Solid State PLC
Annual Report 2010

Plain-text annual report

Annual Report & Accounts 31 March 2010 Solid State PLC CONTENTS Directors, Secretary and Advisers Chairman’s Statement Directors’ Report Report of the Independent Auditors Consolidated Income Statement Consolidated Statement of Changes in Equity Consolidated Balance Sheet Consolidated Cash Flow Statement Notes to the Financial Statements Notice of Annual General Meeting Page 2 3 5 11 12 13 14 15 17 48 1 Solid State PLC Directors: DIRECTORS, SECRETARY AND ADVISERS Peter Haining, FCA, Chairman Lewis Cyril Ashby Newnham, Deputy Chairman Gary Stephen Marsh, Chief Executive Officer William George Marsh, Director John Michael Lavery, Director Gordon Leonard Comben, Director John Lawford Macmichael, Director Anthony Brian Frere, Director Company Secretary and Registered Office: Peter Haining, FCA Solid State PLC Unit 2 Eastlands Lane Paddock Wood Kent TN12 6BU Company Number: 771335 Nominated Adviser: Broker: Auditors: Solicitors: Bankers: Registrars: Charles Stanley Securities 131 Finsbury Pavement London EC2A 1NT Charles Stanley Securities 131 Finsbury Pavement London EC2A 1NT Haysmacintyre Fairfax House 15 Fulwood Place London WC1V 6AY Thomson Snell & Passmore 3 Lonsdale Gardens Tunbridge Wells Kent TN1 1NX HSBC plc 9 Wellesley Road Croydon Surrey CR9 2AA 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 2 Solid State PLC CHAIRMAN’S STATEMENT Key Results • Turnover • Profit before tax • Earnings per share • Cash generated from operations £13.5m £530k 6.6p £425k (2009: £12.5m) (2009: £615k) (2009: 7.9p) (2009: £632k) 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 2010 giving a total dividend in respect of the year of 3p per share (2009: 3p per share). The final dividend will be paid on 6th September 2010 to shareholders on the register at the close of business on 20th August 2010. Trading Review The key performance indicators measured by management are sales, bookings and gross profit margins. Bookings are sales orders received. Solid State Supplies Although sales from our component distribution business declined by 3.4% in FY09/10, the effects of the economic downturn were not as great as those felt by the market in general. Our industry association AFDEC reported a contraction in the DTAM (Distributor’s Total Available Market) for the UK of 11.3% in 2009. We believe our strategy of focusing on specialist electronic components and the continued programme of new product introductions helped to insulate us from the worst of the recession. We are pleased to report gross margins improved in the second half of the year and closed at 27.3% (2009: 27.4%). In the light of the contraction of the overall market we implemented a restructuring programme which we completed in the first quarter of the new financial year. We began to see an upturn in the market during the final quarter and our bookings at the close of this financial year were 5.4% up on the previous year. We start the new financial year with an increased order book 11.2% up on this time last year. Whilst the economic outlook remains uncertain these results coupled with the newly restructured business give us grounds for optimism as we start the new financial year. Steatite As a result of new product developments we achieved a very strong performance during the second half of the year and are very pleased to report sales for a whole of FY09/10 increased by 11.8%. Both the battery and industrial computer divisions performed well. Gross margins remained under pressure owing to the weakness of Sterling, with overall margins slipping by 0.9% compared to FY08/09. The strong bookings performance throughout the year has meant the open order book going into FY10/11 is some 76% up on the previous year. Our robust order book and potential for a number of significant new contracts together place us in a strong position as we enter the new fiscal year. Summary Despite the fall in profit before tax of 13.8%, the increase achieved in turnover of 7.9% and in gross profit of 3.7%, reflect a strong result in what has been a very difficult economic climate. We completed our fourth acquisition with the purchase of Rugged Systems Limited at the beginning of April 2010. The addition of this company will strengthen significantly our computer business as we seek to become the UK’s leading supplier of industrial computers. Steatite has had a strong start to the new financial year and we believe that the restructuring undertaken at Solid State Supplies will return that division to profitability. We believe that the Group is well placed to benefit from the current economic recovery and to achieve increases in turnover and profitability in the new financial year. 3 Solid State PLC CHAIRMAN’S STATEMENT (continued) Renewal of authority to purchase the Company’s shares Last 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 4,525,113 Ordinary shares, representing 73.5% of the Company’s issued Ordinary share capital. Conclusion I would like to thank my fellow Directors and all the staff of the Group for their continued support. Peter Haining Chairman 28th July 2010 4 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 The Directors submit their report together with the audited financial statements of the Group in respect of the year ended 31st March 2010. Principal Activities, Review of the Business and Future Developments The principal activities of the Group during the year continued to be those of the manufacturing of electronic equipment and the distribution of electronic components and materials. 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 satisfactory in view of the decline in the UK economy. Group turnover increased by 7.8% and despite considerable pressure on gross profit margins during the economic recession and the weakness of sterling against the dollar throughout the period the Group gross profit margin declined but this decline was restricted to a fall from 28.1% to 27.0%. Trends in gross profit margins remain under close review by the board. The net profit before tax of £529,785 is lower than the corresponding figure of £614,501 in the prior year but the Directors believe this to be a sound result in what, at its start, was expected to be a difficult year. The book to bill ratio had been 0.939 to 1 in the previous year and in the first three months of the year under review the turnover was 15.9% lower than in the previous year. The fact that turnover for the whole year was 7.8% higher than the previous year reflects the success in obtaining bookings during the year. At Steatite the book to bill ratio for the year under review was 1.19 : 1 and at Solid State Supplies 1.05 : 1, and this strong result has already been reflected in an increase in group turnover in the first quarter of the new financial year of 29.8% over the corresponding period last year and ignoring the turnover of Rugged Systems Limited which was acquired on 1st April 2010. Despite the strong turnover in the first quarter, the Directors are pleased to report that the group book to bill ratio this quarter has remained positive at 1.1 : 1. The close scrutiny of group profit margins is reflected in the enhanced rates achieved at both Steatite and Solid State Supplies in the first quarter of the new financial year compared with the corresponding period last year. The newly acquired Rugged Systems Limited historically has fairly low gross profit margins but these too are being closely monitored and the Directors are confident that a satisfactory margin level will be achieved in the first year of trading as part of the Group. Overheads increased in the year compared with the previous year, by 8.8%, mainly reflecting the increased scale of operations at Steatite. In the first quarter of the new financial year a review of costs at Solid State Supplies has been undertaken and cuts are being effected in overheads, in particular staff and premises costs, with a view to returning the distribution business undertaken by the Group to profitability. The results to date are encouraging. The Directors are mindful of the forthcoming reductions in Government expenditure which will almost certainly result in significant reductions in military budgets. The Group has been successful in obtaining significant contracts in non-military products to mitigate the effect of defence spending reductions. The Group has continued to invest in research and development activities at Redditch with expenditure of approximately £66,000 in the year, particularly in the area of industrial batteries. 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 Directors are pleased to note that the net tangible assets have increased by over £230,000 in the year. 5 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 (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 £20,000 which is approximately 0.15% 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 6th September 2010 to shareholders on the register at the close of business on 20th August 2010. 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 On 1st April 2010 J L Macmichael and A B Frere joined the board Peter Haining FCA, (dob 05/09/1956), Non-executive Director, Company Secretary and Chairman Peter 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. 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, (dob 19/08/1937), Non-executive Director and Deputy Chairman Cyril 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. Gary Marsh, (dob 27/04/1966), Chief Executive Officer Gary Marsh joined the Company in 1986 having gained an HND in Business and Finance Studies. He has held various positions within the Group including that of Operations Director of Solid State Supplies prior to his appointment as its Managing Director in 1997. In addition to this role, Gary Marsh was appointed Group Managing Director in 2002 following the acquisition of Steatite. In 2010 following the acquisition of Rugged Systems Ltd he was appointed Chief Executive Officer of the Group. 6 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 (continued) William Marsh, (dob 23/07/1937), Director Educated at Kingston-upon-Thames Technical College, Bill Marsh started work at Hackbridge Transformers in 1954 as a Student Apprentice. In 1960, having gained an HNC qualification in electrical/electronic engineering he joined the Royal Air Force as an Air Radar Fitter. In 1962 he joined Hewittic Rectifiers where he worked as a Design Engineer and later as a Contracts Engineer. In 1968 Bill joined International Rectifier as an Area Sales Manager, rising to the position of General Sales Manager (Northern Europe). In 1974 he joined Solid State Supplies as Managing Director until he stepped down in 1997. Following a spell as Company Chairman he has continued to serve on the Board of Directors. John Lavery, (dob 06/05/1961), Director John Lavery is an apprenticed trained engineer in Electronics Communications. He moved into Sales in the 1980’s with Steatite before being appointed to The Board of Directors at the age of 28.He has held positions of Director of Sales and Marketing after a years training with the Institute of Directors for Corporate Governance, before being appointed Managing Director of Steatite in 1999. He presently runs the operations of both Steatite and Wordsworth on behalf of Solid State plc. John Macmichael, (dob 20/04/1961), Director John Macmichael is an electronics and communications graduate whose career has encompassed design and development through applications engineering, sales, sales management and general business management. John has gained extensive management experience of multiple sales channels with distributors and OEMs both here in the UK and worldwide through his international sales management role whilst living in the USA. Formerly managing director of Breckenridge Technologies Limited John joined Solid State Supplies Limited in 2006 before being appointed managing director in April 2010. Gordon Comben, (dob 09/09/1939), Non-executive Director Gordon Comben trained as radio officer and after leaving the merchant navy worked in the electronics industry with Plessey, Texas Instruments, Philips and International Rectifier. In 1971 he founded Solid State Supplies and has been employed in various roles including Company Chairman. He is currently a Non-executive Director of the Company. Tony Frere (dob 15/10/1947) Non-executive Director Tony Frere has been in the Electronics Industry for 40 years, 30 of which serving the component distribution sector. Former directorships include Managing Director of DT Electronics and Nu Horizons Electronics. Currently a member of the Institute of Directors and sitting on the executive council of the ECSN (the electronic component supply network trade association). 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. 7 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 (continued) 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, W G Marsh and A B Frere, 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 G L Comben, A B Frere, 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. Board of Directors The Board consists of four executive Directors and four 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 3rd September 2009. This authority expires on 3rd March 2011. 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 2006. 8 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 (continued) The Directors are responsible for preparing the annual report and financial statements in accordance with the Companies Act 2006. 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. A fair presentation also requires the Directors to: • • • consistently select and apply appropriate accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and 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. 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: • • select suitable accounting policies and then apply them consistently. prepare financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. • make judgements and estimates that are reasonable and prudent. • 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 2010 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 56 days (2009: 47 days). 9 Solid State PLC DIRECTORS’ REPORT For the year ended 31st March 2010 (continued) 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. BDO Stoy Hayward LLP resigned as auditors on 7th October 2009. The Directors appointed Haysmacintyre to fill the casual vacancy. A resolution to reappoint Haysmacintyre as auditors will be proposed at the next annual general meeting. By order of the Board P Haining FCA Secretary 28th July 2010 Registered Office: Unit 2, Eastlands Lane, Paddock Wood, Kent, TN12 6BU 10 Solid State PLC REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF SOLID STATE PLC We have audited the financial statements of Solid State PLC for the year ended 31st March 2010 which comprise the Consolidated Income Statement, the Consolidated Statement of Changes in Equity, the Consolidated and Company Balance Sheets, the Consolidated Cash Flow Statement and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom GAAP). This report is made solely to the company’s members, as a body, in accordance with Section 495 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on pages 7 and 8, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2010 and the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. • • • Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. David Cox (Senior statutory auditor) for and on behalf of Haysmacintyre, Statutory Auditor 28th July 2010 Fairfax House 15 Fulwood Place London WC1V 6AY 11 Solid State PLC CONSOLIDATED INCOME STATEMENT For the year ended 31st March 2010 Revenue Cost of sales GROSS PROFIT Distribution costs Administrative expenses PROFIT FROM OPERATIONS Finance income Finance costs PROFIT BEFORE TAXATION Tax expense PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT OTHER COMPREHENSIVE (EXPENSE)/INCOME Translation differences on overseas operations TOTAL COMPREHENSIVE INCOME FOR THE YEAR Notes 2 3 6 7 8 2010 £ 13,509,123 (9,865,137) _________ 3,643,986 (1,331,452) (1,760,052) _________ 2009 £ 12,521,786 (9,007,486) _________ 3,514,300 (1,204,574) (1,634,967) _________ 552,482 674,759 - (22,697) _________ 67 (60,325) _________ 529,785 (124,150) _________ 614,501 (128,670) _________ 405,635 _________ 485,831 _________ (3,000) _________ 5,262 _________ 402,635 _________ 491,093 _________ EARNINGS PER SHARE Basic Diluted 9 9 6.6p 6.6p 7.9p 7.9p The notes on pages 17 to 47 form part of these financial statements. 12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31st March 2010 Solid State PLC Share Capital Capital Share Premium Redemption Exchange Retained Reserve Reserve Foreign Reserve Earnings Total Balance at 31st March 2008 307,826 756,980 4,674 52,864 1,477,535 2,599,879 Total comprehensive income For the year ended 31st March 2009 Share based payment expense Dividends - - - - - - 5,262 485,831 491,093 - 12,546 12,546 - _______ - _______ - _______ - _______ (138,522) ________ (138,522) ________ Balance at 31st March 2009 307,826 756,980 4,674 58,126 1,837,390 2,964,996 Total comprehensive income For the year ended 31st March 2010 Share based payment expense Dividends - - - - - - (3,000) 405,635 402,635 - 12,546 12,546 - _______ - _______ - _______ - _______ (184,695) _______ (184,695) _______ Balance at 31st March 2010 307,826 _______ 756,980 _______ 4,674 _______ 55,126 _______ 2,070,876 _______ 3,195,482 _______ The notes on pages 17 to 47 form part of these financial statements. 13 Solid State PLC ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Bank overdraft Trade and other payables Bank borrowings Corporation tax liabilities CONSOLIDATED BALANCE SHEET at 31st March 2010 Notes £ £ £ £ 2010 2009 289,248 2,032,806 ________ 2,322,054 3,990,699 ________ 6,312,753 ________ 299,844 2,028,946 ________ 2,328,790 4,693,742 ________ 7,022,532 ________ 11 12 15 16 1,787,520 2,562,387 343,835 ________ 17 18 461,627 2,172,882 1,063,703 118,814 ________ 1,554,029 2,219,874 216,796 ________ 668,280 1,838,768 712,039 128,670 ________ TOTAL CURRENT LIABILITIES 3,817,026 3,347,757 NON CURRENT LIABILITIES Deferred tax liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES TOTAL NET ASSETS CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Share capital Share premium reserve Capital redemption reserve Foreign exchange reserve Retained earnings TOTAL EQUITY 20 10,024 ________ - ________ 10,024 ________ 3,827,050 ________ 3,195,482 ________ 307,826 756,980 4,674 55,126 2,070,876 ________ 3,195,482 ________ - ________ 3,347,757 ________ 2,964,996 ________ 307,826 756,980 4,674 58,126 1,837,390 ________ 2,964,996 ________ 21 22 22 22 22 The financial statements were approved by the Board of Directors and authorised for issue on 28th July 2010 and were signed on its behalf by: P. Haining Director The notes on pages 17 to 47 form part of these financial statements. 14 Solid State PLC CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st March 2010 2010 2009 £ £ £ £ OPERATING ACTIVITIES Profit before taxation Adjustments for: Depreciation Amortisation Loss on disposal of property, plant and equipment Share based payment expense Finance income Finance costs Profit from operations before changes in working capital and provisions (Increase)/decrease in inventories (Increase) in trade and other receivables Increase in trade and other payables Cash generated from operations Income taxes paid Cash flow from operating activities INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of computer software Proceeds of sales from property, plant and equipment Interest received FINANCING ACTIVITIES Repayment of bank borrowings Invoice discounting finance (net movement) Interest paid Dividend paid to equity shareholders INCREASE IN CASH AND CASH EQUIVALENTS 529,785 88,929 7,695 4,928 12,546 - 22,697 _______ 666,580 (233,491) (342,513) 334,117 ________ 8,803 (176,005) 12,334 ________ (241,887) _______ 424,693 (123,982) _______ (106,871) _______ (158,014) (3,835) 53,558 - _______ - 351,664 (22,697) (184,695) _______ (123,982) _______ 300,711 (108,291) _______ 192,420 144,272 _______ 336,692 _______ (101,795) - 8,500 67 _______ (216,337) (10,517) (60,325) (138,522) _______ 614,501 89,235 7,567 3,346 12,546 (67) 60,325 ______ 787,453 (154,868) _______ 632,585 (106,871) _______ 525,714 (93,228) _______ 432,486 (425,701) _______ 6,785 _______ The notes on pages 17 to 47 form part of these financial statements. 15 Solid State PLC CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st March 2010 (continued) Cash and cash equivalents comprise: 2010 £ 2009 £ Net increase in cash and cash equivalents 336,692 6,785 Cash and cash equivalents at beginning of year (451,484) (463,531) Exchange gains on cash and cash equivalents Cash and cash equivalents at end of year There were no significant non-cash transactions. Cash available on demand Overdrafts (3,000) _______ (117,792) _______ 5,262 _______ (451,484) _______ 2010 £ 2009 £ 343,835 (461,627) _______ (117,792) _______ 216,796 (668,280) _______ (451,484) _______ 16 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS Solid State PLC 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 2006 applicable to companies preparing their accounts under IFRSs. The consolidated financial statements have been prepared under the historical cost convention. 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. 17 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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. 18 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 1. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING JUDGEMENTS (continued) Solid State PLC 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: • • • the initial recognition of goodwill 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 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 retranslated at the rates ruling at the balance sheet date. Exchange differences arising are recognised in the income statement On consolidation, the balance sheet 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: • • • • • • it is technically feasible to develop the product for it to be sold; adequate resources are available to complete the development; there is an intention to complete and sell the product; the Group is able to sell the product; sale of the product will generate future economic benefits; and 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 2009 and 31st March 2010 met the conditions necessary for capitalisation. 19 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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 liabilities The 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: • • Trade payables and other short term monetary liabilities, which are recognised at amortised cost. 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. 20 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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. 2. REVENUE Revenue arises from: Sale of goods Provision of services 2010 £ 2009 £ 13,440,759 68,364 _________ 12,487,364 34,422 _________ 13,509,123 _________ 12,521,786 _________ 21 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 3. PROFIT FROM OPERATIONS This has been arrived at after charging/(crediting): Staff costs (see note 4) Employment termination costs (included in staff costs) Depreciation of property, plant and equipment Amortisation of computer software Loss on disposal of property, plant and equipment Goodwill impairment charge Auditors’ remuneration: Audit fees Audit of accounts of associates of the company pursuant to legislation Operating lease rentals: Plant and machinery Other Research and development costs Foreign exchange differences 2010 £ 2,111,835 5,000 88,929 7,695 4,928 - 1,000 26,395 29,166 103,801 87,461 (127,648) _______ 2009 £ 1,961,019 16,559 89,235 7,567 3,346 - 1,000 36,273 23,423 100,473 154,348 (238,397) _______ The foreign exchange differences have been treated as a reduction in cost of sales rather than as a negative overhead. 4. STAFF COSTS Staff costs for all employees during the year, including the executive Directors, were as follows: Wages and salaries Social security costs Other pension costs 2010 £ 1,912,592 197,400 1,843 ________ 2,111,835 ________ 2009 £ 1,768,479 192,540 - ________ 1,961,019 ________ Wages and salaries include termination costs of £5,000 (2009: £16,559) The average monthly number of employees during the year, including the three executive Directors, was as follows: Selling and distribution Manufacturing Management and administration 22 2010 Number 2009 Number 23 19 24 __ 66 __ 26 14 25 __ 65 __ Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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 2010 Executive Directors W G Marsh G S Marsh J M Lavery Non-executive Directors P Haining L C A Newnham G L Comben Total 31st March 2009 Executive Directors W G Marsh G S Marsh J M Lavery Non-executive Directors P Haining L C A Newnham G L Comben Total 12,000 107,000 107,000 - 12,000 12,000 ______ - - - 12,000 - - ______ 5,000 11,000 15,000 - - 5,000 ______ 250,000 ______ 12,000 ______ 36,000 ______ 12,000 109,000 102,000 - - 5,000 ______ - - - 12,000 12,000 - ______ 4,000 9,000 16,000 - - 2,000 ______ 228,000 ______ 24,000 ______ 31,000 ______ 17,000 118,000 122,000 12,000 12,000 17,000 ______ 298,000 ______ 16,000 118,000 118,000 12,000 12,000 7,000 ______ 283,000 ______ - - 2,000 - - - ______ 2,000 ______ - - - - - - ______ - ______ - 17,000 6,000 124,000 6,000 130,000 - - - ______ 12,000 12,000 17,000 ______ 12,000 312,000 ______ ______ - 16,000 6,000 124,000 6,000 124,000 - - - ______ 12,000 12,000 7,000 ______ 12,000 295,000 ______ ______ The executive Directors waived their entitlement to emoluments during the year as follows: W G Marsh 2010 £ 2009 £ 24,000 ______ 24,000 ______ The principal benefits in kind relate to the provision of company cars. In addition to the above, fees totalling £50,895 (2009: £52,655) 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 £11,574 (2009: £8,369) was due to The Kings Mill Partnership at 31st March 2010. 23 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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 28th July 2010 and at the balance sheet date, and their interest in the issued ordinary share capital of the Company at that date, at 31st March 2010 and 31st March 2009 or date of appointment if later, were as follows: G L Comben W G Marsh G S Marsh J M Lavery P Haining L C A Newnham J L Macmichael A B Frere 28.07.10 31.03.10 31.03.09 2,727,606 1,700,500 73,683 824 12,500 10,000 - - 2,727,606 1,700,500 73,683 824 12,500 10,000 - - 2,727,606 1,700,500 73,472 569 12,500 10,000 - - Details of the options over the Company’s shares granted under the Enterprise Management Incentives Scheme are as follows: Options held at 01.04.09 Lapsed Granted G S Marsh 317,460 J M Lavery 317,460 - - - - Options held at 31.03.10 317,460 317,460 Exercise price Date of grant Exercise period 31.5p 31.5p 22.01.08 Jan 2009 onwards 22.01.08 Jan 2009 onwards The market price of the shares at 31st March 2010 was 37.5p (2009: 17.5p), with a quoted range during the year of 17.5p to 51.5p. No director exercised any share options during the year, or in the prior year. 6. FINANCE INCOME Interest receivable 2010 £ - ___ - ___ 2009 £ 67 _____ 67 _____ 24 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 7. FINANCE COSTS Bank borrowings Invoice discounting interest Other interest 8. TAX EXPENSE Current tax expense UK corporation tax and income tax of overseas operations on profits or losses for the year Adjustment in respect of prior periods Deferred tax expense Total tax charge Solid State PLC 2010 £ 11,565 10,474 658 ______ 22,697 ______ 2009 £ 35,796 24,529 - ______ 60,325 ______ 2010 £ 2009 £ 118,814 (4,688) ______ 128,670 - ______ 114,126 128,670 10,024 _______ 124,150 _______ - _______ 128,670 _______ 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: Profit before tax Expected tax charge based on the standard rate of corporation tax in the UK of 28% (2009 – 28%) Effect of: Expenses not deductible for tax purposes Deductible expenses not charged in Group accounts Difference between depreciation for the year and capital allowances Utilisation of tax losses Marginal relief Enhanced relief on research and development expenditure Non-taxable government incentive received Different tax rates and rules applied in overseas jurisdictions Adjustment to enhanced relief on research and development expenditure in prior year Total tax charge 25 2010 £ 2009 £ 529,785 _______ 614,501 _______ 148,340 172,060 8,535 (9,649) 1,225 - (1,246) (18,367) - - (4,688) _______ 124,150 _______ 11,947 (9,649) (7,233) (3,391) (8,902) (21,609) (28) (4,525) - _______ 128,670 _______ Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 9. EARNINGS PER SHARE The earnings per share is based on the following: Earnings Weighted average number of shares Diluted number of shares Earnings per share Diluted earnings per share 2010 £ 2009 £ 405,635 _______ 485,831 _______ 6,156,511 6,156,511 6,156,511 6,156,511 6.6p 6.6p 7.9p 7.9p 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 (2009: 6,156,511). The Diluted earnings per share is based on 6,156,511 (2009: 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 (2009: 634,920). 10. DIVIDENDS Final dividend paid for the prior year of 2p per share (2009: 1.25p) Interim dividend paid of 1p per share (2009: 1p) Final dividend proposed for the year 2p per share (2009: 2p) 2010 £ 123,130 61,565 _______ 184,695 _______ 123,130 ______ 2009 £ 76,957 61,565 _______ 138,522 _______ 123,130 _______ The proposed final dividend has not been accrued for as the dividend was declared after the balance sheet date. 26 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 11. PROPERTY, PLANT AND EQUIPMENT Solid State PLC Year ended 31st March 2009 Cost 1st April 2008 Additions Disposals 31st March 2009 Depreciation 1st April 2008 Charge for the year On disposal 31st March 2009 Net book value 31st March 2009 31st March 2008 Year ended 31st March 2010 Cost 1st April 2009 Additions Disposals 31st March 2010 Depreciation 1st April 2009 Charge for the year On disposal 31st March 2010 Net book value 31st March 2010 Short leasehold property Motor improvements vehicles Fittings equipment and computers £ £ £ Total £ 255,176 - - _______ 279,241 56,546 (26,204) _______ 853,364 45,249 - _______ 1,387,781 101,795 (26,204) ________ 255,176 _______ 309,583 _______ 898,613 _______ 1,463,372 ________ 255,176 - - _______ 94,323 50,353 (14,358) _______ 749,748 38,882 - _______ 1,099,247 89,235 (14,358) ________ 255,176 _______ 130,318 _______ 788,630 _______ 1,174,124 ________ - _______ 179,265 _______ 109,983 _______ 289,248 ________ - _______ 184,918 _______ 103,616 _______ 288,534 ________ 255,176 - - _______ 309,583 132,459 (142,963) _______ 898,613 25,552 - _______ 1,463,372 158,011 (142,963) ________ 255,176 _______ 299,079 _______ 924,165 _______ 1,478,420 ________ 255,176 - - _______ 130,318 51,015 (84,477) _______ 788,630 37,914 - _______ 1,174,124 88,929 (84,477) ________ 255,176 _______ 96,856 _______ 826,544 _______ 1,178,576 ________ - _______ 202,223 _______ 97,621 _______ 299,844 ________ There were no capital commitments at 31st March 2009 and 31st March 2010. 27 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 12. INTANGIBLE ASSETS Year ended 31st March 2009 Cost 1st April 2008 and 31st March 2009 Amortisation 1st April 2008 Charge for the year 31st March 2009 Net book value 31st March 2009 Year ended 31st March 2010 Cost 1st April 2009 Additions 31st March 2010 Amortisation 1st April 2009 Charge for the year 31st March 2010 Net book value 31st March 2010 UN Licences £ Computer software Goodwill on consolidation £ £ Total £ 9,800 _____ 38,477 ______ 1,992,737 ________ 2,041,014 ________ 641 7,567 ______ 8,208 ______ 30,269 ______ 38,477 3,835 ______ 42,312 ______ 8,208 7,695 ______ 15,903 ______ 26,409 ______ - - ________ - ________ 1,992,737 ________ 1,992,737 - ________ 1,992,737 ________ - - ________ - ________ 1,992,737 ________ 641 7,567 ________ 8,208 ________ 2,032,806 ________ 2,041,014 3,835 ________ 2,044,849 ________ 8,208 7,695 ________ 15,903 ________ 2,028,946 ________ - - _____ - _____ 9,800 _____ 9,800 - _____ 9,800 _____ - - _____ - _____ 9,800 _____ 28 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 13. GOODWILL AND IMPAIRMENT Details of the carrying amount of goodwill allocated to cash generating units (CGUs) is as follows: Steatite Limited Wordsworth Technology Limited Goodwill carrying amount 2010 £ 2009 £ 1,992,737 - ________ 893,214 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% (2009: 15%) 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 (2009: 0.84). The recoverable amount exceeds the carrying amount by £2,110,000 (2009: £2,048,000). 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 Solid State Supplies Limited Steatite Limited Great Britain Great Britain 100% 100% Nature of business Distribution of electronic components Distribution of electronic components and manufacture of electronic equipment In both cases the country of operation and of incorporation or registration is England. With effect from 1st April 2009 the trade of Wordsworth Technology Limited was transferred to Steatite Limited and the company became dormant. 29 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 15. INVENTORIES Finished goods and goods for resale Work in progress 2010 £ 1,422,504 365,016 ________ 1,787,520 ________ 2009 £ 1,408,602 145,427 ________ 1,554,029 ________ There is no material difference between the replacement cost of inventories and the amount stated above. 16. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Prepayments 2010 £ 2,489,507 - 72,880 ________ 2,562,387 ________ 2009 £ 2,115,226 2,232 102,416 ________ 2,219,874 ________ Group trade receivables include £1,318,785 (2009: £1,016,697) 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 the debts per month. At 31st March 2010 borrowing under the agreement of £1,063,703 (2009: £864,191) was available of which £1,063,703 (2009: £712,039) was taken up. Interest charges in the year amounted to £10,474 (2009: £24,529) and administration fees to £17,770 (2009: £16,114). 17. TRADE AND OTHER PAYABLES Trade payables Other taxes and social security taxes Other payables Accruals Deferred income 2010 £ 1,525,761 321,837 12,574 143,140 169,570 ________ 2,172,882 ________ 2009 £ 1,456,699 244,207 2,402 135,460 - ________ 1,838,768 ________ 30 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 18. BANK BORROWINGS Amounts due to invoice discounters Solid State PLC 2010 £ 2009 £ 1,063,703 _______ 712,039 _______ The bank overdraft is 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 £140,000 (2009: £nil). 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: • • • • Credit risk Foreign currency risk Liquidity risk 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: 31 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 19. FINANCIAL INSTRUMENTS (continued) Credit risk The 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 risk External 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 risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Current financial assets Trade and other receivables Cash and cash equivalents 32 Loans and Receivables 2009 £ 2010 £ 2,562,387 343,835 ________ 2,906,222 ________ 2,219,874 216,796 ________ 2,436,670 ________ NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) Solid State PLC 19. FINANCIAL INSTRUMENTS (continued) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: UK Non UK Carrying value 2010 £ 2,346,611 142,896 ________ 2,489,507 ________ 2009 £ 1,998,256 116,970 ________ 2,115,226 ________ 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 £20,000 (2009: £28,000) which represented less than 0.15% (2009: 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 Geographical area 2010 UK Non UK Total Total £ Current £ 30 days past due £ 60 days past due £ 90 days past due £ 2,449,254 142,896 ________ 2,309,465 138,913 ________ 135,142 1,790 _______ 3,293 2,193 ______ 1,354 - ______ 2,592,150 2,448,378 136,932 5,486 1,354 Less: Provisions (102,643) - (95,803) (5,486) (1,354) Total 2009 UK Non UK Total ________ ________ _______ ______ ______ 2,489,507 ________ 2,448,378 ________ 41,129 _______ - ______ - ______ 2,100,397 116,970 ________ 1,815,974 107,921 ________ 236,493 9,017 ________ 42,394 - ______ 5,536 32 ______ 2,217,367 1,923,895 245,510 42,394 5,568 Less: Provisions (102,141) - (54,179) (42,394) (5,568) ________ ________ ______ ______ ______ Total 2,115,226 ________ 1,923,895 ________ 191,331 ______ - ______ - ______ 33 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (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: Opening balance Increases in provisions Written off against provisions 2010 £ 102,141 20,000 (19,498) _______ 102,643 _______ 2009 £ 131,464 28,000 (57,323) _______ 102,141 _______ 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 earlier table, at 31st March 2010 trade receivables of £41,129 which were past their due date were not impaired (2009: £191,331). All of these were less than 60 days past their due date. 34 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 19. FINANCIAL INSTRUMENTS (continued) Liquidity risk Current financial liabilities Trade and other payables Bank borrowings Bank overdraft Non current financial liabilities Loans and borrowings Solid State PLC Financial liabilities measured at amortised cost 2010 £ 2,200,308 1,063,703 434,201 ________ 3,698,212 ________ - ________ 2009 £ 1,838,768 712,039 668,280 ________ 3,219,087 ________ - ________ The following are maturities of financial liabilities, including estimated contracted interest payments. Carrying Contractual amount cash flow 6 months or less 6 – 12 months 1 or more years 2010 Secured bank loans Bank overdrafts Amounts due to invoice discounters Trade and other payables 2009 Bank overdrafts Amounts due to invoice discounters Trade and other payables - 461,627 - 461,627 - 461,627 - - - - 1,063,703 2,172,882 ________ 1,063,703 2,172,882 ________ 1,063,703 2,172,882 ________ - - _______ - _______ 3,698,212 ________ 3,698,212 ________ 3,698,212 ________ - _______ - _______ 668,280 668,280 668,280 - - 712,039 1,973,388 ________ 712,039 1,973,388 ________ 712,039 1,838,768 ________ - 134,620 _______ - - ________ 3,353,707 ________ 3,353,707 ________ 3,219,087 ________ 134,620 _______ - ________ Interest rate risk The Group finances its business through a mixture of bank overdrafts and invoice discounting facilities. During the year the Group utilised these facilities at floating rates of interest. The Group bank overdraft with HSBC plc incurs interest at the rate of 2.3% 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. 35 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 19. FINANCIAL INSTRUMENTS (continued) Interest rate risk (continued) The US Dollar overdraft facility bears the interest rate of 2.3% 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 £19,235 (2009: £11,579) 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 the 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 2010: Trade receivables Cash and cash equivalents Trade payables 2010 £ 636,794 84,796 (825,929) _______ (104,339) _______ 2009 £ 677,047 85,843 (854,922) _______ (92,032) _______ There were also net liabilities of £32,954 in euros (2009: £19,832). 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 later in this note. 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 £13,700 (2009: £11,200) 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 £13,700 (2009: £11,200). 36 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) Solid State PLC 19. FINANCIAL INSTRUMENTS (continued) Foreign currency risk (continued) At 31st March 2009 the Group had entered into agreement with its bankers to purchase US dollars as follows: 1st April 2009 9th April 2009 9th April 2009 1st May 2009 1st May 2009 $ 200,000 250,000 100,000 250,000 100,000 Rate 1.40 1.42 1.4515 1.42 1.4515 At 31st March 2010 the Group had entered into agreement with its bankers to purchase US dollars as follows: 1st April 2010 4th May 2010 1st June 2010 $ 200,000 200,000 200,000 Rate 1.5582 1.558 1.529 Applying the actual exchange rate at the balance sheet date to these agreements gives rise to an asset of £10,561 at 31st March 2010 (2009: a liability of £421). In view of the immaterial nature of these amounts, no adjustment has been made in the financial statements. Capital under management The 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 2010 is shown below: Cash and cash equivalents Bank overdrafts Invoice discounting advance Share capital Share premium account Retained earnings Capital redemption reserve Foreign exchange reserve Gearing ratio 37 2010 £ (343,835) 461,627 1,063,703 ________ 1,181,495 ________ 307,826 756,980 2,199,714 4,674 55,126 ________ 3,324,320 ________ 0.262 ________ 2009 £ (216,796) 668,280 712,039 ________ 1,163,523 ________ 307,826 756,980 1,837,390 4,674 58,126 ________ 2,964,996 ________ 0.282 ________ Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 20. DEFERRED TAX Accelerated capital allowances At 1st April 2009 Charge for the year At 31st March 2010 21. SHARE CAPITAL Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 2010 £ - 10,024 ______ 10,024 ______ 2010 £ 2009 £ 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 2010 the number of shares covered by option agreements amounted to 634,920 (2009: 634,920). No options were exercised in the year (2009: nil). 22. 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 Capital redemption Foreign exchange Retained earnings Amount subscribed for share capital in excess of nominal value. Amounts transferred from share capital on redemption of issued shares. Gains/losses from the retranslation of net assets of overseas operations into sterling Cumulative net gains and losses recognised in the consolidated income statement. 23. LEASING COMMITMENTS The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2010 £ 86,402 32,555 - ______ 2009 £ 117,454 81,822 1,320 ______ No later than 1 year Later than 1 year and no later than 5 years Later than 5 years 38 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 24. 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 2010 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 (2009: £12,546). The following information is relevant to the determination of the fair value of the options. Equity settled share based payments Option pricing model used Weighted average share price at grant date Exercise price Weighted average contractual life Expected volatility Expected dividend growth rate Risk free interest rate 2009 and 2010 Binominal Tree 31.5p 31.5p 1.2 years 78.52% - 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. 39 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 25. 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 Revenue External Intercompany Distribution division £ Manufacturing division £ Head office £ Total £ 3,642,911 - ________ 8,878,875 96,789 ________ - - ________ 12,521,786 96,789 ________ 3,642,911 8,975,664 - 12,618,575 ________ ________ ________ ________ Profit/(loss) before tax 38,827 ________ 782,674 ________ (207,000) ________ 614,501 ________ Balance sheet Assets Liabilities 1,719,736 (2,111,952) ________ 4,593,017 (1,217,921) ________ - (17,884) ________ 6,312,753 (3,347,757) ________ Net assets/(liabilities) (392,216) ________ 3,375,096 ________ (17,884) ________ 2,964,996 ________ Other Capital expenditure - Tangible fixed assets - Intangible fixed assets Depreciation, amortisation and other non cash expenses Interest paid 44,812 - 48,108 12,000 ________ 56,983 - 80,040 12,639 ________ - - - 35,686 ________ 101,795 - 128,148 60,325 ________ 40 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 25. SEGMENT INFORMATION (continued) Year ended 31st March 2010 Revenue External Intercompany Profit/(loss) before tax Balance sheet Assets Liabilities Distribution division £ Manufacturing division £ Head office £ Total £ 3,544,437 - ________ 3,544,437 ________ (40,748) ________ 9,964,686 6,125 ________ 9,970,811 ________ 779,533 ________ - - ________ 13,509,123 6,125 _________ - ________ 13,515,248 _________ (209,000) ________ 529,785 ________ 1,650,165 (2,059,313) ________ 5,372,367 (1,708,268) ________ - (49,445) _______ 7,022,532 (3,817,026) ________ Net assets/(liabilities) (409,148) ________ 3,664,099 _________ (49,445) _______ 3,205,506 ________ Other Capital expenditure - Tangible fixed assets - Intangible fixed assets Depreciation, amortisation and other non cash expenses Interest paid 69,929 3,835 53,956 11,565 ________ 88,082 - 67,596 10,474 ________ - - - 658 ________ 158,011 3,835 121,552 22,697 ________ Included within the manufacturing division is £1,864,461 (2009: £0) relating to income from a major customer which accounts for greater than 10% of the Group’s turnover. United Kingdom Ireland Europe North America Asia Africa Australasia South America External revenue by location of customer 2009 £ 2010 £ Total assets by location of assets 2009 2010 £ £ 12,351,720 11,397,659 - 747,966 119,234 148,332 92,076 14,302 2,217 _________ _________ 109,893 763,260 95,930 159,643 15,894 12,442 341 7,007,211 - 15,321 - - - - - ________ 6,195,887 - 116,866 - - - - - ________ Net tangible capital expenditure by location of assets 2010 £ 104,456 - - - - - - - ______ 2009 £ 93,295 - - - - - - - _______ 13,509,123 12,521,786 _________ _________ 7,022,532 ________ 6,312,753 ________ 104,456 ______ 93,295 _______ All the above relate to continuing operations. 41 Solid State PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 26. POST BALANCE SHEET EVENT On 1st April 2010 the Group acquired 100% of the ordinary shares in Rugged Systems Limited for a cash consideration of £225,263. The investment in Rugged Systems Limited will be included in the Group’s balance sheet at its fair value at the date of acquisition. Rugged Systems Limited is one of Europe’s leading suppliers of rugged mobile computer, display and communications services which will strengthen the Group’s product offering. Analysis of the acquisition of Rugged Systems Limited: Net assets at the date of acquisition. Intangible fixed assets Tangible fixed assets Net current (liabilities) Deferred tax Net assets/(liabilities) on acquisition Goodwill arising on acquisition Discharged by: Cash Book value Fair value adjustments Fair value to Group £ £ £ - 140,434 140,434 71,690 (63,851) 7,839 (100,038) - (100,038) - _______ (28,348) _______ (36,513) ______ 40,070 ______ (36,513) _______ 11,722 213,541 _______ 225,263 _______ 225,263 _______ In addition to the purchase price, the Group incurred costs relating to the acquisition of £7,500. The intangible fixed assets comprise the estimated net present value of customer relationships. The goodwill arises from the expected synergies from adding Rugged Systems Limited to the rugged computer division of Steatite Limited with the aim of becoming the UKs leading supplier of rugged computers. 42 Solid State PLC COMPANY BALANCE SHEET at 31st March 2010 FIXED ASSETS Investments CURRENT ASSETS Debtors Cash at bank and in hand CREDITORS: Amounts falling due within one year NET CURRENT ASSETS/(LIABILITIES) NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Capital redemption reserve Profit and loss account SHAREHOLDERS’ FUNDS Notes 2010 2009 £ £ £ £ 4 5 2,454,056 _________ 2,464,056 ________ 2,454,056 2,464,056 1,425,091 254,603 ________ 1,679,694 - - - ________ - - 6 922,288 ________ 998,736 ________ 757,406 ________ 3,211,462 ________ 307,826 756,980 4,674 2,141,982 ________ 3,211,462 ________ (998,736) ________ 1,465,320 ________ 307,826 756,980 4,674 395,840 ________ 1,465,320 ________ 7 8 8 8 The financial statements were approved by the Board of Directors and authorised for issue on 28th July 2010. P Haining Director The notes on pages 46 to 49 form part of these financial statements. 43 Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2010 1. ACCOUNTING POLICIES The 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 408(4) of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. The loss for the year ended 31st March 2010 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: •• Amounts owed by group undertakings and other creditors, which are recognised at amortised cost. • 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 COSTS Staff costs amounted £12,546 (2009: £12,546) and comprised the share based payment expense. There were 4 employees (2009: 4), 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. 44 Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2010 3. 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 2010 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 (2009: £12,546). The following information is relevant to the determination of the fair value of the options. Equity settled share based payments Option pricing model used Weighted average share price at grant date Exercise price Weighted average contractual life Expected volatility Expected dividend growth rate Risk free interest rate 2009 and 2010 Binominal Tree 31.5p 31.5p 1.2 years 78.52% - 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. 45 Solid State PLC 4. INVESTMENTS Company NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) Cost 1st April 2009 Disposal 31st March 2010 Net book value 31st March 2010 31st March 2009 Subsidiary undertakings Group undertakings £ 2,464,056 (10,000) ________ 2,454,056 ________ 2,454,056 ________ 2,464,056 ________ The principal undertakings in which the Company’s interest at the year end is 20% or more are as follows: Subsidiary undertakings Solid State Supplies Limited Steatite Limited Proportion of voting rights and Ordinary share capital held Nature of business 100% 100% Distribution of electronic components Distribution of electronic components and manufacture of electronic equipment In both cases the country of operation and of incorporation or registration is England. With effect from 1st April 2009 the trade of Wordsworth Technology Limited was transferred to Steatite Limited and the company became dormant. 5. DEBTORS Amounts owed by Group undertakings 6. CREDITORS: Amounts falling due within one year Bank overdraft (secured) Amounts owed to Group undertakings Other creditors 46 2010 £ 2009 £ 1,425,091 _______ - _______ 2010 £ 27,426 893,040 1,822 _______ 922,288 _______ 2009 £ - 997,019 1,717 _______ 998,736 _______ Solid State PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS For the year ended 31st March 2010 (continued) 6. CREDITORS: Amounts falling due within one year (continued) The Company has guaranteed bank borrowings of its subsidiary undertakings, Solid State Supplies Limited and Steatite Limited. At the year end the liabilities covered by those guarantees amounted to £434,201 (2009: £567,337). 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 Allotted issued and fully paid 6,156,511 ordinary shares of 5p each 2010 2009 £ £ 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 2010 the number of shares covered by option agreements amounted to 634,920 (2009: 634,920). No options were exercised in the year (2009: nil). 8. RESERVES 1st April 2009 Profit for the year Add: Share based expense Dividend paid 31st March 2010 Share premium Capital redemption Profit & loss account reserve account 756,980 - _______ 756,980 - _______ 756,980 - ________ 756,980 ________ 4,674 - _____ 4,674 - _____ 4,674 - _____ 4,674 _____ 395,840 1,918,291 _______ 2,314,131 12,546 _______ 2,326,677 (184,695) _______ 2,141,982 _______ The profit for the year comprises a dividend received and 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 2010 is £30,000 (2009: £30,000). 47 Solid State PLC NOTICE OF ANNUAL GENERAL MEETING Notice 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 1st September 2010 at 11.00am for the following purposes: ORDINARY RESOLUTIONS (1) (2) (3) (4) (5) (6) (7) (8) To receive and adopt the accounts for the year ended 31st March 2010, together with the reports of the Directors and auditors thereon. (Resolution 1) To declare a final dividend of 2p per share. (Resolution 2) To reappoint John Michael Lavery, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. (Resolution 3) To reappoint William George Marsh, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. (Resolution 4) To reappoint John Lawford Macmichael, who has been appointed as a Director since the last annual general meeting, as a Director of the Company in accordance with the Company’s Articles of Association (Resolution 5) To reappoint Anthony Brian Frere, who has been appointed as a Director since the last annual general meeting, as a Director of the Company in accordance with the Company’s Articles of Association (Resolution 6) To reappoint Haysmacintyre as auditors of the Company and to authorise the Directors to fix their remuneration. (Resolution 7) To pass the following resolution: That the Company is, pursuant to Section 701 of the Companies Act 2006, hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 693 of the Companies Act 2006) of ordinary shares of 5p each in the capital of the Company (“ordinary shares”) provided that:- the minimum price which may be paid for the ordinary shares is 5p per ordinary share; i) the maximum price which may be paid for the ordinary shares is £1.00 per ordinary share; ii) the authority hereby conferred shall expire after a period of 18 months from the passing of this iii) resolution unless such authority is renewed prior to such expiry; the authority hereby conferred is in substitution for any existing authority to purchase ordinary shares under the said Section 701; the Company may make a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiry of such authority and may make a purchase or purchases of ordinary shares in pursuance of any such contract; and the maximum number of ordinary shares hereby authorised to be purchased by the Company does not exceed 15 per cent of the issued ordinary share capital of the Company at the date of the passing of this resolution. (Resolution 8) iv) vi) v) BY ORDER OF THE BOARD P Haining FCA Director 28th July 2010 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 and vote may appoint a proxy or proxies who need not be a member of the Company to attend and to vote instead of him or her. Forms of proxy need to be deposited with the Company’s registrar, Capita Group plc, Balfour House, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not later than 48 hours before the time of the meeting. Completion of a form of proxy will not preclude a member attending and voting in person at the meeting. 2. Documents on Display The register of Directors’ interests in the share capital and debentures of the Company, together with copies of service agreements under which Directors of the Company are employed, are available for inspection at the Company’s registered office during normal business hours from the date of this notice until the date of the Annual General Meeting and will also be available for inspection at the place of the Annual General Meeting for at least 15 minutes prior to the meeting. 48 SOLID STATE PLC FORM OF PROXY Please read the notes below before completing the form. Any amendments to this form should be initialled by the signatory. I/We (name/(s) in full of address(es) being a member(s) of the above named company, hereby appoint the Chairman of the Meeting, or failing him as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Unit 2, Eastlands Lane, Paddock Wood, Kent, TN12 6BU on Wednesday 1st September 2010 at 11.00am and at any adjournment thereof. Resolution For Against 1. To receive and adopt the accounts for the year ended 31st March 2010 together with the reports of the Directors and auditors thereon. 2. To declare a final dividend of 2p per share. 3. To re-appoint John Michael Lavery, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. 4. To re-appoint William George Marsh, who retires by rotation, as a Director of the Company in accordance with the Company’s Articles of Association. 5. To re-appoint John Lawford Macmichael, who has been appointed as a Director since the last annual general meeting, as a Director of the Company in accordance with the Company’s Articles of Association. 6. To re-appoint Anthony Brian Frere, who has been appointed as a Director since the last annual general meeting, as a Director of the Company in accordance with the Company’s Articles of Association. 7. To re-appoint Haysmacintyre as auditors of the Company and to authorise the Directors to fix their remuneration. 8. To authorise the Company to purchase its own shares. Signature Notes Date 1. You may appoint one or more proxies of your own choice, if you are unable to attend the meeting but would like to vote. If such an appointment is made, delete the words “the Chairman of the Meeting” and insert the name(s) of the person or persons appointed as proxy/proxies in the space provided. A proxy need not be a member of the Company. If no name is entered above, the return of this form duly signed will authorise the Chairman of the meeting to act as your proxy. 2. In the case of a corporation, this form of proxy must be properly executed under the hand of its duly authorised officer or attorney or any other person authorised to sign on behalf of the corporation. 3. To be valid, this form must be deposited (together with any power of attorney or other authority under which it is signed or a notarially certified copy of such power or a copy certified in accordance with Powers of Attorney Act 1971 or in some other manner approved by the Directors), at Capita IRG plc, The Registry, 34 Beckenham Road, Kent BR3 4TU, not later than 48 hours before the time appointed for the Meeting. The completion and return of a form of proxy will not, however, preclude shareholders from attending and voting in person at the Meeting. 4. 5. If two or more persons are jointly entitled to a share conferring the right to vote, any one of them may vote at the Meeting either in person or by proxy, but if more than one joint holder be present at the Meeting either in person or by proxy the one whose name stands first in the Register of Members in respect of the joint holding shall alone be entitled to vote. In any event the names of all joint holders should be stated above. If this form is returned without any indication as to how the person(s) appointed shall vote on the resolutions, such persons(s) will exercise his/her/their discretion as to how to vote or whether to abstain from voting. Unless instructed other wise, the proxy may also vote or abstain from voting as he or she thinks fit on any other business, which may properly come before the meeting (including amendments to resolutions). Please return this form to: Capita IRG plc, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU 

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