash generated from operating activities 3,863,073 5,599,816 Cash flow from investing activities Payment for patents ( 129,456 ) ( 307,310 ) Purchases of property, plant and equipment ( 363,229 ) ( 152,099 ) Proceeds from sales of property, plant and equipment 3,060 - Decrease / (increase) in amounts due from associate – non-trade related 172,890 ( 192,913 ) Interest received 66,971 47,796

Net cash used in investing activities ( 249,764 ) ( 604,526 ) Cash flow from financing activities Dividends paid to minority interests ( 599,472 ) ( 275,857 ) Repayment of bank borrowings (2,467,004 ) (2,056,208 ) Proceeds from new bank borrowings 2,466,395 2,590,354

Net cash (used in) / generated from financing activities (600,081 ) 258,289

Net increase in cash and cash equivalents 3,013,228 5,253,579 Cash and cash equivalents at the beginning of the year 11,736,464 6,285,006 Exchange gain on cash and cash equivalents 82,161 197,879 Cash and cash equivalents at the end of the year 20 14,831,853 11,736,464

The notes on pages 22 to 57 form an integral part of these consolidated financial statements.

22

Walcom Group Limited Notes to the consolidated financial statements For the year ended 31 December 2012 (Expressed in Hong Kong dollars) 1 General information

Walcom Group Limited is a company incorporated and domiciled in the British Virgin Islands. The shares of the company are traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange. The address of the registered office of the Company is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, the British Virgin Islands and its principal place of business is located at Part D, Mingtai Bldg., No. 351 Guo Shou Jing Road, ZJ Hi-tech Park, Shanghai 201203, People’s Republic of China.

The principal activity of the Company is investment holding. The principal activities of the subsidiaries are set out in note 16. These consolidated financial statements were authorised for issue by the board of directors on 9 May 2013.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These consolidated financial statements also comply with the applicable disclosure provisions of the AIM Rules for Companies of the London Stock Exchange. They have been prepared under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 29.

(b) Change in accounting policy and disclosures

In 2012, the Group adopted the new and amended standards, interpretations to the published standards and the improvements to IFRS which are relevant to its operation.

IFRS 7 (Amendments) Disclosures – Transfer of Financial Assets IAS 12 (Amendments) Deffered Tax – Recovery of Underlying Assets

The adoption of the new and revised IFRSs has had no significant financial effect on these financial statements.

23

2 Summary of significant accounting policies (continued) (b) Change in accounting policy and disclosures (continued)

New standards, amendments to standards and interpretations At the date of authorisation of this consolidated financial statements, the following new or revised IAS and IFRS, amendments and interpretation to existing IAS and IFRS have been issued but not yet effective:

IAS 1 (Amendments) Presentation of Items of Other Comprehensive Income (effective from 1 July 2012)

IAS 19 (Revised 2011) Employee Benefits (effective from 1 January 2013) IAS 27 (Revised 2011) Separate Financial Statements (effective from 1 January

2013) IAS 28 (Revised 2011) Investments in Associates and Joint Ventures (effective

from 1 January 2013) IAS 32 (Amendments) Offsetting Financial Assets and Financial Liabilities

(effective from 1 January 2014) IFRSs (Amendments) Annual Improvements to IFRSs 2009-2011 Cycle

except for IAS 1 (Amendments) (effective from 1 January 2013)

IFRS 7 (Amendments) Disclosure – Offsetting Financial Assets and Financial Liabilities (effective from 1 January 2013)

IFRS 9 (Amendments) and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures (effective from 1 January 2015)

IFRS 9 Financial Instruments (effective from 1 January 2015) IFRS 10 Consolidated Financial Statements (effective from 1

January 2013) IFRS 11 Joint Arrangements (effective from 1 January 2013) IFRS 12 Disclosure of Interests in Other Entities (effective from

1 January 2013) IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements,

(Amendments) Disclosure of Interests and Other Entities: Transitional Guidance (effective from 1 January 2013)

IFRS 10, IFRS 11 and IAS 27 Investment Entities (effective from 1 January 2014) (Amendments)

IFRS 13 Fair Value Measurement (effective from 1 January 2013)

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective from 1 January 2013)

The Group did not early adopt any of these new or revised IAS and IFRS, amendments and interpretation to existing IAS and IFRS. Management is currently assessing the financial impact of these revisions to the Group’s financial position and performance.

(c) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 December 2012.

24

2 Summary of significant accounting policies (continued) (d) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise from circumstances where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. (i) Business combination

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is no re-measured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration Transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

25

2 Summary of significant accounting policies (continued) (d) Subsidiaries (continued)

(ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(iii) Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(e) Associate

Associate is entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting right. Investment in an associate are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The group’s investment in associate includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. The Group’s share of post-acquisition profits or losses is recognised in the consolidated statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of profit/ (loss) of an associate’ in the income statement.

Profits and losses resulting from upstream and downstream transactions between the company and its associate are recognised in the company’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses in associates are recognised in the consolidated statement of comprehensive income.

26

2 Summary of significant accounting policies (continued) (f) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred. Depreciation of both owned and leased property, plant and equipment is calculated using the straight-line method to allocate their costs or revalued amounts to their residual value over their estimated useful lives, as follows: Building 5% Leasehold improvements 20% or term of lease, whichever is shorter Furniture and fixtures 20% Office equipment 20% Plant and machinery 10% - 30% Motor vehicles 20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains or losses on disposal of plant and equipment are determined by comparing the proceeds with the carrying amount. These are included in the consolidated statement of comprehensive income.

(g) Patents

Patents that are acquired by the Group and/or self-invented are stated in the consolidated balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(h)). Amortisation of patents is charged to the consolidated statement of comprehensive income on a straight line basis over the assets’ estimated useful lives. The patents are amortised from the date they are available for use and their estimated useful lives are 20 years. Both the period and method of amortisation are reviewed annually.

27

2 Summary of significant accounting policies (continued) (h) Impairment of investments in subsidiaries, associates and non-financial assets

Assets that have an indefinite useful life - for example, goodwill or intangible assets not ready to use - are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(j) Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using effective interest method, less provision for impairment.

(k) Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the consolidated and entity balance sheet, bank overdrafts are shown within “borrowings” in current liabilities.

(l) Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recogised initially at fair value and subsequently measured at amortised cost using the effective interest method.

28

2 Summary of significant accounting policies (continued) (m) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

(n) Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

(o) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably on the following bases:

(i) Sale of goods

Revenue from the sales of goods is recognised on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts and eliminating sales within the Group.

(ii) Management and technical support services

Revenue from provision of management and technical support services are recognised when the related services are rendered.

(iii) Interest income

Interest income is recognised as it accrues using the effective interest method.

29

2 Summary of significant accounting policies (continued) (p) Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is capitalised only if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the costs of materials, direct labour and an appropriate proportion of overheads. Capitalised development costs are stated at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense in the period in which it is incurred.

(q) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the group’s various lines of business and geographical locations.

(r) Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are charged to the consolidated statement of comprehensive income on a straight line basis over the period of the lease.

(s) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollars (HK$), which is the Company’s functional and the Group’s presentation currency.

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchanges gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income.

30

2 Summary of significant accounting policies (continued) (s) Foreign currency translation (continued)

Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

- assets and liabilities for each balance sheet presented are translated at the closing rate at the date

of that balance sheet;

- income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

- all resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(t) Employee benefits

Pension obligations

The Group contributes to defined contribution plans including the Hong Kong Mandatory Provident Fund Scheme, the People’s Republic of China Central Pension Scheme and the pension fund of Thailand. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

31

2 Summary of significant accounting policies (continued)

(t) Employee benefits (continued)

Share-based payment

The Group operates an equity-settled compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting date, the entity revises its estimated of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision of original estimates, if any, in the consolidated statement of comprehensive income with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(u) Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associate operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary difference arising on investments in subsidiaries, and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference, is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

32

2 Summary of significant accounting policies (continued) (v) Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person:

(i) has control or joint control over the Group; (ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

(b) the party is an entity where any of the following conditions applies:

(i) the entity and the Group are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Group are joint ventures of the same third party;

(iv) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

(v) the entity controlled or jointly controlled by a person identified in (a); and

(vi) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

3 Financial risk management

The Group’s activities expose it to a variety of financial risks, including foreign currency risk, price risk, credit risk, liquidity risk and interest rate risk. The Group does not hold or issue derivative financial instruments either for hedging or for trading purposes. These risks are managed by the Group’s financial management policies and practices as described below to minimise potential effects on the Group’s financial performance.

a) Foreign currency risk

The Group has certain exposure to foreign currency risk as most of its business transactions, assets and liabilities are principally denominated in Hong Kong dollars, United States dollars (“US dollars”) and Renminbi (“RMB”). Certain Group’s sales are denominated in US dollars. As the Hong Kong dollars is pegged to the United States dollars, the Group does not expect any significant exposure to foreign currency risk on revenue. However, the Group is exposed to foreign currency risk primarily through the majority of purchases of raw materials, manufacturing costs and certain group’s sales which are settled and received in RMB. The Group does not employ any financial instruments for hedging purposes but monitors the situation closely to reduce foreign currency risks.

33

3 Financial risk management (continued)

a) Foreign currency risk (continued) At 31 December 2012, if the currency had weakened / strengthened by 10% against the RMB and Thai Baht with all other variables held constant, post-tax profit for the year would have been HK$173,000 (2011: HK$106,000) higher / lower, mainly as a result of foreign exchange gains / losses on translation of RMB and Thai Baht-denominated trade receivables and foreign exchange losses / gains on translation of RMB-denominated trade payables and RMB-denominated borrowings.

b) Equity securities price risk

The Company is not exposed to any equity securities price risk because the unquoted investments are held for long term strategic purposes. Their performance is assessed and monitored by the management on an on going basis.

c) Raw material price risk

The Group is exposed to risk from increases in the price of raw materials, cysteamine hydrochloride and cyclodexin, labour cost and rental expense which are used in the production of inventories. To minimise this risk, the Group closely monitors its inventories level and enters into contracts with suppliers in advance and make prepayments to suppliers to secure future supplies.

d) Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations. The Group’s credit risk is primarily attributable to trade and other receivables. The Group trades only with recognised, creditworthy customers and hence there is no requirement for collateral. The Group has a policy in place that all customers who are offered credit terms are subject to credit verification procedures. The credit period granted to customers ranges from 30 days to 120 days. All trade receivables are monitored on an ongoing basis and overdue balances are reviewed regularly by Credit Committee. The continued supply of goods to customers with trade debts past due are reviewed and approved by the management on an individual basis. With respect to credit risk arising from the other financial assets of the Group which comprise cash and cash equivalents, the Group’s exposure to credit risk arising from default of the counterparties is limited as the counterparties have good credit standing and the Group does not expect to incur significant loss for uncollected deposits from these entities.

The maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations is represented by the carrying amount of each financial asset in the consolidated balance sheet. The Group does not provide any other guarantees which expose the Group to credit risk. Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 19.

34

3 Financial risk management (continued) e) Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and overdrafts. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. The table analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flow. 2012 Between Between Within 1 year 1 to 2 2 to 5 Over or on demand years years 5 years Total HK$ HK$ HK$ HK$ HK$ Trade and other payables 7,461,421 - - - 7,461,421 Bank borrowings 2,466,395 - - - 2,466,395

9,927,816 - - - 9,927,816 2011 Between Between Within 1 year 1 to 2 2 to 5 Over or on demand years years 5 years Total HK$ HK$ HK$ HK$ HK$ Trade and other payables 6,608,754 - - - 6,608,754 Bank borrowings 2,467,004 - - - 2,467,004

9,075,758 - - - 9,075,758 In order to manage the above liquidity demands, at 31 December 2012, HK$14,831,853 (2011: HK$11,736,464) of the Group’s assets respectively were held as cash that are considered readily realisable.

35

3 Financial risk management (continued) f) Interest rate risk

The Group’s interest rate risk arises from bank borrowings, bank overdrafts and deposits. Borrowings and deposits issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings and deposits issued at fixed rates expose the Group to fair value interest-rate risk. At the balance sheet date, if interest rates had been increased or decreased by 25 basis-point and all other variables were held constant, the Group’s profit before income tax for the year ended 31 December 2012 would increase or decrease by HK$30,914 (2011: HK$23,173). Increase/ Increase/ Increase of (decrease) Decrease of (decrease) 25 basis points in profit before 25 basis points in profit before income tax income tax HK$ HK$ 2012 On bank deposits 0.25% 37,080 0.25% (37,080) On bank borrowings 0.25% (6,166) 0.25% 6,166 2011 On bank deposits 0.25% 29,341 0.25% (29,341) On bank borrowings 0.25% (6,168) 0.25% 6,168

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for financial instruments in existence at that date. The 25 basis-point increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis performed on the same basis for 2011.

g) Fair values

All financial assets and liabilities are carried at amounts not materially different from their fair values as at 31 December 2012 and 2011.

4 Revenue

The principal activities of the Group are manufacturing and sale of chemical feed and additive products. Revenue represents the sales value of goods supplied to customers less returns, discounts, value added tax and sales taxes.

36

5 Other income

2012 2011 HK$ HK$ Government subsidy 340,217 33,801 Sundry income 39,677 50,255 Written back of accrued expenses - 40,500 379,894 124,556

Note: During the years ended 31 December 2012 and 2011, the Group received subsidies from local government bodies

in the PRC, which aimed at the technology development of the Group. 6 Net finance expense

2012 2011 HK$ HK$ Bank interest income 66,971 47,796 Interest expense on bank loan (175,893) (164,273) (108,922) (116,477)

7 Profit before income tax Profit before income tax is stated after charging the following items :- (a) Staff costs (including directors’ emoluments)

2012 2011 HK$ HK$ Salaries, wages and commission 10,620,164 8,646,228 Contributions to defined contribution retirement plans 814,571 688,611 Share-based compensation 447,498 668,638 Other staff benefits 2,788,715 2,255,176 14,670,948 12,258,653

(b) Other items

2012 2011 HK$ HK$ Amortisation of patents 335,728 376,251 Auditor’s remuneration 261,311 240,000 Bad debts written off 2,011 - Cost of inventories sold (note 18) 17,683,088 16,116,325 Depreciation 290,334 266,471 Exchange losses, net 3,021 419,720 Loss on disposal of property, plant and equipment 77,451 9,336 Loss on cessation of a subsidiary - 33,906 Impairment loss on goodwill - 127,857 Patents written off 655,021 653,580 Provision for impairment losses on amounts due from associate - 752,000 Written off of amounts due from associate 580,273 - Rental charges under operating leases in respect of

land and buildings 739,762 577,007

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8 Income tax expense

2012 2011 HK$ HK$ Current income tax

- Thailand corporate income tax 693,193 617,380 - Shanghai foreign enterprise income tax 1,222,465 1,215,610 1,915,658 1,832,990

(a) Taxation for the Company No provision for profits tax has been made for the Company as it is exempted from taxation in the

British Virgin Islands. No deferred taxation has been provided as the Company has no material unprovided deferred tax

assets or liabilities which are expected to be crystallized in the foreseeable future (2011: HK$nil). (b) Taxation for the Group (i) Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the

rate of taxation prevailing in the countries in which the Group companies operate. The income tax expense stated in consolidated statement of comprehensive income represented the corporate income tax and foreign enterprise income tax arisen from the business of subsidiaries operating in Thailand and Shanghai respectively.

Hong Kong Profits Tax is calculated at 16.5% (2011: 16.5%) of the estimated assessable profit for

the year. However, no provision for Hong Kong profits tax has been made (2011: HK$nil) as the Group did not have assessable profit subject to Hong Kong profits tax for the year.

Provision for foreign enterprise income tax (“FEIT”) in the People’s Republic of China (“PRC”) has been made at 12.5% (2011: 12%) as Shanghai Walcom Bio-Chem Co., Ltd. (“Shanghai Walcom”), a wholly owned subsidiary operating in Shanghai, has assessable profits for the year.

Pursuant to the relevant income tax rules and regulations in the PRC, Shanghai Walcom is granted

certain tax relief whereby it is exempted from FEIT for the first two years and 50% reduction for the following three years commencing from the first profitable year of operation after fully set off against the accumulated losses brought forward. On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (“the new tax law”), which took effect on 1 January 2008. Under the new tax law, the PRC income tax rate was gradually increased to a standard rate of 25% for all domestic and foreign enterprises over the next five years with effective from 1 January 2008. According to the Circular 39 passed by the State Council on 26 December 2007, the tax exemption and reduction was terminated latest by 2012. Accordingly, Shanghai Walcom was exempted from PRC income tax for the years from 1 January 2008 to 31 December 2009, followed by a 50% reduction in the tax rate for the remaining three years from 1 January 2010 to 31 December 2012. The applicable income tax rate was 11%, 12% and 12.5% for the year 2010, 2011 and 2012 respectively.

38

8 Income tax expense (continued)

(b) Taxation for the Group (continued)

(ii) A reconciliation between the Group’s income tax expense and the accounting profit, at the applicable tax rate, is set out below :-

2012 2011 HK$ HK$ Profit before income tax 3,616,456 3,829,497 Notional tax calculated on profit before income tax, calculated at the rates applicable to profits in the countries concerned 469,183 344,418 Tax effect of: Expenses not deductible for tax purpose 905,218 919,091 Non-taxable revenue (5) (2) Temporary differences not recognized (958) 188 Unused tax losses not recognized 542,220 569,295 Income tax charges 1,915,658 1,832,990

(iii) A deferred tax asset amounting to HK$9,470,481 (2011: HK$8,928,261) in respect of tax losses of a subsidiary incorporated in Hong Kong of approximately HK$57,397,000 (2011: HK$54,111,000) has not been recognised in the financial statements as it is not certain that future taxable profit will be available against which these losses can be utilised.

9 Loss attributable to shareholders

Loss attributable to owners of the Company for the year ended 31 December 2012 dealt with in the financial statements of the Company was approximately HK$474,338 (2011: HK$463,534).

10 Dividends

The Company does not recommend the payment of any dividend for the year ended 31 December 2012 (2011: HK$Nil).

39

11 Earnings per share There is no difference between basic and diluted earnings per share. The basic and diluted earnings

per share for the year ended 31 December 2012 are calculated by dividing the Group’s profit attributable to owners of the Group of HK$850,980 (2011: HK$1,291,396) by the weighted average number of 68,834,388 ordinary shares (2011: 68,834,388 ordinary shares). The computation of diluted earnings per share does not assume the exercise of the Company’s outstanding share options because the exercise price of the options is higher than the average market price for the years ended 31 December 2012 and 2011.

12 Segment reporting

(a) Primary reporting format - Geographical Segment The Group’s operations are mainly located in Hong Kong, PRC and Thailand. The Group’s sales

revenue by geographical location of customers are analysed as follows: (i) Sales revenue by geographical location of customers 2012 2011 HK$ HK$ PRC 34,707,282 34,570,620 Taiwan 340,236 748,519 Thailand 11,819,121 8,412,816 Korea 171,600 347,318 Others 200,928 128,544

47,239,167 44,207,817 (ii) Segment assets by geographical location of the assets 2012 2011 HK$ HK$ Hong Kong 2,148,282 1,048,195 PRC 19,468,743 18,567,279 The Philippines 145,020 899,781 Thailand 6,604,504 4,523,871 Taiwan 382,310 408,983 Other Asia-Pacific countries 916,832 1,123,357 Europe and United Kingdom 884,988 967,462 America and Canada 211,867 243,382 Others 13,729 481,287

30,776,275 28,263,597

40

12 Segment reporting (continued)

(a) Primary reporting format - Geographical Segment (continued) (iii) Capital additions, including property, plant and equipment and patents, by geographical

location of the assets 2012 2011 HK$ HK$ Hong Kong 7,780 5,688 PRC 292,028 186,645 The Philippines 11,011 28,414 Thailand 80,518 16,444 Taiwan 3,978 70,630 Other Asia-Pacific countries 46,983 75,318 Europe and United Kingdom 3,978 4,134 America and Canada 46,409 71,551 Others - 585

492,685 459,409 (b) Secondary reporting format - Business Segment The Group is principally engaged in the manufacture, distribution and sale of chemical feed and

additive products. All of the Group’s products are of similar nature and subject to similar risk and returns. Accordingly, the Group’s activities are attributable to a single business segment and no business segmental analysis is presented.

41

13 Property, plant and equipment

Furniture Land and Leasehold and Office Plant and Motor Group building improvements fixtures machinery equipment vehicles Total HK$ HK$ HK$ HK$ HK$ HK$ HK$ Cost At 1.1.2011 1,134,050 1,322,738 66,708 879,876 2,221,553 489,482 6,114,407 Additions - - - 100,169 51,930 - 152,099 Disposals - - - (116,572) - - (116,572) Exchange realignment (55,143) 52,631 966 26,397 110,159 24,272 159,282

At 31.12.2011 1,078,907 1,375,369 67,674 889,870 2,383,642 513,754 6,309,216 At 1.1.2012 1,078,907 1,375,369 67,674 889,870 2,383,642 513,754 6,309,216 Additions - 64,971 27,131 77,736 12,948 180,443 363,229 Disposals - - - (59,418) (144,284) (147,984) (351,686) Exchange realignment 27,037 2,837 557 3,574 (588) (127) 33,290

At 31.12.2012 1,105,944 1,443,177 95,362 911,762 2,251,718 546,086 6,354,049 Accumulated depreciation At 1.1.2011 89,182 686,192 44,016 581,366 1,594,679 420,014 3,415,449 Charge for the year 49,926 262,894 3,668 94,889 268,729 10,768 690,874 Eliminated on disposals - - - (95,695) - - (95,695) Exchange realignment (5,779) 31,649 1,706 17,823 79,075 20,827 145,301 At 31.12.2011 133,329 980,735 49,390 598,383 1,942,483 451,609 4,155,929 At 1.1.2012 133,329 980,735 49,390 598,383 1,942,483 451,609 4,155,929 Charge for the year 49,234 263,725 2,711 86,293 186,569 32,419 620,951 Eliminated on disposals - - - (52,502) (85,488) (133,185) (271,175) Exchange realignment 3,805 697 167 2,597 (479) (111) 6,676 At 31.12.2012 186,368 1,245,157 52,268 634,771 2,043,085 350,732 4,512,381 Net book value At 31.12.2012 919,576 198,020 43,094 276,991 208,633 195,354 1,841,668 At 31.12.2011 945,578 394,634 18,284 291,487 441,159 62,145 2,153,287

42

14 Patents Group HK$

Cost At 1.1.2011 6,508,138 Additions 307,310 Patent written off (844,110) At 31.12.2011 5,971,338 Additions 129,456 Patent written off (1,144,243) At 31.12.2012 4,956,551

Accumulated amortisation At 1.1.2011 1,781,777 Charge for the year 376,251 Patent written off (190,529) At 31.12.2011 1,967,499 Charge for the year 335,728 Patent written off (444,372) At 31.12.2012 1,858,855

Carrying amount At 31.12.2012 3,097,696 At 31.12.2011 4,003,839

The remaining amortisation period of the patents range from 8 years to 19 years. The amortisation charge is included in selling and distribution expenses in the consolidated statement of comprehensive income.

43

15 Goodwill Group HK$

Cost At 1.1.2011 130,515 Cessation of a subsidiary (2,658) At 31.12.2011 and 31.12.2012 127,857

Impairment losses At 1.1.2011 2,658 Reversal of impairment loss ( 2,658) Impairment loss 127,857 At 31.12.2011 and 31.12.2012 127,857

Net book value At 31.12.2012 - At 31.12.2011 -

16 Investments in subsidiaries Company 2012 2011 HK$ HK$ Unlisted investment, at cost 384 384 Amounts due from subsidiaries

- Non-trade related balances 57,361,751 60,611,755 - Impairment losses on non-trade related balances (57,361,751) (60,611,755)

- - (a) The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

44

16 Investments in subsidiaries (continued) (b) Listed below are the Group’s principal subsidiaries:

Particulars of Place of issued / registered incorporation/ and fully paid Principal Name establishment share capital Ownership interest activities Direct Indirect Walcom International The British 4,000,000 100% - Investment Limited Virgin ordinary holding Islands shares of US$1 each Shanghai Walcom The People’s US$1,500,000 - 100% Manufacturing Bio-Chem Co., Ltd. Republic registered of chemical of China capital feed and additive products Walcom Bio-Chemicals Hong Kong 100 ordinary - 100% Investment Industrial Limited shares of holding and HK$1 each trading of 10,000 chemical feed non-voting and additive deferred shares products of HK$1 each * Walcom Nutritions Hong Kong 2 ordinary shares - 100% Investment International Limited of HK$1 each holding Walcom Bio-Chem (Thailand) Thailand 100,000 ordinary - 55% Trading of Company Limited shares of chemical feed THB 10 each and additive products Walcom Bio-Chemicals Delaware, US$100 - 100% Investment (USA) LLC United registered holding States of capital America Walcom Animal Science Republic of 1 ordinary share - 100% Holding of (I.P) Limited Mauritius of US$1 each patents Walcom Animal Science Republic of 1 ordinary share - 100% Holding of (I.P. 2) Limited Mauritius of US$1 each patents Walcom Animal Science Republic of 1 ordinary share - 100% Holding of (I.P. 3) Limited Mauritius of US$1 each patents Walcom Animal Science Republic of 1 ordinary share - 100% Holding of (I.P. 4) Limited Mauritius of US$1 each patents Walcom Animal Science Republic of 1 ordinary share - 100% Holding of (I.P. 5) Limited Mauritius of US$1 each patents

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

45

17 Investment in associate Group 2012 2011 HK$ HK$ Unlisted investments - net - - Share of net assets - - - - Amounts due from associate

- Trade related balances - 1,108,744 - Non-trade related balances - 2,108,438 - Provision for impairment losses on trade related balances - ( 752,000) - Provision for impairment losses on non-trade related balances - (1,712,019 )

- 753,163

The amounts due from associate are denominated in United States dollars. The credit period granted for the trade related balances ranges from 90 days to 180 days. The non-trade related balances are unsecured, interest free and have no fixed terms of repayment.

Details of associate at 31 December 2012 are as follows:-

Name

Place of incorporation

Issued and fully paid

capital

Assets HK$

Liabilities

HK$

Revenues

HK$

Profit / (loss)

HK$

Group’s interest

2012

Walcom Bio-Chemicals Philippines Inc

The Philippines

10,000 ordinary shares of

Php 1 each

39,680 (3,237,197) - (507,032) 40%

2011

Walcom Bio-Chemicals Philippines Inc

The Philippines

10,000 ordinary shares of

Php 1 each

723,450 (3,242,850) 303,826 (273,739) 40%

46

18 Inventories Group 2012 2011 HK$ HK$ Raw materials 521,865 364,848 Finished goods 896,799 702,585 Goods-in-transit - 153,719

1,418,664 1,221,152

The cost of inventories sold recognised as expenses and included in cost of sales amounted to HK$17,683,088 (2011: HK$16,116,325).

19 Trade and other receivables Group 2012 2011 HK$ HK$ Trade receivables 8,402,438 7,695,607 Less: provision for impairment loss (440,942) (545,899) Trade receivables – net 7,961,496 7,149,708 Deposits and prepayments 828,065 529,543 Other receivables 633,217 306,203 9,422,778 7,985,454

All trade and other receivables are expected to be recovered within one year.

(a) Impairment of trade receivables

The movement in the provision of impairment for doubtful debts during the year, including both specific and collective loss components, is as follows:

2012 2011 HK$ HK$ At 1 January 545,899 699,577 Written off (104,848) (179,469) Exchange difference (109) 25,791 At 31 December 440,942 545,899 At 31 December 2012, the Group’s trade receivables of HK$440,942 (2011: HK$545,899) have been outstanding for a certain period of time. The management assessed that only a portion of the receivables is expected to be recoverable. No further individually provision of impairment for doubtful debts was provided in the year ended 31 December 2012 (2011: HK$nil). The Group does not hold any collateral over these balances.

47

19 Trade and other receivables (Continued) (b) Trade receivables that are not impaired

Majority of the Group’s turnover are with credit terms ranging from 30 to 60 days. Ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows: 2012 2011 HK$ HK$ Neither past due nor impaired 6,929,408 4,661,195 Less than one month past due 538,809 772,218 1 to 4 months past due 493,279 1,716,295 Over 4 months past due - -

1,032,088 2,488,513

7,961,496 7,149,708 Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are considered fully recoverable. The Group does not hold any collateral over these balances.

(c) The carrying amounts of trade receivables are denominated in the following currencies:

Group 2012 2011 United States Dollars USD 43,620 - Philippine Peso PHP 2,689,244 - Thai Baht THB 5,974,900 THB 4,207,825 Renminbi RMB 4,549,720 RMB 4,959,800

20 Cash and cash equivalents Group 2012) 2011 HK$) HK$ Cash and cash equivalents in the statement of cash flows 14,831,853) 11,736,464

The Company 2012) 2011 HK$) HK$ Cash and cash equivalents in the balance sheet 22,299) 22,899

48

20 Cash and cash equivalents (continued)

Included in the cash and cash equivalents of the Group, HK$10,135,603 (2011: HK$8,639,078) were denominated in RMB and kept in PRC. The remittance of these funds out of the PRC is subject to the foreign exchange control restrictions imposed by the PRC government.

Included in cash and cash equivalents in the consolidated balance sheet are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

2012 2011 United States dollars US$ 120,283 US$ 96,688 British Pound GB£ 1,223 GB£ 1,223 Thai Baht THB 14,083,398 THB 8,757,326

21 Trade and other payables Group 2012 2011 HK$ HK$ Trade payables 2,914,956 3,623,273 Other payables and accrued expenses 3,542,969 2,082,535

6,457,925 5,705,808 All of the trade and other payables are expected to be settled within one year.

The carrying amounts of trade payables are denominated in the following currencies: 2012 2011 Renminbi RMB 2,363,155 RMB 2,937,387

22 Bank borrowings

At 31 December 2012, the bank borrowings were secured and repayable as follows: Group 2012 2011 HK$ HK$ Current liabilities Bank borrowings – short term portion, secured 2,466,395 2,467,004

Total borrowings 2,466,395 2,467,004

49

22 Bank borrowings (continued) (a) The maturity of borrowings is as follows: Group

2012 2011 HK$ HK$ Within 1 year or on demand 2,466,395 2,467,004

(b) The effective interest rate per annum for bank borrowings at balance sheet date is at 15%

(2011: 20%) over one-year benchmark deposits and loan interest rate promulgated by The People’s Bank of China plus certain basis points per annum.

During the 2012 reporting period, the Group fully repaid a bank borrowing of HK$2,467,004 denominated in RMB, which was secured by the corporate guarantee issued by an independent third party. On 13 June 2012, an indirectly held subsidiary of the Group situated in PRC (“the subsidiary”) has obtained a bank borrowing of HK$2,466,395 denominated in RMB with maturity of 1 year. The bank borrowing was secured by the corporate guarantee issued by an independent third party. For the grant of corporate guarantee, the holding company of the subsidiary, which is also an indirectly held subsidiary of the Group, has pledged its shareholding of the subsidiary to the independent third party.

23 Capital and reserves

(a) Share capital 2012 2011 No. of No. of Shares HK$ shares HK$ Authorised: Ordinary shares of HK$0.01 each

150,000,000

1,500,000

150,000,000

1,500,000

Ordinary shares, issued and fully paid: At 1 January and 31 December 68,834,388 688,344 68,834,388 688,344 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

50

23 Capital and reserves (continued) (b) Nature and purpose of reserves (continued) Company

Share Capital Accumulated premium reserve losses Total HK$ HK$ HK$ HK$ Balance at 1.1.2011 95,298,644 6,220,605 (102,734,428) (1,215,179)

Recognition of equity-settled

share-based payment - 668,638 - 668,638

Comprehensive loss

Loss for the year - - (463,534) (463,534)

Balance at 31.12.2011 95,298,644 6,889,243 (103,197,962) (1,010,075)

Balance at 1.1.2012 95,298,644 6,889,243 (103,197,962) (1,010,075)

Recognition of equity-settled

share-based payment - 447,498 - 447,498

Lapse of share options - (39,909) 39,909 - Comprehensive loss

Loss for the year - - (474,338) (474,338)

Balance at 31.12.2012 95,298,644 7,296,832 (103,632,391) (1,036,915)

(i) Share premium

The application of the share premium account is governed by the Memorandum and Articles of the Association of the Company. In accordance with the Companies Law of the British Virgin Islands, the share premium account is distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business. The share premium may also be distributed in the form of fully paid bonus shares.

(ii) Merger reserve

The merger reserve arose in the Group reorganisation before Admission to AIM. There was no movement during the year.

(iii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 2(s).

51

23 Capital and reserves (continued) (b) Nature and purpose of reserves (continued)

(iv) Capital reserve of the Company

The capital reserve comprises the followings:

- The fair value of the actual or estimated number of unexercised share options granted to

employees of the Group recognized in accordance with the accounting policy adopted for share-based payment in note 2(t); and

- There was HK$4,841,424 balance brought forward as a result of the Group reorganization

in 2004. (c) Distributability of reserves

No reserves were available at 31 December 2011 and 2012 for cash distribution as the Company recorded accumulated losses for the year.

(d) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes judgements to the capital structure in light of changes in economic conditions. Consistent with industry practice, the Group monitors its capital structure using a gearing ratio, which is total debts divided by adjusted capital. Total debts represent total bank overdrafts and borrowings. Adjusted capital includes all components of shareholders’ equity less unrealised reserves. In order to maintain or adjust the gearing ratio, the Group may issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt. The gearing at 31 December 2012 and 2011 were 15% and 16% respectively, calculated as follows :

2012 2011 HK$ HK$ Current liabilities: - Bank borrowings 2,466,395 2,467,004 Total debts 2,466,395 2,467,004 Owners’ equity 19,152,153 17,789,381 Less : Exchange reserve (2,187,379) (2,123,085) Adjusted capital 16,964,774 15,666,296 Gearing ratio 15% 16%

52

24 Share option scheme

A share option scheme (the “scheme”) was adopted pursuant to a resolution of an extraordinary general meeting of the Company held on 20 September 2006 for the purpose of providing incentives and rewards to any director of any member of the Group who is in service with any such Company or any employee of any member of the Group (the “eligible directors and employees”).

The maximum number of shares in respect of which options or rights to subscribe for shares pursuant to the scheme when aggregated with number of shares in respect of which options or rights to subscribe for shares has been granted in previous years under the scheme and other share option or share incentive plan adopted by the Company shall not exceed 10% of the shares issued by the Company from time to time. An option share shall only be exercisable (a) after one year from date of grant, (b) before the expiry of the option period, (c) at a time permitted by the Model Code for Securities Transactions by Directors of Listed Issuers, and (d) if any performance conditions imposed pursuant to the scheme rules have been fulfilled or obtained. As at 31 December 2012, 4,870,000 ordinary shares option has been granted to directors and employees of the Company under the Share Option Scheme. All share options granted under the Scheme were still outstanding. During the year, 80,000 options were lapsed and no other options were exercised or cancelled.

(a) The terms and conditions of the grants that existed during the year are as follows, hereby all

options are settled by physical delivery of shares:

Participant

Date of grant

No. of options outstanding as at 31 December 2012

Vesting period Exercise

period Exercise price

Options granted to directors:

Francis Chi 16 July 2008 400,000 1 year commencing from 16 July 2008 From 16 July 2009 to 16 July

2013 (both days inclusive) GB£ 0.11

Yong Chian Tan 16 July 2008 400,000 1 year commencing from 16 July 2008 From 16 July 2009 to 16 July

2013 (both days inclusive) GB£ 0.11

9 June 2010 500,000 2 years commencing from 9 June 2010 From 9 June 2012 to 8 June

2020 (both days inclusive) GB£ 0.07

9 June 2010 500,000 3 years commencing from 9 June 2010 From 9 June 2013 to 8 June

2020 (both days inclusive) GB£ 0.07

Albert Siu Fai Wong 16 July 2008 400,000 1 year commencing from 16 July 2008 From 16 July 2009 to 16 July

2013 (both days inclusive) GB£ 0.11

9 June 2010 250,000 2 years commencing from 9 June 2010 From 9 June 2012 to 8 June

2020 (both days inclusive) GB£ 0.07

9 June 2010 250,000 3 years commencing from 9 June 2010 From 9 June 2013 to 8 June

2020 (both days inclusive) GB£ 0.07

Prof. Hong Xun Yang

16 July 2008 90,000 1 year commencing from 16 July 2008 From 16 July 2009 to 16 July

2013 (both days inclusive) GB£ 0.11

9 June 2010 750,000 2 years commencing from 9 June 2010 From 9 June 2012 to 8 June

2020 (both days inclusive) GB£ 0.07

9 June 2010 750,000 3 years commencing from 9 June 2010 From 9 June 2013 to 8 June

2020 (both days inclusive) GB£ 0.07

Options granted to employees: Employees of the Group 16 July 2008 200,000 1 year commencing

from 16 July 2008 From 16 July 2009 to 16 July 2013 (both days inclusive)

GB£ 0.11

9 June 2010 190,000 2 years commencing from 9 June 2010 From 9 June 2012 to 8 June

2020 (both days inclusive) GB£ 0.07

9 June 2010 190,000 3 years commencing from 9 June 2010 From 9 June 2013 to 8 June

2020 (both days inclusive) GB£ 0.07

53

24 Share option scheme (continued)

(b) Fair value of share options

The fair value of the share options granted during the year ended 31 December 2008 and 31 December 2010 have been valued by an independent qualified valuer using Binomial Option Pricing Model.

25 Warrants

The Company adopted a warrant instrument constituting 8,107,320 warrants pursuant to a resolution of an extraordinary general meeting of the Company held on 20 September 2006. Each warrant entitles the holder to subscribe for one new ordinary share at GB£0.35, exercisable for a period of between two to five years from the date of admission. During year 2011, the remaining 7,935,891 warrants were lapsed and no other warrants were exercised or cancelled.

26 Share award plan

The Company’s share award plan (the “plan”) was adopted pursuant to a resolution of an extraordinary general meeting of the Company held on 20 September 2006 for the purpose of providing incentives or rewards to selected PRC employees and officers of the Group but excluding officers of the Company (the “eligible PRC officers”).

Prior to the Admission to AIM, 433,163 ordinary shares were transferred to Walcom China Staff Incentive Limited (the “trustee”) by certain of the then existing shareholders of the Company, to hold pursuant to the terms of the trust deed applicable to the plan. These shares are held on trust for the eligible PRC officers.

The plan shall be valid and effective for a term of ten years from the date of adoption and it shall be subject to the administration of a committee delegated from time to time by the board and the trustee in accordance with the provisions of the trust deed and plan rules. There were 70,163 (2011: 70,163) ordinary shares held by the trustee at 31 December 2012.

54

27 Related party transactions

The management considered the ultimate controlling party since date of incorporation to 31 December 2012 was Mr. Francis Chi.

2012 2011 Note HK$ HK$ (a) Transactions with key management personnel Salaries and other short term employee benefits 7,055,622 4,675,729 (b) Transactions with other related parties Related companies Legal and professional fees (i) 109,920 109,880

Notes:

(i) The legal and professional fees represented company secretarial fees and tax consultancy fees, and were charged on similar terms of other service providers. Payments were made to companies controlled by Chan Kin Man, Eddie, a director of the Company.

Balances with related parties are disclosed in the balance sheet and in notes 16 and 17.

28 Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: 2012 2011 HK$ HK$ Contracted for – property, plant and equipment 110,988 - (b) Operating lease commitments The future aggregate minimum lease rental expenses in respect of the manufacturing plants and office

premises under non-cancellable operating lease are payable in the following periods: 2012 2011 HK$ HK$ Within one year 2,855,311 1,063,947 In the second to fifth years inclusive 1,115,582 -

3,970,893 1,063,947

55

29 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities with the next financial year are discussed below.

(a) Patents

The carrying amount of patents representing mainly legal costs for application of patents in respect of the various uses of formulation of cysteamine in various regions is HK$3,097,696 (2011: HK$4,003,839). The Group carried an impairment test based on a variety of assumptions of the possibilities that the pending patents could be circumvented and concluded that no impairment was required. Should the pending patents be circumvented, for example by an alternative formulation of cysteamine, then an impairment might arise and could have significant effect on the carrying amount of the patents stated at the balance sheet date.

(b) Depreciation

The measurement determines the estimated useful lives and residual values for its property, plant and equipment. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives. The Group reviews annually the useful life of an asset and its residual value, if any. The depreciation expense for future periods is revised if there are significant changes from previous estimation.

56

29 Critical accounting estimates and judgements (continued)

(c) Impairments

In considering the impairment loss that may be required for certain property, plant and equipment, investments in subsidiaries and interests in associates of the Group, recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to items such as level of turnover and amount of operating costs. The Group uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as turnover and operating costs. Impairment losses for bad and doubtful debts are assessed and provided based on the directors’ regular review of ageing analysis and evaluation of collectability. A considerable level of judgement is exercised by the directors when assessing the credit worthiness and past collection history of each individual customer.

An increase or decrease in the above impairment loss would affect the net profit in the year and in future years.

(d) Income taxes

Determining income tax provisions involves judgement on the future tax treatment of certain transactions and interpretation of tax rules. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation. Deferred tax assets are recognised for tax losses not yet used and temporary deduction differences. As those deferred tax assets can only be recognised to the extent that it is probable that future profit will be available against which the unused tax credit can be utilised, management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax asset to be recovered.

(e) Inventory provision

The Group performs regular reviews of the carrying amounts of inventories with reference to aged inventories analyses, projections of expected future saleability of goods and management experience and judgement. Based on this review, write-down of inventories will be made when the carrying amounts of inventories decline below their estimated net realisable value. Due to changes in customers’ performance, actual saleability of goods may be different from estimation and profit or loss could be affected by differences in this estimation.

57

30 Reconciliation of profit before income tax to EBITDA

2012 2011 HK$ HK$ Profit before income tax 3,616,456 3,829,497 Depreciation 620,951 690,874 Amortisation of patents 335,728 376,251 Interest income (66,971) (47,796) Interest expenses 175,893 164,273 Patents written off 655,021 653,581 Loss on disposal of property, plant and equipment 77,451 9,336 Loss on cessation of a subsidiary - 33,906 Bad debts written off 2,011 - Provision for impairment losses on amounts due from associate - 752,000 Written off of amounts due from associate 580,273 - Impairment loss on goodwill - 127,857 Share-based compensation 447,498 668,638 EBITDA 6,444,311 7,258,417

EBITDA is defined herein as earnings before depreciation, amortization, interest and tax, plus specific charges which are considered non-recurring in nature. Specific charges include impairment loss in value and gain/loss in disposal of non-current assets, and amortization of fair value of share-based compensation. EBITDA is not a recognised term under generally accepted accounting principles and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies use identical calculations, this presentation may not be comparable to other similarly titled measures of other companies.

58

WALCOM GROUP LIMITED

FIVE YEAR FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2012 2011 2010 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue 47,239 44,208 32,861 25,529 26,027 Gross profit 29,556 28,091 20,067 14,832 14,709 Profit / (loss) from operations 3,725 3,946 1,294 (4,287) (8,902) Profit / (loss) for the year 1,701 1,997 399 (4,508) (9,044) Earnings / (loss) per share – basic (HK cents)

1.24

1.88

(0.28)

(6.89)

(14.16)

– diluted (HK cents)

1.24

1.88

(0.28)

(6.89)

(14.16)

CONSOLIDATED BALANCE SHEET 2012 2011 2010 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Non-current assets 4,939 6,157 7,553 7,871 8,332 Net current assets 15,909 13,031 8,614 7,763 10,436 Non-current liabilities - - - (635) - Equity attributable to owners 19,152 17,789 15,124 14,357 18,393 Net asset value per share (HK cents) 27.82 25.84 21.97 20.86 26.72

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WALCOM GROUP LIMITED

BIOGRAPHIES OF THE DIRECTORS

Eddie Kin Man Chan, aged 52, (Non-Executive Chairman) is a practicing accountant and a graduate of the Hong Kong Polytechnic University. In 1986, Mr Chan founded Chan, Wong, Chung & Co. (now CWCC), a firm of certified public accountants in Hong Kong. He is a Fellow of the Association of Chartered Certified Accountants, a Fellow of the Hong Kong Institute of Certified Public Accountants, a Fellow of The Taxation Institute of Hong Kong and Certified Tax Adviser and also a member of the Institute of Chartered Accountants in England and Wales. Mr Chan originally joined the Group in 2002 as a part-time finance director. Francis Chi, aged 52, (Chief Executive Officer) founded the Group and has played a leading role in developing the Company’s direction in pursuit of its business and operational objectives. He is responsible for business development and the commercial activities of the Group, including the manufacturing and marketing of all product applications. He holds a Bachelor of Arts degree in Business Administration from the Seattle University in the USA. Mr Chi has over 20 years of entrepreneurship experience, of which he has spent more than 15 years in the fields of organic and inorganic chemicals, fertilizers, pharmaceuticals, bio-chemicals and animal feeds. Yong Chian Tan, aged 50, (Chief Executive Officer in the PRC) holds a Bachelor of Science degree in Civil Engineering from the Seattle University in the USA. Prior to joining the Company in 2001, he worked as President of HannHann Corporation and DongGuang Hannstar Electronics Company Limited where he was responsible for establishing operations in the PRC. He has over 10 years senior experience in project management, and the operation and management of new businesses in the PRC and Taiwan. He is also an independent director of Global Brand Manufacturing Ltd., and a director of Prosperity Dielectrics Co. Ltd., both of which are listed on the Taiwan Stock Exchange. Albert Siu Fai Wong, aged 53, (Chief Financial Officer and Secretary) has over 30 years financial and accounting experience. He is a Fellow of the Hong Kong Institute of Certified Public Accountants and also a member of the Institute of Chartered Accountants in England and Wales. He had been the group chief accountant of a business conglomerate and then the finance director of a venture capital fund. Prior to joining Walcom in 2006, he was a consultant assisting clients to prepare for listing on the Hong Kong Stock Exchange (HKSE). He is currently an independent non-executive director of TC Orient Lighting Holdings Limited, a company listed on the HKSE. Professor Hong Xun Yang, aged 56, (Chief Technical Officer and Chief Operating Officer in the PRC) joined the Company as the chief technical officer in May 2007 and was also appointed as chief operating officer for the PRC region in April 2011. He is an associate professor in human physiology from Hunan Normal University, Hunan Province, the PRC. Before joining the Company, Professor Yang worked as chief technical officer in senior managerial position of several animal feed manufacturers. Professor Yang is a specialist in the animal feed industry, with extensive experience in feed production management and animal farming optimisation formulation.

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Frankie Yuet Leung Wong, aged 64, (Non-Executive Director) holds a Master of Arts degree from the University of Lancaster and a Bachelor of Science degree in Economics from the London School of Economics and Political Science. He is currently a Non-executive Director of SOCAM Development Limited (formerly known as Shui On Construction and Materials Limited), a Non-executive Director of Shui On Land Limited and an Independent Non-executive Director of Solomon Systech (International) Limited, companies that are listed on The Stock Exchange of Hong Kong Limited. He is also a director of Sichuan Shuangma Cement Co. Ltd., a company listed on the Shenzhen Stock Exchange. He was also a Non-executive Director of CIG Yangtze Ports PLC, which is listed in Hong Kong, from November 2003 to November 2011; a Non-executive Director of Cosmedia Group Holdings Limited and China Central Properties Limited, companies that were delisted from the AIM market of the London Stock Exchange plc in December 2008 and June 2009 respectively. He was appointed a Non-Executive Director of the Company in 2003. Timothy Robert Nelson, aged 39, (Non-Executive Director) has an MBA from Business School, Lausanne. He had worked in the insurance industry in Australia and in corporate finance in South Africa. He is the chief executive of the Vuna Group, a London based finance and project development company and is a founder non-executive director of Red Island Minerals Ltd and Bekitoly Resources Ltd. He was also 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 the Department of Pharmacology of Oxford University. He was appointed a Non-Executive Director of the Company in 2006. Albert Chi Chiu Wong, aged 56, (Non-Executive Director) holds a Bachelor degree in Engineering and a MBA from the University of Hong Kong, and is a member of the Institute of Electrical Engineer (IEE) UK and the Hong Kong Institution of Engineers (HKIE). He has more than 30 years’ experience in telecom, media and technology industry and was appointed Executive Director in 2003 and subsequently Chief Executive Officer of New World TMT Limited in March 2004 after joining the New World Group in 1992. Mr Wong has become a member of the Chongqing Committee of Chinese People’s Political Consultative Conference since January 2008. He was appointed non-executive director of the Company in 2008.

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WALCOM GROUP LIMITED

SUMMARY OF PATENTS HELD AS AT 31 DECEMBER 2012

Patent Invention

1. Dairy cow feed and the use thereof UK 2. Composition comprising cysteamine for improving lactation in dairy animals New Zealand 3. Composition for promoting growth in animals containing cysteamine or its salt and the

use of the same Hong Kong 4. Composition for regulating animal growth, method of manufacture and the use thereof North Korea 5. Composition for promoting growth in animals containing cysteamine or its salt and the

use of the same China 6. Composition for regulating animal growth, method of manufacture and the use thereof New Zealand 7. Composition for regulating animal growth, method of manufacture and the use thereof Ukraine 8. Composition for regulating animal growth, method of manufacture and the use thereof Russia 9. Feed for fish and the use thereof UK 10. Poultry feed and the use thereof UK 11. Poultry feed and the use thereof Hong Kong 12. Composition comprising cysteamine for specific use in poultry raising and egg

production North Korea 13. Composition with multiple uses for poultry Taiwan 14. Dairy cow feed and the use thereof Hong Kong 15. Feed for fish and the use thereof (Patent no. HK1060260) Hong Kong 16. Composition comprising cysteamine for improving lactation in dairy animals (a divisional

application) New Zealand 17. Composition comprising cysteamine for specific use in poultry raising and egg

production Russia 18. Composition for regulating animal growth, method of manufacture and the use thereof South Africa 19. Composition comprising cysteamine for improving lactation in dairy animals Europe 20. Composition for regulating animal growth, method of manufacture and the use thereof Australia 21. Composition comprising cysteamine for improving lactation in dairy animals Mexico 22. Composition comprising cysteamine for improving lactation in dairy animals India 23. Composition comprising cysteamine for specific use in poultry raising and egg

production Australia

24. Composition for regulating animal growth, method of manufacture and the use thereof South Korea 25. Composition comprising cysteamine for improving lactation in dairy animals Russia

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26. Materials and methods for improving shellfish health, immunity and growth Europe 27. Feed for fish and the use thereof Russia 28. Orally administrable animal growth regulating Cysteamine composition India 29. Feed for fish and the use thereof Indonesia 30. Composition comprising cysteamine for specific use in poultry raising and egg

production China 31. Composition comprising cysteamine for improving lactation in dairy animals China 32. Composition for regulating animal growth, method of manufacture and the use thereof China 33. Poultry feed and the use thereof Taiwan 34. Composition comprising cysteamine for specific use in poultry raising and egg

production Hong Kong

35. Feed for fish and the use thereof (Patent no. HK1082642) Hong Kong 36. Use of a cysteamine-containing composition for the manufacture of a medicament for

feeding to fish Vietnam 37. Feed for fish and the use thereof Philippines 38. Feed for fish and the use thereof China 39. Feed for fish and the use thereof Thailand 40. Composition comprising a cysteamine compound and method for accelerating,

augmenting growth or enhancing fertility of shellfish Vietnam 41. Poultry feed and the use thereof (a divisional application) Taiwan 42. Dairy cow feed and the use thereof Malaysia 43. Composition comprising cysteamine for improving lactation in dairy animals Australia 44. Feed for fish and use thereof Taiwan 45. Materials and methods for improving shellfish health, immunity and growth Indonesia 46. Materials and methods for improving shellfish health, immunity and growth Malaysia 47. Poultry feed and the use thereof Philippines 48. Feed for fish and use thereof (a divisional application) Taiwan 49. Materials and methods for improving shellfish health, immunity and growth Taiwan 50. Materials and methods for improving shellfish health, immunity and growth Philippines 51. Materials and methods for improving shellfish health, immunity and growth China 52. Composition for regulating animal growth, method of manufacture and the use thereof Vietnam

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NOTICE OF ANNUAL GENERAL MEETING

WALCOM GROUP LIMITED (Incorporated in the British Virgin Islands with limited liability)

NOTICE IS HEREBY GIVEN that an Annual General Meeting of the shareholders of Walcom Group Limited (the "Company") will be held at the offices of Reed Smith Richards Butler, 20th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong on Tuesday, 18 June, 2013 at 2:30 p.m. for the following purposes: Ordinary Business 1. To receive, approve and adopt the audited consolidated financial statements of the

Company and the reports of the directors of the Company (the "Directors") and the auditors for the year ended 31st December, 2012.

2. (i) To consider the re-election as Director Mr. Albert Siu Fai Wong who retires by rotation.

(ii) To consider the re-election as Director Mr. Timothy Robert Nelson who retires by rotation.

3. To consider the re-appointment of Lau and Au Yeung C.P.A. Limited as auditors of

the Company and to authorise the board of Directors to fix their remuneration.

Special Business To consider and, if thought fit, pass the following resolution as an Ordinary Resolution: 4. "That the Directors be and they are hereby generally and unconditionally authorised

to exercise all the powers of the Company to allot and issue shares in the Company (other than shares allotted and issued pursuant to the Company's share option scheme and share award plan) up to an aggregate nominal amount of HK$229,447.96 (representing one third of the Company's present issued ordinary share capital) at any time before the earlier of (i) the conclusion of the Company's next annual general meeting and (ii) the date falling 15 months after the date of the passing of this resolution, but the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted and issued after such expiry and the Directors may allot and issue relevant securities in pursuance of such offer or agreement notwithstanding that the authority conferred hereby has expired."

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To consider and, if thought fit, pass the following resolution as Extraordinary Resolutions: 5. "That subject to the passing of the previous resolution the Directors be and they are

empowered to allot and issue equity securities wholly for cash pursuant to the authority conferred by the previous resolution, provided that this power shall be limited to the allotment and issue of equity securities:

a. in connection with an offer of such securities by way of rights to holders of ordinary

shares in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and

b. otherwise than pursuant to sub-paragraph (a) above up to an aggregate nominal

amount of HK$34,417.19 representing five per cent. of the Company's issued ordinary share capital as stated in the Company's latest published annual financial statements

and shall expire before the earlier of (i) the conclusion of the Company's next annual general meeting and (ii) the date falling 15 months after the date of the passing of this resolution, save that the Company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted and issued after such expiry and the Directors may allot and issue equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired."

6. “That the Company be and is generally and unconditionally authorised to make one or more

market purchases on AIM of ordinary shares of HK$0.01 each in the capital of the Company provided that:

a. The maximum aggregate number of ordinary shares authorised to be purchased is

6,883,438 (representing 10 per cent. of the Company’s issued ordinary share capital).

b. The minimum price which may be paid for such shares is HK$0.01 per share.

c. The maximum price which may be paid for an Ordinary Share shall not be more than 5 per cent. above the average of the middle market quotations for an ordinary share as derived from the AIM Appendix to the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the ordinary share is purchased.

d. Unless previously renewed, varied or revoked, the authority conferred shall expire at the conclusion of the Company’s next annual general meeting or 12 months from the date of passing this resolution, if earlier.

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e. The Company may make a contract or contracts to purchase ordinary shares under the

authority conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract or contracts.”

By Order of the Board WALCOM GROUP LIMITED Albert Siu Fai Wong Secretary Hong Kong, 9 May 2013

Registered Office: P.O. Box 957 Offshore Incorporations Centre Road Town, Tortola British Virgin Islands

Principal Place of Business: Part D, Mingtai Building No. 351 Guo Shou Jing Road ZJ High-tech Park Shanghai 201203 People’s Republic of China

Notes: 1. Any member entitled to attend and vote at the meeting is entitled to appoint more than one

proxy to attend and vote instead of him. A proxy need not be a member of the Company. 2. To be valid, a form of proxy together with the power of attorney or other authority (if any)

under which it is signed (or a notarially certified true copy thereof) must be deposited at the Company's Hong Kong office at Suite 1211, Tower 2, Silvercord, 30 Canton Road, Kowloon,

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Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude a member from attending and voting in person at the Annual General Meeting or any adjourned meeting thereof should he so wishes.

3. In order to be entitled to attend and vote at the meeting, all transfers accompanied by the

relevant share certificates must be lodged for registration with the Company's registrars, Computershare Investor Services (Channel Islands) Limited, at PO Box 83, Ordinance House, 31 Pier Road, St Helier, Jersey JE48PW, Channel Islands, no later than 4pm (GMT) on Tuesday, 11 June 2013.

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WALCOM GROUP LIMITED (Incorporated in the British Virgin Islands with limited liability)

PROXY FORM

Form of proxy for the Annual General Meeting to be held at the offices of Reed Smith Richards Butler, 20th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong on Tuesday, 18 June, 2013 at 2:30 p.m.. I/We1 of being the registered holder(s) of2 shares of HK$0.01 each in the capital of Walcom Group Limited (the "Company"), hereby appoint3 of or failing him, the Chairman of the meeting, as my/our proxy to attend on my/our behalf at the meeting (and at any adjournment thereof) to vote for me/us in my/our name(s) in respect of the resolutions set out in the notice of the meeting (with or without modifications) as hereunder indicated.

Resolutions For4 Against4

1. To receive and adopt the audited consolidated financial statements of the Company and the Reports of the Directors and the Auditors for the year ended 31st December, 2012.

2. (i) To consider the re-election of Mr. Albert Siu Fai Wong as a Director (ii) To consider the re-election of Mr. Timothy Robert Nelson as a Director.

3. To consider the re-appointment of Lau & Au Yeung C.P.A. Limited as Auditors of the Company and to authorise the board of Directors to fix their remuneration.

4. To authorise the Directors to allot and issue additional shares of the Company.

5. To disapply pre-emptive provisions. 6. To authorise the Directors to repurchase shares of the Company on AIM. Dated this day of 2013 Signature(s)7 ______________________________ Note:- 1. Full name(s) and address(es) to be inserted in BLOCK CAPITALS. 2. Please insert the number of shares of HK$0.01 each in the capital of the Company registered in your name(s). If no number is inserted, this form of proxy will be deemed to relate to all the shares in the capital of the Company registered in your name(s). 3. Full name and address of proxy to be inserted In BLOCK CAPITALS. IF NOT COMPLETED, THE CHAIRMAN OF THE MEETING WILL ACT AS YOUR PROXY. 4. IMPORTANT: IF YOU WISH TO VOTE FOR ANY RESOLUTION, TICK IN THE BOX MARKED "FOR" BESIDE THE APPROPRIATE RESOLUTION. IF YOU WISH TO VOTE AGAINST ANY RESOLUTION, TICK IN THE BOX MARKED "AGAINST" BESIDE THE APPROPRIATE RESOLUTION. If no direction is given, the proxy will be entitled to vote or abstain as he thinks fit. Your proxy will be entitled to vote or abstain at his discretion on any resolution properly put to the meeting other than those referred to in the notice convening the meeting. 5. To be valid, this form of proxy, together with any power of attorney or other authority, if any, under which it is signed or a notarially certified true copy of such power of authority, must be deposited at the Company's Hong Kong office at Suite 1211, Tower 2, Silvercord, 30 Canton Road, Kowloon, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting thereof. 6. In the case of joint holders of a share, the vote of the person, whether attending in person or by proxy, whose name stands first on the register of members in respect of such share shall be accepted to the exclusion of the vote(s) of the other joint holder(s). 7. This form of proxy must be signed by you or your attorney duly authorised in writing or, if you are a corporation, must either be executed under seal or under the hand of an officer or attorney duly authorised. 8. The proxy need not be a member of the Company but must attend the meeting in person to represent you. 9. Completion and delivery of this form of proxy shall not preclude you from attending and voting in person if you so wish. 10. Any alterations of this form of proxy must be initialled by the person who signs it.