REPORT AND ACCOUNTS

2009

THE YEAR AT A GLANCE AND FIVE YEAR SUMMARY 1

DIRECTORS AND ADVISORS 2

COMPANY OVERVIEW 3

CHAIRMAN’S STATEMENT 4

OPERATING AND FINANCIAL REVIEW 5

REPORT OF THE DIRECTORS 8

DIRECTORS' REMUNERATION REPORT 11

CORPORATE GOVERNANCE 14

REPORT OF THE INDEPENDENT AUDITORS 16

GROUP INCOME STATEMENT 17

GROUP BALANCE SHEET 18

CASH FLOW STATEMENTS 19

GROUP STATEMENT OF CHANGES IN EQUITY 20

COMPANY BALANCE SHEET 21

COMPANY STATEMENT OF CHANGES IN EQUITY 22

NOTES TO THE FINANCIAL STATEMENTS 23

SHAREHOLDER INFORMATION inside back page

Contents

1

2009 2008 £'000 £'000

Revenue 16,089 17,098

Gross Profit 10,202 11,705

Loss from Operations (1,775) (1,536)

Loss before Taxation (2,089) (1,728)

Shareholders' Equity 14,795 17,596

Loss per Share (14.29)p (4.13)p

Year ending 31st March2009 2008 2007 2006 2005

£'000 £'000 £'000 £'000 £'000

Income StatementRevenue 16,089 17,098 17,768 26,333 23,457

Gross Profit 10,202 11,705 11,040 15,860 14,861

Gross Profit Percentage 63.41% 68.46% 62.13% 60.23% 63.35%

(Loss)/Profit Before Taxation (2,089) (1,728) (3,209) 3,486 2,305

Earnings per Share

Basic (14.29)p (4.13)p (17.53)p 17.68p 16.77p

Diluted (14.29)p (4.13)p (17.53)p 17.66p 16.64p

Balance SheetShareholders' Equity 14,795 17,596 17,477 21,185 19,498

No. No. No. No. No.Issued 5p Ordinary Shares 14,947,626 14,947,626 14,947,626 14,892,052 14,880,962

Five YearSUMMARY

The YearAT A GLANCE

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George Gurry - Chairman Aged 77, is non-executive chairman. He is a founder of the Company. Chris Gurry - Managing DirectorAged 45, he joined the Group in 1994, was appointed to the Board in 2000 as Business Development Director and became Managing Director in October 2007. Prior to joining CML, he worked within the electronics industry and has over 20 years' experience within communications markets.

Nigel Clark - Financial Director and Company SecretaryAged 55, he joined the Group in 1980. He was appointed Company Secretary in 1983 and Financial Director in 1985. Prior to joining CML, he was with Touche Ross & Co. and is a qualified chartered accountant.

George Bates - Non-Executive DirectorAged 62, he became a non-executive director of the Company in 2006. Prior to this, George was Group Director of Engineering. He joined CML in 1971 from GEC and was appointed Director of Engineering in 1994.

Ronald Shashoua - Non-Executive DirectorAged 75, he joined the Company in 1996. Formerly of Casson Beckman, Chartered Accountants, Ron was a corporate finance specialist partner and also held a number of management positions within the partnership, including chief executive.

Registered Office Oval Park Langford Maldon Essex CM9 6WG

Registrars and Transfer Office Equiniti Limited Aspect House, Spencer Road Lancing West Sussex BN99 6DA

AuditorsBaker Tilly UK Audit LLP Registered Auditor Chartered Accountants2 Bloomsbury StreetLondon WC1B 3ST

StockbrokersPanmure Gordon & CoMoorgate Hall155, Moorgate London EC2M 6XB

Solicitors Kidd Rapinet14 & 15 Craven StreetLondon WC2N 5AD

Womble Carlyle Sandridge & Rice 200 West Second Street Winston-Salem North Carolina USA

Financial Public Relations Walbrook PR Limited 4 Lombard StreetLondon EC3V 9HD

Bankers Barclays Bank Plc9 High StreetColchesterEssex CO1 1DD

DirectorsAND ADVISORS

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CompanyOVERVIEW

IntroductionCML Microsystems Plc (CML) was founded in 1968 in the United Kingdom (as Consumer Microcircuits Limited). Today, through eight operating subsidiaries located in the UK, the United States, Germany, Singapore and Taiwan, the Group designs, manufactures and markets a range of integrated circuits (ICs) for global industrial, professional and consumer applications within wireless communication, wireline communication, storage and networking market areas.Headquartered in Essex, UK, CML employs just under 200 people worldwide. The Company operates a ‘fabless’ semiconductor model (outsources silicon wafer fabrication) and performs IC assembly and test functions at facilities in the UK and through subcontractors around the globe.CML operates sales and technical support offices in Essex (UK), Konstanz (Germany), North Carolina (USA), Singapore and Taipei (Taiwan) and is supported by a global network of distributors and manufacturer's representatives.Long recognised as an innovator in IC products, CML has achieved a leading position in mixed-signal (combined analog and digital) circuit design and supply to many major electronic equipment manufacturers across the globe. Originating from the development of high-performance ICs during the 1970’s and 80’s, the Group has significant experience in delivering ICs for applications that demand world-class quality, performance, extended battery life and integration-levels. The Group maintains and enhances its market position by delivering an array of products that are designed in conjunction with customers' specifications and/or complex international standards.

StrategyHistorically, CML has carved out a profitable niche in global markets dominated by large corporations by pursuing a simple and consistent niche strategy; to deliver a solution rather than merely a component product to the customer; and to concentrate on markets that have significant expertise barriers to entry and limited economic appeal to larger competitors. More recently, the acquisition of German fabless IC company, Hyperstone GmbH, has seen this strategy evolve further to include high-end consumer and industrial markets with increased global competition - but the key strategy remains.Group semiconductor products focus on four main segments of the global semiconductor market:

WirelessICs covering voice, data, signalling and radio frequency (RF) requirements within historic and emerging markets for professional radio (PMR/LMR), marine radio, leisure radio, paging and voice security.

StorageFlash controller ICs for use within memory cards (CF, SD, MMC) and industrial storage products such as solid state drives (SSDs).

Wireline TelecomVoice, data and signalling ICs predominantly for ‘wired’ telephony applications and ‘gateway’ applications where traditional telephony infrastructure converges with digital and wireless applications.

NetworkingProprietary RISC/DSP System on Chip (SoC) processor ICs for industrial networking/automation (Ethernet communications), security (IP-cameras, digital video recorders for CCTV) and biometrics (fingerprint recognition, access control / time and attendance logging) applications.

The Group’s wide-ranging design skills, diversified technology portfolio and system-level understanding, coupled with market leading product functionality and an extensive selling network are key factors in the Group’s future success.

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IntroductionThe results posted for the full trading year ending 31 March 2009 reflect a continuation throughout the second half of the depressed trading conditions reported in the Group’s marketplaces at the interim stage.As anticipated with my concluding comments in the Interim Statement, conditions throughout the remaining months of the year remained challenging and a clear reduction in half on half performance was recorded.

ResultsDetails of the results are reported in the Operating and Financial Review. In summary, these show that Group revenues for the year posted a 6% decline to £16.09m (2008: £17.10m) and gross margin was 5% lower at 63% (2008: 68%). The lower gross margin results to some extent from variations in product sales mix.An increased loss before tax of £2.09m (2008: £1.73m loss) is consequent to an accounting rules gain and the positive movement of exchange rates during the period, in all totalling approximately £1m. If this gain is discounted the loss is broadly in line with market expectations for the year.The reported loss per ordinary share is 14.29p (2008: 4.13p loss per share).

DividendYour directors have given consideration to the savings expected from cost reduction measures that the Group has already and continues to implement, together with the funding of operational plans to increase its performance in the difficult circumstances that presently exist. They conclude that payment of a dividend would not be an appropriate use of resources at this present time. The directors therefore do not recommend payment of a dividend for the year ending 31 March 2009.

PropertyThe UK freehold properties that the Group had earlier placed on the market have been withdrawn from sale pending an improvement in commercial property values.

ProspectsThe breadth and duration of the markets slowdown has exceeded the expectations I had when reporting to you at the interim stage.Sales levels in the opening months of the current year show no improvement over those of the preceding months, but the Group’s product, marketing and business activities remain rightly focussed towards the growth opportunities identified as conditions improve.I have confidence in your Group’s ability to achieve a future return to growth.

G. W. Gurry

Chairman

Chairman'sSTATEMENT

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OVERVIEWDuring the year to 31 March 2009 the particularly adverse global market environment that commenced towards the end of the first-half impacted trading.Internal progress was made with our product development strategy for driving sustainable business growth but prevailing market and customer conditions prevented that progress from driving an annual revenue improvement. Operational cost efficiencies were receiving management focus prior to the start of the financial year and that process escalated during the second-half culminating in a significant reduction in employee levels. These reductions affected the majority of our trading subsidiaries whilst particular emphasis was placed on maintaining the resources required to ultimately achieve sustained growth within our chosen market areas. All costs associated with this exercise were realised prior to the year-end and are contained within these financial results.The uncertain outlook, low visibility and soft trading conditions reported in recent management statements continued through to the end of the period under review.

FINANCIAL RESULTS Group revenues for the year ended 31 March 2009 were £16.09m reflecting a 6% decrease over the comparable period (2008: £17.10m). The majority of customer transactions were in US dollars and the strengthening of the dollar against sterling through the year made a positive contribution.Gross margin fell to 63% (2008: 68%) largely as a result of product mix and a reduced gross profit of £10.20m was recorded for the full year (2008: £11.71m). Reported distribution and administration expenses improved to £12.47m (2008: £13.67m) assisted by lower amortisation costs and an unrealised gain of £507k relating to an inter-group loan.Net finance costs amounted to £218k (2008: £144k).The revenue reduction and margin loss were the largest contributing factors to the Group posting an increased loss before tax of £2.09m (2008: £1.73m loss).Continued tight management of the Group’s cash resources led to a reduced outflow of £0.69m (2008: £2.12m) for the year. Cash balances stood at £2.19m at the 31 March 2009. A decrease in both raw materials and finished goods saw inventory levels fall to £1.37m (2008: £1.75m). This, coupled with lower revenues, resulted in a working capital reduction of £132k. Capital expenditure was £66k (2008: £358k).The Group does not enter into hedging arrangements in respect of foreign currency exposure although a partial natural hedge exists due to the majority of raw material purchases and the majority of customer transactions being denominated in US dollars. Although this affords some protection, our largest cost centres are located in the UK and Germany resulting in substantial exposure to foreign currency fluctuations. The tax expense within the income statement of £47k (2008: £1.11m credit) includes a charge of £392k in respect of the government enacting the proposal to withdraw Industrial Buildings Allowances. This event was fully anticipated and highlighted within the 2008 Annual Report and Accounts.The Group continued to benefit from the focus on leveraging internal engineering resources across multiple product and market segments at the expense of external development resources, where appropriate. Several key new product releases were made during the year whilst development expenses remained flat at £3.97m (2008: £3.95m).The effect on the income statement of accounting for pensions under IAS 19 was to increase the administration costs by £391k (2008: decrease of £259k) and to increase the finance income by £72k (2008: £96k). The retirement benefit obligation liability under IAS 19 grew to £1.99m compared to a surplus of £459k at the 31st March 2008.After careful consideration, and with effect from 31 March 2009, the Company took the decision to close the UK defined benefit pension scheme in respect of future benefit accruals. The scheme had already closed to new entrants some years earlier but, after receiving the latest triennial valuation from the scheme actuary, it became clear that it continued to represent a significant and unpredictable future financial exposure. The Company intends to continue making payments into the scheme in respect of accrued liabilities and has agreed a multi-year payment plan with the trustees. All affected employees were offered the chance to join an existing Group Money Purchase Scheme.

Operating and FinancialREVIEW

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MARKETS REVIEWWirelessRevenues from the sale of semiconductors into the wireless market were flat year-on-year with the majority coming from the Far East and European regions. Customer products through the period included military, professional and leisure two-way radios, paging devices and narrowband wireless data modems. Our integrated circuits (IC’s) performed a number of functions within each of these products including signal processing, voice privacy and radio frequency (RF) transmission and reception. Growth was recorded in the contribution made from those products built on our proprietary FirmASIC® technology and the RF product family expanded to include a high-performance IQ modulator along with a flexible quadrature receiver chip. Initial customer programs with these products are encouraging and support the underlying strategy to expand the CML silicon footprint within each customer’s end product.Revenues from the low-cost analogue radio market were subdued as customers chose to suspend the release of new products in response to the general market conditions. Semiconductor shipments into China for public utility telemetry and marine electronics applications continued to perform slightly ahead of expectations. Overall, the wireless segment proved to be quite resilient through the year.

StorageThe prominent applications for our semiconductors within this market during the year were inclusion within removable memory cards and solid-state drive products in varying form factors. Customer products containing our IC’s were typically used as an alternative to magnetic storage media in commercial and industrial application areas that demand high-reliability under arduous operating conditions. Percentage revenue growth in this segment was close to double-digits with the Far East and Europe performing particularly well. The growth came from a combination of historic and new customers. Throughout the particular sub-segments of the storage market where the Group is active, we continued to enhance our reputation in relation to product quality, performance and customer service levels. A growing list of major international organisations built their products on our proprietary technology.

TelecomThe sale of semiconductors into the telecom segment fell significantly for the second consecutive year and was the main contributor to the overall reduction in Group revenues. Whilst all geographic regions posted a reduction, the fall in demand from specific North American security applications was the single biggest factor. Despite this disappointing performance, the product range remained both price and performance competitive for the target markets and several new customer design-wins were achieved.

NetworkingRevenue contributions from the networking segment were slightly down against the prior year and remain at relatively low-levels. Development of the support tools required to successfully market the product range reached the stage for promotional activities to commence.

EquipmentThe Group’s equipment division, Radio Data Technology Ltd, suffered a reduction in revenues to £980k (2008: £1.13m) as a direct result of the economic conditions in the UK delaying the placement of commercial orders for CCTV transmission equipment. A focused product development plan was initiated and is expected to drive global growth as conditions improve.Across all market areas during the year, no customer accounted for more than 10% of Group revenues and only one customer accounted for more than 5%.

Operating and FinancialREVIEWcontinued

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SUMMARY AND OUTLOOKThe year under review was a difficult one. Despite a reasonable performance during the opening few months, global events that commenced towards the end of the first half impaired our ability to post a trading improvement for the full year. Whilst I am encouraged by the resilience exhibited within the wireless segment and the growth delivered from storage products, forward visibility remains low and directly affects our ability to anticipate the timing of any upturn in the markets.We enter the 2009/10 financial year with a cost base better aligned to recent revenue levels and remain hopeful that general market conditions improve to facilitate a return to profitability at the earliest opportunity.The Board continues to have confidence in the medium term outlook and considers that actions taken through the year will ultimately deliver positive results. The strategic and operational focus continues to be on achieving sustainable growth as conditions improve.The Company has now been in existence for 40 years and the success achieved during that time has been fundamentally built on the quality, dedication and support of the Group’s past and present employees worldwide. On behalf of the Board, I would like to extend our sincere thanks for their loyal support and effort throughout the year.

C. A. Gurry

Managing Director

Operating and FinancialREVIEWcontinued

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The Directors submit their Report and Group financial statements for the year ended 31st March 2009.Statement of Directors’ Responsibilities in respect of the Financial StatementsThe directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.UK company law requires the directors to prepare Group and Company Financial Statements for each financial year. Under that law the directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU and have also elected to prepare the Company financial statements in accordance with IFRS as adopted by the EU. The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

The Company financial statements are required by law to give a true and fair view of the state of affairs of the company.In preparing each of the Group and Company financial statements, the directors are required to:a. select suitable accounting policies and then apply them consistently;b. make judgements and estimates that are reasonable and prudent;c. state whether they have been prepared in accordance with IFRSs adopted by the EU;d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group

and the Company will continue in business.The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the requirements of the Companies Act 1985 and as regards the Group financial statements, Article 4 of the IAS Regulation.They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.Directors' statement pursuant to the Disclosure and Transparency RulesEach of the directors, whose names and functions are listed on page 2 confirms that, to the best of their knowledge:a. the financial statements, prepared in accordance with IFRS as adopted by the EU give a true and fair view of the assets,

liabilities, financial position and profit/(loss) of the Company and the undertakings included in the consolidation taken as a whole; and

b. the Chairman's Statement and Operating and Financial Review contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face .

The directors are also responsible for the maintenance and integrity of the CML Microsystems Plc website. Legislation in the UK governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.Principal ActivitiesThe Group designs, manufactures and markets a range of electronic products for use in communications industries.Business Review and Future DevelopmentsThe Chairman's Statement on page 4 and the Operating and Financial Review on pages 5 to 7 give a detailed review of the business of the Group along with the development and performance of the business during the year and the position at the year end. A range of performance measures to monitor and manage the businesses are used, some of which are considered key performance indicators (KPIs). These KPIs include revenue, gross profit and profit from operations, summary details of which are shown on page 1 and discussed within the Operating and Financial Review on pages 5 to 7.Principal Risks and UncertaintiesKey risks of a financial natureThe principal risks and uncertainties facing the Group are with foreign currencies and customer dependency. With the majority of the Group's earnings being linked to the US Dollar a decline in this currency will have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. Additionally, though the Group has a very diverse customer base in certain market segments, key customers can represent a significant amount of revenue. Key customer relationships are closely monitored, however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.Key risks of non-financial natureThe Group is a small player operating in a highly competitive global market which is undergoing continual and geographical change. The Group's ability to respond to many competitive factors including, but not limited to pricing, technological innovations, product quality, customer service, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers' products since the Group is a component supplier. A substantial proportion of the Group's revenue and earnings are derived from outside the UK and so the Group's ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics.ResultsThe results for the year are set out in the Group income statement on page 17. The Group's pre-tax loss was £2,088,552 (2008 - loss £1,728,404) and the loss attributable to ordinary shareholders was £2,135,844 (2008 - loss 617,270).DividendsThe Directors are not proposing a dividend for the year (2008 - £Nil).

ReportOF THE DIRECTORS

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Research and DevelopmentThe Group actively reviews developments in its markets with a view to taking advantage of the opportunities available to maintain and improve its competitive position. This action involves the design and development of hardware and firmware for the semiconductor environment.Substantial ShareholdingsOther than the Directors’ interests shown below, the Company has been advised of the following substantial holdings as at 9th June 2009:Liontrust Asset Management Plc Institutional Investor 9.82%Herald Investment Management Institutional Investor 6.33%M. I. Gurry Private Investor 5.98%T. M. R. Dean Private Investor 5.43% M & G Investment Management Limited Institutional Investor 5.35%J. M. Finn Nominees Ltd Institutional Investor 4.37%Payment of PayablesIt is the Company’s policy to negotiate payment terms with its suppliers in all sectors and to ensure that they know the terms on which payment will take place when the business is agreed. It is our policy to abide by these terms. The Company has no trade payables outstanding at the end of the financial year and therefore the Company's practice in respect of the year with regard to its payment of creditors has been zero days.Market Value of Land and BuildingsThe Directors are of the opinion that the market value of operational properties at 31 March 2009 would exceed the net book values included in the financial statements, but they are unable to quantify this excess in the absence of a professional valuation, the costs of which are not considered justifiable in view of the Group's intention to retain ownership of its existing properties for use in its business for the forseeable future.

Directors and their InterestsThe Directors of the Company at 31st March 2009, all of whom have served throughout the year unless otherwise stated, together with their interests in the shares of the Company were: Ordinary Shares of 5p each 31st March 2009 31st March 2008

G. W. Gurry 2,769,262 2,769,262C. A. Gurry 848,936 848,936 N. G. Clark 113,986 134,571 G. J. Bates 44,409 44,409R. J. Shashoua 89,755 89,755

The above interests in the ordinary share capital of the Company are beneficial other than Mr G. W. Gurry's holding which includes 300,000 (2008 - 300,000) shares held by him as trustee in a non-beneficial capacity. Details of the Directors' interests in options granted over ordinary shares are disclosed in the Directors' Remuneration Report. There have been no changes in the Directors' interests in shares between 1st April 2009 and 9th June 2009. With the exception of Directors' service contracts there are no contracts of significance in which the Directors have an interest.

Annual General MeetingThe notice of the Annual General Meeting sets forth resolutions for the customary Ordinary Business and also Special Business comprising of two Special Resolutions relating to the following matters:Special Resolutions

To renew the authority to the Company to make market purchases of its own shares.To disapply the pre-emption provisions of Section 89(1) of the Companies Act 1985 for a maximum of 15 months up to an aggregate nominal amount of £35,750.

Capital Risk ManagementThough no specific basis, such as the gearing ratio is used to monitor the capital, the Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

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ReportOF THE DIRECTORS continued

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Disabled EmployeesThe Company makes every reasonable effort to ensure that disabled employees receive equal opportunities and are not discriminated against on the grounds of their disability.

Employee InvolvementThe Company encourages employees to participate directly in the success of the business through a free flow of information and ideas.

Statement as to Disclosure of Information to AuditorsThe Directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the Directors have confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor.

AuditorsA resolution to re-appoint Baker Tilly UK Audit LLP, Chartered Accountants, as auditors of the Company will be put to the members at the Annual General Meeting.

By order of the BoardN.G. Clark Company Secretary; 26th June 2009

ReportOF THE DIRECTORS continued

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Directors'REMUNERATION REPORT

IntroductionThis report has been prepared in accordance with Schedule 7a of the Companies Act 1985. As required a resolution to approve the Directors' Remuneration Report will be proposed at the forthcoming Annual General Meeting of the Company at which the financial statements will be approved. The vote will have advisory status, will be in respect of the remuneration policy and overall remuneration packages and will not be specific to individual levels of remuneration.

Remuneration CommitteeThe Board has established a Remuneration Committee comprising G. W. Gurry and N. G. Clark.

Executive Remuneration PolicyThe Group aims to ensure that the executive remuneration arrangements are in line with the Group's overall practice on pay and benefits and having regard to the size and nature of the business, are competitive and designed to attract, retain and motivate Executive Directors of high calibre. Basic Annual SalaryThe basic salary of each Director is determined by taking into account the Director's experience, responsibility, value to the organisation and mutual value. In deciding appropriate levels, the Committee takes account of information from various sources, both internal and external, to ensure that the level of basic salary is appropriate.Annual BonusThe Committee establishes the objectives for each financial year where a cash bonus might be paid. The Committee believes that any incentive should be tied to the overall profitability and progress of the Group. No bonus payments were made during the year.Long Term Incentive PlansThe Company has no long term incentive plans for Executive Directors.Benefits in KindThe Directors receive certain benefits in kind, principally a car and private medical insurance.Pension ArrangementsAll Executive Directors are members of the Company's defined benefit pension scheme. The Company's contribution to the scheme is 13% of salary for all members. Life insurance cover and widows death in service cover is provided under the scheme. Company contributions of £Nil (2008 - £Nil) were made towards the money purchase pension scheme during the year.Share OptionsNo separate share option scheme exists purely for executive directors and they therefore only participate in share option plans that are eligible to all employees. The Committee believes that share option schemes for all employees maximise shareholder value over time and therefore no specific performance conditions attach to the number of options granted to executive directors on an individual basis.

Remuneration (audited) Individual director's remuneration was as follows:

2009 2008 Salary Benefits Total Pension Salary Benefits Total Pension in kind contributions in kind contributions (defined (defined benefit) benefit) £ £ £ £ £ £ £ £

G. W. Gurry 54,167 - 54,167 - 86,000 - 86,000 -C. A. Gurry 190,000 21,412 211,412 15,288 175,000 26,820 201,820 14,664N. G. Clark 180,000 24,953 204,953 31,583 230,000 29,158 259,158 30,663G. J. Bates 25,000 10,598 35,598 - 16,000 11,721 27,721 -R. J. Shashoua 25,000 - 25,000 - 16,000 - 16,000 -

474,167 56,963 531,130 46,871 523,000 67,699 590,699 45,327

On 1st October 2007 C. A. Gurry was appointed Managing Director with his annual salary increasing to £190,000 with effect from 1st April 2008.

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Apart from the EMI scheme, options are granted at an exercise price not less than the market price on the last dealing day prior to the date of grant and, under normal circumstances, remain exercisable between the third and tenth anniversaries of the date of grant. The share option schemes cover all Group employees, not just the Directors. The share options have no performance conditions attached. Further details are provided in note 23 to the financial statements. The market price of the Company’s shares on 31st March 2009 was 42p (2008 - 78p) and the range for the year was 41p to 86.5p.

Pensions (audited)The Group operates several pension schemes throughout the United Kingdom and overseas in which some of the Directors are included. Full details of these schemes are given in note 11 to the financial statements. The number of directors who were members of pension schemes operated by the Company was: 2009 2008 No. No.Money Purchase Scheme 3 3

Defined Benefit Scheme 3 3

The following Directors were members of the defined benefit scheme operated by the Company during the year. Pension entitlements and corresponding transfer values were as follows during the year:

Total Increase/(decrease) Transfer value Transfer value Transfer value Total change in accrued in accrued pension (less Directors' of accrued of accrued transfer value pension at excluding inflation contributions) of pension at pension at during period 31st March 2009 net increase in 31st March 2008 31st March 2009 (less Directors' accrual over period contributions) £ £ £ £ £ £N. G. Clark 41,941 (62,189) (471,350) 833,868 377,094 (456,774)C. A. Gurry 26,880 3,229 18,907 133,432 159,395 25,963

The (decrease)/increase in accrued pension including inflation would be £(62,131) for N. G. Clark and £3,288 for C.A. Gurry. N. G. Clark had a pension order relating to his divorce which transferred 65% of his entitlement to his former wife.

Non-Executive DirectorsThe fees payable to Non-Executive Directors are determined by the Board and designed to recognise the responsibility and reward the expertise and ability of the individual.

Directors' Service ContractsOn 31st March 2008 service contracts with the Company were entered into for C. A. Gurry and N. G. Clark. These service contracts are terminable with 12 months notice by either party. No other Director has a service contract with the Company nor are they appointed for a specific term of office. Directors are subject to reappointment at the first Annual General Meeting after their appointment and thereafter, apart from the Managing Director, one third of the remaining Directors shall retire by rotation at the Annual General Meeting.

Share Options (audited) The following directors had interests in options to subscribe for ordinary shares as follows:

Number of Released Granted Number of options at during during options at 1st April year year 31st March Exercise Exercise 2008 2009 price date C. A. Gurry 24,250 - - 24,250 £1.16 18th June 2010 to 17th June 2017

N. G. Clark 24,250 - - 24,250 £1.16 18th June 2010 to 17th June 2017 - - 153,846 153,846 £0.05 1st April 2011 to 31st March 2018 - - 30,883 30,883 £0.86 28th July 2011 to 27th July 2018 - - 58,140 58,140 £0.86 28th July 2012 to 27th July 2018 - - 58,139 58,139 £0.86 28th July 2013 to 27th July 2018

G. J. Bates 19,750 - - 19,750 £1.16 18th June 2010 to 17th June 2017

68,250 - 301,008 369,258

During the year, as part of his revised remuneration package, N. G. Clark was awarded options over 153,846 ordinary shares of 5p at an exercise price of 5p and a total of 147,162 ordinary shares of 5p at an exercise price of 86p.

There were no share options exercised during the year.

Directors'REMUNERATION REPORT continued

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On behalf of the Board of DirectorsN. G. ClarkDirector and Company Secretary26th June 2009

Directors'REMUNERATION REPORT continued

Company's PerformanceThe graph below shows the total shareholder return on a holding of shares in the Company as against the average total shareholder return (TSR) of the companies comprising the TechMark 100 Index for the last five years. The TechMark 100 Index was selected because in the opinion of the Board it is most appropriate for the Company for the purpose of a benchmark.

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Statement of the application of principles in the 2006 combined code (“The Code”)The Board recognises its responsibilities and the principles of good corporate governance and where appropriate it has sought to comply with "The Code" throughout the Group whilst having due regard to the fact that the Company is classed as a “smaller company”. The Board confirms that it has complied with the provisions of “The Code”, save as specified below.

DirectorsThe Group is led and controlled by an effective Board that comprises of two executive directors, one independent non-executive director and two non-independent non-executive directors. Details of the Directors can be found on page 2. Since the Board has only one independent non-executive director, formation of committees and procedures to fully comply with "The Code" has not been possible but matters which otherwise might have been delegated to sub-committees are instead considered by the whole Board.The Group does not comply with Code Provision A.1.1 in that the Board does not have a formal schedule of matters specifically reserved for its decision due to the fact that the size of the Group and the close involvement by all the Executive Directors in all aspects of the business means this is not considered appropriate. The Group does not comply with Code Provision A.1.2 in that it has not set out the number of meetings of the Board and Remuneration Committee and the individual attendance by Directors at such meetings due to the fact that the Executive Directors of the Board meet almost daily throughout the year on an informal basis and regularly on a formal basis. The Non-Executive directors attend when appropriate both the formal and informal meetings. There are no official meetings of the Board excluding the executive directors so the Group does not comply with Code Provision A.1.3 but the non executives do meet on an unofficial basis and consider this adequate.The Chairman, G. W. Gurry does not qualify as an independent Non-Executive Director as set out in "The Code".Additionally, The Group does not comply with Code Provision A.3.2 in that throughout the year the Board did not have at least two independent Non-Executive Directors but believed that three Non-Executive Directors, one of which is independent is appropriate bearing in mind the current size, nature and culture of the Group. The Group does not comply with Code Provision A.3.3 in that one of the Non-Executive Directors has not been appointed as the senior independent Director. R. J. Shashoua has been a Non-Executive Director in excess of nine years. The Board considers that he remains independent because he holds a number of other independent consultancy positions.The Group does not comply with Code Provision A.4.1 in that it does not have a nomination committee, which leads the process for Board appointments. The whole Board led by the Managing Director considers any appointment. No appointments to the Board were made during the year and the Board agreed all changes that took place unanimously.The Group does not think it necessary to comply with Code Provision A.5.2, which requires a formal agreed procedure for the Directors to take independent professional advice at the company’s expense since all Board members have full access to the Group's advisors, and the Group's culture is to openly discuss any important issues.The Group does not comply with Code Provision A.6.1 in that it does not consider it relevant to state in the annual report how performance evaluation of the Board, its committees and the individual directors has been conducted. The board as a whole monitors its performance by reference to the performance of the business against targets, expectations and its longer-term strategies.The Group does not comply with Code Provision A.7.1 in that not all Directors are subject to re-election every three years. It is considered adequate for the size and nature of the business that one third of the Board on a rotating basis except for the Managing Director submit themselves for re-election at the Annual General Meeting each year.

RemunerationThe Remuneration Committee consists of the Chairman and Financial Director who are responsible for considering and approving terms of service, remuneration, bonuses, share options and other benefits of all Directors. The Group does not comply with Code Provision B.1.1 in that there is no performance element in the remuneration package of the Directors, since it is felt inappropriate for the size of the business, or comply with Code Provision B.2.1 in that there are no independent Non-Executive Directors on the remuneration committee but consider that this does not affect the committee's ability having regard to the size and nature of the business and the importance of retaining and motivating management.

CorporateGOVERNANCE

15

Accountability and AuditIt is required by “The Code” that the Board, at least annually, conduct a review of the Group’s systems of internal controls and should report to the shareholders that they have done so. The Board recognises that the Group operates in highly competitive markets that can be affected by factors and events outside its control. Accordingly, a review of the material controls, including financial, operational and compliance controls and risk management systems was undertaken during the year by the internal audit function. The Board, as a whole, reviews the results of the work carried out by the internal audit function and necessary actions are taken where needed. This review is not entirely in line with the guidance published by the Turnbull Committee and so the Group does not fully comply with Code Provisions C.2.1.The Group does not comply with Code Provision C.3.1 to C3.6 in that it does not have an audit committee. The Board believes that it presents a balanced and understandable assessment of the Group’s position and prospects but due to the current size of the Group and the Board, it feels that an audit committee is inappropriate. The Financial Director is responsible for the appointment of the external auditors; reviewing the scope and results of the audit; its cost effectiveness; the independence and objectivity of the auditors and the supply of non-audit services. Additionally, the independent Non-Executive Director carries out an independent review with the auditors.Arrangements for staff to raise concerns about possible improprieties in matters of financial reporting or other matters has been considered. However, the business has a culture of high integrity, open communication and direct access to senior management from all levels that provides an informal route for the notification of such issues. Therefore a formal procedure is not considered necessary.

Relations with ShareholdersThe Managing Director and the Finance Director are the Group’s principal spokesmen with investors, fund managers, the press and other interested parties. They hold briefings with Institutional Fund managers and analysts primarily following the announcement of Interim and Preliminary results. The Board also welcomes all shareholders at the Annual General Meeting where they are able to question the full Board and meet with them afterwards. Details of all briefings and meetings are communicated to the full Board.

Going ConcernThe Directors have reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

By order of the BoardN.G. ClarkCompany Secretary26th June 2009

CorporateGOVERNANCE continued

16

To the members of CML Microsystems PlcWe have audited the group and parent company financial statements on pages 17 to 43. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. 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 auditorsThe directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and as regards the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether, in our opinion, the information given in the Directors’ Report is consistent with the financial statements.The information given in the Directors' Report includes that specific information presented in the Chairman's Statement and Operating and Financial Review that is cross referenced from the Business Review and Future Developments section of the Directors' Report.In addition we also report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Company Overview, the Operating and Financial Review, the Report of the Directors, the unaudited part of the Directors’ Remuneration Report, the Chairman’s Statement and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed.We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited.

OpinionIn our opinion:

the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 March 2009 and of its loss for the year then ended;

the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 March 2009;

the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards to the group financial statements, Article 4 of the IAS Regulation; and

the information given in the Directors’ Report is consistent with the financial statements.

BAKER TILLY UK AUDIT LLPRegistered AuditorChartered Accountants2 Bloomsbury StreetLondon WC1B 3ST

26th June 2009

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ReportOF THE INDEPENDENT AUDITORS

17

Notes 2009 2008 £ £ Continuing operations Revenue 3 16,088,959 17,098,306 Cost of sales 4 (5,887,027) (5,392,996) Gross profit 10,201,932 11,705,310

Distribution and administration costs 4 (12,466,438) (13,671,234) (2,264,506) (1,965,924) Other operating income 4 489,708 430,297 Loss before share based payments (1,774,798) (1,535,627)

Share based payments 24 (101,439) (48,137) Loss after share based payments (1,876,237) (1,583,764)

Revaluation of investment properties 12 5,000 -Finance costs 7 (332,670) (334,299)Finance income 7 115,355 189,659 Loss before taxation (2,088,552) (1,728,404)

Income tax (expense)/credit 8 (47,292) 1,111,134 Loss after taxation attributable to equity holders of the Company 10 (2,135,844) (617,270) Loss per shareBasic 10 (14.29)p (4.13)p Diluted 10 (14.29)p (4.13)p

Statement of Recognised Income and Expense £ £ £ £

Loss for the year (2,135,844) (617,270) Foreign exchange differences 397,069 82,505Actuarial (loss)/gain 11 (1,671,000) 1,934,000Income tax on actuarial (loss)/gain 22 506,560 (580,200)

Net (loss)/income for the year directly recognised in equity (767,371) 1,436,305

Recognised (losses) and gains relating to the year attributable to equity holders of the Company (2,903,215) 819,035

GroupINCOME STATEMENTfor the year ended 31st March 2009

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Notes 2009 2008 £ £ £ £AssetsNon current assets Property, plant and equipment 12 5,931,132 6,261,543 Investment properties 12 3,850,000 415,000Development costs 12 5,192,109 5,340,817Goodwill 12 3,512,305 3,512,305Deferred tax asset 22 2,019,426 1,289,738 20,504,972 16,819,403Current assets Inventories 15 1,366,167 1,745,340 Trade receivables and prepayments 16 2,504,030 2,534,929Current tax assets 21 355,049 410,394Cash and cash equivalents 17 2,191,960 1,891,210 6,417,206 6,581,873Non current assets classified as held for sale - properties 12 467,491 3,769,654 Total assets 27,389,669 27,170,930 Liabilities Current liabilities Bank loans and overdrafts 18 6,061,705 5,074,691Trade and other payables 20 2,069,672 2,320,233Current tax liabilities 21 14,802 54,458 8,146,179 7,449,382

Non current liabilities Deferred tax liabilities 22 2,458,857 2,125,139Retirement benefit obligation 11 1,990,000 - 4,448,857 2,125,139 Total liabilities 12,595,036 9,574,521 Net Assets 14,794,633 17,596,409 Capital and reserves attributable to equity holders of the CompanyShare capital 23 747,381 747,381Share premium 24 4,148,288 4,148,288Share based payments reserve 24 150,815 49,376Foreign exchange reserve 24 443,289 46,220Accumulated profits 24 9,304,860 12,605,144 Shareholders' equity 14,794,633 17,596,409

100% of the shareholders' equity is attributable to the equity shareholders of the parent.

The financial statements on pages 17 to 43 were approved and authorised for issue by the Board on 26th June 2009 and signed on its behalf by

G. W. Gurry

N. G. ClarkDirectors

GroupBALANCE SHEETat 31st March 2009

19

Notes Group Company

2009 2008 2009 2008 £ £ £ £Operating activities Net (loss)/profit for the year before income taxes (2,088,552) (1,728,404) 1,274,804 749,993Adjustments for:Depreciation 436,901 578,905 74,450 74,450Amortisation of development costs 4,182,658 4,683,955 - -Movement in pensions deficit 319,000 (355,000) - -Share based payments 101,439 48,137 101,439 48,137Interest expense 332,670 334,299 282,576 272,268Interest income (115,355) (189,659) (254,000) (53,618)Decrease/(increase) in working capital 27 132,333 440,007 (3,451,334) 190,912 Cash flows from operating activities 3,301,094 3,812,240 (1,972,065) 1,282,142Income tax refunded/(paid) 224,149 (746,987) - - Net cash flows from operating activities 3,525,243 3,065,253 (1,972,065) 1,282,142

Investing activitiesPurchase of property, plant and equipment (66,306) (357,596) - (149,191)Investment in development costs (3,969,181) (3,952,270) - -Disposal of property, plant and equipment 38,264 13,631 - -Interest income 115,355 189,659 254,000 53,618 Net cash flows from investing activities (3,881,868) (4,106,576) 254,000 (95,573) Financing activitiesDividends paid - (747,381) - (747,381)Interest expense (332,670) (334,299) (282,576) (272,268)Increase/(decrease) in short term borrowings 987,014 1,074,691 2,000,000 (85,138) Net cash flows from financing activities 654,344 (6,989) 1,717,424 (1,104,787) Increase/(decrease) in cash and cash equivalents 297,719 (1,048,312) (641) 81,782 Movement in cash and cash equivalents:At start of year 17 1,891,210 3,000,076 81,782 -Increase/(decrease) in cash and cash equivalents 297,719 (1,048,312) (641) 81,782Effects of exchange rate changes 3,031 (60,554) - - At end of year 2,191,960 1,891,210 81,141 81,782

CashFLOW STATEMENTSfor the year ended 31st March 2009

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GroupSTATEMENT OF CHANGES IN EQUITYfor the year ended 31st March 2009

Share Share Share Foreign Accumulated Total capital premium based exchange profits payments reserve £ £ £ £ £ £

At 31st March 2007 747,381 4,148,288 237,971 (36,285) 12,379,263 17,476,618Foreign exchange differences 82,505 82,505Net actuarial gains recognised directly to equity 1,934,000 1,934,000Deferred tax on actuarial gains (580,200) (580,200)Loss for year (617,270) (617,270)

747,381 4,148,288 237,971 46,220 13,115,793 18,295,653Dividends paid (747,381) (747,381)Share based payments 48,137 48,137Share based payments transferred on cancellation (236,732) 236,732 -

At 31st March 2008 747,381 4,148,288 49,376 46,220 12,605,144 17,596,409 Foreign exchange differences 397,069 397,069 Net actuarial losses recognised directly to equity (1,671,000) (1,671,000)Deferred tax on actuarial losses 506,560 506,560Loss for year (2,135,844) (2,135,844)

747,381 4,148,288 49,376 443,289 9,304,860 14,693,194Share based payments in year 101,439 101,439

At 31st March 2009 747,381 4,148,288 150,815 443,289 9,304,860 14,794,633

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Notes 2009 2008 £ £ £ £AssetsNon current assetsProperty, plant and equipment 12 5,098,591 5,173,041Investment properties 12 3,850,000 415,000Investments 13 10,965,965 7,702,418Deferred tax asset 22 80,821 80,821 19,995,377 13,371,280Current assetsCash and cash equivalents 17 81,141 81,782 81,141 81,782Non current assets classifiedas held for sale - property 12 - 3,430,000 Total assets 20,076,518 16,883,062 LiabilitiesCurrent liabilitiesBank loans and overdrafts 18 6,000,000 4,000,000Trade and other payables 20 200,051 382,838 6,200,051 4,382,838

Non current liabilitiesDeferred tax liabilities 22 990,162 611,892 Total liabilities 7,190,213 4,994,730 Net assets 12,886,305 11,888,332 EquityShare capital 23 747,381 747,381Share premium 24 4,148,288 4,148,288Share based payments reserve 24 150,815 49,376Merger reserve 24 315,800 315,800Accumulated profits 24 7,524,021 6,627,487 Total shareholders' equity 12,886,305 11,888,332

The financial statemets on pages 17 to 43 were approved and authorised for issue by the Board on 26th June 2009 and signed on its behalf by

G. W. Gurry

N. G. ClarkDirectors

CompanyBALANCE SHEETat 31st March 2009

22

Share Share Share Merger Accumulated Total capital premium based reserve profits payments £ £ £ £ £ £

At 31st March 2007 747,381 4,148,288 237,971 315,800 5,853,266 11,302,706Profit for year 1,284,870 1,284,870

747,381 4,148,288 237,971 315,800 7,138,136 12,587,576Dividends paid (747,381) (747,381)Share based payments 48,137 48,137Share based payments transferred on cancellation (236,732) 236,732 -

At 31st March 2008 747,381 4,148,288 49,376 315,800 6,627,487 11,888,332

Profit for year 896,534 896,534

747,381 4,148,288 49,376 315,800 7,524,021 12,784,866Share based payments in year 101,439 101,439

At 31st March 2009 747,381 4,148,288 150,815 315,800 7,524,021 12,886,305

2005 2005 2004 2004 Notes £ £ £ £

Fixed Assets Intangible assets 12 Tangible assets 12 Current AssetsStocks 14 Debtors 15 Investments 16 Cash at bank and in hand Creditors: Amounts falling due within one year 17 Net Current Assets Total Assets less Current Liabilities

Provisions for liabilities and charges 19

Net Assets

Capital and ReservesCalled up share capital 20 Convertible warrants 21 Share premium account 21 Capital redemption reserve 21 Revaluation reserve 21 Profit and loss account 21 Shareholders' Funds 21

Minority interests

CompanySTATEMENT OF CHANGES IN EQUITY at 31st March 2009

23

2005 2005 2004 2004 Notes £ £ £ £

Fixed Assets Intangible assets 12 Tangible assets 12 Current AssetsStocks 14 Debtors 15 Investments 16 Cash at bank and in hand Creditors: Amounts falling due within one year 17 Net Current Assets Total Assets less Current Liabilities

Provisions for liabilities and charges 19

Net Assets

Capital and ReservesCalled up share capital 20 Convertible warrants 21 Share premium account 21 Capital redemption reserve 21 Revaluation reserve 21 Profit and loss account 21 Shareholders' Funds 21

Minority interests

1 ACCOUNTING POLICIESThe financial statements have been prepared in accordance with applicable International Accounting Standards ("IAS") and International Financial Reporting Standards ("IFRS") as endorsed by the EU. The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements.a Basis of accounting

The financial statements have been prepared under the historical cost convention with the exception of investment properties which are carried at valuation.

b Basis of consolidationThese financial statements incorporate the financial statements of the Company and its subsidiary undertakings using the purchase method of accounting. The results of acquired subsidiary undertakings are included from the date of acquisition. No income statement is presented for CML Microsystems Plc as provided by Section 230(3) of the Companies Act 1985. Dormant subsidiaries are not included in the consolidated financial statements.

c Segmental reportingThe Group's primary reporting format is in two segments being semiconductor components and equipment. These individual segments are engaged in separate business sectors and are subject to different risks and returns.

d RevenueThe Group recognises revenues from the sale of semiconductor products or services when the significant risks and rewards of ownership have passed to the customer. This is generally when goods have been despatched to the customer, and the revenues can be measured reliably. Revenue is measured at the fair value of the consideration receivable excluding discounts, rebates, Value Added Tax and other sales taxes or duties.

e GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Under IFRS 1 the Group has elected to adopt the 31st March 2005 balance sheet amortised value prepared under UK GAAP for goodwill and carry out annual impairment reviews as required under IAS 36 and in accordance with IAS 38. Goodwill is reviewed annually for impairment by comparing its carrying value to the net selling price of the associated asset; any resultant loss being charged through the consolidated income statement. Net selling price is determined using a five year average of projected future earnings as applied to the price earnings ratio for the technology sector. No impairments are reversed.

f Research and developmentDevelopment expenditures that satisfies the recognition criteria as set out in IAS 38 are shown at historical cost less accumulated amortisation since it has a definite useful life. In determining the period over which the carrying value of the intangible fixed assets is amortised, the Group is required to consider the likely period over which the developed products are likely to generate economic benefits. Amortisation is calculated using the straight line method to allocate the cost of the development over a period of between 2 and 4 years, representing the period over which economic benefit is derived from developed products and is charged to administration costs in the Income Statements. Research and other development expenditures that fall outside the scope of IAS 38 are charged to the Income Statement when incurred. An internally-generated intangible asset arising from the Group's business development is recognised only if all of the following conditions are met:

an asset is created that can be identified;it is probable that the asset created will generate future economic benefits;the development cost of an asset can be measured reliably;the product or process is technically and commercially feasible; andsufficient resources are available to complete the development and to either sell or use the asset.

g Property, plant and equipment and investment propertyAll property, plant and equipment, other than investment properties, are stated at historical cost. Depreciation is provided on all property, plant and equipment other than freehold land and investment properties at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows:Freehold and long leasehold premises -2% straight lineShort leasehold improvements -period of the leasePlant and equipment: Fixtures and fittings -20% reducing balance Other equipment -20% and 25% straight lineMotor vehicles -25% straight lineInvestment properties are stated at their fair values and are revalued annually by the Directors and every third year by an independent Chartered Surveyor on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the Income Statement.

h Taxation The tax expense represents the sum of the tax currently payable and deferred tax.The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.

•••••

NotesTO THE FINANCIAL STATEMENTS

24

NotesTO THE FINANCIAL STATEMENTScontinued

h Taxation (continued)Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductable temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.Deferred tax liabilities are recognised for taxable temporary differences arisng on investments in subsidiaries except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

i Inventories Inventories are valued on a first in, first out basis and are stated at the lower of cost and net realisable value. In respect of work in progress and finished goods, cost comprises direct materials, direct labour and a proportion of overhead expenses appropriate to the business.

j Foreign currenciesAssets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rates ruling at the date of the transactions. All differences are taken to the income statement. The financial statements of the overseas subsidiaries are translated into sterling at the average rate of exchange for the period for the income statement and at the closing rate for the balance sheet. Translation differences are dealt with through the Foreign Exchange reserve in shareholders' equity. The Group has decided to deem the cumulative amount of exchange differences arising on consolidation of the net investments in subsidiaries at 1st April 2004 to be zero.

k InvestmentsInvestments are stated at cost less any provision for diminution in value.

l Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts where there is a set off arrangement with the bank. Other bank overdrafts are shown within borrowings of the current liabilities on the balance sheet.

m Employee benefits – Pension obligationsGroup companies operate both defined benefit and defined contribution pension schemes. The schemes are funded through payments to funds administered by trustees and these are determined by periodic actuarial calculations in respect of the defined benefit pension schemes. The liability recognised in the balance sheet in respect of the defined pension schemes is the present value of the defined benefit obligation at the balance sheet date less the fair value of the scheme assets. Independent actuaries using the projected unit method calculate the defined benefit obligation annually. Actuarial gains and losses from experience adjustments and changes in actuarial assumptions are charged or credited directly to equity. For defined contribution schemes, contributions are recognised as an employee benefit expense when they are due.

n Employee benefits – Share based paymentsShare options which are equity settled, are valued using the Black Scholes model. This fair value at the date of the grant is charged to the income statement over the vesting period of the share based payment scheme. The value of the charge is adjusted to reflect expected and actual levels of options vesting.

o EU GrantsEU grants receivable to assist the Group with costs in respect of development work are credited against capitalised development costs so as to match them with the expenditure to which they relate. Other grants that are not of a capital nature are credited to the income statement as part of other operating income. Grants are only recognised when all conditions of the grant have been complied with and are matched to the expenditure to which they relate.

p LeasesLeases of property, plant and equipment where the Group has substantially all the risk and rewards of ownership are classified as finance leases. Leases in which a significant number of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rental payments under operating leases are charged to the income statement on a straight-line basis. Rental income under operating leases are credited to the income statement on a straight-line basis and any contingent rents are recognised as income in the period to which they relate.

q DividendsDividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statement in the period in which the dividends are approved by the Company’s shareholders.

25

r Critical accounting estimates and judgementsEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual result. The amortisation period of development costs and the impairment of goodwill are considered to be critical accounting estimates and judgements; details of which are referred to in Accounting Policy, sections e and f.

s Borrowing costBorrowing costs are recognised as an expense in the period in which they are incurred.

t Non current assets held for saleNon current assets held for sale are investment properties and freehold land and buildings and they have been valued at the lower of carrying value and fair value less costs to sell. The reclassification takes place when the sale is highly probable and the assets are available for immediate sale in their present condition.

u Financial instrumentsFinancial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provision of the instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.Trade receivables are classified as loans and receivables and are initially recognised at fair value then amortised cost. They are subsequently measured at their amortised cost less any provision for impairment. An impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of impairment is the difference between the asset's carrying amount and the present value of its estimated future cash flows. The amount of the impairment is recognised in the consolidated income statement.Trade payables are not interest bearing and are stated at their fair value then amortised cost.Cash and cash equivalents include cash in hand, deposits held on call with banks or legal bodies, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within current liabilities on the consolidated balance sheet.Borrowings are recognised initially at their fair value. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. Finance charges are accounted for on an accruals basis and are added to the carrying amount to the extent that they are not settled in the period in which they arise.

v Impairment of property, plant and equipment and intangible assetsAt each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that an asset may be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. If the recoverable amount of an asset (cash or generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

w ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated.

x Adoption of International Accounting StandardsAmendments and interpretations to published standards effective for the year ended 31 March 2009:The Group has not adopted any new standards or intepretations in the current financial year. Standards adopted early by the Group:The Group has not adopted any standards or interpretations early in either the current or the preceding financial year.Standards, amendments and interpretations effective in the year ended 31 March 2009 onwards but not relevant:IFRIC 8 ‘Scope of IFRS 2’ - effective for periods commencing on or after 1 May 2006IFRIC 9 ‘Reassessment of Embedded Derivatives’ - effective for periods commencing on or after 1 June 2007IFRIC 11 IFRS 2 ‘Group and Treasury Share Transactions’ - effective for periods commencing on or after 1 March 2007 IFRIC 12 'Service Concession Arrangements' - effective for periods commencing on or after 1st January 2008 IFRIC 13 'Customer Loyalty Programmes' - effective for periods commencing on or after 1st January 2008 IFRIC 14 IAS 19 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' - effective for periods commencing on or after 1st January 2008.The application of the above IFRICs had no impact on the financial statements of the Group in either the current or preceding financial years.

NotesTO THE FINANCIAL STATEMENTScontinued

26

x Adoption of International Accounting Standards (continued)Interpretations to existing standards and new standards that are not yet effective and have not been early adopted by the Group:IFRS 2 Share based Payment - Amendments relating to vesting conditions and cancellations IFRS 3 Business Combinations - Amendments IFRS 7 Financial Instruments Disclosures - Consequential amendments arising from amendments to lAS 32 IFRS 8 Operating Segments (endorsed)lAS 1 Presentation of Financial Statements - Revised lAS 1 Presentation of Financial Statements Amendments relating to Puttable Financial Instruments and obligations arising on liquidation lAS 23 Borrowing Costs - Amendment lAS 27 Consolidated and separate Financial Statements - Consequential amendments arising from Amendments from IFRS 3 lAS 28 Investments in Associate - Consequential amendments arising from amendments to IFRS 3 lAS 31 Interest in Joint Ventures - Consequential amendments arising from amendments to IFRS 3 lAS 32 Financial Instruments Presentation - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation lAS 39 Financial Instruments: Recognition and Measurement - Consequential amendments arising from amendments to lAS 32IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (endorsed) IFRIC 12 Service Concession ArrangementsIFRIC 13 Customer Loyalty Programmes IFRIC 14 lAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction Annual Improvements Project The directors anticipate that the adoption of these Standards and Interpretations as appropriate in future periods will have no material impact on the financial statements of the Company.

2 SEGMENTAL ANALYSISPrimary Business - Continuing Operations

2009 2008 Equipment Semiconductor Group Equipment Semiconductor Group Components Components £ £ £ £ £ £

Revenue By origination 979,544 20,927,694 21,907,238 1,130,173 22,473,616 23,603,789Inter-segmental revenue - (5,818,279) (5,818,279) - (6,505,483) (6,505,483)

Total segmental sales 979,544 15,109,415 16,088,959 1,130,173 15,968,113 17,098,306 Profit/(Loss)Segmental result 53,697 (1,929,934) (1,876,237) 177,853 (1,761,617) (1,583,764) Net finance expense (217,315) (144,640)Revaluation of investment properties 5,000 -Income tax (47,292) 1,111,134 Loss after taxation (2,135,844) (617,270) Assets and liabilities Segmental assets 686,103 20,011,600 20,697,703 707,866 20,578,278 21,286,144 Unallocated corporate assets Investment properties 4,317,491 4,184,654Deferred taxation 2,019,426 1,289,738Current tax receivable 355,049 410,394 Consolidated total assets 27,389,669 27,170,930

Segmental liabilities 51,595 2,018,077 2,069,672 92,849 2,227,384 2,320,233 Unallocated corporate liabilitiesDeferred taxation 2,458,857 2,125,139Current tax liability 14,802 54,458Bank loans and overdrafts 6,061,705 5,074,691Retirement benefit obligation 1,990,000 - Consolidated total liabilities 12,595,036 9,574,521

NotesTO THE FINANCIAL STATEMENTScontinued

27

2 SEGMENTAL ANALYSIS (continued)Other segmental information 2009 2008

Equipment Semiconductor Group Equipment Semiconductor Group Components Components £ £ £ £ £ £

Property, Plant and Equipment additions 30,300 36,006 66,306 1,565 356,031 357,596 Development cost additions 74,355 3,894,826 3,969,181 72,066 3,880,204 3,952,270 Depreciation 16,381 420,520 436,901 16,333 562,572 578,905 Amortisation 72,396 4,110,262 4,182,658 72,641 4,611,314 4,683,955 Other significant non cash expenses - 391,000 391,000 48 53,878 53,926

Inter-segmental transfers or transactions are entered into under commercial terms and conditions appropriate to the location of the business entity whilst considering that the parties are related.

UK Germany Americas Far East Total £ £ £ £ £Secondary - GeographicalYear ended 31st March 2009Revenue by origination 9,042,633 3,426,885 4,569,789 4,867,931 21,907,238Inter-segmental revenue (2,521,074) (2,793,749) (503,456) - (5,818,279) Revenue to third parties 6,521,559 633,136 4,066,333 4,867,931 16,088,959 Property, plant and equipment additions 36,053 22,069 4,549 3,635 66,306 Development cost additions 2,366,183 1,602,998 - - 3,969,181 Total assets 20,280,442 3,883,592 1,712,996 1,512,639 27,389,669 Year ended 31st March 2008Revenue by origination 10,099,345 3,716,796 5,023,481 4,764,167 23,603,789 Inter-segmental revenue (3,041,899) (2,749,204) (714,380) - (6,505,306) Revenue to third parties 7,057,446 967,592 4,309,101 4,764,167 17,098,306 Property, plant and equipment additions 246,849 52,871 48,496 9,380 357,596 Development cost additions 2,461,174 1,491,096 - - 3,952,270 Total assets 20,377,392 3,933,311 1,558,378 1,301,849 27,170,930

3 REVENUE 2009 2008 £ £Geographical classification of turnover (by destination):United Kingdom 1,462,174 1,744,009 Rest of Europe 3,240,432 3,410,151 Far East 6,116,206 6,018,485 Americas 4,065,317 4,618,982 Others 1,204,830 1,306,679 16,088,959 17,098,306

NotesTO THE FINANCIAL STATEMENTScontinued

28

4 LOSS FROM OPERATIONS 2009 2008

Loss from operations is stated £ £ after charging or crediting:Cost of sales:Depreciation 85,833 107,291 Amount of inventories written down 123,364 53,926Cost of inventories recognised as expense 3,396,695 4,902,755

2009 2009 2008 2008 £ £ £ £ Distribution costs 2,563,200 2,660,076 Administrative expenses: Amortisation 4,182,658 4,683,955 Depreciation 351,068 471,614 Audit fees 109,145 118,040 Auditors’ non audit fees 50,212 78,216 Rentals under operating leases:Land and buildings 335,680 166,241 Other operating leases 24,085 34,788Research and development 29,637 17,344 IAS 19 Pension effect 391,000 (259,000)Unrealised exchange gain on intergroup loan (506,723) -Increase in valuations of investment properties (5,000) -Other expenses 4,941,476 5,699,960 9,903,238 11,011,158 12,466,438 13,671,234 Amounts payable to Baker Tilly UK Audit LLP and its associates in respect of both audit and non-audit services 2009 2008 £ £Audit services

Statutory audit of Company's annual accounts and Group consolidation 51,000 63,000

Other servicesThe auditing of accounts of associates of the company pursusant to legislation (including that of countries and territories outside Great Britain)This includes:

Audit of subsidiaries where such services are provided by Baker Tilly UK Audit LLPor its associates 26,985 18,324Audit of associated pension schemes 12,750 12,000

Other services supplied pursuant to such legislation 5,400 10,897Tax services

Tax compliance services 36,615 42,121Advisory services 2,000 22,000

134,750 168,343 Amounts payable to other auditors in respect of both audit and non-audit services Statutory audit services 17,024 23,183Tax compliance services 1,432 2,072Other services 6,151 2,658 24,607 27,913 Other operating income:Rental income 275,515 271,487 Profit on sale of property, plant and equipment 27,252 4,884 EU grants and consulting 111,157 142,853 Other income 75,784 11,073 489,708 430,297 All conditions relating to the EU grants have been fulfilled and there are no other contingencies.

NotesTO THE FINANCIAL STATEMENTScontinued

29

5 EMPLOYEES 2009 2008 £ £

Staff costs, including directors, during the year amounted to: Wages and salaries 8,401,498 8,163,855Social security costs 832,916 852,689Other pension and health care costs 938,906 885,385 Share based payments 101,439 48,137

10,274,759 9,950,066

2009 2008The average number of employees, including directors, No. No.during the year was: Administration 38 44Engineering 76 88Manufacturing 50 59Selling 28 32 192 223

6 DIRECTORS' EMOLUMENTS 2009 2008Directors' emoluments £ £Remuneration (including fees) 531,130 590,699Pension contributions - defined contributions - - 531,130 590,699 Emoluments in respect of the highest paid director amounted to: Remuneration 211,412 259,158 Further details on directors' emoluments can be found in the Directors' Remuneration Report on page 11.

7 FINANCE INCOME AND COSTS Bank interest receivable 43,355 93,659Pension finance income 72,000 96,000 115,355 189,659 Bank interest payable 332,670 334,299

8 INCOME TAX CREDIT/(EXPENSE) (a) Analysis of tax credit in period Current taxUK corporation tax on results of the period (292,727) (362,256) Adjustment in respect of previous periods (12,564) (1,881) (305,291) (364,137)Foreign tax on results of the period 119,401 316,159Foreign tax - adjustment in respect of previous periods (5,130) 12,580 Total current tax (191,020) (35,398)Deferred taxOrigination and reversal of timing differences 238,312 (932,163)Adjustment in respect of previous periods - (1,661)Foreign tax - adjustment in respect of previous periods - 14,875Relating to change in tax rates - (156,787)

Tax credit/(charge) on profit on ordinary activities (note 8(b)) 47,292 (1,111,134) (b) Factors affecting tax charge/(credit) for period Tax assessed for the period is lower than the standard rate of corporation tax in the UK (28%/30%). The differences are explained below: Loss on ordinary activities before tax (2,088,552) (1,728,404)

NotesTO THE FINANCIAL STATEMENTScontinued

30

8 INCOME TAX (continued) 2009 2008Loss on ordinary activities multiplied by the standard rate £ £of corporation tax in the UK of 28% (2008: 30%) (584,795) (518,521)Effects of: Capital allowances in excess of depreciation 7,506 -Expenses not deductible for tax purposes 2,851 14,960Amortisation of non-qualifying assets - (5,610)Share based payments 28,403 14,441Research and development tax credits (183,930) (49,908) Different tax rates in countries in which the Group operates 27,006 93,657Effect of reduced deferred tax rate - (156,787)Adjustments to current tax charge in respect of previous periods (17,693) 10,699Adjustments to deferred tax charge in respect of previous periods 29,339 13,213Losses on which assets not recognised 440,700 (7,991)Non-current assets now held for sale 358,830 (519,287)Non taxable income (60,925) - Tax charge/(credit) for period (note 8(a)) 47,292 (1,111,134)

The UK corporation tax credit arising on the results for the year in part relates to the claiming of research and development tax credits. The Group has trading losses of approximately £5.7 million (2008 - £3.9 million) which are available to carry forward and offset future profits of the same trade. A deferred tax asset of £1,391,584 (2008 - £1,224,105) has been recognised in respect of these losses.

9 DIVIDEND PAID - FINAL 2009 2008 £ £

£Nil per Ordinary share of 5p paid in respect of year end 31st March 2008 - 747,381 (2008 - 5p per Ordinary share of 5p paid in respect of year end 31st March 2007)

10 LOSS PER ORDINARY SHAREThe calculation of basic and diluted earnings per share is based on the loss attributable to ordinary shareholders, divided by the weighted average number of shares in issue during the year. The share options are not expected to have a dilutive effect on the loss per share as the likelihood of exercise is low given recent share price movements.

Loss Weighted Loss Loss Weighted Loss average per share average per share number of number of shares shares 2009 2009 2009 2008 2008 2008 £ p £ p Basic loss per share (2,135,844) 14,947,626 (14.29) (617,270) 14,933,733 (4.13)

Diluted loss per shareBasic loss per share (2,135,844) 14,947,626 (14.29) (617,270) 14,933,733 (4.13) Dilutive effect of share options - - - - - Diluted loss per share (2,135,844) 14,947,626 (14.29) (617,270) 14,933,733 (4.13)

11 RETIREMENT BENEFIT OBLIGATIONSThe Group operates several pension schemes in the UK and the US. The majority of the Group's employees in the UK were members of a defined benefit scheme and the majority of the Group's employees in the US are in a 401(k) trustee profit sharing plan. All schemes are administrated by Trustees and are independent of the Group's finances.The latest triennial actuarial valuation of the defined benefit scheme in the UK at 1st April 2008, using the Attained Age method, disclosed assets with a market value of £13,714,000, equivalent to 89% of the accrued liabilities, after allowing for expected future increases in earnings. The main actuarial assumptions used were: Investment return 7% p.a. pre-retirement, 5.5% p.a. post retirement; General growth in salaries 2.5% p.a.; Pensions accrued prior to 6th April 1997 will increase in payment at 3.0% p.a. compound; Limited price indexation 3.0% p.a. with a minimum of 3.0%; Early leaver indexation 3% p.a. As at 1st April 2008 the calculation carried out in accordance with Section143 of the Pension Act 2004 showed a funding level of 86%.The scheme operated in the US is the equivalent of a money purchase scheme. The Group makes a contibution of 3% of each eligible employees salary and a matching contribution of 3% for each 1% contributed by the employee up to a maximum Group contribution of 6%.

NotesTO THE FINANCIAL STATEMENTScontinued

31

11 RETIREMENT BENEFIT OBLIGATIONS (continued)The total contributions to the schemes over the year was: 2009 2008Pension costs £ £ UK defined benefit pension cost 501,524 501,761 UK defined contribution pension cost 94,382 107,230 US 401(k) profit sharing plan 95,444 124,334 691,350 733,325

Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):a) Financial assumptions 2009 2008 Discount rate 6.9% pa 6.7% pa Expected return on plan assets 7.08% pa 6.89% pa Future salary increases N/A 3% paPension revaluation in deferment (Retail Prices Index - max. 5%) 2.6% pa 3.6% paPension escalation in payment (Retail Prices Index - max. 5%, min. 3.0% from 6 April 1997) 3.0% pa 3.0% paProportion of employees opting for early retirement 0% pa 0% paInflation assumption 2.6% pa 3.6% pa

b) Demographic assumptionsAssumed life expectancy in years, on retirement at 65Retiring today

Males 23.7 23.5Females 25.8 26.5

Retiring in 20 yearsMales 25.8 23.5Females 27.1 26.5

On the basis of the above assumptions, the amounts that have been charged to the income statement and the statement of recognised income and expense for the year to 31st March 2009 and 31st March 2008 are as follows: 2009 2008 The amounts recognised in the Income statement are as follows: £ £Current service cost 251,000 351,000Interest on obligations 876,000 881,000Expected return on plan assets (948,000) (977,000)Losses on curtailments and settlements 735,000 - Total 914,000 255,000 Statement of recognised income and expense Actual return less expected return on pension scheme assets (3,570,000) (1,508,000)Experience gains and losses arising on the scheme liabilities 715,000 35,000Changes in assumptions underlying the present value of scheme liabilities 725,000 3,866,000 (2,130,000) 2,393,000Surplus considered as not recoverable through reduction of future contributions or a refund from the scheme 459,000 (459,000) Net actuarial (loss)/gain recognised in statement of recognised income and expense (1,671,000) 1,934,000

The actual return on pension scheme assets in the year (2,622,000) (531,000)

NotesTO THE FINANCIAL STATEMENTScontinued

32

11 RETIREMENT BENEFIT OBLIGATIONS (continued)Amounts recognised in the balance sheet: 2009 2008 £ £Present value of funded obligations (13,102,000) (13,297,000)Fair value of plan assets 11,112,000 13,756,000 (Deficit)/surplus as reported by the Actuary (1,990,000) 459,000(Surplus considered as not recoverable through reduction of future contribution or a refund from the Scheme) - (459,000) (1,990,000) -

The pension plan assets do not include ordinary shares issued by the sponsoring employer nor do they include property occupied by the sponsoring employer.

Changes in the present value of the defined benefit obligation are as follows: 2009 2008 £ £Opening defined benefit obligation 13,297,000 16,356,000Current service cost 251,000 351,000Member contributions 177,000 180,000Interest cost 876,000 881,000Actuarial losses/(gains) (1,440,000) (3,901,000)Losses/(gains) on curtailments 735,000 -Benefits paid (794,000) (570,000) Closing defined benefit obligation 13,102,000 13,297,000

The projected unit valuation method has been used to arrive at the above service cost. The use of this method is prescribed in IAS19. To produce a stable future contribution rate this valuation method assumes that the average age of the scheme membership will remain broadly constant in future due to a flow of new entrants to the scheme. If a scheme is closed to new members this will not be the case and the costs of benefits accruing, as a percentage of penisionable salaries, will be expected to increase over time.

Changes in the fair value of the plan assets are as follows: 2009 2008 £ £Opening fair value of plan assets 13,756,000 14,067,000Expected return 948,000 977,000Actuarial losses (3,570,000) (1,508,000)Contributions by employer 595,000 610,000Benefits paid (794,000) (570,000)Member contributions 177,000 180,000 Closing fair value of plan assets 11,112,000 13,756,000 The actual return on plan assets was £2,622,000 (2008: £531,000).The expected return on plan assets is calculated using the assets, market conditions, and the long term expected rate of interest set at the start of the accounting period.The company expects to contribute £Nil to the CML Microsystems Plc Retirements Scheme in the next accounting year.

The major categories of plan assets as a percentage of total plan assets, and expected return are as follows: 2009 2008 % Total plan Expected % Total plan Expected assets return assets returnEquities 57.6% 8.0% 48.9% 8.0%Bonds 20.4% 5.5% 24.3% 5.5%Property 16.6% 7.0% 15.3% 7.0%Cash 5.4% 3.5% 11.5% 5.0%

The expected returns have been based on the current split by investment sector of the assets of the scheme, using average expected returns on each sector.

NotesTO THE FINANCIAL STATEMENTScontinued

33

11 RETIREMENT BENEFIT OBLIGATIONS (continued)Amounts for the current and previous four periods are as follows:

2009 2008 2007 2006 2005 £ £ £ £ £

Defined benefit obligation 13,102,000 13,297,000 16,356,000 16,648,000 13,220,000Plan assets 11,112,000 13,756,000 14,067,000 13,513,000 9,716,000(Deficit)/surplus (1,990,000) 459,000 (2,289,000) (3,135,000) (3,504,000)Experience adjustments on plan liabilities 715,000 35,000 (91,000) (5,000) (372,000)Experience adjustments on plan assets (3,570,000) (1,508,000) (1,018,000) 2,542,000 (59,000)

12 NON CURRENT ASSETS Property, Plant and Equipment Freehold Short Investment Land and Leasehold Plant and Motor Properties Buildings Improvements Equipment Vehicles TOTAL £ £ £ £ £ £

Group Cost/Valuation At 1st April 2007 2,245,000 6,440,902 43,083 10,184,529 570,883 19,484,397Additions - 149,191 - 190,190 18,215 357,596 Disposals - - - (148,276) (37,412) (185,688) Transfers to non-current assetsheld for sale (1,830,000) (757,232) - - - (2,587,232) Foreign exchange difference - (8,609) 2,401 353,059 - 346,851

At 31st March 2008 415,000 5,824,252 45,484 10,579,502 551,686 17,415,924 Additions - - 34,702 31,604 66,306 Disposals - - - (134,229) (213,387) (347,616)Transfer from non-current assetsheld for sale 3,430,000 - - - - 3,430,000Revaluation 5,000 - - - - 5,000 Foreign exchange difference - - 7,885 548,466 - 556,351

At 31st March 2009 3,850,000 5,824,252 53,369 11,028,441 369,903 21,125,965

Depreciation At 1st April 2007 - 921,347 23,047 9,139,111 353,398 10,436,903 Charge for the year - 86,980 11,954 348,684 131,287 578,905Relating to disposals - - - (146,946) (29,995) (176,941)Transfer to non-current assetsheld for sale - (417,578) - - - (417,578)Foreign exchange difference - (4,451) 1,760 320,783 - 318,092 At 31st March 2008 - 586,298 36,761 9,661,632 454,690 10,739,381Charge for the year - 74,450 9,472 275,538 77,441 436,901Relating to disposals - - - (134,146) (202,384) (336,530)Foreign exchange difference - - 7,044 498,037 - 505,081 At 31st March 2009 - 660,748 53,277 10,301,061 329,747 11,344,833

Net Book ValueAt 31st March 2009 3,850,000 5,163,504 92 727,380 40,156 9,781,132

At 31st March 2008 415,000 5,237,954 8,723 917,870 96,996 6,676,543

Investment Properties in both the Group and Company comprise £3,850,000 (2008 - £415,000) of freehold and leasehold land and buildings. The investment properties were professionally valued by Everett Newlyn, Chartered Surveyors and Commercial Property Consultants on the basis of open market value at £3,850,000 as at 31st March 2009.During the year the UK investment properties held for sale were transferred back to investment properties as in the view of the Directors any sale in the near term was unlikely. The USA owned property in Winston-Salem is still on the market for sale. This property held for sale is available for immediate sale in its present condition and the expected timing of disposal will be within 12 months.

NotesTO THE FINANCIAL STATEMENTScontinued

34

12 NON CURRENT ASSETS (continued) Investment Freehold Properties Land and Company Buildings TOTALCost/Valuation £ £ £At 1st April 2007 2,245,000 5,675,064 7,920,064Additions - 149,191 149,191Transfers to current assets held for sale (1,830,000) - (1,830,000)

At 31st March 2008 415,000 5,824,255 6,239,255Additions - - -Transfers from current assets held for sale 3,430,000 - 3,430,000Revaluation 5,000 - 5,000

At 31st March 2009 3,850,000 5,824,255 9,674,255 Depreciation At 1st April 2007 - 576,764 576,764 Charge for the year - 74,450 74,450

At 31st March 2008 - 651,214 651,214 Charge for the year - 74,450 74,450 At 31st March 2009 - 725,664 725,664 Net Book ValueAt 31st March 2009 3,850,000 5,098,591 8,948,591 At 31st March 2008 415,000 5,173,041 5,588,041 At 31st March 2007 2,245,000 5,098,300 7,343,300 Non current assets classified as held for sale - properties Group Group Company Company 2009 2008 2009 2008 £ £ £ £At 1st April 3,769,654 1,600,000 3,430,000 1,600,000Transfers from/(to) investment properties (3,430,000) 1,830,000 (3,430,000) 1,830,000Transfers from/(to) freehold land and buildings - 339,654 - -Foreign exchange movement 127,837 - - - 467,491 3,769,654 - 3,430,000

2009 2008Intangible Assets £ £ Group - Goodwill Cost and net book valueAt 1st April and at 31st March 3,512,305 3,512,305

The goodwill arose on the acquisition of Hyperstone GmbH. which was amortised under UK GAAP until 31st March 2004. An annual impairment test is carried out in accordance with the accounting policies set out in note 1 and the Directors consider no impairment is required.Group - Development costs 2009 2008Cost £ £As at 1st April 27,825,550 23,784,931 Additions: Internal sources 3,297,192 3,275,372External sources 671,989 676,898Disposals (2,251,008) -Foreign exchange difference 64,769 88,349

As at 31st March 29,608,492 27,825,550

Amortisation As at 1st April 22,484,733 17,800,778Charged in the period 4,182,658 4,683,955Relating to disposals (2,251,008) -

As at 31st March 24,416,383 22,484,733 Net book value As at 31st March 5,192,109 5,340,817

As at 31st March 2007 5,984,153

No EU grants have been credited to the cost of development in arriving at the net book value at the year end.

NotesTO THE FINANCIAL STATEMENTScontinued

35

13 NON CURRENT ASSETS - INVESTMENTS Group Group Company Company 2009 2008 2009 2008 £ £ £ £

Cost of investment in subsidiary undertakings:As at 1st April and 31st March - - 4,959,658 4,959,658 Advances to subsidiary undertakingsAs at 1st April - - 2,742,760 2,773,228Increase/(reduction) in advances - - 3,263,547 (30,468) As at 31st March - - 6,006,307 2,742,760

Net Book ValueAs at 31st March - - 10,965,965 7,702,418

Details of the principal subsidiary undertakings of the Company are as follows: Country of Percentage Name incorporation held HoldingCML Microsystems Inc. USA 100% Trading in USA DirectCML Microcircuits (UK) Ltd England 100% Trading in England DirectCML Microcircuits (USA) Inc. USA 100% Trading in USA IndirectCML Microcircuits (Singapore) Pte Ltd Singapore 100% Trading in Singapore DirectRadio Data Technology Ltd England 100% Trading in England DirectApplied Technology (UK) Ltd England 100% Trading in England DirectHyperstone GmbH Germany 100% Trading in Germany DirectHyperstone Inc. USA 100% Trading in USA IndirectHyperstone Asia Pacific Ltd Taiwan 100% Trading in Taiwan DirectAll of the above companies are involved in the design, manufacture and marketing of specialised electronic devices for use in the telecommunications, radio and data communications industries. The above all share the same reporting date.

14 RELATED PARTY TRANSACTIONSTransactions and balances with operating companies which were eliminated in the consolidation consist of:Company 2009 2008 £ £Management fees charged to subsidiary undertakings by parent:CML Microcircuits (UK) Ltd 575,793 630,144 CML Microcircuits (USA) Inc. 56,130 50,000 Hyperstone GmbH 52,703 45,697 684,626 725,841 Interest on loans was charged to subsidiary undertakings by parent: Hyperstone GmbH 233,834 31,366CML Microsystems Inc - 17,995 233,834 49,361 Dividends paid to parent: Received from CML Microsystems Inc 333,714 498,083Received from CML Microcircuits (Singapore) Pte Ltd 282,849 337,394 616,563 835,477 Advances to subsidiary undertakings: CML Microcircuits (UK) Ltd 1,231,180 757,794Hyperstone GmbH 4,482,120 1,726,556Hyperstone Asia Pacific Ltd 128,802 94,205Applied Technology (UK) Ltd 8,498 8,498Radio Data Technology Ltd 155,707 155,707 6,006,307 2,742,760 The outstanding amounts at the year end are unsecured.

NotesTO THE FINANCIAL STATEMENTScontinued

36

14 RELATED PARTY TRANSACTIONS (continued)Group and CompanyKey management personnel consists of the board of directors and transactions during the year were as follows: 2009 2008 £ £Short term employee benefits 578,001 590,699Pension contributions 46,871 45,327Share based payments 50,523 3,451

675,395 639,477

15 INVENTORIES Group Group 2009 2008 £ £Raw materials 667,102 879,808 Work in progress 155,102 196,832 Finished goods 543,963 668,700

1,366,167 1,745,340

The amount of inventory written down in the year was £49,407 (2008 - £53,926).

16 TRADE RECEIVABLES AND PREPAYMENTS Group Group Company Company 2009 2008 2009 2008 £ £ £ £Amounts falling due within one year: Trade receivables 2,155,754 2,200,243 - -Other receivables 181,011 200,925 - -Prepayments and accrued income 167,265 133,761 - -

2,504,030 2,534,929 - -

17 CASH AND CASH EQUIVALENTS Group Group Company Company 2009 2008 2009 2008 £ £ £ £Bank and certificates of deposit 553,135 - - -Cash at bank 1,638,825 1,891,210 81,141 81,782 2,191,960 1,891,210 81,141 81,782

18 BANK LOANS AND OVERDRAFTS Group Group Company Company 2009 2008 2009 2008 £ £ £ £Bank loans 6,000,000 4,000,000 6,000,000 4,000,000Bank overdrafts 61,705 1,074,691 - - 6,061,705 5,074,691 6,000,000 4,000,000

The principal financial liabilities include a £6,000,000 bank loan expiring on 31st August 2009, which bears an interest rate of 1.15% above LIBOR secured on the buildings and part of the land at Oval Park and the land and buildings at Witham and Fareham. The liability is repayable upon receipt of three month's notice. The carrying value of the whole of the freehold land and buildings at Oval Park is £5,098,591 (2008 - 5,173,041) but the value of the part used to secure the bank loan is not separately identified. The carrying value of the land and buildings at Witham and Fareham is £3,300,000.

19 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTSFinancial InstrumentsThe Group's financial instruments comprise cash balances, bank loan, overdraft facilities and items such as trade receivables and trade payables that arise directly from its operations.The Group has little exposure to credit and cash flow risk. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken. The maximum credit exposure of financial instruments within the scope of IAS 39, without taking account of collateral, is represented by the balance sheet carrying amount for trade receivables, other receivables and cash and cash equivalents.The main risks arising from the Group's financial instruments are interest rate/liquidity risk and foreign currency risk.

NotesTO THE FINANCIAL STATEMENTScontinued

37

19 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)The policies for managing these risks are summarised below and have been applied throughout the year.Interest Rate/Liquidity RiskCash balances are placed so as to maximise interest earned while maintaining the liquidity requirements of the business. The Directors regularly review the placing of cash balances. A significant movement in LIBOR would be required to have a material impact on the cash flow of the Group.The gross overdraft facility provided by the Group's principal bankers is £750,000 (2008 - £750,000) which is subject to renewal annually.Foreign Currency RiskThe Group has overseas operations in Germany, the USA, Taiwan and Singapore. As a result, the Group's sterling balance sheet could be affected by movements in the Euro, US dollar, Singapore dollar and Taiwan dollar to sterling exchange rates. Apart from an inter company loan to Hyperstone GmbH from the holding company the Group has no other significant currency exposure generating gains or losses within the income statement. Foreign currency assets and liabilities generate no gain or loss in the income statement because they are denominated in the currency of the Group operation to which they belong. At 31st March 2009, the Group had monetary assets denominated in foreign currencies of £2.278 million (2008 - £1.804 million), of which approximately 97% (2008 - 96%) was denominated in US dollars and 0% (2008 0%) was denominated in Euros. It also had monetary liabilities denominated in foreign currencies of £0.062million (2008 - £1.075 million) wholly denominated in US Dollars. The gains/(losses) on foreign exchange recognised in the Income Statement amounted to a profit of £1,007,234 (2008 - £93,049).Financial Instruments Recognised in the Balance SheetAll financial instruments are valued at their fair value (see note 1u) 2009 2008 Loans and Loans and receivables receivables £ £ Current financial assetsTrade and other receivables 2,336,765 2,401,168 Cash and cash equivalents 2,191,960 1,891,210 Total 4,578,725 4,292,378

2009 2008 Other financial Other financial liabilities liabilities £ £ Current financial liabilitiesTrade and other payables 1,456,023 1,606,818 Accruals (excluding deferred income) 613,649 713,415Bank loans and overdrafts 6,061,705 5,074,691 Total 8,131,377 7,394,924 Further details of the bank loans and overdrafts are included in note 18. Trade receivables are as follows: 2009 2008 £ £Trade receivables 2,157,094 2,314,508Allowance accounts for trade receivables (1,340) (114,265) 2,155,754 2,200,243

The average credit period taken on sale of goods is 49 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of £5,212 (2008 - £11,794). This allowance has been based on the knowledge of the financial circumstances of individual debtors at the balance sheet date.As 31 March 2009, £Nil (2008 - £Nil) of trade receivables were impaired in relation to customers who are known to be in financial difficulty and from whom payment was overdue by more than three months.

NotesTO THE FINANCIAL STATEMENTScontinued

38

19 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued) The Group holds no collateral against these receivables at the balance sheet date.The following table provides analysis of trade and other receivables that were past due at 31 March, but not impaired. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the current financial status of the customers. 2009 2008 £ £Up to 90 days 126,310 217,790Up to 150 days 18,335 3,423 144,645 221,213

The Group only has an allowance account for trade receivables. 2009 2008 £ £Opening balance as at 1 April 114,265 107,307Provision for receivables impairment 5,212 11,794Receivables written off during the year (8,213) -Unused amounts reversed (109,924) (4,836) Closing balance as at 31 March 1,340 114,265

There are no significant credit risks arising from financial assets that are neither past due nor impaired.At 31 March 2009, £596,256 (2008 - £859,589) of receivables were denominated in Sterling, £1,469,027 (2008 - £1,223,392) in Dollars and £90,471 (2008 - £117,262) in Euros.The Directors consider that the carrying amount of trade and other receivables approximate to their fair value.Cash and cash equivalents of £2,191,960 (2008 - £1,891,210) comprise cash and short-term deposits held by the group treasury function. The carrying amount of these assets approximates their fair values.The Group's activities expose the Group to a number of risks including market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk as disclosed in the Report of the Directors. The Group manages these risks through an effective risk management program. The Board provides policies and procedures with regards to managing currency and interest rate exposure, liquidity and credit risk.The Group holds no collateral against these receivables at the balance sheet date.Sensitivity AnalysisInterest rate sensitivity A sensitivity analysis has been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant through the reporting period. A 100 basis point change has been used. At the reporting date, if the interest rate had been 100 basis points higher/lower and all other variables were constant the Group's: 1. loss before taxation would have increased/decreased by £63,324 (2008 - £46,133).2. other equity and reserves would increase/decrease by £45,194 (2008 - £31,680).Foreign currency sensitivity The following table details the Group's sensitivity to a 10 percent change in exchange rates against the Sterling equivalents. The sensitivity analysis of the Group's exposure to foreign exchange risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. USD Impact EURO Impact 2009 2008 2009 2008 £ £ £ £10 per cent movement in rates will have an impact on: Loss before tax 1,115,905 479,784 29,408 161,993Equity 853,871 324,844 (57,579) 213,790

Liquidity riskThe Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due.

The Board receives regular forecasts which estimate the cash flows over the next twelve months, so that management can ensure that sufficient financing is in place as it is required.Detailed analysis of the debt facilities taken out and available to the Group are disclosed in note 18.

NotesTO THE FINANCIAL STATEMENTScontinued

39

20 TRADE AND OTHER PAYABLESAmounts falling due within one year: Group Group Company Company 2009 2008 2009 2008 £ £ £ £ Trade payables 984,133 1,088,404 - -Other taxation and social security costs 222,902 385,175 24,748 95,981Other payables and deferred income 248,988 133,239 113,303 100,088Accruals 613,649 713,415 62,000 186,769 2,069,672 2,320,233 200,051 382,838

21 CURRENT TAX LIABILITIES/ASSETS Group Group Company Company 2009 2008 2009 2008 £ £ £ £Current tax liabilities 14,802 54,458 - - Current tax assets 355,049 410,394 - -

22 DEFERRED TAX Provision for deferred taxation is: Group Group Company Company 2009 2008 2009 2008 £ £ £ £Accelerated capital allowances (974,881) (570,582) (990,162) (588,100)Tax losses carried forward 1,391,584 1,224,105 80,821 80,821Other timing differences Pensions 557,200 - - -Investment properties - (23,792) - (23,792)Research and development (1,460,444) (1,502,024) - -Provisions 14,004 5,600 - -Other 33,106 31,292 - - (439,431) (835,401) (909,341) (531,071) Deferred tax asset 2,019,426 1,289,738 80,821 80,821Deferred tax liability (2,458,857) (2,125,139) (990,162) (611,892) (439,431) (835,401) (909,341) (531,071)

At 1st April (835,401) (1,411,061) (531,071) (1,065,948)Foreign exchange difference 127,722 80,124 - -Deferred tax credited/(charged) in Income Statement for year (note 8) (238,312) 1,075,736 (378,270) 534,877Deferred tax charged to Statementof Recognised Income and Expense 506,560 (580,200) - -

At 31st March (439,431) (835,401) 909,341 (531,071)

The financial statements include a deferred tax asset of £2,019,426 (2008 - £1,289,738), of which £1,291,741 (2008 - £1,182,467) arises as a result of trading losses incurred by one of the overseas subsidiaries. In accordance with the requirement of IAS 12 'Income taxes', the Directors have considered the likely recovery of this deferred tax asset. The Directors have taken into account future taxable profits and expect a significant improvement in profitability and sufficient taxable profits in future periods and that this will be sustained. Accordingly the Directors have satisfied themselves that it is appropriate to recognise the above deferred tax asset. The deferred tax credit of £506,560 (2008 - charge of £580,200) relates to the retirement benefit obligation actuarial loss (see note 11).The abolition of industrial building allowances has resulted in a tax charge of £392,000 (2008 - £Nil) in the year. This is in respect of the property at Oval Park, Langford.

NotesTO THE FINANCIAL STATEMENTScontinued

40

23 SHARE CAPITAL 2009 2008 £ £Authorised25,000,000 Ordinary shares of 5p each (2008 - 25,000,000 Ordinary shares of 5p each) 1,250,000 1,250,000

Issued 14,947,626 Ordinary shares of 5p each (2008 - 14,947,626 Ordinary shares of 5p each) 747,381 747,381

Share optionsOn the 2nd August 2000 the Company approved at the Annual General Meeting a scheme, which was United Kingdom Inland Revenue Approved. This scheme was amended and re-approved at the Extraordinary General meeting held on 10th February 2004. Additionally at the 2008 Annual General Meeting a new Enterprise Management Incentive share option plan was approved. At 31st March 2009 options had been granted on 1,418,277 Ordinary Shares of 5p each from the scheme (2008 -1,117,269 Ordinary shares of 5p each). The Company has the authority to grant options over up to 10% of the issued share capital.The number of shares over which options remained in force at the year end and their exercise period and price was: Ordinary Shares of 5p each 2009 2008 No. No.From 14th June 2003 to 13th June 2010 at £2.92½ 1,310 1,310From 18th March 2007 to 17th March 2014 at £3.35 2,430 2,430From 18th June 2010 to 17th June 2017 at £1.16 861,011 905,409From 1st April 2011 to 31st March 2018 at £0.05 153,846 -From 28th July 2011 to 27th July 2018 at £0.86 30,883 -From 28th July 2012 to 27th July 2018 at £0.86 58,140 -From 28th July 2013 to 27th July 2018 at £0.86 58,139 -

24 OTHER SHAREHOLDERS' FUNDSShare premium Group Company 2009 2008 2009 2008 £ £ £ £At 1st April and 31st March 4,148,228 4,148,228 4,148,228 4,148,228 This reserve is a result of the premium being paid for the issue of shares over their par value.

Share based paymentsAt 1st April 49,376 237,971 49,376 237,971Charged in year 101,439 48,137 101,439 48,137Written off as a result of cancellation - (236,732) - (236,732)

At 31st March 150,815 49,376 150,815 49,376

NotesTO THE FINANCIAL STATEMENTScontinued

41

24 OTHER SHAREHOLDERS' FUNDS (continued)Apart from the EMI share schemes options are granted with a fixed exercise price equal to the market price of the shares under option at the date of the grant. The contractual life of an option is 10 years. Awards under the share option scheme are typically for all employees throughout the Group. Options granted under the share option scheme become exercisable on the third anniversary of the grant date. Options were valued using the Black-Scholes model. The fair value per option granted and the assumptions used in the calculation are as follows:

2009 2009 2009 2009 2008 2008Grant date 29/07/08 29/07/08 29/07/08 11/04/08 18/06/07 18/03/04Share price at grant date £0.86 £0.86 £0.86 £0.78 £1.16 £3.35Exercise price £0.86 £0.86 £0.86 £0.05 £1.16 £3.35Number of employees 1 1 1 1 195 1Shares under option 58,139 58,140 30,883 153,846 861,011 2,430Vesting period (years) 5 4 3 3 3 3Expected volatility 25.0% 25.0% 25.0% 25.0% 24.6% 23.40%Option life (years) 10 10 10 7 10 10 Expected life (years) 5 4 3 3 3 3.5Risk free rate 5.39% 5.39% 5.39% 5.12% 5.78% 4.40%Expected dividend yield 1.85% 1.85% 1.85% 1.85% 2.79% 4.34%Possibility of ceasing employment before vesting 0.0% 0.0% 0.0% 0.0% 4.50% 4.50%Fair value per option £0.18 £0.21 £0.23 £0.70 £0.22 £0.51

The weighted average exercise price and the weighted average expected remaining contractual life are £0.98 (2008 - £1.16) and 3 years (2008 - 3 years) respectively.

The expected volatility is based on 90 day's trading prior to the grant date. The expected life is the average expected period to exercise. The risk free rate of returns the yield to redemption on UK Gilt strips with 4 year maturity. A reconciliation of option movements over the year is shown below:

Exercisable from 14th June 2003 18th March 2007 18th June 2010 2009 2008 2009 2008 2009 2008 No. No. No. No. No. No.Outstanding 1st April 1,310 219,965 2,430 465,970 905,409 -Granted - - - - - 951,989Exercised - - - - - - Forfeited - (218,655) - (463,540) (44,398) (46,580)

Outstanding 31st March 1,310 1,310 2,430 2,430 861,011 905,409

There has been no movement in the options granted on 11th April and 29th July 2008. These options are exercisable from 1st April 2011, 28th July 2011, 2012 and 2013.

Group Company 2009 2008 2009 2008 £ £ £ £Merger reserveAt 1st April and 31st March - - 315,800 315,800 This reserve relates to the acquisition in 1995 of Integrated Micro Systems Limited. In accordance with the provisions of Section 131 of the Companies Act 1985, the Company transferred to merger reserve the premium arising on shares issued as part of the acquisition.

Foreign exchange reserve 2009 2008 £ £At 1st April 46,220 (36,285) Retranslation of overseas subsidiaries 397,069 82,505 At 31st March 443,289 46,220 This reserve represents the foreign exchange differences arising from the retranslation of financial statements of foreign subsidiaries.

NotesTO THE FINANCIAL STATEMENTScontinued

42

24 OTHER SHAREHOLDERS' FUNDS (continued)Accumulated Profits Group Company 2009 2008 2009 2008 £ £ £ £At 1st April 12,605,144 12,379,263 6,627,487 5,853,266(Loss)/Profit for the period (2,135,844) (617,270) 896,534 1,284,870Dividends paid - (747,381) - (747,381)Net actuarial (losses)/gains (1,671,000) 1,934,000 - -Deferred tax on actuarial gains 506,560 (580,200) - -Share based payments - 236,732 - 236,732 At 31st March 9,304,860 12,605,144 7,524,021 6,627,487

25 CAPITAL COMMITMENTS Capital commitments which have been contracted for but for which no provision has been made in these financial statements are £Nil (2008 - £Nil).

26 OPERATING LEASE ARRANGEMENTSThe Group as a lessee 2009 2008 £ £Minimum lease payments under operating leases recognised in income statement as an expense for the period 335,680 166,241

At the balance sheet date, the Group had future minimum lease payments under non-cancellable operating leases, which fall due as follows: £ £Within one year 367,448 307,781In the second to fifth years inclusive 845,185 759,317After five years 1,030,354 851,092

2,242,987 1,918,190

Operating lease payments represent rentals payable by the Group for some of its office properties. Leases are normally negotiated for a term of three years and rentals are fixed for that period, apart from the property in the US which is for a twelve year period.The Group as a lessor Property rental income earned during the year was £275,515 (2008 - £271,487). The properties are expected to continue to generate rental yields of 7 percent for the foreseeable future. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2009 2008 £ £Within one year 241,338 241,338In the second to fifth years inclusive 192,798 418,325After five years - -

434,136 659,663

NotesTO THE FINANCIAL STATEMENTScontinued

43

27 NOTES TO THE CASH FLOW STATEMENT 2009 2008 £ £GroupDecrease in working capital: Profit on sale of property, plant and equipment (27,178) (4,884) Decrease/(increase) in inventories 379,173 (150,068) Decrease in receivables 30,899 522,605(Decrease)/increase in payables (250,561) 72,354

132,333 440,007

Analysis of changes in net debt: Net debt at Exchange Net debt at 1st April Cashflow movement 31st March 2008 2009 £ £ £ £Cash and cash equivalents 1,891,210 297,719 3,031 2,191,960Bank loans and overdrafts (5,074,691) (987,014) - (6,061,705) (3,183,481) (689,295) 3,031 (3,869,745)

2009 2008 £ £Company(Decrease)/increase in payables (3,451,334) 190,912

Analysis of changes in net debt: Net debt at Net debt at 1st April Cashflow 31st March 2008 2009 £ £ £Cash and cash equivalents 81,782 (641) 81,141Bank loans and overdrafts (4,000,000) (2,000,000) (6,000,000) (3,918,218) (2,000,641) (5,918,859)

28 LISTINGSCML Microsystems Plc Ordinary shares are traded on the Official List of the London Stock Exchange.

29 APPROVAL OF FINANCIAL STATEMENTSThese financial statements were formally approved by the Board of Directors on 26th June 2009.

NotesTO THE FINANCIAL STATEMENTScontinued

44

Notice is hereby given that the Annual General Meeting of CML Microsystems Plc will be held at Layer Marney Tower, Nr. Colchester, Essex, CO5 9US, on Wednesday 19th August 2009 at 11am to transact the following business:

ORDINARY BUSINESSOrdinary Resolutions1. To receive and adopt the Group's consolidated financial statements and the reports of the directors and auditors for the year

ended 31st March 2009.2. To receive and approve the Directors' Remuneration Report for the year ended 31st March 2009.3. To re-elect R. J. Shashoua who retires from the Board by rotation.4. To re-appoint Baker Tilly UK Audit LLP, Chartered Accountants, as auditors and authorise the directors to approve their

remuneration.

SPECIAL BUSINESSSpecial ResolutionsTo consider, and if thought fit, pass the following resolutions as Special Resolutions:1. To renew the authority as given in the general meeting on 27th August 1999 to the Company to make market purchases of the

Ordinary shares of 5p each in the capital of the Company as follows: That the Company be and is hereby authorised to make market purchases (within the meaning of Section 163 of the Companies

Act 1985) of the Ordinary shares of 5p each in the capital of the Company provided that:(i) the maximum number of Ordinary shares hereby authorised to be acquired is 2,145,595 shares representing approximately

15% of the current issued share capital;(ii) the minimum price which may be paid for such shares is the nominal value of 5p per share;(iii) the maximum price (excluding expenses) which the Company may pay for each such share cannot be more than the higher

of:(a) 105% of the average market value of an Ordinary share for the five business days prior to the day the purchase is

made;(b) the value of an Ordinary share calculated on the basis of the higher of: (1) the last independent trade of; or (2) the highest

current independent bid for, any number of Ordinary shares on the trading venue where the purchase is carried out;(iv) the authority hereby conferred shall expire on the date of the next Annual General Meeting of the Company or the date fifteen

months after the passing of this resolution (whichever shall be the earlier) unless and to the extent that such authority is renewed or extended prior to or on such date and

(v) the Company may make a contract to purchase its own shares under the authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of its own shares in pursuance of any such contract.

2. The directors be given power under Section 95 of the Companies Act 1985 to allot equity securities (as defined in Section 94 of the Act) pursuant to the general authority to allot securities in accordance with Section 80 of the Act as given in the Annual General Meeting on 3rd August 2005 as if the pre-emption provisions of Section 89(1) of the Act did not apply to such allotment. The power shall be limited to the allotment of equity securities up to an aggregate nominal amount of £35,750 (representing 715,000 Ordinary Shares, being 5% of the Company’s issued share capital) and shall expire at the next Annual General Meeting of the Company or the date 15 months after passing this resolution (whichever is the sooner) unless any offer or agreement is made before expiry of this power, in which case the directors may allot securities pursuant to such offer or agreement as if the power granted by this resolution had not expired.

General Notes1. A member who is entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies to

attend and vote instead of him provided that each proxy is appointed to exercise the rights attached to different shares. A proxy need not also be a member of the Company. A proxy card is enclosed.

2. Proxies may also be sent by e-mail to: proxies@cmlmicroplc.com. See the enclosed proxy card for further instructions. This e-mail address may not be used to communicate with the Company for any purpose other than submitting proxies for the Annual General Meeting.

3. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the number of votes a member may cast), members must be entered on the Register of Members of the Company by close of business on 7th August 2009.

Oval Park By order of the BoardLangford, MALDON N. G. Clark Company SecretaryEssex CM9 6WG 26th June 2009

Inspection of documents A copy of the executive directors' service contracts will be available for inspection at the registered office of the Company during normal business hours on each business day (Saturdays and public holidays excepted) from the date of this Notice until the date of the AGM and on the date of the AGM at Layer Marney Tower, Nr Colchester, Essex, CO5 9US from 10.30am until the conclusion thereof.

NoticeOF ANNUAL GENERAL MEETING

ShareholderINFORMATION

Contact Information

CML Microsystems Plc (Company Registered Number: 944010 England)

Oval Park LangfordMaldonEssexCM9 6WGEngland

Tel: +44 (0)1621 875500Fax: +44 (0)1621 875606e-mail: group@cmlmicroplc.comWeb: www.cmlmicroplc.com

Financial Calendar

200919th August Annual General Meeting30th September Half-year end24th November Anticipated date for Interim Results

201031st March Year end15th June Anticipated date for preliminary

announcement of Year-end 2010 Results

CML Microsystems Plc Share Price - for year ended 31st March 2009

FTSE 100 Index - for year ended 31st March 2009

TechMark 100 Index - for year ended 31st March 2009

Oval Park - Langford - Maldon - Essex - CM9 6WG - England Telephone +44 (0)1621 875500 - Facsimile +44 (0)1621 875606

e-mail: group@cmlmicroplc.com - http://www.cmlmicroplc.com