2006

ANNUAL REPORT Dolphin Interconnect Solutions ASA

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CONTENTS

Dolphin in short Page 3

The year at a glance Page 4

Letter from the CEO Page 5

Business review Page 7

The board and management team Page 13

Directors’ report Page 14

Investor relations Page 18

Implementation and reporting on corporate governance Page 20

Income statement Page 24

Balance sheet Page 25

Statement of cash flow Page 26

Statement of changes in equity Page 27

Notes to the financial statement Page 28

Auditor’s report Page 39

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DOLPHIN IN SHORT

Dolphin Interconnect Solutions provides super-fast

interconnect software and hardware for computer systems.

The pressure to increase the number of data transfers

per second is ever increasing. Often these transfers contain

small packets of information necessary for database

operation, real-time applications, simulations or

computer-aided engineering. Dolphin meets this need

with its unique chips, cards and related software

products that process and transfer data very rapidly with

outstandingly low error rates.

What makes Dolphin successful?Dolphin’s technology offers its users superior system

performance compared with competitive solutions. Its

interconnect products provide five very important benefits:

• High bandwidth – means higher data volumes

• Extremely low latencies minimise delay times

• Very low overhead – takes very little resources from

existing systems to operate

• Easy integration with existing operating systems and

processors increases application range and widens

market reach

• Highly scalable solutions – flexible approach allows

two to several hundred computers to be connected at

any one time

In short, Dolphin’s interconnect users can handle extreme

numbers of transactions and data volumes easily and

very rapidly in a highly flexible and cost-effective manner.

All products are field proven in the most advanced and

demanding industry applications, from high-end main-

frame servers to airborne computers for fighter and

commercial aircraft, from medical imaging and printing

to leading-edge research applications.

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Dolphin’s interconnects are used in the Mirage and Rafale fighter aircrafts’ onboard computers

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E.U.

U.S.

Rest

In 2006, most sales came from the E.U., with the U.S. close behind

• IPO spurs significant interest in Dolphin and is over-subscribed

• Dolphin SuperSockets™ software in first commercial trials.

Capgemini reports good performance gains

• Capital from share issue fuels development of NumaChip.

By changing the way high-end servers are built this

innovative chip represents an extraordinary business

opportunity for Dolphin

• Strong sales of adapter cards and switches

• Sales of adapter cards to Philips Medical pass the

16,000 unit mark

• Dolphin receives a series of design wins for its embedded

products

• ISO 9001:2000 certification for management processes

achieved

• Dolphin increases staff by ��% through �006

• Search for acquisition candidates for strategic expansion

leads to successful merger with PCI Express leader

StarGen Inc.

THE YEAR AT A GLANCE

Dolphin continually invests in human resources

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Dolphin shareholders double in number after flotation on the Oslo Stock Exchange

Number of shareholders

Shareholders in Dolphin

Staff number increases from 2005 to 2007

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Investment in future revenuesThe public listing provided development capital for the

important NumaChip project. This chip will change the way

high-end servers are built and represents an extraordinary

business opportunity for Dolphin. The project is already well

advanced and has started to gain attention in the industry.

The unique software technology for Dolphin’s hardware,

SuperSockets™, was completed and launched onto the

market in 2006. It has already been adopted by its first

customers and put into real production. This is excellent

progress for one year. The performance improvements we

see in real applications has astonished even its constructors

and market development looks very promising for �007.

Little revenue was earned on the product in the last

year, although this was expected as users need time to

understand the benefits of the product. However, with a highly

reliable product, and benchmarking showing increases in

data transfer speed of up to four times that of its closest

competitor, the potential is clear.

SCI cards pay rewardsSales revenues in �006 came mainly from adapter cards

and switches. These are used in large computer systems,

servers for technical and scientific computation, web

applications and embedded systems. Significant customers

included Philips Medical, Siemens Medical and Sun

Microsystems.

LETTER FROM THE CEO

The first steps to a wider market opportunityThe year �006 has been about repositioning and strategic

change for Dolphin. The company is repositioning itself

as a complete interconnect supplier for the larger server

market. This change has proved a challenge to continuity in

revenue growth, but is a wise investment for the future.

Dolphin goes publicThe listing on the Oslo Stock Exchange has introduced

Dolphin to a significant community of investors.

Consequently, shareholder numbers doubled during the

course of the year. Prior to the listing a successful and

over-subscribed IPO of �,850,000 new shares at NOK

17.50 each was completed. Total cost of the stock issue

and listing is estimated at less than NOK 6 million in total,

where the major part is expensed against proceeds.

Ringing in a new era – Dolphin launches onto the Oslo Stock Exchange in April 2006

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Dolphin merges with U.S. StarGenIn the last quarter of �006, a great deal of analysis

and planning went into preparation for the merger with

StarGen, Inc. of Marlborough, Massachusetts. On

�6 January �007, the merger agreement was signed

and brought into effect after approval from the

Extraordinary General Meeting on 16 February. The

transaction was based on the transfer of �,5�0,769 Dolphin

shares, or ��% of the company after the transaction, to

StarGen shareholders and the agreement was finally closed

on �� February. The merger is a major strategic step forward

for Dolphin and greatly expands product capabilities for

high-performance interconnect infrastructure for servers,

clusters, storage and embedded applications.

Quality assured In 2006, Dolphin certified its management processes in

accordance with ISO 9001:2000. The official certification

is important for many new customers and provides evidence

that Dolphin delivers on its promises. The quality focus and

improvements in routines implemented during the process

has brought Dolphin to an even higher quality level. Existing

customers need no convincing however – Dolphin has a

reputation for high quality, underlined by positive feedback

over the years, including a prize for supplier performance

from Sun Microsystems.

Dolphin invests in peopleDolphin’s staff was strengthened over �006 with very

talented and experienced people in areas important for the

repositioned Dolphin. In the first months of 2007, employee

numbers increased further as the 1� former StarGen staff

were incorporated into the new Dolphin.

Our repositioning, coupled with the investment in new

technology and people, has taken Dolphin to a new level

and paved the way for future success. I thank all employees

and directors for their achievements and contributions

in �006, and for the loyalty and support shown by the

company’s owners.

Kåre Løchsen

Chief Executive Officer

Dolphin Interconnect Solutions ASADolphin gains ISO 9001 for its quality management system

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SuperSockets™ delivers on promisesDolphin SuperSockets is a newly launched software

that allows seamless implementation of Dolphin hardware

in applications such as database servers. It was introduced

during 2006 and gained its first commercial contract

through Capgemini for a major UK online-ticketing

system. Capgemini reported good performance gains with

favourable system costs for the installation. This is a strong

reference for product marketing.

SuperSockets was presented at the MySQL user

conference held in Santa Clara, California in April. MySQL

is a leading database management system. The capabilities

of SuperSockets created significant interest in the forum

and important business contacts were developed. During

the conference, the Italian company Pagine Gialle (Yellow

Pages) presented a performance test on their online

application that showed significant performance improve-

ments with Dolphin’s cards and SuperSockets. Together

with the results from the ticketing application in the UK, this

establishes SuperSockets as a superior solution for MySQL

customers and has motivated other end users and vendors

to run their own tests.

This track record is helping Dolphin penetrate the server

market further. Three of the major server vendors – one in

the U.S., one in Europe and one in Asia – have conducted

tests of Oracle databases with Dolphin’s hardware and

SuperSockets. As these tests have proved successful, the

systems will be moved to Oracle for further study. This is

a major technical breakthrough for SuperSockets in the

database server market, and is fuelling further progress.

Dolphin drives Swiss researchThe University of Zurich has two large high-performance

computer clusters equipped with Dolphin technology. The

clusters are used for scientific calculations within physics

and chemistry research. This is the first large cluster

installation that uses Dolphin’s driver software and

Interconnect Resource Manager, a software module that

operates and manages cluster interconnects. The University

of Zurich also uses a native MPI-� implementation from

the Russian company NICEVT, a long-time partner of

Dolphin. (MPI-� is the modern version of MPI (Message

Passing Interface) – a very important software component

for HPC clusters.) With MPI-� and the Dolphin Interconnect

Resource Manager, Dolphin can offer a relevant Open

Source software suite for the High Performance Computing

(HPC) clustering market. Dolphin has also ported

NICEVT’s MPI-� to Windows. The Windows MPI system

is one of the industry’s best and runs on more than �0

installations with software from Dolphin’s partner in France,

Tranvalor.

BUSINESS REVIEW

Computer systems running SuperSockets are at Oracle for further trials

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Healthy business in medical sectorBusiness with Philips Medical for its ultrasound products

was significant in 2006 with the 16,000th SCI card

delivered during the year.

The ongoing project with Siemens A&D in Germany has

continued with further product deliveries for Siemens

Medical’s CT scanner, ‘Somatom Sensation 6�’. The project

has been very successful and the scanner is reportedly one

of Siemens Medical’s most important products. Recently,

Siemens’ delivery forecasts were extended into July �008,

securing a reliable revenue stream for Dolphin.

Moving eastCarnation is Dolphin’s long time partner in China. Carnation

and Dolphin are working with a major server vendor that is

interested in using SuperSockets for its customers’ Oracle

applications. In addition, Carnation is helping Dolphin with

market-specific development, such as optical transmission

systems and reflected memory simulation software, and

actively pursuing several highly interesting projects in China.

Embedded design wins for DolphinDolphin has received a series of design wins in the

embedded market through �006. The projects span a large

variety of applications in medical, simulation, semiconductor

processing and security applications. Dolphin’s recent merger

with StarGen further strengthens Dolphin’s position in this

segment, as the acquired StarFabric product line is mainly

used in embedded solutions.

NumaChip provides outstanding business opportunity NumaChip will revolutionise the way high-end servers are

built by allowing a cluster of computers to operate as a

mainframe. Dolphin is in the process of implementing this

new innovation using state-of-the-art silicon technology in

co-operation with Siemens.

The Somatom Sensation 64 containing Dolphin’s SCI cards is one of Siemens Medical’s most important products

Subject to change – by allowing a cluster of small computers to operate as a mainframe, NumaChip will revolutionise the way high-end servers are built

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Called the NumaChip (Numa means Non Uniform Memory

Access), it is the major development project in Dolphin.

The project mainly involves integration and verification

of Dolphin’s existing advanced interconnect architecture

for building scalable computer clusters. The level of new

logic design involved in the project is limited to a change

in the interconnect link, the interface to HyperTransport™

and the interface between the chip and a new external

memory.

Dolphin chose Siemens Industrial Solutions and Services

(Siemens I&S) as a development partner for the NumaChip

project. The group has 77 highly qualified engineers and

is located in Munich. The background and track record of

this group are excellent and a perfect match for

completing the NumaChip R&D group. Dolphin has worked

with this organisation earlier when the parties collaborated

during implementation of the PSB chip, one of the two

main chips in Dolphin’s current product line. As one of very

few organisations in the world, Siemens I&S has extensive

experience in computer systems design, including cache

coherency. In fact, it has some of the industry’s best qualified

engineers working in some of the most complicated areas

in the field. The company has developed an excellent

methodology for chip design and boasts experience in

chip production with all the major semiconductor suppliers.

This partnership will significantly improve product quality

and reduce time to market for the NumaChip.

The NumaChip project is enabled by Dolphin’s technology

from work with the SCI standard and deliveries to Convex and

Data General. Other important enablers are the development

of the semiconductor technology that opens for an

affordable one-chip implementation, as well as AMD’s

introduction of HyperTransport™(HT). Intel has recently

announced its Common Systems Interface (CSI), and both

Intel and AMD provide strong partner programs relating to

CSI and HT interfaces. This is a significant development

for the NumaChip project as it increases interface stability,

which means that systems compliant with the interfaces are

available for a longer time. In turn, this increases general

customer interest for systems based on these interfaces.

Systems based on HT are in widespread use already, while

systems based on CSI are scheduled for introduction in �008.

Close technical cooperation with AMD and the University

of Mannheim is initiated to secure cost effective access to

existing HT Intellectual property (IP) modules and provides

Dolphin with insight into all necessary information.

A silicon wafer used for chip production

“NumaChip will revolutionise the way high-end servers are built by

allowing a cluster of computers to operate as a mainframe. Dolphin is in

the process of implementing this new innovation using state-of-the-art

silicon technology in co-operation with Siemens.”

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During the year, the project’s momentum was further

increased by the reallocation of internal human resources

from the completed P�S project and the PCI Express

venture.

The project team has finalised the product requirement

specification and established a base for creating future

partnerships with pilot customers. Project progress is on

track for delivery of prototype chips in early �008.

The P�S project – porting Dolphin’s hardware design to new technologyThe P�S project ports the two main Dolphin chips,

LC� and PSB66, into one chip of modern and more

price-effective technology to improve competitiveness.

The initial design phase of the project went smoothly and

consumed reasonable design resources. The chip

implementation phase took more calendar time than

expected, but did not tie up significant resources. The

first working prototype chips were received for testing in

March �007.

During 2007, the chip will be fitted into products in the

Dolphin Express line.

Dolphin PCI Express developmentDolphin has developed technology for direct connection

of systems via PCI Express. This new Input/Output (IO)

standard replaces PCI and is present in most computers

delivered today. The technological gain from the PCI

Express project is a valuable asset in Dolphin’s IP base

and will be used in later product development.

Product improvementsDolphin operates in fast-paced markets and continual

product development is essential. This not only applies to

introduction of new products, but improvements within the

existing portfolio as well.

In �006, Dolphin developed and improved its cabling

system together with the Taiwanese company All Best

Electronics. The cables are considerably lighter and the

connectors slimmer and easier to work with. All Best uses

an elegant method for the connection of the cable to the

connector electro-mechanics. Dolphin is now in a position

to deliver these improved cables in volume and has included

them in the company’s standard cable offering.

In July �006, the EU directive for Removal of Hazardous

Substances (RoHS) came into force. Already, in the first

quarter of �006, Dolphin was ready to deliver its most

important products in RoHS compliant versions.

Dolphin Adapter card products for PCI Express were also

introduced during the year and, from the second half,

these became the main product for new accounts. This

demonstrates that Dolphin is able to react rapidly to changes

in the platforms that carry the company’s products.

Dolphin merges with StarGen to significantly increase capability The merger with U.S. StarGen Inc. is a major strategic step

forward for Dolphin and greatly expands product capabilities

for high performance interconnect infrastructure for servers,

clusters, storage and embedded applications.

The new Dolphin provides a product range that addresses

the needs of several markets through leveraging the

The Dolphin PCI Express expansion system delivers PCI Express connectivity from a single PCI Express host slot and equips smaller servers with highly scalable, high-bandwidth IO subsystems. This unique product, based on StarGen technology, is one of the first products that will be launched after the merger in January 2007

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expertise of both companies. Dolphin is an industry-

recognised leader in high performance interconnect

solutions for processors, while StarGen has pioneered

innovative value-added interconnect solutions for computer

IO-systems. The expanded offering means the new company

is able to meet all the customer’s interconnect needs, a

capability unmatched in the industry. The combined

product range covers applications spanning embedded

solutions for printers to large-scale multiprocessing systems

for mission and business-critical applications. Dolphin’s

SuperSockets software will now be incorporated into the

enhanced PCI Express products to provide seamless

integration of applications running standard communication

protocols, including TCP/IP, Sockets, MPI and RDS.

PCI Express is the default high-speed interconnect

technology for computers and peripherals. By providing

enhanced capabilities directly to the PCI Express domain,

the new Dolphin can deliver more efficient solutions with

wider applicability than competing interconnect

technologies. The products will be integrated into a

single product line and marketed under the Dolphin

Express label.

StarGen’s StarFabric products are the original interconnect

products from StarGen, providing sales of USD �.1 million

in �006. The products are used for various applications,

such as test & measurement, medical, storage, video

display and printer solutions.

The merger represents a perfect strategic match that

creates a company capable of delivering a wide range of

server infrastructure products. StarGen’s enhanced PCI

Express products, combined with Dolphin’s SuperSockets

software, deliver a new and very competitive generation of

multiprocessor interconnect with an integrated or stand-

alone IO interconnect product. Dolphin and StarGen’s

products are complementary with very similar architectures.

Together with SuperSockets, customers can deploy

applications based on the new products without

reprogramming. The merger creates a very broad product

range for the server and embedded markets with an The StarFabric product range gives a significant boost to Dolphin’s turnover

The merger with U.S. StarGen Inc. is a major strategic step forward for Dolphin and greatly expands product capabilities for high performance interconnect infrastructure for servers, clusters, storage and embedded applications. CEO Tim Miller is pictured to the far left

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accelerated time schedule for new introductions. The new

product line fits ideally with Dolphin’s NumaChip to provide

a comprehensive offering of infrastructure products for

the server market. Geographically, the merger strengthens

Dolphin’s foothold in the U.S. and Asia.

Former StarGen is now integrated into Dolphin’s U.S.

subsidiary Dolphin Interconnect Solutions North America, Inc.

(doing business as Dolphin, Inc.) located in Marlborough,

Massachusetts. Dolphin’s existing U.S. staff and former

StarGen employees – 16 in total – work together in the

new organisation.

A look back in timeDolphin Interconnect Solutions AS was founded in Oslo,

Norway in 1991. Operations started in January 199� with

staff and advanced interconnect system technology from

Norsk Data and Dolphin Server Technology. In 199�,

the company was acquired by a group of investors, led

by the Swiss company Genevest Consulting Group SA,

with CERN’s pension fund as the largest shareholder. In

199�, after several rounds of venture capital funding, the

subsidiary Dolphin Interconnect Solutions Inc. was

established to strengthen the company’s position in the

U.S. In 1995, the company successfully closed a USD �0

million round of funding with Nomura in London. Following

a share swap, Dolphin Interconnect Solutions Inc. was

established as the parent company for Dolphin Interconnect

Solutions AS. In 1997, Dolphin Interconnect Solutions Inc.

acquired a department of BBN Inc. in Boston, MA with

rights to TotalView, a leading tool for parallel software

debugging. This part of the operation took the name Etnus.

In 2002, Dolphin’s head office was moved back to Oslo and

Dolphin and Etnus started operating as separate companies. In

�006, Dolphin registered as a public company and changed

name to Dolphin Interconnect Solutions ASA.

Dolphin started operations in 199� and closed business

for NOK 10,684,000 during the first year. Annual

revenue was somewhat lower until 1996 when an

agreement with Sun Microsystems contributed to revenue

of NOK 19,��5,000.

In 1994, Dolphin landed the first large customer contract

with supercomputer vendor Convex Inc. (second to

CRAY in the world-wide market for supercomputers).

Convex used Dolphin’s technology in their main product

Exemplar. Hewlett Packard later acquired Convex and

Exemplar changed name to Superdome. The next great

success for Dolphin’s technology came when Data General

incorporated a Dolphin chip set in three generations of their

Aviion NUMAserver product line.

Dolphin later expanded its market by implementing a

product designed for Sun Microsystems. From 1996, this

was available for use with Sun’s high-end servers for high

availability solutions using Oracle database applications.

Today, Sun Microsystems is still one of Dolphin’s most

important customers. Within a short period of time,

the company developed this product into a standard

PCI-based card for use with PC technology. Fujitsu

Siemens Computers co-operated with Dolphin under

product development and became the first large customer

for this product.

Last year, Dolphin’s most important income-generating

products were PCI cards and switches for SCI. Furthermore,

the company supplied solutions for large computer

systems, servers for technical/scientific computation, web

applications and embedded systems based on the same

technology.

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Dolphin’s management team based at its headquarters in Oslo, Norway. Back row from left to right: Alex Gundersen (CFO), Svein Erik Johansen (hardware manager), Kåre Løchsen (CEO), Einar Rustad (VP business development), Tor Undheim (COO). Front row: Hugo Kohmann (CTO), Jon Gunnar Snilsberg (VP sales), Per Moen (project director NumaChip)

THE BOARD AND MANAGEMENT TEAM

Dolphin Interconnect Solutions ASA’s board of directors. Back row from left to right: Viktor Sandland, Monica June Myklebust Øyen, Alf Rasmussen. Front row: Kristin Clemet, Jan Erik Engebretsen (chairman)

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The Dolphin Interconnect Solutions group is located at

Olaf Helsetsvei 6, Oslo, Norway. The group is engaged in

development, marketing and sales of computer hardware

and software. The company owns 100% of Dolphin

Interconnect Solutions North America Inc. (doing

business as Dolphin, Inc.). After the merger with StarGen

Inc. in �007, Dolphin, Inc. has relocated to Marlborough,

Massachusetts. Prior to the merger, the subsiduary’s main

function was U.S. market logistics. After the merger with

StarGen Inc. in February �007, Dolphin, Inc. is a fully-

integrated company employing 16, working primarily with

product development, sales and marketing. The group’s

production is out-sourced to sub-contractors in Norway

and various other countries. The group’s sales activities

are carried out from the Oslo and U.S. offices, and through

agents in Hannover, Lyon, Paris, London, Los Angeles

and San Francisco. The group is also represented through

local companies in Beijing and Tokyo.

Products and product developmentThe group’s product portfolio has been stable up to the

recent introduction of the SuperSockets™ software.

In �007, the P�S chip will be launched and the new

StarFabric range from former StarGen has been added.

SuperSockets software targets the large and important

market for enterprise servers. SuperSockets lowers the

threshold for implementation and utilisation of fast

interconnect and, as such, is being introduced to

user groups not currently familiar with interconnect

technology – in particular, the large and growing market for

database servers.

A large part of Dolphin’s revenues continued to come from

the embedded segment in �006. The strategic emphasis

on this segment has proved successful for the company,

with the greatest number of applications within medical

imaging and technical simulators. Over the years, sales

to the military sector – particularly for onboard mission

systems in fighter airplanes – have also been fairly

significant. As these sales are more sporadic in nature,

due to dependence on large national aircraft purchases,

no sales to this segment took place in �006.

Through the merger with StarGen Inc. in early �007,

Dolphin gains access to state of the art interconnect

hardware based on the broadly accepted PCI Express

standard. Strategically, this new technology is expected

to re-establish Dolphin as the leader in the interconnect

industry and opens new markets for the company.

Development of the strategically important NumaChip

technology has steadily gained momentum through

the year. A project manager was employed in August

and, shortly after, a development team from Siemens AG

was hired for its unique expertise and to shorten time

needed to staff up the project. In �007, the project was

further strengthened as staff were reallocated from other

assignments in the group.

Market conditionsThe traditional market for the group’s products, i.e.

applications utilising multiple computer systems, is in

stable and moderate growth. The speed of development in

task complexity is still faster than the speed of technological

development.

The group’s market share is estimated to be below 10%,

although the products are well known and respected.

Growth potential through new customer acquisition and

product innovation is therefore strong.

DIRECTORS’ REPORT

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With the new PCI Express-based hardware developed by

StarGen, the company is able to address new areas of

the interconnect market. Together with SuperSockets, the

NumaChip introduction in �008 will reopen the currently

untapped server market for Dolphin. The combination of

these opportunities forms the basis of the company’s

prediction that most growth will come from new markets

and unexploited segments of existing markets.

The sales organisationSales to western markets have been controlled through

agents in recent years. In Asia, the group is working on

developing partnerships with companies holding good

local knowledge and strong interest for the group’s

product and market areas. Lately, the sales organisation

has grown as new employees have been hired and the

StarGen merger provided new resources and strengthened

the company in several geographic areas.

Finance Total operating revenue in the group decreased from

NOK 50,���,996 in �005 to NOK �6,0�1,5�� in �006, a

reduction of �9%. In comparison, the operating revenue

in �00� was NOK �6,69�,�17. The reduction in sales is

related to the fact that there were no sales to the military

aircraft segment in �006. A further contributor, was the

conclusion of a contract with a large medical industry OEM

in September �006. Sales were distributed geographically

as follows: NOK 17,110,288 in Europe, NOK 13,340,258

in the U.S. and NOK 1,6�1,1�5 in other areas. Only

a negligible share of the revenue was from sales to

companies in Norway.

The group’s operating cost has increased from NOK

�8,561,��� in �005 to �5,101,975 in �006. Included in the

figures for 2006 however, is a NOK 6,038,104 write-down of

capitalised development cost from Dolphin’s PCI Express-

based products. The operating loss for the group was

NOK 9,060,��� compared to a surplus of NOK 11,861,67�

in 2005. The 2006 deficit resulted in negative tax of NOK

–�,989,79� and a net loss after tax of NOK �,875,�5�.

Total cash flow from operational activities in the group was

NOK –6,��9,�58 compared to a positive operational cash

flow for 2005 of NOK 18,442,472.

Total cash and cash equivalents were NOK �8,55�,��� at

the end of �006, a sharp increase from NOK 19,015,579

as of �1.1�.�005. The increase is mainly due to the stock

issue prior to the listing on the Oslo Stock Exchange,

and the group’s ability to self-finance is considered good

following the listing. Total current assets for the group

were NOK 65,5��,�88 at the turn of the year, versus

NOK ��,7��,868 at the end of �005.

Total assets in the group were NOK 8�,��6,109 at the end

of �006 compared to �5,861,159 for �005. The equity ratio

for the group as of �1.1�.�006 is 90% compared to 77%

as of �1.1�.�005.

Allocation of result and free equityThe board suggests that the year’s deficit in the parent

company of NOK –�,988,19� is covered by transfer from

other equity. The free equity in the parent company and

group as of �1.1�.�006 was NOK 10,98�,807.

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liquidity risk has been taken. Payment-due terms for trade

receivables are maintained. Historically, the largest customers

pay quickly and predictably and there is no reason to

assume this will change.

Internal environmentThe work environment in Dolphin is considered to be very

good. The sick-leave rate has been low for several years.

There have not been any work-related accidents, occupational

injuries or serious damage to equipment in �006.

The group has an arrangement with a health service that

includes analysis and suggestions for improvements in

the working environment, and is in compliance with the

relevant laws regarding health, safety and the environment.

During �006, no major changes in HSE policy has been

necessary.

External environmentGroup operations do not directly pollute the external

environment. The group’s products have, as other electronic

products, contained lead and other substances regarded

hazardous to the environment. In co-operation with its

vendors, the group has in �005 and �006, implemented

changes in the products so that they comply with the

RoHS directives. The new products have been gradually

phased in for customer use during �006. Some customers

in the medical and military markets are excluded from the

requirements at this stage.

Future outlook

The financial outlook in 2007 is good. The group has volume

customers forecasted for regular purchase through �007

and part of �008. In addition, customer interest generated

through the SuperSockets introduction promises

that sales will steadily pick up through �007. With the

incorporation of the StarGen organisation into the

company, Dolphin has further added an element of income

stabilisation. Sales of the StarFabric product line are mainly

contracted through long-term agreements and many of

the customers are building purchase volumes. Towards

the end of the year, the U.S. organisation will introduce the

first products based on the new PCI Express technology.

This will be a major driving force in �008.

Financial riskMarket risk: The group is exposed for changes in foreign

exchange rates as most of the group’s revenue is in EUR or

USD. The use of forward contracts for sale and purchase

of foreign exchange is evaluated on a continual basis.

Credit risk: The risk of a trading partner unable to fulfil

its financial obligations is considered low, as the group

historically has had almost no loss on trade receivables.

The company has no financial agreements or instruments

to minimise credit risk as such agreements are regarded as

expensive in comparison to the probability of loss.

Liquidity risk: The company considers group liquidity to

be good, so no decision to implement action to change

017

EqualityThe group has �9 employees at the end of �006, including

four women. The former StarGen organisation became

part of the Dolphin Group in February �007 and contributed

1� people, including two women, to the organisation

at this time. It is very hard to recruit women for specialist

positions, as few women work within this field. In spite

of this, the group’s goal is to provide a workplace with

full equality between men and women. The group has

implemented a policy that aims to provide gender equality

in issues such as salaries, advancement and recruiting.

Working hours in the company relate to the various positions

and are independent of gender. Apart from this, the ratio of

employees working part time is higher among women.

The profit and loss accountIn the opinion of the board of directors, the proposed

profit and loss account and balance sheet give a

correct picture of the group and company’s position

as of �1.1�.�006.

Going concernIn accordance with the Norwegian Accounting Act, §�-�a,

it is hereby confirmed that the assumptions of going

concern are in effect. This assumption is based on prognoses

for �007 results and the group’s long-term strategic

forecasts for the years to come. The group is in a sound

economic and financial position.

Oslo, 1� May �007

Jan Engebretsen Alf Rasmussen Kristin Clemet

Viktor Sandland Monica June Myklebust Øyen

018

The goal of the investor relations activities in Dolphin is

to contribute to maximising shareholder value. This is

attained through timely, correct, equal and analytical

presentation of relevant information concerning both

Dolphin and the industry that the company belongs to.

The nature of the business and operating activities in

Dolphin are complex. The company believes that thorough

and regular information for the financial community, in

addition to scheduled quarterly presentations, is

necessary to increase understanding of the company and

its industry segment. This contributes to a share price that

correctly reflects the company’s earnings potential and its

underlying value as precisely as possible.

The reporting language in the company is English. The

company will submit all relevant information to the Oslo

Stock Exchange, as well as publishing this information on

its website. Published material will always include slide

presentations when relevant.

Dolphin was listed on the Oslo Stock Exchange on �0 April

�006. Prior to the listing, an IPO of around NOK 50 million

was placed among a broad range of investors. A total of

�,850,000 shares were issued at a subscription price of

NOK 17.50 each. The issue was over-subscribed and great

interest was recorded in Dolphin as an investment object.

The IPO was completed based on a proxy to the board

of directors, given at the ordinary shareholders meeting

held on �8 February �006, to issue a maximum �,051,170

shares. This proxy is valid until the ordinary shareholders’

meeting in �007.

The 16 February �007 extraordinary shareholders’ meeting

authorised Dolphin’s board of directors to acquire shares

in the company if this is deemed practical or necessary to

stabilise trading in the shares. According to the proxy, the

company can purchase up to 895,��� of its own shares

with a maximum total par value of NOK 179,0�6.80. This

number of shares corresponds to 7.8% of the company’s

share capital after the recent stock issue connected

to the business purchase agreement with StarGen Inc.

The purchase price for the shares must be between

NOK 10 and �0 and the proxy is valid until the ordinary

shareholders meeting in �008.

At the same extraordinary meeting, the board of directors

was granted a proxy to issue up to �,��8,085 new shares

in the company. The proxy is valid until the �008 ordinary

general meeting. Such a proxy would make it easier for the

company to carry through capital increases in connection

to acquisitions or to strengthen the company’s liquidity

reserves if this is also necessary.

Prior to the IPO and listing on the Oslo Stock Exchange,

Dolphin had approximately �00 shareholders. As a result

of the stock issue, the number of shareholders rose to

around ��0 and has since continued to grow, reaching

approximately 475 in the first quarter 2007.

On �0 December �006, the company entered into a

Market-Maker agreement with Orion Securities to improve

trading liquidity in Dolphin shares. According to the

agreement, Orion will price a minimum volume of four

lots at the maximum difference between the bid and ask

price of �%. As the agreement complies with Oslo Stock

Exchange requirements, Dolphin shares are classified on the

OB Match segment.

INVESTOR RELATIONS

019

Dolphin Interconnect Solutions ASA’s largest shareholders as of 31 December 2006

Major shareholders Shares Ownership interest (%) Selvaag Invest AS 1 0�� 78� 11.��Rowan Investments Ltd. 877 189 9.80Den Norske Krigsforsikring 7�9 881 8.�8Verdipapirfondet Danske Fund Nor ��� 0�8 �.8�Granada Forvaltning AS ��5 08� �.6�Verdipapirfondet KLP Aksjenorge �5� 196 �.8�MP Pensjon ��8 70� �.55Credit Suisse Securities 16� ��� 1.8�Granada Management AS 1�6 0�� 1.6�Alf Rasmussen 1�� 10� 1.�8Legio AS 1�7 598 1.��Jan Bjarne Fixdal 1�5 9�0 1.�1Consort Invest AS 119 �8� 1.��Falkum Invest 109 000 1.��Tor Linggjærde 108 000 1.�1Jasto AS 105 555 1.18Yngvar Hvistendal 10� 180 1.1�Lectio AS 100 000 1.1�Odd Eide 9� �61 1.0�Pollex AS 91 876 1.0�Total shareholders > 1% ownership interest 5 �1� ��� 60.�8

At the end of �006, the closing price on the Oslo Stock Exchange was NOK 1�.15. The graph below shows the development

in the share price since the first day of trading on the Oslo Stock Exchange through to 24 April 2007.

�0.019.519.018.518.017.517.016.516.015.515.01�.51�.01�.51�.01�.51�.0

01.05.�006 01.07.�006 01.09.�006 01.11.�006 01.01.�007 01.0�.�007

Dolphin Interconnect Solution’s share price from 20 April 2006 to 24 April 2007

0�0

The board of directors in Dolphin holds the opinion

that corporate governance outlines the most important

principles and guidelines for corporate management, and

the definition of the relationship between the shareholders,

the board of directors and the executive management

of the company. These principles and guidelines are

established because they are believed to benefit the

interests of shareholders and other interested parties, such

as employees, customers and suppliers.

BusinessParagraph two of the articles of association defines

Dolphin’s business to be within development, marketing

and sales of electronics. This includes hardware, software

and other related products. Through the years, Dolphin has

focused its resources on developing a unique competence

in computer interconnect. Effective interconnects are

needed between computers, as well as within and

between the various components of a single computer.

A relevant example of the steadily increasing need for

effective high speed interconnect is within multiprocessing.

In order to take advantage of the trend towards increased

multiprocessing, Dolphin has expanded its area of strategic

focus to include the database server market, including the

development of SuperSockets™. The integration of former

StarGen adds to the range of products Dolphin can offer

the server market and widens the company’s platform as

new PCI Express products are introduced for new application

areas in the near future. Lastly, the NumaChip project is

planned for launch in �008. This will reinforce Dolphin’s

position in the server market, as it opens for expansion

into the valuable high-end server segment.

Equity and dividendsAs of �1 December �006 the equity ratio in Dolphin is 90%.

This is a significant increase from 2005 (77%) and is mainly

due to an increase in share capital prior to the listing on the

Oslo Stock Exchange in April �006. The bulk of the capital

has been raised in order to finance the NumaChip project,

started in �006. At the same time, Dolphin is in an early

launch phase with SuperSockets. As the company is in an

important period of product development, it is unlikely that

any dividend will be paid over the medium term.

At the extraordinary general meeting held on 16 February

�007, the board was given a proxy to increase the share

capital by up to NOK ��7,617. This corresponds to less

than �0% of outstanding shares after the share issue

connected to the acquisition of StarGen Inc. Such a proxy

will make it easier for the company to carry through capital

increases connected to, for example, exercise of warrants,

acquisitions and, if necessary, strengthening liquidity

reserves. The proxy includes the possibility for the board

to waive the pre-emptive rights of the existing shareholders

if necessary. The proxy comprises capital increases in

return for non-cash contributions and a right to assume

special obligations on behalf of the company, as well as

a resolution on a merger in accordance with § 1�-5 of the

Limited Liability Companies Act.

The above proxy is valid until an ordinary general meeting

is held in �008, while the code recommends that validity is

restricted to the forthcoming ordinary general meeting. The

proxy was issued in conjunction with the private placement

of shares upon the acquisition of StarGen in advance of

IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE

0�1

the �007 ordinary general meeting, and the general meeting

therefore found it prudent to issue a proxy lasting to the

ordinary general meeting in �008.

At the same extraordinary general meeting, the board

was authorised to purchase up to 895,��� own shares,

corresponding to less than 8% after the above mentioned

share issue, at share prices between NOK 10 and �0.

In accordance with the Limited Liability Companies

Act § 6-�8 and its principle of equal treatment, the

board determines how own shares can be acquired and

disposed of. The authorisation is valid until the ordinary

general meeting in �008.

Equal treatment of shareholders and transaction with close associatesDolphin has only one class of share with no voting

restrictions. The board of directors does not intend to

submit any proposals to the general assembly concerning

voting restrictions. The board is authorised to increase

the share capital in the company. This authorisation may

be used if the board finds it in the best interests of

shareholders in connection with, for instance, an acquisition,

liquidity financing or share issue associated with exercise

of warrants. If and when it is considered to be in the best

interests of all shareholders, the board will propose a share

issue to existing shareholders in accordance with their

pre-emptive rights.

The company’s policy on transactions with close associates

is based on the requirement that all transactions must be

at arm’s length and at market price. In �006, Dolphin was

assisted in the preparation of the IPO and the development

of the listing prospectus by Montura (owned 100% by

board member Alf Rasmussen) and Novateam (owned

50% by chairman Jan Engebretsen). The total consultant

fees to these two companies were NOK ��,765 and NOK

1��,��7.50 respectively.

Freely negotiable shares Dolphin has no restrictions on the negotiability of its shares

and the board of directors does not intend to submit any

proposals to the general assembly concerning any such

restrictions.

General assemblyDolphin follows the period of notice stipulated in the

Norwegian Public Limited Companies Act, i.e. 1� days’

notice, as there are no limitations in the company’s

articles of association, or otherwise, concerning the period

of notice. As long as it’s practical, Dolphin will continue

to waive the requirement for shareholders to notify their

attendance of the meeting. The agenda and any supporting

material will be detailed and comprehensive with regard

to the resolutions under consideration, as well as any

recommendations from the nomination committee. A proxy

form is attached to the notification and the minutes of the

meeting are published on the company’s website and are

available for inspection in the company’s offices.

Nomination committeeAccording to its articles of association, Dolphin has a

nomination committee consisting of three members who

are either shareholders or representatives thereof. The

nomination committee must submit candidates for the

board and its own composition to the AGM, and propose

0��

compensation for members of the board. Members of

the nomination committee are elected for a period of two

years and the chairman is elected among the members.

The AGM held on �8 February �006, elected the following

committee: Yngvar Hvistendahl, Odd Eide and Viktor Sandland.

Corporate assembly and board of directors – composition and independenceUnder Norwegian law, the company is not required to have

a corporate assembly. Board members are elected for

two years at a time, and there are currently five members

elected by the shareholders. The chairman of the board is

elected by the board’s members. Neither the company’s

executive management or any of the employees are

represented on the board.

The AGM held on �8 February �006 elected the

following directors: Kristin Clemet, Monica Myklebust Øyen,

Viktor Sandland, Alf Rasmussen, Jan Engebretsen (elected

chairman by the members).

All members are considered independent of management

and do not hold any significant business relationships with

Dolphin. The majority of the board does not represent any

of the largest shareholders. None of the board members

are or have been employed by the company.

The work of the board of directorsThe board of directors is elected by the shareholders to

oversee the executive management and to ensure that the

long-term interests of the shareholders and other interested

parties are being served. The board’s main responsibility is

to determine the company’s overall vision, goal and strategy.

The board has resolved and adopted a written set of

corporate values and ethical guidelines for the company

– the ’code’. It is the company’s intention that the code

is also resolved and approved by the board of directors

in each subsidiary within the Dolphin Group. The purpose

of the code is to create a sound corporate culture and

to preserve the integrity of the Dolphin Group by helping

employees to promote standards of good business practice.

Further, the code is intended to be a tool for self evaluation

and a vehicle for development of the group’s identity. The

code applies to members of the board of directors, the

CEO, members of management and other employees in

all companies within the group, as well as others acting

on behalf of Dolphin companies. Compliance with

these guidelines is the responsibility of every employee

in the group.

The board has adopted a written set of rules and

procedures for the board of directors, governing the

work and administrative procedures of the members.

According to these rules, the board should plan meetings

six months at a time, prepare an annual work plan and

evaluate progress and competence once a year. Further-

more, the board adopted a written set of rules and procedures

for the CEO. These include comprehensive guidelines for

the CEO’s responsibilities and clearly distinguishes

between the reponsibilities of the board and the CEO.

At the time of this report, the board has not found it

necessary to establish any permanent sub-committees

for its work. This matter is continuously evaluated and

committees may be formed in the future.

Risk management and internal controlDolphin has implemented instructions and written routines

approved by the board, covering several areas, spanning

regulations for insider trading to guidelines for values

and ethics.

One of the main elements of risk management is the

implementation of high quality written routines for the

important business and reporting areas. With this in

mind, Dolphin obtained ISO 9001:2000 certification for its

management process in October �006 to reduce business

risk in these areas.

0��

Dolphin has implemented monthly financial reporting to

the board of directors and quarterly interim reporting to

the Oslo Stock Exchange. The internal operating reports

review economic and financial risk, in addition to the

management’s assessment of significant risk within

major customer relationships, market segments and

product development. Internal control routines have been

implemented both in the monthly and quarterly reports.

External resources are utilised for additional quality control

every quarter. Financial reporting complexity is regarded

as low in Dolphin. The main area that involves a high

degree of judgement is intangible assets. These arise from

capitalisation of internal and external costs for product

development. As Dolphin maintains a high industrial focus,

these are qualified assumptions based on years of

industry experience.

An emphasis on risk management is reflected in Dolphin’s

business plan. All major budget assumptions and contingencies

are discussed in detail. The annual business plan also includes

guidelines for investor relations activity in the group.

Remuneration of the board

The remuneration to the board of directors is set at

NOK 75,000 for the chairman and NOK 50,000 for each

member. None of the directors receive compensation,

including result or share-based payments, other than the

annual fee decided by the AGM.

Remuneration of the executive managementDolphin has implemented a warrants program for all

employees in former StarGen Inc. The warrants program

was central in negotiations for the business purchase

agreement and was a direct substitute for an

existing StarGen option scheme. See note �5 for further

information on remuneration of the executive management

Information and communicationDolphin continues to maintain an open dialogue with the

capital market, and arranges regular presentations for

investors, analysts and others. The main emphasis is on

the timely, correct, equal and analytical presentation of

relevant information concerning both Dolphin and the

industry that the company belongs to. As the company

is engaged in a specialist and niche-oriented industry,

particular focus is placed on communicating in language

understandable for investors who are not sector specialists.

Information is published in the annual and quarterly

reports, in presentations, on the website and through press

releases. Dolphin communicates all share price sensitive

information to the stock exchange and publishes the

information on the company’s web pages simultaneously.

The company’s operating language is English.

All information is communicated within the framework

established by securities and accounting legislation, and

the rules and regulations of the stock exchange.

Corporate takeoverThe board of directors will not seek to obstruct any

takeover bids for the company without special reason.

In the event of a takeover bid, the board of directors will

seek to ensure that all shareholders are treated equally and

issue a statement that includes the board’s assessment of

the bid and a recommendation.

Auditor The company’s external auditor is appointed by the general

assembly and is responsible for the financial audit of the

parent company and the group accounts. The company’s

auditor for �006 is Myrdal & Sveen. An independent external

auditor is appointed for the company’s subsiduary in the

U.S. The auditor’s primary objective is to audit with the

accuracy, competence and integrity dictated by relevant

laws and professional standards.

0��

Dolphin Interconnect Solutions ASAIncome statement (NOK)

2005IFRS

�9 ��6 �96

996 59�

50 422 990

18 ��6 �11

8 755 710

9 000

0

11 ��� 770

38 253 691

12 169 299

8� 906

� 56� �81

900 118

15 999

1 731 070

13 900 369

-5 71� 575

19 612 944

19 61� 9��

19 612 944

2006IFRS

�� 195 �01

� 8�6 ��1

36 041 532

1� 66� 0�8

10 861 0�6

��7 5�0

6 0�8 10�

1� ��� �99

45 222 987

-9 181 455

1 ��� ���

1 580 �05

1 5�6 7�5

8� 500

1 195 413

-7 986 042

-� 997 8�9

-3 988 193

-� 988 19�

-3 988 193

Parent company Group

OPERATING REVENUES

Sales

Other operating revenue

TOTAL OPERATING REVENUE

OPERATING EXPENSES

Cost of goods sold

Payroll expenses

Depreciation

Write down

Other operating expenses

TOTAL OPERATING EXPENSES

OPERATING PROFIT

FINANCIAL INCOME AND COSTS

Interest income

Foreign exchange gains

Foreign exchange losses

Interest and other financial expenses

NET FINANCIAL PROFIT

PROFIT BEFORE TAXES

Income taxes

PROFIT FOR THE YEAR

TRANSFERS

Allocated to retained earnings

TOTAL TRANSFERS

Note

8

��

�1, ��, �5

9, 10, 11

10, 1�

1�, ��, �5

�0

�6

2006IFRS

�� 091 691

� 9�9 8�1

36 041 532

1� 66� 0�8

11 88� �95

��8 �19

6 0�8 10�

1� 168 9�9

45 101 975

-9 060 443

1 ��� ���

1 580 �05

1 5�6 7�5

8� 516

1 195 397

-7 865 046

-� 989 79�

-3 875 253

2005IFRS

�9 ��6 �96

996 600

50 422 996

18 ��6 �11

9 ��1 ��0

10 90�

0

10 98� 780

38 561 324

11 861 673

8� 906

� 56� �81

91� �80

1 8�5

1 731 062

13 592 735

-5 70� �05

19 296 139

2004IFRS

�5 �05 8��

1 �87 �85

26 693 217

�0 98� �76

10 �0� ��6

7� 867

0

11 597 55�

42 857 243

-16 164 026

7 818

�08 �60

1 151 7�6

7� �98

-808 046

-16 972 072

1� 876

-16 984 948

0�5

Dolphin Interconnect Solutions ASABalance sheet (NOK)

GroupParent company2005IFRS

7 �91 �785 71� 575

�7 17500

13 131 228

7 516 �5�� ��5 �99� 7�0 869

18 7�6 69732 409 418

45 540 646

2006IFRS

8 911 66�9 710 ���

179 ��900

18 801 427

11 �96 0881 76� 659� 908 �99

�8 �98 10965 267 355

84 068 782

Note

10�095

1�1�1�15

2006IFRS

8 911 66�9 710 ���

179 ���0

� 18918 803 621

11 �96 0881 76� 659� 908 �99

�8 55� ���65 522 488

84 326 109

2005IFRS

7 �91 �785 71� 575

�9 8690

� �6913 136 291

7 516 �5�� ��5 �99� 757 ��7

19 015 57932 724 868

45 861 159

2004IFRS

� 711 �6�0

57 1610

� 1002 770 724

7 �87 01�5 9�0 6��� 5�7 8655 �78 816

21 144 337

23 915 061

ASSETS

NON-CURRENT ASSETS

Capitalised development cost Deferred income tax assets Operating equipment Shares in subsidiaries Other long-term receivables TOTAL NON-CURRENT ASSETS

CURRENT ASSETS

Inventories Trade receivables Other short-term receivables Cash and cash equivalents TOTAL CURRENT ASSETS

TOTAL ASSETS

2005IFRS

610 ���9�8 551

1 538 785

�� 595 08833 595 08835 133 873

1 ��7 �801 8�6 19�3 073 574

� 07� 0657�6 �5�

� 5�� 6817 333 199

45 540 646

2006IFRS

1 790 �68�� 0�1 95145 832 419

�9 606 89529 606 89575 439 314

88� 7510

883 751

5 09� 6��1 ��8 1971 �0� 8787 745 717

84 068 782

EQUITY AND LIABILITIES

EQUITY

Subscribed equity Share capital Share premium fund Total subscribed equity

Retained equity Retained earnings Total retained equity TOTAL EQUITY

NON-CURRENT LIABILITIES Other long-term liabilities Pension obligations TOTAL NON-CURRENT LIABILITIES

CURRENT LIABILITIES

Trade payables Public duties payable Other current liabilities TOTAL CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES

Note

16, 17, �6

17

17

19�1

�71518

2006IFRS

1 790 �68�� 0�1 95145 832 419

�9 881 60629 881 60675 714 025

88� 7510

883 751

� 81� ��91 ��8 1971 665 7877 728 333

84 326 109

2005IFRS

610 ���9�8 551

1 538 785

�� 76� 1�733 763 14735 301 932

1 ��7 �801 8�6 19�3 073 574

� 106 07�7�6 �5�

� 65� 1�77 485 652

45 861 159

2004IFRS

610 ���9�8 551

1 538 785

1� ��6 0�814 426 04815 964 833

1 �10 �8�1 51� 9�82 825 430

� 8�8 715898 ��6

1 �87 7�75 124 798

23 915 061

Parent company Group

Oslo, 1� May �007

Jan Engebretsen (Chairman) Kåre Løchsen (CEO) Kristin Clemet (Board member)

Viktor Sandland (Board member) Alf Rasmussen (Board member) Monica June Myklebust Øyen (Board member)

0�6

Dolphin Interconnect Solutions ASAStatement of cash flow (NOK)

2005

1� 900 �69

0

9 000

0

��1 ��6

16 8��

-1�9 ��1

� 505 ��5

1 088 876

-5� 0��

18 669 084

0

-� 680 015

-4 680 015

-8� 10�

0

-83 102

1� 905 967

0

� 8�0 7�0

18 736 697

2006

-7 986 0��

0

��7 5�0

6 0�8 10�

-1 8�6 19�

0

-� 779 6�5

670 7�0

1 0�1 577

-796 688

-6 340 609

-179 67�

-7 868 �10

-8 047 984

-��� 6�9

�� �9� 6��

43 950 005

�9 561 �1�

0

18 7�6 697

48 298 109

Cash flow from operational activities

Operating result before tax

Paid taxes

Depreciation

Write down

Changes in pension obligations

Loss from disposals of operating equipment

Changes in inventory

Changes in receivables

Changes in trade payables

Changes in other current assets/debt items

Net cash flow from operational activities

Cash flow from investment activities

Purchase of operating equipment

Purchase of intangible assets

Net cash flow from investment activities

Cash flow from financial activities

Payment of long-term debt

Issue of shares

Net cash flow from financial activities

Net changes in cash and cash equivalents

Foreign exchange changes

Cash and cash equivalents 01.01

Cash and cash equivalents 31.12

2005

1� 59� 7�5

-9 171

10 90�

0

��1 ��6

16 8��

-1�9 ��1

� 505 ��5

1 �67 �58

-1�� ���

18 442 472

0

-� 680 015

-4 680 015

-8� 10�

0

-83 102

1� 679 �55

57 �07

5 �78 816

19 015 579

Parent company Group2006

-7 865 0�6

-8 061

��8 ��1

6 0�8 10�

-1 8�6 19�

0

-� 779 6�5

670 7�0

708 �76

-605 87�

-6 339 258

-187 �7�

-7 868 �10

-8 055 784

-��� 6�9

�� �9� 6��

43 950 005

�9 55� 96�

-17 �00

19 015 579

48 553 242

The statement of cash flow is a systematic overview that shows how the company has received and used cash and cash

equivalents during the year. The statement of cash flow is supposed to present the development of operation, investment

and financing during the periods.

0�7

Dolphin Interconnect Solutions ASAStatement of changes in equity (NOK)

Parent company

Equity 01.01.2005

Net profit

Equity 31.12.2005

Equity 01.01.2006

Script issue

Issue of shares

Cost of share issue

Net profit

Equity 31.12.2006

Group

Equity 01.01.2005

Currency translation differences

Net profit

Equity 31.12.2005

Equity 01.01.2006

Script issue

Issue of shares

Cost of share issue

Currency translation differences

Net profit

Equity 31.12.2006

Share capital

610 ���

610 234

610 ���

610 ���

570 000

0

0

1 790 468

Share capital

610 ���

610 234

610 ���

610 ���

570 000

0

1 790 468

Share premium fund

9�8 551

928 551

9�8 551

-610 ���

�9 �05 000

-5 581 �66

0

44 041 951

Share premium fund

9�8 551

928 551

9�8 551

-610 ���

�9 �05 000

-5 581 �66

44 041 951

Other equity

1� 98� 1��

19 61� 9��

33 595 088

�� 595 088

0

0

0

-� 988 19�

29 606 895

Other equity

1� ��6 0�8

�0 959

19 �96 1�9

33 763 147

�� 76� 1�7

0

0

0

-6 �88

-� 875 �5�

29 881 606

Total equity

15 5�0 9�9

19 61� 9��

35 133 873

�5 1�� 87�

0

�9 875 000

-5 581 �66

-� 988 19�

75 439 314

Total equity

15 96� 8��

�0 959

19 �96 1�9

35 301 932

�5 �01 9��

0

�9 875 000

-5 581 �66

-6 �88

-� 875 �5�

75 714 025

0�8

Note 1 – General information

Dolphin Interconnect Solutions ASA and its subsidiary in the U.S. develops, manufactures and markets high-speed, high-bandwidth interconnect products based on the Scalable Coherent Interface. The group sells its products all over the world, but the main markets are in the U.S. and E.U. Dolphin maintains sales offices in Los Angeles, Oslo, London, Hannover and Paris, and is represented in the U.S. and internationally by resellers, distributors and integrators.

Dolphin Interconnect Solutions ASA is a Norwegian company, headquartered in Oslo.

These consolidated financial statements have been approved for issue by the board of directors on 1� May �007.

Note � – Summary of significant accounting policies 2.1 Basis of preparationThe consolidated financial statements of Dolphin Group have been prepared in accordance with International Financial Reporting Standards (IFRS).

The consolidated financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 6. 2.2 Consolidation Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. 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 an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of 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. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated, but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

Dolphin Interconnect Solutions ASANotes to the financial statement

0�9

2.3 Foreign currency translation(a) Functional and presentation currencyItems 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 NOK, which is the company’s functional and presentation currency.

(b) Transactions and balancesForeign 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.

(c) Group companiesThe results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet(ii) income and expenses for each income statement are translated at average exchange rates (iii) all resulting exchange differences are recognised as a separate component of equity. 2.4 Operating equipmentAll machinery and equipment is stated at historical cost 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 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 on all assets is calculated using the straight-line method to allocate their cost or revalue amounts to their residual values over their estimated useful lives as follows:– Furniture, fittings and equipment: three to five years.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount, see note �.6.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 2.5 Intangible assetsDevelopment cost of products that can be reliably measured and will probably generate future economic benefits are capitalised and depreciated. Research on new products and maintenance of existing products are expensed as incurred. Capitalised costs contain internal payroll costs and external assistance. Public grants regarding capitalised products reduce the capitalised amount.

Capitalised development cost is depreciated over the period the products are expected to give economic benefits. The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 2.6 Impairment of non-financial assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Dolphin Interconnect Solutions ASANotes to the financial statement

0�0

Dolphin Interconnect Solutions ASANotes to the financial statement

2.7 InventoryInventories are stated at either cost or net realisable value, whichever is the lower. 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.

2.8 Trade receivablesTrade receivables are recognised 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 of payments are considered indicators that the trade receivable is impaired. The amount of the provision is recognised in the income statement.

2.9 Cash and cash equivalentsCash and cash equivalents include cash in hand and deposits held at call with banks. 2.10 Deferred income taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 2.11 Employee benefits(a) Pension obligationsIn 2006, Dolphin Interconnect Solutions ASA changed from a defined benefit pension plan to a defined contribution plan. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior period. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

The change resulted in a cost reduction of NOK 1.8 million because of a reversal of the recognised pension obligation. (b) Share-based compensationAs of �1.1�.�006, the group did not operate any equity-settled or share-based compensation plan. For further information please see note �5. (c) Profit-sharing and bonus plansThe group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the company’s shareholders after certain adjustments. The group recognises a provision where contractually obliged or where there is past practice that has created a constructive obligation.

2.12 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group’s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the group. Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. 2.13 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

0�1

Dolphin Interconnect Solutions ASANotes to the financial statement

200656 16� 1087� 99� �51

-17 8�8 ���� 087 8��

-15 7�0 511-� 989 79�

-11 750 718

5� �50 �70� �95 �1�1 578 018

78 ��� 17�136 765 873

118 581 �5788� 751

17 �00 765136 765 873

Note 5 – List of subsidiaries

The following subsidiaries are included in the consolidated financial statements:

CompanyDolphin Interconnect Solutions Am Inc.

CountryU.S.

Main operationsProduct sale/delivery

Total

Cost of shares

00

Ownershipshare100%

Votingshare100%

Total operating revenueTotal operating expensesOperating profitNet financial profitProfit before taxesIncome taxesNet profit

Intangible assetsOperating equipmentOther non-current assetsCurrent assetsTotal assets

Total equityTotal long-term debtTotal short-term debtTotal equity and debt

Note � – Financial risk management Financial risk factors The group’s activities expose it to a variety of financial risks: currency risk, credit risk and interest rate risk. The group has used financial derivates to hedge certain risk exposures. Risk management is carried out under policies approved by the board of directors. Currency riskThe group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar and EURO. To manage foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the group has used forward contracts with external banks. As of �1.1�.�006 the group has no forward contracts. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Credit riskThe group has no significant concentrations of credit risk. It has policies in place to ensure that wholesale of products and services are made to customers with an appropriate credit history. Note � – Changes in the group’s structure Dolphin Interconnect Solutions ASA aquired the American company StarGen Inc. in �007. This is a major strategic aquisition that ensures the group will be in a position to deliver a wide range of server infrastructure products in the future.

StarGen Inc. will be included in the group’s reporting from 1 January �007.

Pro forma accounts for 2006, including Dolphin Group and StarGen Inc., are as follows:

0��

Dolphin Interconnect Solutions ASANotes to the financial statement

Note 6 – Estimation uncertainty In the process of applying the group’s accounting policies in accordance with IFRS, management has made several judgements and estimates. All estimates are assessed on the most probable outcome based on the management’s best knowledge. Changes in key assumptions may have significant effect and may cause material adjustments to the carrying amounts of assets and liabilities, equity and the net result.

The company’s most important accounting estimate is as follows:Write-down/reversal of goodwill and other intangible or tangible fixed assets.

The company tests annually whether intangible assets have suffered any impairment in accordance with IAS �6. The impairment tests are shown in note 1�.

The company’s recognised intangible assets are assessed annually with regard to impairment or a reversal of previous

impairments.

Note 7 – Exchange rates

The following exchange rate is used in the consolidated financial statements:

Currency 31.12.2006 31.12.2005 Average Average 2006 2005 American dollar (USD) 6.�551 6.7687 6.�18 6.��5

GroupCost 1.1.�006Exchange differencesAdditionsDisposalsCost 31.12.2006

Accumulated depreciation 1.1.�006Depreciation chargeAccumulated depreciation 31.12.2006Net book amount 31.12.2006

Time for depreciation

SalesEURO zoneU.S.OthersTotal

Parent companyCost 1.1.�006AdditionsDisposalsCost 31.12.2006

Accumulated depreciation 1.1.�006Depreciation chargeAccumulated depreciation 31.12.2006Net book amount 31.12.2006

Time for depreciation

Operating equipment1 1�0 ��5

�1�187 �7�

01 328 111

1 110 �56�8 �11

1 148 767179 344

�-5 years

Operating equipment1 11� �8�

179 67�0

1 293 956

1 087 107�7 510

1 11� 617179 339

�-5 years

Sales are allocated to the country where the customer is located.

Note 8 – Sales Group sales mainly occur in the EURO zone and the U.S.

200617 110 �881� ��0 �581 6�1 1�5

32 091 691

200617 110 �881� ��� 7681 6�1 1�5

32 195 201

2005�0 61� 77917 ��� 6��1 �68 995

49 426 396

2005�0 61� 77917 ��� 6��1 �68 995

49 426 396

Parent company Group

Note 9 – Operating equipment

0��

Dolphin Interconnect Solutions ASANotes to the financial statement

Note 1� – Impairment testing of intangible assets Recognised capitalised development cost in the Dolphin Group is NOK 8.9 million at �1.1�.�006. This is for different products under development. The expected cash flows from sales of these products are used as cash generating units for the capitalised development cost.

Projected cash flows have been determined on the financial budget approved by the group’s management. The projected cash flows are based on historical data, but adjusted for Dolphin’s market share growth in the total market. The impairment test is carried out by the group’s accounts department. The valuation was completed in December �006. The recoverable amount is set to the estimated value in use. The value in use is estimated to the net present value of the anticipated cash flow before tax, using a discount rate taking into account the duration of the cash flows and the expected risk. The discount rate used for calculating the net present value of the cash flow is 12.5%. This is based on a risk-free rate of �.5% and a risk premium of 8%. The risk premium is based on uncertainty regarding expected growth. The aquisition of StarGen Inc. in �007 resulted in a write-off in Dolphin Interconnect Solutions ASA capitalised development cost for the product Dolphin Express of NOK 6,0�8,10�. The reason for the write-off is that StarGen Inc. has developed a comparable product, and it is this product that will be developed and sold further by the group.

Parent companyCost 1.1.�006AdditionsDisposalsCost 31.12.2006

Accumulated depreciation 1.1.�006Depreciation chargeWrite-off (see note 1�)Accumulated depreciation and write-off 31.12.2006Net book amount 31.12.2006

GroupCost 1.1.�006AdditionsDisposalsCost 31.12.2006

Accumulated depreciation 1.1.�006Depreciation chargeWrite-off (see note 1�)Accumulated depreciation and write-off 31.12.2006Net book amount 31.12.2006

Note 10 – Capitalised development cost

Capitalised development cost is depreciated through the useful life of the products. Expected income on capitalised development cost and booked value is tested for impairment at the time of the balance sheet, and written down if necessary (see note 1�).

Development cost7 �91 �787 868 �10

015 259 788

0�10 0�0

6 0�8 10�6 348 1248 911 664

Development cost7 �91 �787 868 �10

015 259 788

0�10 0�0

6 0�8 10�6 348 1248 911 664

Note 11 – Depreciation

Parent companyOperating equipment (see note 9)Capitalised development cost (see note 10)Total

GroupOperating equipment (see note 9)Capitalised development cost (see note 10)Total

20059 000

09 000

200510 90�

010 902

2006�7 510

�10 0�0337 530

2006�8 �11

�10 0�0348 431

0��

Dolphin Interconnect Solutions ASANotes to the financial statement

Note 1� – Trade receivables and other short term receivables Trade receivables No provisions for loss on trade receivables in �006 or �005 have been booked. Trade receivables as of �1.1�.�006 and �1.1�.�005 are booked to fair value, NOK 1,76�,659 in �006 and NOK �,��5,�99 in �005 for the parent company and NOK 1,76�,659 and NOK �,��5,�99 in �006 and �005 for the group. Booked losses on trade receivables were NOK 68,967 in �006 and NOK ��,779 in �005 for both the parent company and the group.

Other short term receivablesVATEU grant for projectsTaxesPre-paid costs and otherTotal

Note 1� – Inventory

InventoriesWrite down of dead stockBooked value

Note 15 – Cash and cash equivalents Parent company and group:As of �1.1�.�006, NOK 75�,568 of the total cash and cash equivalents is tied to withholding tax. Liabilities connected to withholding tax as of �1.1�.�006 were NOK 751,55�.

Note 16 – Share capital and shareholders Total share capital of the company as of �1.1�.06 is NOK 1,790,�68.�0 divided between 8,95�,��1 shares with a nominal amount of NOK 0.�0.

Major shareholders as of 31.12.2006 Shares Ownership interest (%) Selvaag Invest AS 1 0�� 78� 11.��Rowan Investments Ltd. 877 189 9.80Den Norske Krigsforsikring 7�9 881 8.�8Verdipapirfondet Danske Fund Nor ��� 0�8 �.8�Granada Forvaltning AS ��5 08� �.6�Verdipapirfondet KLP Aksjenorge �5� 196 �.8�MP Pensjon ��8 70� �.55Credit Suisse Securities 16� ��� 1.8�Granada Management AS 1�6 0�� 1.6�Alf Rasmussen 1�� 10� 1.�8Legio AS 1�7 598 1.��Jan Bjarne Fixdal 1�5 9�0 1.�1Consort Invest AS 119 �8� 1.��Falkum Invest 109 000 1.��Tor Linggjærde 108 000 1.�1Jasto AS 105 555 1.18Yngvar Hvistendal 10� 180 1.1�Lectio AS 100 000 1.1�Odd Eide 9� �61 1.0�Pollex AS 91 876 1.0�Total shareholders > 1% ownership interest 5 �1� ��� 60.�8 The company had a total of �56 shareholders as of �1.1�.�006. Shares owned by board members and leading employees:Alf Rasmussen (member of the board) 1�� 10� shares Jan E Engebretsen (chairman of the board)* 105 �01 shares Viktor Bela Sandland (member of the board) 50 000 shares Kåre Løchsen (CEO) �6 7�8 shares * The shares belonging to the chairman of the board are owned and controlled through the holding companies Nettverk AS and Sesam Invest AS, where the chairman of the board has ownership interest or partnerships.

200618 �8� 8�8-6 988 7�011 296 088

20051� 6�0 0�8-5 1�� 5857 516 453

200618 �8� 8�8-6 988 7�011 296 088

20051� 6�0 0�8-5 1�� 5857 516 453

Parent company Group

20061 �0� 1�81 �59 570

800 000��� 801

3 908 499

20051 19� 9551 71� 558

800 0001� �56

3 720 869

20061 �0� 1�81 �59 570

800 000��� 801

3 908 499

20051 19� 9551 71� 558

800 000�9 9��

3 757 436

Parent company Group

0�5

Dolphin Interconnect Solutions ASANotes to the financial statement

Note 17 – Equity Parent companyEquity �1.1�.�005Script issueIssue of sharesCost of share issueNet profitEquity 31.12.2006

GroupEquity �1.1�.�005Script issueIssue of sharesCost of share issueNet profitEquity 31.12.2006

Note 18 – Other current liabilities Other current liabilitiesAccrued vacation salaryAccrued empl. contr. on vac. salaryBonus to employeesAccrued salaryOther short-term debtTotal

Note 19 – Other long-term liabilities Parent company and group:Other long-term liabilities as of �1.1�.06 consist of a loan in U.S. dollars from Etnus Inc. in the U.S. Total debt as of �1.1�.�006 was USD 1�1,�85. The loan has an annual interest rate of �%. There will be two repayments each year until the loan is fully repaid in �010.

Note �0 – Taxes Parent company:Income taxesTax payableChanges in deferred taxTotal income taxes

Reconciliation from nominal to actual tax rateProfit before taxesEstimated income tax at nominal tax rate (�8%)

Tax effect on following items:Change in non-capitalised deferred tax assets SkatteFUNN 1)

Cost of issue of sharesNon-deductible costsTotal income taxesEffective tax rate

1) A nationwide scheme providing tax deductions for R&D expenses in approved projects.

20060

-� 997 8�9-� 997 8�9

2006-7 986 0��-� ��6 09�

0-��� 000

-1 56� 78��5 0�6

-� 997 8�950.1%

20050

-5 71� 575-5 71� 575

20051� 900 �69� 89� 10�

-9 ��0 976-��� 000

0�0 �98

-5 71� 575-�1.1%

Parent company Group2006

1 �56 9�5180 6�0

05� 97�

-187 6691 403 878

20051 1�0 60�

15� 0051 0�8 000

105 07�109 000

2 534 681

20061 �56 9�5

180 6�00

5� 97�7� ��0

1 665 787

20051 1�0 60�

15� 0051 0�8 000

105 07���7 ��5

2 653 127

Share capital610 ���610 ���570 000

00

1 790 468

�5 �01 9���9 875 000-5 581 �66-� 875 �5�

-6 �8875 714 025

Share premium fund9�8 551

-610 ����9 �05 000-5 581 �66

044 041 951

Other equity�� 595 088

000

-� 988 19�29 606 895

Total equity�5 1�� 87�

0�9 875 000-5 581 �66-� 988 19�75 439 314

0�6

Parent company Group2006

��0 0�0� 506 �91

03 846 331

2005996 59�

00

996 594

2006��0 0�0

� 506 �9110� 510

3 949 841

2005996 59�

06

996 600

Dolphin Interconnect Solutions ASANotes to the financial statement

2006 2005Asset

00

1 956 8�70

1� 0�8 �781� 005 ��5

09 710 424

Liability1 689 ��1� 605 �79

000

� �9� 800

Asset00

1 ��� 60�516 9��

8 �89 �5710 ��0 795

05 712 575

Liability1 �71 �71� �56 8�9

000

� 5�8 �19

20068 056

-� 997 8�9-� 989 79�

2006-7 865 0�5-� �0� �1�

0-��� 000-�5 8��

-1 56� 78��5 0�6

-� 989 79�50.7%

20051� ��0

-5 71� 575-5 699 �55

20051� 59� 7�5� 805 966

-9 ��0 976-��� 000

99 �570

�0 �98-5 699 �55

-�1.9%

Group:Income taxesTax payableChanges in deferred taxTotal income taxes

Reconciliation from nominal to actual tax rateProfit before taxesEstimated income tax at nominal tax rate (�8%)Tax effect on following items:Change in non-capitalised deferred tax assets SkatteFUNN 1)

Items in the U.S. subsidiaryCost of issue of sharesNon-deductible costsTotal income taxesEffective tax rate

1) A nationwide scheme providing tax deductions for R&D expenses in approved projects.

Specification of tax effect of temporary differences and loss to be carried forward

Operating equipmentProfit and loss accountInventoryPension obligationLoss to be carried forwardTotal

Non-capitalised deferred tax assetsNet deferred income tax assets

The group had a loss to be carried forward of NOK ��,0�9,9�0 as of �1.1�.�006.

Note �1 – Pension In 2006, Dolphin Interconnect Solutions ASA changed from a defined benefit pension plan to a defined contribution plan. The change resulted in a cost reduction of NOK 1.8 million due to a reversal of the recognised pension obligation. As of �1.1�.�006, there were �6 employees included in the pension plan. The pension plan is administrated by the insurance company Vital ASA. 2006 Paid contribution 791 1��

Note �� – Other income

Other incomeEU grants to projectsSale of patentOtherTotal

2005Liability

1 689 ��1� 605 �79

000

� �9� 800

Asset00

1 ��� 60�516 9��

8 �89 �5710 ��0 795

05 712 575

Liability1 �71 �71� �56 8�9

000

� 5�8 �19

Operating equipmentProfit and loss accountInventoryPension obligationLoss to be carried forwardTotal

Non-capitalised deferred tax assetsNet deferred income tax assets

The parent company had a loss of NOK ��,0�9,9�0 to be carried forward as of �1.1�.�006.

Asset00

1 956 8�70

1� 0�8 �781� 005 ��5

09 710 424

2006

Specification of tax effect of temporary differences and loss to be carried forward

0�7

Dolphin Interconnect Solutions ASANotes to the financial statement

Parent company Group2006

810 0006 �60 000� 1�0 000

10 290 000

20051 �8� 6��

��6 9��0

1 820 576

20068�� �50

6 �60 000� 1�0 000

10 303 250

20051 �8� 6��

��6 9��0

1 820 576

Parent company Group2006

8 888 �811 861 88�

-1 055 0711 165 9��

10 861 026

20055 879 �711 �99 �91

710 777766 �71

8 755 710

20069 7�6 5801 95� 787

-1 055 0711 ��9 199

11 884 495

20056 �89 ��61 �5� 9�7

710 777766 �71

9 321 430

Note �� – Future lease obligations The parent company and the group have future lease obligations relating to office rental and rental of office equipment. The rent is index regulated each year.

Future accumulated minimum payments regarding the lease obligations are as follows:

Mature within one yearMature between one and five yearsMature later than five yearsTotal

Note �5 – Fees and remuneration Salaries and other fees to:

Board of directorsJan EngebretsenAlf RasmussenViktor SandlandKristin ClemetMonica June Myklebust Øyen

ManagementKåre LøchsenEinar RustadTor UndheimHugo KohmannSvein Erik JohansenAlexander GundersenPer Moen

Nomination committeeViktor SandlandOdd EideYngvar Hvistendal Statement on management remunerationThis statement describes guidelines for remuneration to the management for the accounting year �006 and the main principles to follow in �007.

The board has followed a restrictive remuneration policy in �006. In the opinion of the board, remuneration to management in Dolphin is significantly below the level found in comparable companies. Staff has increased through 2006 and the company has experienced significant competition on salary during the hiring process. Up to and including 2005, a cash-based bonus program existed in Dolphin. This consisted of 10% of the net result paid in cash and divided between all employees.

In order to recruit and retain management personnel, the company should offer a competitive remuneration package. This means that remuneration should be at or about the same level as similar programs in comparable companies. Remuneration should motivate staff to create shareholder value. Bonus payments should be tied to collective or individual targets and be limited to 30% of fixed salary. Total remuneration should not be of such a size or nature that it could hurt the company’s reputation.

Management remuneration should mainly consist of fixed salary. However, additional remuneration in the form of bonus, severance pay, pension, insurance, company car, telephone and broadband may be offered if appropriate.

Salary 2006 (NOK)75 00050 00050 000�� 750�� 750

Salary 2006 (NOK)9�9 951956 589875 �5886� 988799 01�610 095�86 �58

Salary (NOK)000

Other benefits00000

Other benefits1� 8�018 5971� �6�1� ���11 �9�6 177� 618

Other benefits000

Total 200675 00050 00050 000�� 750 �� 750

Total 200695� 781975 186887 9��878 ��0810 �05616 �7��91 076

Total000

Note �� – Payroll expenses

SalariesEmployers’ contributionPension cost, see note �1Other payroll costTotal

The parent company has employed �1.� man-labour years, while the group has employed ��.8 man-labour years in �006.

0�8

Note �6 – Net profit per share Net profit per share is calculated by dividing the net profit before prospective minority interests by the average number of issued shares during the year.

Net profitAverage number of issued sharesNet profit per share

As option programs do not exist, there is no need to calculate fully diluted net profit per share.

Note �7 – Related-party transactions The group bought consultancy services from Novateam AS in �005 for NOK ��5,000. In �006, there have been no transactions between the companies. The chairman of the board, Jan Engebretsen, has ownership interests in Novateam AS. In �006, the parent company has paid commission and service fees totalling NOK 1,71�,006 to its subsidiary in the U.S. As of �1.1�.�006, the parent company has a debt to its subsidiary in the U.S. of NOK �80,77�.

Note �8 – Contingent liabilities Dolphin Interconnect Solutions ASA has been sued by a former accountant who is claiming damages of NOK ��0,000. The management believes it has paid its obligations in full and there is no basis for the claim. Dolphin Interconnect Solutions ASA has also sued this accountant for NOK ��0,000 because of damage caused by the accountant in the company’s books.

2006-� 875 �5�8 09� ��7

-0.48

200519 �96 1�96 10� ��1

3.16

Share-based compensationIn accordance with the business purchase agreement, an extraordinary general meeting held 16 February �007 resolved that the company should issue up to 900,000 warrants to StarGen employees signing on with Dolphin.

Each warrant gives the warrant holder the right to subscribe for one ordinary share in Dolphin at a nominal value of NOK 0.�0 per share, against payment of NOK 1�.90. All of the warrants have vesting criteria, and 80% of the warrants are subject to performance criteria.

The CEO in former Stargen Inc., and the CEO in Dolphin Interconnect Solutions North America Inc., were granted ��0,�00 of the 900,000 warrants available.

In accordance with IFRS �, Dolphin will amortise a total non-payable cost of NOK �,518,��� to the income statement in the period �007–�009.

The board holds the opinion that employee ownership in the company is positive, and that implementation of a share-based remuneration program strengthens the company’s ability to attract and retain key personnel. Also, in the opinion of the board, as management may have significant influence on shareholder value creation, it is positive that the management and shareholders share the same economic incentives. Furthermore, the board holds the opinion that any share-based remuneration program should be tied to performance criteria whenever this is practical. It is the intention of the board to also seek shareholders’ approval for implementation of an incentive-program for share-based compensation for the remaining employees in Dolphin. Program guidelines will be discussed at a board meeting on 1� May, and presented to the annual general meeting on �1 May.

Loans to the managing director, members of the board and shareholdersThere are no loans to the managing director, members of the board or shareholders as of �1.1�.�006. Auditor Booked auditor’s fee in �006 for the parent company and the group amounted to NOK 187,000 for the statutory audit fee. In addition, NOK 7,500 in tax advisory fees and NOK �0,000 for other services from the auditor were booked.

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AUDITOR’S REPORT

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U.S. headquartersDolphin, Inc.

225 Cedar Hil l StreetMarlborough, MA 01752 USA

Phone: (1) 508 786 9950Fax: (1) 508 786 9785

E-mail: info@dolphinics.com www.dolphinics.com

HeadquartersDolphin Interconnect Solutions ASAOlaf Helsets vei 6NO-0619 Oslo, NorwayPhone: (47) 23 16 70 00Fax: (47) 23 16 71 80E-mail: info@dolphinics.comwww.dolphinics.com