Accounts and notes Summary of important accounting principles

The most significant accounting policies applied when preparing the consolidated accounts are stated below. These policies were applied consistently to all years presented unless otherwise stated.

Basis of preparation

The consolidated accounts were prepared per the Swedish Annual Accounts Act, the Swedish Financial Accounting Standards Council recommendation RFR 1.1 (Supplemental Accounting Regulations for Groups), International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), and interpretive statements from the International Financial Interpretations Committee (IFRIC) that were approved for application within the EU.

The parent company's annual report is prepared per the Swedish Annual Accounts Act and applies the Swedish Financial Reporting Board's recommendation RFR 2.1 for legal entities and the Emerging Issues Task Force's pronouncements. So IFRS valuation and disclosure rules are generally implemented. Some exceptions and additions are made to these rules in RFR 2.1 due to statutory provisions, mostly in the Annual Accounts Act, and in the relationship between accounting and taxation.

The parent company's functional currency is the Swedish krona, which is also the reporting currency for the parent company and the Group. So financial presentations are in Swedish kronor, rounded to the nearest thousand unless otherwise specified.

(a) Group effects from standards, changes, and interpretations that went into effect in 2007

IFRS 4 and 7 and IFRIC 4, 7, 8, 9, and 10 went into effect in 2007. The scope of Group disclosure for financial instruments increased with implementation of IFRS 7. Other standards and interpretations did not affect the Group's financial report.

(b) Standards, changes, and interpretations of existing standards that have not yet gone into

IAS 23; IFRS 8; and IFRIC 12, 13, and 14, which have not yet gone into effect were not applied to the consolidated accounts.

Changes in IAS 1, 23, and 27; IFRS 3; and IFRIC 11 were not applied in the consolidated accounts.

Key estimates and assessments

Financial reports preparation, per IFRS, requires that management and the board make assessments and assumptions that affect application of accounting policies and recognised amounts of assets, liabilities, revenue, and expenses, along with other submitted information.

These assessments and assumptions are based on historical experiences and several other factors that management and the board determine to be probable under the prevailing circumstances. Resulting conclusions form the basis for decisions on the recognised value of assets and liabilities that other sources would not otherwise reveal. The actual outcome can vary from these estimates and assessments.

When implementing IFRS, management-made assessments can have a key impact on the financial presentations, and any estimates made can lead to substantial adjustments to the following year's financial presentations. These assessments can have a significant effect on the Group's profit/loss and financial position, especially within revenue recognition and bad debts, measurement of intangible and other non-current assets, and taxes. See the applicable note.

Consolidated accounts

The parent company and its subsidiaries are included in the consolidated accounts. The financial reports for the parent company and subsidiaries included in the consolidated accounts cover the same period and are prepared as per the accounting policies that pertain to the Group. All internal Group balances, revenue, expenses, profits, or losses that arise in transactions between companies, which are included in the consolidated accounts, are eliminated.

A subsidiary is included in the consolidated accounts from the date of acquisition (which is the day the parent company takes control) to the date that control ends.

Acquired subsidiaries are included in the consolidated accounts as per the acquisition method. So acquisition cost is divided into acquired assets, assumed commitments, and liabilities on the date of acquisition based on their actual value. The cost of an acquisition is composed of the fair value of assets submitted as payment, issued equity instruments, and liabilities accrued or assumed by the transfer date, plus expenses directly related to the acquisition.

When a subsidiary is sold during the year, then profit/loss is included for the ownership period, and its income and expenses are recognised in the consolidated income statement. Capital gains and losses are calculated within the Group as the difference between the selling price and the consolidated value of the subsidiary's net assets.

When translating income statements and balance sheets of foreign subsidiaries, all subsidiaries' assets and liabilities are translated using the closing day rate, while income statements are translated using the average exchange rate. Equity was translated at the historical rate. Translation differences had no impact on profit or loss; they are booked directly to equity.

Joint ventures

The Group's holdings in jointly held businesses are reported using proportional consolidation. The Group merges their portion of sales and costs, assets and liabilities, and cash flow from the joint venture with the corresponding entries in its own consolidated accounts.

The Group reports the portion of the profit/loss from its sale of assets in a joint venture that corresponds to the other owners' holdings. The Group does not report its portion of profit/loss in a joint venture that is the result of the Group's purchase of assets in the joint venture before the assets are resold to an independent party. But the transaction is immediately reported as a loss if the loss means that an asset is reported at an inflated value.

Segment reporting

Segment reporting in IAS 14 includes a description of how a definition of the concepts business segment and geographical segment should be used. Business segment means a reportable portion of a company that provides products or services related to one another, which vary from other business segments. Geographic markets offer products or services within a specific economic environment that are subject to risks that vary from those that apply to units operating in other economic environments.

In the 2006 consolidated statement, the board assessed that the Group's revenue and company structure required segment reporting for one of the two areas: geographic markets. After acquisition of auSystems, reporting changed, and the board's assessment for 2007 is that there is no requirement to divide the Group into segments.

But the board intends to reintroduce segment reporting in Q1 2008 after Plenware joins the Group on 1 January 2008.

Foreign currency conversion

(a) Functional currency and reporting 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 Swedish kronor, which is the parent company's functional and presentation currency.

(b) Receivables and liabilities in foreign currency

Current receivables and liabilities were translated using the closing day rate. Exchange rate differences for financial receivables and liabilities are recognised in the income statement under financial items, while other exchange rate differences are under "Operating profit/loss" and recognised under the "Other operating revenue" or "Other operating expenses" headings. For a description of hedging, please see the "Financial risk management" section.

Property, plant, and equipment

Equipment is included in the balance sheet at historical cost with deductions for scheduled, accumulated depreciation and any impairment losses. Scheduled depreciation is based on the historical cost of the non-current assets. Depreciation occurs linearly, based on the useful life of the assets.

This depreciation period was applied: computers and other equipment, 3-5 years.

Intangible non-current assets

Intangible assets are included on the balance sheet at acquisition cost with deductions for estimated residual value (normally 0) and for scheduled, accumulated amortisation and impairment losses. Scheduled depreciation is based on the historical cost of the non-current assets. Amortisation is linear and based on the economic lifespan of the assets. These depreciation periods were applied:

• Licence rights: 4-5 years
• Goodwill*: 5-10 years
• Acquired customer relationships: 10 years
• Acquired trademarks: 10 years
• Patents: 5 years

* No goodwill amortisation in the Group after 2003; solely in legal entity.

The Group divides the acquisition cost for corporate acquisitions as per IFRS 3, Business Combinations. Intangible assets from acquired companies are only reported with the acquisition if they meet the intangible asset definition from IAS 38, and their actual value can be reliably calculated.

(a) Licence rights

Acquired software licences are capitalised based on the expenses incurred when the software application was acquired and put into use. These expenses are amortised during the estimated economic lifespan.

(b) Goodwill

Goodwill represents the amount with which the acquisition cost exceeds the actual value of the Group's share of the acquired subsidiary's net assets upon acquisition. Goodwill on acquisition of subsidiaries is recognised as an intangible non-current asset. Goodwill that arises from acquisition of a foreign operation is translated to the closing day rate, and the translation difference is recognised in equity. Goodwill is tested annually (or when there are signs of decline) to identify possible impairment requirements. Goodwill is recognised at cost less accumulated impairment loss. Goodwill amortisation was discontinued 31 December 2003.

(c) Acquired customer relationships

The Group divides the acquisition cost for corporate acquisitions as per IFRS 3, Business Combinations. One purpose with the auSystems acquisition was to increase Cybercom's customer base. The company determined that the acquired customers include customers of such size and longevity that a value can be placed on the relationship. The valuation is based on the next 10 years' cash flow, assuming maintained margins and volumes.

(d) Acquired trademarks

A comparison, using an internal trademark valuation, determines acquisition costs for acquired trademarks, which are amortised during the estimated useful life of 10 years.

(e) Patents

Acquisition costs for patents are based on the cost of patent registration. Patents are amortised over a period of five years.

Impairment

When there is an indication that the value of an asset is diminished, an evaluation of the asset's recognised value occurs. In cases when an asset's recognised value exceeds its calculated recovery value, the asset is immediately depreciated to its recovery value. Cybercom evaluates cash-generating units as per IAS 36 (impairment losses). When calculating the remaining value in use for goodwill or shares in subsidiaries, an 11% cost-of-capital rate was applied before tax.

Financial assets

The Group classifies financial instruments in these categories: (1) financial assets assessed at fair value via the income statement, (2) financial assets available for sale, and (3) accounts receivables. Classification depends on the purpose for which the instrument was acquired. Management determines the presentation (classification) of the assets at the first accounting and re-examines this decision at each presentation opportunity.

(a) Financial assets assessed at fair value via the income statement

Financial assets assessed at fair value via the income statement includes two subcategories: (1) financial assets held for trade and (2) financial assets that are initially assigned to the assessed-at-fair-value category via the income statement. A financial asset is classified in this category if it is acquired mainly to be sold rather soon or if management determines this classification.

Derivative instruments are also categorised as trade holdings if they are not identified as hedges. Assets in this category are classified as current assets if they are held for trade or are expected to be sold within 12 months from the balance sheet date.

Conversion to fair value is recognised in the income statement among the financial items. Derivative instruments are included in current assets or current liabilities and recognised in the other receivables or other current liabilities items on the balance sheet.

(b) Financial assets available for sale

Financial assets available for sale are non-derivative assets that either have been assigned to this category or have not been classified in any other category. They are included in non-current assets if management does not intend to sell the asset within 12 months after the balance sheet day.

(c) Accounts receivable

Accounts receivables are non-derivative financial assets with fixed or ascertainable payments that are not listed on an active market. Characteristically, they arise when the Group provides goods or services directly to a customer without intending to trade with the accrued receivable. They are included in current assets and recognised in the accounts receivables item on the balance sheet.

Purchases and sales of financial instruments are recognised on the trade date, i.e., the date the Group agrees to buy or sell the asset. Financial instruments are initially assessed at fair value plus transaction charges, which apply to all financial assets that are not assessed at fair value via the income statement.

Financial instruments are removed from the balance sheet when the right to secure cash flow from the instrument has expired or been carried forward and the Group has carried forward most of the risks and advantages associated with ownership.

Financial assets assessed at fair value via the income statement and financial assets available for sale are recognised after the acquisition date at fair value. Accounts receivables are recognised at amortised cost when applying the effective interest method.

The fair value for listed investments is based on current bid rates. If the market for a certain financial asset is not active (and for unlisted securities), the Group determines the fair value by applying a valuation technique, such as using information regarding newly made transactions in a similar context. Other valuation techniques that could be used are analysis of discounted cash flows and option valuation models that were refined to reflect the issuer's special circumstances.

The Group assesses on each balance sheet date whether there is objective evidence that a write-down requirement exists for a financial asset or group of financial assets.

(d) Accounts payable

Accounts payable are initially recognised at fair value and then at amortised cost applying the effective interest method.

(e) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently recognised at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Receivables

Receivables are valued individually and requisite allowances are made.

Current investments

Current investments are recognised at market value on the reporting date.

Recognition of allocations and untaxed reserves

Tax legislation in Sweden and some other countries allows for tax payment deferments through allocation of untaxed reserves in the balance sheet via the income statement's allocations item. The consolidated accounts do not include appropriations and untaxed reserves.

After elimination, the untaxed reserves are split into deferred tax liabilities and balanced profit/loss. Deferred tax on untaxed reserves is estimated without discounting, based on actual tax expense for the next year. For the 2007 financial year, 28% of untaxed reserves relate to deferred tax and 72% to equity.

Borrowing costs

The Group is financed with its own funds and liabilities to credit institutions. Borrowing costs burden profit/loss for the period they relate to, regardless of how the borrowed funds are used as per IAS 23.

Current and deferred taxes

(a) Income taxes

Reported income taxes comprise tax that will be paid or recovered for the current year, adjustments to the actual tax of previous years, and changes in deferred tax.

A valuation of all tax liabilities/prepaid taxes is calculated at a nominal amount as per tax regulations and established tax rates or proposed tax rates that will probably be adopted.

The balance sheet method is used to calculate deferred tax on all temporary differences that arise between the recognised and written-down values of assets and liabilities. Temporary differences primarily arise through changes in untaxed reserves and tax deficits.

Deferred tax assets regarding tax deficits or other fiscal deductions are recognised to the extent that it is probable that the deduction can be applied against future tax surpluses. Please see supplementary information in note 20.

The parent company recognises deferred tax on untaxed reserves as part of the untaxed reserves because of the connection between accounting and taxation.

Determining (1) current tax liabilities and prepaid taxes and (2) provisions for deferred tax liability and deferred tax assets - particularly the valuation of deferred tax assets - requires considerable management assessment.

This process includes determining the tax allocation in each of the jurisdictions where the Group has operations. It also includes estimating exposure to current tax and determining temporary differences that occur due to certain assets and liabilities being valued differently in the accounting records and income tax returns.

Management must also estimate the likelihood of realising deferred tax assets through future taxable revenue. The actual outcome could vary from these estimates due to (1) future changes in the business climate, (2) currently unknown changes in tax legislation, or (3) the tax authority's or courts' final audit of submitted returns.

(b) Group contributions

Cybercom follows the Swedish Financial Accounting Standards Council's Emerging Issues Task Force's statement on recognition of Group contributions, so recognition of Group contributions is based on the contributions' financial implications and consequences. Group contributions paid and received to minimise the Group's tax are recognised as a decrease or an increase in unrestricted equity.

Cash flow statement

The cash flow statement was prepared using the indirect method. Recognised cash flow covers only transactions that lead to incoming or outgoing payments.

Besides cash and bank balances, cash and cash equivalents include short-term financial investments that:

• are exposed to only an insignificant risk of value fluctuations,
• are traded in an open market in which amounts are known, or
• have a term shorter than three months from the time of acquisition.

Employee benefits

(a) Pension obligations

The Group has only defined contribution pension plans for which the Group pays fixed fees to publicly or privately administered pension insurance plans on a mandatory, contractual, or voluntary basis. The Group has no further payment obligations after the fees are paid. The fees are recognised as staff costs when they are due. Prepaid fees are recognised as an asset when cash reimbursement or reduction of future payments is in the Group's favour.

(b) Other benefits after employment termination

The Group offers no benefits after termination of employment.

(c) Benefits compensation

Benefits compensation ceases when an employee is terminated before normal pension age or when an employee accepts voluntary termination in exchange for such reimbursements. The Group recognises severance pay when it is unquestionably obligated either to (1) terminate employees as per a detailed formal plan without possibility of revocation or to (2) grant compensation at termination due to an offer made to encourage voluntary employment termination.

(d) Profit sharing and bonus plans

The Group recognises a liability and an expense for bonuses and profit sharing based on a formula that accounts for profit related to the parent company's shareholders after certain adjustments. The Group recognises a provision when there is a legal or informal obligation due to previous practices.

Provisions

Obligations are recognised as provisions if they are attributable to the current financial year or earlier financial years and if on the closing day they are certain or likely to occur but are uncertain in terms of amount or when they will be fulfilled. Provisions are recognised as current or non-current depending on due date.

Revenue recognition

Consulting services is the main source of Group revenue and accounted for 96% of Group sales. Other revenue made up 4% of Group sales. Revenue consists of the actual value of sold goods and services excluding VAT and discounts, and after elimination of internal Group sales. Revenue is recognised as:

(a) Service assignments on running accounts

Running account assignments are recognised as profit/loss as the assignments are performed, i.e., revenues and expenses are recognised for the period in which they were earned or incurred. Non-invoiced revenue earned on the reporting date is recognised as accrued income under the heading for other receivables.

(b) Fixed-price services

If a fixed-price service assignment outcome can be reliably estimated, the assignment's income and expenses are recognised as revenue and expenditure, respectively, relative to the assignment's degree of completion on the reporting date (the percentage of completion method). The number of utilised hours on the reporting date, in relation to the assignment's estimated total, mainly determines the percentage of completion.

If estimation is difficult (e.g., a project is in an early phase) but it is likely that the customer will cover accrued expenses, then income is recognised on the reporting date at an amount corresponding to the assignment's accrued expenses, so no profit is recognised.

If an assignment's profit and loss cannot be reliably estimated, then only anticipated customer-defrayed expenses are reported as income. No revenue is recognised and accrued costs are reported as expenses if it is expected that the customer will not cover the expenses. Suspected loss is booked immediately as an expense, in as much as it can be estimated.

Fees on fixed-price assignment invoices for services not yet performed are recognised as advances from customers.

Leasing contracts

All leasing contracts are based on individual evaluations and recognised as operational leasing agreements. The lessor and/or the lessee decide on the classification of leasing contracts, based on scope of financial risks and benefits that are associated with ownership of the leased object. To guarantee this, individual examinations of all contracts are done during the year. In 2007, there were only the usual operating leases, such as for renting premises and copy machines. Payments made during the lease term are amortised in the income statement linearly over the term of the lease. No significant leasing contracts were entered into during the year.

Risk management

Operational risks

Business cycle sensitivity

The global economy affects general demand for IT services. A weak economy in Sweden or internationally may result in lower-than-expected market growth for IT services. So a weak economic trend may have a negative impact on Cybercom's sales and profits.

Customer focus

In 2007, Cybercom had about 120 active customers, of which 50 generated more than SEK 1 million each in sales for Cybercom. Cybercom now has frame agreements for all major business relationships. Although Cybercom has a well-distributed customer base, it cannot be ruled out that several major customers will end their frame agreements or totally cease or partly reduce their purchases from Cybercom. The number of telecom customers and sales from these customers represent a significant portion of Cybercom's total customer base and sales. If this occurs, Cybercom cannot guarantee that it will be able to establish new customer relationships to the same extent; this may adversely affect sales and profits.

Competitors

Cybercom offers business-critical solutions, mainly in telecom and selected technologies. Competition is heavy in this market. Market fluidity means that the players, propositions, and pricing models constantly change. It is crucial for a company to establish a niche and position itself in relation to other players - to create its own customer base.

Some of Cybercom's competitors have larger financial and industrial resources at their disposal than Cybercom, which enables them to affect pricing in the market. It cannot be ruled out that increased competition may lead to a decrease in market shares and lower profitability for Cybercom.

Integration

Acquisition of auSystems and Plenware involves integration of previously independent operations that have in part competed on the same market. Difficulties in combining the operations include the necessity of keeping staff and co-ordinating geographically widespread operations, systems, and facilities from operational, financial, and legal perspectives. Alongside daily operations, Cybercom management will devote considerable attention and time to integration. Delays or difficulties that arise in conjunction with integration may negatively affect Cybercom's operation, profitability, and financial position.

Recruitment and skills

Cybercom's operation depends on employees' motivation and expertise. Qualified consultants are a prerequisite for customer projects that lead to good results and satisfied customers. In recruitment, Cybercom sets high requirements on expertise and experience and works actively to ensure the future level of staff expertise. During some periods, there may be a staff shortage, and Cybercom may face recruitment difficulties. If Cybercom fails to employ and keep qualified consultants, this may have an adverse impact on Cybercom's operations, profits, and financial position.

Key people

Several key senior executives are crucial to Cybercom's operation. They contribute extensive experience and expertise, which are important for Cybercom's development. The resignation of one or more of these key people could negatively affect Cybercom's operation and profits.

Contractual relationships

As mentioned, Cybercom has frame agreements with all major customers. But most of these do not specify volumes and have relatively short termination periods. Some of Cybercom's contractual relationships are not formalised in written agreements. In customer relationships, Cybercom sometimes relies on customary practice between the parties. And the content of such agreements may be difficult to clarify if the parties disagree on it, which in the worst case may lead to deterioration in relationships and costly disputes. This may entail negative effects on Cybercom's operation, profits, and financial position.

Staff costs

Salaries, other remuneration, and social costs constitute Cybercom's largest outlay. Salary increases, due to an overheated IT consultant market in Sweden and in countries where Cybercom has subsidiaries, may lead to weakened profits.

Loss carry-forwards

Several of Cybercom's subsidiaries have previous losses that may be used in certain circumstances to offset profits in other Group companies - above all several of the companies acquired from auSystems AB in April 2007. There are limitations in the rules for use of loss carryforwards, such as for recently acquired companies. This may prevent or restrict use of previous losses in Cybercom's subsidiaries.

Legal disputes

Cybercom is not currently involved in legal disputes. There is risk of Cybercom becoming involved in such disputes in the future, and a negative outcome for Cybercom in one or more of these disputes could adversely affect Cybercom's operation and financial position.

Owner with considerable influence

The JCE Group AB owns a considerable proportion of all outstanding shares. This shareholder has the option of exercising significant influence on matters that require the approval of shareholders, including appointment and removal of board members and any proposals for mergers, consolidation, or sale of all or the main part of Cybercom's assets and other company transactions. This concentration of ownership control could limit other shareholders' opportunities to exert influence.

Sensitivity analysis

This summary shows effects on operating profit from a 1% change in certain factors, calculated on the 2007 outcome.

Consider recognised effects independently of each other and assume that other factors did not change.

Financial risks

Currency risk

Cybercom is exposed to currency risk mainly through translation of the year's profits and net assets from foreign subsidiaries in Europe and Asia (translation risk). The Group's profit/loss and net assets are exposed to currency conversion risks in Danish and Norwegian kronor, Polish zloty, Singapore dollars, British pounds, and Indian rupees. The Group's net inflow of foreign currency primarily comprises euros and US dollars. Currency exposure means that Cybercom's future competitive strength may be weakened, which may have a negative impact on growth and profit level.

Interest risk

Interest risk is defined as a decrease in profits caused by a change in market interest rates. Variable interest currently applies to the bulk of Cybercom's debt financing, which is mainly in Swedish kronor. Cybercom's debt financing is a risk, because a 1 percentage point movement in the market rate of interest affects the Group's profit after taxes and equity by about SEK 4 million over a 12-month period. The Group's income and cash flow from operations are essentially independent from changes in the market's interest rate. The Group has interest-bearing assets in the bank.

Financing risk

Financing risk is defined as the risk of it being difficult and/or expensive to obtain financing for the operation. If Cybercom does not develop as planned, a future situation in which Cybercom must acquire new capital cannot be ruled out. It cannot be guaranteed that additional capital can be obtained on favourable terms for Cybercom's shareholders or that such an addition of capital, if obtained, will be sufficient to achieve Cybercom's strategy. If Cybercom fails to secure requisite capital in the future, continuation of its operation cannot be guaranteed.

Credit risk

Historically, Cybercom has had very low loan losses. Most of the Group's customers are large, well-reputed companies, authorities, and organisations with high credit ratings. Cybercom cannot guarantee that credit losses over a long period will maintain the same low level.

Share-related risk

A potential investor in Cybercom should note that an investment in its share involves risk and that there are no guarantees that the share price will increase. Besides development of Cybercom's operation, share price development depends on a series of factors beyond Cybercom's control. Such factors include the general economy, market interest rate, alternative return options, capital flows, and political uncertainty. Although Cybercom's operation is developing well, there is risk of an investor making a capital loss when selling shares.