Solid State PLC
Annual Report 2009

Plain-text annual report

Annual Report & Accounts 31 March 2009 Solid State PLC 1 CONTENTS Page Directors, Secretary and Advisers 2 Chairman’s Statement 3 Directors’ Report 5 Report of the Independent Auditors 9 Consolidated Income Statement 11 Consolidated Statement of Changes in Equity 12 Consolidated Balance Sheet 13 Consolidated Cash Flow Statement 14 Notes to the Financial Statements 16 Notice of Annual General Meeting 50 Solid State PLC 2 DIRECTORS, SECRETARY AND ADVISERS Directors: Peter Haining, FCA, Chairman Lewis Cyril Ashby Newnham, Deputy Chairman Gary Stephen Marsh, Managing Director William George Marsh, Director John Michael Lavery, Director Gordon Leonard Comben, Director Company Secretary and Peter Haining, FCA Registered Office: Solid State PLC Unit 2 Eastlands Lane Paddock Wood Kent TN12 6BU Company Number: 771335 Nominated Adviser: Charles Stanley Securities 25 Luke Street London EC2A 4AR Broker: Charles Stanley Securities 25 Luke Street London EC2A 4AR Auditors: BDO Stoy Hayward LLP 55 Baker Street London W1U 7EU Solicitors: Thomson Snell & Passmore 3 Lonsdale Gardens Tunbridge Wells Kent TN1 1NX Bankers: HSBC plc 9 Wellesley Road Croydon Surrey CR9 2AA Registrars: Capita IRG plc Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Country of Incorporation of Parent Company: Great Britain Legal Form: Public Limited Company Solid State PLC 3 CHAIRMAN’S STATEMENT ResultsThe audited profit before tax of the Group was £614,501 (2008: £424,442) on revenue of £12,521,786 (2008: £10,724,333). The basic earnings per share amounted to 7.9p (2008: 5.4p). The pre-tax profit for the year ended 31st March 2008 is stated after charging non-recurring costs of the re-organisation at Paddock Wood of £57,863. Dividends The Directors recommend that a final dividend of 2p per share be paid. An interim dividend of 1p per share was paid in January 2009 giving a total dividend in respect of the year of 3p per share (2008: 2p per share). The final dividend will be paid on 7th September 2009 to shareholders on the register at the close of business on 28th August 2009.Trading Review The key performance indicators measured by management are sales, bookings and gross profit margins. Bookings are sales orders received. Solid State Supplies Whilst bookings slowed during the second half of this financial year in line with the outlook in our interim statement, sales increased by 3% compared to the first half year. This compares favourably with our industry association AFDEC which reported a contraction in the market for 2008 of -5.8%. Order patterns at present have shifted away from placing longer term schedules to requirements for immediate delivery thus preserving our order backlog which is 14% higher than the same period last year. Gross profit margins were impacted during this year as a result of the sudden devaluation of sterling against the US dollar. However, our currency hedging strategies protected us against the worst effects of this devaluation. Although we have recently seen some improvement in certain areas of the distribution market, conditions remain uncertain and we are therefore keeping tight control on our overheads. During this fiscal year we broadened our product range in our focus areas of embedded processing/connectivity and power semiconductors and modules. We believe there will be further opportunities for new product lines following the recent wave of consolidation in our industry which together with the steps we have already taken mean we are well placed to take advantage of the upturn in the general economy when it comes. Steatite and Wordsworth Technology Trading in both companies remains strong. Sales in Steatite were up 22.4% compared to the previous year, whilst Wordsworth sales were up 25.8% compared to the previous year. Key customer contracts within military and the oil industry played a major part in both companies’ growth. The decline in sterling, however, impacted on the gross margins with a decline from 31.1% to 27.8%. Nevertheless the higher turnover level ensured that the level of gross profit overall increased by almost £250,000 with net profit before tax increasing by 10.7%. The economic climate continues to affect the manufacturing sector but both companies are well positioned to mitigate the current recession with major bids in place and due to be awarded during the first quarter. New product developments based on lower power systems will assist in growing the business whilst helping the company’s commitment to design more environmentally sustainable systems. We will continue to pursue our strategy with value added products, whilst endeavouring to enhance margins with particular attention to exchange rate fluctuations over the ensuing months. We will benefit from reduced overheads following the combination of the two businesses into one company. The outstanding order book remains strong with a workforce that is skilled and tuned to the business needs. We remain cautiously optimistic for the future. Solid State PLC 4 CHAIRMAN’S STATEMENT (continued) Summary These results record a strong year with a 16.7% increase in turnover and an increase in pre-tax profit from £424,442 to £614,501. This has been achieved despite the very significant decline in the value of sterling against the US dollar and the general economic climate. The effects of the recession have been evidenced by relatively low bookings throughout the Group in the last few months of the year and a tendency for customers to take a cautious approach to placing larger medium term orders, but several sound contracts have been achieved since the balance sheet date and the Directors consider the Group is well placed to trade through the forthcoming months when the UK economy is expected to remain in recession and to benefit from an economic upturn when the UK economy recovers. The Group continues to look for suitable UK acquisitions within the electronics industry. Renewal of authority to purchase the Company’s sharesLast year, a resolution was passed at the Annual General Meeting to give the Company the authority to purchase its own Ordinary shares on the Stock Exchange. This authority would expire after a period of eighteen months from the passing of the resolution. In order to avoid this authority expiring during the next year and the need to call an extraordinary general meeting to renew the authority, a resolution to renew the authority is set out in the notice of the Annual General Meeting on page 50 of this document. Under the terms of the resolution to be proposed at the Annual General Meeting, the maximum number of shares which may be purchased is 923,476 shares representing 15% of the issued Ordinary share capital of the Company. The minimum price payable by the Company for its Ordinary shares will be 5p and the maximum price will be £1. The authority will automatically expire after a period of eighteen months from the passing of the resolution unless renewed. It is not the Directors’ current intention to exercise the power to purchase the Company’s Ordinary shares but they believe that under certain circumstances it would be in the Company’s best interests to do so. Your Directors consider that the resolution to be proposed at the meeting is in the best interests of the Company and its shareholders. They unanimously recommend that all Ordinary shareholders vote in favour of the resolution at the Annual General Meeting as they intend to do in respect of their beneficial holdings amounting to 4,539,685 Ordinary shares, representing 73.74% of the Company’s issued Ordinary share capital. ConclusionI would like to thank my fellow Directors and all the staff of the Group for their continued support. Peter HainingChairman3rd August 2009 Solid State PLC 5 DIRECTORS’ REPORT For the year ended 31st March 2009 The Directors submit their report together with the audited financial statements of the Group in respect of the year ended 31st March 2009. Principal Activities, Review of the Business and Future Developments The principal activities of the Group during the year continued to be those of the distribution of electronic components and materials and the manufacturing of electronic equipment. The key performance indicators recognised by management are sales, bookings and group profit margins. Bookings are sales orders received. An overall review of the Group’s trading performance and future developments is given in the Chairman’s Statement. The Directors consider the results for the year to be very satisfactory especially in view of the decline in the value of sterling against the US dollar which has had the effect of increasing the costs of the majority of the group’s purchases and the general decline in the UK economy. The risk of a serious erosion of gross profit margin arising from the currency fluctuations has been offset to some extent by relatively short term hedging arrangements for the purchase of dollars, and by converting sales to dollars rather than sterling in many cases. The success of this policy is evidenced by the fact that the group gross profit margin only declined to a relatively limited extent from 30.9% to 28.1%, and the overall 16.8% increase in turnover resulted in an increase in gross profit from £3,310,394 to £3,514,300. There is a risk in the current economic recession of a decline in bookings which would result in a decline in billings. Analysis of the ratio of bookings to billings (the book to bill ratio) shows that for the first half of the year under review across the group this amounted to 1.026 : 1 but had declined to 0.939 : 1 for the year as a whole. This reflected lower levels of bookings in all areas of the group in the last months of the financial year, and this has been reflected in group turnover which for the first three months of the new financial year has been 15.9% lower than for the same period last year. However since the balance sheet date the group has been successful in concluding negotiations on several large contracts for delivery in the current financial year and the book to bill ratio for the three month period has been 1.663 : 1 which indicates that turnover in the next few months should be relatively strong.Overheads were carefully controlled with an increase of less than 2% over the previous year and the net profit before tax amounted to £614,501 compared with £424,442 in the previous year. The distribution market remained difficult and Solid State Supplies did well to achieve a small increase in its turnover. The range is being expanded and recent amalgamations within the industry should provide opportunities to further extend the range in the current year. At Redditch, the loss of revenue in the military sector recorded last year is being reversed and Steatite is being very successful in acquiring large contracts in the military sector as well as in batteries and ruggedised computers. The ICP division, where many customers are end users on a small scale, has shown the effects of the recession and pressure on margins here is particularly acute. The Group has continued to invest in research and development activities at Redditch with expenditure of approximately £150,000 in the year, particularly in the area of industrial batteries for military purposes. The Group has continued to improve its websites which are considered a major marketing tool. The Group finances its operations by a mixture of retained profits, bank borrowings and invoice discounting facilities. The two bank loans were cleared during the year and the Directors are pleased to note that the net tangible assets have increased by over £370,000 in the year. Solid State PLC 6 DIRECTORS’ REPORTFor the year ended 31st March 2009 (continued) The Group is mainly exposed to credit risk from credit sales. It is Group policy to assess the credit risk of new customers and to factor the information from these credit ratings into future dealings with the customers. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Directors monitor the liquidity and cash flow risk of the Group carefully. The Group has an agreed overdraft limit with the Group’s bankers to help manage fluctuations in cash flow. Cash flow is monitored by the Directors on a regular basis and appropriate action is taken where additional funds are required. The success of the Group’s policies on credit sales is evidenced by the fact that the provision in the year was £28,000 which is less than 0.3% of turnover. The Group does not comment on environmental matters. The Group continues to look for suitable UK acquisitions within the electronics industry. Results and Dividends The consolidated income statement is set out on page 11. The Directors recommend that a final dividend of 2p per share is paid. The total dividend for the year is thus 3p per share. The final dividend will be paid on 7th September 2009 to shareholders on the register at the close of business on 28th August 2009. Directors The Directors of the Company during the year were: P Haining FCA L C A Newnham G S Marsh W G Marsh J M Lavery G L Comben (appointed 13th November 2008) Peter Haining FCA, aged 52, Non-executive Director, Company Secretary and ChairmanPeter Haining qualified as a chartered accountant in 1980 and later worked at Binder Hamlyn. He left Binder Hamlyn in 1992, together with three colleagues, to establish The Kings Mill Partnership, who were the Company’s previous auditors. As well as fulfilling a role as Non-executive Director and Chairman, Peter Haining has specific responsibility for reviewing and advising on the Group’s budgets and financial affairs. Cyril Newnham, aged 71, Non-executive Director and Deputy ChairmanCyril Newnham is a chartered accountant who has held senior management posts in major companies, both in the UK and overseas. He has held a number of directorships within the electronics industry. He currently conducts a management consultancy practice. Details of the interests of Directors in the shares of the Company and Directors’ service contracts are stated in Note 5 to the financial statements. Corporate Governance The Board confirms that the Group has had regard, throughout the accounting period, with the provisions set out in Section 1 of the Combined Code which was issued by the Financial Reporting Council in June 2006. Whilst not required to do so, as a matter of best practice, the Directors have voluntarily endeavoured to comply with those provisions which they consider to be relevant to a company of this size. The audit committee consists of Messrs L C A Newnham and W G Marsh, and meets regularly to ensure that the financial performance of the Group is properly recorded and monitored, to meet the auditors and to review the reports from the auditors relating to accounts and internal control systems. The remuneration committee consists of Messrs W G Marsh, L C A Newnham and P Haining. The purpose of the committee is to review the performance of the full time executive Directors and to set the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of the shareholders. It is a rule of the committee that no Director shall participate in discussions or decisions concerning his own remuneration. Solid State PLC 7 DIRECTORS’ REPORTFor the year ended 31st March 2009 (continued) Board of Directors The Board consists of three executive Directors and three Non-executive Directors and meets regularly throughout the year. The Board comprises the executive management of the Group and thus maintains full control over its activities. Decisions are accordingly taken quickly and effectively following consultation among the Directors concerned if any matters arise. The Board takes the view that this direct but flexible approach has enabled the Company to deal effectively with all matters. Going Concern The Directors confirm that they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Purchase of Own Shares At the year end the Company had in place authority to purchase 923,476 ordinary shares under authority given by a resolution at the Annual General Meeting on 16th September 2008. This authority expires on 16th March 2010. Financial Instruments Details of the use of financial instruments by the Company and its subsidiaries are contained in Note 19 of the financial statements. Internal Control In respect of internal controls, the Directors are aware of the Turnbull Report and are continually reviewing the effectiveness of the systems of internal controls, the key elements of which having regard to the size of the Group are that the Board meets regularly and takes the decisions on all material matters, the organisational structure ensures that responsibilities are defined and authority only delegated where appropriate, and that the regular management accounts are presented to the Board wherein the financial performance of the Group is analysed. The Directors acknowledge that they are responsible for the system of internal control which is established in order to safeguard the assets, maintain proper accounting records and ensure that financial information used within the business or published is reliable. Any such system of control can, however, only provide reasonable, not absolute, assurance against material misstatement or loss. Statement of Directors’ Responsibilities The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report which complies with the requirements of the Companies Act 1985. The Directors are responsible for preparing the annual report and financial statements in accordance with the Companies Act 1985. The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The Directors have chosen to prepare financial statements for the Company in accordance with UK Generally Accepted Accounting Practice. Group Financial Statements International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements.” In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Solid State PLC 8 DIRECTORS’ REPORT For the year ended 31st March 2009 (continued) A fair presentation also requires the Directors to: (cid:129)consistently select and apply appropriate accounting policies; (cid:129)present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and (cid:129)provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Parent company financial statements Company law requires directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors are required to: (cid:129)select suitable accounting policies and then apply them consistently. (cid:129)prepare financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. (cid:129)make judgements and estimates that are reasonable and prudent. (cid:129)state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Creditor Payment Policy The Company’s policy for the year to 31st March 2009 for all suppliers is to fix terms of payment when agreeing the terms of each business transaction, to ensure the supplier is aware of those terms and to abide by the agreed terms of payment. Creditor days based on the year end trade creditors and purchases made in the year were 47 days (2008: 52 days). Auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. A resolution to reappoint BDO Stoy Hayward LLP as auditors will be proposed at the next annual general meeting. By order of the Board P Haining FCA Secretary 3rd August 2009 Registered Office: Unit 2, Eastlands Lane, Paddock Wood, Kent, TN12 6BU Solid State PLC 9 REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC We have audited the Group and Parent Company financial statements (the “financial statements”) of Solid State PLC for the year ended 31st March 2009 which comprise the consolidated income statement, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective Responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the annual financial report and Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and for preparing the Parent Company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors Report is consistent with those financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman’s Statement and Directors’ Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies within the financial statements. Our responsibilities do not extend other information Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely on this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we have also evaluated the overall adequacy of the presentation of information in the financial statements. Solid State PLC 10 REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC (continued) Opinion In our opinion: - the Group financial statements give a true and fair view, in accordance with IFRS adopted by the European Union, of the state of the Group’s affairs as at 31st March 2009 and of the Group’s profit for the year then ended; - the Parent Company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Parent Company’s affairs as at 31st March 2009; - the financial statements have been properly prepared in accordance with the Companies Act 1985; and - the information given in the Directors’ Report is consistent with the financial statements. BDO Stoy Hayward LLPChartered Accountants and Registered Auditors London 3rd August 2009Solid State PLC 11 CONSOLIDATED INCOME STATEMENT For the year ended 31st March 2009 20092008 Notes £ £ Revenue 2 12,521,786 10,724,333 Cost of sales (9,007,486) (7,413,939) _________ _________ GROSS PROFIT 3,514,300 3,310,394 Distribution costs (1,204,574) (1,238,794) Administrative expenses (1,634,967) (1,547,515) _________ _________ PROFIT FROM OPERATIONS 3 674,759 524,085 Finance income 6 67 397 Finance costs 7 (60,325) (100,040) _________ _________ PROFIT BEFORE TAXATION 614,501 424,442 Tax expense 8 (128,670) (91,362) _________ _________ PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 485,831 333,080 _________ _________ EARNINGS PER SHARE Basic 9 7.9p 5.4p Diluted 9 7.9p 5.4pThe notes on pages 16 to 44 form part of these financial statements. Solid State PLC 12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31st March 2009 Share Capital Foreign Share Premium Redemption Exchange Retained Capital Reserve Reserve Reserve Earnings Total Balance at 31st March 2007 307,826 756,980 4,674 - 1,356,870 2,426,350 Profit for year ended 31st March 2008 - - - - 333,080 333,080 Translation differences on overseas operation - - - 52,864 (52,864) - _______ _______ _______ _______ ________ ________ Total recognised income in year - - - 52,864 280,216 333,080 _______ _______ _______ _______ ________ ________ Dividends - - - - (169,304) (169,304) Share based payment expense - - - - 9,753 9,753 _______ _______ _______ _______ _______ _______ Balance at 31st March 2008 307,826 756,980 4,674 52,864 1,477,535 2,599,879 Profit for year ended 31st March 2009 - - - - 485,831 485,831 Translation differences on overseas operation - - - 5,262 - 5,262 _______ _______ _______ _______ _______ _______ Total recognised income in year - - - 5,262 485,831 491,093 _______ _______ _______ _______ _______ _______ Dividends - - - (138,522) (138,522) Share based payment expense - - - - 12,546 12,546 _______ _______ _______ _______ _______ _______ Balance at 31st March 2009 307,826 756,980 4,674 58,126 1,837,390 2,964,996 _______ _______ _______ _______ _______ _______ The notes on pages 16 to 44 form part of these financial statements. Solid State PLC 13 CONSOLIDATED BALANCE SHEET at 31st March 2009 2009 2008 Notes £ £ £ £ ASSETS NON-CURRENT ASSETS Property, plant and equipment 11 289,248 288,534 Intangible assets 12 2,032,806 2,040,373 ________ ________ TOTAL NON-CURRENT ASSETS 2,322,054 2,328,907 CURRENT ASSETS Inventories 15 1,554,029 1,562,832 Trade and other receivables 16 2,219,874 2,043,869 Cash and cash equivalents 216,796 340,190 ________ ________ TOTAL CURRENT ASSETS 3,990,699 3,946,891 ________ ________ TOTAL ASSETS 6,312,753 6,275,798 ________ ________ LIABILITIES CURRENT LIABILITIES Bank overdraft 668,280 803,721 Trade and other payables 17 1,838,768 1,826,434 Bank borrowings 18 712,039 938,893 Corporation tax liabilities 128,670 106,871 ________ ________ TOTAL LIABILITIES 3,347,757 3,675,919 ________ ________ TOTAL NET ASSETS 2,964,996 2,599,879 ________ ________ CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital 20 307,826 307,826 Share premium reserve 21 756,980 756,980 Capital redemption reserve 21 4,674 4,674 Foreign exchange reserve 21 58,126 52,864 Retained earnings 21 1,837,390 1,477,535 ________ ________ TOTAL EQUITY 2,964,996 2,599,879 ________ ________ The financial statements were approved by the Board of Directors and authorised for issue on 3rd August 2009 and were signed on its behalf by: P. HainingDirectorThe notes on pages 16 to 44 form part of these financial statements. Solid State PLC 14 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st March 2009 2009 2008 £ £ £ £ OPERATING ACTIVITIES Profit before taxation 614,501 424,442 Adjustments for: Depreciation 89,235 107,794 Amortisation 7,567 641 Loss on disposal of property, plant and equipment 3,346 579 Share based payment expense 12,546 9,753 Finance income (67) (397) Finance costs 60,325 100,040 _______ ______ Profit from operations before changes in working capital and provisions 787,453 642,852 Decrease/(increase) in inventories 8,803 (293,042) (Increase)/decrease in trade and other receivables (176,005) 441,248 Increase in trade and other payables 32,803 159,829 _______ _______ (134,399) 308,035 _______ _______ Cash generated from operations 653,054 950,887 Income taxes paid (106,871) (92,352) Income taxes repaid - 941 _______ _______ (106,871) (91,411) _______ _______ Cash flow from operating activities 546,183 859,476 INVESTING ACTIVITIES Purchase of property, plant and equipment (101,795) (67,310) Purchase of computer software - (38,477) Proceeds of sales from property, plant and equipment 8,500 13,499 Acquisition of subsidiary, net of cash acquired - (448,710) Interest received 67 397 _______ _______ (93,228) (540,601) _______ _______ 452,955 318,875 FINANCING ACTIVITIES Repayment of bank borrowings (216,337) (335,809) Invoice discounting finance (net movement) (10,517) 293,921 Interest paid (60,325) (100,040) Dividend paid to equity shareholders (158,991) (169,304) _______ _______ (446,170) (311,232) _______ _______ INCREASE IN CASH AND CASH EQUIVALENTS 6,785 7,643 _______ _______ The notes on pages 16 to 44 form part of these financial statements. Solid State PLC 15 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st March 2009 (continued) Cash and cash equivalents comprise: 2009 2008 £ £ Net increase in cash and cash equivalents 6,785 7,643 Cash and cash equivalents at beginning of year (463,531) (471,174) Exchange gains on cash and cash equivalents 5,262 - _______ _______ Cash and cash equivalents at end of year (451,484) (463,531) _______ _______ There were no significant non-cash transactions. 2009 2008 £ £ Cash available on demand 216,796 340,190 Overdrafts (668,280) (803,721) _______ _______ (451,484) (463,531) _______ _______ Solid State PLC 16 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations issued by the International Accounting Standards Board as adopted by the European Union (“IFRSs”) and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRSs. This is mandatory for accounting periods beginning on or after 1st January 2007. As allowed by IFRS 1, we have elected not to apply IFRS retrospectively for business combinations computed prior to 1st April 2006 and have used the carrying value of goodwill resulting from business combinations occurring before the date of transition as deemed costs, subjecting this to impairment reviews at the date of transition (1st April 2006) and at the end of each financial year thereafter. Basis of Consolidation Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Business Combinations The consolidated financial statements incorporate the results of business combinations using the purchase method other than disclosed above. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the income statement. Impairment of non-financial assets Impairment tests on goodwill are undertaken annually on 31st March, and on other non-financial assets whenever events or changes in circumstances indicate that their carrying value may not be reasonable. Where the carrying value of an asset exceeds its recoverable amount (ie the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Impairment charges are included in the administrative expenses line item in the consolidated income statement, except to the extent that they reverse gains previously recognised in the consolidated statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed. Solid State PLC 17 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Intangible Assets (other than goodwill) Intangible assets are recognised on business combinations if they are separable from the acquired entity or arise from other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques. Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight line basis over their useful economic lives. Cost includes all directly attributable costs of acquisition. The amortisation expense is included within the administration expense line in the consolidated income statement. Software is amortised over its useful economic life of 5 years, and UN licences are amortised over their expected useful life of 10 years from the date of original grant. Intangible assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Revenue Revenue represents sales to external customers at invoiced amounts less value added tax or local taxes on sales. Revenue is recognised when the risks and rewards of owning the goods has passed to the customer which is generally on collection. For goods that are subject to bill and hold arrangements this means: • the goods are complete and ready for collection; • the goods are separately identified from the Group’s other stock and are not used to fulfil any other orders; • and the customer has specifically requested that the goods be held pending collection. Normal payment terms apply to the bill and hold arrangements. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs. The corresponding liability is recognised within provisions. Depreciation is provided on all items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates: Short leasehold property improvements- straight line over minimum life of lease Fittings and equipment- 25% per annum on a reducing balance basis Computers- 20% per annum on a straight line basis Motor vehicles- 25% per annum on a reducing balance basis Depreciation is provided on all UN licences to write off the carrying value of each licence over its expected useful life, which is generally 10 years from its original grant. Leased assets Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. The land and buildings elements of property leases are considered separately for the purposes of lease classification. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads. Net realisable value is based on estimated selling price less any additional costs to completion and disposal. Solid State PLC 18 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: (cid:129)the initial recognition of goodwill (cid:129)the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit: and (cid:129)investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the differences can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered) Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities, and the deferred tax assets and liabilities relate to taxes levied by the same tax authority. Pensions The pension schemes operated by the Group are defined contribution schemes. The pension cost charge represents the contributions payable by the Group. Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling at the balance sheet date. Exchange differences arising on retranslation of the net assets and results of the overseas operations are recognised directly in the “foreign exchange reserve”. Research and development costs Expenditure on internally developed products is capitalised if it can be demonstrated that: (cid:129)it is technically feasible to develop the product for it to be sold; (cid:129)adequate resources are available to complete the development; (cid:129)there is an intention to complete and sell the product; (cid:129)the Group is able to sell the product; (cid:129)sale of the product will generate future economic benefits; and (cid:129)expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the cost of sales line in the income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the income statement as incurred. None of the development costs during the years ended 31st March 2008 and 31st March 2009 met the conditions necessary for capitalisation. Solid State PLC 19 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Dividends Equity dividends are recognised when they become legally payable. Interim dividends are recognised when paid. Final dividends are recognised when approved by the shareholders at an annual general meeting. Financial assets The Group classifies its assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group’s accounting policy for each category is as follows: Fair value through profit or loss:This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other than derivatives, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through the profit and loss account Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Financial liabilitiesThe Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. Other than financial liabilities in a qualifying hedging relationship (see below), the Group’s accounting policy for each category is as follows: Fair value through the profit and loss: This category comprises only out-of-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other financial liabilities: Other financial liabilities include the following items: (cid:129)Trade payables and other short term monetary liabilities, which are recognised at amortised cost. (cid:129)Bank borrowings are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of liability carried in the balance sheet. “Interest expense” in this context includes initial transaction costs and premia payable on redemption, as well as any interest while the liability is outstanding. Solid State PLC 20 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Shared based payment Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a change is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Standards, amendments and interpretations to published standards not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1st April 2009 or later periods and which the Group has decided not to adopt early. These are: -IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1st January 2009). This standard sets out requirements for the disclosure of information about an entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates, and its major customers. It replaces IAS 14, Segmental Reporting. The Group expects to apply this standard in the accounting period beginning on 1 April 2009. As this is a disclosure standard it will not have any impact on the results or net assets of the Group. -Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations(effective for accounting periods beginning on or after 1st January 2009). Management is currently assessing the impact of the Amendment on the accounts. -Amendment to IAS 1, Presentation of financial statements: a revised presentation (effective for accounting periods beginning on or after 1st January 2009). The revised IAS 1 introduces a single “statement of comprehensive income” incorporating both the profits and losses that have traditionally been reported in the income statement and other gains and losses that are currently reported in the Statement of Recognised Income and Expense or the Statement of Changes in Equity. As this is a disclosure standard it will not have any impact on the results or net assets of the Group. -Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27, ‘Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1st July 2009). The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the accounts. -IFRIC 12 ‘Service concession arrangements’, IFRIC 13 ‘Customer loyalty programmes’, IFRIC 15 ‘Agreements for the Construction of Real Estate, IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation, IFRIC17 ‘Distribution of Non-cost Assets to Owners’, IFRIC 18 ‘Transfer of Assets from Customers’, IFRC 14 ‘IAS 19 – The limit on a defined benefit asset, minimum funding, requirements and their interaction’, Amendment to IAS 23 ‘Borrowing and Amendments to IAS 32 and IAS 1 ‘Puttable Financial Instruments and Obligations Arising on Liquidation’ will not have a material impact on the financial statements of the Group. -Improvements to IFRS (effective for accounting periods beginning on or after 1st July 2009). This improvements project is still to be endorsed by the European Union (EU). The amendments take various forms, including the clarification of the requirements of IFRS, the elimination of inconsistencies between Standards and a restructuring of IFRS 1 First-time Adoption of IFRS. Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly–Controlled Entity or Associate (effective for accounting periods beginning on or after 1st January 2009). These amendments are still to be endorsed by the EU. Solid State PLC 21 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Standards, amendments and interpretations to published standards not yet effective (continued)Improvements to IFRS (continued) The amendments permit the entity at its date of transition to IFRSs in its separate financial statements to use a deemed cost to account for its investment in subsidiary, jointly-controlled entity or associate. The deemed cost of such investment could be either the fair value of the investment at the date of transition, which would be determined in accordance with IAS 39 Financial instruments: Recognition and Measurement or; the carrying amount of the investment under the previous GAAP at the date of transition. These changes would have no material effect on the financial statements of the Group. -IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1st January 2009). The revised IAS 23 is still to be endorsed by the EU. The main change from the previous version is the removal of the option of immediately recognising as an expense borrowing costs that relate to qualifying assets, broadly being assets that take a substantial period of time to get ready for use or sale. This revision will have no material impact on the financial statements of the Group. -Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidations (effective for accounting periods beginning on or after 1st January 2009). This amendment is still to be endorsed by the EU. The amendments result in certain types of financial instrument that meet the definition of a liability, but represent the residual interest in the net assets of the entity, being classified as equity. These amendments will have no material impact on the financial statements of the Group. -Amendments to IAS 27 Consolidated and Separate Financial Statements (effective for accounting periods beginning on or after 1st July 2009). The revised IAS27 relates in particular to acquisitions of subsidiaries achieved in stages and disposals of interests, with significant differences in the accounting depending on whether control is gained or not, or a transaction simply results in a change in the percentage of the controlling interest. The Amendment does not require the restatement of previous transactions. The Amendment must be adopted at the same time as IFRS3 Revised. -Amendments to IAS39 and IFRS7 Declaration of Financial Instruments (effective for accounting periods beginning on or after 1st July 2008). The Amendment permits an entity to reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss category in particular circumstances. The Amendment also permits an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that would have met the definition of loans and receivables (if the financial asset had not be designated as available for sale), if the entity has the intention and ability to hold that financial asset for the foreseeable future. A further Amendment issued in November 2008 clarifies the effective date and transitional arrangements of the above Amendment. This revision will have no material impact on the financial statements of the Group. Amendment to IAS39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items (effective for accounting periods beginning on or after 1st July 2009). This Amendment clarifies how principles that determine whether a hedged risk or portion of cash flow is eligible for designation should be applied in the designation of a one-sided risk in a hedged item, and inflation in a financial hedged item. This statement will have no material impact on the financial statements of the Group. -Amendment to IFRIC9 and IAS39 Embedded Derivatives (effective for accounting periods beginning on or after 30th June 2009). The Amendment clarifies the treatment of embedded derivatives in host contracts that are reclassified out of fair value through profit or loss following the changes introduced by the Amendment to IAS 39 and IFRS7: Reclassification of Financial Instruments. This statement will have no material impact on the financial statements of the Group. -Amendment to IFRS7 Improving Disclosures about Financial Instruments (effective for accounting periods beginning on or after 1st January 2009). The Amendment requires the analysis of each class of financial asset and financial liability into a three level fair value measurement hierarchy. It requires additional disclosures in respect of those financial instruments classified as Level Three (namely those that are measured using a valuation technique which uses inputs that are not based on observable market data). It also implements some changes to the definition of and disclosure associated with liquidity risk. Solid State PLC 22 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Critical Accounting Judgements and Estimates The Group’s principal accounting policies are set out above. Management is required to exercise significant judgement and make use of estimates and assumptions in the application of these policies. Areas which Management believes require the most critical accounting judgements are: Impairment of receivables At each balance sheet date, each subsidiary evaluates the collectability of trade receivables and records provisions for impairment based on experience including, for example, comparisons of the relative age of accounts and consideration of actual write-off history. The actual level of debt collected may differ from the estimated levels of recovery, which could impact on operating results positively or negatively. Inventory provisions At each balance sheet date, each subsidiary evaluates the recoverability of inventories and records provisions against these based on an assessment of net realisable values. The actual net realisable value of inventory may differ from the estimated realisable values, which could impact on operating results positively or negatively. Impairment of intangible assets In line with IAS 36 the Group is required to test the carrying value of goodwill, at least annually, for impairment. As part of this review process the recoverable amount of goodwill is determined using value in use calculations, which requires estimates for future cash flows and as such is subject to estimates and assumptions. Further details are contained in note 13 of the financial statements. Development costs The Group is engaged in the development of new products and processes the costs of which are capitalised as intangible assets or tangible fixed assets if, in the opinion of Management, there is a reasonable expectation of economic benefits being achieved. The factors considered in making these judgements include the likelihood of future orders and the anticipated volumes, margins and duration associated with these. In the years under review no development costs were capitalised or there were no projects where there were expected to be future economic benefits due to uncertainty as to the markets for new products Selection of depreciation and amortisation rates The rates of depreciation on tangible fixed assets and of amortisation of intangible fixed assets other than goodwill are reviewed annually in the light of expected useful lives and any expected proceeds of sale. Share based payment The rate at which the fair value of share options is charged to the consolidated income statement is reviewed annually in the light of the performance of the shares and any changes in expectation as to when the share options might be exercised. Solid State PLC 23 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 2. REVENUE Revenue arises from: 2009 2008 £ £ Sale of goods 12,487,364 10,688,925 Provision of services 34,422 35,408 _________ _________ 12,521,786 10,724,333 _________ _________ 3. PROFIT FROM OPERATIONSThis has been arrived at after charging/(crediting): 2009 2008 £ £ Staff costs (see note 4) 1,961,019 1,844,172 Employment termination costs (included in staff costs) 16,559 57,863 Depreciation of property, plant and equipment 89,235 107,794 Amortisation of computer software 7,567 641 Loss on disposal of property, plant and equipment 3,346 579 Goodwill impairment charge - - Auditors’ remuneration: Audit services 37,273 38,670 Operating lease rentals: Plant and machinery 23,423 24,724 Other 100,473 108,140 Research and development costs 154,348 94,422 Foreign exchange differences (238,397) (155,408) _______ _______ Included in audit fees is an amount of £1,000 (2008: £1,000) in respect of the Company. The foreign exchange differences have been treated as a reduction in cost of sales rather than as a negative overhead. A corresponding adjustment has been made to the comparative figures. Solid State PLC 24 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 4. STAFF COSTSStaff costs for all employees during the year, including the executive Directors, were as follows: 2009 2008 £ £ Wages and salaries 1,768,479 1,663,748 Social security costs 192,540 180,424 Other pension costs - - ________ ________ 1,961,019 1,844,172 ________ ________ Wages and salaries include termination costs of £16,559 (2008: £57,863) The average monthly number of employees during the year, including the three executive Directors, was as follows: 2009 2008 Number Number Selling and distribution 26 25 Manufacturing 14 15 Management and administration 25 22 __ __ 65 62 __ __ Solid State PLC 25 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 5. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS The value of all elements of remuneration received by each Director in the year was as follows: Salary Fees Benefits in kind Total emoluments Pension contributions Share based payments Total £ £ £ £ £ £ £ 31st March 2009 Executive Directors W G Marsh 12,000 - 4,000 16,000 - - 16,000 G S Marsh 109,000 - 9,000 118,000 - 6,000 124,000 J M Lavery 102,000 - 16,000 118,000 - 6,000 124,000 Non-executive Directors P Haining - 12,000 - 12,000 - - 12,000 L C A Newnham - 12,000 - 12,000 - - 12,000 G L Comben 5,000 - 2,000 7,000 - - 7,000 ______ ______ ______ ______ ______ ______ ______ Total 228,000 24,000 31,000 283,000 -12,000 295,000 ______ ______ ______ ______ ______ ______ ______ 31st March 2008 Executive Directors W G Marsh 12,000 - 4,000 16,000 - - 16,000 G S Marsh 95,000 - 11,000 106,000 - 5,000 111,000 J M Lavery 85,000 - 16,000 101,000 - 5,000 106,000 Non-executive Directors P Haining - 12,000 - 12,000 - - 12,000 L C A Newnham - 12,000 - 12,000 - - 12,000 ______ ______ ______ ______ ______ ______ ______ Total 192,000 24,000 31,000 247,000 -10,000 257,000 ______ ______ ______ ______ ______ ______ ______ The executive Directors waived their entitlement to emoluments during the year as follows: 2009 2008 £ £ W G Marsh 24,000 24,000 ______ ______ The principal benefits in kind relate to the provision of company cars. In addition to the above, fees totalling £52,655 (2008: £47,825) arose during the year in respect of accountancy services provided by The Kings Mill Partnership, a firm of which P Haining is a partner. A balance of £8,369 (2008: £9,470) was due to The Kings Mill Partnership at 31st March 2009. The fees for the year ended 31st March 2008 included £2,300 which relates to the purchase of RZ Pressure Instruments Supply SARL. These costs have been capitalised in investments in the Company and added to the goodwill on consolidation. Solid State PLC 26 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 5. DIRECTORS’ EMOLUMENTS, INTERESTS AND SERVICES CONTRACTS (continued)The three executive Directors have service contracts with the Company which are terminable by the Company, or the relevant Director, on one year’s notice. The Directors of the Company on 3rd August 2009 and at the balance sheet date, and their interest in the issued ordinary share capital of the Company at that date, at 31st March 2009 and 31st March 2008 or date of appointment if later, were as follows: 03.08.09 31.03.09 31.03.08 G L Comben 2,742,606 2,742,606 2,742,606 W G Marsh 1,700,500 1,700,500 1,700,500 G S Marsh 73,472 73,472 73,420 J M Lavery 607 607 569 P Haining 12,500 12,500 12,500 L C A Newnham 10,000 10,000 10,000 Details of the options over the Company’s shares granted under the Enterprise Management Incentives Scheme are as follows: Options Options held at held at Exercise Date of Exercise 01.04.08 Lapsed Granted 31.03.09 price grant period G S Marsh 317,460 - - 317,460 31.5p 22.01.08 Jan 2009 onwards J M Lavery 317,460 - - 317,460 31.5p 22.01.08 Jan 2009 onwards The market price of the shares at 31st March 2009 was 17.5p (2008: 28.5p), with a quoted range during the year of 16.5p to 28.5p. No director exercised any share options during the year, or in the prior year. 6. FINANCE INCOME2009 2008 £ £ Interest receivable 67 97 Government electronic filing incentives - 300 ___ _____ 67 397 ___ _____ Solid State PLC 27 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 7. FINANCE COSTS 2009 2008 £ £ Bank borrowings 35,796 71,756 Invoice discounting interest 24,529 21,283 Other interest - 7,001 ______ ______ 60,325 100,040 ______ ______ 8. TAX EXPENSE 2009 2008 £ £ UK corporation tax and income tax of overseas operations on profits or losses for the year 128,670 93,875 Adjustment in respect of prior periods - (2,513) ______ ______ 128,670 91,362 ______ ______ The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows: 2009 2008 £ £ Profit before tax 614,501 424,442 _______ _______ Expected tax charge based on the standard rate of corporation tax in the UK of 28% (2008 – 30%) 172,060 127,333 Effect of: Expenses not deductible for tax purposes 11,947 6,597 Deductible expenses not charged in Group accounts (9,649) (9,738) Difference between depreciation for the year and capital allowances (7,233) 1,370 Utilisation of tax losses (3,391) (5,085) Marginal relief (8,902) (3,758) Enhanced relief on research and development expenditure (21,609) (14,164) Non-taxable government incentive received (28) (90) Different tax rates and rules applied in overseas jurisdictions (4,525) (8,590) Adjustment to enhanced relief on research and development expenditure in prior year - (2,513) ______ ______ 128,670 91,362 _______ ______ Deferred tax has not been provided as it is not material.Solid State PLC 28 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 9. EARNINGS PER SHARE The earnings per share is based on the following: 2009 2008 £ £ Earnings 485,831 330,080_______ _______ Weighted average number of shares 6,156,511 6,156,511 Diluted number of shares 6,156,511 6,156,511 Earnings per share 7.9p 5.4p Diluted earnings per share 7.9p 5.4p Earnings per ordinary share has been calculated using the weighted average number of shares in issue during the year. The weighted average number of equity shares in issue was 6,156,511 (2008: 6,156,511). The Diluted earnings per share is based on 6,156,511 (2008: 6,156,511) ordinary shares which allow for the exercise of all dilutive potential ordinary shares. Certain employee options have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the year. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (ie they are out-of-the-money) and therefore it would not be advantageous for the holders to exercise the options. The number of shares included in the option agreement which have not been included in the calculation of the weighted average number of shares was 634,920 (2008: 380,231). 10. DIVIDENDS 2009 2008 £ £ Final dividend paid for the prior year of 1.25p per share (2008: 2p) 76,957 123,130 Interim dividend paid of 1p per share (2008: 0.75p) 61,565 46,174 _______ _______ 138,522 169,304 _______ _______ Final dividend proposed for the year 2p per share (2008: 1.25p) 123,130 76,956 ______ _______ The proposed final dividend has not been accrued for as the dividend was declared after the balance sheet date. Solid State PLC 29 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 11. TANGIBLE FIXED ASSETS Short leasehold Fittings property Motor equipment and improvements vehicles computers Total £ £ £ £ Year ended 31st March 2008 Cost 1st April 2007 255,176 258,994 843,130 1,357,300 Additions - 57,076 10,234 67,310 Acquisition of subsidiary - - 256 256 Disposals - (36,829) (256) (37,085) _______ _______ _______ ________ 31st March 2008 255,176 279,241 853,364 1,387,781 _______ _______ _______ ________ Depreciation 1st April 2007 237,983 65,365 711,114 1,014,462 Charge for the year 17,193 51,967 38,634 107,794 On disposal - (23,009) - (23,009) _______ _______ _______ ________ 31st March 2008 255,176 94,323 749,748 1,099,247 _______ _______ _______ ________ Net book value 31st March 2008 - 184,918 103,616 288,534 _______ _______ _______ ________ 31st March 2007 17,193 193,629 132,016 342,838 _______ _______ _______ ________ Year ended 31st March 2009 Cost 1st April 2008 255,176 279,241 853,364 1,387,781 Additions 56,546 45,249 101,795 Disposals - (26,204) - (26,204) _______ _______ _______ ________ 31st March 2009 255,176 309,583 898,613 1,463,372 _______ _______ _______ ________ Depreciation 1st April 2008 255,176 94,323 749,748 1,099,247 Charge for the year - 50,353 38,882 89,235 On disposal - (14,358) - (14,358) _______ _______ _______ ________ 31st March 2009 255,176 130,318 788,630 1,174,124 _______ _______ _______ ________ Net book value 31st March 2009 - 179,265 109,983 289,248 _______ _______ _______ ________ There were no capital commitments at 31st March 2008 and 31st March 2009. Solid State PLC 30 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 12. INTANGIBLE ASSETS Year ended 31st March 2008 UN Computer Goodwill on Licences software consolidation Total £ £ £ £ Cost 1st April 2007 - - 1,660,878 1,660,878 Additions 9,800 38,477 331,859 380,136 _____ ______ ________ ________ 31st March 2008 9,800 38,477 1,992,737 2,041,014 _____ ______ ________ ________ Amortisation 1st April 2007 - - - - Charge for the year - 641 - 641 _____ ______ ________ ________ 31st March 2008 - 641 - 641 _____ ______ ________ ________ Net book value 31st March 2008 9,800 37,836 1,992,737 2,040,373 _____ ______ ________ ________ 31st March 2007 - - 1,660,878 1,660,878 _____ ______ ________ ________ Year ended 31st March 2009 Cost 1st April 2008 and 31st March 2009 9,800 38,477 1,992,737 2,041,014 _____ ______ ________ ________ Amortisation 1st April 2008 - 641 - 641 Charge for the year - 7,567 - 7,567 _____ ______ ________ ________ 31st March 2009 - 8,208 - 8,208 _____ ______ ________ ________ Net book value 31st March 2009 9,800 30,269 1,992,737 2,032,806 _____ ______ ________ ________ Solid State PLC 31 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 13. GOODWILL AND IMPAIRMENT Details of the carrying amount of goodwill allocated to cash generating units (CGUs) is as follows: Goodwill carrying amount 2009 2008 £ £ Steatite Limited 893,214 893,214 Wordsworth Technology Limited 1,099,523 1,099,523 ________ ________ 1,992,737 1,992,737 ________ ________ The recoverable amounts of all the above CGUs have been determined from a review of the current and anticipated performance of these units. In preparing the projection, a discount rate of 15% (2008: 19%) has been used based on the working average cost of capital and a future growth rate of 2.25% has been assumed beyond the first year for which the projection is based on the budget approved by the board of directors. The future growth rate has been applied for the next four years. It has been assumed investment in capital equipment will equate to depreciation over this period. The discount rate was based on the group’s “beta” which is a measure of the volatility of the share price against the market. This amounts to 0.84 (2008: 0.94). The recoverable amount exceeds the carrying amount by £2,048,000 (2008: £863,000). If any one of the following changes were made to the above key assumptions, the carrying amount would still exceed the recoverable amount. Discount rate: Increase from 15% to 18% Growth rate: Reduction from 2.25% to 1.75% 14. SUBSIDIARIES The principal subsidiaries of Solid State PLC, all of which have been included in these consolidated financial statements are as follows: Subsidiary undertakings Country of Incorporation Proportion of voting rights and Ordinary share capital held Nature of business Solid State Supplies Limited Great Britain 100% Distribution of electronic components Steatite Limited Great Britain 100% Distribution of electronic components and manufacture of electronic equipment Wordsworth Technology Limited Great Britain 100% Distribution of industrial computing equipment and manufacture of electronic equipment RZ Pressure Instruments Supply SARL Switzerland 100% Dormant SSS Highway Technologies Limited Great Britain 100% Dormant In all cases, except for RZ Pressure Instruments Supply SARL, the country of operation and of incorporation or registration is England. With effect from 1st April 2009 the trade of Wordsworth Technology Limited has been transferred to Steatite Limited and the company has become dormant. Solid State PLC 32 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 15. INVENTORIES2009 2008 £ £ Finished goods and goods for resale 1,408,602 1,324,017 Work in progress 145,427 238,815 ________ ________ 1,554,029 1,562,832 ________ ________ There is no material difference between the replacement cost of inventories and the amount stated above.16. TRADE AND OTHER RECEIVABLES2009 2008 £ £ Trade receivables 2,115,226 1,965,616 Other receivables 2,232 13,676 Prepayments 102,416 64,577 ________ ________ 2,219,874 2,043,869 ________ ________ Group trade receivables include £1,016,697 (2008: £1,082,559) which are subject to an invoice discounting agreement. Under this agreement, borrowing equal to 85% of the relevant book debts can be taken with interest charged at 1.35% over bank base rate and an administration fee of 0.175% of the gross value of debts per month. At 31st March 2009 borrowing under the agreement of £864,191 (2008: £920,175) was available of which £712,039 (2008: £722,556) was taken up leaving unused borrowing facilities of £152,152 (2008: £197,619). Interest charges in the year amounted to £24,529 (2008: £21,283) and administration fees to £16,114 (2008: £12,400). 17. TRADE AND OTHER PAYABLES2009 2008 £ £ Trade payables 1,456,699 1,416,357 Other taxes and social security taxes 244,207 258,797 Other payables 685 38,204 Accruals 135,460 90,890 Dividends payable 1,717 22,186 ________ ________ 1,838,768 1,826,434 ________ ________ Solid State PLC 33 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 18. BANK BORROWINGS2009 2008 £ £ Bank loans (secured) - 216,337 Amounts due to invoice discounters 712,039 722,556 _______ _______ 712,039 938,893 _______ _______ The bank loan and overdraft are secured by a fixed and floating charge over the assets of the Company and the Group. At the balance sheet date, the Group had an undrawn overdraft facility of £nil (2008: £nil). There were two bank loans. The first was for £750,000 taken out in May 2002 and repayable by instalments over seven years. The second loan was for £500,000 taken out in August 2005 and repayable by instalments over three years. The loans were secured by a fixed and floating charge over the assets of the Company and the Group. Both loans were fully repaid by 31st March 2009. 19.FINANCIAL INSTRUMENTS The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance.The Group’s financial instruments comprise cash and cash equivalents and various items such as trade payables and receivables that arise directly from its operations. The Group is exposed through its operations to the following risks: (cid:129)Credit risk (cid:129)Foreign currency risk (cid:129)Liquidity risk (cid:129)Cash flow interest rate risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks and consequently the objectives, policies and processes are unchanged from the previous period. The Board has overall responsibility for the determination of the Group’s risk management policies. The objective of the Board is to set policies that seek to reduce the risk as far as possible without unduly affecting the Group’s competitiveness and effectiveness. Further details of these policies are set out below: Solid State PLC 34 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19. FINANCIAL INSTRUMENTS (continued) Credit riskThe Group is exposed to credit risk primarily on its trade receivables, which are spread over a range of customers and countries, a factor that helps to dilute the concentration of the risk. It is Group policy, implemented locally, to assess the credit risk of each new customer before entering into binding contracts. Each customer account is then reviewed on an ongoing basis (at least once a year) based on available information and payment history. The maximum exposure to credit risk is represented by the carrying value in the balance sheet as shown in note 16 and in the balance sheet. The amount of the exposure shown in note 16 is stated net of provisions for doubtful debts. The credit risk on liquid funds is low as the funds are held at banks with high credit ratings assigned by international credit rating agencies. Foreign currency risk Foreign exchange transaction risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. The general policy for the Group is to sell to customers in the same currency that goods are purchased in reducing the transactional risk. Where transactions are not matched excess foreign currency amounts generated from trading are converted back to sterling and required foreign currency amounts are converted from sterling and the use of forward currency contracts is considered. Foreign exchange translation risk arises on translation of the balance sheets of Group operations whose functional currency is different to that of the Group as a whole. The predominant area where this risk applies is US dollars and Swiss francs. Liquidity risk The Group operates a Group overdraft facility common to all its trading companies and invoice discounting is used on some sales to customers meaning that the UK business can receive immediate payment on its sales. The Group has approximately a three month visibility in its trading and runs a rolling 3 month cash flow forecast. If any part of the Group identifies a shortfall in its future cash position the Group has sufficient facilities that it can direct funds to the location where they are required. If this situation is forecast to continue into the future remedial action is taken. Cash flow interest rate riskExternal Group borrowings are approved centrally. The Board accepts that this neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments. It considers, however, that by ensuring approval of borrowings is made by the Board the risk of borrowing at excessive interest rates is reduced. The Board considers that the rates being paid are in line with the most competitive rates it is possible for the Group to achieve. Credit riskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Loans and Receivables 2009 2008 £ £ Current financial assets Trade and other receivables 2,219,874 2,043,869 Cash and cash equivalents 216,796 340,190 ________ ________ 2,436,670 2,384,059 ________ ________ Solid State PLC 35 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19. FINANCIAL INSTRUMENTS (continued) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Carrying value 2009 2008 £ £ UK 1,998,256 1,879,272 Non UK 116,970 164,597 ________ ________ 2,115,226 2,043,869 ________ ________ The Group policy is to make a provision against those debts that are overdue, unless there are grounds for believing that all or some of the debts will be collected. During the year the value of provisions made in respect of bad and doubtful debts was £28,000 which represented less than 0.22% of revenue. This provision is included within the management and administration costs in the Consolidated Income Statement. Trade receivables ageing by geographical segment 30 days 60 days 90 days Geographical area Total Current past due past due past due£ £ £ £ £ 2009UK 2,090,397 1,815,974 226,493 42,394 5,536 Non UK 116,970 107,921 9,017 - 32 ________ ________ ________ ______ ______ Total 2,207,367 1,923,895 235,510 42,394 5,568 Less: Provisions (92,141) - (44,179) (42,394) (5,568) ________ ________ ______ ______ ______ Total 2,115,226 1,923,895 191,331 - - ________ ________ ______ ______ ______ 2008UK 2,010,736 1,818,335 115,833 7,000 69,568 Non UK 164,597 100,944 63,490 - 163 ________ ________ _______ ______ ______ Total 2,175,333 1,919,279 179,323 7,000 69,731 Less: Provisions (131,464) - (54,733) (7,000) (69,731) ________ ________ _______ ______ ______ Total 2,043,869 1,919,279 125,490 - - ________ ________ _______ ______ ______ Solid State PLC 36 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19. FINANCIAL INSTRUMENTS (continued) The Group records impairment losses on its trade receivables separately from gross receivables. The movements on this allowance account during the year are summarised below: 2009 2008 £ £ Opening balance 131,464 119,482 Increases in provisions 28,000 38,000 Written off against provisions (57,323) (26,018) _______ _______ 102,141 131,464 _______ _______The main factor used in assessing the impairment of trade receivables is the age of the balances and the circumstances of the individual customer. As shown in the above table, at 31st March 2009 trade receivables of £191,331 which were past their due date were not impaired (2008: £125,490). All of these were less than 60 days past their due date. Solid State PLC 37 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19.FINANCIAL INSTRUMENTS (continued) Liquidity risk Financial liabilities measured at amortised cost 2009 2008 £ £ Current financial liabilities Trade and other payables 1,838,768 1,826,434 Bank borrowings 712,039 938,893 Bank overdraft 668,280 803,721 ________ ________ 3,219,087 3,569,048 ________ ________ Non current financial liabilities Loans and borrowings - - ________ ________ The following are maturities of financial liabilities, including estimated contracted interest payments. Carrying Contractual 6 months 6 – 12 1 or more amount cash flow or less months years 2009Secured bank loans - - - - - Bank overdrafts 668,280 668,280 668,280 - - Amounts due to invoice discounters 712,039 712,039 712,039 - - Trade and other payables 1,973,388 1,973,388 1,838,768 134,620 - ________ ________ ________ _______ ________ 3,353,707 3,353,707 3,219,087 134,620 - ________ ________ ________ _______ ________ 2008 Secured bank loans 216,337 227,803 162,329 65,474 - Bank overdrafts 803,721 803,721 803,721 - - Amounts due to invoice discounters 722,556 722,556 722,556 - - Trade and other payables 1,933,305 1,933,305 1,826,434 106,871 - ________ ________ ________ _______ _______ 3,675,919 3,687,385 3,515,040 172,345 - ________ ________ ________ _______ _______ Interest rate risk The Group finances its business through a mixture of bank overdrafts, bank and other loans and invoice discounting facilities. During the year the Group utilised these facilities at floating rates of interest. The Group bank loan with HSBC plc incurs interest at the rate of 1.3% over the HSBC’s base rate and bank overdraft with HSBC plc incurs interest at the rate of 1.3% over the HSBC’s base rate. The Group is affected by changes in the UK interest rate. Details of interest payable under the invoice discounting agreement are stated in Note 16. Solid State PLC 38 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19. FINANCIAL INSTRUMENTS (continued) Interest rate risk (continued) The US Dollar overdraft facility bears the interest rate of 1.3% over the HSBC’s US dollar base rate and is therefore affected by changes in the US interest rate. The fair value of the Group’s financial instruments is not materially different to the book value. In terms of sensitivity, if the HSBC base rate had been 1% higher throughout the year the level of interest payable would have been £11,579 (2008: £14,630) higher and if 1% lower throughout the year the level of interest payable would have been lower by the same amount. Foreign currency risk The Group’s main foreign currency risk is the short term risk associated with accounts receivable and payable denominated in currencies that are not subsidiaries functional currency. The risk arises on the difference in the exchange rate between the time invoices are raised/received and the time invoices are settled/paid. For sales denominated in foreign currencies the Group will try to ensure that the purchases associated with the sale will be in the same currency. All monetary assets and liabilities of the Group were denominated in sterling with the exception of the following items which were denominated in US dollars, and which are included in the financial statements at the sterling value based on the exchange rate ruling at the balance sheet date. The following table shows the net liabilities exposed to exchange rate risk that the Group has at 31st March 2009: 2009 2008 £ £ Trade receivables 677,047 416,594 Cash and cash equivalents 85,843 157,272 Trade payables (854,922) (593,252) _______ _______ (92,032) (19,386) _______ _______ There were also net liabilities of £19,832 in euros (2008: £34,074) and net liabilities of £Nil in Swiss francs. (2008: £8,109). The Group is exposed to currency risk because it undertakes trading transactions in US dollars and euros. The Directors do not generally consider it necessary to enter into derivative financial instruments to manage the exchange risk arising from its operations, but from time to time when the Directors consider foreign currencies are weak and it is known that there will be a requirement to purchase those currencies, forward arrangements are entered into. Details of those outstanding at the balance sheet date are given below. The effect of a strengthening of 10% in the rate of exchange in the currencies against sterling at the balance sheet date would have resulted in an estimated net decrease in pre-tax profit for the year and a decrease in net assets of approximately £11,200 (2008: £6,800) and the effect of a weakening of 10% in the rate of exchange in the currencies against sterling at the balance sheet date would have resulted in an estimated net increase in pre-tax profit for the year and an increase in net assets of approximately £11,200 (2008: £6,200). Solid State PLC 39 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 19.FINANCIAL INSTRUMENTS (continued) Foreign currency risk (continued)At 31st March 2008 the Group had entered into agreement with its bankers to purchase US dollars as follows:$ Rate 1st April 2008 100,000 2.0055 15th April 2008 300,000 1.97 1st May 2008 100,000 2.00-2.05 15th May 2008 50,000 1.9985 2nd June 2008 100,000 2.00-2.05 16th June 2008 50,000 1.9930 At 31st March 2009 the Group had entered into agreement with its bankers to purchase US dollars as follows: $ Rate 1st April 2009 200,000 1.40 9th April 2009 250,000 1.42 9th April 2009 100,000 1.4515 1st May 2009 250,000 1.42 1st May 2009 100,000 1.4515 Applying the actual exchange rate at the balance sheet date to these agreements gives rise to a liability of £421 at 31st March 2009 (2008: £1,396). In view of the immaterial nature of these amounts, no adjustment has been made in the financial statements. Capital under managementThe Group considers its capital to comprise its ordinary share capital, share premium account, capital redemption reserve, foreign exchange reserve and accumulated retained earnings. In managing its capital, the Group’s primary objective is to maximise returns for its equity shareholders. The Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain sufficient funding to enable the Group to meet its working capital and strategic investment need. In making decisions to adjust its capital structure to achieve these aims the Group considers not only its short term position but also its long term operational and strategic objectives. The Group’s gearing ratio at 31st March 2009 is shown below: 2009 2008 £ £ Cash and cash equivalents (216,796) (340,190) Bank overdrafts 668,280 803,721 Bank loans - 216,337 Invoice discounting advance 712,039 722,556 ________ ________ 1,163,523 1,402,424 ________ ________ Share capital 307,826 307,826 Share premium account 756,980 756,980 Retained earnings 1,837,390 1,477,535 Capital redemption reserve 4,674 4,674 Foreign exchange reserve 58,126 52,864 ________ ________ 2,964,996 2,599,879 ________ ________ Gearing ratio 0.282 0.278 ________ ________ Solid State PLC 40 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 20. SHARE CAPITAL2009 2008 £ £ Authorised 9,000,000 ordinary shares of 5p each 450,000 450,000 _______ _______ Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 307,826 307,826 _______ _______ An Enterprise Management Incentive Scheme was adopted by the Company in September 2000 and formally approved at an Extraordinary General Meeting on 12th December 2000. Details of options granted are set out in Note 5. At 31st March 2009 the number of shares covered by option agreements amounted to 634,920 (2008: 634,920). No options were exercised in the year (2008: nil). 21. RESERVES Full details of movements in reserves are set out in the consolidated statement of changes in equity on page 12. The following describes the nature and purpose of each reserve within owners’ equity. Reserve Description and Purpose Share premium Amount subscribed for share capital in excess of nominal value. Capital redemption Amounts transferred from share capital on redemption of issued shares. Foreign exchange Gains/losses from the retranslation of net assets of overseas operations into sterling Retained earnings Cumulative net gains and losses recognised in the consolidated income statement. 22. LEASING COMMITMENTS At 31st March 2009 the Group had future commitments under operating leases as follows: 2009 2008 £ £ Group Buildings: Leases expiring in less than one year 46,933 46,933 Leases expiring in one to five years 100,833 105,000 ______ ______ Plant and machinery: Leases expiring in less than one year 888 9,117 Leases expiring in one to five years 31,126 6,264 Leases expiring in more than five years 20,816 - ______ ______ Solid State PLC 41 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 23. SHARE BASED PAYMENT The Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh and Mr J M Lavery have been granted options to purchase shares in Solid State PLC at a subscription price which was not less than the market value at the time the option was granted. The options in place at 31st March 2009 all have an exercise period of any time after one year from the date of the grant subject to the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days. None of the options have been exercised since the scheme was put into place. Details of the current options are stated in Note 5. The share-based remuneration expenses amounted to £12,546 for the year (2008: £9,753). The following information is relevant to the determination of the fair value of the options. 2008 and 2009 Equity settled share based payments Option pricing model used Binominal Tree Weighted average share price at grant date 31.5p Exercise price 31.5p Weighted average contractual life 1.2 years Expected volatility 78.52% Expected dividend growth rate - Risk free interest rate 4.31% The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily share prices over the twelve months prior to the date of the grant. The market vesting conditions have been factored into the calculation by applying an appropriate discount to the fair value of equivalent share options without the specified vesting conditions. Solid State PLC 42 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 24.SEGMENT INFORMATION The Group’s primary reporting format for segment information is business segments which reflect the management reporting structure in the Group. The distribution division includes Solid State Supplies Limited and the manufacturing division includes Wordsworth Technology Limited and Steatite Limited which incorporates RZ Pressure. Year ended 31st March 2009 Distribution Manufacturing Head division division office Total £ £ £ £ Revenue External 3,642,911 8,878,875 - 12,521,786 Intercompany - 96,789 - 96,789 ________ ________ ________ ________ 3,642,911 8,975,664 - 12,618,575 ________ ________ ________ ________ Profit/(loss) before tax 58,827 787,936 (207,000) 639,763 ________ ________ ________ ________ Balance sheet Assets 1,739,736 4,593,017 - 6,332,753 Liabilities (2,117,902) (1,217,921) (17,884) (3,353,707) ________ ________ ________ ________ Net assets/(liabilities) (378,166) 3,375,096 (17,884) 2,979,046 ________ ________ ________ ________ Other Capital expenditure - Tangible fixed assets 44,812 56,983 - 101,795 - Intangible fixed assets - - - - Depreciation, amortisation and other non cash expenses 48,108 80,040 - 128,148 ________ ________ ________ ________ Solid State PLC 43 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 24. SEGMENT INFORMATION (continued) Year ended 31st March 2008 Distribution Manufacturing Head division division office Total £ £ £ £ Revenue External 3,545,594 7,178,739 - 10,724,333 Intercompany - 142,335 - 142,335 ________ ________ ________ _________ 3,545,594 7,321,074 - 10,866,668 ________ ________ ________ _________ Profit/(loss) before tax(78,374) 715,816 (213,000) 424,442 ________ ________ ________ ________ Balance sheet Assets 1,605,438 4,670,360 - 6,275,798 Liabilities (1,880,237) (1,502,307) (293,375) (3,675,919) ________ ________ _______ ________ Net assets/(liabilities) (274,799) 3,168,053 (293,375) 2,599,879 ________ _________ _______ ________ Other Capital expenditure - Tangible fixed assets 10,234 57,076 - 67,310 - Intangible fixed assets 38,477 341,659 - 380,136 Depreciation, amortisation and other non cash expenses 58,432 88,582 - 147,014 ________ ________ ________ ________ The Group’s secondary reporting format for reporting segment information is geographic segments. Net tangible capital External revenue by Total assets by expenditure by location location of customer location of assets of assets 2009 2008 2009 2008 2009 2008 £ £ £ £ £ £ United Kingdom 11,397,659 9,951,944 6,215,887 6,159,228 93,295 53,811 Europe 747,966 561,843 116,866 116,570 - - North America 119,234 100,175 - - - - Asia 148,332 92,002 - - - - Africa 92,076 12,589 - - - - Australasia 14,302 5,780 - - - - South America 2,217 - - - - - _________ _________ ________ ________ ______ _______ 12,521,786 10,724,333 6,332,753 6,275,798 93,295 53,811 _________ _________ ________ ________ ______ _______ All the above relate to continuing operations. Solid State PLC 44 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 25. ACQUISITIONS DURING THE PERIODOn 3rd November 2007 the Group acquired 100% of the voting equity instruments of RZ Pressure Instruments Supply SARL, a company incorporated in Switzerland whose principal activity was the manufacture and supply of industrial batteries. During December 2007 the business was transferred to Redditch where it is now operating as a division of Steatite Limited. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: £Fair value of assets acquired UN licences 9,800 Property, plant and equipment 256 Inventories 20,371 Receivables 120,000 Cash 176,009 Payables (21,521) Tax liabilities (12,055) _______ 292,860 _______ Consideration paid Cash 577,048 Cost of acquisition 47,671 _______ 624,719 _______ Goodwill 331,859 _______ At 31st March 2009, none of the cash consideration remained outstanding (2008: £37,511). In all cases, apart from the UN licences, which were not recognised in the company records, the book value of assets and liabilities was the same as the fair values. The main factors leading to the recognition of goodwill are the anticipated synergistic cost savings resulting from the amalgamation of the business with the battery division of Steatite Limited. Since the acquisition date, RZ Pressure Instruments Supply SARL has contributed £4,265 to Group profit. It has not been practical to quantify the effect on Group profit if the acquisition date had been 1st April 2007 or the revenue of the combined entity on the same basis as the company did not have 31st March as an accounting reference date and did not produce periodic management accounts which could be used for this purpose.Solid State PLC 45 COMPANY BALANCE SHEET at 31st March 2009 Notes 2009 2008 ££ ££ FIXED ASSETS Investments 4 2,464,056 2,464,056 _________ ________ 2,464,056 2,464,056 CURRENT ASSETS Debtors 5 - - ________ ________ - - CREDITORS: Amounts falling due within one year 6 998,736 860,214 ________ ________ NET CURRENT LIABILITIES (998,736) (860,214) ________ ________ NET ASSETS 1,465,320 1,603,842 ________ ________ CAPITAL AND RESERVES Called up share capital 7 307,826 307,826 Share premium account 8 756,980 756,980 Capital redemption reserve 8 4,674 4,674 Profit and loss account 8 395,840 534,362 ________ ________ SHAREHOLDERS’ FUNDS 1,465,320 1,603,842 ________ ________ The financial statements were approved by the Board of Directors and authorised for issue on 3rd August 2009. P Haining Director The notes on pages 46 to 49 form part of these financial statements. Solid State PLC 46 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2009 1.ACCOUNTING POLICIESThe following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements. Basis of preparation The financial statements have been prepared in accordance with applicable UK accounting standards and under the historical cost convention. The accounts have been prepared on the going concern basis. Profit and loss account Under section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account. The loss for the year ended 31st March 2009 is disclosed in Note 8. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at closing rates of exchange. Investments in subsidiaries Investments in subsidiaries are stated at cost less amounts provided for impairment. Other financial liabilities Other financial liabilities include the following items: (cid:129)(cid:129)Amounts owed by group undertakings and other creditors, which are recognised at amortised cost. (cid:129)Bank borrowings are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liabilities carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Shared based payment Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the profit and loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of options granted. As long as all other vesting conditions are satisfied, a change is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for factors to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the profit and loss account over the remaining vesting period. 2.STAFF COSTSStaff costs amounted £12,546 (2008: £9,753) and comprised the share based payment expense. There were 4 employees (2008: 3), all of whom were executive directors and none of whom received any remuneration from the Company. No other remuneration was paid by the Company and the Directors receive their remuneration from subsidiary companies. Details of directors’ emoluments are given in note 5 to the Group financial statements. Solid State PLC 47 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2009 3.SHARE BASED PAYMENTThe Group operates an approved Enterprise Management Incentive Scheme whereby Mr G S Marsh and Mr J M Lavery have been granted options to purchase shares in Solid State PLC at a subscription price which was not less than the market value at the time the option was granted. The options in place at 31st March 2009 all have an exercise period of any time after one year from the date of the grant subject to the Group share price having equalled or exceeded 50p per share at the close of business on 20 consecutive business days. None of the options have been exercised since the scheme was put into place. Details of the current options are stated in Note 5 of the consolidated financial statements. The share-based remuneration expenses amounted to £12,546 for the year (2008: £9,753). The following information is relevant to the determination of the fair value of the options. 2008 and 2009 Equity settled share based payments Option pricing model used Binominal Tree Weighted average share price at grant date 31.5p Exercise price 31.5p Weighted average contractual life 1.2 years Expected volatility 78.52% Expected dividend growth rate - Risk free interest rate 4.31% The volatility assumption, measured at the standard deviation of expected share price returns, is based on a statistical analysis of daily share prices over the twelve months prior to the date of the grant. The market vesting conditions have been factored into the calculation by applying an appropriate discount to the fair value of equivalent share options without the specified vesting conditions. Solid State PLC 48 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 4. INVESTMENTS Company Group undertakings £Cost 1st April 2008 and 31stMarch 2009 2,464,056 ________ Net book value 31st March 2009 2,464,056 ________ 31st March 2008 2,464,056 ________ Subsidiary undertakings The principal undertakings in which the Company’s interest at the year end is 20% or more are as follows: Proportion of voting rights and Ordinary share capital held Nature of business Subsidiary undertakings Solid State Supplies Limited 100% Distribution of electronic components Steatite Limited 100% Distribution of electronic components and manufacture of electronic equipment Wordsworth Technology Limited 100% Distribution of industrial computing equipment and manufacture of electronic equipment RZ Pressure Instruments Supply SARL 100% Dormant SSS Highway Technologies Limited 100% Dormant In all cases the country of operation and of incorporation or registration is England apart from RZ Pressures Instruments Supply SARL which is incorporated in Switzerland. With effect from 1st April 2009 the trade of Wordsworth Technology Limited has been transferred to Steatite Limited and the company has become dormant. 5. DEBTORS 2009 2008 £ £ Amounts owed by Group undertakings - - _______ _______ 6. CREDITORS: Amounts falling due within one year 2009 2008 £ £ Bank loans (secured) - 216,337 Amounts owed to Group undertakings 997,019 584,180 Other creditors 1,717 59,697 _______ _______ 998,736 860,214 _______ _______ Solid State PLC 49 NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2009 (continued) 6. CREDITORS: Amounts falling due within one year (continued) The Company has guaranteed bank borrowings of its subsidiary undertakings, Solid State Supplies Limited, Steatite Limited and Wordsworth Technology Limited. At the year end the liabilities covered by those guarantees amounted to £567,637 (2008: £803,721). The Company accounts for guarantees provided to Group companies as insurance contracts, recognising a liability only to the extent that it is probable the guarantees will be called upon. 7.SHARE CAPITAL 2009 2008 £ £ Authorised 9,000,000 ordinary shares of 5p each 450,000 450,000 _______ _______ Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 307,826 307,826 _______ _______ An Enterprise Management Incentive Scheme was adopted by the Company in September 2000 and formally approved at an Extraordinary General Meeting on 12th December 2000. Details of options granted are set out in Note 5 of the Consolidated Accounts. At 31st March 2009 the number of shares covered by option agreements amounted to 634,920 (2008: 634,920). No options were exercised in the year (2008: nil). 8. RESERVES Share premium Capital redemption Profit & loss account reserve account 1st April 2008 756,980 4,674 534,362 Loss for the year - - (12,546) _______ _____ _______ 756,980 4,674 521,816 Add: Share based expense - - 12,546 _______ _____ _______ 756,980 4,674 534,362 Dividend paid - - (138,522) ________ _____ _______ 31st March 2009 756,980 4,674 395,840 ________ _____ _______ The loss for the year comprises the share based expense and the loss on disposal of a dormant subsidiary. Overheads relating to the audit of the Company and to its listing on the London Stock Exchange are processed in the accounts of Solid State Supplies Limited. The cumulative amount of goodwill which has been eliminated against reserves at 31st March 2009 is £30,000 (2008: £30,000). Solid State PLC 50 NOTICE OF ANNUAL GENERAL MEETINGNotice is hereby given that the annual general meeting of Solid State PLC will be held at Unit 2, Eastlands Lane,Paddock Wood, Kent TN12 6BU on 3rd September 2009 at 11.00am for the following purposes: ORDINARY RESOLUTIONS (1) To receive and adopt the accounts for the year ended 31st March 2009, together with the reports of theDirectors and auditors thereon. (Resolution 1) (2) To declare a final dividend of 2p per share. (Resolution 2) (3) To reappoint Gary Stephen Marsh, who retires by rotation, as a Director of the Company in accordance withthe Company’s Articles of Association. (Resolution 3) (4) To reappoint Peter Haining, who retires by rotation, as a Director of the Company in accordance with theCompany’s Articles of Association. (Resolution 4) (5) To reappoint Gordon Leonard Comben, who has been appointed as a Director since the last annual generalmeeting, as a Director of the Company in accordance with the Company’s Articles of Association (Resolution5)(6) To reappoint BDO Stoy Hayward LLP as auditors of the Company and to authorise the Directors to fix theirremuneration. (Resolution 6) (7) To pass the following resolution: That the Company is, pursuant to Section 166 of the Companies Act 1985, hereby generally andunconditionally authorised to make market purchases (within the meaning of Section 163 of the CompaniesAct 1985) of ordinary shares of 5p each in the capital of the Company (“ordinary shares”) provided that:- i) the minimum price which may be paid for the ordinary shares is 5p per ordinary share; ii)the maximum price which may be paid for the ordinary shares is £1.00 per ordinary share; iii)the authority hereby conferred shall expire after a period of 18 months from the passing of thisresolution unless such authority is renewed prior to such expiry; iv)the authority hereby conferred is in substitution for any existing authority to purchase ordinary sharesunder the said Section 166; v)the Company may make a contract to purchase ordinary shares under the authority hereby conferredprior to the expiry of such authority which will be executed wholly or partly after the expiry of suchauthority and may make a purchase or purchases of ordinary shares in pursuance of any such contract;and vi)the maximum number of ordinary shares hereby authorised to be purchased by the Company does notexceed 15 per cent of the issued ordinary share capital of the Company at the date of the passing ofthis resolution. (Resolution 7) BY ORDER OF THE BOARD P Haining FCA Director3rd August 2009 Registered office:Unit 2, Eastlands Lane, Paddock Wood, Kent TN12 6BU NOTES:1.Proxies Only holders of ordinary shares are entitled to attend and vote at this meeting. A member entitled to attend andvote may appoint a proxy or proxies who need not be a member of the Company to attend and to vote instead ofhim or her. Forms of proxy need to be deposited with the Company’s registrar, Capita Group plc, BalfourHouse, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not later than 48 hours before the timeof the meeting. Completion of a form of proxy will not preclude a member attending and voting in person at themeeting. 2. Documents on Display The register of Directors’ interests in the share capital and debentures of the Company, together with copies ofservice agreements under which Directors of the Company are employed, are available for inspection at theCompany’s registered office during normal business hours from the date of this notice until the date of theAnnual General Meeting and will also be available for inspection at the place of the Annual General Meeting forat least 15 minutes prior to the meeting. This page has been left blank intentionally 51 This page has been left blank intentionally 52 

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