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“Creating new opportunities” Annual Report 2007/2008

(in F thousand/%) 2007/2008 in percent 2006/2007 in percent

Net sales 68,286 89 % 51,289 88 %

Capitalized work 8,033 11 % 7,297 12 %

Total output 76,319 100 % 58,586 100 %

Material costs 16,478 22 % 13,096 22 %

Personnel costs excluding depreciation 15,552 20 % 11,766 20 %

Production costs excluding depreciation 32,031 42 % 24,862 42 %

Gross Profit 44,289 58 % 33,723 58 %

Research and development costs, total 10,803 14 % 9,598 16 %

Sales and marketing costs 10,818 14 % 8,640 15 %

Administration costs 4,322 6 % 4,454 8 %

Sales and administration costs excluding depreciation 15,138 20 % 13,094 22 %

Other operational revenue 256 0 % –94 0 %

EBITDA 18,603 24 % 10,938 19 %

Depreciation and amortization 5,666 7 % 4,787 8 %

Total costs 31,608 41 % 27,479 47 %

EBIT 12,937 17 % 6,150 10 %

Financial result -1,601 -2 % 174 0 %

EBT 11,336 15 % 6,325 11 %

Income taxes 3,346 4 % 786 1 %

Net profit for the period 7,990 10 % 5,539 9 %

Minority interests 409 1 % 418 1 %

Net profit for the period after minority interests 7,581 10 % 5,121 9 %

Consolidated total operating revenue EBITDA-EBIT-statement

Selected financial data

Key Figures

Percentage(in F thousand/%) 30.9.2008 30.9.2007 change

ROCE (Return on Capital Employed) 11% 7%

Equity Ratio 51% 49%

Cash-flow from operating activities 6,375 6,699 -5%

Fund assets September, 30 12,544 22,292 -44%

Earnings per share in E 1.76 1.18 49%

Dividend per share in E 0.15* 0.15 0%

Equity per share in E 17.45 16.13 9%

Shares issued 4,317,050 4,337,940 0%

No of employees (annual average) 372 300 24%

* subject to the agreement of the General Meeting

11ISRA VISION Annual Report 2007/2008

Disclaimer - Forward looking statements, Variances for technical reasons This annual report contains forward-looking statements that reflect management’s current views with respect to future events. Such statements are subject to risks and uncertainties that are beyond ISRA VISION AG’sability to control or estimate precisely, such as future market and economic conditions, the behavior of other market participants, the ability to successfully integrate acquired businesses and achieve anticipated syn-ergies and the actions of government regulators. If any of these or other risks and uncertainties occur, or if the assumptions underlying any of these statements prove incorrect then actual results may be materiallydifferent from those expressed or implied by such statements. ISRA VISION AG does not intend or assume any obligation to update any forward-looking statements to reflect events or circumstances after the dateof these materials. For technical reasons (e.g. conversion of electronic formats) there may be variances between the accounting documents contained in this annualreport and those submitted to the electronic Federal Gazette (Bundes -anzeiger). In this case, the version submitted to the electronic Federal Gazette shall be binding. Both language versions of the annual report can be downloaded from the internet at http://www.isravision.com. An interactive online version of the annual report for the media is also available on our website in bothlanguages. On request we would be pleased to send you further copies and additional information about the ISRA VISION AG free of charge. Telephone +49 6151 948-209 Fax +49 6151 948-140 or [email protected]

Creating new opportunities - Focus on “100 +” 2

Generating short term Return on Investment for the customer - Machine Vision automation offers large potential 4

Beyond the “electronical eye” - Innovations as a competitive advantage for production intelligence 6

A wealth of new opportunities - Exploiting the potential of the solar and print industries 8

New market insights - ISRA’s 3D gauging make the “seeing” robots produce “quality” cars 10

Looking forward out of the “storm” - Staying on course with sustainable profitability 12

Group Management Report 14

Report of Supervisory Board 24

Corporate Governance 26

Consolidated Financial Statements (IFRS) 28

Reproduction of the Auditor´s Report 57

Contents

2

Creating new opportunitiesFocus on “100 +”

Dear Shareholders, Business Partners and Friends of ISRA; valued Employees:

We are pleased to report that ISRA was able to continue its long-term track record of dynamic and prof-itable growth in financial year 2007/2008. The fact that we not only fulfilled but partly even exceeded ourtargets underscores the high degree of planning reliability we have achieved. Thus, revenue rose by 33percent to more than 68 million Euros. Profit performance was even more impressive: our gross result(EBT) of 11.3 million Euros represents an almost 80 percent improvement over the prior year. Followingthe successful integration of its recent acquisitions, ISRA has been able to return to the profitability tar-gets established by the Executive Board. The EBT margin (based on total output) improved by 4 per-centage points to 15 percent, while the gross operating margin (EBT in relation to revenues) rose by 5percentage points to 17 percent.

ISRA management intends to stick resolutely to its growth strategy. In the context of our “100 +” target, we have set our-selves the goal of breaking through the revenue threshold of 100 million Euros in the coming years. All in all, ISRA is wellpoised to master the current challenges on the global market, thanks to its leading market position, its innovative prod-ucts, and its global corporate customers, who come from a diversity of geographic regions and sectors of the “old econ-omy”. Moreover, our financial position is on a solid footing. The equity ratio of the ISRA Group currently amounts to 51percent. Long-term financing for our acquisition activities has been secured on favorable terms. Due to the partially vari-able nature of our interest-payment obligations, we have been able to profit from the current low level of interest rates.Besides having adequate liquid assets, ISRA also has access to a substantial number of secured financing options.

The management believe that the current global recession presents us with numerous opportunities, from which ISRA, asone of the global top five suppliers of Industrial Image Processing and the world leader in Surface Inspection, will be ableto profit. This is because ISRA solutions offer customers precisely what they are looking for, especially in economicallytroubled times: reduction in costs coupled with increase in quality. A common advantage of all our products is their abil-ity to generate a rapid return on investment (ROI), given that they allow our customers to boost profitability and competi-tiveness in short order. Now more than ever, this will be a keyfactor in the investment decisions of customers. ISRA helpsits customers to rationalize processes, increase efficiency andultimately enhance profitability. Thus, ISRA expects to benefitfrom the massive economic rescue and stimulus packagesbeing implemented practically all over the world. On the otherhand, it is true that certain key customers are currently sub-jecting all their investment activities to an intensive review.Since budget planning has come to a standstill and manyprojects are being postponed, certain investment decisionswill be significantly delayed.

Given the highly volatile state of the global economy – withsome established forecasters making downward revisionsalmost weekly and others throwing in the towel altogether – itgoes without saying that any estimate of future revenues andprofits must be highly tentative. Based on our latest analysis– which strikes a balance between the growing trend to boostefficiency on the one hand and the need to cut back invest-ments on the other – we expect profitability level to be able tomaintain in financial year 2008/2009.

ISRA VISIONAnnual Report 2007/2008

Enis Ersü, CEO

Sales (in Mio G) Total Operating Revenue (in Mio G)

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08

10,0

20,0

30,0

40,0

50,0

60,0

0

70,0

80,0

90,0

3

Based on a review of our customers’ budgets and on the assumption that the global economy willnot worsen significantly, ISRA is reckoning with slightly lower revenues in financial year 2008/2009.During this phase, ISRA at this stage intends to exploit its full potential by intensifying sales and mar-keting efforts. Furthermore, we are actually in the process of negotiating a number of namable neworders. Some of these discussions are in an advanced stage. This should allow us to keep any rev-enue adaption within a manageable range.

In the prior financial year 2007/2008, a number of acquisitions were successfully integrated into theISRA Group. Our strategic focus will now be on increasing profitability, which will involve optimizingproduction, organization and administration throughout the entire ISRA Group. This is currently beingsupported by external expertise. Given the uncertain outlook for the global economy, we have alreadyadopted and implemented a raft of pre-emptive measures to cut costs and boost efficiency. This

process is not yet complete, however. Depending on the future economic trend, we will be ready to take additional orga-nizational adjustments. Our objective will be to stabilize the ISRA Group’s profitability in the range presently achieved, whilestriving to further enhance our net income over the medium term.

In the course of our managerial and entrepreneurial decision-making, we are always conscious of our responsibility forthe ISRA Group of Companies and their economic future. Our basic approach can be summed up as follows: The sustainable loop of values such as customer and employee satisfaction increases profitability under the assumptionof sustainability. This in turn ensures ISRA's long-term success.

We believe the best way to keep our customers happy is to provide them with reliable solutions that help them boost theirprofitability and competitiveness. And by offering our employees rewarding, long-term jobs in a dynamic high-tech work-place, we motivate them to fully apply their talents and skills for the benefit of ISRA. Continual increase in efficiency throughoptimization of production and organization will safeguard ourprofitability and lead to value enhancement of the Group. Aspart of our corporate responsibility for our customers, employ-ees and business partners, as well as for the natural environ-ment in which we live, our products and services in keepingwith a sustainable use of scarce resources.

On behalf of the entire ISRA Management Team, I would liketo thank our employees for their personal contributions to theoutstanding performance of the Group. As for our esteemedcustomers, shareholders and business partners, I would liketo gratefully acknowledge your confidence and support.

Sincerely yours,

Enis ErsüChairman of the BoardOn behalf of ISRA Management

ISRA VISION Annual Report 2007/2008

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08

0,9

1,5

2,6

3,4

4,1

10

EBT (in Mio G)

5,7

8,3

6,3

0,20

0,40

0,60

0,80

1,00

1,20

0,00

1,40

1,60

1,80

2,00

11,3

EPS (

G p

er

shar

e)

EPS

Dr.-Ing. h.c. H. J. Wiedenhues,Chairman of Supervisory Board

4

As one of the global leaders in the booming Machine Vision industry, ISRA offers a broad range of products and solutionsfor all aspects of Industrial Image Processing. These allow the production of most types of goods to be made more rapid,efficient and economical while maintaining optimal quality. New applications for this key technology are being discoveredon an almost daily basis, and we estimate that only a third of its worldwide potential has been exploited thus far. Clearly,Machine Vision/Industrial Image Processing will remain a dynamic growth industry in the future.

ISRA operations comprise two main divisions. In the Industrial Automation division, industrial robots are taught how to “seeintelligently” with the aid of cameras and sophisticated hardware/software. Meanwhile, the Surface Vision division focus-es on providing 100-percent surface inspection technology to severed sectors all over the world. These solutions alloweven the smallest material flaws to be identified, located and evaluated at ultra-high speeds. Surface Vision is a sector inwhich ISRA is now the undisputed global leader.

ISRA offers turnkey systems consisting of self-developed strategic components and in-house hardware/software. These inturn contain the so-called “brainware” that represents the strategic core competence of the company: technical know-howinvolving complex mathematics, optics and physics. But technological sophistication is just part of the picture at ISRA. Forus, the absolute key is providing optimal cost/benefit to the customer, which is why ISRA systems and solutions alwaysoffer such a rapid return on investment (ROI).

At ISRA, innovation is the engine of growth. One of the salient innovations of financial year 2007/2008 was a new softwarearchitecture for “Enterprise Production Management Intelligence”. Normally inspection solutions provide huge variety ofdata about product quality. In order to take rapid and targeted production decisions, a customer needs access to the rel-evant information for his case as well as the capacity to process and valuate it. This where our groundbreaking system forEnterprise PROduction Management Intelligence EPROMI comes in. It not only provides the user with all available pro-duction data in a clear and condensed form, but also links up to operating functions such as order management andresource planning. The ISRA’s EXPERT5i modules, the customer can then synthesize all available information and gener-ate objective, logically sound decision options for the customer. This in turn enables managers on all organizational lev-els to optimize production and boost profitability in a sustained fashion. A broad portfolio of variously configured EXPERT5i

modules allow the user to access and exploit data over a worldwide network from any location, both locally and globally.

Generating short term Return on Investment for the customerMachine Vision automation offers large potential


6

ISRA’s EXPERT5i modules enable the user to quickly find answers to a whole range ofquestions relevant to optimizing processes and profitability. By weighting and evaluat-ing data according to specific questions, these modules are able to generate knowl-edge-based suggestions for the decision-maker - not just at one location but worldwidethroughout the entire company. For example, comprehensive data regarding a specificsteel strip can be analyzed in order to determine a better allocation of materials. Thiscan help rationalize the use of resources as well as improve profit margins. Thus, ISRA’sEnterprise Production Management Intelligence solution not only lowers the customer’sproduction costs, but also boosts the profitability he can achieve with his products.

ISRA’s profitable growth strategy is straightforward: Convincing our existing clientele ofthe benefits of our new products while at the same time expanding our customer base.

When it comes to the Security/Specialty Paper segment, ISRA is already the worldwide leader. For years now, we haveproven our mettle as a reliable partner to a number of central banks in the highly specialized field of inspecting bank notepaper. In financial year 2007/2008, ISRA was proud to introduce a cutting-edge product which quickly won over a num-ber of strategically important customers. Based on sophisticated camera technology, this powerful new solution offers qual-ity control and 100-percent inspection of bank note paper that is truly state-of-the art, one that satisfies the increasinglystringent requirements of central banks all over the world.

Display Glass is a key strategic growth segment for ISRA. The glass surfaces used for computers and TV displays arebecoming larger all the time, which makes quality control all the more crucial. This is because bigger surfaces requiremore intensive processing, which exponentially increases not only added value but also the follow-up costs of correctingany flaws. Right from the earliest production steps, our automated optical inspection modules monitor the quality of theseglass surfaces and help to analyze and classify any flaws, thus optimizing overall plant management.

Moreover, manufacturers of flat-panel displays will now be able to benefit from an innovative solution developed by ISRAin collaboration with an Asian partner. This consists of a turnkey system that uses five different inspection functions tocheck fully assembled displays for a full range of flaws, whether they be in the glass itself, in the various coating layersand filters. This allows displays that are not 100-percent perfect to be pulled off the line before they can move into thecost-intensive finishing stages of the production cycle.

Beyond the “electronical eye” Innovations as a competitive advantage for production intelligence

EXPE

RT 5

i


8

With its new inspection systems for the Solar Industry, ISRA has already been able to acquire its first customers in one ofthe future’s most promising growth sectors. The exploitation of solar energy relies, among other things, on the use of par-abolic mirrors, a method especially widespread in sunny regions. When producing such mirrors, one must ensure thatthey are formed in such a way as to accurately direct the reflected rays of the sun towards a built-in pipeline. The thermalenergy created by heating up the liquid in this pipeline is then converted into electric power. The new solutions offered byISRA make the inspection of solar parabolic mirrors quicker, easier and more accurate. These enhanced inspections cansignificantly boost energy output on a sustainable basis. During the production process, our inspection system takes accu-rate measurements of variances between the actual mirror’s angle and the defined target angle. This is done with a cut-ting-edge camera system that is far more accurate and rapid than existing laser-based technologies.

ISRA has also developed a solution for the automated inspection of thin-film solar cells, which can be used in a wide rangeof highly complex production steps. The end result: optimal quality and increased yield in the production of thin-film mod-

ules. In fact, our system is so flexible that it can be successfully deployed in other segments of the photovoltaic industryas well. Thus, ISRA inspection systems ensure maximum process reliability and output efficiency. The combination of fullyautomated inspection with tools for 100-percent defect detection and process optimization helps to boost the output ofproduction plants, giving customers a competitive advantage on the global market. ISRA intends to play a formative rolein both of these new growth segments as well, and will thereby help to develop the market for clean and efficient alterna-tive energies.

Fancy packaging seems to be gaining in importance in the marketing strategies pursued by our customers. Just thisrequirement increases the need for 100-percent inspection: ISRA now additionally offers its customers even greater func-tionality with a new range of products for the Print Industry. Our comprehensive inspection systems cover the gamut ofproduction steps, and are supported by key ancillary functions. For example, our standard inspection system can be sup-plemented with an optional color-monitoring feature, which ensures that a specific shade of color remains consistentthroughout its long journey through the printing machinery. Another optional module can monitor repetitive features andattributes in certain product-specific graphics. At the end of the production process, when printed packaging sheets arerolled back up for example, an automatic “rewind manager” allows defective portions to be removed. In financial year2007/2008, ISRA’s innovative products allowed it to break into a new market segment: Printed Electronics. The first sys-tems have already been installed for customers.

A wealth of new opportunitiesExploiting the potential of the solar and print industries


10

To thrive in the fiercely competitive Automotive Industry, one must be able to offer top quality, maximum flexibility and lowcosts, all the same time. This is because the automobile production process requires precise measurements and a highaccuracy of fit. This can only be assured with image processing systems that are custom-tailored to specific productionsteps. Thus, ISRA boasts a complete range of innovative systems and solutions for the most complicated measurementtasks associated with the assembly of car bodies. In addition, we provide an intelligent toolkit comprising in-line meas-urement technologies as well as software for in-process analysis.

Our intelligent, multi-process software allows our customers to perform comprehensive quality management of process-measurement data. Thanks to a continuous, end-to-end monitoring, visualization, analysis and optimization of the pro-duction cycle, dimensional variations and off-size conditions can be quickly spotted. Thus, manufacturing problems areidentified directly and can be immediately corrected, before defects give rise to rejects and excess costs. In addition, our

systems provide detailed analyses and statistical reports that facilitate the evaluation of process capability as well asprocess optimization. Thus, they offer end-to-end quality control and quality measurement functions, not just locally (foreach measurement cell), but for each vehicle assembled at a given plant. Moreover, our systems can be linked up onlineinto a global network. Hence they already have become key decision-making tools for managers, especially in the auto-motive industry. In December 2008, ISRA’s 3D in-line measurement technology was approved for use by a leadingGerman car manufacturer. This success validates our strategic decision to expand the product pallette to include theMeasurement Technology and Production Decision Intelligence sectors.

New market insights ISRA’s 3D gauging make the “seeing” robots produce “quality” cars


12

For the past ten years, ISRA has been continuously profitable, with annual average revenue and net-income growth ofmore than 30 percent. This outstanding performance has allowed us to further expand our leading market position. Witha solid capitalization and plenty of financial leeway, the Group is well positioned to exploit whatever opportunity rises fromthe present crisis. ISRA products provide customers with a quick return on investment (ROI), which is exactly what theyurgently need in economically troubled times: a way to cut costs. All in all, Machine Vision is the most effective solutionfor boosting the efficiency of production, for enhancing quality, and for optimizing yields.

With a broad range of innovative solutions, ISRA is committed to a long-term growth strategy. As a response to the chal-lenging economic environment by redoubling our sales and marketing efforts, which is already beginning to fruit. After thesuccessful integration of a wide variety of recent acquisitions, we are now focusing on boosting efficiency by optimizingproduction, organization and administration throughout the entire ISRA Group. Our objective will be to keep profitability

stable, even in the face of possible revenue reductions. To this end, ISRA has developed a stringent cost-savings program,partially with the support of external experts. Some of these measures have already been implemented, while others arealready prepared as a rapid and efficient reaction option in case of changing circumstances.

Thanks to its solid financial position and its outstanding product and service portfolio, ISRA is well poised to operate suc-cessfully even in a difficult market environment. This is repeatedly confirmed by the many project enquires we receive fromcustomers all over the world.

Looking forward out of the “storm” Staying on course with sustainable profitability


14 ISRA VISIONAnnual Report 2007/2008

Reports und Consolidated Financial Statements


Reports and ConsolidatedFinancial Statements - Group Management Report- Report of the Supervisory Board- Corporate Governance Report

Reports und Consolidated Financial Statements

16

1. Business Situation and Operating Environment1.1. ISRA is a specialist in intelligent systems for industrial image processingThe ISRA group develops, produces and markets intelligent systems for industrial image processing (Machine Vision) using application-

specific modular standard software solutions for surface inspection (Surface Vision), robot guidance (Robot Vision) and quality control

(Quality Vision). ISRA has structured itself according to industry sectors in order to maintain a close dialog with the respective industry’s

global players, thus applying itself where it most benefits the customer. The company offers solutions for various process steps. In the area

of industrial automation, ISRA has focused on the automotive, general industries and food & packaging markets and offers surface inspec-

tion solutions for the glass, display glass, solar industry, plastics, films, nonwovens, print, printed electronics, paper, specialty paper and metal

markets.

ISRA VISION – DIVISIONS AND BUSINESS UNITS (BU)

1.2. The ISRA Vision Group is geared towards the marketsThe ISRA Vision group is broken down into two business divisions and nine business units. In the 2007/2008 fiscal year, the Industrial

Automation business division includes the Automotive, General Industries and Food & Packaging Units. The Surface Vision business divi-

sion comprises the Glass, Display Glass, Plastics, Print, Paper and Metal units.

1.2.1. ISRA VISION AG takes on holding responsibilitiesISRA VISION AG in Darmstadt is taking on the holding functions in the ISRA Group. The central departments of Finance, Research &

Development, Marketing, Purchasing and Electrical Production are all concentrated at this location. The Industrial Automation division, with

the automotive industry as its primary focus, will be managed from Darmstadt. The expansion of the business toward the business unit Food

Inspection is to be promoted from here. The business unit Print from the Surface Vision division is also concentrated at this location.

1.2.2. Acquisitions have significantly expanded the businessThanks to the acquisition of its competitor Parsytec at the end of July 2007, ISRA has significantly expanded its business in the surface vision

division. ISRA is now the world market leader in the surface inspection of metal and one of the leading specialists in the paper sector.

Parsytec has largely been successfully integrated into the ISRA Group. On December 14, 2007, it was decided at the special General

Meeting of the Aachen-based company to rename the company ISRA VISION PARSYTEC AG. At the end of the 2007/2008 fiscal year, ISRA

held around 93 percent of the Parsytec shares.

ISRA VISION PARSYTEC AG in Aachen is focused on the metal and paper industry. This is where the innovative sector solutions are devel-

oped, enhanced and marketed. The new software architecture for the “Enterprise Production Decision Intelligence” will likewise be devel-

oped in Aachen and marketed from there. The EPROMI architecture with its EXPERT5i modules will help optimize management decisions

by enabling production management to exercise direct control over the production hall.

ISRA took over the Mainz company metronom Automation GmbH (Metronom) as of October 1, 2007. Metronom is specialized in the areas

of quality measurement technology for car body construction in the automobile industry and for general industrial image processing. With

its control and automation of measurement procedures, Metronom has earned itself a good market position.

1.2.3. Concentration of the Surface Vision business in HertenThe surface inspection business has been concentrated into ISRA SURFACE VISION GmbH, Herten. Sales, sector specific development,

engineering and part of the production are all based here. The markets for glass, display glass, plastics, specialty paper, bank note inspec-

tion and laser scanners are all supervised from Herten.

The final mechanical integration in production for several Surface Vision systems is concentrated at ISRA VISION LASOR GmbH,

Group Management Report, ISRA VISION AGFiscal Year 2007/2008

ISRA VISION

GROUP

INDUSTRIAL

AUTOMATION

SURFACEVISION

BUGlass

BUDisplay Glass

BUPlastics

BUPrint

BUPaper

BUAutomotive

BU

General

Industries

BU

Food &

Packaging

BUMetal

Group Management Report


17

Oerlinghausen (Germany). Another field of activity at this location is basic development of software (shared with Darmstadt) for all Surface

Vision systems.

1.2.4. ISRA subsidiaries and branch in North America, South America and the UKISRA VISION SYSTEMS, INC., of Lansing (Michigan), USA, runs the entire North American automotive business of the Industrial Automation

division. All Surface Vision activities in America were brought together at ISRA SURFACE VISION INC., of Duluth (Georgia), USA. ISRA

VISION Parsytec Inc., Chicago, IL, USA was also successfully integrated into this company. The South American market is being handled

from the branch in Sao Paulo, Brazil.

In the 2007/2008 fiscal year, ISRA continued to expand its position as a global innovation and market leader in the glass sector. The British

company ISRA VISION Ltd., London, UK offers a good basis for growth in the geographic markets of the UK and Ireland. The American affil-

iate, Image Automation Inc., Worthington, Ohio, USA, has also been successfully integrated into the ISRA Group.

1.2.5. Expansion in AsiaISRA VISION (Shanghai) Co. LTD, Shanghai, China, is the production headquarters for the entire Asian market, and in particular for the fast-

growing Chinese market. Activities there are currently concentrated on the Surface Vision division.

ISRA VISION, Taiwan – Activities in the Display Glass sector (for flat screens) were substantially expanded with the establishment of a busi-

ness presence in Taiwan. The sales and engineering team takes care of this business unit’s activities in Taiwan, Korea, Japan and China.

The representative office in Hong Kong is attached organizationally to ISRA VISION Taiwan. Activities in Calcutta, India, have been initiated.

Through Parsytec, the ISRA Group has greatly augmented its market position in Asia thanks to a sales team that is well-established on the

market in Japan and Korea. The Parsytec Asia Pacific Co., Ltd. in Korea and the Parsytec Japan Co., Ltd. in Japan are sales companies for

surface solutions from ISRA.

1.3. Machine Vision is a key technologyMachine Vision technology constitutes a key technology in the area of automation, production control and fully automatic quality assurance.

The Machine Vision market is characterized by a continually increasing degree of automation in industrial production, joined with continu-

ous, fully automatic optimization of productivity and production quality.

The competitive environment is characterized by fragmentary distribution since there are many suppliers with a relatively small share of the

market. In Europe and the US, there are only a few large companies with revenue in excess of 10 million Euros and more than 100 employ-

ees. The majority of companies are smaller niche-suppliers operating mainly locally, with few employees. The larger suppliers – such as

ISRA – focus on highly specialized system solutions and modular standard components for sectors and markets whose economic cycles

remain largely unaffected by global economic influences.

1.4. Global economy grows by only 3.7 percent in 2008 In the fall report from September 2008, the Kieler Institut für Weltwirtschaft (IfW) was expecting the global economy to grow in 2008 by around

3.7 percent. That notwithstanding, the various institutes are dropping their estimates on a nearly daily basis. One thing is certain: there was

a definite downturn in comparison to previous years. In the last four years, the growth rates were more than 5 percent. The experts all agree

that the market’s slowdown is the direct result of the financial crisis that started in the USA and infected other industrial nations. Faster and

stronger than initially expected, the crisis expanded to include emerging countries and other developing nations. In the Eurozone, the econ-

omy is estimated to have grown in 2008 by around 1.4 percent, and in the USA by around 2 percent.

According to a November 2008 estimate by the International Monetary Fund, the BRIC states have grown in the past year as follows: Brazil

by around 5.2 percent, Russia by around 6.8 percent, India by around 7.8 percent and China by around 9.7 percent. The Middle East

increased by 6.1 percent.

1.5. Slower growth for Machine Vision Due to the global financial crisis, the German image processing industry did not entirely attain the six percent growth in revenue that had

been forecast for 2008. In the meanwhile, the industry in this country has reached a volume of around 1.2 billion Euros. Despite the robust

domestic business, the foreign markets remain the most important growth drivers, observed the VDMA. The German companies with image

processing technology therefore earn almost 60 percent of their revenue abroad. The market for Machine Vision products is primarily con-

centrated on the highly developed industrial regions of North America, Europe and Japan, and on rapidly developing Asian nations such

as Taiwan, South Korea and the BRIC states.

1.6. Corporate governance through value-oriented managementThe company’s most important performance indicators stem from the consolidated total operating revenue EBITDA-EBIT statement. This

provides a view of the company’s efficiency and profitability that is relevant to the industry. The most important components here are the

gross margin (gross profit to total output), the EBITDA, the EBT and the EBT margin (EBT to total output) (see table).

1.7. The great importance of ISRA’s financial managementOur financial management’s top priority is to safeguard the company’s liquidity at all times. The liquidity reserves are always set up in such

a way that all payment obligations can be met on time. The group is basically financed centrally through the parent company in Darmstadt,

ISRA VISION AG. The liquidity is safeguarded through in-depth financial planning. The operational business is financed from the cash flow

and the available liquid funds.



18

ISRA aims to continually develop and optimize its financial management. These optimization efforts are particularly focused on reducing

ISRA’s working capital.

2. The profit, financial and assets situation2.1. An increase was observed for the eleventh consecutive timeISRA is continuing its dynamic growth of previous years at an accelerated pace. For the 2007/2008 fiscal year, ISRA confirmed its forecasts

thanks to a high level of planning reliability, and even managed to partly exceed those expectations. ISRA has been growing now non-stop

for eleven years. The company has nearly completed the integration of its four acquisitions from the previous years. ISRA’s earnings have

resumed their strong growth after the company experienced a temporary slowdown in profit growth (first time in ten years) in the 2006/2007

fiscal year, due to its acquisitions.

The following key indicator annotations are based on the consolidated total operating revenue EBITDA-EBIT statement (see table). The total

output increased by 30 percent to 76.3 million and the EBT rose by 79 percent to 11.3 million Euros – the highest it has been in the com-

pany’s history. With its solid equity base, liquid reserves and available lines of credit, the company has a sound financial basis.

In the 2007/2008 fiscal year, ISRA increased its revenue by 33 percent to 68.3 million Euros. Capitalized work increased 10 percent to 8

million Euros, helping total output to grow 30 percent to 76.3 million Euros. The gross profit margin remained steady. In relation to the total

output, the profit margin reached 58 percent, as in the previous fiscal year. According to the cost of the sales method (sales minus produc -

tion costs), the gross profit margin grew by 7 percentage points to 52 percent. The successful integration of the acquisitions from the pre-

vious years led to profit increases that turned out to be far greater than the increase in revenue. The EBITDA margin grew to 24 percent of

the total output (previous year: 19 percent); the EBIT margin rose to 17 percent of the total output (previous year: 10 percent), and the EBT

margin increased to 15 percent of the total output (previous year: 11 percent). According to the IFRS cost-of-sales method, the EBIT mar-

gin settled at 19 percent (previous year: 12 percent) of the revenue; the EBIT margin came to 17 percent (previous year: 12 percent) of the

revenue, and the net return on sales (net profit for the period, after minority interests) totaled 11 percent (previous year: 10 percent) of the

revenue. The cumulative profits from the completed mergers contributed 804k Euros to the consolidated net income, before internal charges.

The gross profit (total output minus production costs) grew by 31 percent to 44.3 million Euros. Because the production costs (material plus

personnel costs) grew in proportion to the total output by 29 percent, the gross profit margin remained stable at 58 percent. The material

costs climbed by 26 percent to 16.5 million Euros. The personnel costs increased by 32 percent, reaching 15.6 million Euros.

Consolidated total operating revenue EBITDA-EBIT statement

Research and development now 16 percent of the revenueIn the 2007/2008 fiscal year, ISRA continued investing strongly in research and development (R&D). R&D costs increased by 13 percent to

10.8 million Euros. Of these expenditures, 8.0 million Euros were invested in developing new products that were soon to be launched on

the market (previous year: 7.3 million Euros). These expenditures were capitalized in accordance with IAS 38. At the same time 3.4 million

Euros (previous year: 3.0 million Euros) were written off for capitalized work from previous years and from the reporting year. Other depre-


Oct. 1, 2007 to in percent Oct. 1, 2006 to in percent(in € thousand) Sept. 30, 2008 Sept. 30, 2007

Net sales 68,286 89 % 51,289 88 %

Capitalized work 8,033 11 % 7,297 12 %

Total output 76,319 100 % 58,586 100 %

Material costs 16,478 22 % 13,096 22 %

Personnel costs excluding depreciation 15,552 20 % 11,766 20 %

Production costs excluding depreciation 32,031 42 % 24,862 42 %

Gross Profit 44,289 58 % 33,723 58 %

Research and development costs, total 10,803 14 % 9,598 16 %

Sales and marketing costs 10,818 14 % 8,640 15 %

Administration costs 4,322 6 % 4,454 8 %

Sales and administration costs excluding depreciation 15,138 20 % 13,094 22 %

Other operational revenue 256 0 % -94 0 %

EBITDA 18,603 24 % 10,938 19 %

Depreciation and amortization 5,666 7 % 4,787 8 %

Total costs 31,608 41 % 27,479 47 %

EBIT 12,937 17 % 6,150 10 %

Financial result -1,601 -2 % 174 0 %

EBT 11,336 15 % 6,325 11 %

Income taxes 3,346 4 % 786 1 %

Net profit for the period 7,990 10 % 5,539 9 %

Minority interests 409 1 % 418 1 %

Net profit after minority interests 7,581 10 % 5,121 9 %


19

ciation and amortization for software and licenses amounted to 1.7 million Euros (previous year: 1.3 million Euros). Application-oriented

developments that can be brought onto the market quickly are currently the focus of the R&D strategy, and the reduction of the time-to-

market is a decisive control variable.

Sales, administration and marketing costsSales and administration expenses (without depreciation and amortization) climbed by 16 percent to 15.1 million Euros, which is less than

the growth in revenue. The sales and marketing costs increased by 25 percent to 10.8 million Euros, while ISRA managed to decrease its

administrative costs by 3 percent to 4.3 million Euros. The EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) grew by

70 percent to 18.6 million Euros. Depreciation and amortization increased by 18 percent to 5.7 million Euros. The depreciation and amorti-

zation of capitalized work account for 3.4 million Euros (previous year: 3.0 million Euros) of the above-stated figure.

EBIT doublesThe EBIT (Earnings before Interest and Taxes) rose by 110 percent to 12.9 million Euros. Because of the extensive credit financing of the

Parsytec acquisition, the financial result is no longer positive. The financial result for the period dropped to negative 1.6 million Euros. The

EBT (Earnings before Taxes) rose by 79 percent to 11.3 million Euros. The EBT margin reached 15 percent in relation to total output (pre-

vious year: 11 percent), and 17 percent in relation to revenue (previous year: 12 percent). Tax charges rose to 3.3 million Euros (previous

year: 0.8 million Euros), thus staying within normal parameters. In the previous fiscal year, ISRA had already started profiting from the tax

reform that took effect in Germany as of January 1, 2008. Due to the revaluation of the deferred taxes (required by the IFRS), there was a

tax revenue of 2.2 million Euros in the previous year.

The annual net profit (after minority interests) increased by 48 percent to 7.6 million Euros. This corresponds to earnings of 1.76 Euros per

share (previous year: 1.18 Euros), with the total shares numbering 4,317,050 (previous year: 4,337,940).

Growth in the individual segments and markets In the largest division, Surface Vision, ISRA is one of the world-wide leading companies. The total output for this segment rose by 37 per-

cent to 58.3 million Euros in the 2007/2008 fiscal year. ISRA has thus once more expanded its solid position on the market. The EBIT rose

by 153 percent to 9.9 million Euros. The Industrial Automation division increased by 12 percent to 18 million Euros. The EBIT for the divi-

sion grew 36 percent to 3 million Euros.

The strongest growth impulse for the Surface Vision division came from the business unit glass and metal, which recorded particular growth

in the Asian business. There was even sales growth in specialty paper and print. In the Industrial Automation division, the automotive busi-

ness unit managed to show the greatest growth.

2.2. Fund assets of 12.5 million EurosIn the 2007/2008 fiscal year, the operational cash-flow reached 6.4 million Euros (previous year: 6.7 million Euros). As of September 30,

2008, the cash flow from investment activities totaled 13.5 million Euros and was primarily affected by both the acquisition of metronom

Automation GmbH as well as the acquisition of additional shares in ISRA VISION Parsytec AG. The cash flow from investment activities

ended at -22.5 million Euros (previous year: -26.3 million Euros). The cash flow from financing activities reached 6.3 million Euros (previous

year: 26.8 million Euros). The previous year’s figures primarily involved a loan to finance the acquisition of Parsytec. Due to the other acqui-

sition activities, the net cash flow was negative at 9.7 million Euros (previous year: 6.8 million Euros), which caused the fund assets to drop

to 12.5 million Euros (previous year 22.3 million Euros) at the end of the fiscal period. At the same time, the liquid assets rose in the fourth

quarter by 0.6 million Euros. Cash in the amount of 2.1 million Euros was deposited as security.

2.3. Solid financing at a 51 percent equity ratioIn the 2007/2008 fiscal year, ISRA increased the group’s total assets by 6.7 million to 149.7 million Euros. The liquid assets decreased to

12.5 million Euros (previous year: 22.3 million Euros), mainly due to other acquisition activities. This means that cash assets now make up

just under 8 percent of the total assets (previous year: 16 percent). The trade receivables grew by 6.1 million to 37.8 million Euros. 17.3 mil-

lion Euros (previous year: 14.6 million Euros) account for receivables from unfinished orders, as assessed according to the “percentage-

of-completion” method.

Current assets dropped to a portion of 49 percent of the total assets (previous year: 52 percent). At 51 percent (previous year: 48 percent)

of the total assets, the long-term fixed assets reached 75.6 million Euros (previous year: 68.5 million Euros). Due to M&A transactions, good-

will increased by 4.1 million to 38.7 million Euros.

The tax loss carryforwards for the entire ISRA group totaled 20.9 million Euros as of September 30, 2008. Deferred tax assets were estab-

lished for 9.8 million Euros of the loss carryforwards.

On the liabilities side of the balance sheet, equity capital rose to 75.7 million Euros (previous year: 70.0 million Euros). The equity ratio totaled

51 percent.

The short-term loan contracts were converted into a long-term financing that allowed the company the most flexible repayment options pos-

sible. The interest was set up based on the Euribor so that the company will be able to participate in the Euribor’s latest interest develop-

ments in 2009. The company has the option to hedge the interest at any time. As of the end of the fiscal year, ISRA furthermore possesses

available financing options of over 15 million Euros.

The short-term liabilities dropped from 56.7 million Euros in the previous year to 35.1 million Euros. The short-term bank liabilities decreased

by 11.7 million Euros to 13.5 million Euros in favour of a long-term financing. Other liabilities decreased by 11.1 million Euros to 11.5 mil-

lion Euros.



Under the long-term liabilities, the bank liabilities increased to 24.9 million Euros (previous year: 4.2 million Euros). There is furthermore a

liability of 4.1 million Euros from the ERP Innovation Program of the Reconstruction Loan Corporation (Kreditanstalt für Wiederaufbau).

3. Non-financial performance indicatorsThe success of the ISRA group depends to a considerable degree on its staff. The company is therefore continuing to invest in Human

Resource Management in order to strategically strengthen and expand its future and succession planning in the coming years. ISRA attach-

es great importance to well-trained, educated employees and to their qualifications and abilities. This can be seen in the number of employ-

ees with academic degrees.

Mature, long lasting relationships with key industry customers in combination with high quality products and professional project manage-

ment are a result of an intensive, strategic key account management.

4. EmployeesIn the 2007/2008 fiscal year, the ISRA group employed an average of 372 people worldwide (previous year: 300). 388 people were emplo-

yed as of September 30, 2008. The majority work in Germany at the locations in Darmstadt (25 percent), Aachen (14 percent), Karlsruhe (4

percent), Herten (23 percent), Oerlinghausen (8 percent) and Mainz (4 percent). 11 percent of the employees work in the USA and 8 per-

cent in Asia. Another 3 percent work in London and Brazil. Of the staff employed world-wide as of September 30, 2008, 48 percent work in

production and engineering and approximately 16 percent in research and development. 17 percent of ISRA employees work in sales and

marketing and 19 percent in the field of administration.

5. Remuneration Report The structure of the remuneration system for the Executive Board is determined by the Supervisory Board. Criteria used to assess the app-

ropriateness of the remuneration include particularly the tasks of the respective Executive Board member, their personal performance, the

performance of the entire Executive Board, and the company's economic position, success and future prospects, all in comparison to other

people in equivalent positions. The remuneration for Executive Board members comprises short-term components and elements with long-

term incentives. The non-performance based components involve fixed remuneration, payments in kind and other types of benefits. The

short-term components comprise performance-based and non-performance based elements. The non-performance based fixed base remu-

neration is paid monthly as a salary and is reviewed on a yearly basis. The Executive Board members also receive other benefits, in parti-

cular allowances for a private pension plan, health insurance and long-term care insurance; they also receive benefits in kind that primarily

involve the use of a company car. The payments to the members of the Executive Board include performance-based, variable components

which may, in individual cases, total up to 30 percent of their base pay. They are annually revised by the Supervisory Board on base of

objectives.

As a publicly traded company, ISRA VISION AG has the singular opportunity to have its employees and the Executive Board participate

directly in its success via a stock option program, a variable element of their remuneration in the form of a long-term incentive. Options may

only be exercised after a blocking period has expired. According to the stock option program, the options can be exercised for either cash

or shares; however, ISRA VISION AG’s internal practice tends towards offering cash for stock options. An option holder’s options expire if

the option holder has terminated the employment relationship with the Company, or if they are no longer a member of a statutory body of

ISRA VISION AG or of a group company. Irrespective of this, options remain in force unchanged if the employment relationship ends due

to the employee retiring or owing to professional disability. Options cannot be inherited or transferred. In addition, option rights expire 5 years

after the day they are issued.

Options may only be exercised if at least one of the two predefined targets for success has been reached. These are based on the stock

performance in relation to purchase price and time of exercise. The subscription price for a share is given by the arithmetic average of the

closing prices in XETRA trading for the share in the period between the 15th and 5th trading day (before the option is issued), multiplied by

a factor of 1.1.

The Supervisory Board is authorized to define the further details of the subscription conditions and of the issue and structure of the options

for the Executive Board. In addition, the Supervisory Board is authorized to transfer for the Executive Board the shares needed to fulfill the

option rights by issuing acquired treasury shares or by issuing new shares through a capital increase.

The members of the Supervisory Board receive adequate remuneration for their membership on the Supervisory Board every full fiscal year;

this remuneration is determined by the General Meeting and is payable after the end of the fiscal year. The Chairman receives double the

amount; the vice chairman receives 1.5 times the amount. Supervisory Board members who have not belonged to the Board for a full fis-

cal year will be remunerated based on the duration of their membership on the Supervisory Board.

The members of the Supervisory Board will be reimbursed for all expenses and for the value added tax that they must pay on their remu-

neration and expenses.

6. Risks and opportunities for the company’s future developmentA commercial approach goes hand-in-hand with risks. A company’s success is characterized by successful opportunities exceeding the

downside risks in all important decisions. To compare risks against opportunities, ISRA uses a qualified risk management system. Using this

risk management system, all important risks are made visible both retrospectively and prospectively. The system is build on an effective

management information system, in particular the internal reporting structure. The system is continually readjusted in line with the insights

gained from previous years and the new requirements of the German Stock Companies Act (Aktiengesetz) and the German Corporate

Governance Code. The risk management system is especially aimed at recognizing risk early on, controlling it and monitoring it.



21

ISRA endeavors to realize risks quickly. Owing to the globalization of the company and the growing number of locations, it is increasingly

important to promptly procure, distribute and process detailed information.

ISRA is exposed to the general legal and economic risks in the countries where the group companies operate. In addition to this, the group’s

net sales and profit situation may also be significantly influenced by the risks described below. These are the risks that have been identified

until now. This does not preclude the existence of other risks not yet realized by the management, nor does it preclude the possibility of

these risks being under-estimated as negligible. Sufficient provisions were made for all likely risks. There have not been any risks identified

which threaten the existence of the company.

Financial crisis: Preventative measuresOne of the possible scenarios for the current fiscal year assumes a slowdown on the market. Some projects and delivery deadlines may be

postponed. Decisions for new investments may be delayed, and some major customers may temporarily halt their investment activities. The

management is expecting the majority of the key customers’ budget decisions for the current fiscal year to be concretized in

January/February 2009.

Because of the current trend, the company has modified its risk management system to suit the current needs and has increased its sen-

sitivity in all sectors. Reporting intervals have been significantly shortened to allow risks to be detected early on. Quarterly reports have been

shortened to a monthly cycle, and monthly reports to a bi-weekly interval. This intensive oversight pertains to all of the company’s key per-

formance indicators such as the revenue forecast, the liquidity planning, outstanding receivables and production capacity planning. The cus-

tomers and markets are being more intensively monitored with much closer scrutiny. New customers in particular will be subject to a stricter

credit check. Bad debt losses will be countered by modifying the payment agreements with the customer. Additional measures to boost pro-

ductivity and efficiency have already been started. To guarantee the company’s ability to pay and be financially flexible, a liquidity reserve

in the form of a line of credit and cash is being held in reserve. As of September 30, 2008, ISRA disposed of lines of credit totaling more

than 15 million Euros.

If the world-wide turbulence on the financial markets perseveres, and if the economy weakens as a result of this, the economic situation of

our customers may be negatively impacted, along with the demand for our products. This may result in commensurate risks to our revenue

and profits. The management has therefore simulated various risk scenarios to be prepared for all eventualities. The executed simulations

pertain especially to delays in orders, drops in orders, bad debts and overdue incoming payments.

Further risks and opportunities for the company’s future developmentAs a rule, ISRA bills customers in Euros. Only in the USA are quotations made both in the local currency and in Euros. The Management

regularly adjusts the sales calculations to changes in the exchange rates. This prevents currency-based risks. There is only the risk of ISRA's

competitive edge over local suppliers being dulled in the event that the dollar drops. This risk is, however, limited because the administra-

tive and sales costs in the USA are also in dollars.

ISRA’s core technology is Machine Vision technology for industry. The basis of this technology is the combination of specialized basic and

application technology knowledge from the fields of robotics and vision, plus process knowledge, with software technology in marketable

standard hardware and software components. Consequently, protecting intellectual property rights – especially where know-how and soft-

ware are concerned – is particularly important to ISRA. These technologies are characterized by continuous ongoing development. ISRA’s

success depends on its capability to promptly develop, acquire and bring onto the market new or improved products that conform to

changes in technology and meet customer demands.

ISRA’s success so far shows that the company is characterized by a high level of innovation. In the last few years, ISRA has demonstrated

its ability to put the necessary investment in a highly focused research and development, to recognize risks promptly and start measures to

innovate at a very early stage.

The global Machine Vision market is highly fragmented. ISRA is therefore competing here with a variety of suppliers – a few large ones and

many smaller ones. In order to maintain its success in the future as well, ISRA continues to work nonstop on raising the barrier for com-

petitors looking to enter the market – both in R&D and in the fields of customer relationships and customer satisfaction. To achieve this, the

company will in future invest even more, particularly in sales and customer support.

ISRA counteracts the dependency on economic fluctuations with the strategy of diversifying in various industries in different countries.

Consequently, ISRA will continue to concentrate on products that guarantee the customer a high ROI (Return On Investment) and therefore

bring about a fast decision to invest.

In all areas of its business, ISRA has customer relationships to many large enterprises. These companies are chiefly multinationals from the

automotive, glass, paper, print, plastics, metal and automation industries. None of these companies contributes more than ten percent of

ISRA’s revenue. Because ISRA products guarantee a high ROI and ensure a competitive edge for customers who are themselves constantly

in cost competition, customers likewise share a symbiotic relationship with ISRA. Nevertheless, it remains ISRA’s constant objective to con-

tinue increasing its number of customers through the “dual multi-segment strategy”. Using new products, smaller, regionally-based compa-

nies will also be acquired as customers in the relevant target markets.

The majority of ISRA customers show a high degree of credit worthiness. Splitting the overall receivable into a number of smaller amounts

(e.g. payable prior to work being conducted, during system construction and after initialization) works against a loss of receivables. In the

2007/2008 fiscal year, the level of unpaid receivables was less than one percent of the revenue and thus in line with the average of the past

few years.

The company intends to continue its global expansion, not just through internal growth, but also by means of strategic alliances, consoli-

dations and the acquisition of companies or parts of companies. With the acquisitions of the past few years, ISRA has demonstrated its abil-



22

ity to also integrate large companies successfully, thus making a considerable contribution to the growth of both revenue and profit. The

most recent acquisitions have been financed through a long-term loan at a variable interest rate. ISRA bears the risk of changes in the inter-

est rate. Because of the current development in the capital markets and because of the expected cash flow, management considers this

type of financing to be optimal at this time. There is, however, still the possibility that the acquired companies will not immediately earn back

the paid interest through their operative business. At this time, the management estimates the probability to be minimal.

The Management is working to counteract the risks involved in project business, such as fixed prices for a defined scope of services and a

fixed completion date, through intensive and rigorous controlling of proposals and project costs.

To date, no major liability claims due to defective products or sub-standard services have been made against the companies of the ISRA

group. Despite our taking the utmost care, we cannot exclude the possibility of this happening in the future.

7. Important occurrences after the balance sheet dateWith collapse of the American investment bank Lehman Brothers at the beginning of September 2007, the smoldering financial crisis has

been escalating since the middle of 2007. Other banks have also encountered difficulties in the wake of this freefall. Offering billions in aid

packages, the various governments around the globe are attempting to prevent the global financial system from collapsing. Originating in

the USA, the economic slow-down gained momentum, stoking people's fear of recession. Since then, the economic expectations for near-

ly all national economies have been adjusted downwards on a nearly weekly basis. The incoming orders in German mechanical engineer-

ing have since taken nose dive of two digit percentage points. At this current time, it is hard to tell the difference between true recession

trends and self-fulfilling prophecy. To produce a reliable growth forecast for ISRA, it is necessary to evaluate all information on the pertinent

markets. The executive board is expecting to be able to produce a reasonably reliable forecast in February of 2009.

Because of the events throughout the world on the financial market and based on various planning scenarios, individual structural adjust-

ments have already been made to reinforce the company. Consequently, individual changes have already been made to personnel, and the

production capacity has been prepared for possible adjustments.

To pay off the part of the purchase price in shares that arose from acquiring metronom Automation GmbH, the ISRA VISION AG executive

board, with the authorization pursuant to § 4 Paragraph 5 of the articles of association and the approval of the Supervisory Board, decided

on October 24, 2008 to use an investment in kind of EUR 43,300.00 to increase its capital from EUR 4,337,940.00 to EUR 4,381,240.00 by

issuing 43,300 new no-par value bearer shares from the authorized capital. As of the time of this report, this increase still had to be entered

in the commercial register.

8. Forecast Report8.1. World economy: Significant economic down-turnIn 2009, the global economy is expected to slow down. According to the IMF, the drop in demand in industrial nations and intensified loan

requirements in emerging nations are responsible for the low growth expectations. For the first time in 60 years, the IMF is expecting all

industrial nations to slip into a recession in 2009. They are forecasting that the countries will shrink by 0.3 percent. The IMF is expecting for

Germany to drop by 0.8 percent, for the USA to drop by 0.7 percent, for France to drop by 0.5 percent and for the UK to drop by 1.3 per-

cent.

Globally, the IMF predicts that the economy will only grow by 2.2 percent, which falls under the IMF’s definition of a recession. The largest

growth drivers will come from the emerging and developing nations. The experts are expecting growth of 3 percent for Brazil, 8.5 percent

for China, 6.3 percent for India, 3.5 percent for Russia and 5.3 percent for the Middle East.

In 2009, the VDMA is expecting “headwinds” for the German image processing industry. In 2009, most of the customer industries will either

dwindle or maintain their high level. The VDMA has not yet developed a clear forecast for industrial image processing. They are expecting

consolidation at a high level. Since only around a quarter of all potential applications have been realized so far, and since further areas will

open up as technology continues to develop, the machine vision industry will remain a growth sector in the mid- and long-term.

8.2. ISRA is focusing on opportunities in the crisisISRA intends to continue its many years of growth in the next several years. The current global crisis represents more than risk - it may also

provide opportunities. In particularly hard economic times, companies are thus under increasing pressure to reduce costs and improve their

competitive edge. It is precisely the solutions from ISRA that will be in demand in economically hard times, especially for automating pro-

duction, improving product quality, preventing rejects and optimizing output. There are aid packages currently being provided by the gov-

ernments to save companies from financial ruin. ISRA’s executive board is convinced that the companies will spend a significant portion of

these funds on increasing efficiency and improving their competitive edge.

With an order backlog of more than 34 million Euros, ISRA intends to continue down the previous years’ path of profitable organic and exter-

nal growth in the 2008/2009 fiscal year. Based on the current market trend - provided that there are no other significant blows to the eco-

nomic situation – the management is not expecting any drop in revenue for the current fiscal year. The prepared measures are targeted at

preventing the profit margins from deviating significantly from the previous fiscal years. It is difficult to quantify expectations at the beginning

of this fiscal year. At the current time, there is still no forecast for ISRA's customer industries. For a certified forecast, ISRA is waiting for the

major budget conferences of its key customers to happen, which are scheduled for January/February 2009.

9. Supplementary information pursuant to § 315 Paragraph 4 of the German Commercial Code (HGB)As of the balance sheet date, the company’s share capital totaled €4,337,940. It is divided into 4,337,940 common stocks registered to hold-

ers with a nominal value of one Euro. Each share conveys one vote. It is forbidden to securitize the shares.



23

EVWB GmbH & Co. KG, headquartered in Darmstadt, (majority shareholder and CEO Enis Ersü) holds a share in excess of 10 percent of

ISRA VISION AG.

The Supervisory Board consists of six members. Mr. Enis Ersü, Darmstadt, is entitled to depute a member of the Supervisory Board as long

as he holds his portion of the company’s share capital. The remaining members are selected by the General Meeting.

Pursuant to §§ 84, 85 of the German Stock Corporation Law (AktG) in conjunction with § 6 of the company’s Articles of Association, the

Executive Board is appointed and dismissed by the Supervisory Board. According to § 19 of the Articles of Association, changes to the

Articles of Association must be ratified at the annual General Meeting through a simple majority of the base capital entitled to vote that is

represented at the adoption of the resolution. According to § 179 of the German Stock Corporation Law (AktG), changes to the Articles of

Association that pertain to the objective of the company must be ratified at the annual General Meeting through at least a three-fourths major-

ity of the base capital entitled to vote that is represented at the adoption of the resolution. Pursuant to § 15 of the Articles of Association, the

Supervisory Board of the company is furthermore only authorized to make modifications to the company’s Articles of Association that con-

cern their version.

The General Meeting held on March 20, 2007 resolved an amendment to the Articles of Association. This amendment authorizes the

Executive Board to increase the Company’s share capital until March 19, 2012 once only or on multiple occasions by issuing new bearer

held no-par value shares against cash or non-cash contributions, up to a maximum amount of €2,168,970.00 (authorized capital). The

Executive Board is authorized, with the agreement of the Supervisory Board, to exclude the statutory subscription rights of shareholders

• for residual amounts,

• to secure shares in return for contributions of fixed assets, in particular in the context of mergers with other companies or the purchase

of other companies, parts of companies or of an interest in other companies.

• if the capital increase takes place by means of an equity contribution and the issued value is not, at the time of the final determination of

the issued value by the Executive Board, significantly less than the share price of the shares of a similar nature and scope which are

already quoted on the stock markets, when judged in terms of the provisions of § 203 Paragraphs 1 and 2 and § 186 Paragraph 4 of

the German Stock Corporation Law (AktG) and the amount of the base capital attributable to the shares issued under exclusion of the sta-

tutory subscription rights does not exceed €433,794.00 and 10 percent of the recorded base capital at the time of the issue of the new

shares. Realization of stocks have to be charged against this 10 percent limitation of base capital if they come to effect due to authoriza -

- tion under shareholder exception from subscription according to § 71 Paragraph 1 Clause 8 (German Stock Corporation Law (AktG) in

connection with § 186 Paragraph 3 Clause 4 of the German Stock Corporation Law (AktG). In addition, stocks issued to service bonds

under option and/or conversion right shall be charged to the 10 percent limitation of base capital if the bonds were issued with the

exclusion of subscription rights due to an authorization applicable at the moment or an authorization acting on its behalf, as found in

§ 186 Paragraph 3 Clause 4 of the German Stock Corporation Law (AktG).

On the basis of a resolution passed by the General Meeting on March 28, 2006, ISRA VISION AG increased its capital by €250,000.00 by

issuing up to 250,000 no-par value bearer shares to implement an employee equity compensation plan (conditional capital).

On the basis of a resolution passed by the General Meeting on March 20, 2007, the base capital has been increased by up to €1,918,970.00

of no-par value bearer shares (conditional capital II). The conditional capital increase may only be carried out to the extent that the holder

of convertible or negotiable option bonds, issued on the basis of the authorization given to the Executive Board by the general meeting on

March 20, 2007, makes use of this conversion or option right, or to the extent that the holders obliged to make the conversion fulfill their

obligation to undertake the conversion.

Based on the decision of the General Meeting held on March 19, 2008, the Executive Board of ISRA VISION AG has been authorized to

acquire its own shares until September 18, 2009, complying with the principle of equal treatment (§ 53a of the German Stock Corporation

Law (AktG). They are authorized to acquire up to 433,794 shares of the company, corresponding to 10 percent of the current share capital,

under the provision that the shares which are purchased in accordance with this authorization, when added to the other shares in the com-

pany which the company has already purchased and still possesses, do not represent more than 10 percent of the base capital of the com-

pany. This authorization may be implemented in full or in parts. Purchases may be undertaken within the period covered by the authoriza-

tion up to the point where the maximum purchase volume has been reached by partial purchases on various purchasing dates. Purchases

may also be undertaken by subsidiary enterprises of the company in the context of § 17 of the German Stock Corporation Law (AktG) or

on its or their behalf by third parties.

Darmstadt, December 28, 2008

The Executive Board



24

As in previous years, the Supervisory Board exercised in the 2007/2008 fiscal year its legal and statutory responsibilities by monitoring the

management of the ISRA VISION group and by advising the Executive Board. The Supervisory Board was involved in a timely manner and

in depth in all decisions of fundamental or strategic importance. Following thorough consultation, the Supervisory Board cast its vote – when

necessary.

The Supervisory Board currently consists of Dr. Ing. h. c. Heribert J. Wiedenhues (Chairman), Dr. Wolfgang Witz (Deputy Chairman), Dr. Erich

W. Georg, Stefan Müller, Falko Schling and Prof. Dr. rer. nat. Dipl.-Ing. Hennig Tolle.

Dr. Dieter Willasch resigned from his position, effective as of the General Meeting on March 19, 2008. Mr. Falko Schling was appointed to

take his place on the supervisory board. Mr. Schling is the chief representative of Volkswagen AG and was previously the head of the group’s

quality assurance. He resides in Hofheim (Taunus). Mr. Schling is not a member of any other supervisory board as defined in § 125 Clause

3, second Sub-Clause of the German Stock Corporation law.

In October 2007, Dr. Erich W. Georg assumed the position of Dr. Folker Weißgerber, who had died unexpectedly on August 25, 2007.

Dr. Georg is managing partner of the MCIC GmbH (Management Consulting International Cooperation GmbH). He was furthermore

employed at Siemens AG as president and CEO of Instrumentation & Control, Power Generation. Dr. Erich W. Georg was similarly appoint-

ed to take his place in the supervisory board by the general meeting.

The Executive Board regularly and comprehensively informed the Supervisory Board about business activities, corporate planning and

events of great importance, both verbally and in writing. They provided thorough explanations when the business results deviated from plan-

ning. In addition to this, the Chairman of the Supervisory Board remained in regular contact with the Chairman of the Executive Board.

Together they thoroughly discussed current business developments.

The Supervisory Board convened four meetings by personal attendance in the 2007/2008 fiscal year. They provided in depth advice and

made decisions on the following topics:

Meeting on November 26, 2007

The Supervisory Board authorized the agenda for the General Meeting on March 19, 2008 and decided according to the June 14, 2007

version of the Declaration of Compliance of the Corporate Governance Codex.

Meeting on January 23, 2008

The Supervisory Board approved without objection the annual financial statement for ISRA VISION AG, the corporate accounts and the

report on the corporate position, thus confirming the annual statement of accounts. The Supervisory Board decided on a dividend payout

of 15 cents.

Meeting on May 27, 2008

The Executive Board has given the Supervisory Board an overview of the 3rd quarter of the 2007/2008 fiscal year along with a forecast for

the entire fiscal year; the Supervisory Board approved the forecast.

Meeting on September 11, 2008

The Supervisory Board discussed in depth the budget for the 2008/2009 fiscal year and approved it. The Supervisory Board was provided

an overview of the status of the acquisition projects and was brought up to speed on ISRA’s current organizational and corporate structure.

Furthermore, the corporate planning for the 2008/2009 fiscal year was presented and approved.

The date for the General Meeting was set for March 24, 2009.

The Supervisory Board concentrated its advice on matters concerning: The financial, sales and profit situation; investments; the risk

management system; the international growth of the markets for industrial image processing, especially an analysis of the drop in orders in

the second half of the year; expansion opportunities and risks for ISRA in Asia, Eastern Europe and South America. The various acquisition

targets were analyzed in depth and the proceedings were very carefully tracked during the integration of Parsytec. The Supervisory Board

furthermore concerned itself with the impact of new legal developments, in particular with the increased disclosure requirements of the IFRS

international accounting standards, of the Takeover Directive Implementation Act, of the Transparency Directive Implementation Act and of

the new Corporate Governance Code. After satisfying itself that ISRA had complied in the finished fiscal year with the recommendations in

the Declaration of Compliance, the Supervisory Board contributed to the drawing up of said Declaration. At the same time, the Executive

Board has also provided a report for the Supervisory Board about Corporate Governance at ISRA in a separate section of this annual report.

To increase its efficiency, the Supervisory Board formed two committees, the Main Committee and the Auditing Committee. The Main

Committee, chaired by Dr. Ing. h. c. Heribert J. Wiedenhues, met to discuss Executive Board remuneration and the degree to which the

performance-based components of the Executive Board’s remuneration were fulfilled in 2006/2007, as well as to determine the performance-

based components for 2007/2008. Dr. Ing. h. c. Heribert J. Wiedenhues reported to the entire Supervisory Board on the work of the Main

Committee. The Auditing Committee, chaired by Dr. Ing. h. c. Heribert J. Wiedenhues, made its own audit of the AG’s and group’s financial

results and the consolidated financial statements and discussed them in detail with the auditors. The Committee was satisfied that there are

no remaining risks or problems; it reported its findings to the Supervisory Board at the Balance Sheet Meeting.

Report of the Supervisory Board



25

The Pannell Kerr Forster GmbH financial auditing company audited the annual financial statements and the management report, prepared

by the Executive Board in accordance with the regulations of the German Commercial Code (HGB), for the fiscal year from October 1, 2007

to September 30, 2008. The Auditing Committee of the Supervisory Board commissioned the audit as decided at the General Meeting on

March 19, 2008. The financial auditor has issued an unqualified audit certificate. The consolidated financial statements of ISRA VISION AG

were prepared in accordance with § 315a of the German Commercial Code (HGB), based on the IFRS international accounting standards.

The financial auditor also granted an unqualified audit certificate to the group consolidated financial statements and the group management

report.

The Auditing Committee had specified the following focal points for the audit for the 2007/2008 fiscal year: risk management, corporate

financing, impairment test, stock prices.

The reports about this and the other audit reports were sent to all Supervisory Board members on time, along with the financial statement

documents. They were discussed in depth by the Auditing Committee and the Supervisory Board. The auditors took part in the consultation

and reported the essential results from the audits. They were available to answer any questions from the Auditing Committee and the

Supervisory Boards. The Supervisory Board addressed the information pursuant to §§ 289 Paragraph 4 and 315 Paragraph 4 of the German

Commercial Code (HGB). The Supervisory Board examined the corresponding explanations referred to in the management report.

After examining the annual financial statements, the consolidated financial statements, the management report and the group

management report themselves, the Supervisory Board accepted results of the audit from the auditor. In accordance with the

recommendation from the Auditing Committee, they approved the annual financial statement and the consolidated financial statement at the

meeting held on January 26, 2009. The annual financial statement has thus been confirmed. The Supervisory Board has followed the

Executive Board’s suggestion for the use of the net profit for the year.

The Supervisory Board extends its thanks to ISRA’s Executive Board and all their employees and subsidiaries for their personal efforts and

successful work in the past 2007/2008 fiscal year.

Darmstadt, January 26, 2009

Chairman of the Supervisory Board



26

An essential factor for a company’s success is its management. ISRA has always placed great importance on responsible, value-oriented,

effective corporate governance. This is why the implementation of the Corporate Governance Code at ISRA is examined every year by ISRA‘s

Executive and Supervisory Boards - based on the codex adapted by the government commission - annually check up on the implementa-

tion of the Corporate Governance Codex at ISRA, readjusting it if necessary and adjusted in relation to the revisions made to the Code by

the government commission. ISRA conforms to the most recent recommendations, with only very few company-specific exceptions.

Responsible governance is oriented towards value enhancementPursuant to Paragraph 3.10 of the German Corporate Governance Codex, the Executive and Supervisory Boards report about corporate

governance at ISRA as follows:

ISRA is oriented to the standards of responsible corporate governance directed towards long-term added value. Through open information

and transparent decision structures, the management aims to validate and further encourage the trust of its customers, employees, busi-

ness partners, shareholders and the public. The company communicates information regularly in an open, proactive manner and specific

information information relevant to stock prices is reported immediately to the financial community via ad hoc announcements. All obliga-

tory announcements, corporate reports, essential notifications and press releases are promptly published on the ISRA internet home page.

This assures equal dissemination of information to all shareholders.

The Executive Board manages business transactions responsibly and with self relianceAt ISRA, good corporate governance means first and foremost constructive, trusting cooperation between the Executive Board and the

Supervisory Board with the goal of corporate governance targeted towards value enhancement. The Executive Board develops the com-

pany’s strategic orientation in conjunction with the Supervisory Board, leading the ISRA Group responsibly and self-reliantly. In writing and

by word of mouth, they regularly report to the Supervisory Board on how business is progressing, the company’s position, its corporate plan-

ning and its risk situation. The bylaws govern the allocation of rights and duties in the Executive Board and define transactions and proce-

dures which the Supervisory Board must follow.

The Supervisory Board monitors and advises the Executive BoardAt ISRA, the Supervisory Board does not merely diligently fulfil its function as a supervisory body; it also advises and directs the Executive

Board and its Chairman. To increase efficiency, the Supervisory Board has formed committees. The Bylaws Committee regulates all admin-

istrative and organizational matters. The Chairman of the Supervisory Board reports about this committee’s work in a separate Supervisory

Board report.

Managing risk effectivelyDoing business as an entrepreneur means running risks. Effective management of these risks will determine the success of a company.

ISRA’s risk management system ensures that these risks will be handled in a responsible manner. It is especially designed to promptly rec-

ognize, evaluate and manage risks. The system is continuously being enhanced and readjusted to suit the changing circumstances. In the

management report, the Executive Board reports in detail about risks and future trends.

Appropriate Remuneration The members of the Executive and Supervisory Boards are remunerated in appropriate proportion to their tasks and the responsibility placed

upon them. Each member of the Supervisory Board will receive a fixed sum for the past 2007/2008 fiscal year. Supervisory Board mem-

bers who did not occupy their position on the board for the whole year will receive remuneration corresponding to the duration of their mem-

bership. Performance based remuneration of Executive Board members reflects the corporate philosophy on management remuneration

within the entire ISRA Group. Members of the Executive Board and other managers within the company receive remuneration consisting of

both fixed and variable components. The variable components account for up to 30 percent of the basic pay. The Executive Board reports

on the remuneration system in the group management report.

According to § 15a of the German Securities Trade Act (WpHG), board members and persons with managerial functions must disclose to

the company any purchase or sale of shares of ISRA VISION AG. In the 2007/2008 fiscal year, the following purchase or sale transactions

that had to be declared in the Corporate Governance Report according to item 6.6 of the German Corporate Governance Code were report-

ed to ISRA VISION AG.

Corporate Governance Report

Date Name Type of Shares traded Price Total StockFunction Transaction per share Volume exchange

in Euros in Euros

July 22, 2008 EVWB GmbH & Co. KG Buy 5,000 9.50 47,476 XETRA



27

Declaration of Compliance pursuant to § 161 of the German Stock Corporation Law (AktG).The Executive Board and Supervisory Board of ISRA VISION AG hereby declare, in accordance with § 161 of the German Stock Corporation

Law (AktG), that the recommendations of the government commission on the “German Corporate Governance Code” in the version dated

June 14, 2007 as well as the version dated June 6, 2008 have been fulfilled and that henceforth the recommendations in the version dated

June 06, 2008 will be fulfilled. The following are exceptions to this fulfilment:

The D&O insurance policies do not provide for any cost sharing on behalf of the board members. In the view of the Executive Board and

the Supervisory Board, there is a risk that the agreement to share costs would conflict with the aspirations of ISRA VISION AG to recruit

highly qualified persons for the Executive Board and the Supervisory Board (Code item 3.8).

Payments to the Executive Board and a Remuneration Report are recorded in the consolidated financial statements. They are neither record-

ed in a way which indicates the composition of the individual elements nor disclosed in a separate Remuneration Report within the

Corporate Governance Report. The Annual General Meeting decided in 2006 that rather than announcing the individual salaries of the mem-

bers of the Executive Board, the total remuneration for all members of the Executive Board should be disclosed. The Executive Board and

the Supervisory Board are of the opinion that this will properly and sufficiently fulfill the information requirements to which the shareholders

are entitled (Code item 4.2.4 and 4.2.5.).

The ISRA VISION AG Supervisory Board consists of six members. Because of the low number of Supervisory Board members, it was

deemed unnecessary to form a nomination committee. The efficiency of the Supervisory Board is, however, not affected by this (Code item

5.3.3).

There is no age limit for members of the Supervisory Board as this is not seen as appropriate (Code item 5.4.1).

An election of each individual board member was not carried out in the General Meeting on March 19, 2008 in order to keep the meeting

within a reasonable time limit.

The remuneration of the Supervisory Board members relates to the positions of the Chairman and Vice Chairman of the Supervisory Board.

There is no provision for additional remuneration for chairmanship or membership of committees, nor for an additional performance-based

remuneration of the Supervisory Board members due to the size of the company and the amount of the remuneration of the Supervisory

Board. Payments to the members of the Supervisory Board are recorded in the consolidated financial statement. There is no provision to

publish individual details concerning the remuneration of the Supervisory Board members. By this method, the requirements for information

to which the shareholders are entitled will be fulfilled both appropriately and adequately (Code item 5.4.7).

The company observes the current statutory requirements and publishes the company’s consolidated financial statements within 4 months

of the end of the fiscal year and interim reports within 2 months of the end of the reporting period. Regular publication within the timeframe

recommended by the Corporate Governance Codex would be possible only with an increase in the size of the internal accounting struc-

ture and thus significantly higher costs, taking account of the size of the Company. This would not be compatible with the goal of maintain-

ing lean management structures (Code item 7.1.2).



28

Consolidated Financial Statements


29

Consolidated Financial Statements

Consolidated Financial Statements(IFRS)

Darmstadt, September 30, 2008


30

Consolidated total operating revenue EBITDA-EBIT statement*

Consolidated Income Statement(IFRS)

Oct. 1, 2007 to Oct. 1, 2006 to(in F thousand) Explanation Sept. 30, 2008 Sept. 30, 2007

Net sales 68,286 51,289

Cost of sales 32,480 25,169

Gross operating result (gross profit) 35,806 26,120

Research and development 7,496 6,416

Total costs 10,803 9,598

Depreciation 9 4,778 4,140

Grants –52 –24

Capitalized work 9 –8,033 –7,298

Sales and marketing costs 11,130 8,865

Administration costs 4,446 4,570

Sales and administration costs 15,576 13,435

Other operational revenue –203 –118

Financial result 4 –1,601 174

EBT 11,336 6,325

Income taxes 5 3,346 786

Net profit for the period 7,990 5,539

Minority interests 409 418

Net profit after minority interests 7,581 5,121

Earnings per share in F (undiluted and diluted) 1.76 1.18

Shares issued 4,317,050 4,337,940

Oct. 1, 2007 to Oct. 1, 2006 to(in F thousand) Sept. 30, 2008 Sept. 30, 2007

Net sales 68,286 51,289

Capitalized work 8,033 7,297

Total output 76,319 58,586

Material costs 16,478 13,096

Personnel costs excluding depreciation 15,552 11,766

Production Costs excluding depreciation 32,031 24,862

Gross Profit 44,289 33,723

Research and development costs, total 10,803 9,598

Sales and marketing costs 10,818 8,640

Administration costs 4,322 4,454

Sales and administration costs excluding depreciation 15,138 13,094

Other operational revenue 256 – 94

EBITDA 18,603 10,938

Depreciation and amortization 5,666 4,787

Total costs 31,608 27,479

EBIT 12,937 6,150

Financial result – 1,601 174

EBT 11,336 6,325

Income taxes 3,346 786


Minority interests 409 418

Net profit after minority interests 7,581 5,121

Earnings per share in F 1.76 1.18

Shares issued 4,317,050 4,337,940

* This pro forma presentation is an additional presentation based on the comprehensive presentation given in previous years and therefore not part of the IFRS consolidated financialstatements.

31

Consolidated balance sheet

(in F thousand) Explanation Sept. 30, 2008 Sept. 30, 2007

ASSETS

Current Assets

Cash and cash equivalents 12,544 22,292

Securities 16 0

Trade receivables 6 37,793 31,659

Inventories 7 17,244 15,939

Other assets 8 6,496 4,616

Total current assets 74,092 74,506

Fixed assets

Goodwill 9 38,681 34,582

Other intangible assets 9 31,009 27,439

Tangible assets 10 2,649 2,773

Deferred tax assets 16 3,279 3,753

Total fixed assets 75,618 68,547

Total Assets 149,710 143,053

Equity and Liabilities

Short-term liabilities

Trade payables 12 8,288 6,023

Bank liabilities 11 13,482 25,200

Accruals 13 653 1,402

Tax accruals 14 555 1,471

Other liabilities 15 11,503 22,591

Advanced payments 590 0

Total short-term liabilities 35,070 56,687

Long-term liabilities

Deferred tax liabilities 16 12,289 10,558

Bank liabilities 11 24,885 4,200

Accruals for obligations to employees 17 1,757 1,638

Total long-term liabilities 38,931 16,396

Total liabilities 74,001 73,083

Equity 18

Issued capital 4,338 4,338

Capital reserves 37,168 37,168

Own shares – 469 0

Minority interests 1,231 1,967

Currency exchange variations – 1,139 – 1,152

Profit brought forward 26,999 22,528


Total equity 75,709 69,970

Total equity and liabilities 149,710 143,053

32

Consolidated cash flow statement

Oct. 1, 2007 to Oct. 1, 2006 to(in F thousand) Explanation Sept. 30, 2008 Sept. 30, 2007

Consolidated net profit for the period 7,990 5,539

Taxes paid – 1,723 – 1,447

Changes in the deferred tax assets and the deferred tax liabilities 2,189 – 326

Changes in accruals – 1,835 – 1,103

Depreciation 5,666 4,787

Changes in inventories – 1,260 – 3,214

Changes in trade receivables, other assets, prepaid expenses – 7,874 – 5,060

Changes in trade payables, other liabilities, deferred income 1,065 7,647

Interest income – 399 – 520

Interest expenses 1,921 346

Other non cash transactions 635 50

Cash flow from operating activities 6,375 6,699

Cash proceeds from the sale of fixed assets 19 0

Investments in tangible assets – 463 – 557

Investments in intangible assets – 8,536 – 7,893

Investments in acquisitions 20 – 13,504 – 17,878

Cash flow from investment activities – 22,484 – 26,328

Dividends payment – 651 – 651

Share buy-back – 469 0

Capital increase from subsidiaries 0 86

Deposits arising from financial liabilities 9,072 28,200

Repayment of financial liabilities – 105 – 1,023

Interest income 399 520

Interest expenses – 1,921 – 346

Cash flow from financing activities 6,325 26,786

Changes in value resulting from exchange rate variations 36 – 379

Changes in fund assets – 9,748 6,778

Net cash flow

Fund assets as per Oct. 1, 2007 22,292 15,514

Fund assets as per Sept. 30, 2008 12,544 22,292

Changes in fund assets – 9,748 6,778

33

Consolidated statement of changes in equityfor the period October 1, 2007 to September 30, 2008

Differen-ces from Profit Net profit

Common Capital Own Minority currency brought for the(in F thousand) stock reserves shares interests variations forward period Equity

Oct. 1, 2007 4,338 37,168 0 1,967 –1,152 27,650 0 69,970

Own shares – 469 – 469

Minority interests in Parsytec AG – 1,167 – 1,167

Differences from currency variations 23 13 36

Dividend – 651 – 651

Net Profit 409 7,581 7,990

Sept. 30, 2008 4,338 37,168 – 469 1,231 – 1,139 26,999 7,581 75,709

Consolidated statement of changes in equityfor the period October 1, 2006 to September 30, 2007

Differen-ces from Profit Net profit

Common Capital Own Minority currency brought for the(in F thousand) stock reserves shares interests variations forward period Equity

Oct. 1, 2006 4,338 37,082 0 0 –773 23,179 0 63,826

Minority interests in Parsytec AG 1,967 1,967

Differences from currency variations –379 – 379

Dividend – 651 – 651

Other changes* 86 86

Net Profit 5,121 5,121

Sept. 30, 2007 4,338 37,168 0 1,967 – 1,152 22,528 5,121 69,970

* ISRA VISION AG's share of the increase in the capital reserves from the capital increase at Parsytec AG. ISRA VISION AG did not take part in this capital increase.

34

Segment reporting by division(Primary segments) for the consolidated balance sheet

(in F thousand) Industrial Automation Surface Vision undistributed Total

as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept.30, 2008 30, 2007 30, 2008 30, 2007 30, 2008 30, 2007 30, 2008 30, 2007

ASSETS

Assets

Current assets 13,412 12,838 45,940 37,098 16,266 24,569 75,618 74,505

Fixed assets 10,489 8,458 60,325 56,337 3,279 3,753 74,092 68,548

Total assets 23,901 21,296 106,265 93,435 19,545 28,322 149,710 143,053

Equity and Liabilities

Short-term liabilities 2,422 4,051 18,190 25,966 14,459 26,670 35,070 56,687

Long-term liabilities 0 0 1,757 1,638 37,174 14,758 38,931 16,396

Equity 0 0 0 0 75,709 69,970 75,709 69,970

Total equity and liabilities 2,422 4,051 19,947 27,604 127,342 111,398 149,710 143,053

Investments in the reporting year 3,444 2,300 9,979 27,902 0 0 13,424 30,202

Goodwill book value 4,846 1,934 33,835 32,648 0 0 38,681 34,582

Depreciation

Goodwill 0 0 0 0 0 0 0 0

Other intangible assets 1,037 1,628 3,982 2,623 0 0 5,019 4,251

Tangible assets 359 143 289 393 0 0 648 536

Segment reporting by division(Primary segments) for selected positions of the consolidated income statement

There was no interdivisional revenue. POC sales figures (percentage of completion method) totaled F852k in the Industrial Automation seg-

ment and F17,838k in the Surface Vision segment.

The sector definition is based on the corporate structure’s focus on a market-oriented organization. The primary sectors reflect the business

divisions which sell specific products in particular markets:

• INDUSTRIAL AUTOMATION

The target markets of this division are primarily the automobile industry, the machine tool manufacturers, the automation industry, general

industry, plant and system manufacturers as well as the OEM markets in which ISRA products are integrated into customers’ products

as OEM systems. In these cases, ISRA applies the entire range of its technologies, utilizing Surface Inspection products in addition to the

primary products from Robot Vision and Quality Vision.

• SURFACE VISION

This sector of the company concentrates on surface inspection technology. This primarily concerns web materials which are checked for

defects during the production process. The main focus is on the flat glass, foil, nonwovens, metal, paper and printing industries.

(in F thousand) Industrial Automation Surface Vision

Oct. 1, 2007 to Oct. 1, 2006 to Oct. 1, 2007 to Oct. 1, 2006 toSept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007

Net sales 15,843 14,245 52,443 37,044

EBITDA 4,760 4,016 13,843 6,922

EBIT 3,042 2,244 9,895 3,907

35

Segment reporting by regionfor the consolidated balance sheet

Segment reporting by region(Secondary segments)

(in F thousand) Germany, Europe North America Asia, ROW*

Oct. 1, 2007 to Oct. 1, 2006 to Oct. 1, 2007 to Oct. 1, 2006 to Oct. 1, 2007 to Oct. 1, 2006 toSept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007

Net sales 34,293 28,027 10,181 10,869 23,812 12,393

* ROW = Rest of the World, i.e. all other countries.

(in F thousand) Germany, Europe America/Asia undistributed Total

as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept. as of Sept.30, 2008 30, 2007 30, 2008 30, 2007 30, 2008 30, 2007 30, 2008 30, 2007

ASSETS

Assets

Current assets 67,833 67,283 7,785 7,222 0 0 75,618 74,505

Fixed assets 73,100 66,539 993 2,009 0 0 74,092 68,548

Total assets 140,933 133,822 8,778 9,231 0 0 149,710 143,053

EQUITY AND LIABILITIES

Short-term liabilities 33,128 54,064 1,943 2,623 0 0 35,070 56,687

Long-term liabilities 38,879 16,357 52 39 0 0 38,931 16,396

Equity 0 0 0 0 75,709 69,970 75,709 69,970

Total equity and liabilities 72,007 70,421 1,995 2,662 75,709 69,970 149,710 143,053

Investments 13,378 29,678 46 524 0 0 13,424 30,202

36

Notes to the Consolidated Financial Statements as of September 30, 20081. General information

ISRA VISION AG, Darmstadt (hereinafter “ISRA” or “Company”) was founded on September 23, 1997 and was registered in the commer-

cial register of the Local Court of Darmstadt under the name ISRA VISION SYSTEMS AG and the registration number HRB 6820 on Sep-

tember 25, 1997. The ISRA share was first listed on the Frankfurt Stock Exchange on April 20, 2000.

The change of name from ISRA VISION SYSTEMS AG to ISRA VISION AG was resolved at the Annual General Meeting on March 28, 2006

and registered in the commercial register on November 15, 2006. The Company’s headquarters is located in Darmstadt. The fiscal year runs

from October 1 to September 30.

The purpose of the Company is to develop, market, employ, distribute and sell products, systems, equipment, and services in the areas of

machine vision, automation, software and robot technology.

ISRA VISION AG’s annual consolidated financial statements were prepared in line with Section 315a of the German Commercial Code

(HGB) and in compliance with the International Financial Reporting Standards (IFRS) and with the pertinent interpretation of the International

Accounting Standards Board (IASB) regarding how these are to be applied in accordance with Regulation No. 1606/2002 of the European

Parliament and in accordance with the European Council’s ruling on applying international accounting standards in the European Union.

The consolidated annual financial statement is prepared in euros. The group of consolidated companies has grown in comparison to the

previous year. ISRA VISION AG directly or indirectly holds 100% of the shares in the majority of the group companies. The companies are

fully consolidated in accordance with the shareholding relationships.

The consolidated annual financial statement was released by the Executive Board for publication on December 28, 2008.

2. Business combinations

At the beginning of the 2007/2008 fiscal year, ISRA VISION AG acquired 100% of the German company metronom Automation GmbH.

Metronom, which operates in the sensors, measurement technology and special software sectors, enhanced the Automotive business unit.

The 14-person strong company with an EBT margin of an estimated 20% was acquired for three million euros and ISRA shares (43,300

shares still outstanding) for the management valued at F800k. Instead of paying the cost of the purchase outright, the terms of the purchase

contract allowed ISRA VISION AG to pay this part of the price by issuing the seller shares at a face value of F14.40 per share in the name

of the holder. This was the reason why the stock price as of October 1, 2008 was not used to determine the acquisition costs.

The tangible assets had a fair value of F81k; the inventory’s fair value totaled F45k. The fair value of the trade accounts receivable totaled

F116k. The other short-term assets had a fair value of F230k. The liabilities’s fair value came to F47k. For the above-mentioned positions,

the current fair value is the same as the carrying amount before the acquisition.

Under the heading of other intangible assets, the book value came to F56k before the acquisition; the fair value came to F107k. Before

the acquisition the accruals had a carrying amount of F289k. Due to the deferred tax liabilities amounting to F16k, the fair value of the

accruals totaled F304k.

The book value of the liquid assets before the acquisition totalled F594k, which also represents the current fair value.

The revenue amassed by the group in the 2007/2008 fiscal year totaled F1,964k and the period result was F804k.

3. Accounting and valuation principles

The Company prepares its consolidated financial statements in accordance with the International Financial Reporting Standards/Internatio-

nal Accounting Standards (IFRS/IAS) of the International Accounting Standards Board (IASB). Unless otherwise indicated, all figures are

rounded off to thousands of Euros (Fk).

The company voluntarily presents its consolidated income statement according to the consolidated total operating revenue EBITDA-EBIT

statement method typical for the industry; the company also published its consolidated income statement according to the IFRS cost of sales

method. The company decided not to use the less informative total cost (type of expenditure) method according to IFRS. The most signifi-

cant differences between the two consolidated income statements are: Profit margins increase because they now relate to the revenue and

no longer to the total output (revenue plus capitalized work). Capitalized work no longer appears in the IFRS cost of sales method and is

assigned to the R&D functional area. Depreciation and amortization is now spread over the relevant functional areas.

37

(a) General principles of accounting and assessment

• Percentage of completion method (POC) for valuating work in progress according to IAS 11:

According to IAS 11 in conjunction with IAS 18, sales and corresponding profits may be realized according to the percentage of com-

pletion method – insofar as the requisite conditions have been fulfilled. The degree of completion is defined in line with the status of the

work carried out by analyzing in detail the status of order processing in relation to current expenditure, compared with the currently

assessed, expected total order expenditure.

Orders are listed under receivables from deliveries and services. If accumulated services (cost of orders and profit/loss) in exceptional

cases exceed advance payments, they will be listed in the form of product orders on the assets side as “future receivables from pro duct

orders” accruing from deliveries and services provided.

• According to IAS 12, deferred taxes on losses carried forward must be capitalized as future tax reduction claims if it is probable that they

will be utilized.

• Expenses for in-house product and software development according to IAS 38.

According to IAS 38, expenditures on product development must be capitalized and depreciated over the standard useful life. The

conditions for capitalization were examined and found to be fulfilled.

Only development costs not comprising any research portion were capitalized.

The capitalized work in the reporting year is written off on a linear basis over the course of its useful life – generally six years. The devel-

opments finished in the course of the year were depreciated in installments during the year. Non-completed development work is writ-

ten off after completion. The corresponding depreciation is recorded as a cost under “research and development” in the con solidated

income statement (see also Notes, part 9). The retention of the accounting value is ensured by a continuous process of monitoring and

support of development projects. The capitalized accounting values annually undergo an impairment test to check their sustainability by

determining their equivalent cash value. Unscheduled write-offs are carried out as soon as the value of capitalized work exceeds the

equivalent cash value.

• Pension obligations in accordance with IAS 19

The evaluation of pension obligations in accordance with IAS 19 is carried out in line with the projected unit credit method allowing for

future increases to salary and pensions (IAS 19).

• Accounting of share-based remuneration transactions in line with IFRS 2.

Stock-based remuneration from the stock option programs for employees which has been settled in cash after the end of the lock-up

period has been booked as a liability. Personnel expenditures and the resultant liabilities must be entered in the balance sheet pursuant

to IFRS 2.

(b) Discretionary decisions

When applying balance sheet and valuation methods, the corporate management made some discretionary decisions. When drawing up

the balance sheet for the pension obligations, the company chose to apply the "corridor method". If the company had chosen another

calculation method, this might, under certain circumstances, have had an impact on the amount of pension accruals and on the personnel

costs.

(c) Estimates

The preparation of consolidated financial statements requires that assumptions or estimates be made which have an effect on the methods

used in compiling the consolidated balance sheet and the consolidated income statement. The actual figures may deviate from these

assumptions and estimates. Essentially, assumptions and estimates concern the valuation of accruals and inventories, the sustainability of

the goodwill and the likelihood that the receivables or deferred tax assets will be realized.

(d) Consolidation

In addition to ISRA’s individual financial statements, the consolidated financial statements include the individual financial statements of the

subsidiaries, which were also prepared in line with the provisions of the IFRSs/IASs. As a rule, the date of initial consolidation is the date

upon which ISRA gained the controlling interest. During initial consolidation, only the hidden reserves and charges attributable to ISRA’s

interest as the parent company are disclosed. An assets-side difference which cannot be attributed to individual assets is recorded as good-

will. In accordance with IFRS 3 (mergers), goodwill is no longer written off on a scheduled basis. Transactions between consolidated com-

panies are eliminated during consolidation.

The Industrial Automation and Surface Vision segments were, as in the previous year, defined as cash-generating units.

38

(e) Currency conversion

The national currencies of the consolidated companies are their functional currencies. The Group currency is the euro. The functional

currency of the Company’s US subsidiaries is the US dollar. When preparing the consolidated financial statements, the individual financial

statements are converted into euros; balance sheet items are converted using the mean exchange rate on the balance sheet date, where-

as the items of the profit and loss accounts are converted at the average exchange rate. Currency differences from conversion are record-

ed as equity so that they will not affect the net profit for the period and are only realized when the relevant financial interest is sold.

Foreign currency entries in the individual financial statements are converted into the functional currency of the consolidated companies dur-

ing the year in which they occur. Currency-based gains or losses have been entered at the daily exchange rate and converted at the year-

end exchange rate in the income statement.

(f) Realization of sales and other revenue

Sales are recorded at the point of time at which the goods are delivered or the services are provided.

(g) Corporate and product-related advertising

The costs of corporate and product-related advertising are recorded as expenses at the time they are incurred.

(h) Research and development costs

Research is the search for new insights that are intended for use in developing new products and processes as well as in improving exist-

ing ones. Costs arising in this context are carried as expenses at the time they are incurred.

(i) Goodwill, impairment test, software and other intangible assets

The goodwill derived from acquiring companies is calculated from the difference between the purchase price and the identifiable assets

and equity. The sustainability of derivative goodwill and intangible assets with a limitless useful life are reviewed once a year in the context

of the “impairment test.” Impairments tests are also conducted if there is any indication of a decrease in value.

For the company divisions representing the primary segments, the value in use is determined using DCF models and then used as the basis

for the impairment tests.

The intangible assets identified when purchasing a company are subject to scheduled depreciation over their envisaged useful life or at

most until the right expires.

Software that has been acquired by purchase is capitalized and written off over a normal useful life of four years. Other intangible assets

that have been acquired by purchase are carried at their acquisition cost and are subject to planned depreciation over their envisaged use-

ful life or at most until the right or license expires.

(j) Cash and cash equivalents

The financial resources in the cash flow statement comprise checks, cash and credit balances at banks.

(k) Trade receivables and other assets

Trade receivables and other assets are carried at their recoverable amount. Possible bad debts are taken into account by way of individual

allowances. Other assets include employee travel advances and further assets. Contracted work requiring expenditure on engineering, instal-

lation and start-up is evaluated by the “percentage of completion” method and recorded in the balance sheet as receivables from goods

and services supplied, in accordance with the rules of the IFRSs/IASs.

(l) Inventories

These items are valued at purchasing and production cost or at the lower market price on the balance sheet date. Elements of production

expenses are material costs, direct production costs, overheads for materials and production and depreciation of equipment. Financing and

sales and marketing costs are not included in the manufacturing costs. An averaging method is applied to calculate expenditure on the con-

sumption of materials.

(m) Tangible assets

Equipment and office fittings are carried on the balance sheet at their acquisition or production cost less planned depreciation. The costs

of borrowing are carried as an expense at the time at which they are incurred. This also applies to repair and maintenance costs. Planned

depreciation is calculated using the straight-line method over the expected useful life of the respective assets.

39

The useful life of the assets to be written down is shown in the following table:

(n) Unscheduled depreciation/amortization

Unscheduled depreciation/amortization is undertaken when the anticipated reimbursements from assets do not cover the residual net asset

value.

(o) Trade payables and other payables

Trade account payables and other liabilities are carried at their cost of repayment. These are exclusively current items, so that discounting

is not required.

(p) Financial liabilities

Financial liabilities arose in the reporting year with the Baden-Württembergische Bank AG.

(q) Other accruals

Accruals were formed for liabilities recorded on the balance sheet date which are the result of past commercial activities, in an amount

which, it was felt after careful assessment, would cover the amount most likely to become payable.

(r) Deferred taxes

Taxes are deferred according to the balance sheet-oriented liabilities method. According to this method, differences existing on the balance

sheet date between the valuation according to the IFRSs/IASs and the valuation according to tax law for assets and liabilities are to be taken

into account by deferring tax assets or liabilities. This requires that the different valuation either decreases or increases future taxable income.

The period under review is not limited. In the case of deferred tax assets, the possibility of tax losses carried forward is also taken into

account. The amount is capitalized to the extent to which realization of this amount is regarded as being realistic on the balance sheet date.

The company and its subsidiaries are legally independent units and their registered offices are not at the same location. This means that

the parent company and its subsidiaries are subject to different fiscal jurisdictions. Generally, netting out of tax assets and liabilities is only

possible within the same fiscal jurisdiction.

(s) Other taxes

Other taxes solely comprise motor vehicle tax – this is shown under “Other operating expenses“.

(t) Allocations from public authorities

These grants are recorded according to plan upon reception as receipts to cover for expenses arising in the given field under “other

revenue”. In the event of grants being awarded for investments, the grant is accounted for as a liability and amortized over the envisaged

useful life of the capital goods.

(u) Financial instruments

Financial instruments are contracts that simultaneously create financial assets for one company and financial liabilities for another com pany

or that create an equity instrument. When first applied, the financial instrument is classified according to the financial substance of the

contractual agreement and according to the definitions for financial assets, financial liabilities and equity instruments.

Financial assets especially include liquid assets (cash), trade receivables, other granted loans and receivables, financial investments held

until their final maturity and original and derivative financial assets that are held for trading purposes.

Financial liabilities regularly necessitate that liquid assets or another financial asset be devoted to them. Financial liabilities especially include

trade accounts payable, bank liabilities, liabilities from financing leasing and bonds and other securitized debts.

Financial instruments are applied and evaluated according to IAS 39. A financial asset or a financial liability is included in the balance sheet

when ISRA VISION becomes a contractual party to the rules of the financial instrument.

The initial accounting of the settlement date is relevant for purchases and sales typical on the market; this is the day on which the asset is

delivered by or to ISRA VISION.

Expected useful life

Technical equipment 4 years

Office equipment/furnishings 3 – 10 years

Buildings 40 years

40

When they are first applied, financial assets will be evaluated based on their current fair value. The subsequent valuation will be based on

the classification of the asset into one of four categories: (a) financial assets that will be evaluated based on their current fair value in the

income related statement, (b) financial investments that are held up to their final maturity, (c) loans and receivables, or (d) financial assets

that are for available for realization.

Loans and receivables and financial investments held until their final maturity are valued with the continued purchase costs based on amor-

tized costs using the effective interest method. The book values are examined for each balance sheet date to determine whether there are

substantial indicators of a decrease in value, such as significant known financial difficulties on the part of the debtor. Any possible impair-

ment loss will be recorded directly in the consolidated financial statement affecting the income statement. The impairment loss is calculat-

ed from the difference between the book value and the current fair value for the asset. For financial investments held up until final maturity,

receivables and liabilities, the impairment loss is stated as a cash value of the estimated discounted future cash flows.

Impairment losses are recorded in a value adjustment account. If the impairment loss persists for a period of three years, the amounts are

depreciated by debiting the value adjustment account.

Assets held for commercial purposes are evaluated based on their current market value. Any profit or loss resulting from the subsequent

valuation are recorded directly in the consolidated financial statement with effect of the income statement. Financial assets available for real-

ization are assessed based on their current fair value. The profits and losses resulting from the subsequent valuation are recorded in the

equity capital with no effect on the profit/loss, except for the value adjustments, profits and losses from the currency variations. For write-offs,

the profit or loss recorded previously in the equity capital must be recorded in the period results.

For the first application of financial assets, ISRA VISION has decided not to designate those financial assets being assessed for their fair

value as relating to the income statement.

When they are first applied, financial liabilities are assessed based on their current fair value. The subsequent valuations are performed

based on amortized costs using the effective interest method, except for derivative instruments.

As of the balance sheet date, there are no derivative financial instruments used to hedge against risks from changes in the exchange and

interest rates.

(v) Balancing the leasing contracts

As of the balance sheet date, there are only leasing contracts in the form of “operating” leasing contracts since the primary financial risks

and opportunities fall on the lessor. This means that the lessee does not have carry out any capitalization. The leasing installments have

been expensed in the income statement as incurred linearly across duration of the leasing contract. There are no leased assets to be con-

sidered as asset purchases with long-term financing (financing leasing).

41

Notes

1. Material costs with changes to inventory of goods

2. Total personnel costs


Expenditure on raw materials, ancillary materials and supplies –17,252 –14,934

Expenditure on purchase of services 0 –372

Changes to inventories 774 2,210

Total –16,478 –13,096


Salaries and wages –22,804 –20,170

Social contributions –3,011 –2,291

Total –25,815 –22,461

3. Total depreciation/amortization


Depreciation on intangible assets –5,019 –4,252

Tangible assets –648 –536

Total according to inventory of assets –5,666 –4,787

4. Financial result

Of the depreciation/amortization of intangible assets, F3,352k (previous year: F2,965k) is accounted for by capitalized work that was depre-

ciated over a period of six years after completion.


Interest income 399 521

Interest expenses 2,000 347

Net interest income –1,601 174


Taxes on current income

Germany 1,046 789

Other countries –27 323

1,018 1,112

Deferred tax expenditure

Germany 2,327 –326

Other countries 0 0

2,327 –326

Total 3,346 786

5. Income taxes

The tax expenses shown in the income statement are attributable to Germany and foreign countries as well as to current tax expenses and

deferred tax expenses as follows:

42


Earnings before tax 11,336 6,325

Expected tax expenses 3,471 2,486

Effect of tax rates applied to earnings in other countries –12 323

Consolidation effects –79 –2,023

Recorded tax on earnings 3,346 786

In the 2007/2008 fiscal year, the corporate tax rate totaled 15%, plus the German reunification tax of 5.5% of corporate tax. This resulted in

an effective corporate tax rate of 15.8%. Taking into account the local business taxes - which came to 14.87% - this resulted in an overall tax

rate of around 30.6%.

The deferred taxes in the single entity financial statements for ISRA LLC, ISRA VISION SYSTEMS INC., INNOMESS Corp., NANOsystems

LLC, ISRA SURFACE VISION Inc., ISRA Image Automation Inc. and ISRA VISION Ltd. (formerly Image Automation Ltd.) were calculated

based on a tax rate of 30%. For ISRA VISION (Shanghai) Co. Ltd. a 15% tax rate of was applied. A uniform tax rate of 31.58% was applied

for the German Parsytec group.

The devaluations for receivables disclosed as other operating expenses were made exclusively on a case-by-case basis. The check of the

receivables disclosed on the balance sheet date did not result in any other recognizable risks for the Company’s receivables. Advance

payments already received in the amount of F1,420k (previous year: F1,918k) have been deducted from the receivables from unfinished

orders evaluated on the percentage of completion basis.

The value adjustments on trade receivables performed as follows:The receivables are structured according to maturity dates as follows:

The receivables are structured according to maturity dates as follows:

(in F thousand) Sept. 30, 2008 Sept. 30, 2007

Trade receivables of the parent company 4,708 4,146

Trade receivables of German subsidiaries 12,358 10,621

Trade receivables of subsidiaries based outside Germany 3,456 2,317

Receivables from unfinished contracts according to the percentage of completion method 17,270 14,575

Balance sheet value 37,793 31,659

6. Trade receivables

(in F thousand) 2007/2008 2006/2007

Value adjustment status on October 1 234 665

Usage 52 500

Dissolution 3 0

Allocation 201 80

Difference in exchange rate –2 –11

Value adjustment status as of September 30 379 234

(in F thousand) of which was not delinquent of which was not devalued but was delinquentTrade and not devalued in the following periods of timeaccounts receivable Book value as of the reporting date < 31 days 31–60 days 61–90 days > 90 days

As of Sept. 30, 2008 37,793 28,757 2,437 1,423 1,078 4,097

As of Sept. 30, 2007 31,659 25,729 2,535 571 507 2,316

The tax charges, based on the tax rate applicable to ISRA as a parent company, and the actual tax charges of the Group can be reconciled

as follows:

43


Raw materials, consumables and fuel 5,223 4,987

Work in progress 8,468 8,531

Finished products 3,552 2,420

Advance payments outgoing 0 1


7. Inventories

The inventories include:

In the 2007/2008 fiscal year, impairment losses on inventory amounted to F69k (previous year: F242k).


Loans to employees and other receivables from employees 357 723

Insurance claims (liability insurance) 728 697

Receivables from tax authorities 2,878 2,016

Rent deposits 153 193

Other assets 2,379 987


8. Other assets

The other assets comprise the following items:

9. Intangible assets

Intangible assets include:

Software, Capitalized(in F thousand) Goodwill lizences work Total

Acquisition and production costs

October 1, 2007 36,600 16,889 27,197 80,686

Additions 4,424 504 8,033 12,961

Additions from acquisitions 0 79 0 79

Disposals 433 1 0 434

Transfers 0 0 0 0

Currency differences 104 –1 –3 100

September 30, 2008 40,696 17,469 35,227 93,391

Depreciation/Amortization

October 1, 2007 2,017 5,243 11,403 18,664

Additions 0 1,667 3,352 5,019

Additions from acquisitions 0 23 0 23

Disposals 0 0 0 13

Transfers 0 0 0 0

Unscheduled depreciation 0 0 0 0

Appreciation 0 0 0 0

Currency differences –3 0 –1 –5

September 30, 2008 2,014 6,933 14,754 23,701

Balance sheet value intangible assets

October 1, 2007 34,582 11,645 15,794 62,022

September 30, 2008 38,681 10,536 20,473 69,691

44

The purchased software, the license costs and the intangible assets purchased as acquisitions, in so far as these were identifiable when the

purchase price was allocated, are shown under software and licenses.

The cumulative depreciations on the capitalized work come to a total of F14,754k (previous year: F11,403k); depreciations from the year

under review account for F3,352k (previous year: F2,965k).

The goodwill impairment test is conducted based on the cash generating units (CGU) by comparing the amount recoverable with the book

value, where the amount recoverable is based on the value in use.

The value in use has been calculated using a modified discounted cash flow method, which is subject to the following premises:

• the cash flows depend on the management’s current planning for a period of five years.

• for the periods going beyond the planning, growth rates of 2.5% have been assumed.

• 10.1% is used as a base for the Weighted Average Cost of Capital (WACC).

The impairment tests have not resulted in the need for a goodwill impairment.

The goodwill from the Industrial Automation segment totals F4,846k (previous year: F1,934k). For the Surface Visions segment, the goodwill

totals F33,835 (previous year: F32,648).

The disposal of the goodwill is related to deferred tax assets on tax-related losses that have been carried forward. These tax-related losses

came to the company through the acquisition of the Parsytec Group and had not become active at that time because of a five-year plan

provided by the management. Pursuant to IFRS 3.65 in conjunction with IAS 12.68 and taking into account the comments from the Instituts

der Wirtschaftsprüfer on accounting IDW RS HFA 19, the goodwill’s book value must be corrected in the amount of the retroactively acti-

vated deferred taxes on the losses that have been carried forward.

The additions in the year under review of F4,424k is mainly distributed to the purchase of additional shares of the ISRA VISION Parsytec AG

(F1,441k) and the acquisition of the metronom Automation GmbH (F2,983k).

ISRA VISION AG records the provision for depreciation for intangible assets in the positions of cost of sales, research and development,

and sales and general administrative costs, according to the use of the intangible asset.

As of September 30, 2008, there were no contractual obligations to acquire intangible assets.

Software, Capitalized(in F thousand) Goodwill license work Total


October 1, 2006 14,954 12,079 19,925 46,958

Additions 21,750 598 7,298 29,645

Additions from aquisitions 0 4,238 0 4,238

Disposals 0 13 0 13

Transfers 0 0 0 0

Currency differences –104 –13 –25 –142

September 30, 2007 36,600 16,889 27,197 80,686

Depreciation

October 1, 2006 2,047 3,973 8,450 14,470

Additions 0 1,287 2,965 4,252

Additions from aquisitions 0 0 0 0

Disposals 0 13 0 13

Transfers 0 0 0 0

Unscheduled depreciation 0 0 0 0

Appreciation in value 0 0 0 0

Currency differences –30 –3 –11 –44

September 30, 2007 2,017 5,243 11,403 18,664


October 1, 20076 12,907 8,106 11,475 32,488

September 30, 2007 34,582 11,645 15,794 62,022

45

Real estate, Technical Office Assets under(in F thousand) buldings equipment equipment construction Total


October 1, 2007 1,255 1,313 4,078 170 6,816

Additions 0 86 377 0 463

Additions from aquisitions 689 0 282 0 971

Disposals 689 0 88 0 777

Transfers 0 0 –21 21 0

Currency differences –14 0 –3 3 –15

September 30, 2008 1,241 1,399 4,624 194 7,458

Depreciation

October 1, 2007 36 997 3,010 0 4,044

Additions 33 222 381 11 648


Disposals 10 0 83 0 93

Transfers 0 0 –21 21 0

Unscheduled depreciation 0 0 0 0 0

Appreciation in value 0 0 0 0 0

Currency differences 1 0 -2 3 1

September 30, 2008 67 1,219 3,487 35 4,808


October 1, 2007 1,219 316 1,067 170 2,773

September 30, 2008 1,173 180 1,138 159 2,650

10. Fixed assets

Total tangible assets include:

Real estate, Technical Office Assets under(in F thousand) buldings equipment equipment construction Total


October 1, 2006 1,308 1,131 3,830 159 6,429

Additions 73 104 347 32 557


Disposals 0 0 216 0 216

Transfers 0 0 21 –21 0


September 30, 2007 1,255 1,313 4,078 170 6,816

Depreciation

October 1, 2006 7 919 2,821 0 3,748

Additions 32 78 426 0 536


Disposals 0 0 197 0 197

Transfers 0 0 0 0 0

Unscheduled depreciation 0 0 0 0 0

Appreciation in value 0 0 0 0 0


September 30, 2007 36 997 3,010 0 4,044


October 1, 2006 1,301 212 1,008 159 2,681

September 30, 2007 1,219 316 1,067 170 2,773

As of September 30, 2008, there were no contractual obligations to acquire fixed assets.

46


Wages & salaries, performance bonus payments as well as related social insurance contributions and remaining holiday entitlements 1,986 3,106

Turnover tax 623 1,920

Other liabilities 8,895 17,564


11. Liabilities to banks

As of the balance sheet date, ISRA had long-term bank liabilities of F24,885k (previous year: F4,200k), F3,885k (previous year: F4,200k) of

which is owed to the Kreditanstalt für Wiederaufbau (Reconstruction Loan Corporation) and F21,000k (previous year: F0) of which is owed

to the Baden-Württembergische Bank.

The short term liabilities total F13,482k (previous year: F25,200k). These consist of F210k (previous year: F0) to the Kreditanstalt für Wieder-

aufbau (Reconstruction Loan Corporation), F11,000k (previous year: F25,200k) to the Baden-Württembergische Bank and F2,272k (previ-

ous year: F0) to others.

As of September 30, 2008, the weighted average interest rate for bank liabilities totaled 4.82% (previous year: 4.8%). This interest rate will

drop in 2009; it is currently around 3%.

12. Trade payables

Trade payables total F8,288k (previous year F6,023k). The liabilities are being paid off regularly, taking full advantage of discount terms

offered. The liabilities are not subject to interest payments.

13. Other accruals

Other accruals include the following items:

Of which dueSept. 30, within next

(in F thousand) Oct. 1, 2007 Additions Usage Liquidation 2008 fiscal year

Warranties 1,098 286 1,098 2 284 284

Employees’ industrial compensation society 78 48 22 0 104 104

Contributions for severely handicapped persons/Mutual Benefit Association for Pension Security 22 17 9 0 30 30

Other accruals 204 689 167 492 234 234

Balanced sheet value 1,402 1,040 1,295 494 653 653

Of which dueSept. 30, within next

(in F thousand) Oct. 1, 2007 Additions Use Liquidation 2008 fiscal year

Steuerrückstellungen 1,471 516 1,432 0 555 555

Bilanzwert 1,471 516 1,432 0 555 555

15. Other liabilities

In order to cover its warranty obligations, ISRA VISION AG reserves the warranty expenditures required for a fiscal year.

14. Tax accruals

Accruals for tax charges have been accumulated to cover the taxable earnings recorded in the respective Company financial statements,

in the amount of the expected tax charges.

47

As of September 30, 2008, the tax losses carryforwards for Parsytec AG came to 20.9m Euros; no deferred tax assets were set aside for

11.1 million euros of the tax losses carried forward. The Executive Board has assessed the usability of the losses carryforwards based on

corporate planning for the years 2009-2013.

17. Accruals for obligations to employees

The accruals for obligations to employees according to the company pensions plan have been evaluated on the basis of the projected unit

credit method (current once-off premium payment procedure) in accordance with IAS 19. Thereby the defined benefit obligation (DBO) and

the current service cost are calculated precisely for each individual case. The pension obligations were calculated using the mortality tables

published by Dr. Heubeck in 2005.

These pension reserves involve actual individual covenants.

The evaluation for ISRA VISION Lasor is based on the following assumptions: discount rate 6.00%, projected salary increase 2.50% p.a., pro-

jected pension increase 1.75% p.a.

In the consolidated income statement, the interest costs of F47k and amortization of F0 have been taken into account, minus the pension

payments already being paid, amounting to F23k.

For Parsytec, the calculations were based on the following premises: discount rate 6.00%, projected salary increase 2.50% p.a., projected

pension increase 1.75% p.a.

Interest costs of F43k were taken into account in the consolidation income statement.

No accrued interest was deducted from these items, which come due in the short-term.

In relation to advance payments from customers associated with maintenance contracts, a liability has been introduced to cover the remain-

ing period of the contracts. These other liabilities will be amortized over the remaining period of the contracts.

A grant has been approved by a structure support program for innovative companies. The grant subsidizes jobs and the investments con-

nected with them. For investments already made a part of the grant went toward making investments. This part of the grant is included into

other liabilities, and the liability is to be resolved over the expected useful life of the subsidized investments. The grant not yet resolved totaled

F124k (previous year: F120k) as of September 30, 2008.

16. Deferred taxes

The calculation of the deferred taxes is based on average profit tax rates of 30.9% for Germany and 30% for USA. The deferred tax assets

result primarily from existing tax losses carried forward from the german subsidiaries.


Intangible assets 6,748 7,252

Inventories –1,795 –2,272

Receivables, POC 5,763 5,263

Pension reserves 161 102

Other accruals 401 383

Other items 1,010 –172

Deferred tax liabilities 12,289 10,558

Deferred tax assets 3,279 3,753

Accruals for(in F thousand) obligations to employees Previous year

October 1, 2007 1.638 782

Incoming Parsytec 0 822

Service Costs 5 4

Interest Costs 91 47

Amortizations –79 6

unincluded actuarial profit/loss 125 0

Pension payments –23 –23

September 30, 2008 1,757 1,638

(in F thousand) Sept. 30, 2006 Sept. 30, 2005 Sept. 30, 2004

Cash value 782 729 696

48

18. Equity

a) Share capital

The Company’s share capital as of the balance sheet date totals F4,337,940.00, divided into bearer shares of F1.00 par value.

Equity developed as follows during the current fiscal year:

At the beginning of the fiscal year, the issued capital amounted to F4,337,940.00.

In addition, the General Meeting held on March 20, 2007 resolved an amendment to the Articles of Association. This amendment authoriz-

es the Executive Board to increase the Company’s share capital until March 19, 2012 once only or on multiple occasions by issuing new

no-par value shares against cash or non-cash contributions, up to a maximum amount of F2,168,970.00 (authorized capital). With the

agreement of the Supervisory Board, The Executive Board is authorized, to exclude the statutory subscription rights of shareholders

– for residual amounts,

– to secure shares in return for contributions of fixed assets, in particular in the context of mergers with other companies or the purchase

of other companies, parts of companies or of an interest in other companies.

– if the capital increase takes place by means of an equity contribution and the issued value is not, at the time of the final determination

of the issued value by the Executive Board, significantly less than the share price of the shares of a similar nature and scope which are

already quoted on the stock markets, when judged in terms of the provisions of §§ 203 Paragraphs 1 and 2 and 186 Paragraph 4 of the

German Stock Corporation Law (Aktiengesetz) and the amount of the base capital attributable to the shares issued under exclusion of

the statutory subscription rights does not exceed F433,794.00 and 10% of the recorded base capital at the time of the issue of the new

shares. Realization of stocks have to be charged against this 10% limitation of base capital if they come to effect due to authorization

under shareholder exception from subscription according to Section 71 Paragraph 1 Clause 8 of the German Stock Corporation Act

(Aktiengesetz, or AktG) in conjunction with § 186 Paragraph 3 Clause 4 of the German Stock Corporation Act (Aktiengesetz, or AktG). In

addition, stocks used to service bonds under option and/or conversion right fall under the 10% limitation of base capital if the bond was

issued under shareholder exception from subscription due to authorization according to § 186 Paragraph 3 Clause 4 of the German

Stock Corporation Act.

Subject to agreement by the Supervisory Board, The Executive Board is authorized to determine the further details of implementing the

increase in capital stock from the authorized capital.

On the basis of a resolution passed by the Annual General Meeting on March 28, 2006, ISRA VISION AG may conditionally increase its

capital by F250,000.00 by issuing up to 250,000 no-par value bearer shares to implement an employee equity compensation plan (con -

ditional capital).

On the basis of a resolution passed by the Annual General Meeting on March 20, 2007, the base capital may conditionally be increased by

up to F1,918,970.00 no-par value bearer shares (conditional capital II). The conditional capital increase may only be carried out to the

extent that the holder of convertible or negotiable option bonds, issued on the basis of the authorization given to the Executive Board by the

Annual General Meeting on March 20, 2007, makes use of this conversion or option right, or to the extent that the holders, who are obliged

to make the conversion fulfill their obligation to undertake the conversion.

b) Capital reserves

The capital reserves primarily contain share premiums from the initial public offering and capital increases; expenditures from corporate

actions were also charged to the capital reserves.

As of September 30, 2008, the capital reserve is F37,168k (previous year: F37,168k).

c) Minority interests

The minority interests in the equity capital comprise the portion of the equity capital, of the consolidated annual financial statement and of

the currency exchange variations recognized directly in equity that is to be allocated to the minority shareholders of the group company

Parsytec AG, which was acquired in the 2006/2007 fiscal year.

d) Currency exchange variations

The currency exchange variations in the equity capital serve to record the differences that result from the currency conversions in the

financial statements of foreign subsidiaries. The balancing items for currency exchange variations decreased in the 2007/2008 fiscal year

by F–13k to F–1.139k.

49

e) Dividends

In the 2007/2008 fiscal year, ISRA paid out dividends for the 2006/2007 fiscal year in the sum of F651k. This corresponds to a dividend of

F0.15 per share.

19. Other financial liabilities

These liabilities relate to mid and long-term leases of buildings and rentals of motor vehicles, the telephone system as well as of office

fittings. The resulting liabilities are as follows:

There were no liabilities from investment projects already started on the balance sheet date.

There are compensation-related hypothetical liabilities owed to the Management in the amount of around F900k.

The leasing contract on the building for ISRA SURFACE VISION GmbH in Herten includes a purchasing right in favor of ISRA SURFACE

VISION GmbH.

The basis for the definition of the conditional leasing payments is the leasing of the building for its use as a production site and as the new

SURFACE VISION headquarters in Herten. 2,407m2 of office space, a 924m2 production hall and parking spaces have been leased. The

lease began on February 1, 2006 and expires after 10 years; an extension to the lease of a further seven years is possible. Measures that

increase the costs of the lease or overheads may only be carried out with the approval of ISRA SURFACE VISION GmbH. The stipulated

lease has increased because of the actual construction costs, which have exceeded the planned construction costs due to changes that

ISRA made to the plans.

Rent expenditures in the 2007/2008 fiscal year from the operate lease relationship totaled F249k.

20. Observations on consolidated cash flow statement

The cash and cash equivalents comprise cash in hand and bank deposits available on short notice. An amount totaling F1,575k and one

totaling F375k were deposited as security.

Company acquisitions in the reporting year resulted in a reduction of liquidity amounting to roughly F13,504k (previous year: F17,878k).

21. Transactions with associated companies or related parties

In a lease dated August 12, 1998 the Company leased administration, storage, and development premises at the Company’s registered

office in Darmstadt from ISRA Bau-Mitarbeiter-Beteiligungsgesellschaft GbR, Darmstadt. The wife of the Chairman of the Executive Board

of ISRA VISION AG, Mrs. Ines Ersü, and a member of the Executive Board, are partners in this GbR (civil law partnership). The lease has

a fixed initial term of ten years – it may not be terminated during this period. The rent totals F9,714 per month plus a lump-sum charge for

ancillary services of F767. The terms and conditions of the lease correspond to those that would have been agreed with a third party.

Annual expenses (in F thousand)

2008 to 2013 4,333

after Sept. 30, 2013 580

Expenses in the year under review 1,494

Future minimum leasing payments due to operate-lease contracts that cannot be terminated (in F thousand)

Up to one year 249

Longer than a year and up to five years 994

Longer than five years 580

Company Acquisition Cash assets at time(in F thousand) Acquisition costs Funds flow of acquisition Type of payment

metronom Automation GmbH 3,815 2,953 794 to be paidin cash or shares

Parsytec AG 2,608 2,608 0

50

22. Categories of financial assets/liabilities and reconciliation statement

The categories of financial assets and liabilities correspond to the balance sheet positions as follows:

The cash and cash equivalents, the receivables/payables and other receivables/payables primarily have a short maturity. Their book values

as of the September 30, 2008 reporting date are therefore nearly the same as their fair value. The book value of the bank liabilities is the

same as their fair value since the re-valuation of future interest payments will generally not significantly affect the book value of the liability

with regard to bank liabilities that have a variable interest rate.

Previous year

23. Net profit/net loss

The net results of the financial instruments according to analysis categories are as follows:

24. Personnel

During the 2007/2008 fiscal year the number of employees averaged around 372 (previous year: 300).

Reporting year Previous year

Employees 354 287

Temporary personnel 18 13

Total 372 300

other deferred(in F thousand) Financial assets trade receivables financial assets tax assets

Loans and receivables 37,793 6,496 3,279

financial investments that are held up to their final maturity 16

other financial deferred(in F thousand) Loan liabilities trade payables liabilities tax liabilities

liabilities measured at amortized costs 38,367 8,288 12,094 12,289

other deferred(in F thousand) Financial assets trade receivables financial assets tax assets

Loans and receivables 31,659 4,616 3,753

financial investments that are held up

to their final maturity 0

other financial deferred(in F thousand) Loan liabilities trade payables liabilities tax liabilities

liabilities measured at amortized costs 29,400 6,023 22,591 10,558

25. Information on capital management

Capital management essentially includes cash and cash equivalents, bank liabilities and equity capital.

The primary objective of capital management is to guarantee liquidity at any time. The group’s financing and liquidity is safeguarded centrally

through in-depth financial planning.

from the subsequent valuation Net resultfrom

interest Valueand at fair Currency adjust- from 2007/ 2006/

(in F thousand) dividends value variations ment disposal 2008 2007

Loans and receivables 298 0 -348 -199 9 –240 56

Liabilities measuredat amortized costs –1,889 0 0 0 0 –1,889 –347

51

26. Stock option program

As a publicly listed company, ISRA VISION AG has a special opportunity to let its employees participate directly in its profits via a stock

option program.

The conditions for option rights, according to the old stock option program, on shares of ISRA VISION AG were laid down on the basis of

the authorization given by the Annual General Meeting on March 16, 2000 and are as follows: Options may only be issued to members of

the Executive Board, managers and employees of ISRA VISION AG and companies in the ISRA VISION AG group.

At the beginning of the reporting period, there were 40,675 options owing. No options were issued in the reporting period. Within the report-

ing period, 6,408 options were excercised, 2,130 options were exercised due to resignations and 27,867 options expired in the reporting

period. As of September 30, 2008, 4,270 options were owing, of which 4,270 are exercizable.

The fair value of all options totaled F1k (previous year: F233k) as of September 30, 2008. Accordingly, accounts payable as of September

30, 2008 were booked as liabilities, allowing reduced personnel costs to be accounted for.

Options may only be exercised after a blocking period has expired. According to the stock option program, the options can be exercised

for either cash or shares; however, ISRA VISION AG’s internal practice tends towards offering cash for stock options. An option holder’s

options expire if the option holder has terminated the employment relationship with the Company, or if they are no longer a member of a

statutory body of ISRA VISION AG or of a group company. Irrespective of this, options remain in force unchanged if the employment rela-

tionship ends due to the employee retiring or owing to professional disability. Options cannot be inherited or transferred. In addition, option

rights expire 5 years after the day they are issued.

Options may only be exercised if at least one of the two predefined targets for success has been reached. These are based on the stock's

performance in relation to its purchase price and time of exercise. The subscription price for a share is given by the arithmetical average of

the closing prices in XETRA trading for the share in the period between the 15th and 5th trading day (before the option is issued) multiplied

by a factor of 1.1.

The Executive Board is authorized to specify the further details of the subscription conditions and of the issue and structure of the options.

In addition, the Managing Board is authorized to transfer the shares needed to fulfill the option rights by issuing acquired treasury shares

or via new shares by way of an implemented capital increase. Insofar as members of the Managing Board are affected, the further details

will be specified by the Supervisory Board.

27. Events after the balance sheet date

To pay the purchase price in shares that arose from acquiring metronom Automation GmbH, ISRA VISION AG’s executive board, with the

authorization pursuant to Section 4 Paragraph 5 of the articles of association and the approval of the Supervisory Board, decided on October

24, 2008 to use an investment in kind of EUR 43,300.00 to increase its capital from EUR 4,337,940.00 to EUR 4,381,240.00. It did this by

issuing 43,300 new shares in the name of the holders of the authorized capital. As of the time of this report, this increase still had to be

enregistered in the commercial register.

28. New IFRS standards to be voluntarily applied

In addition to the IFRS standard described above, additional IFRS standards have been published by the IASC and have taken effect. These

new regulations may be applied, but this is not yet obligatory.

• IFRS 2: Share-based payment – modification with regard to conditions for exercising shares and annullments (compulsory for fiscal

years starting January 1, 2009)

• IFRS 3: Company mergers – extensive revision with regard to the application of acquisition methods (compulsory for fiscal years start-

ing July 02, 2009)

• IFRS 6: Exploration for and evaluation of mineral resources (compulsory for fiscal years starting July 1, 2009)

• IFRS 8: Operating segments (compulsory for fiscal years starting January 1, 2009)

• IAS 1: Presentation of financial statements - extensive revision, including the requirement to itemize entire income, to itemize

modifications to information on callable financial instruments, to itemize obligations resulting from liquidation and to itemize

modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for financial years starting

January 1, 2009)

• IAS 16: Property, plant and equipment – modifications resulting from the annual revisions from the IFRS dated May 2008 (com pulsory

for financial years starting January 1, 2009)

• IAS 19: Employee benefits – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for finan-

cial years starting January 1, 2009)

52

• IAS 20: Accounting for government grants – modifications resulting from the annual revisions from the IFRS dated May 2008 (com-

pulsory for financial years starting January 1, 2009)

• IAS 23: Borrowing costs – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for financial


• IAS 27: Consolidated and separate financial statements – Follow-up changes from IFRS 3 (compulsory for the financial years start-

ing as July 1, 2009) and modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for

financial years starting January 1, 2009)

• IAS 28: Investments in associates – Follow-up changes from IFRS 3 (compulsory for the financial years starting as July 1, 2009) and


January 1, 2009)

• IAS 29: Financial reporting in hyperinflationary economies – modifications resulting from the annual revisions from the IFRS dated

May 2008 (compulsory for financial years starting January 1, 2009)

• IAS 31: Interests in joint ventures – Follow-up changes from IFRS 3 (compulsory for the financial years starting as July 1, 2009) and


January 1, 2009)

• IAS 32: Financial instruments: presentation – Modifications with regard to callable financial instruments and obligations resulting from

liquidation (compulsory for financial years starting January 1, 2009)

• IAS 36: Impairment of assets – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for finan-


• IAS 38: Intangible assets – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for financial


• IAS 39: Financial instruments: recogintion and measurement – modifications resulting from the annual revisions from the IFRS dated

May 2008 (compulsory for financial years starting 01.01.09) and modifications with regard to risk positions that qualify for

hedge accounting (compulsory for the financial years starting as July 1, 2009)

• IAS 40: Investment property – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for finan-


• IAS 41: Agriculture – modifications resulting from the annual revisions from the IFRS dated May 2008 (compulsory for financial years

starting January 1, 2009)

• IFRIC 12: Service concessions (compulsory for fiscal years starting January 1, 2008)

• IFRIC 13: Customer loyalty programmes (compulsory for fiscal years starting January 1, 2008)

• IFRIC 14: IAS 19 – The limit of a defined benefit asset, minimum funding requirements and their interaction (compulsory for business

years starting January 1, 2008).

• IFRIC 15: Agreements for the Construction of Real Estate (compulsory for fiscal years starting January 1, 2009)

• IFRIC 16: Hedges of a Net Investment in a Foreign Operation (compulsory for fiscal years starting October 1, 2008)

• IFRIC 17: Distributions of Non-cash Assets to Owners (compulsory for fiscal years starting July 1, 2009)

The Executive Board is not expecting the application of these standards to have any effects on the consolidation financial statements in

future reporting periods. The following standards are relevant to the consolidated financial statement:

• IFRS 8: This standard will replace IAS 14, which has until now been the authoritative standard for segment reporting.

Instead of a risk and reward approach, the new IFRS 8 standard takes a management approach to segment reporting.

According to this approach, the segment definition is no longer geared towards product/services or customer groups, but

instead towards the group’s internal organizational/reporting structure. Thus, even sectors that are not on the external market

can be recorded as potential segments. IFRS 8 furthermore requires the segment information to be aligned to the internally

reported figures for the purposes of budgeting and performance review. Accordingly, IFRS 8 does not define the terms

revenue, expenditure, asset and liability, requiring instead an explanation of these terms from the reporting company.

• IAS 1: The revised IAS 1 standard is intended to make it easier for users to analyze and compare annual financial statements. IAS

1 regulates the basis, structure and minimum requirements for a financial statement. The revised standard provides for new

terminology, additional information and presentation information with regard to balance sheets, profit and loss accounts and

a statement of changes in equity.

53

29. Earnings per share

The earnings per share calculated according to IAS 33 is based on the division of the period result attributable to the parent company of

F7,581k (previous year: F5,121k) by the 4,317,050 (previous year: 4,337,940) shares on average circulating during the fiscal year.

There is no difference between the diluted and undiluted earnings per share because there was no dilution.

The weighted average of the shares in circulation was 4,317,050 in the year under review. In the previous year, the weighted average of the

shares in circulation totaled 4,337,940.

30. Notifications in accordance with § 21 I and Ia of the German Securities Trading Act (WpHG)

ISRA VISION AG has been notified of the existence of shareholdings in accordance with § 21 Paragraph 1 or Paragraph 1a of the German

Securities Trading Act (Wertpapierhandelsgesetz). The contents of the notifications are contained in the annex to the individual accounts.

31. Declaration of conformity with the German Corporate Governance Code

As the only company currently publicly listed in Germany that is included in the consolidated annual financial statement, ISRA VISION AG

has submitted the Declaration of Compliance prescribed by § 161 of the German Stock Corporation Law (AktG) and has made it accessi-

ble to shareholders.

32. Auditors’ fees

33. Risk Management

Principles of risk management

In terms of its business, ISRA is subject to market risks, in particular currency, interest, liquidity and credit risks.

The objective of risk management is to counter these risks by taking active measures and limiting them as far as possible.

Currency risks

The currency risks primarily result from investments and operational activities.

A 10% increase in the EUR/USD exchange rate would lead to the results being reduced by F864k (previous year: F829k). The equity capital

would have dropped by F713k (previous year: F675k). A 10% decrease in the EUR/USD exchange rate would lead to the results being

enhanced by F1,056k (previous year: F1,013k). The equity capital would have increased by F904k (previous year: F859k).

Currencies other than the USD do not play a significant roll for ISRA.

Number of shares in circulation

Sept. 30, 2007 4,337,940

Own shares acquired –46,772

Sept. 30, 2008 4,291,168

(in F thousand) Reporting year Previous year

Audit of annual accounts 177 201

Other certification and evaluatory services 9 0

Tax advisory services 27 0

Other services 10 87

Total 223 288

54

Interest risks

Interest risks result from original financial instruments with variable or fixed interest rates if they are assessed at their current fair value.

Accordingly, interest change risks as defined in IFRS 7 do not therefore affect any financial instruments with fixed interest that are valued

with amortized costs.

ISRA VISION AG is subject to interest risks only in the EURO zone. The overwhelming number of bank liabilities designed to bear interest

at a variable rate. As of the September 30, 2008 reporting date, the company was not using any hedging instruments.

An interest sensitivity analysis using interest rates from 2007/2008 yields the following results:

If the market interest level as of September 30, 2008 had been 100 base points higher (lower), the result would have been F320k lower

(higher) (previous year: F252k). The equity capital would have dropped (risen) by F320k (previous year F252k).

The interest sensitivity analysis is subject to the following assumptions:

The bank liabilities existing as of the September 30, 2008 reporting date may be considered representative for the entire fiscal year. The

analysis only involves original financial instruments that bear variable interest.

Liquidity risks

The following table presents the contractually stipulated (undiscounted) interest and repayments of the financial liabilities:

This table includes all liabilities that existed as of the September 30, 2008 reporting date and for which payments were contractually

stipulated. An acceptance of new liabilities was not taken into account. The variable interest payments from the financial instruments were

calculated based on the interest rates that were last fixed before September 30, 2008.

The future cash outflow expected from the financial liabilities will be covered by the operative business, receivables and the available lines

of credit.

Price risks

There were no signficant price risks as of the reporting date.

Credit risks

ISRA conducts business with credit-worthy third parties only. The majority of the customer structure consists of multinational companies with

a high level of creditworthiness. By splitting the total receivables into various sub-areas and due to constant monitoring of the inventory of

receivables, there is no significant nonpayment risk. The maximum nonpayment risk is limited to the declared book value. There are no

significant concentrations of non-payment risks. Due to the customer structure, there is similarly no risk concentration. For other financial

assets, such as cash and cash equivalents, the maximum credit risk matches the book value of these instruments if the contracting party

fails to pay.

The non-payment risk will be accommodated by specific allowances for bad debts and commercial credit insurance.

Book value Cash Flows 08/09 Cash Flows 09/10 Cash Flows(in F thousand) Sept. 30, starting 10/11

2008 Interest Repayment Interest Repayment Interest Repayment

Bank liabilities 36,095 1,575 1,210 1,520 1,210 3,866 33,675

Book value Cash Flows 07/08 Cash Flows 08/09 Cash Flows(in F thousand) Sept. 30, starting 09/10

2007 Interest Repayment Interest Repayment Interest Repayment

Bank liabilities 29,400 1,239 105 1,234 210 1,730 29,085

55

Supervisory Board

Dr. Ing. h. c. Heribert J. Wiedenhues, Lahnstein – Deputy Chairman of the Supervisory Board of PM - International AG, Speyer; member of

the Administrative Board of PM – International AG, Luxemburg; – Deputy Chairman of the Supervisory Board of INTERTAINMENT AG,

Leipzig; member (chairman) of the Advisory Board of Partners GmbH, Wiesbaden; Siegen; member of the Advisory Board of Capiton Pip-

ing GmbH, Essen; member (Chairman) of the Advisory Board of VITRULAN GmbH, Marktschorgast; member (Chairman) of the Advisory

Board of VITS Group GmbH, Langenfeld; Chairman of the Supervisory Board (since September 2007)

Dr. Wolfgang Witz, attorney-at-law, Frankfurt, with additional Spervisory Board responsibilities within Troester GmbH & Co. KG, Hannover, and

TET System Holding GmbH & Co. KG, Heidelberg, vice-chairman of the Supervisory Board (since Februray 2000)

Prof. Dr. rer. nat. Dipl.-Ing. Henning Tolle, Rossdorf, (former Chairman of the Supervisory Board from February 2000 to September 2007)

Mr. Schling is the chief representative of Volkswagen AG and was previously the head of the group’s quality assurance, Hofheim (Taunus)

(since March 2008)

Stefan Müller, Königsbrunn, Senior Consultant to the Board of Management of KUKA Roboter GmbH (since July 2007)

Dr. Erich W. Georg is managing partner of the MCIC GmbH (Management Consulting International Cooperation GmbH), Usingen (since

October 2007)

The following member of the Supervisory Board left the Board during the reporting period:

In a statement dated January 23, 2008, Dr. Dieter Willasch resigned from his position as a member of the Supervisory Board, effective as of

the General Meeting on March 19, 2008.

The following business relations exist between the members of the Supervisory Board and the Company:

• Dr. Wolfgang Witz is a partner of the law firm Allen & Overy, Frankfurt am Main. Allen & Overy provides the Company with advice with

respect to stock and stock exchange law and corporate acquisitions.

Executive Board

Enis Ersü, Darmstadt (Chairman)

Hans Jürgen Christ, Ober-Ramstadt (Deputy Chairman)

Dr. Johannes Giet, Eggenstein

Werner Rothermel, Alsbach-Hähnlein

Payments to the members of Executive and Supervisory Board

The payments to the members of the Executive Board include variable components which may, in individual cases, amount to up to 30%

of basic pay. They are annually revised by the Supervisory Board using targets. Payments to the executive board totaled F804k in the fiscal

year (previous year: F725k). The total share options issued as of 30.9.2008 come to 0 stock options (previous year: 4,579). The fair value

for these stock options totaled F0 as of the balance sheet date (previous year: F28,801). In the fiscal year, no new option rights were grant-

ed. The cost of the utilized options is included in the remuneration of the Executive Board.

The payments to the members of the Supervisory Board for their activities totaled F53k (previous year: F53k) in the period under review. No

option rights have been granted to members of the Supervisory Board.


ISRA VISION AG

The Executive Board

56

List of significant share ownership as of September 30, 2008

indirectName and location of the company Share (percent) investment via no.

Parent company

ISRA VISON AG, Darmstadt, Germany

Shares in associated companies

1. ISRA VISION LLC, Sterling Hights/Michigan, USA a), b) 100

2. ISRA VISION SYSTEMS INC., Lansing/Michigan, USA 100 1.

3. ISRA SURFACE VISION GmbH, Herten, Germany 100

4. INNOMESS Corp., Chicago/Illinois, USA b) 100 3.

5. ISRA VISION LASOR GmbH, Oerlinghausen, Germany 100

6. ISRA SURFACE VISION INC., Duluth/Georgia, USA 100 5.

7. NANOsystems LLC, Gainsville/Georgia, USA b) 100 2.,3.

8. ISRA VISION GmbH, Darmstadt b) 100

9. ISRA VISION (Shanghai) Co. LTD., Shanghai, China 100

10. ISRA VISION SYSTEMS OF CANADA Inc., Windsor, Canada b), c) 100

11. ISRA VISION Ltd., London, UK 100

12. Image Automation Inc., Columbus, USA 100 6.

13. ISRA VISION Parsytec AG, Aachen, Germany 93

14. ISRA Parsytec GmbH, Aachen, Germany 93

15. Parsytec Solutions GmbH, Erkelenz, Germany 93

16. Parsytec Japan Co., Ltd., Tokyo Japan 93

17. Parsytec Asia/Pacific Co., Ltd., Seoul, South Korea 93

18. ISRA VISION Parsytec Inc., Chicago, USA 93 14.

19. SRA VISION Parsytec Ltd., Hampshire, UK 93 14.

20. metronom Automation GmbH, Mainz, Germany 100

a) Holding company b) Not operationally active c) Equity not paid in

Declaration of the legal representatives

To the best of our knowledge, and in accordance with the applicable reporting principles for financial reporting, the consolidated financial

statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management

report of the group includes a fair view of the development and performance of the business and the position of the group, together with a

description of the principal opportunities and risks associated with the expected development of the group.


The Executive Board

Reproduction of the Auditor’s Report

We have audited the consolidated financial statements - comprising the consolidated balance sheet, the consolidated income statement, the

consolidated statement of changes in equity, the consolidated cash flow statement and notes, as well as the group management report, pre-

pared by ISRA VISION AG, Darmstadt, for the financial year from October 1, 2007 to September 30, 2008. The preparation of the consolidated

financial statements and the management report in accordance with IFRS, as to be applied in the EU, and supplementary according to the

accounting principles of § 315a Paragraph 1 of the German Commercial Code (HGB) as well as additional regulations by the articles of in-

corporation is the responsibility of the company’s legal representatives. Our responsibility is to express an opinion about the consolidated fi-

nancial statements and the management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 of the German Commercial Code (HGB) and gen-

erally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). These standards and

regulations require that we plan and perform the audit in such a manner, that inaccuracies and violations which have a material impact on

the presentation of the status of the Group with respect to its assets and its financial and profit situation, as given by the consolidated finan-

cial statements prepared under consideration of the principles of accounting to be applied, can be detected with sufficient certainty. Knowl-

edge of the business activities and the economic and legal environment of the Group and expectations concerning possible errors are taken

into account in the determination of the audit procedures.

The effectiveness of the internal system for the control of accounting principles, and the evidence supporting disclosures in the consolidated

financial statements and the management report are mostly examined on a test basis within the framework of the audit. The audit includes

the assessment of the annual financial statements of the companies incorporated in the consolidated statement, of the composition of the com-

panies included in the consolidated statement, of the accounting principles used and of significant estimates made by the legal representa-

tives, as well as an evaluation of the overall presentation of the consolidated financial statements and the management report. We believe that

our audit provides a reasonable basis for our assessment.

Our audit has not led to any reservations.

Due to our assessment based on the results of our audit, the consolidated financial statements are in accordance with IFRS, as to be applied

in the EU, and supplementary according to the accounting principles of § 315a Paragraph 1 of the German Commercial Code (HGB) as well

as additional regulations by the articles of incorporation, and, considering these rules, provides a suitable understanding of the Group’s ac-

tual assets and its financial and profit situation. The management report complies with the consolidated financial statements, gives a true and

fair view of the Group’s situation and describes chances and risks of its future development appropriately.

Frankfurt am Main, January 26, 2009

P K F P a n n e l l K e r r F o r s t e r G m b H

Wi r t s c h a f t s p r ü f u n g s g e s e l l s c h a f t

R. Brinskelle S. Varughese

Auditor Auditor

ISRA VISION AGIndustriestraße 1464297 DarmstadtGermanyTel. : +49 (6151) 948-0Fax: +49 (6151) [email protected]@isravision.com

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