ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2010

Basis of preparation

Innovision Research & Technology plc is a public limited company incorporated in the United Kingdom.  The Company is domiciled in the United Kingdom and its ordinary shares are traded on the Alternative Investment Market (AIM).

The financial statements have been prepared in pounds sterling which is the functional currency of the Company.

The financial statements have been prepared on a going concern basis.  The Directors believe that the going concern basis is appropriate as the Company will accept the recommended offer made by a major semiconductor company. The Company will be funded by the new parent group following the acquisition. The Company's forecasts and financial projections, taking account of reasonably possible changes in trading performance, show that the Company will be able to operate within the level of its current cash balances of £4.1m at 31 March 2010 until at least the completion of the transaction. The Board reviews the forecasts and projections on an at least quarterly basis and would take steps to raise further finance or put facilities in place should these forecasts show a potential future shortfall.

The Company has a robust policy towards treasury risk and cash flow management. Cash flows are monitored on a day to day basis within the Company's finance function, with emphasis on good working capital management. Recent contract wins mean that the Company is adequately placed to manage its business risks successfully despite the current uncertain economic outlook and challenging macro economic conditions.

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union. 

New standards and interpretations

In the current financial year, the Company has adopted IFRS 8 "Operating Segments", IAS1 "Presentation of Financial Statements" (revised 2007), and amendments to IFRS7 "Financial Instruments.

The adoption of IFRS 8 requires some further disclosures in note 3 to the financial statements regarding major customers.  IAS1 (revised 2007) has lead to the primary statements being renamed and the format updated to comply with this standard.

The Company has not chosen to adopt any standards in advance of their effective dates.

The following standards have been adopted in the current period however their adoption has not had any significant impact on the amounts reported in these financial statements:

IFRS2 (amended) "Share-based payment - vesting conditions and cancellations"

At the date ofauthorisationof these financial statements the IASB and IFRIC have issued the following standards and interpretations with an effective date falling after the date of these financial statements and have not been applied in these financial statements.  The Directors anticipate that the adoption of these standards and interpretations in future periods will not have a material impact on the financial statements of the Company.

New standards and interpretations (continued)

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. 

The principal accounting policies are set out below.

Basis of consolidation

The Company has taken advantage of Section 405 Companies Act 2006 not to prepare consolidated accounts as its only subsidiary is dormant and its inclusion is not material for the purpose of giving a true and fair view.  Therefore, these financial statements present information about the Company as an individual undertaking and not about its Group.

Revenue

Revenue is recognised when it is probable that economic benefits will flow to the Company, and is measured at the fair value of the consideration received or receivable.  Revenue represents the amounts receivable for goods, services, royalties and licence fees provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Sales of goods are recognised when goods are delivered and title has passed to the buyer.

The sale of services is generally provided under fixed-price contracts.  Revenue is recognised in accounting periods in which the service is rendered based on a percentage completion basis.  The percentage completion is calculated based on the man days worked on the project as a percentage of the total man days to complete the contract. 

Licence fees are recognised as income during the period in which the Company has fulfilled its obligations to the customer in accordance with the terms of the licence.

Non-refundable advance royalties and guaranteed royalties are recognised as income when the Company is contractually entitled to the relevant amounts and has no further obligations to provide services in respect of such royalties.

Cost of Sales

Cost of Sales comprises direct costs of development engineering work and products sold.  The cost of engineering time spent on development projects is also included within Cost of Sales.

Operating loss

Operating loss is the deficit of revenue after cost of sales and administrative expenses have been deducted.

Investment Income

Investment income relates to interest income, which is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.

Research and development expenditure

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

An internally generated intangible asset arising from the Company's internal development activities is recognised only if all of the following conditions are met:

·      An asset is created that can be identified (such as a block of IP);

·      The project from which the asset arises meets the Company's criteria for assessing technical and commercial feasibility;

·      It is probable that the asset created will generate future economic benefits;

·      The Company intends to complete the asset and use or sell it;

·      The development cost of the asset can be measured reliably; and

·      Sufficient resources are available to complete the development and either sell or use the asset.

Internally generated intangible assets are amortised over their useful lives.  The useful life of an internally generated intangible asset is determined with reference to the income it will generate.  Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.  See accounting policy on intangible assets below.

Patents

Expenditure on patents is recognised as an expense in the period in which it is incurred.  Patents are not treated as internally generated intangible assets as there is uncertainty as to the technical feasibility of the patent at the time the expenditure is incurred.

Segmental reporting

The Company has adopted IFRS 8 "Operating Segments".  Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker.  The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

The Board considers business from both an operating segment and geographical perspective.  The operating segments are Development Engineering, Licence Fees and Royalties and Product Sales.  Although the Licence Fees and Royalties segment does not meet the quantitative thresholds required by IFRS 8 management has concluded that this segment should be reported, as it is closely monitored by the Chief Operating Decision Maker and is expected to materially contribute to Company revenue in the future.

The geographical areas are UK, Rest of Europe, North America and Asia Pacific. 

Property, Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.  Depreciation is charged so as to write off the cost of the assets, less estimated residual value, over their useful lives, using the straight line method, on the following basis:

·      Fixtures, fittings & equipment - 25% to 50%

Residual value is the estimated amount that the Company would obtain from the disposal of the asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life, based on prices prevailing at the reporting date.  In general residual values are zero or negligible, due to the nature of assets held.

Intangible Assets

Intangible assets are stated at cost or fair value, net of amortisation and any provision for impairment.  Amortisation is provided at rates calculated to write off the cost or fair value, less estimated residual value, of each asset over its expected useful life, based on the revenue income that the asset is expected to generate.  In general residual values are zero or negligible, due to the technical and specialised nature of assets held.

Impairment of property, plant & equipment and intangible assets

At each reporting date, the Company reviews the carrying value of its property, plant & equipment and intangible fixed assets to determine whether there is any indication that those assets have suffered an impairment loss.  If any such indication exists, the recoverable amount is estimated in order to determine the extent of the impairment loss (if any).  Recoverable amount is the higher of fair value less costs to sell and value in use.  If the recoverable amount is estimated to be less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount.  An impairment loss is recognised as an expense immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value.  Cost comprises direct materials, and where applicable, those overheads that have been incurred in bringing the inventories to their present location and condition.  Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in selling and distribution.

Foreign Currencies

The presentational and functional currency of the Company is pounds sterling.  Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions.  At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date.  Gains and losses arising on retranslation are included in the statement of comprehensive income for the period within administrative expenses. 

Financial Instruments

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

All financial assets both current and non current are classed as loans and receivables per the requirements of IFRS7.

Trade receivables do not carry any interest and are initially recognised at their fair value.  They are subsequently measured at their amortised cost less any provision for impairment.  A provision for impairment is made where there is objective evidence, (including customers with financial difficulties or in default on payments), that amounts will not be recovered in accordance with the original terms of the agreement.  A provision for impairment is established when the carrying value of the receivable exceeds the recoverable amount.  The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the statement of comprehensive income within administrative expenses.

Trade payables are not interest bearing and are stated at their fair value.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.  An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.  Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Liquid resources surplus to immediate requirements are held on short to medium term deposit.  The Company considers all highly-liquid investments with original maturity dates of three months or less to be cash equivalents.

Taxation

The income tax liability is based on the taxable profit or loss for the year.  Taxable profit or loss differs from net profit or loss reported in the statement of comprehensive income because it excludes items of income and expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible.  The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.  The Company also receives a tax credit for its research and development activities.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused carried forward tax losses and unused carried forward tax credits can be utilised.  The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.  Deferred tax is charged or credited in the statement of comprehensive income, except where it relates to items charged directly to equity, in which case the deferred tax is also dealt with in equity.

Provisions

Provision is made for onerous contracts at the fair value of the minimum unavoidable lease payments.  A provision is recognised when the Company has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Operating leases

Costs in respect of operating leases are charged on a straight line basis over the lease term even if payments are not made on such a basis.

The Company also acts as a lessor of assets, with respect to surplus office space at the systems design facility.  Lease income from tenants is recognised on a straight line basis over the term of the lease and is set off against the lease rentals paid to the landlord.

Retirement benefit costs

The pension costs charged in the financial statements represent the contributions payable by the Company during the year to the personal pension plans of certain directors and employees as part of a group personal pension plan.

Share-based Payments

IFRS 2, 'Share-based payments', has been applied to all grants of equity instruments after 7 November 2002 that were unvested as at 1 April 2010.

In accordance with IFRS 2, equity-settled share based payments are measured at fair value (including the effect of non market-based vesting conditions) at the date of grant.  Fair value is measured by the use of the Black-Scholes pricing model incorporating an appropriate market price discount based on the volume of shares.  The fair value is recognised on a straight line basis over the vesting period, based on the Company's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.