HaiKe Chemical Group Ltd.

UNAUDITED RESULTS FOR THE FIRST QUARTER ENDED

31 MARCH 2008

HaiKe Chemical Group Ltd ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, speciality chemical and biochemical business based in China, is pleased to announce its unaudited results for the first quarter (or three months) ended 31 March 2008 ("2008Q1").

The results for the first quarter ended 31 March 2007 ("2007Q1"), which are set out below for comparative purposes, are those of the Company and its subsidiaries.

First Quarter 2008 Highlights

• Total revenue increased 92% to US$ ("$") 141.7m (2007Q1: $73.9m)

• Petrochemical revenues increased 108% to $116.8 m (2007Q1: $56.1m)

• Speciality chemical* revenues increased 40% to $24.9m (2007Q1: $17.8m)

• Gross profit margin lower at 5.0% (2007Q1: 12.1%)

• Profit after tax decreased 74% to $1m (2007Q1: $3.9m)

• Loss after minority interests of $0.1m (2007Q1: profit of $2.6m)

• Construction of the speciality chemical facilities remains on schedule

*    including biochemical

Mr. Yang Xiaohong, Executive Chairman, said: 

"I am pleased to present our results for the first quarter ended 31 March 2008. The results reflect the current challenging market conditions being experienced by the Group within the petrochemical sector. However, I would like to highlight the particularly strong performance of the chemical side of the business over the period, which generated a pre tax profit of $3.7m, up 70% on the comparable period last year. 

"Recognising its potential, and with the adverse market conditions currently being experienced in the petrochemical sector, our focus going forward will be on the development of our speciality chemical facilities and improving the flexibility and scale of our petrochemical activities. This will ensure the Company continues to increase its speciality chemical sales and increase the Company's production 

of high-margin products, which will only prove beneficial to overall margins and profit." 

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First Quarter 2008 Results

Financial Review

During the first quarter ended 31 March 2008, total revenue increased 92% to $141.7m from $73.9m in 2007Q1. On a segmental basis, sales of petrochemical products increased 108% to $116.8m in 2008Q1 from $56.1m in 2007Q1, as a result of the increased sales price and volume of petrochemical products. The sales of speciality chemicals (excluding biochemical) grew 43% to $24.3m in 2008Q1 from $17.0m in 2007Q1, due to increased market demand. Biochemical revenue decreased 25% to $0.6m in 2008Q1 from $0.8m in 2007Q1 due to the temporary restriction on the export of heparin-based products imposed by the Chinese government in February 2008. 

Cost of sales increased 107% to $134.7m in 2008Q1 from $65.0m in 2007Q1, due to the increased sales volume and the significant increase in material costs. The incremental selling prices of the petrochemical products were lower than the increases in material costs for the petrochemical sector and this contributed to the lower gross margin and fall in profit in the first quarter. Conversely however, the shift towards the higher-margin speciality chemical and biochemical products resulted in an improved gross margin and profit for the chemical side of the business, with profit before tax for the speciality and biochemical businesses increasing 68% to $3.7m (2007Q1: $2.2m) and gross margin for these divisions increasing from 18% to 22%. Nonetheless, the reduction in the petrochemical margins still outweighed the increases in speciality and biochemical margins and the overall gross margin declined to 5.0% in 2008Q1 from 12.1% in 2007Q1. 

Sales and distribution expenses increased 117% to $1.3m in 2008Q1 from $0.6m in 2007Q1 as a result of the increased freight charges and promotion costs resulting from the significant increase in sales of the speciality chemical products compared to the prior period. Non-recurring AIM admission expenses contributed $1.8m of administrative expenses in 2007Q1. Other administrative expenses increased slightly from $1.7m in 2007Q1 to $1.9m in 2008Q1 as a result of additional personnel costs. Finance costs increased 133% from $1.2m in 2007Q1 to $2.8m in 2008Q1 due to the increase of the average loan balance and increase of prime rate in China during the period.

As a result of the above, operating profit decreased by $1.1m to $4.1m in 2008Q1 from $5.2m in 2007Q1. The profit before income tax also dropped by $2.6m from $4.0m in 2007Q1 to $1.4m in 2008Q1. 

The two-year full income tax exemptions granted to three operating subsidiaries, Hi-Tech Chemical, Hi-Tech Spring and Hi-Tech Shengli, expired in January 2008. These three operating subsidiaries now remain entitled to a three-year 50% income tax exemption from January 2008 to December 2010. This change in tax exemptions resulted in an income tax increase to $0.4m in 2008Q1 from $0.1m in 2007Q1. 

Profit (after minority interests) attributable to equity holders of HaiKe decreased $2.7m to a loss of $0.1m in 2008Q1, from a profit of $2.6m in 2007Q1.

Basic and diluted earnings per share changed to a loss per share of US 0.3 cents in 2008Q1 from earnings per share of US 8 cents in 2007Q1.

Operational Review

During the first quarter of 2008, the petrochemical sector continued to experience challenging market conditions, with crude oil prices continuing to rise across the globe. The ongoing rise in oil prices continued to put pressure on the Company's residual oil and petrolatum oil feedstock and had a direct negative impact on overall petrochemical margins and profit. Unfortunately, in the first quarter, these reductions were not offset by increases in the selling prices of diesel products.

However, despite this current imbalance, the Board believes that, the Company will benefit from anticipated 

changes in the Chinese government's domestic oil pricing policy.  It is expected that these changes, as and when they occur, will allow the Company to sell certain refined products at higher prices, which will help to offset the reduction in margins and profit. At the present time, downstream petrochemical companies in China purchase crude oil at world market prices and sell certain refined products at domestic market prices set by the Chinese government.

As a result of the ongoing challenging market conditions within the petrochemical sector, the Company is 

increasing its focus on the speciality chemical sector. Despite the petrochemical business being the largest contributor to group revenue, the speciality chemical business is now the largest contributor to group profit. The focus for the Company going forward is therefore, to increase speciality chemical production with selective production of petrochemical products, mainly focusing on more high-margin products to enhance profit.

As previously announced, the construction phases of the dimethyl carbonate and caustic soda expansion projects have been completed and it is expected that the testing phases would be finished by July 2008. These facilities are expected to increase the percentage of sales coming from the speciality chemical business and increase the proportion of sales coming from high-margin products. It is anticipated therefore that these new facilities will generate significant revenue and profit growth for HaiKe.

The biochemical business still remains the Company's smallest contributor to group revenue and profit, and although its results do not have a significant impact on the Group's overall results, the biochemical market is still a market where good gross margins can be achieved. Despite contributing to the improved profit and gross margin of the chemical side of the business, biochemical revenues decreased 25% during the period. In February 2008, there were several fatalities resulting from contaminated heparin-based products, which were being exported from China to the United States and Germany. Consequently, the Chinese government imposed a temporary restriction on the export of heparin-based products for the entire biochemical industry,

which resulted in our lower than expected biochemical sales for 2008Q1. The temporary restriction applied to all exporters, even though our products did not breach any safety standards. The Company subsequently passed all quality assurance testing and the restriction was lifted in April 2008. 

Despite this temporary restriction, demand for our biochemical products remains strong and this has been demonstrated by several new orders won since May 2008. 

The Company has decided that it will be moving to half yearly reporting with effect from the interim results for the six months ended 30 June 2008.

Outlook 

Market conditions for the petrochemical sector remain tough but demand for our products continues to increase. The speciality chemical business is showing strong improvements on the comparable period last year and, again, we are continuing to experience increasing demand for our products. 

The focus for 2008 is to continue the expansion of the dimethyl carbonate and caustic soda production facilities whereby the testing of the new facilities is expected to be completed by July 2008. We continue to explore a number of other capacity expansion projects, in particular within the speciality chemical sector, together with other potential applications and revenue streams both in our existing and related new markets. 

  We are confident of achieving further growth in both revenues and gross profits for the remainder of 2008 despite the high oil price. We anticipate that this growth will be driven by our existing areas of business, but primarily by the speciality chemical business, and will be supported by increased domestic demand for all our products. 

CONSOLIDATED INCOME STATEMENT 

For the three months ended 31 March 2008

 CONSOLIDATED BALANCE SHEET

For the three months ended 31 March 2008

  CONSOLIDATED BALANCE SHEET - continued

For the three months ended 31 March 2008