InTiCa Systems AG — Annual Report 2007

Apr 18, 2008

Know-how and dedication for technological progess

Annual Report 2007 of InTiCom Systems AG

The future through innovation

Key figures of InTiCom Systems AG

The Group	2005 in EUR 000's	2006 in EUR 000's	2007 in EUR 000's	Change in %
Sales	35,034	37,483	38,104	+ 1.7
Net margin	6.3%	4.2%	2.7%
EBITDA	4,120	3,354	3,008	– 10.3
EBIT	3,466	2,300	880	– 61.7
EBT	3,584	2,420	804	– 66.8
Net income	2,195	1,569	1,033	– 34.2
Earnings per share (EUR, total 4,287,000 shares)	0.51	0.37	0.24	– 35.1
Earnings per share (EUR, diluted/basic)	1.69	0.49	0.24	–51.0
Cash flow from operating activities per share (EUR)	0.32	0.17	1.07	+ 529
Cash flow from operating activities	1,354	745	4,573	+ 514
Capital expenditure	5,922	9,098	6,289	– 30.9

	12 31 2005 in EUR 000's	12 31 2006 in EUR 000's	12 31 2007 in EUR 000's	Change in %
Total assets	24,532	38,181	43,855	+ 14.9
Equity	13,480	24,614	25,869	+ 5.1
Equity ratio	55%	65%	59%
Employees (number)	102	155	236	+ 52.3

The stock	2005 XETRA in EUR	2006 XETRA in EUR	2007 XETRA in EUR	until 03 31 2008 XETRA in EUR
Closing price	18.27	20.00	9.15	4.94
Period high	20.50	29.17	19.60	9.04
Period low	5.46	15.60	8.50	4.94
Market capitalization at end of period (million EUR)	78.3	85.7	39.2	21.2
Number of shares	4,287,000	4,287,000	4,287,000	4,287,000

The stock prices have been calculated based on the current number of shares amounting to 4.287 million.

Table of contents

The Group	2
Introduction	2
Company Boards	4
Company Profile	7
Stock and Investor Relations	14
Corporate Governance Report	17
Corporate Citizenship	19
Group Management Report	20
Risk Management and Risk Report	28
Subsequent Events	33
Outlook	34
Consolidated Financial Statements	36
Consolidated Income Statement	38
Consolidated Cash Flow Statement	39
Consolidated Balance Sheet	40
Consolidated Statement of Changes in Equity	42
Notes to Consolidated Financial Statements	44
Statutory Declaration	65
Auditor's Certificate	66
Report of the Supervisory Board	68
Technical Glossary	70
Financial Calendar / Imprint	Back Cover

The Group Management Report Financial Statements Notes

The InTiCom Systems Group

Dear stockholders, dear customers and business partners, dear employees,

The high expectations for a fast expansion did not come to fruition. In the lapsed fiscal year, sales stabilized at around 38 million Euro. Revenue losses were the result of a customer relationship to a Northern European telecommunications company being omitted in the DSL segment. The shift of three assembly lines from Greek Thessaloniki to the new and, in 2007, heavily expanded production location of Prachatice, Czech Republic, weighed additionally on revenues.

They created an improvement in the requirements for the control of manufacture and production volumes for the VDSL2 splitter technology. Since the beginning of 2007, these have been produced and supplied for the expansion of the so-called Triple Play in Germany and Europe. With this Triple Play, telephones can be used via internet protocol (VOIP) parallel to surfing the Internet and TV reception (IPTV).

Moreover, the production transfer of complex and demanding inductors, filters and complete splitters for official and end customers have entailed another rise in quality control and assurance: Prachatice is in the direct vicinity of the headquarters in Passau and the technology center in the Austrian town of Neufelden, which is why current developments and product adjustments can be communicated and realized quicker in order to achieve better performance (compared to Thessaloniki before).

The EU Commission in 2007 did not make an ultimate decision as planned on the dispute as to whether and how the VDSL technology is expected to require regulation and be subject to it. Deutsche Telekom has once again tackled the VDSL expansion in the German metropolitan regions in spite of the suspension.

As a leader in technology, InTiCom Systems benefits from this and has equipped VDSL connection technology with optimized solutions for both copper and fiber optics-based areas since the beginning of the year with VDSL2 splitters for official use. Since that time, these have also already been installed by network operators. In addition to the technologically activated official use, InTiCom Systems has supplied the new participant splitters since mid-2007, which support both the transfer rates of ADSL2+ (up to 16 MBIT/s) and those of VDSL (up to 50 MBIT/s). For the last year the company has also produced the plastic housing for these products using its own injection molding machines. This

has allowed it to not only increase its own added value, but to also achieve a further degree of improvement in terms of systems expertise. In this context, revenues that were generated with an external partner company in the past have been reduced. We will also push forward with this strategy in the current fiscal year.

In the Communication business segment, the product range has been supplemented in the past year by the third product group of plug-in boards and main distribution frame (MDF) splitters. InTiCom Systems supplies these for the multi-function housings on the street, which bring VDSL closer to the households of end customers.

As in the previous year, the foreign business for DSL, ADSL and VDSL splitters have been able to cushion the price decline in the German market: InTiCom Systems almost exclusively uses domestic and foreign system partners to cover foreign markets. In 2007 these contributed nearly 45% to total cumulative revenues for the Communication business segment to the tune of 33 million Euro. This also made the Communication segment the main revenue contributor in 2007.

In this business field, the result is burdened by extraordinary impairment losses on customer-specific development services and components already capitalized as well as a subsequent revaluation of existing inventories. Group earnings before interest and taxes (EBIT) fell by some 1.4 million Euro to 0.9 million Euro for the full year 2007 (2006: 2.3 million Euro).

In the Automotive segment, where serial production for numerous products was ramped up in 2007, the Company has clearly managed to position itself as a technologically leading market participant as well as one that is significant on the international market.

Our components and systems – immobilizers, keyless-entry and tire pressure control systems as well as power-train control systems for hybrid vehicles just to name a few – can be found in many vehicle classes around the world: from the luxury limousine or the high-end sports car to the low-price compact class of wellknown German, French, American and Asian manufacturers. Moreover, four of the ten most important systems suppliers in the world now call upon solutions by InTiCom Systems; they furthermore have committed to accepting long-term framework agreements with terms of at least five to eight years.

Company Boards

Board of Directors

Walter Brückl

Speaker of the Board of Directors active since April 1, 2008 Strategy, production, investor and public relations Appointed until March 31, 2011

Maria Grohs

Kauffrau

Materials management, marketing and sales, Managing Director of InTiCom Systems Ges.m.b.H. Neufelden (Austria) Appointed until June 30, 2011

Dr. Paul Grohs

Diplom-Ingenieur Development Managing Director of InTiCom Components GmbH, Thessaloniki (Greece) Managing Director of InTiCom Systems s.r.o. Prachatice (Czech Republic) Appointed until June 30, 2011

Christian Schubert

Diplom-Kaufmann

Controlling, finances and accounting, IT and personnel Appointed until December 31, 2010

The entire Board of Directors is responsible for investments and quality management.

Supervisory Board

Dr. Wulfdieter Braun

Chairman Diplom-Physiker Passau

Dr. Horst Rüdiger Hollstein

Deputy Chairman

Diplom-Kaufmann Jesteburg Member of the Supervisory Board of Otto M. Schröder Bank AG, Hamburg Member of the Advisory Board of MAINKA Bauunternehmung August Mainka GmbH & Co., Lingen

Harald Nöth

Diplom-Ingenieur Munich Co-partner and member of Board of Directors of DES Data Empire Systems AG, Munich

InTiCom Systems has continued its goal of establishing the Automotive business segment as the company's second pillar. This segment should generate between 30 and 40 million Euro in revenues in five to seven years. At present, the Automobile segment has not yet been able to completely meet the expectations set for it: in 2007 the segment's contribution to total sales for the Company was approximately 13% with just under 5 million Euro. Our revenue expectations were missed largely as a result of the long lead times for the automotive industry. Here a timeframe of six to eight years is needed to change a vehicle type, which is why our expectations were not completely met in terms of volumes. Some of the orders were postponed to the fiscal year 2008.

We installed the new Industry business segment in 2007, which will begin to generate revenues as early as 2008. Here we develop and supply products and components for recovering alternative, renewable sources of energy in the form of inverters which convert wind and solar power into network-ready electricity. In doing so, we not only use synergy effects, which the Automotive segment makes available using solutions for hybrid vehicles, but also the know-how for materials generated in the two other business segments as well as optimized production technology.

Industry covers not only the booming market of renewable energy sources, but also the fields of automation technology, consumer electronics and the "white goods"/household appliances. We have already managed to establish business relationships with important national and international manufacturers. We are currently in the process of developing components for these customers and making individual products that are already mass produced. Some of the customers include the specialist for antennae and transmitters Kathrein, the high-end producer of consumer electronics Loewe, a major customer in the field of "white goods" and Bizerba, which dominates the global market for loading scales and industrial weighing technology.

We are certain that we will be able to establish and expand the new Industry segment to become the third company pillar in the medium to long term, and that it will make a significant profit contribution.

By doubling the area and the production capacity at the new Prachatice production location (Czech Republic), we set the standard in 2007 for meeting the rising demand for high-tech components of the highest quality with top delivery reliability with no disturbances. We expect the newly created production

capacities to be fully utilized as early as the end of the 2008 fiscal year through the constantly rising capacity expansion of the Automotive segment as well as the expanded component production for Communication and the new Industry business segment.

The Supervisory Board appointed Mr. Christian Schubert (42), Diplom-Kaufmann, as a Member of the Board of Directors on November 1, 2007. As the Chief Financial Officer (CFO), Mr. Schubert has since taken on the functions of finance, controlling, IT and personnel and brought our team of directors back to the size of three members. In addition to his extensive expertise as a CFO, Member of the Board of Directors and managing director at international and listed technology companies, Mr. Schubert also brings detailed sector know-how of the electrical, electronics and automotive markets to the table at InTiCom Systems and will add a valuable spark to the company.

The Supervisory Board appointed Mr. Walter Brückl as a Member of the Board of Directors on April 1, 2008. As the Chief Executive Officer (CEO), Mr. Brückl has since been responsible for the functions of strategy, production, investor and public relations. In doing so, he has relieved the existing Board of Directors of these tasks, which were previously regarded as joint functions. In addition to his extensive expertise as a CEO, Member of the Board of Directors and Managing Director at international and listed technology companies, Mr. Brückl also brings detailed sector know-how of the automotive industry to the table at InTiCom Systems.

We would like to thank our employees, customers, suppliers and, last but not least, our shareholders. Without your dedication and trust, our company would not have been able to take up a strong position in dynamic markets so quickly and so successfully.

Passau, April 2008

Walter Brückl Maria Grohs Dr. Paul Grohs Christian Schubert Spokesman of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors

Company Profile

High-tech inductive systems and developments specific to customer needs combined with the highest quality and delivery reliability and self-developed production equipment. These strengths allow InTiCom Systems AG to consequently tap into new business areas and acquire its position in them as a technology and market leader.

This has already happened in the Communication business segment for example. The first signs of success are taking hold in the Automotive segment and Industry, the new area of application, is being established as the third company pillar. The strategy of successfully diversification with core competence and synergies secures constant growth through innovation.

Continuous Growth in Prachatice

This last summer, InTiCom Systems doubled its production area at the Czech location in Prachatice. The number of staff rose from an average of 41 employees to more than 135.

Dr. Grohs blames the success on the fact that "we were bursting at the seams and had to expand. The abundance of orders for many new products called for the construction of a second hall; in doing so, the production area doubled from 2,000 to 4,000m2 ."

The management had come up with a solid budget for the company's expansion in 2005 and therefore had purchased the land designed accordingly for multiple expansions. Thanks to the cost-friendly prefabrication, the cost of the hall was kept exactly within the budget of 1.1 million Euro.

The Automotive segment is currently at the centre of focus given the fact that it is promising revenue increases in the double-digit range per year for the medium to long term. The staff produces large quantities of elements and parts for access authorization systems, safety systems and engine and energy management systems (for hybrid vehicles among other things) and does so around the clock, seven days a week.

InTiCom Systems produces immobilizers, keyless-entry systems, tire pressure control systems and aggregate control systems for hybrid vehicles, just to name a few products. These are stretched across all vehicle classes from the luxury limousine and the highend sports car to the low-cost compact class. Dr. Grohs lists the customers around the world as "well-known German, French, American and Asian manufacturers as well as their systems suppliers."

The second focal point is the Communication business segment. The company's constant growth is based on this segment, which continues to form a stable basis for its development. One of the products being manufactured in Prachatice since the beginning of 2007 is the filter inductor for VDSL data transfer. These have been installed by Deutsche Telekom and its employees across Germany for some time. At present, the weekly production rate for filter inductors of this kind in Prachatice is approximately 500,000.

The third focal point, Industry, is still being established (see page 10). This segment initially started off in 2007 producing only transformers for transmitters (TV, radio, telephony) in the developing countries and the Arabic region, but has now expanded its product range extensively: inductors, performance transmitters and suppressor components for household appliances, consumer electronics and above all inverters for

generating renewable energy sources from wind and sun promise to double the sales revenues in the future.

Prachatice is "an absolute model when it comes to quality standard and quality control, as our customers constantly observe during the auditing process," Paul Grohs proudly states. Therefore, all products are put through intensive, 100% quality control, meaning piece by piece.

The location also plays an important role in the market success through the quality. Prachatice together with the product development in Passau and machine development in Neufelden forms an almost perfect triangle, with each of the cities approximately 80 kilometres apart. Customers value the quick accessibility, which secures a high degree of flexibility with product changes and allows potential errors or defects to be corrected without the effects of drawn-out travel, language problems and high costs. The decision to develop and produce in Europe is paying off for the company and gives it a unique selling proposition over the low-wage countries overseas. This also pertains to the high degree of self-development of the machinery. Some 60% of the machinery is self developed for the Automotive and Communication sectors, and was therefore designed and developed by InTiCom Systems in the Austrian town of Neufelden (see page 12).

Dr. Grohs, who is responsible for development and production on the Board of Directors, estimates this share of self-development "at even approximately 90%" for the Industry segment, which is still young. "This is the only way to guarantee that our production equipment is aimed exactly at the customers' specifications and the products themselves meet all specifications with regard to high performance with the lowest possible dimensions that the customer generally demands and needs."

It appears as though more companies are setting up shop in the region around Prachatice, which could cause personnel bottlenecks in the next few years.

In order to live up to the constant growth and need for personnel that comes along with it, Dr. Grohs explains that the company will have to "offer some degree of social spaces, security measures, employee support and training as well as further education. In this sense, it is very important to give the secure feeling that a job at our company is not limited to a few months, but rather offers security and opportunities to climb the ladder for years to come."

Making Consequent Use of Synergies

After 'Communication' and 'Automotive', InTiCom Systems is now opening up the business segment of 'Industry'. The technology leadership of high-tech inductive systems, the concept of tailor-made solutions for ambitious clients and synergy effects for existing products promise to provide successful growth and attractive revenues in this segment as well.

InTiCom Systems AG entered into the new business segment of Industry according to a proven pattern: the company's management only decided to establish and expand the new segment once market analyses and intensive preliminary talks with potential customers had helped establish that the company will be successful in tapping into the new product area and its market potential.

This was the case when diversifying from communication to automotive products, and is still the case in taking the second step into new entrepreneurial frontiers. Following the initial advances in the 2007 financial year with transformers for transmitters, "Industry will now be consequently established as the third and solid pillar," states Achim Altenhofer, the manager of the Communication segment also responsible for the establishment of the Industry segment.

Industry – it stands for automation technology, consumer electronics, "white goods"/household appliances and converters or inverter technology as is needed when converting wind and solar power into network-ready electricity. On the one hand, InTiCom Systems relies on its know-how and technology leadership with these applications, which it has and is already successful in marketing around the globe with induction magnets, high-performance ferrites, inductors and filters. The company is thus consequently making use of the existing synergies.

An example of this is high-performance ferrites, which in the Automotive segment control the aggregate for converting energy in hybrid vehicles, potentially avoiding energy losses. The inverters also use the same principle when converting direct currents from renewable energies into alternating currents – likewise with the highest degree of efficiency possible.

In addition, the unique selling proposition of tailor-made solutions for customers also plays an important role in the Industry segment. "We focus on customer specifications and the premium segments in the individual markets. That is where our strengths and abilities lie," as engineer Achim Altenhofer consciously depicts the strategy for fine and microtechnology.

He ranks the revenue expectations as follows: renewable energy sources (solar and wind power), consumer electronics, automation technology and "white goods". He particularly anticipates "an unbelievable boom for the next few years" in terms of renewable energy sources, going on to state that "land-based and offshore

wind parks are being put up around the world and photovoltaic plants are being built in order to take advantage of the solar power in sunny regions."

The most important manufacturers of wind power plants are in Europe and, in terms of photovoltaics, above all in Germany and Switzerland. Achim Altenhofer states: "We already have contact with all the leading manufacturers and we are already developing projects for many of them on a component basis. We will gradually expand this into systems, meaning that we will offer the customer added value through this bundling, a cascading of performance". The 38 year-old certainly anticipates "annual growth rates in the upper double-digit percentage range" for the "young, blossoming industry".

In general however, Industry will generate lower volumes than Automotive. The normal volumes for the market in terms of solar inverters also pay off due to the high system prices. We offer added value through high degrees of efficiency and technological know-how. Some customers have already requested component bundles and subsystems. We offer this added value with our project management, thereby creating greater market potential. Communication and Automotive had already proven the strategy of aspiring for market leadership from the position of technology leadership and at least taking this on in sub-segments.

The list of Industry customers that InTiCom Systems has already won over and for which the company is developing and in part has already produced common products contains some renowned companies. Among these customers are Kathrein, the specialist for antennae and transmitters, Loewe, the high-end producer of consumer electronics, a major customer in the field of "white goods" and Bizerba, the undisputed leader on the global market for loading scales and industrial weighing technology. In the field of renewable energy sources, Achim Altenhofer regrets to say that he cannot give any names and that "the respective companies still want to keep a low profile."

But all customers have one thing in common: "they know that we are able to develop and mass produce systems and components for extreme services for them with minimal dimensions," statements Altenhofer as the reason for the company's high degree of customer acceptance. "They also know that we are a leader in the field of high-tech inductive systems and that our inhouse development of production machines puts us in a position to meet very complex demands."

In-house Development as a Strategic Element

InTiCom Systems develops special production machines for tailor-made products depending on the customer's wishes at its technology centre in Neufelden – exclusively for its own needs up to now.

In InTiCom Systems AG's three business segments of Communication, Automotive and Industry, "the constant innovation, rapid technological progress and constantly rising expectations of the performance parameters of products and components require the most modern production technologies and state-ofthe-art production equipment". For Dr. Paul Grohs, co-founder, Managing Director and Board of Directors Member responsible for the development of InTiCom Systems AG, one thing was clear when the Company was founded in 2000: InTiCom Systems designs, develops and produces its own production equipment.

After all, "we were only able to precisely address the demands of our customers contrary to many of our competitors world-wide through this internal activity," remarks the head of development. "By founding our technology centre in the Austrian town of Neufelden in 2005, we have used this unique selling proposition (USP) as an important strategic element within the company."

This USP plays a critical role in all company segments, as it makes InTiCom Systems the undisputed technology leader that itself is able to meet the extreme specifications of customers using its own machine development.

This will determine the success in Communication when Neufelden develops a highly complex ring-sleeve machine for VDSL filters under the label of RwA 003, the likes of which is sought out on the global market to no avail. It will also contribute to the success in the Automotive segment when the technology centre supplies special machines for producing keyless go antennae, which a globally operating automobile manufacturer will install in several model series beginning in the summer of 2008.

Paul Grohs is also sure that it plays an important role "in the new Industry business segment": this segment, in which the AG develops and produces components for the use of renewable energy sources, consumer electronics, "white goods" and automation technology (see page 10), has a share of selfdeveloped production equipment of "approximately 90%, while this figure in the other business segments comes out to some 60%". The reason here is that the area of conflict between the highest possible performance and the lowest possible dimensions is very heavily compressed in the Industry segment.

The 13 employees in Neufelden currently work in an area of approximately 500m2 : "a highly motivated, creative and young team with an average age of about 35" is how Paul Grohs describes the team.

As different as the products for which the machines developed in Neufelden may be, the team's approach is always the same: it initially looks into where machines are already found on the global market that at least come close to meeting customer demands and how they will potentially have to be changed. In the absence of this opportunity, the tools and machines are completely redeveloped. Moreover, special tools are often upstream and downstream of the standard machines themselves that carry out the injection molding of the plastic elements at the Prachatice production location for the purpose of meeting the high degree of customizing and customer specification needed.

"In general, there is always the basic principle that whatever can be produced externally and whatever machines and tools already exist on the market are purchased", describes Paul Grohs of the practice. "We are responsible for the design, assembly, control, programming and fine-tuning during and after the start of operations."

However, whether dealing with a modification or a totally new design, extensive development handbooks are prepared in every case for the purpose of making future modifications easier and giving the employees that will later operate the production equipment extensive and practice-related training very early on. This early integration of employees long before the actual serial production of the products has "priceless positive effects" according to Dr. Grohs. "By familiarizing them so early on with the newly developed equipment and the related product, they are able to come up with valuable tips during the prototype phase as to where the problems lie in the actual production and what could go more smoothly. It also ensures that the start of production gets fully underway."

The technology centre in Neufelden is fully loaded with internal orders through approximately mid-2009 and will operate exclusively as a closed shop. "That does not have to remain the case," the founder of InTiCom Systems AG can by all means imagine. "Our experience certainly allows us to offer the market a number of things as far as the development of special machines for certain applications is concerned, for example connection technology."

However, Paul Grohs has no doubt that this potential opening will hit its limit at one point: "Of course, we will not offer the market our special solutions developed for customer specifications."

Share price performance of InTiCom Systems against the TecDAX

Stock and Investor Relations

Differentiated development of stock market segments

The share price development on the German stock market in 2007 was a mixed bag both in terms of the different business segments and within the individual market segments. The major, internationally active companies included in the DAX mainly posted heavily rising share prices and the index overall features a performance of 22% for the year 2007. The segment of medium-sized MDAX companies on the other hand only achieved a performance of 5% and the SDAX segment closed out 7% below the level of the previous year. The segment of technology stocks in the TecDAX has improved significantly from this level with a yearly performance of 28%. However, it should be considered here that this performance has been supported by the extreme outperformance of a few stocks with relatively high index weighting, while the predominant number of member companies fell short of the index performance either marginally or significantly. As such, it was primarily the stocks from the field of alternative energies that posted considerable share price gains in the course of rising energy prices. Of the 30 TecDAX stocks, 14 closed out 2007 with a positive performance, while 13 stocks posted considerable share price declines in part and 3 remained around the level of the previous year's close. The highest performance showed an increase of more than 200% and the worst performance saw a drop of around 60%.

Performance of the InTiCom Systems share

The InTiCom Systems share closed out 2007 with a share price drop of around 54%, thus performing much worse than the TecDAX in both absolute and relative terms. In spite of a positive operating company trend, the significant underperformance is also based on the fact that the share is heavily reacting to shifts in institutional investor's shareholdings due to the company's still low market capitalization. Because of the low trading volume, each decision regarding the increase or decrease of a portfolio investment has an impact on the share price over a longer period of time. Against the background of the very positive share price performance since the IPO, there have been shifts of institutional investors wanting to take profits. On the other hand, the lower share price level was used by some new institutional addresses to establish positions in order to profit from the operating positions of points in 2007 and the promising company development in the long term.

Investor Relations activities of InTiCom Systems

Our Investor Relations activities are aimed at increasing the recognition of the Company on the capital market and improving the perception of the InTiCom share as an attractive investment in the technology sector with excellent growth prospects. We aim to strengthen investors' trust in the company by way of reliable, continuous and open communication with capital market participants as well as to achieve an appropriate valuation of our share. One particular goal is to make the broader scope of investors familiar with the positive prospects and future outlooks for InTiCom Systems' business activities. In capital market communication, it is therefore our goal to focus the external perception more on the company's long-term success factors. In this regard, the Board of Directors has agreed upon a number of active investor relations measures: InTiCom Systems has contracted a new designated sponsor with BankM. In order to address investors in Germany and Europe has InTiCom Systems added HSBC Trinkaus & Burkhardt as an international designated sponsor at the beginning of 2008, which should use its stronger international network to gain access to broader circles of investors. This should allow for the share's liquidity to be improved in the long term. The newly gained research reports by BankM guarantee that the presence with and attention of investors will rise both at home and abroad. InTiCom Systems presented for the first time in the scope of the German Equity Forum by Deutsche Börse AG in mid-November 2007, its current nine-month results for the first time to investors and analysts at another analysts' meeting in the lapsed year. The Board of Directors subsequently intensified the active dialogue, particularly with institutional investors and analysts, and made new contacts in numerous one-on-one talks on site and at the subsequent road show.

The Annual General Meeting on May 24 of the lapsed financial year again formed another platform for our active corporate communication. Shareholders were represented with more than 24% of the share capital and those present used the occasion to have an active dialogue with the Board of Directors. All items on the agenda were decided upon with a majority of more than 98%. All of our shareholders were cordially invited once again to this year's InTiCom Systems AG Annual General Meeting on May 29, 2007 in Passau.

Information and records can be found online at InTiCom Systems' website under the Investor Relations heading: www.inticom-systems.de

The Company's shareholders and anyone interested have the opportunity to get more detailed information on all topics regarding the InTiCom Systems company and the share. Under the "Publications" and "Press releases" menus you can find all annual reports, interim reports and press releases since the IPO available to download. You can also send direct inquiries to the Company, which are answered individually by our Investor Relations employees.

Stock data of the InTiCom Systems stock

ISIN	DE0005874846
WKN	587484
Stock exchange symbol	IS7
Reuters	IS7G.DE
Trading segment	Prime Standard
Prime industry	Technology
Industry Group	Communications Technology
Indices	Prime All Share, Tec All Share CDAX
Designated sponsor	Bank M HSBC Trinkaus & Burkhardt
Capital stock	Euro 4,287,000
Stock category	Non-par common bearer stocks

Key figures of the InTiCom Systems stock

in Euro	2006	2007
Closing price (XETRA 12/30)	20.00	9.15
52-week high	29.17	19.60
52-week low	15.60	8.50
Market capitalization in million Euro (XETRA 12/30)	85.74	39.22
Stocks traded on daily average (XETRA + floor in stock numbers)	14,525	11,747
Price-earnings ratio (P/E ratio) (XETRA 12/30)	54.1	38.1
Earnings per share (EPS)	0.37	0.24
Cash flow per share from ongoing activities (CFPS)	0.17	1.07

The per-share figures have been calculated on the basis of 4.287 million shares.

Shareholder structure of InTiCom Systems AG

Free float of which:
UBS Fund Management (Switzerland) AG	7.6%
KST Beteiligungs AG	5.1%
Union Investment Privatfonds GmbH	4.7%
UBS Global Asset Management (Deutschland) GmbH	3.5%
TFG Capital AG Unternehmensbeteiligungsgesellschaft	3.0%
Universal-Investment-Gesellschaft mbH	3.0%

Disclosure of share ownership

Share in the capital stock on Dec 31, 2007	in numbers	in %
Board of Directors
Maria Grohs and Dr. Paul Grohs together	122,000	2.85
Christian Schubert	1,500	0.03
Total	123,500	2.88
Supervisory Board
Karl Kindl through Dec 31, 2007	150,264	3.51
Dr. Wulfdieter Braun	6,015	0.14
Harald Nöth	3,786	0.09
Total	160,065	3.74

Directors' dealings

Persons with a notification requirement	Date	Number	Share price in Euro	Volume in Euro	Market	Buy/ Sell
Maria Grohs	Aug 16, 2007	2,000	10.15	20,300	Xetra	Kauf
Christian Schubert	Nov 20, 2007	1,500	9.81	14,715	Xetra	Kauf
Harald Nöth	Nov 21, 2007	300	8.98	2,694	Xetra	Kauf

Corporate Governance Report

The sustainable rise in the shareholder value is the guideline for the Members of the Board of Directors and the Supervisory Board of InTiCom Systems. The trust of our investors and other stakeholders in an effective and transparent management is particularly important to us. The German Corporate Governance Code (Code) establishes the rules and guidelines for managing and supervising listed companies. The corporate governance report at hand explains the significant elements of Corporate Governance at InTiCom Systems. The decleration of conformity provided by the Board of Directors and Supervisory Board names the company-specific deviations from the recommendations of the Code and explains the reasons behind such deviations.

Board of Directors and Supervisory Board

Mr. Dieter Schopf left the Company's Board of Directors in the lapsed financial year. Mr. Christian Schubert was appointed as the new Board member until December 31, 2010 and is responsible for controlling, finance, accounting, IT and human resources. Founders Mrs. Maria Grohs and Dr. Paul Grohs completed the management trio and are appointed until June 30, 2011.

Given its close and trustworthy cooperation in the past, the Board of Directors has not appointed a speaker or chairman. In order to strengthen the management, the Board of Directors and Supervisory Board together decided at the beginning of 2008 to expand the Board of Directors and aimed to occupy the position of CEO and speaker. This seat was filled by Mr. Walter Brückl on April 1, 2008. A D&O insurance policy without a deductible has been taken out for the Board member.

The Supervisory Board consults and supervises the Board of Directors in the framework of the dual management structure. The Chairman of the Board is Dr. Wulfdieter Braun, whose predecessor Mr. Karl Kindl stepped down for reasons of age on December 31, 2007. With effect on January 1, 2008 Dr. Horst Hollstein was legally appointed until the AGM on May 29, 2008. Mr. Harald Nöth completes the three-member Supervisory Board.

The Board of Directors informs the Supervisory Board extensively and in a timely manner on the Company's performance. Together they discuss the strategy developed by the Board of Directors. The latter also provides the Supervisory Board with reports on the status of the implementation of the strategic planning and potential deviations. Important decisions are subject to approval by the Supervisory Board. The Board of Directors informs the Supervisory Board on the Company's opportunity and risk management. The two management bodies collaborate closely to the Company's benefit.

The Supervisory Board founded no committees. All Board members are involved in dealing with the relevant topics. This primarily pertains to the audit of quarterly and annual financial statements as well as the particulars of the Board of Directors. Details can be found in the Supervisory Board report on page 63 of the annual report.

Remuneration

There were no changes to the remuneration system of the Board of Directors and the Supervisory Board of InTiCom Systems in the lapsed financial year. The Company has refrained from variable components of the remuneration up to now as a result of the shares of the Board of Directors in the company contrary to the recommendations of the Code. Variable remunerations depending on the Company's success (EBT adjusted for special items) were agreed upon beginning in 2008. We consider a variable remuneration for the Supervisory Board to be rather contrary to the control function of the Board. However, according to the Company's articles of association, the AGM presented the opportunity to grant the Supervisory Board an involvement in total assets. The remuneration for both boards overall in the lapsed financial year amounted to 695 thousand Euro. Additional details on the remuneration system of the Board of Directors and Supervisory Board can be found in the notes to the consolidated financial statements beginning on page 62.

Directors' dealings

In the past financial year, security transactions according to section 15a WpHG (Securities Trading Act) were made by members of the Board of Directors and Supervisory Board of InTiCom Systems and are currently documented on the Company's website.

Shareholdings

Members of the Board of Directors as well as of the Supervisory Board hold Company stock. The Members of the Board of Directors hold 2.88% of the capital stock of the Company. The Supervisory Board holds 3.74%. This brings the total ownership of both Boards to 6.62%.

Explanation of Declaration of Conformity 2008

Pursuant to § 161 of the German Stock Corporation Act (AktG), on April 7, 2008 the Board and Supervisory Board made a Declaration of Conformity for the financial year 2008 as follows in accordance with Section 3.10 of the German Corporate Governance Code ("Code"):

Calling of Annual General Meeting (Code Section 2.3.2)

The Company does not use electronic means to notify the calling of the Annual General Meeting and provide notification documentation to financial service providers, shareholders and shareholder associations. The Company regards that it is sufficient to publish the call for the Annual General Meeting in the electronic Federal Gazette (Bundesanzeiger); notification documentation is available to shareholders on the Company's website and may be sent in paper form if requested.

D&O liability insurance

(Code Section 3.8)

The liability insurance for pecuniary damage (D& O insurance) purchased for Members of the Board and Supervisory Board does not have a contributory excess. The Company does not believe that an excess would have appreciable effect on the orderly undertaking of duties by Board Members.

Chairman or Spokesperson of the Board (Code Section 4.2.1)

The Board has not previously had a Chairman or Spokesperson. The Supervisory Board of the Company appointed a Spokesperson for the Board with effect from April 7, 2008. Therefore, in the future this recommendation of the Code will be met.

Variable remuneration for Board Members (Code Section 4.2.3)

The remuneration system for Board Members shall include variable remuneration components as from the financial year 2008, which are linked to the performance of the Company (EBT adjusted for one-off effects). Therefore, in the future this recommendation of the Code will be met.

Age limits for Board and Supervisory Board (Code Section 5.1.2; 5.4.1)

We think that technical abilities and availability of competence are more important for the selection of Members of both Boards than age. Therefore, we do not have age limits for Members of the Board and Supervisory Board.

By-laws of the Supervisory Board (Code Section 5.1.3)

The Supervisory Board does not have any by-laws. The Company's Articles of Association and the German Stock Corporation Law (Aktiengesetz) include comprehensive and adequate regulations regarding cooperation in the Supervisory Board.

Supervisory Board Committees (Code Sections 5.3.1; 5.3.2; 5.3.3)

The Supervisory Board does not have any committees. There is no audit committee or nomination committee. With only three Members of the Supervisory Board, there would be no sense in forming committees, as each Supervisory Board committee must in any case consist of three Members.

Performance-related remuneration of Supervisory Board (Code Section 5.4.7)

The Members of the Supervisory Board do not receive performance-related remuneration. We think this could potentially cause conflicts of interest with the supervisory and monitoring functions of the Supervisory Board.

Publication of interim financial statements and the consolidated financial statements (Code Section 7.1.2)

The consolidated financial statements shall be published within 120 days of the end of the financial year, and interim reports must be made publicly available within 60 days of the end of the relevant reporting period, unless a shorter period is stipulated by law. The publication deadlines recommended in the Code for consolidated financial statements and consolidated interim financial statements could not be met, as several foreign subsidiaries need to be included in the consolidated reporting.

Corporate Citizenship

In the sense of corporate citizenship, InTiCom Systems AG believes itself to be a part of society with social and corporate responsibility.

For this reason, the company also supported social and cultural establishments and institutions in the 2007 financial year, including athletic associations through donations and sponsoring in the region surrounding the company's headquarters in Passau.

InTiCom Systems also supported the European festival weeks in Passau in the past financial year, which was already in its third year of sponsorship by the company, with financial contributions for events as well as by purchasing a large contingent of tickets for employees and business partners and through a high share of advertising in the festival programs.

The company has also participated in the historical town party in Prachatice (the production location for the Automotive segment) in a similar way and with comparable sponsorship measures since the 2006 financial year; the corresponding funds were increased in the following financial year.

InTiCom Systems also once again considered schools and kindergartens by making donations, including funding for a student newspaper and measures for pre-school education. It also prompted other sponsors to make adequate games and learning programs available to pre-school age kids once again in 2007. With this support of education for children and youth, InTiCom Systems embraces its own understanding: the mediumsized company is characterized by a high degree of innovation potential and well educated and motivated employees.

In the field of athletics, the company also focuses on children's and youth teams. TSV Untergriesbach, TSV Erlau and TSV Obernzell were supported with the purchase of jerseys, balls and financial contributions to team trips; InTiCom Systems also pays for advertising in stadiums.

In the social and charitable area, the Bavarian Red Cross (BRK), parishes, Pro Familia and the Christmas Charity Gala of the Passauer Runde were considered with donations.

Overall the company raised more than 30,000 Euro for donations and sponsoring in 2007.

The employees at the Passau location were also active in 2007: the Christmas raffle benefiting the Passauer Lukas-Kern-Kinderheim for social and remedial support raised 1,100 Euro through the raffle for donated prizes. The money was used for therapeutic materials as well as trips and visits to movie theaters.

Combined management report and Group management report for the financial year ended December 31, 2007

Business activity

InTiCom Systems is among Europe's and Germany's market and technology leaders for products and solutions which are based on high-tech inductivity. The ability of a coil to produce voltage in its own windings by means of a magnetic field or, vice versa generate a magnetic field in a coil by means of voltage is utilized by the company in the following areas

• Non-contacting data transfer/RFID
• Shielding and interference suppression
• Modification of currents: voltage conversion, modulation, filtering
• Force generation by producing a magnetic field (electric motor)
• Generation of energy or electric power by movement in the magnetic field

as base technology for a large number of applications. The advantage of the passive inductive components: They do not require any additional energy source, such as mains current, accumulator or battery, for their functions and operate practically wear-free.

This technology is utilized in products for rapid data transfer in telecommunications (ADSL+, VDSL+, together: xDSL), which InTiCom Systems covers in its business segment Communication. The business segment Automotive develops and produces products, solutions and complete systems for sensor technology, electronic control and network topologies in automobiles. The segment Industry, which was newly established in 2007, supplies powerful chokes and transformers for inverters in solar and wind energy systems for increasing energy and cost efficiency as well as components and systems for household appliances (white goods), consumer electronics and industrial automation.

With its developments and products InTiCom Systems is involved in the following technology fields on the international market:

Telecommunications

For broadband Internet access via the existing and future telephone networks, InTiCom Systems develops and produces optimized solutions for ADSL and VDSL: Thus, network operators are meanwhile installing VDSL2 splitters for the service provider side in both copper and glass fiber-based regions. In addition to the technologically upgraded service provider side, since the middle of 2007 InTiCom Systems has been delivering the new VDSL+ subscriber splitters, which, due to their downward compatibility, support the transfer rates of ADSL2+ (up to 16 MBIT/s) as well as VDSL transfer rates (up to 50 MBIT/s).

Usually the base for all these products are very diverse specifications provided by existing as well as potential customers: On the one hand there are the national telephone companies, demanding splitters for the subscriber side; on the other hand system suppliers to the national telephone companies order splitters for the service provider side from InTiCom Systems.

Since last year the company has also been producing the plastic housings for these products on its own injection molding machines. This not only increased the own value-added, but also resulted in a further increased system competence.

In the past financial year slide-in plates and multiplier splitters, which InTiCom Systems delivers for the multifunctional housings on the street that bring VDSL nearer to the end consumers' households, complemented the Communication product range as third product group.

In the past financial year 2007 market development did not meet estimates and forecasts: By the end of the year 2007, in Germany roughly 19.1 million xDSL connections were provided – thereby approximately 40 percent of all German households had a xDSL connection. According to some forecasts, by 2010 the number of xDSL connections will amount to 22 to 24 million.

In 2007 the share of InTiCom Systems-Communication' main customer, Deutsche Telekom AG, including the so-called resellers who market Telekom xDSL connections under their own brand names, was about 64.4 percent, leaving about 35 percent of all connections to competitors with their own networks. In addition to the market leader Deutsche Telekom AG, almost all important competitors in Germany are supplied with xDSL splitters by InTiCom Systems.

International business with DSL, ADSL and VDSL splitters was not able to fully compensate the price decline in the German market: in 2007 the international market, which is mainly covered by InTiCom Systems' system partners, contributed nearly 45 percent to the accumulated total sales revenues of the segment Communication amounting to 33 million Euro.

The profit of the segment Communication was burdened by the loss of a Northern European telecommunication customer, resulting in an extraordinary loss to the amount of 1.4 million Euro due to already capitalized and performed development work and components for a very specific product development.

Automotive technology

The segment Automotive develops and produces products, solutions and complete systems for access authorization systems, safety systems and motor and energy management systems (for hybrid vehicles among others) for many vehicle classes starting from luxury limousines or high-end sports cars down to the reasonably priced compact class. The company supplies immobilizers, keyless entry and tire pressure monitoring systems or engine controls for hybrid automobiles to well-known German, French, American and Asian manufacturers or their system suppliers.

2007 the company segment Automotive contributed around 4.9 million Euro to total sales revenues. Now sales revenues to the amount of 7.0 million Euro are expected for 2008.

Numerous incoming orders from existing and new customers for keyless entry antennas, system components for hybrid motors or sensors for lifting solenoids prove this forecast realistic. In order to stay abreast of changes, the production space in Prachatice, Czech Republic, (located about one hour drive each from the headquarters in Passau and the engine development location Neufelden, Austria) which was already doubled in mid-2007, will be expanded once again by 2010 at the latest.

Industry

In the past financial year InTiCom Systems developed the additional new segment Industry: Automation technology, consumer electronics, "white goods"/household appliances and converter, respectively inverter technology as is needed for the conversion of wind and solar energy to electricity for the mains supply.

Thereby InTiCom Systems relies on its know how and the technology leadership the company has acquired in the fields of power converters and interference-suppression components, high-performance ferrites, coils and filters – existing synergies are consequently utilized. In the area of Automotive, these products control the engines of hybrid automobiles and transform the energy without losses if possible. The same principle is used for the inverters, which transform renewable energies into electricity – also with high efficiency, respectively little loss.

2007 the new business segment nearly contributed a quarter of a million Euro to total sales revenues; significant annual growth rates are to increase sales revenues to 10% of Group sales over the next 4-5 years.

In segment reporting this segment is accounted for under the item Others.

Market and market conditions Communication

In financial year 2008 and in the future the field of xDSL will continue to receive strong market impulses, which InTiCom Systems as market and technology leader will benefit from. By the end of 2008 the Deutsche Telekom is planning to already connect 28 cities to the VDSL network, with a rising tendency for 2009.

Since the beginning of 2007, InTiCom Systems has been supplying system suppliers with VDSL splitters for the service provider side and since the middle of 2007 for the subscriber side as well.

In Germany InTiCom Systems only has two serious competitors and undisputedly holds more than 50 percent of the entire market. Internationally the company competes with four relevant competitors; the market share in Europe amounts to more than 20 percent, world-wide the company holds more than 10 percent. The segment Communication continues to be coined by high price pressure, mainly from Asian competitors.

Automotive

The continuously growing demand for more comfort and safetyrelevant equipment in automotive engineering, not only in luxury class automobiles, but also in the medium-sized class and compact cars, creates growth potential for the business segment Automotive.

Thereby the company will strongly benefit from the future market for hybrid automobiles. The still intensive discussion on climate protection will increase the European automotive manufacturers' efforts to soon catch up with the Asian competition, which had been dominating the hybrid market until the end of 2007, nearly unchallenged.

Industry

As far as potential sales revenue growth is concerned, InTiCom Systems favours the following application fields: Renewable energies (solar and wind energy), consumer electronics, automation technology and "white goods". It is obvious that this list is spearheaded by the renewable energies: land-based and offshore wind parks are erected in the whole world and photovoltaic plants for the use of solar energy are built in the sunny regions.

The list of other new Industry customers, with whom InTiCom Systems is jointly developing and already manufacturing products, opens entrepreneurial potential. Among others, this includes Kathrein, the specialist for antennas and transmitters, Loewe, the high-end producer of consumer electronics, an important customer from the field "white goods" and Bizerba, the company that supremely reigns the world market for retail scales and industrial weighing technology.

Positioning InTiCom Systems

With regard to all product segments covered by InTiCom Systems, the constant innovations, the rapid technological progress and the rising expectations for performance parameters can only be met and achieved with the most recent and state-of-the-art production machinery.

Having developed and manufactured part of its own production machinery ever since its foundation in the year 2000, the company stayed abreast of those requirements through 2007 consistently as well: The staff number of the technology centre founded in Austria in 2005 for that purpose was raised from 10 to 13 until the end of 2007. In a concurrent measure, the capacity of product development in Passau was increased.

Due to the unique combination of materials science and production technology, the company succeeded in further extending and establishing its important unique selling propositions in 2007. This includes the cost leadership due to its high degree of vertical integration, the strong customer retention through own development of tailor-made solutions and products, professional project management creating good reaction speed as well as exact time-to-market and finally the no flaw philosophy for all products and processes.

Group sales development

At 38.1 million Euro, InTiCom Systems increased Group sales in 2007 by around 1.7 percent in comparison to the previous year (37.5 million Euro). The high expectations for a fast expansion did not come to fruition. In the lapsed fiscal year, sales revenues stabilized at around 38 million Euro. Revenue losses were the result of a customer relationship with a Northern European telecommunication company being omitted in the DSL segment. The shift of three assembly lines from Greek Thessaloniki to the new and, in 2007, heavily expanded production location of Prachatice, Czech Republic, weighed even more on revenues.

Once again the main sales pillar was the business segment Communication with a little more than 33 million Euro; Automotive contributed 4.9 million Euro and Industry nearly a quarter million Euro to sales.

Profit development

The earnings before interest and tax (EBIT) amounted to roughly 0.9 million Euro in the past financial year, compared to 2.3 million Euro in the previous year. The reason for this is the termination of one customer relationship in the xDSL business and the revaluation of receivables: Apart from lost profits, the termination of the two-year customer relationship resulted in impairment losses on capitalized development costs and components to the amount of roughly 0.8 million Euro, due to a very customer-specific product development. The case is currently being scrutinized from a legal point of view. Moreover, results are burdened to about 0.5 million Euro by a revaluation of customer and supplier relationships (especially receivables), which was conducted as part of the preparation of the financial statement.

The reduced net income resulted in earnings per share of 0.24 Euro (2006: 0.37 Euro), based on totally 4,287,000 shares outstanding.

The net profit margin of 2.7 percent turned out about a third below the prior-year level (4.2 percent), not least because of the significantly raised preparatory efforts within the context of capacity expansion, the advancement of degree of automation, the setup of the production site for automotive technology in the Czech Republic and the enhancement of the machinery thus made necessary.

Staff development

In 2007 the number of employees was raised from 155 as of January 1 by 52 percent to 236 by the end of the year. The personnel expenses amounted to 5.4 million Euro as compared to the previous year's expense of 4.3 million Euro.

The increased personnel expense is accounted for by the raised number of developers in Passau and the technology centre Neufelden, yet primarily by the staff development in Prachatice, where the doubling of production space and the expansion of production capacity resulted in the increase of employees from 90 to more than 150.

Research and development

Research and development expenses amounted to 1.9 million Euro in financial year 2007, as opposed to 1.8 million Euro in the previous year. The increase in expenses is based primarily on the capacity increase of product development in Passau as well as additional capacities for the Group's in-house development towards the provision of the company's own manufacturing technologies.

Capital expenditure

Capital expenditure for property, plant and equipment came to 6.3 million Euro in the past financial year as compared to 9.1 million Euro in the year before. Principal recipients of these expenditures were the production site in the Czech Republic (costs for construction and machinery) as well as the provision of new development capacity in Passau and Neufelden.

Non-current assets

Compared to the previous year (15.5 million Euro), the noncurrent assets of InTiCom Systems rose to 19.7 million Euro in 2007. This increase is due to the high capital expenditures for property, plant and equipment regarding production facilities. The intangible assets – most notably advancements in the segment Communication and developments in the Automotive segment, coming to 2.7 million Euro in 2006, increased to 3.6 million Euro.

Cash flow

The cash flow from operating activities of 4.6 million Euro (2006: 0.7 million Euro) is mainly coined by the active management of trade receivables. The capital expenditures for property, plant and equipment were financed in part from the operating cash flow as well as from current bank loans. These are subject to variable interest rates, whereas the non-current loans have fixed interest rates, partly reduced by promotion programs. The capital expenditure is therefore covered by solid mixed financing of equity and borrowed capital as well as the operating cash flow.

The Group's liquidity, comprised of securities marketable at any time (14.7 million Euro) and cash and cash equivalents (0.8 million Euro), added up to 15.5 million Euro in the year under review 2007, compared to the prior-year amount of 13.8 million Euro.

	Communication		Automotive		Others		Total
in EUR 000's	2007	2006	2007	2006	2007	2006	2007	2006
Sales Revenues	33,013	33,599	4,869	3,707	222	177	38,104	37,483
Depreciation/Amortization	1,342	900	773	154	13	0	2,128	1,054
EBIT	893	2,421	– 47	– 69	76	72	922	2,424
Segment assets	17,564	20,402	9,012	2,285	538	528	27,114	23,215
Segment liabilities	5,290	4,293	344	398	31	1	5,665	4,692

Segment report as of December 31

Secondary segment

	Domestic		International		Total
in EUR 000's	2007	2006	2007	2006	2007	2006
Sales revenues	18,005	15,274	20,099	22,209	38,104	37,483
Capital expenditure	2,517	4,369	3,772	4,729	6,289	9,098
Segment assets	8,201	10,607	18,913	12,608	27,114	23,215
thereof non-current assets	2,515	4,143	17,169	11,380	19,684	15,523
Employees	42	35	178	107	220	142

Equity

The shareholders' equity came to 25.9 million Euro (2006: 24.6 million Euro) as of the balance sheet date, corresponding with a very respectable equity ratio of roughly 59 percent (2006: 65 percent), guaranteeing the company's continued high reliability.

The parent company InTiCom Systems AG's net assets, financial position and results of operations

Income statement

After accounting for the profit carried forward from the previous year, this results in a net loss of 459 thousand Euro.

Balance sheet, assets

Profit and loss in EUR 000's	2007	2006	Change
Sales	40,716	39,242	1,474
Changes in inventories	399	– 289	688
Own costs capitalized	368	551	– 183
Gross revenue for the period	41,483	39,504	1,979
Material expense	36,217	34,305	1,912
Personnel expense	2,935	2,441	494
Depreciation/Amortization	417	279	138
Other operating income	– 2,648	– 2,167	– 481
EBIT	– 734	312	– 1,046
Financial result	91	207	– 116
Extraordinary result	0	– 288	288
Taxes	55	– 116	171
Net income	– 588	115	– 703
Profit carried forward	129	1,264	– 1,135
Appropriations in surplus reserve	0	1,250	– 1,250
Retained earnings	– 459	129	– 588

Sales and gross revenue for the period rose by 3.8 percent, respectively 5.0 percent to 40.7 million Euro respectively 41.5 million Euro. Thereby sales in the parent company are higher than Group sales, as the subsidiaries' sales contribution have been included, but not consolidated yet. The EBIT decreased by roughly 1.0 million Euro to –0.7 million Euro. The decrease can mainly be attributed to a disproportionately high increase of materials expenses due to products with low margins, staff expansions as well as preparatory efforts for product developments. The employment of more staff in the areas development and construction of new products in the segment Automotive resulted in an increase of personnel expenses. Allowances had to be made for preparatory efforts that will not result in the generation of future sales, burdening the other operating income. The decrease of the financial result has to be seen in connection with the provision of collateral for a KfW loan for financing the future expansion. All this resulted in a reduction of the net income by 0.7 million Euro to –0.6 million Euro. The positive consolidated result benefits from the capitalized development work performed. Therefore the parent company's disclosed losses are compensated.

in EUR 000's	2007	2006	Change
Intangible assets	160	120	40
Property, plant and equipment	2,355	4,023	– 1,668
Financial assets	5,430	5,429	1
Non-current assets	7,945	9,572	– 1,627
Inventories	1,198	134	1,064
Receivables and other current assets	10,777	7,408	3,369
Marketable securities	14,506	13,100	1,406
Cash on hand	749	475	274
Current assets	27,230	21,117	6,113
Prepaid expenses	89	6	83
Total assets	35,264	30,695	4,569

As of the balance sheet date 2007 InTiCom System AG's total assets increased by 4.6 million Euro. In spite of a reduction of non-current assets by 1.6 million Euro through the sale of finished machines in the context of the relocation to the Czech Republic, the increased total assets mainly resulted from the increase of receivables towards affiliated companies by 4.5 million Euro. Further the inventories rose due to the planned sale of machines under construction to subsidiaries, resulting in a reclassification from non-current to current assets.

Balance sheet, equity and liabilities

2007	2006	Change
4,287	4,287	0
15,719	15,719	0
1,349	1,349	0
– 459	129	– 588
20,896	21,484	– 588
286	174	112
14,082	9,037	5,045
35,264	30,695	4,569

Due to the net loss the equity was reduced by 2.7 percent to 20.9 million Euro. The pre-financing of the future business expansion through credit institutes resulted in an increase of liabilities by 5.0 million Euro.

Remuneration system of Board of Directors and Supervisory Board Remuneration of Board of Directors

In future the members of the Board of Directors will receive a fixed annual remuneration as well as a variable remuneration component after the closing of the financial year, which is dependent on the company's success. The amount is geared to remuneration usual in this business and the company size and shall be more or less the same for all members of the Board of Directors. Contributions to the Board members' retirement provisions are also made by means of payments to a relief fund. Each member is provided with a company car.

The Board members' contracts do not include any special commitment for the event of termination of the contract, nor do the contracts provide for a change-of-control clause. Commitments for future pension or annuity payments for the members of the Board of Directors do not exist.

The personalized remuneration for the Board of Directors is set forth in detail in the notes (page 58).

Remuneration of Supervisory Board

Section 11 of the Articles of Incorporation of InTiCom Systems regulates the remuneration for the Supervisory Board. The remuneration consists of a fixed portion and a fee for the attendance of Supervisory Board meetings. The Annual General Meeting may decide on a remuneration of the Supervisory Board members, which is oriented towards the company's retained earnings. However, no use has been made of this possibility so far. The chairman of the Supervisory Board receives an annual remuneration of 5 thousand Euro, the vice-chairman is paid 4 thousand Euro and the other members receive 3 thousand Euro. The attendance fee amounts to 500 Euro.

The personalized remuneration for the Supervisory Board is set forth in detail in the notes (page 58).

Disclosures pursuant to §289 (4) and §315 (4) German Commercial Code (HGB)

InTiCom Systems AG's authorized capital amounts to 4,287,000 Euro and is divided into 4,287,000 non-par value shares, which are issued to the bearer and constitute a share of 1.00 Euro in the capital stock per share. All stocks have the same voting and dividend rights. The stockholders' rights and obligations are set forth in detail in the provisions of the Stock Corporations Act (AktG), in particular in §§12, 53a et seqq., 118 et seqq. and 186 AktG.

Limitations to the voting rights of the stocks could result from the legal regulations (§§71b, 136 AktG). Apart from these, the Board of Directors is not aware of any limitations with regard to the exercise of voting rights or transfer of the stock.

The appointment and revocation of members of the Board of Directors is regulated in §§84 and 85 AktG. In accordance with the legal provisions (§179 (1) AktG) all changes to the Articles of Incorporation are subject to a resolution by the Annual General Meeting. According to §8 (4) of the Articles of Incorporation, the Supervisory Board is entitled to make changes to the Articles of Incorporation, if these changes only affect the version.

Pursuant to § 3 (3) of the Articles of Incorporation the Board of Directors is entitled to increase the company's capital stock with the approval of the Supervisory Board until June 6, 2009 by issuing new stocks against contribution in cash and/or kind once or repeatedly up to an amount of 471,000.00 Euro. Further in accordance with § 3 (4) of the Articles of Incorporation the Board of Directors is entitled to increase the company's capital stock with the approval of the Supervisory Board until May 24, 2012 by issuing new stocks against contribution in cash and/or kind once or repeatedly up to an amount of 1,672,500.00 Euro.

Further details on this can be found in §3 (3) and (4) of the company's Articles of Incorporation, which are published on the company's website in the section Investor Relations/Corporate Governance.

At InTiCom Systems a bonded loan to the amount of 5.0 million Euro as well as a delivery framework agreement in the area Automotive over several years to the total amount of 1.5 million Euro is subject to an extraordinary right to termination. In the event that the bonded loan has to be repaid, the respective liquidity is guaranteed through the proceeds from the securities which are marketable at any time. The termination of the delivery framework agreement would only have marginal consequences for sales and profits.

Risk Management and Risk Report

The monitoring, the analysis and the control of risks are essential elements of management and guidance instruments as is mandatory according to section 91, paragraph 2 of AktG (Corporations Act). The HGB (German Commercial Code) also stipulates reporting on the future development and the opportunities and risks involved.

Potential risks are registered, analysed and assessed with the installed risk management system from InTiCom Systems. Business activities are examined for opportunities and risks in planning meetings, and, on the basis of these findings, targets are derived, whose degree of realisation is controlled by a controlling and reporting system. The Board of Directors can actively access the specific report via the IT system and initiate adequate countermeasures.

An update is carried out regularly and from the multitude of individual presentations the monthly risk potentials become apparent. The risks are derived from the current operating activities of the separate segments and from the corporate targets. The Board of Directors deals with the presented facts in the subsequent Board meeting.

The efficiency of the risk management as a whole is regularly monitored and assessed. If potential for improvement is identified, the Board of Directors is notified and modifications are realised. Part of this installed systematisation and supervision is also that the entire risk management and early warning system is documented constantly and examined for effectiveness and usefulness for its purpose.

Market and price risks

In the business segments of Communication and Automotive, InTiCom Systems AG is active in segments which are dependent on the general economic fluctuations through a relatively constant market demand.

Despite the negative economic situation from 2000 to 2006, the Broadband segment, which included and still includes DSL, ADSL and recently VDSL technology, was a constantly growing market. The upturn of the general economic situation in last financial year 2007 will also stimulate demand in the current financial year. In 2007 the EU Commission had still not made a final decision regarding the question of regulating the DSL market – however Deutsche Telekom is currently installing more and more VDSL+ technology in German high population areas.

The position of InTiCom Systems AG as an OEM of splitters for the German VDSL network continues to gain strength thanks to this development: in the 2007 financial year, the production of VDSL+ filter coils in Prachatice was therefore increased to 500,000 units per week. The dollar, which continues to fall in value against the euro, could, however, create a price advantage for Asian producers. Fundamentally, the Telecommunications

segment, which continues to generate very high sales revenues, is actually subject to stronger sector-typical fluctuations than the Automotive and Industry segments.

The Automotive segment, which is currently being built up, is subject to the economic risks customary in these sectors. The wide diffusion of applications with end customers in the USA, Europe and Asia reduces the regional dependency and the dependency on unilateral currency risks.

Customer dependence

In 2007 the company generated about 32% of its splitter revenues with one customer on the user side, around 17% with five commanding system manufacturers on the service provider side. By the actively pursued internationalisation, InTiCom Systems has reduced its dependency on these key accounts over the past few financial years: for telecommunication companies and system partners in Italy, Spain, Norway, Greece, Croatia and overseas, splitters on the service provider-side have been developed and put into serial production.

In addition, thanks to the VDSL+ technology, in 2007 the company developed a new product area of larger insert plates, complete racks and MDF (main distribution frame) splitters: VDSL+ must move closer to households than xDSL and ADSL+ solutions by means of new MDF cabinets on the streets.

Technological risks

In the medium to long term a substitution of the splitter technology is conceivable thanks to the complete digitalisation of the fixed landline network. Solutions, which could endanger the operating success of InTiCom Systems AG, are either based on the television cable network, satellite transmission, the conventional power lines or cabling via fibre optics. The costs for a technical upgrade of the television cable network here are considerably higher than the upgrade to the existing copper telephone network for the VDSL+ technology. So far the power line has also not been able to catch on.

Similarly, fibre optic technology, which currently achieves the highest transmission capacities, requires immense investments for a Germany-wide roll-out. The change-over to copper cable requires households to again use converters and splitters, with which InTiCom Systems has so far supplied the market almost without any competition.

Personnel risk

InTiCom Systems was able to cope with the doubling of the production area from 2,000 to 4,000m2 and the related staff increase from 90 to over 150 employees at the main production location of Prachatice without any major problems. Another staff increase, which the probable extension via a third production hall planned for 2010 will bring about, could, however, be problematic as more and more manufacturing companies are locating in and around Prachatice.

InTiCom Systems is trying to counteract the resulting threat of a personnel shortage by means of a tariff model, social benefits and numerous training and advanced training programmes: this way, on the one hand, the fluctuation is reduced, and on the other hand the company positions itself as an employer that offers long-term security and career opportunities.

Financial risks

Financial risks are fundamentally a result of orders in foreign currencies and of the Group's financing activities.

Liquidity risk of the Group and the situation on the capital market

InTiCom currently holds a bonded loan at a leading German commercial bank as well as a KFW loan (Reconstruction Loan Corporation). Both loans function as measures of safeguarding long-term liquidity. The portfolio of marketable securities and instruments close to the money market exceeds this amount and creates further scope for credit in case of necessity. The positive cash flow reduces the risk of liquidity bottlenecks even more. This results in a solid liquidity position for the company. Due to the solid liquidity position and the latest performance of the share price, an additional liquidity supply to the Group through the money market is no reasonable alternative at this time.

Currency risk of the Group

The currency risk of InTiCom is, for the most part, subject to operating costs for the production in the Czech Republic and scattered customer contracts in USD. Due to the low USD sales volume in 2007 the Group decided to dispense with hedging. The USD exchange rate weakened vis-à-vis the euro from 1.317 US\$/€ on December 31, 2006 to 1.472 US\$/€ on December 31, 2007. Orders in 2007 and future new orders have lower margins in euro on the basis of the now weaker USD, provided that the weakening of the dollar cannot be completely passed on via price increases. Furthermore, the competitive pressure with companies that produce in the dollar zone and that can export cheaper to the euro zone due to the more favourable exchange rate can increase. Such effects are only compensated for to a very small extent due to currency-adjusted material and raw material purchases made cheaper in the dollar zone or to goods which are predominantly invoiced in dollars.

InTiCom's production in the Czech Republic uses goods from the euro and USD zone. Deliveries to InTiCom Systems AG and external manufacturers, which carry out the outsourced production steps, are almost exclusively denominated in euro. The currency risk for Czech Koruna is thus limited to the local wages and general expenses share. Hedging was also dispensed with in this case too. The risk is a further rise of the Czech Koruna – provided that this cannot be absorbed by increases in efficiency, material price reductions or in price increases.

The interest rate risk from short-term interest rate changes is limited on the side of the two large loans because of the maturities of 10 years for the KFW loan and 7 years for the German commercial bank loan. A large part of the Group's debt continues to be based on fixed interest rates. In 2007 InTiCom held money market bonds, which were distributed as securities amongst several companies for the diversification of risk. These bonds are subject to the usual market risks from interest rate fluctuations. On the asset side, InTiCom has switched its financial instruments to money market instruments. This started in 2007. By doing this, the existing valuation risks for bonds and equity investments were reduced. The current advantageous market interest rates make this type of investment, however short-term it may be, seem appropriate. As a result of this, there is actually a dependency on the short-term money market with regards to interest income – with the risk of generating only low interest income in the case of a sinking interest rate level. A capital investment guideline was passed documenting this conservative investment strategy.

Equity market risk

In 2007 InTiCom Systems held an individually looked after equity portfolio and a mixed portfolio with an 8% equity share. The individual equity portfolio was hedged in order to limit the amount of the share price risk. In accordance with the new capital investment guideline, these portfolios were dissolved in January 2008 and the amount was invested in money market instruments.

InTiCom encountered credit risks (default risks for receivables) with credit rating checks on its customers. Because of the market concentration on few big companies in the Telecommunication segment and tier-1 suppliers in the Automotive segment, a clear overview of the risks can be attained. With the increasing growth of the Industry business segment, it has to be checked whether this is also accompanied by a large spread of the customer base, and whether these customers can show similarly good creditworthiness as in the other two business segments. The company has so far dispensed with the purchase of credit insurance due to the customer structure described. Currently, loans are not granted by InTiCom Systems.

Opportunities: product diversification…

Despite the longstanding years of growth in the DSL, ADSL and now VDSL+Splitter business, a downturn in demand could have an unfavourable effect on the company.

In order to tackle this risk, InTiCom Systems has diversified in the business segment of Automotive as a second leading revenue source. Besides RFID production solutions for vehicle entry authorisation systems (remote keyless entry) and security and monitoring systems (tyre pressure control or power steering) the company also supplies components and systems for engine and energy management systems (among other for hybrid vehicles) and the traditional mountings and assembling: InTiCom Systems produces these products for many vehicle classes worldwide from the luxury car class or the high-end sports car to the compact class. Within almost two years the company has succeeded in acquiring well-known German, French, American and Asian producers as customers (or respectively their system suppliers) – it was able to win numerous orders in 2007, which will all go into serial production in the current 2008 financial year. Their durations usually amount to between five and eight years; this order inflow is so far continuing into 2008 as well.

The pricing pressure which the automobile manufacturers exert on their component suppliers could, however, affect the margins of InTiCom Systems and reduce the operating success. An undisputed technological top position is therefore of the greatest importance, as the company could only possibly sustain a pure competition on price conditionally.

In order to reduce this dependency, the Industry company segment will be developed further in 2008, a course that had already been set in 2007. In this new business segment, InTiCom Systems develops and produces components and products for automation, consumer electronics, "white goods"/household appliances and converter and inverter technology, which is necessary for the transformation of wind and solar energy into electricity suitable for the national grid. The first noteworthy sales revenues will be generated here in 2008.

…and synergies

In this respect, the know-how and the technology leadership are exploited, which the company possesses in matters of power transfer and interference suppression components, high performance ferrite, coils and filters. In addition available synergies are used, as for example the energy conversion for hybrid vehicles for the conversion of wind and solar energy into electricity. This know-how transfer and synergies permanently takes place among all company and technology segments and results in existing products and solutions initiating new applications.

This interaction is supported by the company's decision to locate product and machine development to Passau and to Neufelden in Austria, and to form an almost isosceles triangle of production with the production facilities in Prachatice, where each site is a maximum of 80 kilometres from each other: the distance between development and production and the fact that the facilities in Prachatice produce for all three business segments, favours and creates synergies.

In addition, this country triangle assures fast communication and easy accessibility: neuralgic points, which endanger an undisturbed production flow or large unit quantities, can be solved within a short amount of time – without tedious travel times, without problems with comprehension and at low costs.

Subsequent Events

to special procedures after the closure of the 2007 financial year

On April 1, 2008 the Supervisory Board appointed Mr. Walter Brückl as a member of the Board of Directors. Since then Mr. Brückl, as Spokesman for the Board, has been responsible for the functional areas of strategy, production, investor and public relations and thus takes the burden off the existing Board of Directors in these so far jointly perceived functions. Apart from his comprehensive expertise as CEO, member of the board and managing director in international and listed technology companies, Mr. Brückl also brings with him to InTiCom Systems detailed sector knowledge of the automotive industry.

Outlook

The 2008 financial year brings with it fundamental changes for InTiCom Systems which will create a solid base for profitable growth in the coming years.

This is why the Company has started to evaluate the customer structure and let orders with less value-added and low margin contributions expire. This forgoing of sales revenues with low EBIT contributions will be systematically continued in order to release resources and capacities that can positively influence the growth in the volume segments with high value-added and correspondingly the result.

The total sales of the Company in the 2008 financial year will be slightly reduced vis-à-vis the previous year due to the loss of the customer relationship with a Northern European telecommunications provider.

The consistently slightly growing VDSL+ business cannot compensate for the loss of the abovementioned customer relationships in the Communication segment over the year. The orders received so far for service provider and end customer splitters and other components and systems are expected to lead to a sales and earnings reduction in this business segment.

In the Industry business segment, the positive development of the customer relationships and the resulting first orders for the serial production, mainly in the area of products and solutions for renewable energies (solar and wind energy), form the basis of the expected continuing growth. In the coming 4-5 years the sales revenues should increase to 10% of total sales revenues.

The business segment Automotive will provide a substantial contribution to sales revenues and earnings in 2008. The company expectations are already at 7.0 million Euro for 2008. In Q1 2008, InTiCom Systems was able to conclude the contract for the supply of keyless entry systems for all platforms of a wellknown German OEM of the highest luxury class to the compact car. These other entry authorisation systems will be produced in Prachatice from 2009 and represent an annual sales revenues volume of around 2 million Euro; the contract runs over a period of at least five years.

The production for a whole range of other orders for large international manufacturers in the Automotive segment also begins in 2008. These orders are orders with a duration of five years plus:

• From the middle of the year, the company will produce keyless entry components for a North American Group. The value at the start of production amounts to 1.2 million Euro p.a., which covers a penetration rate of 15% of all model series. In the medium term, the penetration rate should be increased to 100% and also – from safety reasons – if necessary, a second source supply will be established; InTiCom Systems will continue to supply the principal share though.
• Likewise, from the middle of the year, production will begin on around 250,000 modules p.a. for so-called start-stop units for a large German OEM.
• In Q3 2008 the Company will start the serial production of system modules for a new generation of hybrid engines for a well-known systems supplier. The use of these components in a variety of vehicle series of a prominent German OEM is already certain; the take-up of the product in other vehicle models and platforms is scheduled.

• Around the end of 2008, InTiCom Systems will produce keyless sensors on behalf of one of the top 10 system suppliers, which will be used in two different vehicle types with a total of five model ranges.

The course for the increase of value-added and the improvement of the earnings has been set. Another extension of the production capacities in 2008 will likewise contribute to this, as will significant changes in the internal company structure:

All processes of the value chain – from customer acquisition and support, through to administration, logistics, production and quality control to absolutely on schedule deliveries– should be optimised.

Passau, March 7, 2008

Board of Directors

The Group Management Report Financial Statements Notes

Consolidated financial statements

for the fiscal year ended December 31, 2007

• Transponder; immobilizer; electronic ignition switch
• Keyless entry systems

Consolidated income statement

of InTiCom Systems according to IFRS/IAS

for the fiscal year ended December 31, 2007

	Notes	Fiscal year in EUR 000's	Previous year in EUR 000's	Change 2007/2006 in %
Sales	3	38,104	37,483	1.7%
Other operating income	5	446	242	84.3%
Changes in finished goods and work in process inventories	10	311	– 39	–
Other own costs capitalized		1,966	1,896	3.7%
Material expense		29,752	29,629	0.4%
Personnel expense		5,391	4,291	25.6%
Depreciation	8	2,128	1,054	101.9%
Other expenses	5	2,676	2,308	15.9%
Operating income		880	2,300	– 61.7%
Finance expenses		520	176	195.5%
Other finance income		444	296	50.0%
Earnings before taxes		804	2,420	– 66.8%
Income taxes	6	– 229	851	–
Net income		1,033	1,569	– 34.2%
Earnings per share (diluted/basic, in EUR)	7	0.24	0.49	– 51.0%
EBITDA		3,008	3,354	– 10.3%

Cash flow

Consolidated cash flow statement of InTiCom Systems according to IFRS/IAS

for the fiscal year ended December 31, 2007

	Notes	Fiscal year in EUR 000's	Previous year in EUR 000's
	Net income	1,033	1,569
+	Depreciation 8	2,128	1,054
+	Other non-cash transactions	222	242
–	Decrease in depreciation 15	149	42
+/–	Increase / Decrease of assets not attributable to investing or financing activities
	Deferred taxes 6	– 68	– 183
	Inventories 10	– 674	– 253
	Trade receivables 11	935	– 3,845
	Other assets	29	1,749
+	Increase / Decrease in liabilities not attributable to investing or financing activities
	Deferred taxes 6	– 101	804
	Trade payables	656	1,519
	Other liabilities	264	– 1,953
	Cash flow from operating activities	4,573	745
–	Capital expenditures for intangible assets 8	– 1,681	– 1,705
–	Capital expenditures for property, plant and equipment 8	– 4,608	– 7,393
+	Disposal of financial assets	0	33
–	Increase in financial assets within the context of current financial planning 17	– 1,451	– 4,095
	Cash flow from investing activities	– 7,740	– 13,160
+	Payments-in from taking out loans and entering into finance lease agreement	7,080	2,875
–	Payments-out for repayment of loans and in fulfillment of finance lease agreements	– 3,624	– 767
+	Payments-in from contributions to capital	0	9,323
	Cash flow from financing activities	3,456	11,431
	Total cash flow	289	– 984
	thereof tax expense	– 145	– 528
	thereof interest expense	– 443	– 176
	thereof interest income and other income	359	240
	Cash and cash equivalents at beginning of period 12	545	1,529
	Cash and cash equivalents at end of period 12	834	545

Consolidated balance sheet

of InTiCom Systems according to IFRS/IAS

as of December 31, 2007

Assets Notes	Fiscal year in EUR 000's	Previous year in EUR 000's
Non-current assets
Intangible assets 8	3,567	2,710
Property, plant and equipment 8	16,117	12,813
Deferred taxes 6	663	595
Total non-current assets	20,347	16,118
Current assets
Securities 9	14,702	13,251
Inventories 10	1,557	883
Trade receivables 11	5,874	6,809
Tax assets	343	242
Other current receivables 11	191	321
Cash and cash equivalents 12	841	557
Total current assets	23,508	22,063
Total assets	43,855	38,181

Equity and liabilities	Notes	Fiscal year in EUR 000's	Previous year in EUR 000's
Equity
Capital stock	12	4,287	4,287
Paid-in capital		15,088	15,088
Surplus reserve	12	5,996	4,963
Currency translation reserve		498	276
Total equity		25,869	24,614
Non-current liabilities
Non-current interest-bearing liabilities	14	8,955	1,875
Other non-current liabilities	14	1,744	2,367
Deferred taxes	6	1,479	1,580
Total non-current liabilities		12,178	5,822
Current liabilities
Other current accrued liabilities	15	327	178
Tax liabilities	15	0	3
Current interest-bearing liabilities	15	6	3,012
Trade payables	17	5,010	4,354
Other current liabilities	15	465	198
Total current liabilities		5,808	7,745
Total equity and liabilities		43,855	38,181
Equity ratio		59%	65%

Consolidated statement of changes in equity

of InTiCom Systems according to IFRS/IAS

from January 1, 2006 to December 31, 2007

As of January 1, 2006
Capital increase
Capital increase from the company's own resources
Currency translation reserve
Net income 2006
As of December 31, 2006 / January 1, 2007
Currency translation reserve
Net income 2007
As of December 31, 2007

	Currency translation
Total equity EUR 000's	reserve EUR 000's	Surplus reserve EUR 000's	Paid-in capital EUR 000's	Capital stock EUR 000's
13,480	146	3,394	8,640	1,300
9,435	0	0	9,306	129
0	0	0	– 2,858	2,858
130	130	0	0	0
1,569	0	1,569	0	0
24,614	276	4,963	15,088	4,287
222	222	0	0	0
1,033	0	1,033	0	0
25,869	498	5,996	15,088	4,287

Notes

to the consolidated financial statements of InTiCom Systems AG for the fiscal year 2007

1 General notes

InTiCom Systems AG was founded on August 16, 2000 and is entered in the register of companies kept at the District Court Passau (HRB 3759). The Company has been listed in the Prime Standard of the Frankfurt/Main stock exchange since November 8, 2004.

InTiCom Systems specializes in products and solutions in the field of high tech inductivity. The business units are Communication with applications for the fast exchange of data based on ADSL and VDSL technology, Automotive with solutions and systems for sensorics, electronic control, and network topologies, and other industrial applications with inductors and transformers used in inverters for solar and wind power plants.

The Company's headquarters is located in Passau, Germany. The business address is InTiCom Systems AG, Spitalhofstraße 94, 94032 Passau. The Company has investments in companies in Greece, Austria, and Czechia.

2 Accounting policies and valuation methods

Accounting standards

The consolidated financial statements of InTiCom Systems have been prepared in accordance with the International Financial Reporting Standards (IFRS) as applicable in the European Union (EU) and completed with the statements required by German commercial law in Section 315 a (1) HGB (Commercial Code).

The Company's fiscal year is the calendar year. The balance sheet distinguishes between non-current and current assets and liabilities, partially accounted for in the notes in detail according to maturity. The income statement has been prepared in accordance with total cost accounting. The consolidated financial statements have been prepared in Euro.

The financial statements of InTiCom Systems AG and its subsidiaries are included in the consolidated financial statements in compliance with the Group's consistent accounting policies and valuation methods.

6 Power and engine management control (e.g. hub magnets for common rail diesel engines)

Updates in international accounting according to IFRS

The first-time application of IFRS 7: "Financial Instruments: Disclosures" improves the quality and quantity of information on financial instruments. Disclosures of the scale of risks involved in the use of financial instruments including specified required information about credit, liquidity and market risks as well as sensitivity analyses complete the presentation of existing market risks. The new Standard supersedes IAS 30: "Disclosures in the Financial Statements of Banks and Similar Financial Institutions" and disclosure requirements framed by IAS 32: "Financial Instruments: Presentation".

This Standard's application has resulted in extensive notes to this year's consolidated financial statements.

Application of the following new or revised Standards and Interpretations is mandatory as of or after January 1, 2007:

• IFRS 7 "Financial Instruments : Disclosures"
• IFRIC 7 "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies"
• IFRIC 8 "Share-Based Payment"
• IFRIC 9 "Reassessment of Embedded Derivatives"
• IFRIC 10"Interim Financial Reporting and Impairment"

With the exception of IFRS 7, the application of the above regulations has no effect on the consolidated financial statements.

IFRS 8: Operating Segments, superseding the previous IAS 14: Segment Reporting, contains new regulations for the presentation of segment reporting. According to IFRS 8, segment reporting shall be presented according to the so-called management approach. The management approach bases the definition of segments and segment statements on the information used internally by the company's management for resource allocation and performance assessment of the business units. The application of IFRS 8 is mandatory for the fiscal years beginning on or after January 1, 2009.

InTiCom Systems has decided to apply IFRS 8 ahead of schedule for the company's first-time presentation of segment reporting.

Principles of consolidation

The consolidated financial statements include the financial statements of InTiCom Systems AG and its subsidiaries as of December 31 of the respective fiscal year. In applying consistent accounting policies and valuation methods, the subsidiaries' financial statements are prepared as of the same balance sheet date as the parent company's financial statements.

All Group-internal balances, transactions, income, expenses, gains and losses originating from Group-internal transactions included in the book values of assets and liabilities are eliminated to the full amount.

Subsidiaries enter full consolidation from the time of acquisition, i.e. as of the date the Group obtains control over the subsidiary. The inclusion in the consolidated financial statements ends as soon as the parent company no longer exercises control over the subsidiary.

Summary of essential accounting policies and valuation methods

Foreign currency translation

The consolidated financial statements are prepared in Euro, the Group's functional and accounting currency. Each company within the Group determines its own functional currency. The items included in each company's financial statements are valuated in applying this functional currency. Foreign currency transactions are initially translated at the exchange rate of functional currency and foreign currency valid as of the day of the business transaction. Monetary assets and liabilities in a foreign currency are translated into the functional currency at closing rates as of balance sheet date. All foreign exchange rate differences are stated in the income statement for the period. Non-monetary items valuated at their attributable time values in foreign currency are translated at the exchange rate valid as of the time of determining the attributable time value.

The Czech subsidiary's functional currency is the Czech Crown. Assets and liabilities of this subsidiary are translated for the accounting of InTiCom Systems AG (Euro) at the exchange rate as of balance sheet date. Income and expenses are translated at the fiscal year's weighted average exchange rate. The exchange rate differences resulting from this translation are recorded as separate components of equity. In case of the sale of a foreign business enterprise, the cumulative amount recorded for this foreign business enterprise in equity is eliminated in the income statement. The following exchange rates were decisive for the consolidated financial statements:

	Currency Country	Balance sheet date exchange rates		Average exchange rates
		2006	2007	2006	2007
		1 Euro	1 Euro	1 Euro	1 Euro
CZK	Czechia	27.49	26.63	28.34	27.77

Property, plant and equipment

Property, plant and equipment are recognized at acquisition or production costs – with the exception of ongoing maintenance costs – less cumulative systematic depreciation and accumulated impairment expenses. These costs include costs for the replacement of a part of such an asset by the time the costs incur if the valuation criteria are fulfilled.

The book values of property, plant and equipment are examined for impairment as soon as indicators show that an asset's book value may exceed its recoverable amount.

An asset is eliminated either at its disposal or at the time no economic benefit is expected from the asset's continued use or its sale. Gains or losses resulting from the asset's elimination are determined by the difference between net sale proceeds and book value, and they are recorded in the income statement for the period in which the asset is eliminated.

The assets' residual values, useful lives, and depreciation methods are reviewed at the end of each fiscal year and adjusted if necessary.

Systematic depreciation is realized according to the straight-line method over the following useful lives:

Vehicles, other facilities, furniture and office equipment	3 – 14 years
Technical facilities and machines	5 – 8 years
Equipment, plants and office buildings	10 – 30 years

The costs of any major machine maintenance are recorded in the asset's book value as replacement as far as the valuation criteria are fulfilled.

Subsidies

Subsidies (investment grants) are deducted from the acquisition costs of the subsidized asset. A disclosure of the subsidies under liabilities is not provided.

Borrowing costs

Borrowing costs are recorded as expenses in the period in which they incur.

Intangible assets

Separately acquired intangible assets are recognized upon firsttime valuation at acquisition or production costs. After their initial valuation, intangible assets are valuated at their respective acquisition or production costs less cumulative depreciation and all accumulated impairment expenses. Self-created intangible assets are not capitalized with the exception of development expenses. Related costs are recorded in the income statement for the period in which they incur.

First it must be established if the intangible assets have limited or unlimited useful lives. Intangible assets with limited useful lives are depreciated over their economic useful lives and examined for possible impairment as soon as indicators suggest that the intangible asset might be impaired. The depreciation period and the depreciation method for an intangible asset with a limited useful life are reviewed at the end of each fiscal year, if not more often. If an asset's expected useful life or an asset's expected depreciation curve has changed, a different depreciation period or a different depreciation method is applied. Changes of this kind are regarded as changes of an estimate. Intangible assets are depreciated over three to five years.

Research and development expenses

Research expenses are charged to expense in the period in which they have incurred. An intangible asset resulting from development within the framework of a single project is included only if the group can prove both the technical feasibility of the intangible asset's completion, so that it can either be used within the group or sold, and the intent to complete the intangible asset and to either use or sell it. The group shall also substantiate the generation of future economic benefit by this asset, the availability of resources required for the asset's completion, and the capability to reliably establish the expenses incurred by the intangible asset over its development. After the initial recognition of development expenses, the acquisition cost method is applied, according to which the asset is to be valuated at acquisition costs less cumulative depreciation and accumulated impairment expenses. The capitalized amounts are depreciated over the term for which sales revenues are expected to be gained from the respective project.

InTiCom Systems enters the respective business segments' development projects in the balance sheet if the capitalization criteria are met. The production costs of the self-developed projects contain adequate portions of overhead costs in addition to direct costs. The capitalized projects are depreciated according to their useful lives over three to five years in applying the straightline method.

Impairment of assets

The book values of intangible assets and property, plant and equipment are examined for indicators for impairment as of each balance sheet date. If there are such indicators, an impairment review is carried out. The respective asset's recoverable amount is established and compared to its book value.

According to IAS 36, the recoverable amount either corresponds to the attributable time value less costs of sale or the value in use. The higher of both amounts is used. The value in use equals the cash value of the expected free cash flows before taxes. The discount interest rate applied is a customary interest rate before taxes. If no recoverable amount can be determined for an individual asset, the recoverable amount is established for the smallest identifiable group of assets (cash generating unit – CGU) which includes the respective asset and generates independent cash flows. If the asset's book value exceeds its recoverable amount, the asset's impairment is recognized in the income statement directly. If subsequent to impairment a higher recoverable amount is determined for the asset or the CGU at a later time, the book value is written up to the recoverable amount at most. The write-up is limited to the book value which would have been stated without prior impairment. The revaluation is recognized in the income statement.

Because of one customer's discontinued orders, the company had to assume the lasting impairment of a capitalized development project. As a result of the performance of an impairment review, a complete value adjustment of the development expenses was carried out.

Financial investments and other financial assets

According to IAS 39, financial assets are classified as financial assets valuated at attributable time values affecting the net income, as loans and receivables, investments held to final maturity, or financial assets held as available-for-sale. Upon their first-time recognition, financial assets are valuated at their attributable time values. The group establishes the classification of its financial assets with their initial valuation and reviews this classification at the end of each fiscal year as far as this proceeding is admissible and adequate.

Financial assets valuated at attributable time values affecting the net income

Financial assets classified as held for trading are included in the category "financial assets valuated at attributable time values affecting the net income". Financial assets are classified as held for trading if they have been acquired with the intent of sale in the near future. The securities stated in the consolidated balance sheet are classified as held for trading.

Inventories

Inventories are valuated at their acquisition or productions costs or the lower recoverable net amount.

The recoverable net amount is the estimated recoverable amount as attainable in the regular course of business less estimated costs for completion and estimated necessary distribution costs.

Allowances have been made for outdated inventories and inventories of low turnover ratios.

Trade receivables and other receivables

Trade receivables, usually bearing a term of 14 to 90 days, are valuated at their original invoice amount less an allowance for bad debts. An allowance is made if there is objective substantial indication that the group might not be able to collect the debt. Receivables are eliminated as soon as they are considered bad debts.

Cash and cash equivalents

Cash and current investments recorded in the balance sheet include cash on hand, cash in banks, and current investments with original maturities of less than three months.

For the purpose of preparing the consolidated cash flow statement, cash and cash equivalents include cash as defined above, current investments, and current account advances.

Leasing agreements

The statement if a certain agreement is or contains a leasing agreement is made on the basis of the agreement's economic matter and requires an appraisal whether the completion of a contractual agreement is dependent on the use of a certain asset or certain assets and if the agreement allows for the right to use said asset or assets.

Group as lessee

Finance lease agreements, by which essentially all risks and opportunities inherent in the ownership of the assigned asset are transferred to the group, are capitalized as of the beginning of the leasing agreement at the leased item's attributable time value or the lower cash value of the minimum lease payments. Lease payments are divided into their components finance expense and repayment of lease debt so that the remaining residual book value of the lease debt is charged with a constant interest rate. Finance expenses are charged directly to expenses.

Lease payments within operating lease agreements are charged to expenses over the leasing agreement's term under the straightline method.

Provisions

Provisions are made for all legal or factual obligations to third parties with historic origins as of balance sheet date if the disposal of group resources of economic use for the fulfillment of the obligation appears probable or a reliable estimate of the obligation's amount is possible. They are contingent obligations to be valuated on the basis of the best possible estimate. Provisions with remaining terms of more than twelve months are discounted at market interest rates which correspond with the contingency risk and the period until fulfillment. Provisions for liabilities (accruals) are not specifically reclassified by InTiCom Systems.

Obligations and current interest-bearing payables

Obligations and current interest-bearing payables are valuated at continued acquisition costs, i.e. their valuation is based on the amount of their repayment or fulfillment. Their elimination is realized under the straight-line method or corresponding to the fulfillment of the obligation.

Income recognition

Income is recognized by the time it appears probable that the value in use will benefit the group and that the amount of the income can be determined reliably. In addition, the following valuation criteria must be fulfilled for realizing the income:

Income from the sale of goods and products is recognized by the time the substantial risks and opportunities inherent in the sold goods and products have passed over to the purchaser.

Interest income is recognized by the time the interest is incurred.

Taxes

Effective tax relief claims and tax liabilities for the ongoing period and for previous periods are valuated at the amount to which tax relief from the tax authorities or tax payments to the tax authorities is expected. The calculation of the amount is based on the tax rates and tax laws in effect as of balance sheet date or to be in effect in the near future.

Deferred taxes are provided by applying the asset and liability method to all temporary differences between an asset's or liability's valuation in the balance sheet and the tax valuation as of balance sheet date.

Deferred tax liabilities are recognized for all taxable temporary differences.

Deferred tax assets are recognized for all tax-deductible temporary differences, not yet realized tax loss carry-forward, and unrealized tax credit to the amount it appears probable that there will be taxable income against which the deductible temporary differences and the unrealized tax loss carry-forward and tax credit can be used.

The book value of deferred tax assets is reviewed as of each balance sheet date and reduced to the extent it appears no longer probable that sufficient taxable income will be available against which the deferred tax asset can be made use of at least in part. Not recognized deferred tax assets are reviewed as of each balance sheet date and valuated at the amount it has become probable that future taxable income will make the realization of the deferred tax asset possible.

Deferred tax assets and liabilities are calculated by applying the tax rates expected to be in effect for the period in which an asset is realized or an obligation is fulfilled. In doing so, those tax rates (and tax provisions) are applied which are either in effect or announced as of balance sheet date.

Income taxes on items charged directly to equity are recognized in the equity statement rather than in the income statement.

Deferred tax assets and deferred tax liabilities are offset against each other, provided the group has an enforceable claim for the offset of effective tax relief claims against effective tax liabilities and these regard to income taxes on the same tax subject, raised by the same tax authority.

Sales revenues, expenses, and assets are valuated after the deduction of sales tax. Exceptions to this proceeding are as follows:

• If sales tax incurred by the purchase of goods or services cannot be collected by the tax authorities, the sales tax is recognized as part of the asset's production costs or part of the expenses;
• receivables and payables are recognized with the included sales tax amounts.

The sales tax amount reimbursed by or paid to the tax authority is recognized in the balance sheet under receivables and liabilities.

Management assessment and estimates

The preparation of consolidated financial statements according to IFRS requires assumptions and estimates to be made with regard to the valuation of recognized assets and liabilities, income and expenses, and the disclosures of contingent liabilities.

The group operates globally and is subject to respective national tax law. There is a scope of assessment for the management's calculation of effective and deferred taxes in the various countries. Even though the management is convinced it has made a sound judgment of tax imponderables, it cannot be guaranteed that the actual outcome of such tax imponderables will correspond with the initial assumption. A divergence of the actual results from the assumption might have an effect on tax liabilities and deferred taxes in the period in which this matter is decided. The recognized deferred tax assets might decrease if the assumed values of the planned tax income or the tax advantages achievable by the application of tax strategies are reduced, or if changes of present tax legislation limit the scope of the realizability of future tax advantages.

One of the essential management estimates regards the determination of use values for the realization of impairment reviews for capitalized development expenses. Even though the management is convinced that the assumptions used for the calculation of recoverable amounts are adequate, unforeseeable changes of these assumptions might lead to impairment expenses that might have a negative effect on the company's financial position and results from operations.

All assumptions and estimates are based on the circumstances and appraisals as of balance sheet date. For the assessment of the future business development, the future economic framework regarded realistic as of balance sheet date in the industries and regions of relevance to the group has also been taken into consideration. By the development of these general conditions, if diverging from the assumptions, the actual profits might differ from the estimated amounts. If such is the case, the assumptions and, if necessary, the book values of the assets and liabilities concerned are adjusted accordingly.

By the time of preparation of the consolidated financial statements, material changes of the assumptions and estimates applied cannot be assumed, so that from a present viewpoint no material adjustments of the recognized assets and liabilities are to be expected in the fiscal year 2008.

Earnings per share

The basic/diluted earnings per share are determined by dividing the income attributable to the common stockholders by the weighted average number of common stocks outstanding over the period.

Subsequent events

Subsequent events, occurring after the balance sheet date and providing additional information on the corporate situation as of balance sheet date (events leading to adjustments), are recognized in the balance sheet. Subsequent events not leading to any adjustments are reported in the notes to consolidated financial statements if material.

Time of release for publication

The Board of Directors of InTiCom Systems AG expects to release the company's consolidated financial statements on April 18, 2008.

3 Segment reporting

Segment reporting is provided for the first time as certain segments have exceeded the threshold to materiality. The preparation has already been based on IFRS 8. Compliant with the internal reporting structure of the group, certain items of the consolidated financial statements are presented according to business units and regions. By this segmentation the profitability and the financial positions of the group's separate activities and various regions are meant to be made transparent.

Segments according to business units

Communication

This business unit includes the fast transfer of data via DSL splitters. The group's activities focus on the development, production and sale of splitter hardware for the service provider side as well as for private residences. The manufacture of the splitters is realized together with cooperation partners and includes the essential assemblies. Production locations are situated in Greece and Czechia. The customer portfolio includes all major telecommunication providers. Three individual customers represent more than 10% of segment sales each.

Automotive

The Automotive segment includes the development, construction, and manufacture of solutions and systems for sensorics, electronic control, and network topologies. A major portion of these products is manufactured in the group through all production stages, involving plastics engineering, winding, soldering, welding, and testing technologies, as well as grouting and assembly technology. Among the customers are automotive suppliers of all major car makers. Three individual customers represent also more than 10% of segment sales each.

Others

The section "others" in the segment report summarizes the other areas of business that do not exceed the threshold to materiality, including the business unit Industry which is currently being developed.

Segment assets and liabilities include all assets and liabilities concerning business operations and whose positive and negative developments determine the operating income. There are no transactions between segments within the group. Segment assets particularly include intangible assets, property, plant and equipment, trade receivables, and inventories. Segment liabilities especially concern trade payables, other obligations, and material provisions. Segment capital expenditures include the additions to intangible assets and property, plant and equipment. The distribution of the separate items is made according to the cause of cost; manufacturing facilities e.g. are allocated according to use by the annual manufacturing program.

	Communication		Automotive		Others		Total
Segment report in EUR 000's	2007	2006	2007	2006	2007	2006	2007	2006
Sales	33,013	33,599	4,869	3,707	222	177	38,104	37,483
Depreciation	1,342	900	773	154	13	0	2,128	1,054
EBIT	893	2,421	– 47	– 69	76	72	922	2,424
Segment assets	17,564	20,402	9,012	2,285	538	528	27,114	23,215
Segment liabilities	5,290	4,293	344	398	31	1	5,665	4,692

Segments according to regions

Sales revenues are allocated according to the location of the customer's head office. Only sales generated with companies outside the group are stated. Segment assets are allocated according to the location of the assets.

	Domestic		Abroad		Total
in EUR 000's	2007	2006	2007	2006	2007	2006
Sales	18,005	15,274	20,099	22,209	38,104	37,483
Capital expenditures	2,517	4,369	3,772	4,729	6,289	9,098
Segment assets (12/31)	8,201	10,607	18,913	12,608	27,114	23,215
thereof fixed assets	2,515	4,143	17,169	11,380	19,684	15,523
Employees (average number)	42	35	178	107	220	142

The respective reconciliation statements follow here:

Reconciliation of segment assets and segment liabilities	12 31 2007 EUR 000's	12 31 2006 EUR 000's
Segment assets of the group	27,114	23,215
Cash and cash equivalents	841	557
Other current receivables	191	321
Tax receivables	343	242
Securities	14,702	13,251
Deferred taxes	663	595
Assets according to consolidated balance sheet	43,854	38,181
Segment liabilities of the group	5,665	4,692
Other current liabilities	137	38
Tax liabilities	0	3
Current interest-bearing liabilities	6	3,012
Deferred taxes	1,479	1,580
Other non-current liabilities	1,744	2,367
Non-current interest-bearing liabilities	8,955	1,875
Liabilities according to consolidated balance sheet	17,986	13,567

Reconciliation from segments' EBIT to net income	2007 EUR 000's	2006 EUR 000's
EBIT of reportable segments	922	2,424
Bridge to group	– 42	– 124
Group EBIT	880	2,300
Finance income/loss	– 76	120
Income tax	229	– 851
Net income	1,033	1,569

4 Basis of consolidation and changes in the group

All subsidiaries are included in the consolidated financial statements. Subsidiaries are companies that are directly or indirectly controlled by InTiCom Systems AG and fully consolidated. The existence and the effect of potential voting rights which can be currently exercised or converted, including potential voting rights held by other companies, are considered in the assessment whether a company is controlled. If a subsidiary meets the criteria for a classification as "held for sale" according to IFRS 5 as of the date of acquisition, it is not fully consolidated but rather recognized as a non-current asset held for sale.

Apart from the parent company InTiCom Systems AG, the basis of consolidation includes the number of companies listed in the chart below.

Basis of consolidation	2007	2006
Number of fully consolidated companies (subsidiaries)
Abroad	3	3

A list of the companies included in the consolidated financial statements can be found under note 22. The basis of consolidation has not been changed in the fiscal year.

5 Other income and expenses

Other income

	2007 EUR 000's	2006 EUR 000's
Capital gains	339	153
Other operating income	107	89
	446	242

Other expenses

	2007 EUR 000's	2006 EUR 000's
Occupancy costs	396	350
Insurance premiums, contributions, public charges	177	146
Vehicle expenses	223	190
Advertising costs, travel expenses	206	328
Delivery costs	249	228
Repairs, maintenance	35	9
Other operating expenses	1,390	1,057
	2,676	2,308

The essential components of the current income tax expenses for the fiscal years 2007 and 2006 are as follows:

	2007 EUR 000's	2006 EUR 000's
Effective income taxes	– 59	118
Deferred income taxes, origination and reversal of temporary differences	– 170	733
	– 229	851

The combined income tax rate of InTiCom Systems AG for the year 2007 came to roughly 39%, including the corporation tax rate of 25%, the solidarity tax contribution of 5.5%, and the trade tax collection rate of 400%. From 2008 on, the combined income tax rate will come to roughly 30% because of the corporation tax reform 2008; the domestic deferred tax assets and liabilities of the year 2007 have already been adjusted to the new combined income tax rate. The combined income tax rate in the year 2006 came to roughly 39% as well.

	2007 EUR 000's	2006 EUR 000's
Earnings before taxes	804	2,420
Theoretical tax expense based on 38.89%	313	941
Effect from tax rate changes	– 350	0
Tax effects from loss offset	– 163	0
Other tax effects	– 29	– 89
Effective tax expense	– 229	852

Deferred income taxes

Deferred income taxes are made up as follows as of balance sheet date:

	Consolidated balance sheet		Consolidated income statement
	2007 EUR 000's	2006 EUR 000's	2007 EUR 000's	2006 EUR 000's
Deferred income tax liabilities
from capitalization of non-current assets	1,466	1,523	– 58	844
Market appraisal of financial investments held for trading	13	57	– 44	– 40
	1,479	1,580
Deferred income tax assets
from IPO	401	401	–	–
Capital consolidation	3	3	0	0
Tax loss carry-forward	163	95	– 68	– 64
from consolidated interim profits	96	96		– 7
	663	595
Deferred income taxes			– 170	733

7 Earnings per share

The basic earnings per share are determined by dividing the income attributable to the parent company's common stockholders by the weighted average number of common stocks outstanding over the year under report.

The basic earnings per share are as follows:

	2007 EUR 000's	2006 EUR 000's
Net income	1,033	1,569
Weighted average of shares outstanding (number in thousand)	4,287	3,175
Earnings per share (Euro)	0.24	0.49

During the time between balance sheet date and the preparation of the consolidated financial statements, there were no transactions involving common stock or potential common stock.

8 Intangible assets and property, plant and equipment

InTiCom Systems Group – Intangible assets

	Self-created	Other
in EUR 000's	intangible assets	intangible assets	Total
Acquisition or production costs
As of January 1, 2006	1,194	181	1,375
Additions	1,643	61	1,704
Transfers	0	0	0
Disposals	0	– 19	– 19
As of December 31, 2006 / January 1, 2007	2,837	223	3,060
Additions	1,567	114	1,681
Transfers	0	0	0
Disposals	0	0	0
Exchange rate differences	0	0	0
As of December 31, 2007	4,404	337	4,741

Depreciation
As of January 1, 2006	140	55	195
Depreciation	126	48	174
Appreciation	0	0	0
Transfers	0	0	0
Disposals	0	– 19	– 19
As of December 31, 2006 / January 1, 2007	266	84	350
Depreciation	765	59	824
Appreciation	0	0	0
Transfers	0	0	0
Disposals	0	0	0
Exchange rate differences	0	0	0
As of December 31, 2007	1,031	143	1,174
Balance sheet value as of December 31, 2007	3,373	194	3,567
Balance sheet value as of December 31, 2006	2,571	139	2,710

InTiCom Systems Group – Property, plant and equipment

		Technical	Other facilities,	Advance
	Real estate,	equipment and	furniture and office	payments and construction
in EUR 000's	buildings	machinery	equipment	in process	Total
Acquisition or production costs
As of January 1, 2006	473	5,515	364	1,130	7,482
Additions	2,750	1,395	323	2,925	7,393
Transfers	0	641	0	– 641	0
Disposals	0	– 86	– 92	0	– 178
As of December 31, 2006 / January 1, 2007	3,223	7,465	595	3,414	14,697
Additions	1,151	2,324	201	693	4,369
Transfers	0	3,361	17	– 3,367	11
Disposals	0	– 76	– 13	0	– 89
Exchange rate differences	83	20	0	136	239
As of December 31, 2007	4,457	13,094	800	876	19,227

Depreciation
As of January 1, 2006	0	966	40	0	1,006
Depreciation	3	757	120	0	880
Appreciation	0	0	0	0	0
Transfers	0	0	0	0	0
Disposals	0	0	– 2	0	– 2
As of December 31, 2006 / January 1, 2007	3	1,723	158	0	1,884
Depreciation	50	1,120	134	0	1,304
Appreciation	0	0	0	0	0
Transfers	0	0	0	0	0
Disposals	0	– 66	– 13	0	– 79
Exchange rate differences	0	1	0	0	1
As of December 31, 2007	53	2,778	279	0	3,110
Balance sheet value as of December 31, 2007	4,404	10,316	521	876	16,117
Balance sheet value as of December 31, 2006	3,220	5,742	437	3,414	12,813

9 Securities

December 31, 2007	Market value at acquisition date EUR 000's	Market value at end of period EUR 000's
Stocks	1,592	1,420
Fixed-interest securities	5,441	5,373
Mutual fund	7,623	7,909
	14,656	14,702

December 31, 2006	Market value at acquisition date EUR 000's	Market value at end of period EUR 000's
Stocks	375	406
Fixed-interest securities	8,151	8,110
Mutual fund	4,706	4,735
	13,232	13,251

The securities are classified as held for trading. The item "securities" includes net loss from depreciation and sales proceeds to the amount of 42 thousand Euro (previous year: 124 thousand Euro) as well as interest income to the amount of 442 thousand Euro (previous year: 297 thousand Euro).

10 Inventories

	2007 EUR 000's	2006 EUR 000's
Raw materials (valuated at acquisition costs)	814	450
Work in process (valuated at production costs)	227	211
Finished goods (valuated at production costs)	516	222
Total inventories (valuated at acquisition/production costs or lower recoverable net amount)	1,557	883

No expenses for impairment were recognized in valuating inventories (2006: 0 thousand Euro).

11 Trade receivables and other current receivables

Trade receivables do not bear interest and have remaining terms of less than twelve months as in the previous year. The impairment on trade receivables for expected partial bad debt comes to 253 thousand Euro in the fiscal year (2006: 0 thousand Euro).

Development of depreciation of trade receivables

	2007 EUR 000's	2006 EUR 000's
Depreciation at beginning of fiscal year	0	0
Allocation	253	0
Depreciation at end of fiscal year	253	0

Other current receivables

	2007 EUR 000's	2006 EUR 000's
Accruals	96	12
Sales tax	0	164
Other current receivables	95	145
	191	321

12 Cash and cash equivalents

	2007 EUR 000's	2006 EUR 000's
Cash in banks	836	554
Cash on hand	5	3
	841	557

As of balance sheet date the Group has credit limits to the amount of 4,200 thousand Euro (2006: 3,700 thousand Euro) not taken advantage of and whose required conditions for usage are already fulfilled at its disposal. The effective interest rates are between 4.5 and 8.75% (2006: 5.0 – 7.8%).

For the purpose of preparing the consolidated cash flow statement, the holdings of cash and cash equivalents as of balance sheet date are made up as follows:

	2007 EUR 000's	2006 EUR 000's
Cash in banks and cash on hand	841	557
Current account advances	– 7	– 12
	834	545

13 Capital stock and reserves

The capital stock is divided into 4,287,000 non-par bearer stocks fully entitled to dividend.

Entered in the Commercial Register on March 20, 2006, a capital increase by 129,000 Euro from 1,300,000 Euro to 1,429,000 Euro within the framework of authorized capital was realized.

The Annual General Meeting of May 18, 2006 decided the capital stock's increase by 2,858,000 Euro from 1,429,000 Euro to 4,287,000 Euro by stockholders' resolution. The capital increase was financed from the company's own resources and found entry in the Commercial Register on May 24, 2006.

The Board of Directors is authorized by stockholders' resolution of September 6, 2004 to increase the capital stock with the Supervisory Board's consent until September 6, 2009 against contributions in cash or contributions in kind, once or several times, by up to 600,000 Euro under preclusion of the stockholders' subscription rights (authorized capital 2004/I). The authorized capital originating from September 6, 2004 (authorized capital 2004/I) amounts to 471,000 Euro after partial use.

The Board of Directors is authorized by stockholders' resolution of May 24, 2007 to increase the capital stock with the Supervisory Board's consent until May 24, 2012 against contributions in cash or contributions in kind, once or several times, by up to 1,672,500 Euro, including authorization for the preclusion of the stockholders' subscription rights (authorized capital 2007/1).

Surplus reserve includes the following items:

	2007 EUR 000's	2006 EUR 000's
Surplus reserve	4,963	3,394
Net income	1,033	1,569
	5,996	4,963

Exchange rate differences

The currency translation reserve serves the recognition of differences from the translation of the financial statements of foreign subsidiaries into Euro.

14 Non-current obligations and liabilities

Non-current interest-bearing liabilities concern liabilities to banks. Terms and conditions can be gathered from the following overview:

	Interest rate	Maturity	2007 Book value EUR 000's	2006 Book value EUR 000's
KfW loan	3.91%	09/2016	3,955	1,875
Bonded loan	5.27%	03/2014	5,000	0
			8,955	1,875

Other non-current liabilities consist solely of obligations from finance lease agreements. The effective interest rate is 4.2% with terms into the year 2009.

15 Current financial liabilities

Provisions and tax liabilities

	1/1/2007 EUR 000's	Consumption EUR 000's	Release EUR 000's	Allocation EUR 000's	12/31/2007 EUR 000's
Outstanding accounts	64	64	0	125	125
Personnel expenses	77	77	0	177	177
Others	37	37	0	25	25
Provisions	178	178	0	327	327
Income tax liabilities	3	3	0	0	0

Current interest-bearing liabilities

	Effective interest rate in %	Maturity	2007 EUR 000's	2006 EUR 000's
Current account advances	4.5 – 8.75	on demand	6	12
Current bank loans	4.0	1 – 3 months	0	3,000
			6	3,012

Current account advances are subject to variable interest rates within one year while current bank loans have fixed rate agreements valid until they mature.

Other current liabilities

	2007 EUR 000's	2006 EUR 000's
Deferrals	3	1
Sales tax	118	0
Other current liabilities	344	197
	465	198

This proceeding results in the following amounts:

Obligations from finance lease agreements

12/31/2007	Minimum lease payments EUR 000's	Interest portion EUR 000's	Cash value EUR 000's
2008	790	60	730
2009	1,042	28	1,014
	1,832	88	1,744

Other current liabilities and trade payables do not bear interest and usually mature within 10 to 60 days.

16 Liabilities from rental and leasing agreements and financial liabilities

Leased objects recognized in the balance sheet within the framework of finance lease agreements predominantly concern lease agreements on machines and technical equipment.

	12 31 2007 EUR 000's	12 31 2006 EUR 000's
Technical equipment and machinery	2,916	3,511

InTiCom Systems recognizes a lease liability at the time of the leased asset's addition whose amount corresponds with the leased asset's book value. Over the following reporting periods, the lease installments paid to the respective lessor reduce the lease liability to the amount of repayment in accordance with the effective interest method. The interest portion is recognized in the income statement.

Obligations from finance lease agreements

12/31/2006	Minimum lease payments EUR 000's	Interest portion EUR 000's	Cash value EUR 000's
2007	790	167	623
2008	790	60	730
2009	1,042	28	1,014
	2,622	255	2,367

InTiCom Systems recognizes lease payments made during the term of an operating lease agreement in the income statement. The obligations of InTiCom Systems from non-cancelable operating lease agreements primarily concern non-current lease agreements for furniture and office equipment as well as real estate. The expenditure for operating lease agreements recognized in the income statement comes to 395 thousand Euro as of the end of the year (2006: 322 thousand Euro).

This proceeding results in the following amounts for future obligations from operating lease transactions:

	12 31 2007 EUR 000's	12 31 2006 EUR 000's
up to twelve months	329	381
up to 2 years	262	228
up to 3 years	215	205
up to 4 years	172	176
more than 5 years	818	816
	1,796	1,806

17 Financial instruments

Risks

Within the context of operating activities, InTiCom Systems is exposed to credit, liquidity and market risks with respect to its finances. The market risks are accounted for primarily by interest rate change, price and currency risks.

Detailed information on risk management and risk supervision can be found in the management report beginning on page 28. The following comments exclusively concern these risks' quantitative effect in the fiscal year.

The above-mentioned risks affect the following financial assets and liabilities:

	Market values 12 31 2007 EUR 000's	Market values 12 31 2006 EUR 000's
Financial assets	15,638	14,117
Cash and cash equivalents	841	557
Securities (held for trading)	14,702	13,251
Receivables	95	309
Financial liabilities	16,362	11,886
Trade payables	5,010	4,354
Liabilities to banks and other financial debt	8,961	4,887
Finance lease obligations	1,744	2,367
Other non-derivative financial liabilities	647	278

Credit risk is an issue primarily with respect to trade receivables and it is met by making allowances. To a small extent InTiCom Systems is exposed to contingency risks concerning other financial assets, consisting of cash and cash equivalents as well as securities in particular. The maximum contingency risk corresponds with the book value of the financial assets as of balance sheet date, to the amount of 15,638 thousand Euro (previous year: 14,117 thousand Euro). The gross amount of trade receivables before allowances comes to 6,127 thousand Euro (previous year: 6,809 thousand Euro). The allowances made in the fiscal year are explained under note 11.

The receivables' age structure is as follows:

	Trade receivables
	2007 EUR 000's	2006 EUR 000's
Book values	5,874	6,809
thereof neither overdue nor impaired	4,577	5,462
Overdue but not impaired	1,297	1,347
thereof less than 30 days	711	571
between 30 and 60 days	367	282
more than 60 days	219	494

Receivables overdue but not impaired essentially concern receivables in the Automotive segment. Based on previous experience, receipt of payment is expected to the above amount.

The book values of financial assets and financial liabilities correspond with the market values.

The credit or contingency risk is the risk that a customer or contracting party of InTiCom Systems will not fulfill its contractual obligations. The partial or total loss of contractually agreed payments is one of the resulting threats.

Liquidity risk means the risk that InTiCom Systems will not fulfill its payment obligations due to insufficient funds.

A liquidity forecast focused on a defined planning horizon, disposable, unused credit lines within the InTiCom Systems Group safeguard liquidity supply at any time. The following table shows the outflow of funds due to rates of interest and repayment of financial liabilities.

	Book values		Outflow of funds
	EUR 000's	Total EUR 000's	Up to 12 months EUR 000's	1 – 5 years EUR 000's	Over 5 years EUR 000's
Variable-interest liabilities to banks	6	6	6	–	–
	(3,012)	(3,023)	(3,023)	(0)	(0)
Fixed-interest liabilities to banks	8,955	11,467	459	2,466	8,542
	(1,875)	(2,533)	(81)	(686)	(1,766)
Fixed-interest finance lease obligations	1,744	1,832	790	1,042	0
	(2,367)	(2,622)	(790)	(1,832)	(0)

(Amounts in brackets are prior-year amounts.)

Further information on financial liabilities is provided under notes 14 and 15.

InTiCom Systems is exposed to interest rate change risks essentially with respect to current and medium-term financial assets and liabilities due to fluctuations of market interest rates.

	Book values
	12 31 2007 EUR 000's	12 31 2006 EUR 000's
Interest-bearing financial assets	6,214	8,667
thereof variable-interest	841	557
fixed-interest	5,373	8,110
Interest-bearing financial liabilities	10,705	7,254
thereof variable-interest	6	3,012
fixed-interest	10,699	4,242

If the market interest was increased by 100 basis points as of December 31, 2007, a price loss of the fixed-interest financial assets would result to the amount of –54 thousand Euro (previous year: –81 thousand Euro); a decrease would have the opposite effect. Both outcomes would be totally recognized in equity.

Based on the same bandwidth, an opportunity loss or profit of –49 thousand Euro or 196 thousand Euro, respectively, would result for the financial liabilities (previous year: –29 thousand Euro or 56 thousand Euro).

If the variable-interest financial assets were increased by 100 basis points, the effect on earnings and equity would be 8 thousand Euro (previous year: 6 thousand Euro) and the effect on variable-interest financial liabilities would be 0 thousand Euro (previous year: –30 thousand Euro); a decrease would have the opposite effect.

With respect to assets categorized as held for trading, InTiCom Systems is exposed to market price risks essentially determined by the stock price risk. This risk concerns assets of altogether 1,420 thousand Euro (previous year: 406 thousand Euro). Because of portfolio provisions, price risks exist only to a small extent.

Net loss of financial liabilities is represented by interest expenses of 520 thousand Euro (previous year: 176 thousand Euro).

Currency risks do exist only to a small extent as the operating activities are transacted almost exclusively in Euro.

18 Principal stockholders and related parties

Board of Directors

Walter Brückl (since April 1, 2008) Strategy, production, investor relations, and public relations

Maria Grohs

Materials management, marketing, and sales

Dr. Paul Grohs Development

Dieter Schopf (until July 31, 2007) Finances, administration, and human resources

Christian Schubert (since November 1, 2007) Controlling, finances, accounting, IT, and human resources

Supervisory Board

Dr. Wulfdieter Braun Chairman of the Supervisory Board, Passau Management consultant

Karl Kindl (until December 31, 2007) Vice-chairman of the Supervisory Board, Hauzenberg Entrepreneur Member of the Supervisory Board of DES Data Empire Systems AG, Munich

Harald Nöth

Munich Member of the Board of Directors of DES Data Empire Systems AG, Munich

Dr. Horst Rüdiger Hollstein (since January 1, 2008) Vice-chairman of the Supervisory Board, Jesteburg Management consultant Member of the Supervisory Board of Otto M. Schröder Bank AG, Hamburg Member of the Advisory Board of MAINKA Bauunternehmung August Mainka GmbH & Co., Lingen

Please refer to the item "Board Members' stockholdings" under note 21 (page 64) for disclosures of the stockholdings of Members of Supervisory Board and Board of Directors.

Remuneration of the Board of Directors

The Supervisory Board is responsible for determining the remuneration of the Board of Directors. In determining the directors' remuneration, the Supervisory Board Members consider the company's size and business activity, its economic and financial situation, as well as the remuneration amount and structure applied by comparable companies. The remuneration amounts are customary and intended to provide an incentive for successful work.

The directors' remuneration included two components in 2007:

• a) a fixed annual remuneration,
• b) pension commitments.

The fixed remuneration is paid as a monthly salary. It contains a cash portion and fringe benefits. Furthermore, the cash remuneration paid to Mrs. Grohs and Dr. Grohs includes a special bonus determined by the Supervisory Board for the year 2007. This bonus was granted for extraordinary performances. Fringe benefits include perquisites in form of the provision of company cars.

Total directors' remuneration is divided into the following individual amounts:

		Cash remuneration
in Euro		Salary	Other	Total
Dieter Schopf	2007	115,500	12,544	128,044
	2006	192,879	18,007	210,886
Maria Grohs	2007	218,000	14,070	232,070
	2006	192,796	12,054	204,850
Dr. Paul Grohs	2007	218,000	15,551	233,551
	2006	192,560	12,894	205,454
Christian Schubert	2007	30,000	1,722	31,722
	2006	0	0	0
Total	2007	581,500	43,887	625,387
	2006	578,235	42,955	621,190

Pension commitments are made in the shape of contributions to a relief fund. The following amounts are paid:

in Euro		Pension scheme Contributions
Dieter Schopf	2007	7,963
	2006	13,651
Maria Grohs	2007	13,070
	2006	13,058
Dr. Paul Grohs	2007	15,892
	2006	15,892
Christian Schubert	2007	2,695
	2006	0
Total	2007	39,620
	2006	42,601

No loans have been given to Members of the Board of Directors by the Company.

Starting from the fiscal year 2008, the Members of the Board of Directors will receive an additional performance-based component. This variable remuneration component will be based on the Company's EBT adjusted for special items. The amount will be limited by the economic situation.

Remuneration of the Supervisory Board

The Members of the Supervisory Board were paid the following remuneration:

		Supervisory Board	Atten
in Euro		remuneration	dance fee	Total
Dr. Wulfdieter Braun	2007	5,000	6,000	11,000
	2006	5,000	1,000	6,000
Karl Kindl	2007	4,000	6,000	10,000
	2006	4,000	1,000	5,000
Harald Nöth	2007	3,000	6,000	9,000
	2006	3,000	1,000	4,000
Total	2007	12,000	18,000	30,000
	2006	12,000	3,000	15,000

Above remuneration amounts are net amounts not including statutory sales tax. No loans have been given to Members of the Supervisory Board by the Company.

Other information

InTiCom Systems AG has received and paid for computer hardware and data processing services provided by DES Data Empire Systems AG. Goods and services received in 2007 amount to 103 thousand Euro. These business transactions do not represent compensation for a Supervisory Board mandate. The transactions are realized exclusively under current market conditions and by means of public invitations to tender.

19 Staff

The average number of employees in the past fiscal year was 220 (previous year: 142).

	2007	2006
Salaried employees	51	92
Industrial employees	163	44
Trainees	3	3
Part-time employees	3	3
	220	142

20 Publication

The financial statements, the consolidated financial statements and the combined management and group management report of InTiCom Systems AG for the fiscal year 2007 are published in the electronic Federal Gazette ("Bundesanzeiger").

In the fiscal year 2007 InTiCom Systems AG received the following notifications of reportable investments according to Section 21 (1) WpHG (Securities Trading Act):

"Universal-Investment-Gesellschaft mbH Frankfurt/Main, Germany, informed us on May 7, 2007 in accordance with Section 21 (1) WpHG that its share of voting rights in InTiCom Systems Aktiengesellschaft, Passau, Germany, ISIN: DE0005874846, SIN: 587484, has exceeded the threshold of 3% of the voting rights on May 4, 2007 based on stocks and now comes to 3.01% (corresponding with 129,000 voting rights).

Herewith we amend the above announcement:

3.01% of the voting rights (corresponding with 129,000 voting rights) are attributable to Universal-Investment-Gesellschaft mbH according to Section 22 (1) sentence 1 no. 6 WpHG."

"Union Investment Privatfonds GmbH, Frankfurt/Main, Germany, informed us on May 31, 2007 in accordance with Section 21 (1) WpHG that its share of voting rights in InTiCom Systems Aktiengesellschaft, Passau, Germany, ISIN: DE0005874846, SIN: 587484, has exceeded the threshold of 3% of the voting rights on May 31, 2007 based on stocks and now comes to 4.67% (corresponding with 200,000 voting rights)."

"UBS Global Asset Management GmbH, Frankfurt/Main, Germany, informed us on June 5, 2007 in accordance with Section 21 (1) WpHG that its share of voting rights in InTiCom Systems Aktiengesellschaft, Passau, Germany, ISIN: DE0005874846, SIN: 587484, has exceeded the threshold of 3% of the voting rights on May 29, 2007 based on stocks and now comes to 3.499% (corresponding with 150,000 voting rights)."

"Lupus alpha Investment S.A., L-1470, Luxembourg, informed us on July 9, 2007 in accordance with Section 21 (1) WpHG that its share of voting rights in InTiCom Systems Aktiengesellschaft, Passau, Germany, ISIN: DE0005874846, SIN: 587484, has fallen below the threshold of 3% of the voting rights on July 3, 2007 and now comes to 2.69% (corresponding with 115,359 voting rights, public fund Lupus alpha Fonds)."

"TFG Capital AG Unternehmensbeteiligungsgesellschaft informed us on July 12, 2007 in accordance with Section 21 (1) WpHG that its share of voting rights in InTiCom Systems Aktiengesellschaft, Passau, Germany, ISIN: DE0005874846, SIN: 587484, has exceeded the threshold of 3% of the voting rights on July 9, 2007 and now comes to 3.04% (corresponding with 130,513 voting rights)."

23 Auditor's fees

As of balance sheet date, the following investors are the principal stockholders:

	Stockholding in %
Investor	2007	2006
UBS Fund Management (Switzerland) AG	over 5%	over 5%
KST Beteiligungs AG, Stuttgart	over 5%	over 5%
Union Investment Privatfonds GmbH	over 3%	–
UBS Global Asset Management (Germany) GmbH	over 3%	–
TFG Capital AG

Unternehmensbeteiligungsgesellschaft over 3% – Universal-Investment-Gesellschaft mbH over 3% –

Board Members' stockholdings (incl. related persons):

	Holding in number of stocks
Name	2007	2006
Karl Kindl	150,264	150,264
Dr. Paul und Maria Grohs	122,000	120,000
Dr. Wulfdieter Braun	6,015	6,015
Harald Nöth	3,786	3,486
Dieter Schopf	n.a.	120,000
Christian Schubert	1,500	n.a.

22 Investments

The subsidiaries are listed in the following table:

Company name and registered head office	Capital interest in %	Equity EUR 000's	Perfor mance EUR 000's
InTiCom Components GmbH,	100	149	– 231
Thessaloniki, Greece	(100)	(263)	(2)
InTiCom Systems Ges.m.b.H.,	100	120	17
Neufelden, Austria	(100)	(101)	(80)
InTiCom Systems s.r.o.,	100	5,883	1,077
Prachatice, Czechia	(100)	(5,094)	(– 296)

(Prior-year amounts in brackets)

For services rendered by the auditor, Nirschl, Grössl & Koll. GmbH Wirtschaftsprüfungsgesellschaft, Eging am See, the following fees have been charged to expenses in the fiscal year:

	2007 EUR 000's	2006 EUR 000's
Audit	32	25
Other consulting services	0	5
	32	30

Fees for the audit primarily include fees for the group audit as well as the parent company's audit. Fees for tax counseling and other consulting services refer to project-related requests regarding income and sales tax as well as international tax legislation.

24 German Corporate Governance Code

The Board of Directors and the Supervisory Board of InTiCom Systems AG declare to what extent the recommendations of the "Government Commission German Corporate Governance Code" published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette have been followed to date.

The declaration of compliance is made permanently available to the stockholders on the Company's Internet site:

www.inticom-systems.de

in the section Investor Relations (Corporate Governance).

25 Subsequent events

By Supervisory Board resolution of February 22, 2008, Mr. Walter Brückl was appointed Member of the Board of Directors effective April 1, 2008.

The Supervisory Board has appointed Mr. Walter Brückl CEO by resolution of April 7, 2008. Mr. Brückl has assumed his responsibility for strategy, production, investor relations, and public relations.

Passau, March 7, 2008

The Board of Directors

Statutory declaration

"We assure to the best of our knowledge that the consolidated financial statements provide a presentation of the Group's financial position and results from operations that corresponds to the actual conditions, in accordance with applicable accounting standards, and that the Group management report presents the course of business including the business result and situation of the Group in a way that corresponds to the actual conditions and describes the material risks and opportunities of the Group's expected future development."

Passau, April 7, 2008

The Board of Directors

Walter Brückl Maria Grohs Dr. Paul Grohs Christian Schubert since April 1, 2008 since November 1, 2007

Auditor's certificate

We have audited the consolidated financial statements prepared by InTiCom Systems AG, Passau –including consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement, and notes to the consolidated financial statements – as well as the combined management and group management report for the fiscal year ended December 31, 2007. The preparation of consolidated financial statements and combined management and group management report according to IFRS as applicable in the European Union and the additional provisions of commercial law as applicable according to Section 315 a (1) HGB are the responsibility of the company's legal representatives. It is our responsibility to issue an assessment of the consolidated financial statements and the combined management and group management report on the basis of our audit.

In compliance with Section 317 HGB, we have conducted our audit in accordance with the German accounting principles established by the Institut der Wirtschaftsprüfer (IDW). These principles require the audit to be planned and performed in such a way that inaccuracies and violations which materially effect the disclosure of financial position and results from operations as presented by the combined management and group management report and the consolidated financial statements with regard to applicable accounting provisions are identified with sufficient reliability. In establishing the audit procedures, knowledge of the business activity, the group's economic and legal framework, and an anticipation of possible mistakes are taken into consideration. Within the context of the audit, the effectiveness of the internal accounting control system as well as proof for the disclosures made in the consolidated financial statements and the combined management and group management report are examined predominantly on the basis of random sampling. The audit contains assessments of the financial statements of the companies included in the consolidated financial statements, the definition of the basis of consolidation, the accounting and consolidation principles applied, and the material estimates made by the Board of Directors, as well as an evaluation of the overall presentation of the consolidated financial statements and the combined management and group management report. It is our opinion that our audit provides a sufficiently reliable basis for our assessment.

Our audit has not resulted in any objections.

According to our assessment based on the conclusions from our audit, the consolidated financial statements are compliant with the IFRS as applicable in the European Union and the additional provisions of commercial law as applicable according to Section 315 a (1) HGB, and they communicate – with regard to these provisions – a presentation of the group's financial position and results from operations which corresponds to the actual conditions. The combined management and group management report is consistent with the consolidated financial statements, communicates an overall correct impression of the situation of the group, and describes the chances and risks of the future development coherently.

Eging am See, March 17, 2008

Nirschl, Grössl & Koll. GmbH Wirtschaftsprüfungsgesellschaft

G. Nirschl Wirtschaftsprüfer

Report of the Supervisory Board for the fiscal year 2007

The Supervisory Board consisted of Dr. Wulfdieter Braun (chairman), Karl Kindl (vice-chairman), and Harald Nöth in the reporting period. Mr. Kindl resigned from his mandate as of December 31, 2007 because of his age. As his successor on the Board, Dr. Horst Rüdiger Hollstein was appointed by the register court as of January 1, 2008, effective until the conclusion of the Annual General Meeting on May 29, 2008. Because of the number of only three Supervisory Board Members, no committees have been established. The Supervisory Board dealt with all issues of relevance in its entirety.

Mr. Dieter Schopf resigned from his position as CFO in the year under report. His contract of employment was terminated amicably effective July 31, 2007. As of November 1, 2007 Mr. Christian Schubert was appointed Member of the Board of Directors, and he assumed the position of CFO. As of April 1, 2008 the Supervisory Board appointed Mr. Walter Brückl Member of the Board of Directors and entrusted him with the newly created position of CEO.

The Supervisory Board supervised the Board of Directors in the interest of the stockholders and provided its advice. With respect to all transactions and measures that require the Supervisory Board's consent according to the law, the Articles of Incorporation, or the rules of procedure, the Board of Directors provided a detailed presentation and explanatory statement and obtained the required consent. The Board of Directors informed the Supervisory Board about the company's economic development and financial position comprehensively and in good time and discussed corporate planning with the Supervisory Board. Divergences from plans, targets and budgets in the course of business were explained to the Supervisory Board in detail, and the Supervisory Board assessed these divergences based on the furnished documents. Outside the scheduled Supervisory Board sessions, the Chairman of the Supervisory Board and the Board of Directors exchanged information in close cooperation.

In the fiscal year 2007 the Supervisory Board assembled in six regular and four extraordinary meetings, each attended by all Members of the Supervisory Board.

In the meeting of April 5, 2007 the financial statements and the management report for the fiscal year 2006 were approved and thus established. Another focus of discussions was on draft resolutions to be submitted to the Annual General Meeting. In the meeting of April 13, 2007 the current business development and corporate planning until the year 2010 were discussed in particular. Other topics were the market entry of the business unit Industry and the relocation of production from Greece to Czechia. Issues dealt with in the May 21, 2007 meeting were the preparation of the Annual General Meeting and the report on the first quarter. In the following four extraordinary meetings (May 25, June 11, 13, and 14), the Supervisory Board concerned itself with the resignation of Mr. Dieter Schopf, the company's former CFO. As the Supervisory Board did not manage to persuade Mr. Schopf to stay on the job and eventually had to accept the personal reasons given by Mr. Schopf for his decision, the Board took suitable measures for recruiting a capable successor. The responsibilities of the CFO were temporarily assigned to the two remaining Board Members. In the meeting of June 20, 2007 further formalities resulting from the resignation of Mr. Schopf were dealt with essentially. The course of business of the second quarter and planning for the second half-year were the main focus of the meeting held on August 17, 2007. On November 9, 2007 the Supervisory Board discussed the report on the third quarter, the outlook for the fourth quarter, and the forecast for 2008 with the Board of Directors. The Supervisory Board was also informed of the progressing relocation of production and its effects. The preparation of the Annual General Meeting 2008 was on the agenda as well.

The argument with Deutsche Telekom AG about the use of trade names was discussed in various meetings of the Supervisory Board. After the Landgericht (Regional Court) Hamburg had barred the company from using the name InTiCom in April 2007, both parties reached a mutual agreement in October 2007. Accordingly, InTiCom Systems AG will change its business name subsequent to a transition period. Board of Directors and Supervisory Board will submit a proposal to the Annual General Meeting 2008 on this matter.

By stockholders' resolution, Wirtschaftsprüfungsgesellschaft Nirschl, Grössl & Koll GmbH, Eging am See, was elected auditor and group auditor for the fiscal year ended December 31, 2007. The Supervisory Board issued the audit assignment. The auditor has audited the financial statements and the management report of InTiCom Systems Aktiengesellschaft as of December 31, 2007 according to HGB as well as the consolidated financial statements as of December 31, 2007 according to IFRS/IAS and the group management report, including accounting. The auditor has issued unqualified certificates. The following main audit focal points were agreed upon with the auditor: recoverability of the order backlog and advance investments in development and production.

Compliant with the statutory provisions, the group's risk management system was also a subject of the audit. The Supervisory Board was informed regularly on the progress of the audit by the auditor and the Board took note of the audit reports approvingly.

Following its own diligent examination of the financial statements, the consolidated financial statements, and the combined management report provided by the Board of Directors, the Supervisory Board asserted that no objections are to be raised after the concluding result of the audit. In the Supervisory Board meeting of April 7, 2008, in attendance of the auditor who answered the Supervisory Board members' questions about the financial statements and their audits, the financial statements, the consolidated financial statements, and the combined management report for InTiCom Systems AG and the group were approved by the Supervisory Board. The annual statements are herewith established.

The Supervisory Board also concerned itself with issues of corporate governance. The updated declaration of compliance by Board of Directors and Supervisory Board in accordance with Section 161 AktG (Corporation Act) was released on April 7, 2008 and is made available to the public at the company's Internet site. In order to adjust the remuneration system to the recommendations of the German Corporate Governance Code, the introduction of variable performance-related remuneration components for the Board of Directors was decided as of the beginning of the fiscal year 2008. Conflicting interests did not materialize on the Supervisory Board in the past fiscal year. Further details on corporate governance can be found in the joint corporate governance report of Board of Directors and Supervisory Board.

Passau, April 15, 2008

Dr. Wulfdieter Braun

Chairman of the Supervisory Board

Technical glossary

ADSL Asymmetric Digital Subscriber Line; broadband technology on the basis of conventional telephone lines allowing higher data transmission rates for downloads than for uploads.

ADSL2 The maximum data rate of ADSL2 is higher than the one provided by ADSL, leading to higher relative data rates for a given distance due to improved signal processing and coding. The data transmission rate of ADSL2 is theoretically as high as up to 12 Mbit/s downstream and 1 Mbit/s upstream at a bandwidth of 1.1 MHz.

ADSL2+ New transmission standard allowing for higher downstream speed than previously possible. ADSL2+ expands the bandwidth of the ADSL signal to 2.2 MHz and thus increases the maximum data rate to 24 Mbit/s downstream and 1 MBit/s upstream. This is possible only via relatively short and high-grade phone lines and therefore not available everywhere.

Antennas in the sense of RFID technology are sender as well as receiver antennas on the basis of winding technology (inductive components or coils).

Automation technology aims at making a machine or plant work completely autonomously and independent of human input. The closer you get at reaching this goal, the higher is the degree of automation. Often human staff is needed for supervision, supplies, conveyance of finished goods, maintenance, and similar jobs. Automation technology addresses the most diverse issues of building and plant automation, e.g. measuring, controlling, monitoring, defect analysis, and the optimization of process sequences.

Bit Smallest digital information unit, or rather a computer's smallest memory unit. It can assume the values one or zero.

Coil see under inductive components.

Customizing is the term for adjusting a series product, e.g. automobiles or computer software, to a customer's requirements.

Download means the transfer of all kinds of data from the Internet to a computer.

DSL Digital Subscriber Line; broadband technology (fast data transfer via the Internet) on the basis of conventional telephone lines. With a download speed of 768 kbit and more per second, it is much faster than both analog modems and ISDN (using one line). The upload speed of 128 kbit/s is as high as the parallel use of both ISDN lines.

Ferrites are poorly or non-electroconductive ferrimagnetic ceramic materials consisting of ferric oxide hematite (Fe2O3), less commonly magnetite (Fe3O4) and other metallic oxides. If not saturated, ferrites conduct the magnetic flux very well and provide a high magnetic permeability. These materials thus usually provide low magnetic resistance.

Filter see under inductive components; electronic component for the separation of different signal sources.

Filter coils see under inductive components.

High-end manufacturers manufacture goods using particularly advanced technologies.

High-tech inductivity see under inductivity.

Hub magnets are magnetic actuators finding preferred use for valve control and other applications.

Hybrid vehicles are cars containing at least two transducers and two installed energy storage systems for the purpose of powering the vehicle. Transducers are for instance electric motors and Otto and diesel engines, energy storage systems are for instance batteries and gas tanks.

Immobilizers are devices installed in vehicles for preventing unauthorized operation. There are mechanical, electronic and involuntary immobilizers.

Inductors are inductive components in the realm of electrical engineering and electronics. The terms inductor and solenoid or coil are not clearly defined and used synonymously.

Inductive components usually consist of a ferrite core, a plastic coil body and copper wire for the transmission, filtering, and sending or receiving of electric signals. They are functional independent of external energy input.

Inductivity is an electric property of an energized electric conductor due to the environing magnetic field created by the current flow. It describes the ratio between the magnetic flux linked with the counductor and the current flowing through the conductor.

Industrial weighing technology Industrial scales contain a multitude of electronic components. Particularly weight sensors and voltage supply are interesting applications for special inductive components.

Internet The term was initially derived from "interconnecting network", i.e. a network that connects separate networks with each other. Today the Internet consists of an immense number of regional and local networks all over the world, together creating the "networks' network". The Internet applies a uniform addressing scheme as well as TCP/IP protocols for the transfer of data. Initially this global digital network used to primarily interconnect computers in research centers.

Inverter An inverter is an electronic device converting direct voltage into alternating voltage or direct current into alternating current. Depending on the circuit, inverters can come equipped for the generation of single-phase alternating current or threephase alternating current (rotary current).

IPTV (Internet Protocol Television) stands for the digital transmission of broadband applications such as TV programs and movies via a digital data network. The Internet Protocol (IP) is applied for the transmission of those data.

ISDN Integrated Services Digital Network. ISDN uses the existing telephone lines, only the transfer of all data is digital instead of analog as previously. By a concerted use of several channels, a transmission rate of 128 kbit/s is achieved.

KBit/s Kilo bits per second; unit for the transmission rate or speed of data transfer.

Keyless entry New technology for locking and unlocking vehicles; instead of a key there is only a chip card that exchanges signals with the vehicle. As soon as the card holder approaches the car or touches the door handles, the door will open. The motor is started by touching a pushbutton or starter button.

Keyless go see under keyless entry

MDF Main distribution frame technology; the telecommunication companies' network nodes for subscriber connections.

Offshore wind parks are accumulations of several separate wind power stations constructed as stationary structures offshore in windy spots. In a narrower sense the term describes wind farms situated outside the national territorial waters, i.e. more than 12 sea miles off the shore. Since the EEG (Renewable Energy Sources Act) has come into force, wind power stations are promoted; national law provides for fixed prices and guaranteed buy-off of power feed to the operators of wind power stations.

Photovoltaic power plants or photovoltaic solar power plants are power stations transforming a part of the solar radiation into electric power by means of solar cells. This immediate way of energy conversion is called photovoltaics.

Powerline Powerline technology facilitates data transfer on the Internet via the public power supply system.

Remote keyless entry see under keyless entry.

RFID Radio Frequency Identification; wireless transmission system for the detection of objects.

Sensor A sensor is a technological component that is able to detect certain physical or chemical properties (e.g. thermal radiation, temperature, humidity, pressure, sound, brightness, or acceleration) and/or the material condition or texture of its environment with respect to quality or quantity, as a measurand. These factors are detected by the use of physical or chemical effects and transformed into other processible quantities (mostly electric signals).

Solar inverter The inverter transforms the direct current generated by the solar modules into an alternating current comparable to the conventional electricity network. This makes it possible to feed the self-produced solar energy in the public power supply system.

Splitter Electronic component for merging or separating voice and data signals.

Time to market means the period of time from product development to placing the product in the market.

Transmitter A transmitter is a device for creating and radiating electromagnetic waves. It basically consists of at least one oscillator and one transmitting antenna. If its intended use is telecommunication, a device for oscillation modulation is required as well.

Triple play is a marketing term introduced around 2005 in telecommunications for the combined offer of the three communication services audiovisual entertainment (television, video-on-demand), (IP) telephony, and Internet.

U-ADSL Universal Asymmetric Digital Subscriber Line; VDSL and U-ADSL are advancements of the present DSL system for realizing higher data transmission rates – both systems are still at the developing stage.

Upload means transferring data from a computer to the Internet.

VDSL Very High Data Rate Digital Subscriber Line; is a DSL technology that provides signficantly higher data transmission rates via conventional phone lines than for instance ADSL or ADSL2+.

VDSL2 (see under VDSL) VDSL2 bases on the transmission procedure Discrete Multitone (DMT) and provides theoretically attainable data transmission rates of up to 200 Mbit/s for both upstream and downstream at a cut-off frequency of 30 MHz.

VoIP (Voice over Internet Protocol) IP telephony means telephoning via computer networks set up according to Internet standards. Information typical for telecommunication, i.e. voice signals as well as information required for establishing the connection, is transmitted over a network otherwise used for data transfer as well. Either computers, special IP telephony terminals, or conventional phones plugged in with a special adapter can be used at the subscriber side for providing the connection to the phone network.

xDSL Collective term for the data transmission technologies DSL, ADSL, VDSL, U-ADSL, etc.

Financial calendar

April 18, 2008	Announcement of consolidated financial statements 2007
May 20, 2008	Announcement of 3-month financial statements
May 29, 2008	Annual General Meeting in Passau
May 30, 2008	Press conference – conference call
August 19, 2008	Announcement of 6-month financial statements
November 10, 2008	Announcement of 9-month financial statements

Imprint

InTiCom Systems AG, Spitalhofstraße 94, 94032 Passau Phone +49 (0) 851-96 692-0, Fax +49 (0) 851-96 692-15 www.inticom-systems.de, info@inticom-systems.de
PvF Investor Relations, Frankfurt am Main www.pvf.de
Marc Donay, Cologne
Werbefotostudio Peter Dafinger, Hutthurm www.dafinger.eu
©iStockphoto.com, Polushkin Ivan
DianaDesign, Hamburg www.dianadesign.de

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