ALR.L Regulatory News (ALR)

For immediate release 29 February 2012

ALTERNATIVE ENERGY LIMITED

("Alternative Energy" or "the Company")

Report and Accounts

The Company today announces that it has published the Report and Accounts for the year to 31 August 2011 ("the Accounts"), and they are being posted to shareholders today. The Accounts will shortly be available on the Company website, www.alternativeenergy.com.sg and extracts are set out below:

CHAIRMANS STATEMENT

The financial year to 31st August 2011 was the first year of the Group's operational activities and was a period in which the Group started to sell its products around the world. Distributorships were signed with distributors in the United Kingdom, Indonesia and Nigeria and the Group's LED lighting products, being the first market ready products produced by the Group, were installed in many locations around the world, including not only those countries in which we have distributorships but others in which we have established sales leads.

The Group has continued to develop its two groups of technologies, energy generation technologies led by the group's eRoof system and energy saving, which is at present led by the groups eLumen LED lighting technologies. These technologies have been combined together in the Group's eLive housing which is now also being marketed around the world, but particularly to developing countries.

Being the first year of commercial operations much time was spent by the Group and its distributors in testing, as LED lighting technologies are new to many potential purchasers, and this meant that orders expected to be placed during this period were delayed, the generally cautious global economic climate also acting to slow down orders. Despite the disappointing revenue figures for this period the group maintained its levels of expenditure, reducing overheads in some areas, although the adjustment for the non-cash item of options granted to staff in 2010 on the relisting of the Company pushed the overall loss for the year to a higher figure.

The Group is now pushing hard to drive revenues from all of its product ranges with a view to enabling sales to grow substantially in 2012.

During this financial period the Group continued to develop its intellectual property with more of its patents being granted, and the core team headed by Dr Eric Goh and Dr Tay Boon Hou have been steadfast in their hard work and commitment to success.

During the past year I continued to support the Group by extending my interest free unsecured convertible loan from US$2 million to US$3 million of which approximately US$2.9 million was drawn in the period. I am continuing to support the Group but I am also exploring ways to bring further working capital into the Group in the coming months in order to enable the Group to achieve its full potential.

Green energy remains a strong growth area in which the Group can play a part, despite the negative general global economic situation, and the Group's focus for 2012 will be on bringing all of its products to the market and thus achieving strong revenue growth built upon its years of technological development and experience.

Christopher Nightingale

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF

Report on the Financial Statements

We have audited the accompanying financial statements of Alternative Energy Limited (the "Company") and its subsidiaries (the "Group") which comprise the statements of financial position of the Group and of the Company as at 31 August 2011, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Group and statement of changes in equity of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Cap 50 (the "Act") and International Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation of 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 management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements of the Group, the statement of financial position and statement of change in equity of the Company are properly drawn up in accordance with the provisions of the Act and International Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 August 2011 and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial year ended on that date and;.

Emphasis of Matter

We draw attention to Note 2.2 to the financial statements which indicate that the Group and the Company have been incurring losses for the current and past years. The Group and the Company have taken measures as described in Note 2.2 to the financial statements to secure the necessary funding to meet their daily operations needs. If these measures fail to materialise, this would indicate an existence of a material uncertainty which may cast significant doubt about the Group's and the Company's abilities to continue as a going concern. Our audit opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

BDO LLP

Public Accountants and

Certified Public Accountants

Singapore

29 February 2012

Lai Keng Wei

Partner-in-charge

ALTERNATIVE ENERGY LIMITED

# denotes a figure which is less than US$0.01 cent.

ALTERNATIVE ENERGY LIMITED

ALTERNATIVE ENERGY LIMITED

ALTERNATIVE ENERGY LIMITED

ALTERNATIVE ENERGY LIMITED

ALTERNATIVE ENERGY LIMITED

ALTERNATIVE ENERGY LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

ALTERNATIVE ENERGY LIMITED

These notes form an integral part of and should be read in conjunction with the accompanying financial statements

1. General corporate information

The Company (Registration Number 200619290H) is incorporated and domiciled in Singapore with its principal place of business and registered office at 1 Science Park Road, #02-09, The Capricorn, Singapore Science Park II, Singapore 117528.

On 12 October 2007, the Company was successfully admitted to the official list of the AIM of the London Stock Exchange in the United Kingdom.

The principal activity of the Company is the provision of technology, hardware and equipment for renewable energy and green energy solutions. It also makes investments and/or acquisitions in and to develop energy technologies, businesses and companies which offer an alternative to conventional fossil fuel and nuclear methods of generating household and industrial energy, as well as providing management services (including marketing and other necessary services) to its subsidiaries.

The principal activities of the subsidiaries are set out in Note 9 to the financial statements.

The consolidated financial statements of the Group and the statement of financial position and statement of changes in equity of the Company for the financial year ended 31 August 2011 were authorised for issue by the Board of directors on 29 February 2012.

2. Summary of significant accounting policies

2.1 Statement of compliance

The financial statements have been prepared in accordance with the provisions of the Singapore Companies Act, Cap. 50 and the International Financial Reporting Standards (IFRS), including interpretations made by the International Financial Reporting Interpretations Committee (IFRIC).

2.2 Basis of preparation

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

These financial statements have been prepared on historical cost basis except as disclosed in the accounting policies below, and are in line with IFRS and IFRIC issued by the International Accounting Standards Board (IASB).

The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements of the Group, the statement of financial position and statement of changes in equity of the Company are presented in United States dollar ("US$") which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the Group's application of accounting policies and reported amounts of assets, liabilities, revenue and expenses. Although these estimates are based on management's best knowledge of current events and actions, actual results may differ from those estimates. Critical accounting judgements and key sources of estimates uncertainty used that are significant to the financial statements are disclosed in Note 3 to the financial statements.

In the current financial year, the Group has adopted the new or revised IFRS and IFRIC that are relevant to their operations and effective for the current financial year. The adoption of these new and revised IFRS and IFRIC does not result in changes to the Group's accounting policies and has no material effect on the amounts reported for the current or prior financial years.

IFRS and IFRIC issued but not yet effective

At the date of authorisation of these financial statements, the following IFRS and IFRIC that are relevant to the Group were issued but not yet effective:

Consequential amendments were also made to various standards as a result of these new/revised standards.

The management anticipates that the adoption of the above IFRS and IAS in future periods will not have a material impact on the financial statements of the Group in the period of their initial adoption.

Going concern

In preparing the consolidated financial statements, the directors have carefully considered the future liquidity of the Group and the Company in the light of the current financial position of the Group and as at 31 August 2011 the recurring losses from operations in the current and past financial years.

The Group has signed a number of distribution agreements and has started to generate revenue from the sales of its products in several countries. The Group also has outstanding quotations for a number of projects, including for its eLive houses, which are expected to become orders during the next few months and revenue from these projects is expected to make an increasing contribution to the Group's overheads. During the course of the next financial year, the Group will be concentrating of producing additional revenue from its existing distributors and from additional distributors based on previous negotiations and discussions and on the commercial and market testing of the Group's products. The Group has been continuing to draw down its facility from its Chairman to fund overheads, who has indicated that he is prepared to continue to fund the working capital of the Group and is also continuing to raise working capital with investors in Asia and Europe.

In addition, the directors continue to keep administrative and operating costs to a minimum, they continue to actively seek new business opportunities that will generate cash inflow and profitability for the Group.

The directors are confident that the measures they are taking, together with the continuing financial support of the Chairman, will yield the Group sufficient working capital to finance its operations and remain a going concern for the foreseeable future. Hence, notwithstanding that the Group has incurred an operating loss of US$4,000,651 (2010: US$3,599,480) for the year ended 31 August 2011, the directors of the Company are of the opinion that it is appropriate to prepare the consolidated financial statements of the Group on a going concern basis.

If the Group is unable to continue in operational existence for the foreseeable future, the Group may be unable to discharge its liabilities in the normal course of business and adjustments may have to be made to reflect the situation that assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the statements of financial position of the Group and the Company. No such adjustments have been made to these financial statements.

2.3 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from their activities.

Subsidiaries are consolidated from the date on which control is transferred to the Group up to the effective date on which control ceases as appropriate.

Intra-group balances and transactions and any unrealised gains arising from intra-group transactions are eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no impairment.

The financial statements of the subsidiaries are prepared for the same reporting period as that of the Company, using consistent accounting policies adopted by other members of the Group. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the gain or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity.

2.4 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue is presented, net of rebates, discounts and sales related taxes.

Management fee income

Management fee income is recognised on an accrual basis in accordance with the substance of the relevant agreements.

Sale of goods

Sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue can be measured reliably, and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Finance income

Interest income from fixed depositsis recognised as the interest accrues (using the effective interest method that is the rate that exactly discounts estimated future cash receipt through the expected life of the financial instrument) to the net carrying amount of the financial asset.

2.5 Income tax

Income tax for the financial year comprises current and deferred taxes. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case, such income tax is recognised in equity.

Current income tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted by the end of financial year, and any adjustment to tax payable in respect of previous financial years.

2.5 Income tax (Continued)

Deferred income tax is provided, using the liability method, on all temporary differences at the end of financial year between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively enacted by the end of financial year.

Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries and joint venture, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax losses and unused tax credits can be utilised.

At the end of each financial year, the Group re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised.

Deferred tax is charged or credited directly to equity if the tax relates to items that are charged or credited, in the same or a different period, directly to equity.

Deferred tax assets and liabilities are offset against each other if they relate to the same tax authority and can be offset.

2.6 Employee benefits

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes, such as the Singapore Central Provident Fund, are dealt with as payments to defined contribution plans where the Group's obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan.

Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the financial year.

Share-based compensation

The Group and the Company operate an equity-settled share-based compensation plan. The fair value of the employee services received in exchange for the grant of the option is recognised as an expense in profit or loss with a corresponding increase in the share options reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets), on the date of the grant. Non-market vesting conditions are included in assumptions on the number of options that are expected to become exercisable on vesting date. At the end of the financial year, the entity revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in profit or loss, and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received, net of any directly attributable transaction costs are credited to issued capital when the options are exercised.

2.7 Foreign currency translation

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency are recorded at the rate of exchange prevailing on the date of the transaction. At the end of each financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing as of the end of the financial year. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

Exchange differences which relate to assets under construction for future productive use, are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in United States dollars using exchange rates prevailing at the end of the financial year. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities (including monetary items that, in substance, form part of the net investment in foreign entities), and of borrowings and other currency instruments designated as hedges of such investments, are taken to the foreign currency translation reserve.

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

2.8 Operating leases

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the year in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

2.9 Investments in subsidiaries

Subsidiaries are entities over which the Group and the Company have 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 and the Company control another entity.

Investments in subsidiaries are stated at cost on the Company's statement of financial position less impairment in value, if any.

2.10 Investment in joint venture

A joint venture is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

An investment in joint venture is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of the acquisition-date fair values of the investee's identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the investee's net assets and any impairment loss relating to the investment. Any acquisition-date excess over cost, the Group's share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in profit or loss, whereas the Group's share of the post-acquisition post-tax items of the investees' other comprehensive income is recognised in other comprehensive income.

When the Group's share of losses exceeds its interest in the joint venture, the Group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group'slong-term interests that in substance form part of the Group's net investment in the joint venture.

Unrealised gains or losses resulting from transactions between the Group and its joint venture are eliminated to the extent of the Group's interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

When the Group ceases to have jointly control over joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate.

Investment in joint venture is stated at cost on the Company's statement of financial position less impairment in value, if any.

2.11 Intangible assets

(i) Goodwill on acquisition

Goodwill on acquisition represents the excess of the cost of a business combination or cost of an acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is initially measured at cost and is subsequently measured at cost less impairment in value, if any.

Goodwill acquired in a business combination is included in intangible assets.

Gains and losses on disposal of a subsidiary include the carrying amount of goodwill relating to the entity or business sold.

(ii) Patents and trademarks

Patents and trademarks are initially recognised at cost and are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. Patents and trademarks with finite useful lives are amortised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each financial year, with the effect of any changes in estimate being accounted for on a prospective basis. Patents and trademarks with indefinite useful lives are not amortised. At the end of each financial year, the useful lives of such assets are reviewed to determine whether events and circumstances continue to support the indefinite useful life assessment for the asset. Such assets are tested for impairment in accordance with the accounting policy for impairment stated in Note 2.13 to the financial statements.

(iii) Computer software

Acquired computer software licences are initially capitalised at cost which includes purchase price and other cost attributed to prepare the assets for its intended use. Direct expenditure, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is recognised as a capital improvement and added to the original cost of the software. Maintenance costs are recognised as an expense as incurred.

Computer software licences are subsequently carried at cost less accumulated amortisation and accumulated impairment loss. These costs are amortised using the straight-line method over their estimated useful lives of 3 years.

(iv) Research and development

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised, if, any only if, all the following have been demonstrated:

·; the technical feasibility of completing the intangible asset so that it will be available for use or sale;

·; the intention to complete the intangible asset and use or sell it;

·; the ability to use or sell the intangible asset;

·; how the intangible asset will generate probable future economic benefits;

·; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible assets; and

·; the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at least at end of each financial year. The effects of any revision are recognised in profit or loss when the changes arise.

2.12 Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and impairment in value, if any.

The cost of plant and equipment comprises its purchase price and any direct attributable costs of bringing the plant and equipment to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalised, and expenditure for maintenance and repairs are charged to profit or loss. Dismantlement, removal or restoration costs are included as part of the cost of plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the plant and equipment.

Depreciation is provided using the straight-line method so as to write off the depreciable cost of the plant and equipment over their estimated useful lives of 3 years.

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method of plant and equipment are reviewed at the end of each financial year to ensure that the residual values, period of depreciation and depreciation method are consistent with previous estimates and the expected pattern of consumption of future economic benefits embodied in the items of plant and equipment.

Subsequent expenditure relating to the plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that the future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred.

The gain or loss arising on disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Fully depreciated plant and equipment are retained in the financial statement until they are no longer in use.

2.13 Impairment of non-financial assets

Tangible and intangible assets excluding goodwill

At the end of each financial year, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Goodwill

Goodwill is tested annually for impairment, as well as when there is any indication that the goodwill may be impaired.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating-units expected to benefit from the synergies of the business combination. If the recoverable amount of the cash-generating-unit is less than the carrying amount of the unit including the goodwill, the impairment in value is recognised in profit or loss and allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment in value recognised for goodwill is not reversed in subsequent periods.

2.14 Financial instruments

Financial assets and financial liabilities are recognised on the Group's and the Company's statement of financial position when the Group and the Company becomes a party to the contractual provisions of the instrument.

Effective interest method

The effective interest method calculates the amortised cost of a financial instrument and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or where appropriate, a shorter period. Income and expense is recognised on an effective interest basis for debt instruments other than those financial instruments "at fair value through profit or loss".

Financial assets

All financial assets are recognised on a trade date where the purchase of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are initially measured at fair value, plus transaction costs. The Group classifies its financial assets as loans and receivables. The classification depends on the nature and purpose for which these financial assets were acquired and is determined at the time of initial recognition.

Loans and receivables

Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables". Loans and receivables are initially recognised at fair value plus transaction costs. They are subsequently carried at amortised cost, where applicable, using the effective interest method. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be impacted.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each financial year. Loans and receivables are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the investment have been impacted.

The amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amounts of financial assets are reduced by the impairment loss directly with the exception of trade and other receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds receivables.

Financial liabilities and equity instruments

Classification as debt or equity

Financial liabilities and equity instruments issued by Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.

When shares recognised as equity are reacquired, the amount of consideration paid is recognised directly in equity. Reacquired shares are classified as treasury shares and presented as a deduction from total equity. No gain or loss is recognised in profit or loss on the purchase, sale issue or cancellation of treasury shares.

When treasury shares are subsequently cancelled, the cost of treasury shares are deducted against the share capital account if the shares are purchased out of capital of the Company, or against the retained earnings of the Company if the shares are purchased out of earnings of the Company.

When treasury shares are subsequently sold or reissued pursuant to the employee share option scheme, the cost of treasury shares is reversed from the treasury share account and the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs and related income tax, is recognised in the equity of the Company.

Financial liabilities

The Group classifies its financial liabilities as other financial liabilities.

Other payables and accruals

Other payables and accruals are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest method, with interest expense recognised on an effective yield basis.

Convertible loans

Convertible loans are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability, on an amortised cost basis until extinguished upon conversion or at the instruments maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently re-measured.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

2.16 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. The expenses relating to any provisions are recognised in profit or loss.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs.

Provisions are reviewed at the end of each financial year and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

2.17 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the group of executive directors and the chief executive officer who make strategic decisions.

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in Note 2 to the financial statements, management made judgements, estimates and assumptions about the carrying amounts of assets and liabilities that were not readily apparent from other sources. The estimates and associated assumptions were based on historical experience and other factors that were considered to be reasonable under the circumstances. Actual results may differ from these estimates.

These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

3.1 Critical judgements made in applying the accounting policies

The following are the critical judgements, apart from those involving estimations (see below) that management has made in the process of applying the Group's accounting policies and which have the significant effect on the amounts recognised in the financial statements.

(i) Patents and trademarks

Patents and trademarks are capitalised in accordance with the accounting policy in Note 2.11 to the financial statements. Initial capitalisation of costs is based on management's judgement that the assets are separate from the entity, the entity controls the asset and it is probable that future economic benefits from the assets will flow to the entity. The management has determined the useful lives of patents and trademarks after having considered various factors such as competitive environment, product life cycles, operating plans and the macroeconomic environment of the patents and trademarks. In addition, management believes there is no foreseeable limit to the period over which the indefinite trademarks are expected to generate net cash inflows for the Group.

3.2 Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the date of the statement of financial position that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities and the reported amounts of revenue and expense within the next financial year, are discussed below.

(i) Impairment of investments in subsidiaries

At the end of each financial year, an assessment is made on whether there is objective evidence that the investments in subsidiaries are impaired. The management's assessment is based on the estimation of the value-in-use of the cash-generating unit ("CGU") by forecasting the expected future cash flows for a period up to 5 years, using a suitable discount rate in order to calculate the present value of those cash flows. The Company's carrying amount of investments in subsidiaries as at 31 August 2011 was US$1,118,921 (2010: US$668,072).

(ii) Impairment of amounts due from subsidiaries

The provision policy for doubtful debts of the Company is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables. If the financial conditions of these subsidiaries were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The carrying amounts of the Company's amounts due from subsidiaries as at 31 August 2011 are disclosed in Note 12 to the financial statements.

(iii) Going concern basis of preparation

The financial statements of the Company and its subsidiaries have been prepared on a going concern basis. The appropriateness of the going concern basis is assessed after taking into consideration all relevant information about the future of the Company and its subsidiaries available at the date of this report. However, the current uncertain economic outlook may affect consumer's discretionary spending and confidence which could in turn impact the future operations of the Group.

(iv) Depreciation of plant and equipment and amortisation of computer software

Plant and equipment and computer software are depreciated/amortised on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these assets to be 3 years. The carrying amounts of the Group's plant and equipment and computer software as at 31 August 2011 are US$25,295 and US$7,469 (2010: US$114,416 and US$20,445) respectively. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation/amortisation charges could be revised.

 (v) Income taxes

The Group has exposure to income taxes in several jurisdictions of which a portion of these taxes arose from certain transactions and computations for which ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities of expected tax issues based on their best estimates of the likely taxes due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax positions in the period in which such determination is made.

(vi) Impairment of goodwill, patents and trademarks 

The management determines whether goodwill, patents and trademarks are impaired at least on an annual basis and as and when there is an indication that goodwill and patents and trademarks may be impaired. Such assessment and determination require the management to make judgements, estimates and assumptions. These estimates and associated assumptions are continually evaluated and are based on historical experience and other factors including expectations of future events or changes in circumstances. Actual results may differ from these estimates. The carrying amounts of goodwill and patents and trademarks as at 31 August 2011 are disclosed in Note 11 to the financial statements.

(vii) Share options reserve

The charge for share options reserve is calculated in accordance with estimates and assumptions which are described in Note 21 to the financial statements. The option valuation model used requires highly subjective assumptions to be made including the future volatility of the Company's share price, expected dividend yields, risk-free interest rates and expected staff turnover. The management draws upon a variety of external sources to aid them in determination of the appropriate data to use in such calculations. The carrying amounts of share-based payments for the Group and Company as at 31 August 2011 are disclosed in the statements of changes in equity.

(viii) Convertible loans

The fair values of the liability components of the convertible loans, at their initial recognition, estimated by independent valuer based on the present value of the contractual stream of cash flows using the effective interest rate of 5.5% (2010: 13%) which generally represents the best estimate of the market value of similar instrument without the conversion feature. The fair values of the equity components are determined as the residual amount by deducting the fair values of the liability components from the fair values of the convertible loans.

4. Revenue

Revenue represents invoiced value earned from sale of goods to third parties.

5. Loss before income tax

In addition to the information disclosed elsewhere in the financial statements, the Group's loss before income tax is arrived at after charging the following:

Employee benefits expense includes key management personnel compensation which are disclosed in Note 22.2 to the financial statements.

6. Income tax

There is no current tax charge for the current financial year (2010: Nil) as the Group has no chargeable income.

6. Income tax (Continued)

Deferred tax assets not recognised are related to the following:

Deferred tax assets have not been recognised because it is not certain whether future taxable profits will be available against which the Group can utilise the benefits.

As at the end of the financial year, the Group had unutilised tax losses amounting to US$9,208,041 (2010: US$5,883,417), which are available for set-off against future taxable profits subject to the provisions of the Singapore Income Tax Act and agreement by the Singapore tax authority.

7. Basic and diluted loss per share

Basic loss per share is calculated by dividing the Group's loss attributable to equity holders by the weighted average number of ordinary shares in issue during the financial year.

For the purpose of calculating diluted loss per share, the Group's net loss attributable to equity holders and the weighted average number of ordinary shares in issue are adjusted for the effects of all dilutive potential ordinary shares. The outstanding are adjusted for the effects of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares: convertible loans and share options.

Diluted earnings per share amounts are calculated by dividing the loss attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

Convertible loans are assumed to have been converted into ordinary shares at US$0.03 per share and net of any expenses amount owing from the lender to the Company against the loan. The net loss is adjusted to eliminate the interest expense less the tax effect.

For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. The differences are added to the denominator as an issuance of ordinary shares for no consideration. No adjustment is made to earnings.

The basic and diluted loss per share are calculated as follows:

# denotes a figure which is less than US$0.01 cent

8. Plant and equipment