Annual Report

2008

02 | Contents

Contents3 Financials – key points

4 Chairman and Chief Executive Officer’s report

6 Board of Directors

7 Directors’ Remuneration Report

9 Report of the Directors

14 Statement of Directors’ responsibilities

15 Independent auditors report to the members of Antonov plc – Group financial statements

16 Consolidated income statement

17 Consolidated statement of changes in equity

18 Consolidated balance sheet

19 Consolidated cash flow statement

20 Notes forming part of the financial statements

35 Statement of Directors’ responsibilities – Parent company financial statements

36 Independent auditors report to the members of Antonov plc – Parent company financial statements

37 Parent company balance sheet

38 Notes forming part of the parent company financial statements

Antonov plc

Report and Financial Statements

Year Ended31 December 2008

Introduction | 03

Financials – key points• Total revenues for financial year 2008

amount to £339k (2007: £771k)

• Operating expenses reduced by 33% to £3,128k (2007: £4,680k)

• Operating loss for the year before impairment £2,796k (2007: £3,935k)

• Loss from operations before taxation for the year £9,782k (2007: £3,935k), including an impairment charge of £6,986k (2007: £nil) related to intangible assets

• Cash balance at the end of the year £500k (2007: £98k)

• Available funding facilities as at 31 December 2008 amounted to £16.2 million

• New funding facilities agreed 18 February 2009 for a total of £32 million replacing available funding facility of £16.2 million as at 31 December 2008

Summary ReportAntonov plc is engaged in innovation, development and marketing of products and solutions for the automotive industry. The Group holds a substantial intellectual property portfolio and is actively looking to identify and expand the commercial opportunities for its technology.

Key elements of the Group’s commercial strategy are:

• Primary focus on products with a shorter time to market, for example the Antonov 2-speed applications.

• Securing commercial engineering projects with both automotive and non-automotive customers, using our core competencies and technologies.

• Continued support of products with a longer time to market, such as the 6-speed transmission, with focused marketing activities.

During 2008, Antonov generated revenues of £339k from a combination of engineering support services, sale of products and licence fees.

Contrary to expectations a year ago, the Company was unable to achieve any acceleration in its commercial progress, with the result that the Company was forced to undergo a number of changes at the start of 2009. This was partly due to global economic conditions adversely impacting the business of our potential customers, forcing them to become more risk averse as opposed to looking for opportunities to expand their business. As a consequence of this, time to market has been extended due to longer decision cycles by our potential customers compounded by the uncertainties in general economic prospects. So the world has changed and we need to cope with it and take appropriate action. In addition, the focus on the potential joint venture with Loncin detracted from our ability to expand the portfolio of dual speed products.

This does not mean that we did not make any progress, yes we professionalised our organisation, yes we maximised the advantages of the technical centre in Warwick, leaving all the inefficiencies of being at several locations behind us and one of our important goals for 2008, to have prototypes of the six speed automatic transmission running, was realised in July. The prototype was successfully installed on two midsized demonstrator vehicles. One of these demonstration vehicles was transferred to China for test driving and evaluation by prospective customers and the other one has been kept in the UK for demonstration purposes to potential customers. A number of improvements have been made to the two-speed technology, enabling the concept and the base technology to be used for an increasing number of

applications in the automotive sector. A new agreement was signed with the first paying engineering customer, namely Emporio Holding Sàrl, to provide the company with access to the German market through its subsidiary GTI Green Tec International AG. After successfully proving the technology through the course of 2008, the Board implemented a number of changes designed to strengthen the commercial position of the Company. The strategy has been adjusted to focus more on commercial activities with a short time to market, like the two speed based projects and commercial engineering. In 2009 we will continue with our marketing efforts in China in order to secure firm commitments from potential customers for the six speed automatic transmission. There is a strong relationship with the Chong Qing government (COFTEC) and recently (in February 2009) a new funding agreement has been signed for Euro 15 million dedicated to forming a JV in China. Whilst these efforts are pursued, any additional investment in the six speed automatic transmission will be carefully managed by ensuring that any further development activity is supported by customer funding.

The adjustments in the strategy and the focus on commercialisation have led to changes in the Board of Directors and the management of Antonov. Christopher Ross stepped down as Non-Executive Chairman, as did the CEO, John Moore. The Company is grateful for their contributions, especially in the buildup of a professional high quality engineering organisation concentrated in the new facility in Warwick (UK). I was appointed Executive Chairman on 21 January 2009, having previously acted as a non executive director since September 2005, and on 18 February 2009 Bernd Ramler was appointed as a Non-Executive Director. Mr Ramler brings very valuable experience to the company having worked for

Chairman and Chief Executive Officer’s Report

Jos Haag Chairman and Chief Executive Officer

04 | Chairman and Chief Executive Officer’s Report

After successfully proving the technology through the course of 2008, the Board implemented a number of changes designed to strengthen the commercial position of the Company.

Chairman and Chief Executive Officer’s Report | 05

companies like Mercedes-AMG, Porsche and Daimler-Benz in senior roles in powertrain engineering and production. His contribution to the Board will not only be technical, but will also cover commercial aspects of our business including advice on how prospective automotive manufacturers are organised, their business priorities and technology requirements and how they should be approached from a commercial point of view in order to provide us with a better opportunity to succeed.

The company was restructured by the end of January 2009, resulting in a reduction of staff by a third and finalising an annual cost reduction of over £1.5 million. Costs associated with the restructuring amounted to £185k. Future increases in headcount will depend on securing commercial projects, which we trust will happen in the course of time. The way we have organised our company now accentuates our commercial and technical skills with a focus on securing commercial engineering projects with both automotive and non-automotive customers, operating a market focused instead of internally focused approach to solve customer problems and fill in customer opportunities.

With regard to the financial performance for 2008, revenues primarily include the fees received from Loncin for completion of the prototype transmission. The operating loss reflects an impairment charge related to intangible assets of £6,986k as well as ongoing operational costs including manpower, facilities and professional fees. We have applied a prudent approach by taking an impairment charge with respect to intangible assets. Given the delay in forming a manufacturing Joint Venture for the six speed transmission and the resulting lack of fixed production forecasts and sales commitments, we have fully impaired the

previously capitalised costs amounting to £5,497k. We have also fully impaired the intangible asset representing £1,489k related to the 2-speed Supercharger product in view of low sales volumes and the resulting change in future strategy focused on applications other than the supercharger. As a consequence of taking the impairment charge, the loss for the year of £9,782k was higher than anticipated (2007: £4,073k).

As far as funding is concerned, we continue to rely on Quivest B.V. to generate cash for our ongoing needs. Following the share capital reorganisation in February 2009, we have entered into two separate funding agreements with Quivest B.V., the first one being a share financing arrangement for Euro 20 million to support our ongoing operational and working capital needs and the second one being a credit facility for Euro 15 million to fund the possible formation of a Joint Venture in China. We believe this will place the company in a stronger position in negotiations with potential partners.

In the light of our new strategy and actions taken to realign our organisation and resources, we believe that the company is now better positioned to achieve its goals and deliver positive results to our stakeholders. We are grateful to have the support of our shareholders as well as our motivated and dedicated employees who will continue to play a key role in achievement of our goals.

Dr. J.E. (Jos) HaagChairman and CEO25 March 2009

Mory MotabarChief Financial Officer

Mory Motabar, aged 52 joined the Board in April 2007. He is a Chartered Accountant (ACA) with 28 years of finance experience which started in the accountancy profession in the City of London (seven years) and continued in various senior international finance positions in the Technology Sector (21 years). His most recent role was Chief Financial Officer at Seagull Software (1996 to 2007), which he guided through an IPO on Euronext – Amsterdam Exchange. Previously, he worked as Financial Director and Company Secretary at SCO in the UK, a NASDAQ listed Software Company and Amersham International plc, a Pharmaceutical Company listed on the London Stock Exchange. Mory received his Bachelor of Science degree in Mathematical Economics & Econometrics from the London School of Economics & Political Science in 1979.

Bernd Ramler Dipl.-IngNon-executive Director

Bernd Ramler, aged 56, joined the Board in February 2009. He is a certified engineer, graduating from RWTH Aachen in 1981 and has worked for many of the leading companies in the automotive industry in Germany, including Daimler-Benz AG, Mercedes-AMG GmbH and Porsche AG. While at Porsche he headed powertrain and engine activities for street cars (including the V10 engine for the Carrera GT) and racing cars, as well as supporting racing activities worldwide for all three companies, including a double win for Porsche in the 24 hour Le Mans race in 1998. He left Mercedes-AMG GmbH in 2006 to form his own engineering consultancy and counts a number of well known automotive companies among his clients.

Dr. Jos E HaagExecutive Chairman

Jos Haag, aged 61 has a background in business accountancy and economics and after graduating in 1973 he has been actively involved in the management of companies, mostly international, operating in a number of sectors. Since 1992, he has been active in the field of management, corporate governance and interim management for private and listed companies. In recent years he has acted as Managing Director of ZBG, Geldrop, a holding company for a venture capital group and as Chairman of Intellect Holdings Limited, an ASX quoted electronic payment solutions company. Dr Haag is currently involved in the management of a number of international companies including Antonov.

06 | Board of Directors

Board of Directors

Remuneration policyThe Group’s policy on directors’ remuneration for 2008 and subsequent financial years is that the overall remuneration package should be sufficiently competitive to attract, retain and motivate high quality executives capable of achieving the Group’s objectives and thereby enhancing shareholder value. The package consists of basic salary or service fees, share options and performance related bonuses. Consideration is given to pay and employment policies elsewhere in the Group, especially when determining annual salary increases.

Executive remuneration package: The remuneration committee’s policy is to align executive directors’ remuneration packages to support the Group’s business strategy whilst ensuring that rewards are market competitive. The details of individual components of the remuneration package and service contracts are discussed below.

Basic salary, service fees and benefits: The service fees, salary and benefits are reviewed annually, with the policy for 2008 and subsequent years being that basic fees or salary do not increase by more than the average increase for employees throughout the Group. Directors received increases in basic fees and salary ranging from 5 to 13.3% for the 2008 calendar year. This increase in basic salary was in line with the increase for all employees throughout the Group. It is currently Group policy that no benefits are provided to the Directors, except where the Directors elect to participate in a salary sacrifice arrangement.

Service fees are payable in cash up to 20 days per year. Additional days up to 40 days per year are paid 80% in cash and 20% in shares of the Company. Days billed in excess of 40 days per year are payable in shares of the Company.

Share options: The share options are awarded on a discretionary basis by the remuneration committee. No options were awarded in 2008.

Service contractsThe service contracts and letters of appointment of the directors include the following terms:

Date of contract Notice period ( months)

J E Haag 9 September 2005 6

J W Moore 10 December 2004 6

C G Ross 1 March 2004 6

M Motabar 26 April 2007 6

W Simon 26 June 2008 6

B Ramler 18 February 2009 6

The contracts have no fixed expiry terms. On termination, Directors are entitled to compensation in line with the terms of their individual service agreements.

Other appointmentsThe executive Directors are permitted to serve as non executive Directors of other companies provided that their appointment is first approved by the remuneration committee. Directors are allowed to retain their fees for such appointments.

Directors’ remuneration (audited)The remuneration of the directors for the year ended 31 December 2008 was as follows:

Directors’ Remuneration Report | 07

Directors’ Remuneration Report

Director Basic salary

BoardFees

Bonus Benefits in kind

Total Social charges and other insurances

Pensioncontributions

£’000 £’000 £’000 £’000 £’000 £’000 £’000

J E Haag 61 18 - - 79 - -J W Moore 138 - 38 5 181 14 11C G Ross 20 34 - - 54 - -M Motabar 214 18 - - 232 - -W Simon - 5 - - 5 - -

433 75 38 5 551 14 11

J E Haag’s remuneration as stated above includes £6k to be paid in shares of Antonov plc. J W Moore’s remuneration as stated above includes £58k to be paid in shares of Antonov plc (bonus: £38k, salary: £20k). The bonus was awarded by the Remuneration Committee on a discretionary basis. M Motabar’s remuneration as stated above includes £42k to be paid in shares of Antonov plc. There have been no options exercised during the year. The Group paid into a personal pension scheme for J W Moore.

On 21 January 2009, C G Ross and J W Moore resigned as Directors and have received compensation in line with the terms of their service agreements.

The maximum amount owed by directors during the year was £34k (2007: £34k). This amount is in respect of R Antonov who resigned as a director on 2 April 2007. The balance due at 31 December 2007 is included in the balance sheet figure for prepayments. This balance was forgiven as part of the settlement made on his departure from the French subsidiary prior to its liquidation in March 2008.

08 | Directors’ Remuneration Report

Pension entitlement (audited)The Group does not operate its own pension scheme. Pension contributions made on behalf of Directors are made into their personal pension schemes.

Interests in Options (audited)Directors’ options for the year ended 31 December 2008 were as follow:

Director At the beginning of the year

New in the year

Exercised in the year

Lapsed in the year

At the end of the year

Exercise period

Exercise price

J E Haag 510,000 - - - 510,000 to 15 Oct 2012 62p to 120pJ W Moore 568,334 - - (33,334) 535,000 to 15 Oct 2012 62p to 120pC G Ross 510,000 - - - 510,000 to 15 Oct 2012 62p to 120pM Motabar 300,000 - - - 300,000 to 15 Oct 2012 62p

Under the scheme, options vest if the share price reaches or exceeds a value within the range of 74p to 144p, dependent on the option, for a continuous period of ten consecutive business days. Of the total number of options outstanding at the end of the year, nil (2007: nil) had vested and were exercisable at the end of the year.

The options held by JW Moore and CG Ross expire on 21 July 2009, six months following their departure from office.

Performance graphThe graph below shows the total shareholder return for each of the last two financial years in terms of the change in value (with dividends reinvested) of an initial investment of €100 on 1 October 2006 in a holding of the Company’s shares against the corresponding total shareholder return in a hypothetical holding of shares in the Euronext Amsterdam Small Cap Index (ASCX).The Euronext Amsterdam Small Cap Index (ASCX) was selected as it represents the equity market index in which the company is a constituent member.

The remuneration of the Directors for the year ended 31 December 2007 was as follows:

Director Basic salary and fees

Bonus Compensation for loss of Office

Benefits in kind

Total Social charges and other insurances

Pension contributions

£’000 £’000 £’000 £’000 £’000 £’000 £’000

R Antonov 22 - - - 22 3 3D A Bovell 6 - - - 6 1 -J E Haag 48 - - - 48 - -P N L Logsdon 69 20 38 - 127 22 -J W Moore 114 42 - 6 162 19 11C G Ross 48 - - - 48 - -M Motabar 128 - - - 128 - -

435 62 38 6 541 45 14

J W Moore’s remuneration as stated above includes £43k to be paid in shares of Antonov plc (bonus: £40k, salary: £3k). M Motabar’s remuneration as stated above includes £22k to be paid in shares of Antonov plc. There were no options exercised during the year. The Group paid into a personal pension scheme for J W Moore.

The share price at 31 December 2008 was €0.19 (2007: €0.56). During the year the highest price was €0.61 and the minimum price was €0.18. Remuneration CommitteeThe members of the Remuneration Committee during the year were:Dr J.E. HaagC G Ross (resigned 21 January 2009)B Ramler (appointed 18 February 2009)

There were no advisers to the Committee during the year.

On behalf of the Board:B. RamlerChairman of the Remuneration Committee25 March 2009

€250

€200

€150

€100

€50

€-

Oct-06 Dec-06 Dec-07 Dec-08

Total shareholder return ASCX Small Cap Index (Euronext Amsterdam)

Share performance

2008£’000

2007£’000

Revenue 339 771Loss from operations before impairment (2,796) (3,935)Loss before tax (9,782) (3,964)Development expenditure (3,123) (2,259)Loss per share (pence) 14.3 8.5Cash and short term deposits 500 98Shareholders’ funds 3,068 4,213

Report of the Directors for the year ended 31 December 2008

Report of the Directors for the year ended 31 December 2008 | 09

Further details of the business review are contained in the Chairman and Chief Executive Officer’s Report.

The Directors believe that they have more than adequately discharged their responsibilities under s417 of the Companies Act 2006 to provide a balanced and comprehensive review of the development and performance of the business.

Capital management The primary objective of the Group’s capital management is to ensure an appropriate level of liquid resources are available to fund the daily operations of the business. This has been achieved by a combination of funds received from drawdowns under the financing facilities as well as revenue received from customers. The terms of the Group’s financing facilities are detailed in Note 2 to the financial statements. At 31 December 2008 the unutilised financing facility available amounts to £16,248k and total available cash balance was £500k. On 18 February 2009 the existing financing facility was replaced with a new equity financing facility of €20 million and a credit facility of €15 million (Note 29).

Cash flow Operating activities resulted in an outflow of £1,599k (2007: £2,484k) of cash and cash equivalents. The Group anticipates a continuing need to support its cash requirements by funding provided through its share financing facilities. Investing activities resulted in net outflows of £3,322k (2007: £2,594k) during the year. The £5,323k net cash inflow from financing activities (2007: £4,950k) resulted in an overall net increase in cash and cash equivalents of £402k (2007: outflow £128k) for the year.

The directors present their report together with the audited financial statements for the year ended 31 December 2008.

Results and dividendsThe Consolidated Income Statement is set out on page 16 and shows the loss for the year of £9,782k (2007: £4,073k).

Principal activities and review of the business The Group is engaged in the development and commercialisation of a range of transmission products for both automotive and non-automotive applications.

The operating results and future prospects are discussed in the Chairman and Chief Executive Officer’s Report on pages 4 to 5. No dividend (2007: £nil) is proposed and the loss of £9,782k (2007: £4,073k) has been transferred to reserves.

The Group’s key financial and other performance indicators during the year were as follows:

Class Number £’000Ordinary shares of 20p each 87,132,812 17,425

The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and for voting rights.

Capital ReorganisationOn 16 February 2009, the shareholders approved the sub-division of existing Ordinary Shares of 20 pence each into one New Ordinary Share of 1 pence each and one Deferred Share of 19 pence each. The New Ordinary Shares have attached to them the same rights (including as to voting, dividends and on a return of capital) as the Ordinary Shares. The remaining authorised but unissued Ordinary Shares of 20 pence each were subdivided into twenty authorised but unissued New Ordinary Shares of one pence each.

Additional information for shareholdersAt 31 December 2008, the Company’s issued share capital comprised:

Number £'000 Voting rights

Prior to reorganisation:Ordinary shares of 20p each 88,076,193 17,615 100%

88,076,193 17,615 Following reorganisation:New Ordinary Shares of 1p each 88,076,193 881 100%Deferred Shares of 19p each 88,076,193 16,734 0%

176,152,386 17,615

Ordinary sharesOn a show of hands at a general meeting of the company every holder of ordinary shares present in person and entitled to vote shall have one vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the general meeting which accompanies this report specifies deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the annual general meeting and published on the Company’s website after the meeting.

Deferred SharesThe Deferred Shares are effectively valueless as they carry no rights to vote or dividend rights. In addition, holders of Deferred Shares will only be entitled to a return of capital or on a winding up of the Company after each of the holders of New Ordinary Shares has received a payment of £ 1,000,000 each on each such share. The Deferred Shares are not listed on AIM or Euronext Amsterdam and are not transferable without prior written consent of the Directors of the Company.

Significant shareholdingsThe directors are aware of the following interests that represent three percent or more of the issued share capital of the Company at 26 February 2009:

Shareholder Number of ordinary shares

Percentage of ordinary shares

Euroclear Nominees Ltd 61,881,054 63.05%Quivest BV 26,248,776 26.75%HSBC Global Custody Nominee Ltd 3,494,296 3.56%Antonov Holding S.A.R.L. 2,956,704 3.0%

Voting restrictionsIf a member holding any shares or any other person appearing to be interested in any shares has been served a disclosure notice and the Company has not received (in accordance with the terms of such disclosure notice) the information required within 14 days after the service of such disclosure notice, the Directors may give the registered holder of such shares a notice stating that in respect of those shares, the member is not entitled to attend or vote (either in person or by proxy) at any general meeting of the Company or at any separate general meeting of the holders of the shares of that class or upon any poll or to exercise any other right conferred by membership in relation to general meetings or meetings of the holders of any class of shares.

DirectorsThe Company’s Articles of Association require a minimum number of three Directors and a maximum of twelve. The Directors are authorised to appoint at anytime a person to the Board, and the person appointed may hold office until the annual meeting following the appointment, at which time they are required to be re-elected. If at any time there are fewer than the prescribed minimum number of Directors in office, the remaining directors are permitted to convene a general meeting to appoint new Directors.

The Directors are authorised to act in a manner and exercise the general powers required to manage the business of the Company, and their actions are not restricted to the specific powers granted by the Articles of Association.

Subject to the provisions of the Statutes regarding pre-emption rights and any related resolution of the Company relating thereto or relating to any authority to allot relevant securities, all of the shares of the Company for the time being unissued shall be under the control of the Directors who may generally and unconditionally allot, grant options over, offer or otherwise deal with or dispose of the same to or in favour of such persons, on such terms and conditions, at a premium or at par and at such times as the Directors think fit.

Articles of AssociationAny action that would result in an amendment to the Company’s Articles of Association requires the approval of shareholders by way of a Special Resolution.

The issued and fully paid share capital immediately before and following the reorganisation is as follows:

10 | Report of the Directors for the year ended 31 December 2008

Principal risks and uncertainties

• Foreign currency risk The majority of the Group’s revenues are denominated in Euros while its costs are principally denominated in sterling. As a result, the Group is subject to the risks of foreign currency movements. The Group does not operate any type of hedging program to mitigate this risk.

• Market risk Larger automotive-related companies are better placed and better resourced than the Group. It is possible that other companies may have competitive products in development, which are not known to the Group. Competitors may be able to develop more effective technologies which may be superior to those of the Group.

• Technological Risk The Group is exposed to future changes in technology which may make the market for products based on its particular designs less effective.

• Patent Protection The continuing ability to establish, protect and enforce our proprietary rights is fundamental to the Group. This is principally achieved through the process of patent application and establishing patent protection. However, should these applications or granted patents be challenged, then the defence of our rights could incur costs and the outcome cannot be predicted with certainty.

• Relationships Other than our shareholders, the Group’s performance and value are influenced by other stakeholders, principally our customers, suppliers and employees; government; and our strategic partners. The Group’s approach with all these parties is founded on the principles of open and honest dialogue based on a mutual understanding of needs and objectives. Relationships are managed both on an individual basis, for example through our managed account programme for customers and performance development for employees, or via representative groups. Employee forums provide a communication route between employees and management. We participate in trade associations and industry groups where these give us genuine access to customer and supplier groups and decision makers in government and other regulatory bodies. Quivest B.V., a significant shareholder, is also the primary provider of funding to the Group. Further details of this relationship are provided in Note 2 and Note 26 to the Group financial statements.

• Commercialisation The Group’s commercial progress depends upon its ability to establish and maintain successful relationships with appropriate licensees and other third parties to exploit successfully the Antonov technologies through development, manufacturing and distribution agreements. The increased regulatory pressure on the automotive industry to increase efficiency and reduce CO2 emissions provides ongoing commercial opportunities for the Group to secure applications of its technology.

• Going concern and liquidity The accounts have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. At 31 December 2008, the Group had cash of £500k (2007: £98k) and an undrawn committed share finance facility of €16,735k, approximately £16,248k, (2007: £11,103k), and the Group incurred a loss for the year of £9,782k (2007: £4,073k). The impact of global economic conditions on potential customers and the resultant effect on the estimated time to market for the Group’s products are described in the Chairman and Chief Executive’s Report, as are the actions taken by the Directors to adapt their strategy and reduce costs.

The committed share finance facility was replaced with a new €20 million share finance facility and a €15 million credit facility on 18 February 2009, with Quivest B.V. (“Quivest”)(Note 29). Under the terms of the share finance facility the Group is entitled to draw down a minimum of €250k per month and a maximum of €600k per month. Since 31 December 2008 the Group has received £938k from its share finance facility agreements. The Directors have prepared cash flow forecasts to 30 June 2010 which show that the Group can operate within its share finance facility.

Quivest’s business is the provision of financing and acquiring and disposing of investments and the Equity Facility and Loan Facility as described above are both being provided by Quivest acting as principal. In the current financial environment there can be no guarantee that future funding will be forthcoming from Quivest. The ability of Quivest to meet its obligations under the share finance facility and the credit facility is dependent in turn on it continuing to have access to sufficient funds. The directors have concluded that the combination of these circumstances represents a material uncertainty that may cast significant doubt upon the Group’s and Company’s ability to continue as a going concern. However, the board of Antonov plc takes comfort from Quivest’s historical support and track record in providing the necessary funding to the Group when requested and the directors are of the opinion that through its funding facilities with Quivest, it has access to sufficient working capital for its foreseeable requirements. Accordingly, the directors have concluded that it is appropriate for the accounts to be prepared on a going concern basis.

The Group aims to mitigate liquidity risk by generating cash from its operations, thereby reducing dependency on its funding facilities. Investment is carefully controlled, with authorisation limits operating up to Group board level and cash payback periods applied as part of the investment appraisal process. In this way the Group aims to maintain a good credit rating. In its funding strategy, the Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of its share financing facility, credit facility, finance leases and hire purchase contracts.

Report of the Directors for the year ended 31 December 2008 | 11

Beneficial interestsThe directors of the company during the year and their beneficial interests (unless otherwise stated) in the ordinary share capital of the parent company, options to purchase such shares under the Senior Executive Savings Related Share Option Scheme, share based remuneration and interests arising from the long term incentive scheme, were as follows:

Options and similar interests Share based remuneration not yet settled Shares

31 December2008

31 December2007

31 December2008

31 December2007

31 December2008

31 December2007

Number Number Number Number Number Number

J E Haag 510,000 510,000 24,795 - - -

J W Moore 535,000 568,334 332,144 63,983 - -

C G Ross 510,000 510,000 - - 59,700 59,700

M Motabar 300,000 300,000 187,988 37,558 - -

W Simon - - - - - -

The options and similar interests of the directors include the entitlement to receive shares as part of their share based remuneration, the monetary value of which is disclosed in Note 9.

12 | Report of the Directors for the year ended 31 December 2008

Post balance sheet eventsPost balance sheet events are set out in note 29 to the financial statements. DirectorsThe directors that held office during the year were:

Dr. J E HaagJ W Moore (resigned 21 January 2009)C G Ross (resigned 21 January 2009)M Motabar W Simon (appointed 26 June 2008, resigned 31 October 2008)B Ramler (appointed 18 February 2009)

Research and developmentThe Group continues to invest in research and development. This has resulted in improvements in current intellectual property and new ideas being developed which will benefit the Group going forward. Certain costs in relation to the supercharger and TX6 automatic gearbox projects totalling £3,123k were capitalised in the balance sheet. A review of capitalised development costs was undertaken at the end of 2008 and it was determined that these costs should be fully impaired (Note 15).

Disabled employeesThe Group gives full consideration to applications for employment from disabled persons where the candidate’s particular aptitudes and abilities are consistent with adequately meeting the requirements of the job.

Directors’ indemnity insuranceThe Group has granted an indemnity to one or more of its directors against liability in respect of proceedings bought by third parties, subject to the conditions set out in Section 234 of the Companies Act 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the directors’ report.

Financial instrumentsDetails of the use of financial instruments by the company are contained in notes 20 and 21.

Policy on the payment of creditorsThe Group and the Company’s policy is that payments to suppliers are made in accordance with those terms and conditions agreed between the Group and its suppliers, provided that all trading terms and conditions have been complied with.The number of average days purchases of the Company represented by trade creditors at 31 December 2008 was: 75 days (2007: 48 days), Group: 73 days (2007: 81 days).

Directors’ statement as to disclosure of information to auditorsThe directors who were members of the board at the time of approving the directors’ report are listed on page 12. Having made enquiries of the directors and of the company’s auditors, each of the directors confirms that:

• to the best of each director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Group’s auditors are unaware; and

• each director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Group’s auditors are aware of that information.

AuditorsA resolution to reappoint Ernst & Young LLP as the Company’s auditors will be put to the forthcoming Annual General Meeting.

By order of the BoardS AlexanderCompany Secretary25 March 2009

Report of the Directors for the year ended 31 December 2008 | 13

The Directors are responsible for preparing the annual report and the financial statements. The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union.

Group financial statementsCompany law requires directors to prepare such financial statements in accordance with IFRS’s and the Companies Act and Article 4 of the IAS regulations. This requires the faithful representation of the effects of the transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements”. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. A fair presentation also requires the directors to:

• properly select and apply appropriate accounting policies in accordance with IAS 8;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and

• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

• International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board. The directors are required to state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985 and Article 4 of the IAS regulations. 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.

Statement of Directors’ Responsibilities

14 | Statement of Directors’ Responsibilities

We have audited the Group financial statements of Antonov Plc for the year ended 31 December 2008 which comprise the Consolidated Income Statement, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement and the related notes 1 to 29. These Group financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements of Antonov Plc for the year ended 31 December 2008.

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 auditors’ 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 and the Group financial statements in accordance with applicable United Kingdom 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 Group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group financial statements give a true and fair view and whether the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulations. We also report to you whether in our opinion the Report of the Directors is consistent with the Group financial statements. The information given in the Report of the Directors includes that specific information represented in the Chairman and Chief Executive’s Report that is cross referred from the Principal activities and business section of the Report of the Directors.

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if the information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited Group financial statements. The other information comprises only the Financials – key points, Chairman and Chief Executive Officer’s Report, Directors’ Remuneration Report and the Report of the Directors. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group 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 Group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of whether the accounting policies are appropriate to the Group’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 Group financial statements 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 Group financial statements.

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 December 2008 and of its loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulations; and

• the information given in the Report of the Directors is consistent with the Group financial statements.

Emphasis of matter - Going concernIn forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 2 to the financial statements concerning the group’s ability to continue as a going concern. The financial statements have been prepared on a going concern basis, the validity of which depends upon the continuing financial support of Quivest B.V. the group’s largest shareholder. These conditions, along with the other matters explained in note 2 to the group financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern. The group financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

Ernst & Young LLPRegistered AuditorManchester25 March 2009

Independent auditor’s report to the members of Antonov Plc | 15

Independent auditor’s report to the members of Antonov Plc

The notes on pages 20 to 34 form part of these financial statements.

Consolidated income statementfor the year ended 31 December 2008

2008 £’000

2007£’000

Note

Revenue 7 339 771

Cost of Sales (7) (26)

Gross Profit 332 745

Operating expenses (3,128) (4,680)

Loss from operations before impairment (2,796) (3,935)

Impairment charge (6,986) -

Loss from operations 8 (9,782) (3,935)

Finance (expense) / income 11 - (29)

Loss before tax (9,782) (3,964)

Taxation 12 - (109)

Loss for the year (9,782) (4,073)

Loss per share

Basic and diluted (pence) 13 (14.3p) (8.5p)

16 | Consolidated income statement

Consolidated statement of changes in equityfor the year ended 31 December 2008

Consolidated statement of changes in equity | 17

Share Capital

Share Premium

Unlisted Warrent Reserve

Capital Reserve

Foreign Exchange

Reserve

Warrant Reserve

Retained Losses

Total Equity

£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Balance at 01 January 2007 8,728 25,360 - 2,587 (38) 361 (35,013) 1,985

Adjustment to foreign exchange - - - - 114 - - 114

Net income recognised directly in equity - - - - 114 - - 114

Loss for the year - - - - - - (4,073) (4,073)

Total recognised income and expense for the year - - - - 114 - (4,073) (3,959)

Increase in share capital 1,858 4,582 - - - - - 6,440

Share issue costs - (484) - - - - - (484)

Movement on exchange of warrants - - - - - 9 - 9

Share based payment - - - - - - 222 222

Balance at 31 December 2007 10,586 29,458 - 2,587 76 370 (38,864) 4,213

Adjustment to foreign exchange - - - - 44 - - 44

Net income recognised in equity - - - - 44 - - 44

Loss for the year - - - - - - (9,782) (9,782)

Total recognised income and expense for the year - - - - 44 - (9,782) (9,738)

Increase in share capital 6,839 2,843 - - - - - 9,682

Unlisted warrants movements - (715) 715 - - - - -

Share issue costs - (1,307) - - - - - (1,307)

Share based payment - - - - - - 218 218

Balance at 31 December 2008 17,425 30,279 715 2,587 120 370 (48,428) 3,068

All amounts are attributable to equity holders of the parent.

The notes on pages 20 to 34 form part of these financial statements.

18 | Consolidated balance sheet

The financial statements on pages 16 to 34 were approved by the Board of Directors and authorised for issue on 25 March 2009 and were signed on its behalf by:

J E Haag M MotabarDirector Director

The notes on pages 20 to 34 form part of these financial statements.

Consolidated balance sheetat 31 December 2008

Note 2008£’000

2007£’000

ASSETS

Non-current assets

Property, plant and equipment (PPE) 14 315 509

Intangible assets 15 872 4,524

Total non-current assets 1,187 5,033

Current assets

Inventories 17 - 35

Trade and other receivables 18 103 659

Prepayments 2,928 765

Cash and short term deposits 500 98

Total current assets 3,531 1,557

Total assets 4,718 6,590

LIABILITIES AND EQUITY

Current liabilities

Trade and other payables 19 1,650 2,377

Total current liabilities 1,650 2,377

Equity attributable to equity holders of the parent company

Share capital 23 17,425 10,586

Share premium reserve 30,279 29,458

Capital reserve 2,587 2,587

Foreign exchange reserve 120 76

Warrant reserve 370 370

Unlisted warrants reserve 715 -

Retained losses (48,428) (38,864)

Total equity 3,068 4,213

Total liabilities and equity 4,718 6,590

Consolidated cash flow statementfor the year ended 31 December 2008

Consolidated cash flow statement | 19

2008£’000

2008£’000

2007£’000

2007£’000

Operating activities

Loss before tax (9,782) (3,964)

Adjustments for:

Depreciation 179 110

Amortisation 71 43

Loss on disposal of tangible assets 145 60

Impairment of intangible assets 6,986 -

Share based payments – stock options 138 222

Share based payments – non cash payments 26 19

Adjustments for non cash movements 7,545 454

Exchange movements 56 33

Other - 29

56 62

Cash outflow from operations before changes in working capital and provisions (2,181) (3,448)

Decrease/(increase) in trade and other receivables 1,220 (536)

Decrease/(increase) in inventories 35 (35)

(Decrease)/increase in trade and other payables (673) 1,535

582 964

Cash outflow from operating activities carried forward (1,599) (2,484)

Investing activities

Payments to acquire PPE (129) (417)

Proceeds on sale of PPE - 123

Payments to acquire intangible assets (70) (41)

Capitalisation of development costs (3,123) (2,259)

(3,322) (2,594)

Financing activities

Proceeds from issue of ordinary shares 5,323 4,950

5,323 4,950

Increase/(Decrease) in cash or cash equivalents 402 (128)

Cash and cash equivalents at the beginning of the period 98 226

Cash and cash equivalents at the end of the period 500 98

The notes on pages 20 to 34 form part of these financial statements.

1 Corporate InformationAntonov plc is a public limited liability company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is 2 Hawkes Drive, Heathcote Industrial Estate, Warwick, Warwickshire, CV34 6LX. The parent company’s shares are publicly traded on AIM (The Alternative Investment Market of the London Stock Exchange) with a secondary listing on Euronext Amsterdam.

2 Basis of preparation and statement of complianceThe accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2008.

These Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2008. The consolidated financial statements have been prepared under the historical cost convention, unless otherwise stated below, and are presented in Sterling. All values are rounded to the nearest thousand (£’000) except where otherwise stated.

Going concernThe accounts have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future.

At 31 December 2008, the Group had cash of £500k (2007: £98k) and an undrawn committed share finance facility of €16,735k, approximately £16,248k, (2007: £11,103k), and the Group incurred a loss for the year of £9,782k (2007: £4,073k). The impact of global economic conditions on potential customers and the resultant effect on the estimated time to market for the Group’s products are described in the Chairman and Chief Executive’s Report, as are the actions taken by the Directors to adapt their strategy and reduce costs.

The committed share finance facility was replaced with a new €20 million share finance facility and a €15 million credit facility on 18 February 2009, with Quivest B.V. (“Quivest”)(Note 29). Under the terms of the share finance facility the Group is entitled to draw down a minimum of €250k per month and a maximum of €600k per month. Since 31 December 2008 the Group has received £ 938k from its share finance facility agreements. The Directors have prepared cash flow forecasts to 30 June 2010 which show that the Group can operate within its share finance facility.

Quivest’s business is the provision of financing and acquiring and disposing of investments and the Equity Facility and Loan Facility as described above are both being provided by Quivest acting as principal. In the current financial environment there can be no guarantee that future funding will be forthcoming from Quivest. The ability of Quivest to meet its obligations under the share finance facility and the credit facility is dependent in turn on it continuing to have access to sufficient funds. The directors have concluded that the combination of these circumstances represents a material uncertainty that may cast significant doubt upon the Group’s and Company’s ability to continue as a going concern. However, the board of Antonov plc takes comfort from Quivest’s historical support and track record in providing the necessary funding to the Group when requested and the directors are of the opinion that through its funding facilities with Quivest, it has access to sufficient working capital for its foreseeable requirements. Accordingly, the directors have concluded that it is appropriate for the accounts to be prepared on a going concern basis.

3 Basis of consolidationWhere the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries (“the Group”) as if they formed a single entity. Inter company transactions and balances between Group companies are therefore eliminated in full.

The financial statements of subsidiaries are prepared for the same reporting year as the parent company using consistent accounting policies. 4 Significant accounting estimatesThe key source of estimation uncertainty that has a significant risk of causing material adjustment to the carrying amounts of liabilities within the next financial year is the estimation of share-based payment costs. The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen (Note 25). The key source of estimation uncertainty that has a significant risk of causing material adjustment to the carrying value of intangible assets are the assumptions underlying the directors’ assessment of probable future economic benefit, including lead time to production and future sales volumes (Note 15).

5 Accounting policiesThe accounting policies adopted are consistent with those of the previous financial year except as follows:

The following new standards, amendments to standards or interpretations are mandatory for the first time for financial years beginning on 1 January 2008 and have been endorsed for adoption by the EU, but have no financial impact on the Group:

Notes forming part of the financial statements

20 | Notes forming part of the financial statements

• IFRIC 11 – IFRS 2 – Group and treasury share transactions

• IFRIC 14 – IAS 19 – The limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction.

The following new standards, amendments to standards or interpretations are mandatory for the first time for financial years beginning on 1 January 2008. They have not yet been endorsed for adoption by the EU but have no financial impact on the Group: • IFRIC 12 - Service concession arrangements

RevenueRevenue represents amounts receivable for goods and services provided in the normal course of business, net of trade discounts, VAT and other sales related taxes. Amounts receivable consist of royalties, licence fees, professional services and support and maintenance payments.

Revenue is recognised for any element of a sale when all of the basic criteria are met for that element. These are given below.

Licence Fees and Royalties – revenue is recognised when persuasive evidence for the arrangement exists, delivery has occurred, fees are fixed or determinable and require no further commitments with the collection being probable.

Professional Services – invoiced in line with customer contracts and recognised on the basis of work performed using the stage of completion method and based on achievement of key milestones defined in the project.

Product Sales – revenue is recognised when the significant risks and rewards of ownership of the products have passed to the buyer, usually on despatch.

Revenue is also accrued on the above elements when revenue can be recognised but has not been invoiced.

Revenue is deferred on the above elements when it has not been recognised but the invoice has been raised.

Revenue relating to contracts with multiple elements is allocated based on the fair value of each element and is recognised in accordance with the accounting principles for each element described above.

Foreign currenciesTransactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rate ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement.

On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in a separate component of equity (the “foreign exchange reserve”). Exchange differences on foreign currency borrowings, to the extent that they are used to finance or provide a hedge against foreign equity investments, are also taken to equity.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.

The functional currency and the presentational currency of the Group is sterling.

Intangible AssetsThe significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Useful economic life Amortisation method

Patent and trademark applications 20 years Straight line basis

Software 3 years Straight line basis

Development costs 5 years Straight line basis

Notes forming part of the financial statements | 21

Patents and trademarksPatent and trademark costs, which are included in intangible assets, are stated at cost, reduced by a provision for amortisation over the period of their expected useful lives of 20 years. The directors review the carrying value of all such assets for impairment when events or changes in circumstances indicate that the carrying value may be impaired.

Research and development expenditure Expenditure on research and development activities that does not meet the criteria as stated below, is recognised as an expense in the Income Statement in the period in which it is incurred.

Development costs are capitalised if it can be demonstrated that:

• it is technically feasible to develop the product for it to be sold;

• adequate resources are available to complete the development;

• there is an intention to complete and sell the product;

• the Group is able to sell the product;

• sale of the product will generate future economic benefits; and

• expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The carrying value of capitalised development expenditure is reviewed for impairment annually before being brought into use.

Property, plant and equipmentProperty, plant, and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on all other items of property, plant and equipment to write off the cost, less estimated residual value, based on prices prevailing at the balance sheet date, evenly over their expected useful economic lives as follows:-

Useful economic life Amortisation methodMotor Vehicles 3 years Straight line basisEquipment 3 years Straight line basisLeasehold property improvements 10 years Straight line basis

Impairment of assetsThe carrying values of property, plant and equipment and intangible assets are reviewed for impairment if events or changes in circumstances indicate the carrying value is not recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Income taxThe tax expense represents the sum of the tax currently payable and deferred tax, together with research and development tax credits received.

Income tax is charged to equity or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised in the income statement.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantially enacted by the balance sheet date.

Deferred taxationDeferred tax assets and liabilities are recognised on all temporary differences arising when the carrying amount of an asset or liability in the balance sheet differs to its tax base, except for differences arising on:

• the initial recognition of goodwill;

• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

• investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

A deductible temporary difference arises on share-based payments calculated as the difference between the tax base of the remuneration expense (being the option’s intrinsic value at its future exercise date) and its carrying value of nil on the balance sheet. This gives rise to a deferred tax asset. As the tax deduction is based on the unknown future share price at the date of exercise, the tax base is estimated on the basis of the entity’s share price at each balance sheet date. Where this amount exceeds the cumulative amount of the remuneration expense on equity-settled transactions recognised in the income statement and credited to equity, the excess deferred tax is recognised in equity in accordance with the principle that the tax follows the item. The deferred tax effects of cash settled transactions are always recognised in the income statement.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

22 | Notes forming part of the financial statements

Notes forming part of the financial statements | 23

The amount of the asset or liability is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal.

Trade receivablesTrade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method where the true value of money is material.

Appropriate allowances for estimating irrecoverable amounts are recognised in the Income Statement when there is evidence that the asset is impaired. This impairment would be recognised within administrative expenses.

Cash and cash equivalentsCash and short term deposits in the balance sheet comprise of cash on hand and demand deposits, and other short term highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Share-based payments – equity settled transactionsWhere share options are awarded to employees, the cost is measured by reference to the fair value of the options at the date of grant and is charged to the income statement over the vesting period. Fair value is determined by an external valuer using an appropriate pricing model. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is charged to the income statement over the period in which the modification occurs. No reduction is recognised if the fair value decreases. Where an equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately.

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received.

Retirement benefit costsThe Group does not have a pension scheme for employees. However, the Group pays a contribution into personal pension schemes for certain employees on a salary-sacrifice basis.

Leased assetsWhere substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term.

Financial assets Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), but also incorporate other types of contractual monetary asset. They are carried at amortised cost using the effective interest method if the time value of money is significant less any provision for impairment.

Equity instrumentsEquity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. The carrying amount of the equity component is not re-measured in subsequent years.

Financial liabilities Trade payables: Trade payables are initially measured at fair value, and are subsequently measured at amortised cost

Warrants: Where warrants are denominated in the functional currency of the parent entity, sterling, with a fixed price, they are treated as equity.

The warrants have been valued using an option pricing model. The model takes into account the risk free interest rate for the life of the option, the exercise price of the option, the current price of the underlying shares, the life of the option, the expected volatility of the option and any market based vesting conditions.

Other financial liabilities: These include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently re-measured at amortised cost using the effective interest method.

6 New standards and interpretations not applied

During the year, IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:

International Accounting Standards (IAS/IFRSs) Effective DateIFRS 2 Amendment to IFRS 2 – Vesting conditions and cancellations 1 January 2009IFRS 3 Business combinations (revised January 2008) 1 July 2009IFRS 7 Improving Disclosure around Financial Instruments (Amendments to IFRS 7) 1 January 2009IFRS 8 Operating segments 1 January 2009IAS 1 Presentation of Financial Statements (Revised September 2007) 1 January 2009IAS 23 Borrowing Costs (Revised March 2007) 1 January 2009IAS 27 Consolidated and separate financial statements (Revised January 2008) 1 July 2009IAS32 Financial Instruments 1 July 2009IAS 39 Financial Instruments – recognition and measurement 1 July 2009Various Improvements standard Various

International Financial Reporting Interpretations Committee (IFRIC) Effective DateIFRIC 13 Customer Loyalty Programmes 1 January 2009IFRIC 15 Agreement for the construction of real estate 1 January 2009IFRIC 16 Hedges of a net investment in foreign operations 1 October 2008IFRIC 17 Distributions of non-cash assets to owners 1 July 2009IFRIC 18 Transfer of assets from owners 1 July 2009

The Group has not yet completed a detailed evaluation of the impact of the above standards and interpretations on its financial position but does not currently expect the adoption of these to have impact on its current financial condition.

7 Revenue

2008£’000

2007£’000

Revenue arises from:Professional services – design and development 336 398Product sales 3 35License fees and royalties - 338

339 771

24 | Notes forming part of the financial statements

8 Loss from operations

This is stated after charging / (crediting)

2008£’000

2007£’000

Depreciation of property, plant and equipment 179 110Loss on disposal of property, plant and equipment 145 60Amortisation of intangible fixed assets 71 43Impairment of intangible fixed assets 6,986 -Foreign exchange differences (15) 31Operating lease expense:

Property 130 107Other 8 -

Auditors’ remunerationAudit of the financial statements* 37 52Local statutory audits for subsidiaries 3 3Fees paid to the company’s auditors for non-audit services:Fees in respect of prospectus for working capital review - 25

*£11k (2007: £11k) of this relates to the parent company

Notes forming part of the financial statements | 25

2008£’000

2007£’000

Wages and salaries 1,349 1,352Share-based payment expense* 244 289Social security costs 96 242Pension costs 63 75

1,752 1,958

2008£’000

2007£’000

Stock options (note 25) 138 222Directors’ share based remuneration 106 67

244 289

The average number of employees (including directors) during the year, analysed by category, was as follows:

2008Number

2007Number

Commercial, marketing and administration 11 13Research and development 13 21

24 34

Details of the Directors’ remuneration have been included in the Directors’ Remuneration Report.

9 Staff Costs

Staff costs (including directors) comprise:

*The share-based payment expense comprises the following:-

External revenue by location of customers

Total assets by location of assets

Capital expenditure by location of assets

2008 2007 2008 2007 2008 2007£’000 £’000 £’000 £’000 £’000 £’000

China 332 398 122 - - -France - 31 - 69 - -Netherlands - - 875 704 70 -UK 7 2 3,721 5,817 3,252 2,798Luxembourg - 340 - - - -

339 771 4,718 6,590 3,322 2,798

10 Segment informationThe Group’s primary reporting format for reporting segment information is business segments. The Group has one business segment which is the development and commercialisation of Antonov Automotive Transmissions. Therefore, all revenue, assets and liabilities and all other assets and liabilities and all other costs relate to this one business segment in both 2008 and 2007.

The Group’s secondary reporting format for reporting segment information is geographic segments.

2008£’000

2007£’000

Other - (29)Total - (29)

11 Finance (expense)/income

26 | Notes forming part of the financial statements

2008£’000

2007£’000

Current taxForeign tax charge / (credit) - 109Adjustment for prior periods - -

- 109Deferred taxOrigination and reversal of temporary differences - -

Total tax charge - 109

12 Tax on loss from operations

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to losses for the year are as follows:

2008£’000

2007£’000

Loss before tax (9,782) (3,964)Expected tax credit based on the standard rate of corporation tax in the UK of 28.5% (2007-30%) (2,788) (1,189)

Expenses not deductable for tax purposes 110 167Provisions – FRS 20 share based payment 39 -Tax losses not used 2,571 1,071Tax rate differences (8) -Other adjustments 76 60Total tax charge - 109

The computations containing these claims are still subject to finalisation by the local tax authorities.

13 Loss per share

2008£’000

2007£’000

Basic and diluted loss per share (14.3p) (8.5p)

NumeratorLoss for the year (9,782) (4,073)Loss used in basic EPS and diluted EPS (9,782) (4,073)

Number of shares Number of sharesDenominator 68,446,057 47,681,072Weighted average number of shares used in basic and diluted EPS

Number of shares Number of sharesContingently issuable sharesShare options 2,055,000 2,315,647Warrants 15,567,103 8,374,242Total contingently issuable shares 17,622,103 10,689,889

All the contingently issuable shares (see note 23 for full details) have been excluded in the calculation of the weighted average number of shares for diluted EPS as they are anti-dilutive for the periods presented.

The significant ordinary shares issued after the year end are detailed below:

Number of shares

Issued under the terms of share finance facility agreements 21,880,26421,880,264

Notes forming part of the financial statements | 27

Equipment Motor vehiclesLeasehold

property improvements

Total

£'000 £,000 £'000 £'000At 31 December 2007Cost 459 219 148 826Accumulated depreciation (178) (139) - (317)Net book value 281 80 148 509

At 31 December 2008Cost 429 135 197 761Accumulated depreciation (285) (123) (38) (446)Net book value 144 12 159 315

Year ended 31 December 2007Opening net book value 282 88 - 370Additions 258 11 148 417Disposals (183) - - (183)Depreciation (91) (19) - (110)Exchange differences 15 - - 15Closing net book value 281 80 148 509

Year ended 31 December 2008Opening net book value 281 80 148 509Transfers 27 (27) - -Additions 80 - 49 129Disposals (145) - - (145)Depreciation (100) (41) (38) (179)Exchange differences 1 - - 1Closing net book value 144 12 159 315

14 Property, plant and equipment

At 31 December 2008 the Group had no contractual commitments for tangible fixed assets (2007: £305k).

28 | Notes forming part of the financial statements

Development costs Software

Patent and trademark

application costsTotal

£'000 £,000 £'000 £'000At 31 December 2007Cost 3,863 14 3,156 7,033Accumulated amortisation - (14) (2,495) (2,509)Net book value 3,863 - 661 4,524

At 31 December 2008Cost 6,986 19 1,837 8,842Accumulated amortisation (6,986) (19) (965) (7,970)Net book value - - 872 872

Year ended 31 December 2007Opening net book value 1,604 14 594 2,212Additions- Internally developed 2,259 - - 2,259- Externally acquired - - 41 41Amortisation - (14) (29) (43)Exchange differences - - 55 55Closing net book value 3,863 - 661 4,524

Year ended 31 December 2008Opening net book value 3,863 - 661 4,524Additions- Internally developed 3,123 - 70 3,193Impaired during the year (6,986) - - (6,986)Amortisation - - (71) (71)Exchange differences - - 212 212

Closing net book value - - 872 872

At 31 December 2008 the Group had no contractual commitments for development or other intangible fixed assets (2007: £nil).

15 Intangible assets

An impairment review was conducted as at 31 December 2008 in respect of development costs, which resulted in the decision to fully impair all costs previously capitalised. Senior management considered the requirements of IAS 38 “Intangible Assets” and concluded that there was insufficient evidence of probable future economic benefit to justify the carrying value of the investment. In arriving at this conclusion the Directors considered the delay experienced in establishing a Joint Venture in China to manufacture the TX6 transmission and the consequent absence of firm production forecasts and sales commitments. In respect of the 2-speed technology, sales of the Supercharger product were lower than anticipated. The Group is now pursuing alternative applications of the technology, focused on minimising the lead time to production, but has not yet secured firm orders for future sales.

Notes forming part of the financial statements | 29

NameCountry of incorporation and operation

Proportion of ownership interest Nature of business Parent Status

Antonov Automotive Technologies BV (AAT) The Netherlands 100% Licensing Antonov Plc Non-trading

Antonov Automotive Technologies Ltd United Kingdom 100%

Design, research & development, sales & marketing

Antonov Plc Trading

Antonov Automotive Europe BV The Netherlands 100% Licensing AAT Non-trading

Antonov Automotive Far East BV The Netherlands 100% Licensing AAT Non-trading

Antonov Automotive North America BV The Netherlands 100% Licensing AAT Non-trading

Antonov Automotive Technologies France SARL France 100% Research &

Development AATLiquidated on 4 March 2008

Antonov Automotive Technologies(Chong Qing) Limited

China 100% Sales & Marketing Antonov Plc Trading

16 Subsidiaries

The principal subsidiaries of Antonov plc, all of which have been included in these consolidated financial statements, are as follows:

2008£’000

2007£’000

Work-in-progress - 35

17 Inventories

2008£’000

2007£’000

Trade debtors - 447VAT Recoverable 103 212

103 659

18 Trade and other receivables

Trade debtors Carrying Amount£000

Less than 30 days£000

Between 31 and 60 days £000

Between 61 and 90 days £000

More than 90 days£000

As at 31 December 2008 - - - - -

As at 31 December 2007 447 88 3 11 345

At 31 December 2007, trade debtors of £344K were denominated in Euros.

All amounts outstanding at 31 December 2007 were assessed as not being impaired. Of these amounts, £342k was subsequently written off as uncollectible in 2008, including £339k due from Emporio Holding S.a.r.l. under the terms of the November 2006 Distribution Agreement. This was replaced in December 2008 with a new Representative Agreement enabling the Company to enter into contracts directly with customers in the German market.

2008£’000

2007£’000

Trade creditors 577 1,029Other creditors and accruals 1,073 1,348

1,650 2,377

19 Trade and other payables - current

30 | Notes forming part of the financial statements

2008£’000

2007£’000

Within one year 1,650 2,3771,650 2,377

21 Financial assets and liabilities – Numerical information

Maturity of financial liabilitiesThe carrying amounts of financial liabilities, covering trade and other payables, all of which are exposed to cash flow or fair value interest rate risk, are repayable as follows:

Borrowing facilitiesThe Group has no borrowing facilities at 31 December 2008.

The Group had undrawn committed borrowing facilities available at 31 December 2007 in which all conditions had been met.

Fixed Rate £’000

2007 total £’000

Expiry within one year 1,511 1,5111,511 1,511

These financial liabilities have a maturity date of less than 90 days.

Foreign currency riskForeign exchange risk arises because the Group has operations located in various parts of the world whose functional currency is not the same as the Group’s primary functional currency (sterling). This includes the Chinese subsidiary as well as the Group’s subsidiaries in The Netherlands. Although its global market penetration arguably reduces the Group’s risk in that it has diversified into several markets, the net assets from such overseas operations are exposed to currency risk giving rise to gains or losses on retranslation into sterling. The Group does not consider hedging its net investments in overseas operations as generally it does not consider that the cash flow risk created from such hedging techniques warrants the reduction in the small movements in the consolidated net assets.

Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. The foreign exchange risk is minimal and no hedging techniques have been considered appropriate, as it is intended that future contracts for services will be denominated in Sterling.

Liquidity riskThe liquidity risk of each Group entity is managed centrally by management of Antonov plc in the UK. Management assess what funds are required on a monthly basis and ensure that adequate funds are available to all operations, primarily by drawing down on the funds available under the terms of its share financing facilities with Quivest B.V. (Note 23).

Market price riskThe directors believe that the exposure to market price risk from activities is negligible.

Credit riskIn 2008, the Group had a number of credit sales related to projects which exposed the Group to credit risk. It is the Group’s policy to assess the credit risk of new customers before entering contracts.

The exposure to credit risk in other circumstances is not considered significant.

20 Financial instruments - Risk Management

The Group is exposed through its operations to one or more of the following financial risks:

• Fair value or cash flow interest rate risk• Foreign currency risk• Liquidity risk• Market price risk• Credit risk

Policy for managing these risks is set by the Board following recommendations from the Chief Financial Officer. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre. The policy for each of the above risks is described in more detail below.

Fair value and cash flow interest rate riskIt is currently Group policy that all of its external Group borrowings (excluding short-term overdraft facilities) are fixed. This policy is managed centrally. Operations are not permitted to borrow long-term from external sources locally.

Notes forming part of the financial statements | 31

Interest rate risk

The Group had no loans or other borrowings during the year.

Fair values

The book value and fair value of financial assets and liabilities are as follows:

Book value 2008£000

Fair value 2008£000

Book value 2007£000

Fair value 2007£000

Cash 500 500 98 98Trade debtors - - 447 447Trade and other payables (1,650) (1,650) (2,377) (2,377)

22 Deferred tax

A deferred tax asset has not been recognised for the following:

2008£’000

2007£’000

Unused tax losses 16,347 11,178Fixed asset timing differences 111 (11)Short term timing differences 85 -

16,543 11,167

The movement in the Group’s unrecognised deferred tax assets in the year relates to exchange differences, the loss arising in the year and a review of the brought forward tax position. If the Group generates profits in the future the unrecognised deferred tax assets are potentially recoverable.

AuthorisedOrdinary shares of 20p each

2008Number

2008£000

2007Number

2007£000

90,000,000 18,000 60,000,000 12,000

23 Share capital

Issued and fully paidOrdinary shares of 20p each

2008Number

2008£000

2007Number

2007£000

At 01 January 2008 52,931,152 10,586 43,638,606 8,728Debt conversion rights exercised - - 725,972 145Issue of shares 33,351,020 6,671 7,775,671 1,555Exercise of warrants 841,640 168 790,903 158At 31 December 2008 87,123,812 17,425 52,931,152 10,586

During the year a total of 34,192,660 shares were issued, of which 22,369,102 shares were issued for cash and the remainder for non-cash consideration. Total proceeds from the issue of shares amounted to £ 5.32 m.

The Group entered into a share financing facility with Quivest B.V. (“Quivest”) in January 2008, the terms of which required the parent Company to issue shares and unlisted warrants in return for funds received. The new share financing facility (“Equity Facility”) entered into on 18 February 2009 contains similar terms and conditions. Under the terms of the Equity Facility, the Group is able to draw down funds to a maximum of €600k per month. In return, new ordinary shares of 1 pence each are issued at an effective price of 93.4% of the average closing price on Euronext over the five days preceding the draw down. A commission is also payable in new ordinary shares, equal to 8 per cent of the value of each individual draw down. Quivest also receive unlisted warrants on each draw down to subscribe for additional shares (being 40 per cent. of those received under the draw down) at a 15 per cent premium to the then market price. Quivest are a substantial shareholder of the Group and are therefore classed as a related party (Note 26).

To the extent that financial assets are not carried at fair value in the consolidated balance sheet, book value approximates to fair value at 31 December 2008 and 2007.

32 | Notes forming part of the financial statements

At the beginning of

the year

New in the year

Exercised in the year

Lapsed in the year

At the end of the year Exercise period Exercise price

Warrants issued pursuant to placings:

-unlisted-listed

4,308,0334,066,209

8,129,052-

(841,640)-

(94,551)-

11,500,8944,066,209

to Dec 2012to Dec 2009

20p to 119p100p

8,374,242 8,129,052 (841,640) (94,551) 15,567,103

Options granted to Directors and Employees:R Antonov 75,000 - - (75,000) - - -D A Bovell 100,000 - - (100,000) - - -J N Dickens 10,000 - - (10,000) - - -J E Haag 510,000 - - - 510,000 to 15 Oct 2012 62p to 120pK E Ludvigsen 10,000 - - (10,000) - - -C Minnar 10,000 - - (10,000) - - -J W Moore 568,334 - - (33,334) 535,000 to 15 Oct 2012 62p to 120pC G Ross 510,000 - - - 510,000 to 15 Oct 2012 62p to 120pM Motabar 300,000 - - - 300,000 to 15 Oct 2012 62p

Employee share options

222,313 - - (22,313) 200,000 to 15 Oct 2012 62p

2,315,647 - - (260,647) 2,055,00010,689,889 8,129,052 (841,640) (355,198) 17,622,103

Contingently issuable shares

Year ended 31 December 2008:

Shares are reserved to issue under share option contracts. The terms and conditions are:

Senior Executive Share OptionsAt 31 December 2008 the following share options were outstanding in respect of the ordinary shares:

Date of grant Number of shares Period of option Exercise price

2006 250,000 February 2006 – February 2009 120p2007 1,605,000 October 2007 – October 2012 62p

The options held by JW Moore and CG Ross expire on 21 July 2009, six months following their departure from office.

Issued and fully paid

Number £’000Prior to reorganisation:Ordinary shares of 20p each 88,076,193 17,615

88,076,193 17,615 Following reorganisation:New Ordinary Shares of 1p each 88,076,193 881 Deferred Shares of 19p each 88,076,193 16,734

176,152,386 17,615

Capital ReorganisationOn 16 February 2009 the shareholders approved the sub-division of existing Ordinary Shares of 20 pence each into one New Ordinary Share of 1 pence each and one Deferred Share of 19 pence each. The New Ordinary Shares have attached to them the same rights (including as to voting, dividends and on a return of capital) as the Ordinary Shares. The remaining authorised but unissued Ordinary Shares of 20 pence each were subdivided into twenty authorised but unissued New Ordinary Shares of one pence each.

The Deferred Shares are effectively valueless as they carry no rights to vote or dividend rights. In addition, holders of Deferred Shares will only be entitled to a return of capital or on a winding up of the Company after each of the holders of New Ordinary Shares has received a payment of £ 1,000,000 each on each such share. The Deferred Shares are not listed on AIM or Euronext Amsterdam and are not transferable without prior written consent of the Directors of the Company.

The issued and fully paid share capital immediately before and following the reorganisation is as follows:

Notes forming part of the financial statements | 33

At the beginning of

the year

New in the year

Exercised in the year

Lapsed in the year

At the end of the year Exercise period Exercise price

Warrants issued pursuant to placings:

-unlisted-listed

3,259,2634,066,209

2,461,560-

(790,903)-

(621,887)-

4,308,0334,066,209

to Dec 09to Dec 09

52p to 119p100p

7,325,472 2,461,560 (790,903) (621,887) 8,374,242

Options granted to Directors and Employees:

R Antonov 250,571 - - (175,571) 75,000 to 01 Feb 2009 120p

D A Bovell 100,000 - - - 100,000 to 01 Feb 2009 120p

J N Dickens 10,000 - - - 10,000 to 25 Apr 2012 160p

M Emmerson 266,764 - - (266,764) - - -

J E Haag 100,000 435,000 - (25,000) 510,000 to 15 Oct 2012 62p – 120p

K E Ludvigsen 10,000 - - - 10,000 to 25 Apr 2012 160p

C Minnar 10,000 - - - 10,000 to 25 Apr 2012 160p

J W Moore 133,334 435,000 - - 568,334 to 15 Oct 2012 62p - 120p

C G Ross 125,000 435,000 - (50,000) 510,000 to 15 Oct 2012 62p - 120p

M Motabar - 300,000 - - 300,000 to 15 Oct 2012 62p

Employee share options

25,813 200,000 - (3,500) 222,313 to 15 Oct 2012 62p – 160p

1,031,482 1,805,000 - (520,835) 2,315,647

8,356,954 4,266,560 (790,903) (1,142,722) 10,689,889

Year ended 31 December 2007:

2008£’000

2007£’000

Not later than one year 127 147Later than one year and not later than five years 497 485Later than five years 431 546

1,055 1,178

24 Leases

Operating leases - lesseeThe minimum total of future lease payments due are as follows:

2008Weighted average

exercise price

2008Number

2007Weighted average

exercise price

2007Number

Outstanding at 1 January 2008 76.9p 2,315,647 102.0p 1,031,482Granted during the year - - 62.0p 1,805,000Lapsed in the year 127.0p (260,647) 230.0p (520,835)Outstanding at 31 December 2008 69.1p 2,055,000 76.9p 2,315,647

25 Share-based payments

The company operates an equity-settled share based remuneration scheme for directors and staff.

The exercise price of options outstanding at the end of the year ranged between 62p and 120p (2007: 62p and 160p) and their weighted average contractual life was 4 years (2007: 4 years).

Under the scheme, options vest if the share price reaches or exceeds a value within the range of 74p to 144p, dependent on the option, for a continuous period of ten consecutive business days. Of the total number of options outstanding at the end of the year, nil (2007: nil) had vested and were exercisable at the end of the year. There were no options exercised during the year. The weighted average exercise price of each option granted during the year was nil(2007: 120p). There were no share options granted in 2008.

The Group recognised total expenses of £138k (2007: £222k) relating to stock option equity-based payments during the year. Expenses relating to the share based remuneration of directors amounted to £106k (2007: £67k) (Note 9).

During the year, one supplier was paid in shares for services provided to the Group. The fair value of the services provided was £594k (2007-£406k).

Unlisted warrants are issued under the terms of the Group’s share financing facilities (Note 23). These warrants are valued using the binomial method by an independent third party. The key variables underlying the valuation are: share price on date of grant (€0.18 to €0.61), vesting period (nil), risk free rate of return (1.21% to 5.34%), dividend yield (nil) and share price volatility (40%). The warrants are deemed to vest immediately on grant and the unlisted warrant reserve of £715k (2007: £nil) reflects the full value of all warrants issued under the terms of the share finance facilities which remain outstanding as at 31 December 2008.

34 | Notes forming part of the financial statements

26 Related party transactions

Trading transactionsDuring the year Group companies entered into the following transactions with related parties who are not members of the Group.

Sales of Goods Purchases of goods Amounts owed by related parties

Amounts owed to related parties

Year ended 31/12/08

£

Year ended 31/12/07

£

Year ended 31/12/08

£

Year ended 31/12/07

£

Year ended 31/12/08

£

Year ended 31/12/07

£

Year ended 31/12/08

£

Year ended 31/12/07

£

Four Stroke SARL - 25,589 - - - - - -

Antonov Holdings SARL - - - - - - - 2,981

All of the entities listed are considered to be related parties as they are controlled by R Antonov, a former director of the Group and a significant shareholder.

The above transactions were undertaken on normal commercial terms.

Details of directors’ remuneration are given in note 9. There are no additional key management personnel.

Details of subsidiaries are given in note 16.

The Group is dependent upon its significant shareholder for funding. The funds provided during the year by this shareholder were as follows:

Shareholder 2008£’000

2007£’000

Quivest BV 5,323 4,500

27 Other commitments

The Group had no other commitments outstanding as at 31 December 2008.

28 Contingent liabilities

There are no contingent liabilities to report for the year.

29 Post balance sheet events

Following changes in the Board of Directors in January 2009, the Company was restructured, which resulted in a reduction in staff of one third, and this combined with other measures is expected to yield year on year operational cost reductions of at least £1.5 million in 2009. The one-off costs related to this amount to £185k.

On 16 February 2009 the shareholders approved the parent company’s proposal to reorganise its share capital by subdividing the existing Ordinary Shares of 20 pence each into one New Ordinary Share of 1 pence each and one Deferred Share of 19 pence each (Note 23).

On 18 February 2009 the parent company entered into two new financing facilities with Quivest B.V. (“Quivest”); the first being a €20 million equity financing facility (the “Equity Facility”) and the second a €15 million loan facility (the “Loan Facility”). The Equity Facility replaces the equity financing agreement between the Company and Quivest dated 17 January 2008. As at 31 December 2008 the Group recognised prepaid finance costs of £2,784k. Following cancellation of the 17 January 2008 agreement this balance will be fully amortised in 2009. Quivest is a substantial shareholder of the parent company and as such the agreements for the Equity Facility and the Loan Facility are classed as related party transactions (Note 26).

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of financial statements which comply with the requirements of the Companies Act 1985.

The directors are responsible for preparing the annual report and the financial statements. The directors have elected to prepare the financial statements for the company in accordance with UK GAAP.

Parent company financial statements

Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Parent Company Accounts | 35

PARENT COMPANY ACCOUNTS(prepared under UK GAAP)

Statement of Directors’ Responsibilities

We have audited the parent company financial statements of Antonov Plc for the year ended 31 December 2008 which comprise the Balance Sheet and the related notes 1 to 12. These parent company financial statements have been prepared under the accounting policies set out therein. We have also audited the information on the Directors’ Remuneration Report that is described as having been audited.

We have reported separately on the Group financial statements of Antonov Plc for the year ended 31 December 2008.

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 auditors’ 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 are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the parent company financial statements in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) as set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the parent company 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 parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the parent company Report of the Directors is consistent with the financial statements. The information given in the Report of the Directors includes that specific information presented in the Chairman and Chief Executive’s Report that is cross referred from the Principal activities and business section of the Report of the Directors.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the Financials – key points, Chairman and Chief Executive Officers’ Report, Directors’ Remuneration Report and the Report of the Directors. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company 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 parent company financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements 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 parent company financial statements and the part of the Directors’ Remuneration Report to be audited.

OpinionIn our opinion:

• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2008;

• the parent company 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

• the information given in the Report of the Directors is consistent with the parent company financial statements.

Emphasis of matter - Going concernIn forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in Note 2 to the financial statements concerning the Company’s ability to continue as a going concern. The financial statements have been prepared on a going concern basis, the validity of which depends upon the continuing support of Quivest B.V., the Company’s largest shareholder. These conditions, along with other matters explained in Note 2 to the Parent Company financial statements, indicate the existence of a material uncertainty which may cast significant doubt upon the Company’s ability to continue as a going concern. The Company financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

Ernst & Young LLP Registered AuditorManchester25 March 2009

Independent auditor’s report to the members of Antonov Plc

36 | Independent auditor’s report to the members of Antonov Plc

Company Balance Sheet at 31st December 2008 | 37

Company Balance Sheet at 31st December 2008

2008 2007

Note £’000 £’000Fixed Assets Tangible assets 5 1 15 Investment in subsidiaries 6 1,015 23,242

1,016 23,257Current assets Debtors: amounts falling due within one year 7 2,809 1,621 Debtors: amounts falling due after one year 7 - 8,700 Cash at bank and in hand 64 19

2,873 10,340Creditors: amounts falling due within one year 8 (698) (1,029)Net current assets 2,175 9,311Total assets less current liabilities 3,191 32,568

Capital and reserves Called up share capital 10 17,425 10,586 Share premium account 10 30,279 29,458 Unlisted warrants reserve 10 715 - Warrant reserve 10 370 370 Profit and loss account 10 (45,598) (7,846)Shareholders’ funds 10 3,191 32,568

The financial statements on pages 37 to 41 were approved by the Board of Directors and authorised for issue on 25 March 2009.

Dr J E Haag M MotabarDirector Director

1 Corporate Information Antonov plc is a public limited liability company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is 2 Hawkes Drive, Heathcote Industrial Estate, Warwick, Warwickshire, CV34 6LX. Antonov’s shares are publicly traded on AIM (The Alternative Investment Market of the London Stock Exchange) with a secondary listing on Euronext Amsterdam.

2 Basis of preparation and statement of compliance The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2008. The parent Company financial statements of Antonov plc have been prepared in accordance with UK GAAP. The Company has taken advantage of the exemption in paragraph 2D of FRS 29 Financial Instruments: Disclosures and has not disclosed information required by that standard, as the Group’s consolidated financial statements, in which the Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.

The financial statements have been prepared under the historical cost convention, unless otherwise stated below, and are presented in Sterling. All values are rounded to the nearest thousand (£’000) except where otherwise stated. Going concern The accounts have been prepared on a going concern basis which assumes that the Company will continue in operational existence for the foreseeable future.

At 31 December 2008, the Company had cash of £64k (2007: £19k) and an undrawn committed share finance facility of €16,735k, approximately £16,248k, (2007: £11,103k), and the Company incurred a loss for the year of £37,970k (2007: £2,037k). The impact of global economic conditions on potential customers and the resultant effect on the estimated time to market for the Group’s products are described in the Chairman and Chief Executive’s Report, as are the actions taken by the Directors to adapt their strategy and reduce costs.

The committed share finance facility was replaced with a new €20 million share finance facility and a €15 million credit facility on 18 February 2009, with Quivest B.V. (“Quivest”)(Note 29 of the Group accounts). Under the terms of the share finance facility the Company is entitled to draw down a minimum of €250k per month and a maximum of €600k per month. Since 31 December 2008 the Company has received £938k from its share finance facility agreements. The Directors have prepared cash flow forecasts to 30 June 2010 which show that the Company can operate within its share finance facility.

Quivest’s business is the provision of financing and acquiring and disposing of investments and the Equity Facility and Loan Facility as described above are both being provided by Quivest acting as principal. In the current financial environment there can be no guarantee that future funding will be forthcoming from Quivest. The ability of Quivest to meet its obligations under the share finance facility and the credit facility is dependent in turn on it continuing to have access to sufficient funds. The directors have concluded that the combination of these circumstances represents a material uncertainty that may cast significant doubt upon the Group’s and Company’s ability to continue as a going concern. However, the board of Antonov plc takes comfort from Quivest’s historical support and track record in providing the necessary funding to the Company when requested and the directors are of the opinion that through its funding facilities with Quivest, it has access to sufficient working capital for its foreseeable requirements. Accordingly, the directors have concluded that it is appropriate for the accounts to be prepared on a going concern basis.

3. Accounting policiesThe following principal accounting policies have been applied consistently in the preparation of these financial statements:

Foreign currenciesTransactions entered into by the company in a currency other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rate ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement.

The functional currency and the presentational currency of the company is sterling.

Tangible fixed assetsTangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on all other items of tangible fixed assets to write off the cost, less estimated residual value, based on prices prevailing at the balance sheet date, evenly over their expected useful economic lives as follows:-

38 | Notes forming part of the financial statements for the year ending 31 December 2008

Useful economic life Amortisation method

Motor Vehicles 3 years Straight line basis

Equipment 3 years Straight line basis

Notes forming part of the financial statements for the year ending 31 December 2008

Notes forming part of the financial statements for the year ending 31 December 2008 | 39

Impairment of assetsThe carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value is not recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Deferred taxationA deferred tax asset is measured in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more or a right to pay less or to receive more tax, with the following exceptions:

• Provision is made for deferred tax that would arise on remittance of retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable;

• Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Trade receivablesTrade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method where the true value of money is material. Appropriate allowances for estimating irrecoverable amounts are recognised in the Income Statement when there is evidence that the asset is impaired. This impairment would be recognised within administrative expenses.

Cash and cash equivalentsCash and short term deposits in the balance sheet comprise of cash on hand and demand deposits, and other short term highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.

Share-based payments – equity settled transactionsWhere share options are awarded to employees, the cost is measured by reference to the fair value of the options at the date of grant and is charged to the income statement over the vesting period. Fair value is determined by an external valuer using an appropriate pricing model. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. No reduction is recognised if the fair value decreases. Where an equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately.

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received.

Retirement benefit costsThe company does not have a pension scheme for employees.

Leased assetsWhere substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term.

Financial assetsThese assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), but also incorporate other types of contractual monetary asset. They are carried at amortised cost using the effective interest method if the time value of money is significant less any provision for impairment.

Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Equity instrumentsEquity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. The carrying amount of the equity component is not re-measured in subsequent years.

Financial liabilitiesTrade payables: Trade payables are initially measured at fair value, and are subsequently measured at amortised cost.

Warrants: Where warrants are denominated in the functional currency of the parent entity, sterling, with a fixed price, they are treated as equity.

Where instruments are denominated in a currency other than the functional currency of the entity, they are considered to have a variable price and as such are recorded as a liability at fair value, with any movements on subsequent measurement through the income statement.

The warrants have been valued using an option pricing model. The model takes into account the risk free interest rate for the life of the option, the exercise price of the option, the current price of the underlying shares, the life of the option, the expected volatility of the option and any market based vesting conditions.

Other financial liabilities: These include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently re-measured at amortised cost using the effective interest method.

4 Loss for the financial year The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented its own profit and loss account and in these financial statements. The Group loss for the year includes a loss after tax of £37,970k (2007: £2,037k) which is dealt with in the financial statements of the parent company.

40 | Notes forming part of the financial statements for the year ending 31 December 2008

Plant and equipment£’000

CostAt 1 January 2008 53Additions -At 31 December 2008 53DepreciationAs at 1 January 2008 38Charge for the year 14At 31 December 2008 52Net book valueAt 1 January 2008 15At 31 December 2008 1

5 Tangible assets

6 Fixed asset investments

Group under-takings£’000

Total£’000

At 1 January 2008 23,242 23,242Additions 15 15Amounts written off (22,242) (22,242)At 31 December 2008 1,015 1,015

Subsidiary undertakings

The principal undertakings in which the company’s interest at the year end is 20% or more are presented in the Group financial statements. In 2008, £22,242k has been written off the costs of the company’s investments in Antonov Automotive Technologies BV and its subsidiaries.

Notes forming part of the financial statements for the year ending 31 December 2008 | 41

7 Debtors

2008£’000

2007 £’000

Debtors: amounts falling due within one yearAmounts owed by group undertakings 5,478 1,008Provision in respect of amounts owed by group undertakings (5,478) -Trade and other receivables 7 49Prepayments 2,802 564

2,809 1,621

Debtors: amounts falling due after one yearAmounts owed by group undertakings 8,700 8,700Provision in respect of amounts owed by group undertakings (8,700) -

- 8,700

2008£’000

2007£’000

Trade creditors 116 174Other creditors and accruals 582 855

698 1,029

8 Creditors: amounts falling due within one year

9 Share capital Details of the share capital of the Company and the movements within the share capital are disclosed in Note 23 to the Group Financial Statements. The share based payment expense incurred by the Company under FRS20 has been calculated in a consistent manner to the expense recorded in the Group Financial Statements (Note 25 of the Group Financial Statements).

Share Capital£000

Share Premium

£000

Unlisted Warrant Reserve

£000

Retained Losses

£000

Warrant Reserve

£000

Total Shareholders Funds £000

Changes in shareholders funds for 2007Balance at 1 January 2007 8,728 25,360 - (6,031) 361 28,418Loss for the year - - - (2,037) - (2,037)Share issue costs - (484) - - - (484)Share based payment - - - 222 - 222Movement on exchange of warrants - - - - 9 9Increase in share capital 1,858 4,582 - - - 6,440Balance at 31 December 2007 10,586 29,458 - (7,846) 370 32,568

Loss for the year - - - (37,970) - (37,970)Share issue costs - (1,307) - - - (1,307)Share based payment - - - 218 - 218Unlisted warrant movement - (715) 715 - - -Increase in share capital 6,839 2,843 - - - 9,682Balance at 31 December 2008 17,425 30,279 715 (45,598) 370 3,191

10 Reconciliation of movements in shareholders’ funds

2008£’000

2007£’000

Not later than one year 1 4Later than one and not later than five years 14 7

15 11

11 Leases

12 Contingent liabilities

There are no contingent liabilities to report for the year.

42 | Notes forming part of the financial statements for the year ending 31 December 2008

2008 IFRS£000

2007 IFRS£000

Restated*2006 IFRS

£000

2005 IFRS£000

2004 UK GAAP£000

2003 UK GAAP£000

Revenue 339 771 11 75 - -

Loss from operations (9,782) (3,935) (4,083) (3,794) (3,109) (2,142)

Loss before tax (9,782) (3,964) (3,158) (5,590) (3,122) (2,134)

Loss for the year (9,782) (4,073) (3,396) (5,218) (3,173) (2,162)

Loss per share (14.3p) (8.5p) (9.5p) (17.3p) (11.7p) (8.3p)

* restated for correction of share issue costs.

Country of incorporation of parent companyGreat Britain

Legal formPublic limited company

Company number 03003533

AuditorsErnst & Young LLP

100 Barbirolli SquareManchester M2 3EY

DirectorsJan Eeuwe Haag – Executive Chairman and Chief Executive Officer

Mohammad Motabar – Interim Chief Financial OfficerBernd Ramler – Non-executive Director

Secretary and registered officeSam Alexander – Company Secretary

2 Hawkes DriveHeathcote Industrial Estate

WarwickWarwickshire

CV34 6LX

2 Hawkes DriveHeathcote Industrial EstateWarwickWarwickshireCV34 6LX

Tel: +44(0)1926 455800www.antonovplc.com

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