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Consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies of the Company generally accompanying a shareholder of more than one half of the voting rights.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of the acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of the exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the Company and subsidiaries will be changed when necessary to ensure consistency with the policies adopted by the Group.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services,
that is subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments.
Foreign currency translation
The companies in the Group are based in Norway with NOK as a basis currency. Income is mainly in foreign currency dominated by US dollars and operating costs are in NOK, the same as last year. The Group is mainly financed by bank deposits in NOK. The Group's management has, based upon a total evaluation of IAS 21 decided to use NOK as functional currency.
b. Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange 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 income statement.
Property, plant and equipment
Furniture, fittings and equipment comprises production equipment in the factory in China and office equipment.
All property, plant and equipment are stated at historical costs less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:
Production equipment 3 years
Office equipment 3 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An assets' carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.
Intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net
identifiable assets of the acquired subsidiary/associate at the date of the acquisition.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses are not reversed. The allocation is made to those cash-generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose.
Acquired intangible assets such as patents and licenses are shown, and are capitalised on the basis of the costs incurred to acquire the patents and licenses. Amortisation is calculated using the straight-line method to allocate the cost of patents and licences over their useful lives (10 years)
Trade receivables
Trade receivables are recognised initially at fair value less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered as indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.
Inventory
Inventories are stated at the lower of cost and net realisable value. Cost is determined using
the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowing in current liabilities on the balance sheet.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Costs related to issue of shares or options regarding mergers and acquisitions are included in acquisition costs
Taxation
Total taxes in the income statement include payable taxes and changes in deferred taxes. Deferred income tax is calculated based on the actual tax rate based on the temporary differences that exists between accounting and tax able values and losses carried forward by the end of the accounting year. Tax increasing and tax reducing temporary differences which are being reversed or can be reversed in the same period is settled.
Deferred income tax on temporary differences that are not settled and losses carried forward is based on the expectation of future earnings. Deferred income tax that can be booked to the balance sheet is booked as a net amount.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary difference can be utilised.
Provisions
Provisions are accounted for when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. No provisions are made for future losses.
Revenue recognition
Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows:
Licence fees are accounted for regularly in accordance with the licence agreement.
b. Sales of goods
Sales of goods are recognised when a Group entity has delivered the products to the customer; the customer has accepted the products and collectibles of the related receivables are reasonably assured.
Where goods are sold with a right of return accumulated experience is used to estimate and provide for such returns at the time of sale.
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Employee benefits
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(a) Pension obligations
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The Company currently does not operate any pension schemes. Furthermore, no programs have existed prior to 2006; hence the Company has no retirement benefit obligations for the reported periods.
In Norway a new mandatory pension scheme, requiring all companies to implement a minimum defined contribution plan, was effective as of July 1, 2006. It is the Boards opinion that the Group is not required to implement this pension scheme since the only employed is a shareholder..
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(b) Share-based compensation
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The Group operates an equity-settled, share-based compensation plan. The fair value of the
employee services received in exchange for the grant of the options is recognised as en expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted.
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.
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Research and development
Costs related to research are charged to the income statement when they occur. Development costs related to projects are classified as intangible assets when it is probable that the project will give future economic benefits. The condition being that the project can be commercialised, is technological viable and that the cost can be measured reliably. Other development costs are charged to the income statement when they occur. Development costs that have been charged to the income statement will not be transferred to the Balance Report in later periods. Development costs charged to the Balance Report are amortised linearly over the expected life time of the economic benefits starting at the time of commercialisation.
All research and development costs are charged to the income statements when they occurred in 2007 and 2008.
Financial risk
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk and liquidity risk
Market risk
The Group is exposed to changes in the currency rates as an important part of the revenues are denominated in foreign currency. The Group is not exposed to changes in the interest rates as the Group do not have any interest bearing debt.
Credit risk
The risks associated to non payment from customers are considered low taken into account historical experience..
Liquidity risk
The Group consider the liquidity situation not to be satisfactory. The Group had cash and cash equivalent of NOK 0.1 million by period end, compared to NOK 3.8 million in 2007. The liquidity consists of bank deposits.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments 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.
Critical accounting estimates and assumptions
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 within the next financial year are discussed below.
Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.
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