A N N U A L R E P O R T 2 0 0 7

V I T Y E V E R Y W H E R E

C O N T E N T S

Notice of Meeting 02

Financial Highlights 03

Chairman’s Report 04

Tribute to Founder 05

Managing Director’s Report 07

Rakon at a Glance 09

Board of Directors 17

Corporate Governance 19

Management Profi les 21

Directors Report 23

Statements of Financial Performance 26

Statements of Movements in Equity 26

Statements of Financial Position 27

Statements of Cash Flows 28

Statement of Accounting Policies 30

Notes to the Financial Statements 34

Auditors Report 53

Shareholder Information 54

Glossary of Terms 61

Directory 62

O F M E E T I N GN O T I C E

RAKON LIMITED Notice of Annual Shareholders Meeting

Friday, 10 August 2007, commencing at 2pm in The Waitemata Ballroom, Langham Hotel, 83 Symonds Street, Auckland.

AGENDA

1. To receive the Annual Report for the period ended 31 March 2007, including the fi nancial statements and auditors report.

2. In accordance with the constitution of the Company Charles Peter Maire retires by rotation and, being eligible, off ers himself for re-election.

3. In accordance with the constitution of the Company Bruce Robertson Irvine retires by rotation and, being eligible, off ers himself for re-election.

4. That eff ective 1 April 2007, the aggregate maximum amount of fees which can be paid to the Directors, in their capacity as Directors, be increased from $240,000 to $300,000 in respect of each fi nancial year, where such amount (or lesser amount determined by the Directors for a fi nancial year) will be divided among the Directors in such proportion and in such manner as they may agree.

5. To record the reappointment of PricewaterhouseCoopers as the Company’s Auditor and to authorise the Directors to fi x the Auditor’s remuneration.

BY ORDER OF THE BOARD

Bryan MogridgeChairman15 June 2007

Notes:

1. A shareholder may attend the Annual Meeting of Shareholders and vote or may appoint a proxy to attend the Annual Meeting of Shareholders and vote in place of the shareholder. A proxy form is enclosed.

2. A shareholder wishing to appoint a proxy should complete the enclosed proxy form and produce the proxy form to the offi ce of Rakon’s share registrar, Computershare Investor Services Limited, either by fax to +64 9 488 8787, by delivery to Level 2, 159 Hurstmere Road, Takapuna, North Shore City, Auckland, New Zealand or by mail to Private Bag 92 119, Auckland 1142, New Zealand so as to be received no later than 2pm on 8 August 2007, being 48 hours before the start of the Annual Meeting of Shareholders.

3. All resolutions will be considered as ordinary resolutions and, in particular, each resolution to re-elect a Director is to be considered as a separate ordinary resolution. To be passed, each resolution requires the approval of a simple majority of the votes cast by the holders of ordinary shares.

4. Shareholder approval is sought for Directors remuneration of an aggregate amount of $300,000 per annum with eff ect from 1 April 2007.

The proposed increase is to refl ect the additional commitments and responsibilities of the Directors of the company as it expands its operations and continues to grow both in scale and complexity. The proposed increase also refl ects the company’s need to retain Directors with an appropriate range of skills and experience and is at a level that refl ects market practice and is appropriate for Rakon.

Neither Brent Robinson nor Darren Robinson receives Director’s fees. In accordance with Listing Rule 9.3.1, no Director intending to receive any fees, nor any of their Associated Persons, may vote on the resolution.

5. No business may be transacted at the Annual Meeting of Shareholders if a quorum is not present. A quorum will be present if shareholders or their proxies or their representatives are present who between them are able to exercise a majority of the votes cast on the business to be transacted by the Annual Meeting of Shareholders.

02

H I G H L I G H T S

03

F I N A N C I A L

Group

2007 2006

($000s) ($000s)

Operating revenue 106,239 74,371

EBITDA 20,321 11,876

EBIT 16,541 8,918

Net surplus after tax 10,647 4,802

EPS 9.9cps 5.5cps

Total assets 141,070 49,200

Total equity 100,900 24,045

Return on total assets 12.8% 9.9%Return on equity 19.5% 35.8%Return on adjusted equity 19.5% 21.8%

100

80

60

40

20

0

Reve

nue

(m)

20022003

20042005

20062007

NZD 2002-07 CAGR 25%

USD 2002-07 CAGR 37%

NZD 2002-07 CAGR 33%USD 2002-07 CAGR 45%

100

80

60

40

20

0

EBIT

DA

(m)

2002 20032004

20052006

2007

NZD

USD

Notes

1. The return on total assets and return on equity are calculated using a 3 point average (ie. opening, half year and end of year positions).

2. The return on adjusted equity is also calculated using a 3 point average. For 2006 a shareholder loan capitalised in October 2005 was treated as equity for the entire period.

R E P O R TC H A I R M A N ’ S

04

Welcome to this the second Annual Report for Rakon Limited.

We are pleased to announce this year’s result with a net surplus after tax of $10.6 million up 47% on our prospectus forecast and 122% on the last fi nancial year.

This has been a very busy year for the business, achieving signifi cant growth in our key markets, acquiring the Frequency Control Products (FCP) business of C-MAC MicroTechnology and laying a positive platform for our expansion in Asia.

Our overall business revenue grew by more than 40% with signifi cant amounts of this growth attributed to the Personal Navigation Device market (PND). Particularly pleasing was the strong demand that followed the Christmas period with customer reordering showing that stock produced by our customers had sold well

through retail. This growth is predicted to continue into our next fi nancial year.

Mobile phones with integrated GPS are also beginning to get market traction and we are predicting good early stage growth during fi scal 2008.

With Rakon’s purchase of the FCP business from C-MAC MicroTechnology in March of this year, we acquired a signifi cant global presence that will assist us to further develop Rakon as a global business.

This acquisition provides a more balanced geographic footprint for our company, a broader product off ering, an enhanced research and development team and a signifi cant increase in our global sales force coverage.

We have recently announced our intentions to seek opportunities to manufacture some products in Asia, in particular mainland China.

We are pursuing this strategy for three reasons. The fi rst is to form a manufacturing base that can take advantage of China’s lower labour and establishment costs, as well as give us access to enhanced skills in key areas important to Rakon’s ongoing volume production strategies. The second is to give us a strategic position within what is quickly becoming the fastest growing centre for manufacturing of high tech consumer and infrastructure products globally. The third is to ensure we are positioned as close as possible to China’s and the rest of Asia’s fast growing market places.

The Directors have reviewed the forecast for the next fi nancial year’s results and remain comfortable with the guidance given to the market at the time of Rakon’s annual announcement on 15 May 2007. Sales revenue is predicted to increase to between $200 to $220 million dollars and EBITDA to between $32 to $38 million dollars. These forecasts are based upon the US$/NZ$ remaining at an average of around 70 cents for the full 12 month period.

The results for our business would not have been achieved without the dedication of our world wide team at Rakon. Some have only been with us a very short time and others many years. Together their dedication, knowledge and pure hard work have delivered this year’s results which the Board considers a job very well done. On behalf of the Board our thanks to everyone at Rakon.

To our shareholders, a very important part of our team, our thanks for joining with us on what we anticipate will be a very exciting journey as we continue our strategy of building a market leading, global business from our base here in New Zealand.

Bryan Mogridge

B W Mogridge Chairman

05

2 0 0 7 M A R K S T H E 4 0 T H A N N I V E R S A R Y O F

R A K O N ’ S F O U N D I N G . T O H I G H L I G H T

T H I S M I L E S T O N E W E P A Y T R I B U T E T O

W A R R E N R O B I N S O N - T H E F O U N D E R O F R A K O N .

Rakon - The Past

Warren’s early days were spent out in the country in Pukekohe. An only child, Warren’s father was Postmaster at the local post offi ce.

From an early age Warren was interested in the sciences and technology. He was very ‘hands on’ in electrical engineering. His fascination began in electronics at secondary school, building a radio at the age of 15. He was one of the youngest in New Zealand (with two others) to receive an amateur radio license at 15 years old. After Auckland Grammar, Warren became a Technical Trainee at the New Zealand Broadcasting Service, where he had extensive training

in electronics. To extend his knowledge he completed Auckland University papers in Maths, Physics and Chemistry. After the broadcasting service, Warren went to work for Electronic Navigation as a Technician in marine electronics for two years.

At 20 years of age and with a mere ‘50 quid’ Warren formed his own company ‘Marlin Electronics’ in partnership with Henri Klok. It was during the Marlin days that Warren developed his marketing skills, driven originally from his technical experience and background. He extended his knowledge of the market at the time, by reading profusely. Warren retained copies of publications on frequency control

06

from symposium proceedings held internationally, and from as early as 1945 he attended symposiums in the U.S.

In 1955 Marlin manufactured radio telephone equipment including ‘type approved’ radio telephones for class 3 and 4 marine vessels and depth sounders. Warren and Henri ran Marlin from 1955 until 1965 before deciding to sell out to Autocrat Radio (interestingly Peter Maire later bought the marine navigation business off Autocrat). Warren acted as Consultant and Chief Engineer for Autocrat and after 2 years the contract fi nished.

But during this time, Warren had been getting itchy feet. Throughout his time at Marlin he had experienced the frustration of crystals taking up to 3 or 4 months to be delivered. He had seen the ongoing demand for radio telephones and servicing the radio industry where the demand for radios in boats, taxis, VHF, and trucks was on the rise. The large gap in the market for locally made crystals was too big to ignore, so at his garage in Bleakhouse Road in Howick, Warren decided to make his own. His initial developments were pressure mounted crystals. He then opened up a small factory on the corner of Balm and Nuffi eld St in Newmarket (the original building still stands there today).

But Warren wanted to manufacture hermetically sealed crystals which required vacuum equipment. He had faced problems getting a license to import the machinery. The Government at the time ironically viewed his projects as nothing more than a ‘pipe dream’ and were unwilling to grant the license. It took persistence, but the industry obliged in the end and Rakon Industries (then a staff of twelve) was able to move forward with manufacturing the solder sealed UM-1 crystals.

Demand was heavy so in 1971 the George St premise in Mt Eden was opened and 30-40 staff employed. In 1972 Warren established a further manufacturing plant in Singapore. He had been exporting to South East Asia using Singapore as the trading center. Warren had seen the potential market for communication crystals with a market base of 300 million stemming from Thailand, Malaysia, the Philippines and Taiwan.

Back in New Zealand, Rakon Industries was able to supply the market with lead times of as little as 2 or 3 days, whereas previously the lead time off shore had been 3 or 4 months. Customers were prepared to pay a premium for the shorter delivery time. The market was even more appealing as in the 70’s there was a custom duty protection of about 30% protecting local New Zealand business so that any competitors

had to pay the duty- making the locally made crystals the preferred choice. In 1976-1977 Warren opened the Melbourne plant to service the Australian market.

From radio communications the commodity consumer market evolved. Computers required at least 2 or 3 crystals each. In the U.S, Citizen band radios (in essence the forerunner to cell phones) were manufactured, which didn’t require a license to make, so demand for these crystals fl ooded into Singapore. In the mid seventies, with the invention of colour TV came demand for television crystals. It was not until the 90’s that new markets evolved (GPS, telecommunications infrastructure, satellite communications etc).

The naming of Rakon

Originally Warren developed the name because he didn’t want it to mean anything in particular so that it could be used as a trademark worldwide. There were a few similar sounding name choices but it was “Rakon” that was chosen by the registrars at the time and approved as a registered trademark.

Rakon - The Present

Since the 60’s and 70’s Warren has seen the technology advance at a phenomenal pace, but he believes the culture of Rakon has remained. Back then there was the challenge to try something diff erent to learn an entirely new industry and through perseverance, dedication and commitment to push the envelope and boundaries. Warren says this strive for excellence continues at Rakon today, with quality staff and staff relations being keys to success.

Rakon – The Future

Progressing forward, Warren believes that as a high tech company there is potential for tremendous growth world wide, particularly in China and South East Asia where there is huge opportunity to meet demand in the local markets.

Rakon - The Founder

Warren is extremely modest and it takes some convincing for him to see why people may just be interested to read about the story behind how Rakon began - and the story behind one of New Zealand’s most successful businessmen.

Today as a member of the Board, Warren still has an active involvement with Rakon. He is still continuing to push the envelope- developing an olive grove and vineyard on his estate in Waiheke Island, with the intention of making his own wine.

T O F O U N D E RT R I B U T E

07

R E P O R TM A N A G I N G D I R E C T O R ’ S

Our fi rst full year as a public company has been a successful and exciting one for the team at Rakon. We have seen excellent growth in our core GPS business; in particular sales to customers requiring frequency control products for Personal Navigation Devices (PND) have been very strong. Our focus on continuing to develop and improve our products to serve these customers has been well rewarded and we remain committed to delivering them a superior product today and in the future. The acquisition of the Frequency Control Products (FCP) division of C-MAC MicroTechnology at the end of the fi scal year has also opened up a lot of new opportunities for Rakon. These European based operations give us a much enhanced global footprint, access to new technologies and penetration into high value telecom markets which we have been looking at for some time.

Revenue and earnings

Operating revenue grew by 43% over last year to $106.2m, this was a signifi cant achievement for Rakon and breaking the $100m barrier is a milestone we have been working towards for some time. Revenue has grown at an average compound rate of 25% since 2002. Eliminating for the impact of currency movements increases the underlying average growth rate to 37% over this period.

Earnings before interest and tax (EBIT) was $16.5m, up 85% on last year and net surplus after tax was $10.6m, up 122% on last year. In addition to top line revenue growth, earnings were further boosted by new lower cost product designs, lower material costs and business effi ciencies achieved not only by production volume growth but from continued investment and improvement in equipment performance and automation. Since 2002 EBIT has grown at a compound average rate of 69%.

Manufacturing

Investment in manufacturing technology and expansion of existing capacity has been key to Rakon’s success. Overall Rakon made capital investments of more than NZ$11 million this year to

signifi cantly increase productive capacity, quality and effi ciency across all phases of our manufacturing process.

We have added further high resolution test capacity to our high volume Integrated TCXO (IT) line. This has enabled us to increase output by an additional 1.75 million units per month. In 2008 we are planning on signifi cant expansion of this line with volumes predicted to hit 8 million units per month before the end of the calendar year.

In January 2007, the clean room expansion was completed resulting in an increase of 50% in volume output for quartz crystals. The clean room is a tightly controlled environment where critical parts of the crystal manufacturing process take place. The expansion was completed in a way that has allowed for further expansion, and we plan to proceed with this in the 2008 fi nancial year. This will add another 30% to the crystal production capacity. This expansion has enabled Rakon to better balance the mix of manufactured and purchased crystals used in our TCXO manufacturing, as well as enable us to develop the next generation 2.5 x 2.0 mm crystal package.

The acquisition of the FCP business has also brought with it some new technologies and challenges. Our Oven Controlled Crystal Oscillator (OCXO) production in France has been struggling to keep up with demand being driven by the deployment of 3G cellular networks in Asia. In order to increase output we will be adding additional capabilities to our Auckland plant which will complement what we are doing in France. This is an important stage for Rakon in developing a truly global manufacturing base.

Customers and Products

Investment in research and development is continuous at Rakon with many new product developments in the pipeline.

The GPS market remains a very strong focus for us with growth expected to continue through the coming year. In 2007 sales of our 0.5 ppm TCXO, which is largely used in high sensitivity GPS applications, grew in volume by 120%. As previously mentioned the PND market in particular has been very strong in 2007. Sales of PNDs in North America and Europe grew to 13 million units in the calendar year 2006, up from 5 million units the year before. Most analysts predict volumes will continue to ramp strongly again through 2008. Rakon remains the leading supplier to this market and is therefore well positioned to capture a signifi cant part of this growth. We continue to work closely with our customers and business partners to ensure we are remaining at the forefront of technology and have the products to enable the next generation of devices. As part of this, Rakon continues to develop further

Brent Robinson

08

miniaturisation. Our high stability IT range has evolved from the larger 7.0 x 5.0 mm, through to 5.0 x 3.2 mm and 3.2 x 2.5 mm footprints. In 2008 we will begin shipping volume orders for an ultra miniature 2.5 x 2.0 mm package. The smaller package off ers the same high stability (<0.5ppm) over demanding temperature ranges and very low frequency slope (ppb/°C) at highly competitive costs.

Cellular GPS has fi nally started to show some signs of ramping up into real volumes. With the likes of Nokia and Research In Motion now adding GPS to their fl agship phones, it is only a relatively short period of time before more applications are readily available to take advantage of this feature and consumer volumes begin to accelerate. Although we have not banked on these volumes to be signifi cant to us in 2008, it has a lot of potential to be a very exciting market in the future.

Signifi cant interest has been shown in our GPS RF-front-end Module (GRM) and we are working closely with a number of GPS equipment manufacturers who wish to launch products based around our solution this year. Rakon currently has 3 diff erent versions of the GRM and is working with partners on new releases in the coming months to support diff erent platforms.

Our desire to push the boundaries of what is possible with existing technology has allowed us to release new products in this last year which will enable some of the new evolving technologies. Our Pluto and Barracuda TCXOs are up to 25 times more stable than conventional TCXOs and are designed to meet the requirements being demanded by the emerging femtocell market. Femtocells are small 3G cellular base stations which can be installed in consumers homes and provide a variety of services including home phone line, broadband and other media services. ABI Research forecasts that by 2011 there will be 102 million users of femtocell products on 32 million access points worldwide.

New requirements for emergency beacons are coming into eff ect in the near future. These beacons require a very stable frequency reference, typically an OCXO. Our Pluto ASIC technology off ers performance in a much lower cost TCXO product and is suitable for use in these beacons. With this technology and our expertise, we have the opportunity to be able to command a very strong position in this market. Older emergency beacons (121.5 and 243 MHz) will be phased out by early 2009. With over 800,000 beacons in use worldwide, this new requirement is a lucrative market for the Pluto.

People

The last year has seen signifi cant changes for Rakon. With growth to near 750 staff , and with 30% of that team based internationally, we truly are a global organisation. In New Zealand, staff numbers

increased by only 4% between March 2006 and March 2007, which highlights the improved effi ciency of our operation in delivering the revenue growth. A similar increase in staff numbers is planned for our New Zealand operations in 2008.

With 130 skilled engineers worldwide and specialists in the areas of crystal, oscillator and equipment design, Rakon has an impressive combined pool of technical skills and capabilities. Recruiting and developing skilled engineering talent remains a critical factor in our continued growth.

Rakon has a dedicated sales support team of 60 staff worldwide. Sales staff are heavily engineering focused off ering critical technical advice and expert consultation from initial product ideas, through to the development of a customised solution.

Outlook

Demand for GPS grade TCXOs is strong particularly for the PND market. The team at Rakon continue to work relentlessly to maintain our leadership position by demonstrating the superior features of our product and innovating its design, performance and manufacturing to ensure we deliver real value to our customers.

The telecommunications infrastructure sector is also strong with the roll out of 3G technology happening quickly in many regions. New technologies such as femtocells also off er great potential.

Rakon is investigating opportunities to expand its operations into China. Our customer and supplier base is concentrated around Asia so expansion by way of a new manufacturing facility to complement our NZ operations is a sound strategic move for Rakon that we are focussed on progressing, to further enhance our competitive position.

The strength of our customers, the markets we sell into and the commitment and quality of the team at Rakon mean we forecast revenue for the 2008 year to be in the region of NZ$200 – 220 million and EBITDA of NZ$32 – 38 million. These projections assume the US$/NZ$ averages around 70 cents for the full year.

Rakon continues to have the support of an excellent Board who provide great leadership to our committed and talented team striving to deliver solutions for our customers and success for Rakon’s shareholders. We are confi dent that this platform, strategic focus and market position of Rakon place the company well, not only for 2008 but for the years ahead.

Brent Robinson Managing Director

L E A D I N G T H E W A YE N A B L I N G C O N N E C T I V I T Y E V E R Y W H E R E

10

Rakon is a world leader in the development of frequency control solutions for a wide range of applications. Rakon has leading market positions in the supply of crystal oscillators to the GPS, telecommunications network timing/synchronisation, and aerospace markets.

Founded in New Zealand in 1967 by Warren Robinson, Rakon became the leading supplier of GPS TCXOs to the world market in 1991. Since then the GPS market has evolved from low volume niche applications to a high volume consumer based market. Rakon has maintained market dominance, and has excelled in taking high precision, niche technology and transforming this into high volume cost eff ective solutions, while still maintaining the highest performance and quality. This leadership has been achieved through unique proprietary processes, continual innovation, expert consultation and constant technology advancement.

Rakon became a publicly listed company on the New Zealand Stock Exchange in May 2006. In March 2007 Rakon acquired the Frequency Control Products (FCP) division of C-MAC MicroTechnology, and established itself as a leader in frequency control for the expanding timing and synchronisation, wireless and base station markets. The European based FCP division of C-MAC has an impressive history dating back to 1937.

Today Rakon has a diverse product portfolio ranging from low stability XO, VCXO and crystal products, through to high volume precision TCXOs and all the way to precision OCXO and Rubidium equivalent frequency standards. A large multinational, Rakon has operations in New Zealand, the UK, France, China, Taiwan, Japan and the U.S.A.

Core Competencies

Superior customer solutionsWith frequency control solution design centres in the UK, France and New Zealand, Rakon provides solutions for the world’s frequency requirements.

Rakon is well aware that customer designs require individual solutions. Continuous expert consultation is available from initial concept and prototype through to the fi nished product, and is ongoing throughout the product’s life cycle. Rakon has strong relationships with its customers - some dating back over 30 years. Through acute technical understanding Rakon enables partners concepts to become a reality, working from the initial idea through to development of a customised solution.

A global sales presence Rakon has extensive customer support world-wide, with offi ces in New Zealand, the U.S.A, the U.K, France, China, Taiwan and Japan. Rakon also maintains a network of over 40 manufacturing representatives and distributors worldwide.

World-wide manufacturing and distributionRakon has a global manufacturing model with plants located in New Zealand, Europe and Asia.

Performance and precision in the extremeRakon’s products meet the industry’s intensifying need for high levels of accuracy and stability in extreme and dynamic conditions. Rakon pioneered the development of oscillators capable of maintaining high levels of accuracy and unique lock on stability under extreme environmental conditions.

Rakon is synonymous with reliabilityRakon has world leading quality assurance practices. Corrective action processes have been compared with the NASA equivalent. Rakon’s reputation for quality has been established from Rakon’s long history of delivering the most reliable products in the industry.

World leading technologyRakon has developed unique advanced testing and compensation technology. Stabilities achieved in its 3G test system units are up to 5 times better than competitive technologies.

Rakon is the only crystal and oscillator manufacturer that has the technology to provide 100 percent high temperature resolution screening of high volume production to ensure that all non-performing crystals and oscillators are eliminated.

Innovative productsRakon products are continuously evolving. The culture at Rakon is innovative, fast paced and vibrant as new challenges open up new avenues for improvement and creativity. Rakon continues to lead the way with the development of new generation oscillators for optimising customer performance.

Rakon - leading the way, enabling connectivity everywhere.

G L A N C ER A K O N A T A

Durham, NC, USA

Customer support offi ce

for North America. Lincoln/Harlow, UK

Design and manufacturing

of Pluto based TCXOs and

Advanced Technology

Products.

OP

E

Crewkerne, UK

European sales and

support, as well as

logistics management for

commodity products.

Chicago, IL, USA

Primary customer and

technical support offi ce for

North America.

India

Subcontracted

manufacturing for legacy

products formally

manufactured in Harlow, UK.

Shenzhen, China

Customer and technical

support for mainland

China.

Osaka, Japan

Consultancy offi ce for

Japanese business.

Taipei, Taiwan

Customer and technical

support for Taiwan, Korea

and SE Asia.

Argenteuil, France

Sales, support, design and

manufacturing of SC Crystal

and OCXOs.A

S

Auckland, New Zealand

Head offi ce, sales, technical

support, design and

manufacturing of high

precision crystals & TCXOs.750 Staff

5 Manufacturing plants

4 Sales offi ces

38 Rep offi ces

12 Distributors

G L O B A L P R E S E N C E

12

G L A N C ER A K O N A T A

Quartz crystals are found in nearly all electronic devices, from high-tech aerospace applications through to TVs and wrist watches. Quartz crystals are used in electronic devices to act as a timing or frequency reference device to ensure the functionality of electronic equipment dependent upon accurate timing or frequency control.

An oscillator is an electronic circuit that is used for the purpose of generating a repetitive electronic signal.

A crystal oscillator is an electronic circuit that uses the mechanical resonance of a vibrating crystal of piezoelectric material to create an electrical signal with a very precise frequency. This frequency is commonly used to keep track of time (such as in quartz wristwatches). The simplest crystal oscillators require an amplifi er and feedback in the circuit along with the crystal.

OVEN CONTROLLED CRYSTAL OSCILLATORS (OCXOs)

OCXOs eliminate the eff ect of temperature on frequency by maintaining the oscillator at a constant temperature above ambient. The crystal is enclosed in a small insulated container along with a heating element and a temperature sensor. This arrangement keeps the crystal at a constant temperature regardless of the temperature of the environment outside the OCXO.

OCXOs off er very high performance and accuracies and are typically used in mission critical applications. Because of the larger size and power requirements of OCXOs they are typically only used in fi xed applications such as cell towers, telecommunication switches and satellites.

Through years of development and optimisation of electronic circuitry and crystal design, Rakon off ers a world leading range of OCXO products with unparalleled performance.

Rakon has a complete range of precision solutions from OCXOs capable of replacing expensive Rubidium clocks in SDH/SONET Stratum 2 applications through to low profi le oven oscillator products. Rakon’s self calibrating OCXOs can maintain stabilities of better than 16ppb (1.6 x 10-8) over the product’s entire life time and can achieve stabilities of less than 0.05ppb (5 x 10-11) over temperature. Other OCXO products include high precision, low phase noise and low profi le ovens. Rakon specialises in delivering customised solutions to suit a wide variety of applications including network timing & synchronisation, base stations, telecoms infrastructure and even space qualifi ed requirements.

TEMPERATURE COMPENSATED CRYSTAL OSCILLATORS

(TCXOs)

TCXOs provide another way of creating stability in a quartz crystal’s oscillating frequency over a temperature range, by applying a correction voltage to the circuit to stabilise its frequency output as temperature changes. This voltage is based on an output signal received from a temperature sensor, placed near the crystal.

TCXOs can be used in a myriad of applications including telecommunications, microwave and GPS, where high levels of accuracy can be achieved in applications where small size is critical.

ULTRA STABLE TEMPERATURE COMPENSATED CRYSTAL

OSCILLATORS

Rakon’s ultra stable TCXO products off er the highest frequency stability performance achievable from a

TCXO. These TCXOs address markets that require near OCXO performance, but without the high cost or power consumption. The Triton™ product family combines proprietary ASIC compensation technology with simplifi ed oven control to create a hybrid product capable of stabilities down to 25ppb (2.5 x 10-8) over temperature, in small DIP14 packages. The Pluto™ and Barracuda™ TCXO product families fulfi l the requirements of demanding communications and precision GPS markets. With stabilities as tight as 100ppb (1 x 10-7) over temperature and a variety of output options, these products are ideal for wireless home base stations, rescue beacons and other high volume, stability demanding applications.

The Pluto family are the only products in the world to address the often ignored problem of voltage control tilt in VCTCXO devices.

13

10-11

10-10

10-9

10-8

10-7

10-6

10-5

10-4

AC

CU

RA

CY

Rakon product off ering

Rakon supplies a broad range

of frequency control components

from low microcontroller

references through to atomic

time standards

G L A N C ER A K O N A T A

14

HIGH STABILITY TEMPERATURE COMPENSATED

CRYSTAL OSCILLATORS

Rakon has developed a range of high stability TCXO products for mass volume consumer applications. These products have become the default standard for consumer GPS and other performance critical volume applications. These products come in a variety of form factors, from the larger 7.0 x 5.0 mm footprint through to miniature 2.5 x 2.0 mm packages. All off er high stability (<0.5ppm) over demanding temperature ranges and very low frequency slope (ppb/°C) at highly competitive costs.

PRECISION QUARTZ CRYSTALS

Rakon has over 40 years experience in crystal design and today manufactures a range of AT, Y and SC cut crystals in a variety of industry standard and ultra miniature SMD package sizes. Rakon’s patented HiG™ crystals can withstand shocks of greater than 20,000G and are extremely resistant to frequency noise induced by vibration.

SPECIALTY PRODUCTS

Rakon manufactures a range of application specifi c products and is able to design unique frequency control based solutions for our customers. These products include high frequency VCXOs and low jitter XOs as well as advanced specialty modules, such as the GPS RF Front End Radio.

The GPS RF Front End Radio Module is the world’s smallest GPS Radio. As a more complete RF solution, test time and design time are virtually eliminated. Designed to interface with software processing solutions it is a cost neutral, fast turn around solution for GPS hardware designers.

Rakon’s temperature sensing crystal oscillators also off er system designers the ability to achieve extremely stable frequency solutions from miniature, power effi cient products.

COMMODITY PRODUCTS

As a complete frequency control solutions provider, Rakon has a range of frequency control products to address the commodity market. These products are Rakon quality assured and manufactured by approved subcontractors and partners. Typically XOs are low cost, low performance oscillators where lower accuracies are required such as wristwatches, TVs and microprocessor clocks. By intelligent management and understanding of the frequency control supply chain, Rakon off ers cost eff ective solutions for low end XO, VCXO and quartz crystal requirements.

3 G3G is the next generation of mobile phone

technology. It off ers users a wide range of high speed

mobile services, including voice telephony and

broadband wireless data.

Sales of 3G phones may hit 392 million units this year

and show an approximately 40 percent compounded

annual growth rate from 2007 through 2010.

A V I A T I O NThe aviation community is using GPS

extensively. With its accurate, continuous

all-weather coverage, satellite navigation

off ers a navigation service that satisfi es

many of the requirements of users

worldwide.

Technology is continually advancing, with

the development of automatic landing and

take off systems being a reality in the future.

W I M A XWiMax aims to provide high speed wireless

data over long distances, in a variety of

diff erent ways, from point to point links to

full mobile cellular type access. For individual

services 3G and Wimax can compete with each

other.

U S E R A P P L I C A T I O N S

P E R S O N A L N A V I G A T I O N D E V I C E S ( P N D )A PND is a portable electronic product which

combines a positioning capability (such as GPS)

and navigation functions. The term has come into

widespread use with the growing popularity of after

market navigation devices for automobiles.

Sales of PNDs in North America and Europe grew

to 13 million units in 2006, up from 5 million units

the year before. Most analysts predict volumes will

continue to ramp strongly again through 2008.

E X A M P L E S O F

L E A D I N G T H E W A YE N A B L I N G C O N N E C T I V I T Y E V E R Y W H E R E

F E M T O C E L L SFemtocells are very small 3G cellular base stations designed

for use in people’s home or offi ce. Femtocells provide a variety

of services including home phone line, broadband and other

media services.

“the market for femtocells is predicted to rise to at least $2bn

by 2011.” (source: Stuart Carslaw, ABI Research, April 07).

E M E R G E N C Y B E A C O N SBeacons allow people in distress to be located

by emergency services. Since 1982, 20 300

people have been rescued worldwide.

Over 800,000 emergency beacons are currently

in use. New requirements for emergency

beacons are coming into eff ect.

B A S E S T A T I O N SFixed antennas used for wireless

telecommunications. A base station consists of

one or more radio transmitters and receivers

that communicate with individual mobile

phones in the area.

D I R E C T O R SB O A R D O F

Bryan Mogridge Bsc ONZM

Independent Chairman

Bryan Mogridge was appointed Chairman in November 2005.

Bryan has been a public company Director since 1984. He is currently Chairman of Enterprise Waitakere, Waitakere City Holdings Limited, Guardian Healthcare Group Limited, Momentum Energy Limited and The Starship Foundation. Additionally, Bryan sits on the Board of Mainfreight Limited and Pyne Gould Corporation Limited. Bryan has also chaired the New Zealand Wine Institute, the New Zealand Food and Beverage Exporters Council, and the Tourism Board. Bryan was appointed Vice Chairman of UBS New Zealand Limited in April 2007.

Bruce Irvine

Independent Non-executive Director

Bruce Irvine was appointed as a Director of Rakon in November 2005.

Bruce is the managing partner of Deloitte’s Christchurch offi ce and is also a member of the Deloitte National Board.

Bruce is currently the Chairman of Jade Stadium Limited, Christchurch City Facilities Limited and is a Director of Pyne Gould Corporation Limited, Marac Limited, Godfrey Hirst Limited, Market Gardeners Co-operative Limited, House of Travel Limited, Christchurch City Holdings Limited, Skope Limited and Canterprise Limited.

In a voluntary capacity, he serves as a trustee of the Christchurch Symphony Trust and the Christchurch Art Gallery Trust.

Peter Maire

Non-executive Director

Peter Maire was appointed as a Director of Rakon in November 2005.

Peter is the co-founder and former President of Navman NZ Limited. He sold his shareholding to Brunswick Corporation in 2004 and resigned from his position as Chairman at the end of 2005.

Peter is a member of the Government’s Growth and Innovation Advisory Board, New Zealand Trade and Enterprise, the Hi

1717 Bryan Mogridge Bruce Irvine Peter Maire

18

Growth Advisory Board and is an Honorary Fellow of the Institution of Professional Engineers New Zealand.Peter has made signifi cant investment into NZ technology companies. He is Chairman of Cadmus Technology NZ Limited and Director of Orion Systems Limited and Fusion Electronics Limited.

Brent Robinson

Executive Director

Brent Robinson was fi rst appointed Managing Director at Rakon Industries Limited in 1986 and continues in that role at Rakon.

Brent has over 25 years experience in the design and manufacture of crystals and oscillators. Since his appointment Brent has led and driven the development of Rakon’s core TCXO business, which is the basis of the company’s success today, supplying over 50% of the world GPS market for TCXOs. Since assuming leadership in 1986, Rakon has grown from sales of approximately $1.7m to $106.2 million FY2007.

Darren Robinson

Executive Director

Darren has over 25 years sales and marketing experience and was appointed Sales and Marketing Director for Rakon in 1990. Darren has driven sales for Rakon through exploring new markets, applications and building and maintaining relationships with many top Fortune 500 companies. Since his appointment sales revenue has grown on average by 25% per annum.

Warren Robinson

Non-executive Director

Warren Robinson founded the Rakon business in the basement of his Howick home in 1967. He successfully grew and operated the business until 1986 when Brent Robinson became the Managing Director. In subsequent years, Warren has continued to maintain an active role within Rakon and was Chairman until November 2005.

Warren received a First Class Certifi cate in Radio Technology and is a member of the Institute of Electrical and Electronics Engineers, a senior member of the New Zealand Electronics Institute and is a member of The Royal Society of New Zealand.

Brent Robinson Darren Robinson Warren Robinson

G O V E R N A N C EC O R P O R A T E

The Role of the Board

The Board has ultimate responsibility for the strategic direction of Rakon and oversight of the management of Rakon for the benefi t of Shareholders. Specifi cally, the responsibilities of the Board include:

• working with management to establish the strategic direction of Rakon;• monitoring management and fi nancial performance;• monitoring compliance and risk management;• establishing and monitoring the health and safety policies of Rakon;• establishing and ensuring implementation of succession plans for senior management; and• ensuring eff ective disclosure policies and procedures.

In discharging their duties, Directors have direct access to and may rely upon Rakon’s senior management and external advisers. Directors have the right, with the approval of the Chairman or by resolution of the Board, to seek independent legal or fi nancial advice at the expense of Rakon for the proper performance of their duties.

The Board comprises six Directors: a non-executive Chairman, two executive Directors and three non-executive Directors. Under the Constitution, the Independent Chairman holds a casting vote at Board meetings. Board members have an appropriate range of profi ciencies, experience and skills to ensure that all governance responsibilities are fulfi lled and to achieve the best possible management of resources.

In accordance with the Constitution the Board have resolved that the Managing Director will not be required to retire by rotation.

Directors Meetings

The Board plan to meet not less than nine times during any fi nancial year including sessions to consider the strategic direction of Rakon and Rakon’s forward-looking business plans. Video and/or phone conferences are also used as required. For the year ended 31 March 2007 there were eleven Board and Strategic Planning Meetings held and an additional six board meetings associated with the approval of full year and half year fi nancial statements and pertaining to the acquisition of the Frequency Control Products Division of C-MAC MicroTechnology.

Board Committees

The Board has three formally constituted committees of Directors. Committees established by the Board review and analyse policies and strategies, usually developed by management, which are within their terms of reference. They examine proposals and, where appropriate, make recommendations to the full Board. Committees do not take action or make decisions on behalf of the Board unless specifi cally mandated by prior Board authority to do so. The Committees are as follows:

Audit and Risk Management CommitteeThe Audit and Risk Management Committee is responsible for overseeing the risk management (including treasury and fi nancing policies), treasury, insurance, accounting and audit activities of Rakon, and reviewing the adequacy and eff ectiveness of internal controls, meeting with and reviewing the performance of external auditors, reviewing the consolidated fi nancial statements, and making recommendations on fi nancial and accounting policies.

The members of the Audit and Risk Management Committee are Bruce Irvine (Chairman), Bryan Mogridge and Warren Robinson.

Remuneration CommitteeThe Remuneration Committee is responsible for overseeing management succession planning, establishing employee incentive schemes, reviewing and approving the compensation arrangements for the executive Directors

19

Director Meetings Meetings

Held Attended

Bryan Mogridge 17 17 Brent Robinson 17 17 Darren Robinson 17 16 Warren Robinson 17 16 Peter Maire 17 10 Bruce Irvine 17 17

Director Meetings Meetings

Held Attended

Bruce Irvine 2 2 Bryan Mogridge 2 2 Warren Robinson 2 2

and senior management, and recommending to the full Board the compensation of Directors.

The members of the Remuneration Committee are Bryan Mogridge (Chairman), Peter Maire and Warren Robinson.

Nomination CommitteeThe Nomination Committee is responsible for ensuring the Board is composed of Directors who contribute to the successful management of the company, ensuring formal review of the performance of the Board, individual Directors and the Board’s committees and ensuring

eff ective induction and training programmes are in place for new and existing Directors.

The members of the Nomination Committee are Bryan Mogridge (Chairman), Peter Maire and Warren Robinson.

20

Director Meetings Meetings

Held Attended

Bryan Mogridge 1 1 Peter Maire 1 1 Warren Robinson 1 1

Director Meetings Meetings

Held Attended

Bruce Irvine 1 1 Bryan Mogridge 1 1 Warren Robinson 1 1

21

Rakon has a strong management team and expert

staff across all functions. Three of these individuals are

profi led below.

Dr Philip Davies

Operations Manager, Rakon UK LimitedPhilip has 17 years experience in the quartz industry. In 1991 he started his career as an Engineering Manager for a small crystal company in the North West of the UK. This transferred to Lincoln in 1993 where he was appointed Programme Manager, and in 1995 the business was acquired by C-MAC. Philip has held various positions within the company since this time including production management, engineering management, general operations, setting up an operation in India, and most recently he has been Operations Manager for the Harlow and Lincoln sites, overseeing manufacturing, quality assurance, human resources and engineering. In March 2007 he was appointed Operations Manager for Rakon UK Limited.

“Over the years the Lincoln facility has developed into a highly effi cient, cost-conscious manufacturing operation selling our leading edge products into some of the world’s largest OEMs and CEMs - our major market is the growth market of non-GPS telecommunications.

The Harlow Engineering Team has been responsible for some brilliant new technologies which are genuinely best in their class. For example our Pluto TCXO ASIC produces phenomenal frequency versus temperature performances, beyond anything anyone else can achieve”.

Philip holds a BSc and PhD in Physics. Every May Philip removes the dust cover from his Suzuki Bandit 600 and enjoys riding around the Lincolnshire countryside in the sunshine.

Tom Davidson

Product Manager, Rakon Limited (New Zealand)Tom has 25 years experience in the technology fi eld in the US and Canada, including several years in the semiconductor business. He has spent the last 12 years in the frequency control industry, including Motorola and CTS. Tom and his wife immigrated to New Zealand from the United States in 2006 and Tom joined Rakon in Auckland as Product Manager for Custom Products in July of the same year. Product Managers at Rakon have overall responsibility for the entire product lifecycle

and must ensure that their products meet or exceed customer expectations for price, performance, quality and availability, and meet Rakon’s business objectives. Prior to joining Rakon, Tom was Director of Marketing at Pericom Semiconductor Corporation in San Jose, California.

“Rakon has developed a culture of innovation that encourages thinking outside-the-box, enabling the company to off er high performance solutions to customers long before its competitors. This not only gives the company a much more stimulating working environment, it also earns customer loyalty and higher margins. The acquisition of the Frequency Control Products division of C-MAC MicroTechnology, itself a proven innovative technology leader, complements the Rakon strategy and culture well, expanding its global presence.”

Tom holds a Master of Science degree in Electrical Engineering, and a Master of Business Administration (MBA) degree. His graduate business education was completed through a joint program in Chicago and Brussels. Tom enjoys travel and is an enthusiastic distance runner.

Claude Trialoup

OCXO Marketing Manager, Rakon France SASClaude has over 15 years experience in the crystal industry. Claude has worked in the areas of design, experimentation and quality management for Matra-Ericsson and Magneti Marelli, before joining the Argenteuil facility in 1991. Since then he has held positions as Quality Manager, Oscillators Technical Manager and Applications and Marketing Manager. In 2007 he was appointed OCXO Marketing Manager for Rakon France SAS.

“Working for Rakon is something rather new, but already promising for all of us in Europe and really exciting on my own side; we now have a combined pool of outstanding resources; technical skills and capabilities, industrial competencies, process engineering and automisation and we can reach more markets & applications. Based on the new confi guration, we can develop and lever new opportunities.”

Claude holds a Bachelor of Science degree (in Physics & Measurement Technics), and a Master of Science degree (in Acoustics) and he speaks French, Italian and English. In his spare time Claude enjoys art and culture.

P R O F I L E SM A N A G E M E N T

22

“Rakon has developed a culture of innovation that

encourages thinking outside-the-box, enabling the

company to off er high performance solutions to

customers long before its competitors”.

Tom Davidson

Product Manager, Rakon Limited (New Zealand)

“We now have a combined pool of outstanding resources;

technical skills and capabilities, industrial competencies,

process engineering and automisation. Based on the

new confi guration, we can develop and lever new

opportunities”.

Claude Trialoup

OCXO Marketing Manager, Rakon France SAS

“…the Lincoln facility has developed into a highly

effi cient, cost-conscious manufacturing operation selling

our leading edge products into some of the world’s

largest OEMs and CEMs…”

“…the Harlow Engineering Team has been responsible for

some brilliant new technologies which are genuinely best

in their class”.

Dr Philip Davies

Operations Manager, Rakon UK Limited

R E P O R TD I R E C T O R S

The Directors are responsible for ensuring that the fi nancial statements give a true and fair view of the fi nancial position of the Company and the Group as at 31 March 2007 and their fi nancial performance and cash fl ows for the period ended on that date.

The Directors consider that the fi nancial statements of the Company and the Group have been prepared using appropriate accounting policies, consistently applied and supported by reasonable judgments and estimates and that all relevant fi nancial reporting and accounting standards have been followed.

The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the fi nancial position of the Company and the Group and facilitate compliance of the fi nancial statements with the Financial Reporting Act 1993.

The Directors consider they have taken adequate steps to safeguard the assets of the Company and the Group and to prevent and detect fraud and other irregularities.The Directors note there has not been any material change in the nature of the business undertaken by the Company and the Group in the past year.

The Directors have pleasure in presenting the fi nancial statements set out in pages 26-51, of Rakon Limited and subsidiaries for the period 1 April 2006 to 31 March 2007.The Board of Directors of Rakon Limited authorised these fi nancial statements for issue on 15 May 2007.

Financial Results

Sales revenue for the year was $106.2 million, up $31.9 million or 43% on the prior year. The increase in revenue

was due to strong sales growth into GPS applications particularly personal navigation products. The acquisition of the Frequency Control Products Division from C-MAC MicroTechnology in March 2007 also added $5.5 million of revenue for the year.

Net surplus was $10.6 million up $5.8 million or 122% on the prior year. In addition to top line revenue growth, earnings were further boosted by new lower cost product designs, lower material costs and business effi ciencies achieved not only by production volume growth but from continued investment and improvement in equipment performance and automation.

Rakon improved its fi nancial position with shareholders equity of $100.9 million, funding 71.5% of total assets as at 31 March 2007. Net cash fl ow from operations at $10.8 million was up from the $9.7 million recorded in the prior year. Increased working capital requirements resulting from business growth partially off set the improved operating surplus.

The Board have determined that no dividend will be paid and that consistent with the Company’s policy cash will be retained in order to capitalise on immediate and future growth opportunities.

Audit Fees

Amounts paid to PricewaterhouseCoopers for audit services and for other services are shown in note 3 of the Financial Statements.

Other Statutory Information

Additional information required by the Companies Act 1993 is set out in Shareholder Information.

Retirement of Directors

Mr Peter Maire and Mr Bruce Irvine retire by rotation, and being eligible off er themselves for re-election.

On behalf of the Directors

B W Mogridge B J RobinsonChairman Managing Director

Bryan Mogridge Brent Robinson

23

25

L E A D I N G T H E W A YE N A B L I N G C O N N E C T I V I T Y E V E R Y W H E R E

26

F I N A N C I A L S

Group Parent

2007 2006 2007 2006

Note ($000s) ($000s) ($000s) ($000s)

Operating revenue 2 106,239 74,371 100,731 74,370Operating expenses 3 (90,059) (67,124) (84,646) (67,228)

Operating surplus before income tax 16,180 7,247 16,085 7,142

Income tax 12 (5,533) (2,445) (5,411) (2,434)

Net surplus attributable to parent Shareholders 10,647 4,802 10,674 4,708

Operating surplus comprises:

Operating surplus from continuing activities 10,647 4,802 10,674 4,708

Basic Earnings per Share (in cents) 9.9 5.5 Diluted Earnings per Share (in cents) 9.7 5.5

For the year ended 31 March 2007

S T A T E M E N T S O F F I N A N C I A L P E R F O R M A N C E

Group Parent

2007 2006 2007 2006

Note ($000s) ($000s) ($000s) ($000s)

Equity at beginning of the year 24,045 7,957 23,916 7,922

Recognised revenues and expenses

Net surplus after tax 5 10,647 4,802 10,674 4,708Foreign currency translation reserve 6 (1,544) - - -

Total recognised revenues and expenses 9,103 4,802 10,674 4,708

Other movements

Contribution from owners 4 70,055 12,886 70,055 12,866Distributions to owners 7 - (1,600) - (1,600)Share issuance costs 4 (2,303) - (2,303) -

67,752 11,286 67,752 11,286

Equity at end of the year 100,900 24,045 102,342 23,916

The accompanying notes form an integral part of these fi nancial statements.

For the year ended 31 March 2007

S T A T E M E N T S O F M O V E M E N T S I N E Q U I T Y

27

Group Parent

2007 2006 2007 2006

Note ($000s) ($000s) ($000s) ($000s)

Assets

Current assets Cash and bank 2,157 853 1,128 803Accounts receivable 17 34,722 13,614 17,148 13,585Inventories 16 34,798 19,735 23,394 19,735

Total current assets 71,677 34,202 41,670 34,123

Non-current assets

Property, plant and equipment 14 32,370 14,880 22,790 14,879Investments in subsidiaries 15 - - 58,040 -Intangible assets 18 37,023 - - -Deferred tax 11 - 118 - 118

Total non-current assets 69,393 14,998 80,830 14,997

Total assets 141,070 49,200 122,500 49,120

Liabilities

Current liabilities

Bank overdraft 9 30 6,901 30 6,901Borrowings 9 853 1,314 - 1,314Payables and accruals 10 31,250 8,940 11,653 8,989

Total current liabilities 32,133 17,155 11,683 17,204

Non-current liabilities

Borrowings 9 8,000 8,000 8,000 8,000Deferred tax 11 37 - 475 -

Total non-current liabilities 8,037 8,000 8,475 8,000

Total liabilities 40,170 25,155 20,158 25,204

Net assets 100,900 24,045 102,342 23,916

Equity

Share capital 4 80,888 13,136 80,888 13,136

Foreign currency translation reserve 6 (1,544) - - -

Retained earnings 5 21,556 10,909 21,454 10,780

Total equity 100,900 24,045 102,342 23,916

The accompanying notes form an integral part of these fi nancial statements.

As at 31 March 2007

S T A T E M E N T S O F F I N A N C I A L P O S I T I O N

28

F I N A N C I A L S

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Operating activities

Cash was provided from

Receipts from customers 101,248 75,639 96,274 75,829Interest received 324 62 325 61Dividends received 2 - 2 -

101,574 75,701 96,601 75,890

Cash was applied to

Payments to suppliers and others (62,344) (42,469) (59,766) (43,071)Payments to employees (22,450) (18,739) (20,384) (18,304)Finance lease charges - (203) - (203)Interest paid (635) (1,444) (620) (1,444)Income tax paid (5,368) (3,121) (5,368) (3,111)

(90,797) (65,976) (86,138) (66,133)

Net cash fl ow from operating activities 10,777 9,725 10,463 9,757

Investing activities

Cash was applied to

Purchase of property, plant and equipment (11,623) (5,395) (11,387) (5,391)Purchase of subsidiaries (58,232) - (58,040) -

Net cash fl ow from investing activities (69,855) (5,395) (69,427) (5,391)

Financing activities

Cash was provided from

Proceeds from borrowings 853 11,264 - 11,387Issue of ordinary shares 70,055 - 70,055 -

70,908 11,264 70,055 11,387

Cash was applied to

Repayment of principal on borrowings (1,314) (15,621) (1,314) (15,620)Finance lease principal payments - (915) - (915)Share issuance costs (1,811) (492) (1,811) (492)Dividends paid to Shareholders - (1,600) - (1,600)Intercompany loans - - (1,020) -

(3,125) (18,628) (4,145) (18,627)

Net cash fl ow from fi nancing activities 67,783 (7,364) 65,910 (7,240)

Net increase/ (decrease) in cash held 8,705 (3,034) 6,946 (2,874)

The accompanying notes form an integral part of these fi nancial statements.

For the year ended 31 March 2007

S T A T E M E N T S O F C A S H F L O W S

29

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Foreign currency translation adjustment (530) (278) 250 (363)Cash at the beginning of the year (6,048) (2,736) (6,098) (2,861)

Cash at the end of the year 2,127 (6,048) 1,098 (6,098)

Composition of cash

Cash and bank balances 2,157 853 1,128 803Bank overdraft (30) (6,901) (30) (6,901)

2,127 (6,048) 1,098 (6,098)

Reconciliation of operating surplus to net cash fl ows

from operating activities

Reported surplus after tax 10,647 4,802 10,674 4,708

Items not involving cash fl ow

Depreciation expense 3,546 2,958 3,479 2,953Amortisation expense 233 - - -Increase in estimated doubtful debts 135 158 132 158Movement in foreign currency (653) 489 (965) 574Deferred tax 577 (283) 593 (283)(Gain)/loss on disposal of property, plant and equipment (2) 74 (2) 74

3,836 3,396 3,237 3,476Impact of changes in working capital items

Accounts receivables (3,919) 468 (3,016) 658Inventory (3,936) 1,381 (3,660) 1,381Prepayments (232) (141) (67) (140)Trade creditors and accruals 5,242 188 4,287 41GST receivable (454) 37 (438) 37Tax provisions (407) (406) (554) (404)

(3,706) 1,527 (3,448) 1,573

Net cash fl ow from operating activities 10,777 9,725 10,463 9,757

The accompanying notes form an integral part of these fi nancial statements.

For the year ended 31 March 2007

S T A T E M E N T S O F C A S H F L O W S

30

F I N A N C I A L S

S T A T E M E N T O F A C C O U N T I N G P O L I C I E S

Reporting entityThe fi nancial statements are for the economic entity comprising Rakon Limited and its subsidiaries. Rakon Limited is a company registered under the Companies Act 1993.

Basis of preparationThe fi nancial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

The reporting currency used in the preparation of these fi nancial statements is New Zealand dollars.

The fi nancial statements have been prepared on the historical cost basis. The following specifi c accounting policies have been applied.

Accounting policiesThe fi nancial statements are prepared in accordance with New Zealand Generally Accepted Accounting Practice.

Basis of ConsolidationThe Group fi nancial statements consolidate the fi nancial statements of subsidiaries using the purchase method. All material intercompany transactions between Group companies have been eliminated. The accounting policies for the subsidiaries are consistent with the policies adopted by the Parent company. Subsidiaries are listed in note 15. The results of subsidiaries acquired during the year are included in the consolidated statement of fi nancial performance from the date of acquisition.

SubsidiariesSubsidiaries are companies that are controlled, either directly or indirectly by the Parent.

RevenueGoods and servicesSales revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course of business. Sales are made on ex-works basis and recognised on dispatch with the exception of consignment stock sales that are recognised on a drawdown basis.

Investment incomeDividend income is recognised in the period the dividend

is declared. Interest and rental income are accounted for as earned.

Foreign currency translationTransactionsTransactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in eff ect at the date of the transaction. Where short term forward currency contracts have been taken out, the contract is valued on a mark to market basis and the corresponding asset or liability recognised in the statement of fi nancial position. Gains and losses on the valuation of forward currency contracts are recognised in the statement of fi nancial performance.

Monetary assets and liabilities arising from trading transactions are translated at closing rates. Gains and losses due to currency fl uctuations on these items are included in the statement of fi nancial performance.

Foreign operationsIntegrated overseas subsidiaries are translated to New Zealand dollars in the same manner as if all transactions of the foreign operation had been entered into by the Parent and Group itself.

Revenue and expenses of independent foreign operations are translated to New Zealand dollars at the exchange rate in eff ect at the date of the transaction, or rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date.

Exchange diff erences arising from the translation of independent foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identifi ed as hedged against these operations.

Goods and Services Tax (GST)All items in the statement of fi nancial performance are net of GST with the exception of receivables and payables, which include GST.

31

InventoriesFinished goods, raw materials, stores and work in progress are stated at the lower of cost and net realisable value. Costs have been assigned to inventory quantities on hand at balance date using the fi rst in fi rst out basis. Costs comprise direct materials and direct labour together with an appropriate portion of fi xed and variable production overheads.

Accounts receivableAccounts receivable are carried at estimated realisable value after providing against debts where collection is doubtful. Rakon France SAS has a trade receivable fi nancing facility with Société Générale. The trade receivables continue to be recognised in the statement of fi nancial position at their estimated realisable value as the credit risk is retained by Rakon France SAS.

Property, plant and equipmentProperty, plant and equipment are recorded at historical cost, being the value of the consideration given to acquire the assets.

Assets under construction are recorded as capital work in progress. Depreciation is applied once these assets are complete and transferred to the appropriate asset category.

Depreciation is calculated on a straight line basis using the rates detailed below.

Asset lives are reviewed annually. All major spare parts held for specifi c machinery are capitalised and depreciated on the same basis as the specifi c machinery for which they are held.

ImpairmentAnnually, the Directors assess the carrying value of each

asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of fi nancial performance.

Distinction between capital and revenue expenditureCapital expenditure is defi ned as all expenditure on the creation of a new asset and any expenditure which increases the economic benefi ts over the total life of an existing asset.Revenue expenditure is defi ned as expenditure which restores an asset to its original condition and all expenditure incurred in maintaining and operating Rakon’s activities.

Intangible assets Patents, trademarks and licencesThe cost of patents acquired is determined based on the estimated cash fl ows over the estimated useful lives of the patents. The cost of trademarks and licences are based on the agreed fair value of the asset acquired. Amortisation of patents, trademarks and licenses is calculated on a straight line basis over their anticipated useful lives which range between seven and ten years.

Order and production backlogsOrder and production backlogs are amortised over the anticipated useful lives which range between 13 and 18 months.

GoodwillThe excess of cost over the fair value of the net assets of the subsidiaries is recognised as goodwill and is amortised to the statement of fi nancial performance on a straight line basis over the shorter of its estimated useful life or twenty years.

Statement of cash fl owsThe following are the defi nitions of the terms used in the statement of cash fl ows:a) Operating activities include all transactions and other events that are not investing or fi nancing activities.b) Investing activities are those that are related to holding and disposal of assets and investments.c) Financing activities are those that result in changes in the size and composition of the capital structure. This includes both debt and equity not falling within the defi nition of cash.d) Cash is considered to be cash on hand and current accounts in bank, net of bank overdraft.

Building 10%Land NilLeasehold improvements 3.6 - 16.9%Computer hardware 36%Computer software 36%Plant and equipment 5 - 10%Motor vehicles 20 - 25%Furniture and fi ttings 6 - 48%Capital work in progress Nil

32

F I N A N C I A L S

Leased assetsFinance leasesAssets under fi nance leases are recognised as non-current assets in the statement of fi nancial position. Leased assets are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment allocated between the liability and interest expense. Leased assets are depreciated on the same basis as equivalent property, plant and equipment.

Operating leasesLeases that are not fi nance leases are classifi ed as operating leases. Operating lease payments are recognised as an expense in the periods the amounts are payable.

Income taxIncome tax expense recognised for the year is based on the accounting surplus, adjusted for permanent diff erences between accounting and tax rules.

The impact of timing diff erence between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method.

A deferred tax asset or the eff ect of the losses carried forward that exceed the deferred tax liability, is recognised in the fi nancial statements only where there is a virtual certainty that the benefi t of the timing diff erences, or losses, will be utilised.

Research and developmentAll research costs are recognised as an expense when incurred. When a project reaches the stage where it is reasonably certain that future expenditure can be recovered through the process or products produced, development expenditure is recognised as a development asset. The asset is amortised from the commencement of commercial production or use of the product to which it relates on a straight line basis over the period of expected benefi t.

Employee entitlementsEmployee entitlements to salaries and wages, annual leave, long service leave and other benefi ts are recognised when they accrue to employees. The liability for employee entitlements is carried at the present value of the estimated future cash outfl ows.

Financial instrumentsRecognisedFinancial instruments carried on the statement of fi nancial position include bank balances, trade receivables, trade creditors and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

Financial instruments that are designated as hedges of specifi c items are recognised on the same basis as the underlying hedged items.

Where short term forward currency contracts have been taken out, the contract is valued on a mark to market basis and the corresponding asset or liability recognised in the statement of fi nancial position. Gains and losses on the valuation of forward currency contracts are recognised in the statement of fi nancial performance.

UnrecognisedThe net diff erential paid or received on interest rate swaps are recognised as a component of interest expense or revenue over the period of the agreement.

Adoption of International Financial Reporting StandardsIn December 2002 the New Zealand Accounting Standards Review Board announced that reporting entities would be required to comply with New Zealand equivalents of International Financial Reporting Standards (NZ IFRS) for fi nancial statements covering annual reporting periods starting on or after 1 January 2007, with earlier adoption for periods starting on or after 1 January 2005 permitted. In the case of Rakon Limited and subsidiaries (Rakon), the fi rst fi nancial year for which fully compliant fi nancial statements must be produced will be for the year commencing on 1 April 2007 (and ending 31 March 2008) at which time the comparative fi gures for the previous year will also be restated to comply with NZ IFRS.

Although early implementation is an option, the Board of Directors has determined that Rakon will adopt NZ IFRS for the fi rst time in its reports to shareholders for the year ending 31 March 2008.

An assessment has been performed to determine the diff erences between the current key accounting policies of Rakon and current NZ IFRS with the material diff erences set out below. It should not be regarded as a complete list of changes in accounting policies resulting from the transition

33

to NZ IFRS, as NZ IFRS and related interpretations may change between the issue date of these fi nancial statements and the Group’s fi rst balance date reported under NZ IFRS being 31 March 2008.

The purpose of the following disclosure is to highlight major impacts the Group expects as a result of transitioning to NZ IFRS. The expected material adjustments arising from diff erences between the current key accounting policies of Rakon and NZ IFRS identifi ed to date are outlined in the appropriate paragraphs. Where a reliable estimate of the impact is possible it has been quantifi ed. All adjustments noted below will be recognised through an adjustment to opening retained earnings or another component of equity as appropriate.

Functional currencyNZ IAS 21: The Eff ects of Changes in Foreign Exchange Rates, requires the functional currency of the group and parent to be determined. The currency of Rakon’s primary economic environment is the functional currency and this drives how foreign exchange gains and losses are determined. The Board has considered the impact of NZ IFRS as regards the appropriate functional currency for Rakon and determined that Rakon should continue to report using NZ dollars as its functional currency when it adopts NZ IFRS.

Financial Instruments and hedge accountingNZ IAS 39: Financial Instruments: Recognition and Measurement, (“NZ IAS 39”) requires all derivative instruments to be recorded at fair value in the statement of fi nancial position with the related changes in fair value being recognised in income unless the instruments qualify for hedge accounting and the NZ IAS 39 hedging criteria are met. Rakon currently uses both foreign exchange contracts (options and forwards) to hedge forecast foreign cash fl ows and interest rate swaps to hedge borrowings. Rakon intends to adopt hedge accounting for these instruments wherever practicable from 1 April 2007 onwards. Where such instruments qualify as cash fl ow hedges the eff ective portion of changes in fair value of those instruments will be recorded directly in equity until the hedged transaction occurs. Where such instruments qualify as fair value hedges, changes in the fair value of the instruments along with changes in the fair value of the debit will be recorded in the statement of fi nancial performance.

If the instruments do not qualify for hedge accounting, the entire change in the fair value of the instruments will

be recorded in the statement of fi nancial performance. Rakon currently recognises the fair value of forward foreign exchange contracts in the statement of fi nancial position with fair value movements being recorded in the statement of fi nancial performance. The impact of the initial adoption of NZ IAS 39 will not have a material impact on the fi nancial statements.

Income taxNZ IAS 12: Income taxes, requires an entity to calculate deferred tax using a balance sheet approach by comparing the tax bases of assets and liabilities to their carrying values in the statement of fi nancial position. Diff erences between the two values are temporary diff erences on which deferred tax must be recognised (with some limited exceptions). This is diff erent to current New Zealand accounting standards and is expected to result in a deferred tax liability larger than that currently recorded in the statement of fi nancial position of the Group.

Business combinationsNZ IFRS 3: Business Combinations is required to be followed for all business combinations entered into from the date of the opening balance sheet at 1 April 2006. Under this standard all business combinations must be recognised using purchase accounting and goodwill will no longer be amortised (instead goodwill will be subject to an annual impairment test within the constraints of NZ IAS 36: Impairment of Assets).

Share based paymentsNZ IFRS 2: Share Based Payments requires an entity to determine the fair value of all share based remuneration and amortise the expense over the relevant vesting period. The Group has issued share options to selected employees as a form of equity based compensation under the Rakon Share Growth Plan. The Group has not recognised an expense in respect of these shares. On adoption of NZ IFRS the Group will be required to determine the fair value of all share based remuneration, and this will result in an expense being recognised as an adjustment to the comparative period.

ComparativesCertain prior year comparative fi gures have been reclassifi ed to conform to the current year’s presentation.

Accounting policiesThere have been no changes in accounting policies during the year.

34

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

For the year ended 31 March 2007

1. Segment informationThe Group operates in one industry, namely the development and manufacture of electronic components for timing reference and frequency control.

For the fi rst 11 months of the year the Group operated from one geographic segment being New Zealand. Subsequent to the acquisition of the Frequency Controls Products Division from C-Mac MicroTechnology, the Group now operates in New Zealand and Europe. For sales by geographic regions refer to note 2.

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Asia 64,594 40,217 62,740 40,217North America 26,786 23,270 25,403 23,270Europe 11,684 8,038 9,512 8,038Others 2,838 2,784 2,738 2,784

105,902 74,309 100,393 74,309

2. Operating revenueTrading revenue by region

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Continuing activities

Trading revenue 105,902 74,309 100,393 74,309

Investment revenue

Dividends 2 - 2 -Interest 330 62 331 61

Operating revenue

2007 2006

NZ Europe Others* Group NZ Europe Others* Group

($000s) ($000s) ($000s) ($000s) ($000s) ($000s) ($000s) ($000s)

External customers 100,731 5,508 - 106,239 74,371 - - 74,371Intersegment sales - - - - - - - -

Segment revenue 100,731 5,508 - 106,239 74,371 - - 74,371

Segment result (EBIT) 16,585 (44) - 16,541 8,918 - - 8,918

Segment assets 67,451 74,119 (500) 141,070 49,200 - - 49,200

*Other, unallocated and eliminations

F I N A N C I A L S

35

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Other revenue

Other Income 5 - 5 -

Total revenue from continuing activities 106,239 74,371 100,731 74,370

Total operating revenue 106,239 74,371 100,731 74,370

Operating revenue

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Operating expenses Include : Continuing activities

Depreciation of property, plant and equipment

Building 17 1 3 1Leasehold improvements 197 193 195 192Plant and equipment 2,344 1,954 2,305 1,954Motor vehicles 6 4 6 4Furniture and fi ttings 64 50 57 49Computer hardware 333 320 328 317Computer software 585 436 585 436

Total depreciation 3,546 2,958 3,479 2,953

Loss/(gain) on disposal of property, plant and equipment (2) 74 (2) 74Amortisation of goodwill 111 - - -Amortisation of other intangibles 122 - - -Rental costs 1,074 1,114 919 917Research and development expense* 2,908 129 2,764 129Net foreign currency loss/(gain) 374 (20) 406 64Directors’ fees 207 67 207 67Donations 1 1 1 1

Costs of off ering credit

Bad debts written off - 62 - 62Increase/(decrease) in estimated doubtful debts 135 158 132 158

Cost of borrowings

Interest 691 1,386 676 1,386Financing charge related to fi nance leases - 203 - 203Interest and break fee charge on change of bank - 144 - 144

Auditor’s fees+

Auditors fee paid to principal auditors 203 79 128 79Audit fee paid to other auditors 5 4 - -

3. Operating expenses

36

* The 2007 research and development expense includes cost of material, cost of internal labour and other directly attributable overhead research and development costs. The 2006 research and development expense only includes cost of material. In 2007, $312,950 labour costs were capitalised to development projects (2006: $171,723).+ In addition to the audit fees noted above, fees paid to the company’s auditors for due diligence activity amounted to $307,000 in the prior year (see Note 4, included within share issuance costs) and $302,000 in the current year (see Note 15, included within goodwill as directly attributable acquisition costs).

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Issued and paid up capital

Ordinary shares

Balance at beginning of year 13,136 250 13,136 250Shares issued during the year 70,000 12,886 70,000 12,886

Balance at end of year 83,136 13,136 83,136 13,136 Redeemable ordinary shares

Balance at beginning of year - - - -Shares issued during the year 55 - 55 -

Balance at end of year 55 - 55 - Share issuance costs

Balance at beginning of year - - - -Cost incurred for IPO (1,103) - (1,103) -Cost incurred for placement (1,200) - (1,200) -

Balance at end of year (2,303) - (2,303) - Total Share Capital 80,888 13,136 80,888 13,136

4. Share capital

F I N A N C I A L S

At 31 March 2007 there were 120,205,675 fully paid ordinary shares on issue (31 March 2006: 318,377), 859,137 unpaid ordinary shares on issue to the trustee of the Rakon Share Plan (31 March 2006: 2,759) and 1,100,000 partly paid redeemable ordinary shares on issue to the trustee of the Rakon Share Growth Plan (31 March 2006: nil). All ordinary shares rank equally with one vote attached to each fully paid ordinary share.

On 16 February 2007, 14,814,815 ordinary shares were issued at $4.05 per share. On 16 May 2006, Rakon listed on the NZX and 6,250,000 new ordinary shares were issued at $1.60 per share. On 13 April 2006, Rakon undertook a share split of 311.394549 to 1. This resulted in the number of shares on issue increasing to 100 million shares.

On 17 March 2006, 2,759 ordinary shares were issued under the Rakon Share Plan at $188.46 per share. On 19 October 2005, shareholder loans were capitalised and 68,377 ordinary shares were issued at $188.46 per share.

37

Rakon Share Plan

Rakon Limited has established a Share Plan to enable selected employees of Rakon Limited to acquire shares in the Company through the Plan Trustee, Rakon ESOP Trustee Limited.

Under the terms of the Share Plan, 2,759 ordinary shares were issued at deemed market value at that time to Rakon ESOP Trustee Limited to hold on behalf of the participating employees on 17 March 2006. Following the share split on 13 April 2006, the resulting number of shares under this plan is 859,137. All shares issued to Rakon ESOP Trustee Limited have been allocated. The shares rank equally in all respects with all other ordinary shares issued by the Company. No amounts have been paid up on the Shares. A loan facility provided by Rakon Limited to participating employees in respect of these shares totals $520,000 (2006: nil). Loans will be provided on an interest free basis and the employee may repay all or part of the loan at any time. No repayments were due at 31 March 2007 (31 March 2006: $Nil). The Trust Deed makes provision for the Company to require repayment of the loans in certain circumstances.

Shares issued under the Share Plan are held on trust by Rakon ESOP Trustee Limited. The shares cannot be sold or otherwise dealt with by the participating managers for a period of 18 months from the date of issue. At any time after the end of this period the participating manager may request the Trustee to transfer the relevant shares to him or her. The Trustee will not transfer the Shares to a participating manager until the loan to that manager has been repaid in full.

The Company may remove and appoint trustees at any time. The directors and shareholders of Rakon ESOP Trustee Limited are Bryan Mogridge and Bruce Irvine.

Shares held by the Share Plan represent approximately 0.70% of the Company’s total shares on issue as at balance date (2006: 0.86%).

Rakon Share Growth Plan

Rakon Limited has established a Share Growth Plan to enable selected senior executives of Rakon Limited to acquire Shares in the Company through the Plan Trustee, Rakon PPS Trustee Limited. On 5 May 2006 Rakon issued 1.1 million Plan Shares; the shares had an issue price of $1.60, with $0.05 per share being received from participating executives on issuance. While the Plan Shares remain held by the Trustees, an annual payment of $0.05 per share is required.The Plan rules provide for the transfer of these shares over a three year period provided they are paid in full and the share price equals or exceeds a benchmark price at the time of transfer. The benchmark price requires that Rakon’s share price increases by a compound rate of 14% per annum for the date of issue of the shares. An executive will cease to be entitled to require the Trustee to transfer any relevant shares to the executive if the request is not made before the 4th anniversary of the issue date or if they cease to be an employee of the company other than by reason of death or total and permanent disablement. In either of these instances the Trustee will redeem the shares.

The Plan shares do not carry any voting rights until such time as the holder elects for the relevant shares to carry voting rights to the extent of the proportion of the issue price paid up on the shares. No such elections have been made.

The Company may remove and appoint trustees at any time. The directors and shareholders of Rakon PPS Trustee Limited are Bryan Mogridge and Bruce Irvine.

Rakon Employee Share Option Scheme

In May 2006 Rakon established an employee share option scheme. During the year 2,034,000 options were issued to selected employees. Each option granted will convert to one ordinary share on exercise. A participant may exercise a third of his or her options any time after the fi rst anniversary, second and third anniversaries subject to the weighted average share price on the 10 days preceding the date of exercise exceeding a benchmark price. The benchmark price requires that Rakon’s share price increases by a compound rate of 14% per annum for the date of issue of the option. Options lapse on their fourth anniversary. Participants also have the option to cancel options whereby they will be issued shares to the value of the gain that would have been received had the options been exercised.

38

31 March 2007 31 March 2006

Option Number of Option Number of

Price* Options Price* Options

Granted 1.66 2,034,000 - -Exercised - -Cancelled - -Lapsed - -

Balance outstanding 2,034,000 -

*weighted average

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Analysis

Balance at beginning of year 10,909 7,707 10,780 7,672Net surplus for the year 10,647 4,802 10,674 4,708Dividends paid - (1,600) - (1,600)

Balance at end of year 21,556 10,909 21,454 10,780

5. Retained earnings

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Balance at the beginning of the year - - - -Net exchange diff erence on the translation of foreign subsidiaries (1,544) - - -

Balance at end of year (1,544) - - -

6. Foreign currency translation reserve

F I N A N C I A L S

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Ordinary dividends

Declared fi nal

On ordinary shares: Cash - 1,600 - 1,600

Total dividends - 1,600 - 1,600

The dividends were fully imputed.

7. Dividends

39

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Imputation credit account Balance at beginning of year 5,382 3,051 5,382 3,051

Lost of imputation credits due to shareholding change (5,382) - (5,382) -

Tax payments, net of refunds 5,368 3,119 5,368 3,119Imputation credits attached to dividends paid - (788) - (788)

Balance at end of year 5,368 5,382 5,368 5,382

8. Imputation balances

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Borrowings due within 12 months

Trade fi nance facility 853 - - -Capitalised lease obligations (note 13) - 1,314 - 1,314

853 1,314 - 1,314

Non-current borrowings

Borrowings – 5 year interest only term loan* 8,000 8,000 8,000 8,000

8,000 8,000 8,000 8,000

Bank overdraft due within 12 months 30 6,901 30 6,901

*Term expires in 2010.

9. Borrowings and bank overdraft

Security

Bank overdraftThe bank overdraft is secured by fi rst mortgage over all the undertakings of Rakon Limited and any other wholly owned present and future subsidiaries.

Trade fi nance facilityRakon has provided a guarantee over the trade fi nance facility to Société Générale. Société Générale provides a discounted receivables credit line up to €760,000 to Rakon France SAS. Interest is charged at the Euro OverNight Index Average (eonia) +1%. The credit risk remains with Rakon France SAS.

Capitalised lease obligationCapitalised lease obligations are secured over the property under lease.

40

Group Parent

2007 2006 2007 2006

% % % %

Weighted average eff ective interest rates on borrowings

Borrowings and bank overdraft 8.25% 8.29% 8.25% 8.29%Owing to related parties - 9.69% - 9.69%

Interest rates

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Asset/(liability) at beginning of year 118 (165) 118 (165)On surplus for the year (577) 283 (593) 283Impact of purchase of subsidiaries 434 - - -Foreign exchange adjustment (12) - - -

Asset/(liability) at end of year (37) 118 (475) 118

11. Deferred tax

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Trade creditors 16,320 4,069 6,084 4,069Employee entitlements 6,673 1,511 2,145 1,511Accrued expenses 5,205 2,953 3,022 2,896Payable to related parties - - 402 117Income tax payable 3,052 407 - 396

31,250 8,940 11,653 8,989

10. Payables and accruals

F I N A N C I A L S

41

Group

2007 2006

Tax Losses ($000s) ($000s)

Unrecognised tax losses available for set off against future assessable income for:

Rakon France Holdings SAS:

Tax losses 48,682 -Tax benefi t 16,552 -

Rakon Singapore Pte Limited:

Tax losses 597 625Tax benefi t 129 135

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Operating surplus before tax 16,180 7,247 16,085 7,142

Permanent diff erences

Non-deductible expenses 323 244 95 234Tax losses not recognised 74 - - -

Surplus subject to tax 16,577 7,491 16,180 7,376Tax at 33% 5,470 2,472 5,339 2,434Foreign tax credit - (27) - -Reduced tax on foreign income due to diff erent tax rate (9) - - -Prior period tax adjustment 72 72

Income tax recognised in statement of fi nancial performance 5,533 2,445 5,411 2,434

Attributable to continuing activities 5,533 2,445 5,411 2,434

Total tax expense recognised for the year 5,533 2,445 5,411 2,434

Comprising: Estimated current year tax assessment 4,956 2,728 4,818 2,717Deferred tax charge/(credit) 577 (283) 593 (283)

5,533 2,445 5,411 2.434

12. Income tax

42

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Operating leases

Non-cancellable operating lease commitments: Within one year 1,468 637 984 621Later than one, not later than two years 1,048 688 797 686Later than two, not later than fi ve years 2,360 1,845 1,745 1,845More than fi ve years 3,011 2,560 1,841 2,560

7,887 5,730 5,367 5,712

13. CommitmentsThe following amounts have been committed by the Group or Parent, but not recognised in the fi nancial statements:

The Group leases premises, and plant and equipment. Operating leases held over properties give Rakon Limited the right to renew the lease subject to a redetermination of the lease rental by the lessor. There are no renewal options or options to purchase in respect of premises, plant and equipment held under operating and fi nance leases.

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Finance leases

Non-cancellable fi nance lease commitments: Within one year - 1,314 - 1,314

- 1,314 - 1,314

Capital expenditure

Amounts committed to capital expenditure 720 117 286 117

Accumulated Book Accumulated Book

Cost Depreciation Value Cost Depreciation Value

($000s) ($000s) ($000s) ($000s) ($000s) ($000s)

Group

Plant and equipment 40,716 20,752 19,964 27,676 18,298 9,378Capital fi nance lease assets - - - 2,229 154 2,075

Total Plant and equipment 40,716 20,752 19,964 29,905 18,452 11,453

Leasehold improvements 3,720 1,957 1,763 2,755 1,761 994Land 2,667 - 2,667 - - -Building 2,331 18 2,313 28 1 27Motor vehicles 44 32 12 32 26 6Furniture and fi ttings 938 645 293 800 585 215Computer hardware 3,234 2,032 1,202 2,140 1,711 429Computer software 3,642 2,563 1,079 2,614 1,978 636Capital work in progress 3,077 - 3,077 1,120 - 1,120

60,369 27,999 32,370 39,394 24,514 14,880

200714. Property, plant and equipment 2006

F I N A N C I A L S

43

Principal Country of Balance

Naming of entity activities incorporation date ($000s) ($000s)

Rakon America LLC Marketing support USA 31-Mar 100 100Rakon Singapore (Pte) Limited Marketing support Singapore 31-Mar 100 100Rakon Financial Services Limited Financing New Zealand 31-Mar 100 -Rakon ESOP Trustee Limited Share trustee New Zealand 31-Mar 100 100Rakon PPS Trustee Limited Share trustee New Zealand 31-Mar 100 100Rakon International Limited Marketing support New Zealand 31-Mar 100 -Rakon UK Holdings Limited Holding company United Kingdom 31-Mar 100 -Rakon UK Limited Manufacturing and sales United Kingdom 31-Mar 100 -Rakon Europe Limited Sales United Kingdom 31-Mar 100 -Rakon France Holdings SAS Holding company France 31-Aug 100 -Rakon France SAS Manufacturing and sales France 31-Aug 100 -Argenteuil SAS Property holding France 31-Aug 100 -

15. Investment in subsidiaries Signifi cant subsidiaries comprise:

On 6 April 2006 Rakon International Limited was incorporated in New Zealand, with a United Kingdom branch established on 5 June 2006. On 30 November 2006 Rakon UK Holdings Limited was incorporated in the United Kingdom. On 27 February 2007 Rakon Financial Services Limited was incorporated in New Zealand.

Interest held by Group %

Accumulated Book Accumulated Book

Cost Depreciation Value Cost Depreciation Value

($000s) ($000s) ($000s) ($000s) ($000s) ($000s)

Parent

Plant and equipment 37,303 20,713 16,590 27,676 18,298 9,378Capital fi nance lease assets - - - 2,229 154 2,075

Total Plant and equipment 37,303 20,713 16,590 29,905 18,452 11,453

Leasehold improvements 3,291 1,954 1,337 2,751 1,758 993Building 28 3 25 28 1 27Motor vehicles 44 32 12 32 26 6Furniture and fi ttings 857 641 216 797 584 213Computer hardware 2,721 1,998 723 2,109 1,678 431Computer software 3,642 2,563 1,079 2,614 1,978 636Capital work in progress 2,808 - 2,808 1,120 - 1,120

50,694 27,904 22,790 39,356 24,477 14,879

2007 2006

The latest independent valuation of land and buildings at 44 Glacière Avenue, Argenteuil, prepared by a registered independent valuer, in December 2006 records a value of €810,000. Government valuations are not performed in France.

The latest government valuation of land and buildings at Sadler Road, Lincoln, issued in 2005, records a value of £91,500.

44

Acquisition of subsidiaries

On 2 March 2007 Rakon UK Holdings Limited purchased 100% of the shares of:C-MAC Frequency Products Limited (renamed Rakon Europe Limited)C-MAC Quartz Products Limited (renamed Rakon UK Limited)C-MAC Holdings SAS (renamed Rakon France Holdings Limited)for cash consideration of $58 million (including $4 million directly attributable acquisition costs). From 2 March 2007 the operating results of Rakon UK Holdings Limited Group, consisting of an operating defi cit after taxation of $237,068, have been included in the Group statement of fi nancial performance.

Group

2007 2006

($000s) ($000s)

Net assets acquired (classifi cation subject to fi nalisation of completion process): Bank balances (182) -Net current assets 10,324 -Property, plant and equipment 9,685 -Separately identifi able intangible assets 6,639 -

26,466 -Goodwill on acquisition (to be amortised over 20 years) 31,584 -

Consideration paid 58,050 -Bank balances acquired 182 -

Net cash impact on acquisition 58,232 -

Summary of the eff ect of acquisition of subsidiaries

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Inventories comprise:

Raw materials and stores 17,402 10,217 13,979 10,217Work in progress 10,149 7,449 6,488 7,449Finished goods 7,247 2,069 2,927 2,069

34,798 19,735 23,394 19,735

16. Inventories

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Current

Trade receivables 30,834 12,446 14,325 12,446Provision for doubtful debts (827) (158) (290) (158)GST receivable 781 327 765 327Receivable from related parties - - 1,305 -Prepayments and other assets 3,934 999 890 970Income tax receivable - - 153 -

34,722 13,614 17,148 13,585

17. Accounts receivable

F I N A N C I A L S

45

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Separable intangible assets

Patents

Gross opening balance - - - -Accumulated amortisation at beginning of year - - - -

Unamortised balance at beginning of year - - - -Acquisitions 4,630 - - -Foreign exchange rate changes (132) - - -Current year amortisation (37) - - -

Unamortised balance at end of year 4,461 - - - Trademarks

Gross opening balance - - - -Accumulated amortisation at beginning of year - - - -

Unamortised balance at beginning of year - - - -Acquisitions 731 - - -Foreign exchange rate changes (21) - - -Current year amortisation (8) - - -

Unamortised balance at end of year 702 - - -

Order backlog

Gross opening balance - - - -Accumulated amortisation at beginning of year - - - -

Unamortised balance at beginning of year - - - -Acquisitions 1,278 - - -Foreign exchange rate changes (36) - - -Current year amortisation (73) - - -

Unamortised balance at end of year 1,169 - - -

Inseparable intangible assets

Goodwill

Gross opening balance - - - -Accumulated amortisation at beginning of year - - - -

Unamortised balance at beginning of year - - - -Goodwill arising on acquisition of subsidiary 31,584 - - -Foreign exchange rate changes (782) - - -Current year amortisation (111) - - -

Unamortised balance at end of year 30,691 - - - Total intangible assets 37,023 - - -

18. Intangibles

46

19. Financial instrumentsThe Group is subject to a number of fi nancial risks which arise as a result of its activities.

To manage and limit the eff ects of those fi nancial risks, the Board of Directors has approved policy guidelines and authorised the use of various fi nancial instruments. The policies approved, and fi nancial instruments being utilised at balance date, are outlined below.

Currency risk

PoliciesDuring the normal course of the business the Group exports products, and imports raw material and inventory. As a result of these transactions exposures to fl uctuations in foreign currency exchange rates arise. The currencies in which the Group primarily deals are the United States Dollar, Euro, Great Britain Pound and Japanese Yen.

It is the Group’s policy to enter into foreign currency forward contracts to manage the exposure to fl uctuations in currency rates.

Unrecognised balancesThe notional or principal contract amounts of foreign exchange instruments outstanding at balance date are:

Group and Parent

2007 2006

($000s) ($000s)

Forward foreign exchange contracts 22,057 24,008

The cash settlement requirement of the forward exchange contracts approximates the notional amounts shown above.

Interest rate risk

PoliciesTo manage interest expense appropriately, the Group engages fi xed and variable loan facilities.

Rakon Limited uses interest rate swaps to manage its interest rate risk. These are entered into for periods up to fi ve years, with the level and maturity of core debt determining the proportion of fi xed cover required to be maintained. The interest rate on borrowings is either converted from fl oating to fi xed or vice-versa through entering into an interest rate swap.

Unrecognised balancesThe notional principal or contract amounts of interest rate contracts outstanding at balance date is:

F I N A N C I A L S

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Interest rate swaps 5,000 5,000 5,000 5,000

The cash settlement requirement for interest rate swaps as at 31 March 2007 net interest is $6,349 (31 March 2006: nil). The maturity date of the interest rate swap is 16 May 2008.

47

Eff ective Current 1-2 years 2-5 years >5 years Total

interest rates ($000s) ($000s) ($000s) ($000s) ($000s)

Asset

Bank 3.38% 853 - - - 853

Liabilities

Bank overdraft 8.29% (6,901) - - - (6,901)

Term borrowings 8.30% - - (8,000) - (8,000)

Unrecognised

Interest rate swap 6.54% 5,000 - - - 5,000

Repricing gap (1,048) - (8,000) - (9,048)

Group - 2006

Eff ective Current 1-2 years 2-5 years >5 years Total

interest rates ($000s) ($000s) ($000s) ($000s) ($000s)

Asset

Bank 7.27% 1,128 - - - 1,128

Liabilities

Bank overdraft 8.25% (30) - - - (30)

Term borrowings 8.20% - - (8,000) - (8,000)

Unrecognised

Interest rate swap 5.84% 5,000 - - - 5,000

Repricing gap 6,098 - (8,000) - (1,902)

Parent - 2007

Eff ective Current 1-2 years 2-5 years >5 years Total

interest rates ($000s) ($000s) ($000s) ($000s) ($000s)

Asset

Bank 7.27% 2,157 - - - 2,157

Liabilities Bank overdraft 8.25% (30) - - - (30)

Current borrowings 4.90% (853) - - - (853)

Term borrowings 8.20% - - (8,000) - (8,000)

Unrecognised

Interest rate swap 5.84% 5,000 - - - 5,000

Repricing gap 6,274 - (8,000) - (1,726)

Group - 2007

Repricing analysis

Trade receivables, trade creditors, sundry receivables and sundry payables have not been included in the following repricing analysis as they are not interest rate sensitive.

48

Eff ective Current 1-2 years 2-5 years >5 years Total

interest rates ($000s) ($000s) ($000s) ($000s) ($000s)

Asset

Bank 3.38% 803 - - - 803

Liabilities

Bank overdraft 8.29% (6,901) - - - (6,901)Term borrowing 8.30% - - (8,000) - (8,000)

Unrecognised

Interest rate swap 6.54% 5,000 - - - 5,000

Repricing gap (1,098) - (8,000) - (9,098)

Parent - 2006

F I N A N C I A L S

Credit risk

Rakon Limited incurs credit risk from transactions with trade receivables in the normal course of its business.

Rakon Limited has a credit policy which restricts exposure to individual trade receivables and the Board of Directors reviews exposure to trade receivables on a regular basis. The Group does not have any signifi cant concentrations of credit risk. Amounts owed by trade receivables are unsecured.

The maximum credit risk is represented by the carrying value of each fi nancial asset recorded in the statement of fi nancial position.

Fair values

Method and assumptionsThe following methods and assumptions are used to estimate the fair value of each class of fi nancial instruments:

Cash at bank, bank overdraft, term deposits, loans issued, receivables and trade creditors.The carrying value of these items is equivalent to their fair value. As such, they have been excluded from the table below.

BorrowingsFair values of borrowings are estimated, based on current market interest rates available to the Group for debt of similar maturity at balance date.

Interest rates swap and foreign currency forward exchange contractsThe fair values of the derivatives are based on valuations provided by the Group’s bankers at balance date.

2007 2006

Carrying value Fair value Carrying value Fair value

($000s) ($000s) ($000s) ($000s)

Liabilities

Current borrowings (853) (853) (1,314) (1,314)Non-current borrowings (8,000) (8,000) (8,000) (8,000)Foreign exchange contracts 521 521 (1,079) (1,079)Unrecognised

Interest rate swaps 6 133 - 186

Fair value summary

49

Unhedged foreign currency monetary assets and liabilities

At balance date, the company had the following unhedged foreign currency monetary assets and liabilities:

Group Parent

2007 2006 2007 2006

($000s) ($000s) ($000s) ($000s)

Asset

Euro 4,283 15 45 15British Pounds - 23 - 23Australian Dollars 29 2 29 2US Dollars 4,738 - - - Liabilities

Japanese Yen 2,298 - 1,688 -British Pounds 943 - 361 -Singapore Dollars 2 - 2 -Swiss Francs 4 - - -

The following currency conversion rates have been applied at balance date:

21. Contingent liabilities During 2007, Rakon received some enquiries regarding the validity of items of intellectual property. Based on the current information available management do not believe these enquiries will result in any material changes to the fi nancial results; (2006: no contingent liabilities).

22. Related party informationRakon Limited leases premises from Trident Investments Limited, a Robinson family company. Normal commercial lease agreements are in place for the premises. The lease costs charged by Trident Investments Limited to Rakon Limited for the year is $581,817 (31 March 2006: $557,000).

Rakon Limited provides accounting and administrative services to Rakon America LLC, Rakon Singapore (Pte) Limited, Sigma Electronics Limited, Trident Investments Limited and Ahuareka Trust free of charge.

No amounts owed by related parties have been written or forgiven during the year.

Group and Parent

2007 2006

($000s) ($000s)

NZ$1.00 = USD 0.7143 0.6121JPY 84.2600 71.8200AUD 0.8856 0.8563GBP 0.3641 0.3503SGD 1.0840 0.9905EUR 0.5358 0.5035

20. CurrencyThe following currency conversion rates have been applied at balance date:

50

F I N A N C I A L S

There were no advances outstanding from Directors at 31 March 2007 (31 March 2006: $Nil). During the 2006 year certain advances to and from Directors attracted interest at 90 day bank bill rate plus an additional 2.25%. Net interest charges for the year ended 31 March 2006 were: BJ Robinson $3,339 paid and DP Robinson $1,499 received.

There were no advances outstanding from Ahuareka Trust or a wholly owed subsidiary at 31 March 2007 (31 March 2006: $Nil). During the 2006 year Ahuareka Trust advanced monies to Rakon Limited on an interest free basis. In October 2005, shareholders’ loans amounting to $12,886,009 were capitalised and an additional 68,377 ordinary shares were issued to Ahuareka Trust. Rakon Holdings Limited, the former major shareholder, was liquidated in November 2005 and the shares in Rakon Limited were transferred to the Ahuareka Trust. Ahuareka Trust later sold 63,675 shares to Tahia Investments (53,062 shares) and Zeus Zeta Limited (10,613 shares).

23. Comparison against listing profi le forecastThe following is a comparison of the actual fi nancial performance for the Group compared to the forecast as per the Company’s prospectus registered 13 April 2006 for the year ended 31 March 2007 and the fi nancial position as at that date.

Group Actual Group Forecast Group Actual Group Forecast

2007 2007 2006 2006

($000s) ($000s) ($000s) ($000s)

Summary statement of fi nancial performance

Operating revenue 106,239 90,590 74,371 73,291

Operating surplus before income tax 16,180 10,836 7,247 6,685Income tax (5,533) (3,614) (2,445) (2,290)

Net surplus 10,647 7,222 4,802 4,395

Operating revenue is ahead of forecast due to stronger demand for frequency products from customers for use in personal navigation devices and the business acquisition of 2 March 2007. 2006 was slightly ahead of forecast results due to substantial weakening in the NZ$/US$ exchange rate during March and higher than forecast sales of consignment stock.

Operating surplus before income tax and net surplus have increased directly as a result of the increase in operating revenue.

Group Actual Group Forecast Group Actual Group Forecast

2007 2007 2006 2006

($000s) ($000s) ($000s) ($000s)

Summary statement of fi nancial position

Total equity 100,900 40,384 24,045 24,162Total non-current liabilities 8,037 8,672 8,000 8,502Total current liabilities 32,133 14,302 17,155 16,845

Total equity and liabilities 141,070 63,358 49,200 49,509

Total non-current assets 69,393 22,879 14,998 16,131Total current assets 71,677 40,479 34,202 33,378

Total assets 141,070 63,358 49,200 49,509

51

Group Actual Group Forecast Group Actual Group Forecast

2007 2007 2006 2006

($000s) ($000s) ($000s) ($000s)

Cash fl ow summary

Net cash fl ow from operating activities 10,777 4,240 9,725 8,758Net cash fl ow from investing activities (69,855) (10,433) (5,395) (6,065)Net cash fl ow from fi nancing activities 67,783 9,500 (7,364) (8,674)

Net increase/(decrease) in cash 8,705 3,307 (3,034) (5,981)

Net cash fl ow from operating activities is higher than forecast due to higher customer demand for products and consequently higher customer receipts in both 2007 and 2006.

Net cash fl ow from investing activities is signifi cantly higher than forecast due to the business acquisition. In 2006 net cash fl ow applied to investing activities is lower than forecast due to the timing of capital expenditure.

Net cash fl ow from fi nancing activities is signifi cantly higher than forecast due to the issuance of shares in February 2007. In 2006 net cash fl ow applied to fi nancing activities is lower than forecast due to classifi cation of a fi nance lease arrangement.

24. Subsequent eventsOn 10 April 2007, Rakon issued 5,456,006 ordinary shares under the Rakon Share Purchase Plan. Eligible shareholders were able to purchase shares up to a value of $5,000 at a share price of $4.05 per share.

On 10 April 2007, Rakon issued 830,000 share options to key managers associated with the recent acquisition of the Frequency Control Products division from C-Mac MicroTechnology. The share options were awarded under the Rakon Limited Share Growth Plan established in April 2006.

Total equity is signifi cantly higher than forecast due to issuance of shares under the institutional placement of 16 February 2007 to fund the acquisition of the Frequency Control Products division of C-Mac MicroTechnology.

In 2006 total equity was in line with forecast, higher earnings were off set by the impact of accounting for shares issued under the Management Share Ownership Plan.

In 2006 total non-current liabilities are below forecast due to the deferred tax balance being in debit rather than credit balance at year end.

Total current assets are higher due to the impact of business acquisition. In 2006 the total current liabilities were fractionally higher than forecast due to the timing of creditor payments.

Total non-current assets are signifi cantly higher than forecast due to the business acquisition. In 2006 total non-current assets were below forecast due to the timing of capital expenditure and the impact of accounting for shares issued under the Management Share Ownership Plan.

Total current assets are higher than forecast due to the business acquisition. In 2006 total current assets were above forecast due to higher than forecast closing cash position.

52

F I N A N C I A L S

Auditors’ Report

to the shareholders of Rakon Limited

We have audited the fi nancial statements on pages 26 to 51. The fi nancial statements provide information about the past fi nancial performance and cash fl ows of the Company and Group for the year ended 31 March 2007 and their fi nancial position as at that date. This information is stated in accordance with the accounting policies set out on pages 30 to 33.

Directors’ Responsibilities

The Company’s Directors are responsible for the preparation and presentation of the fi nancial statements which give a true and fair view of the fi nancial position of the Company and Group as at 31 March 2007 and their fi nancial performance and cash fl ows for the year ended on that date.

Auditors’ Responsibilities

We are responsible for expressing an independent opinion on the fi nancial statements presented by the Directors and reporting our opinion to you.

Basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes assessing:(a) the signifi cant estimates and judgements made by the Directors in the preparation of the fi nancial statements; and(b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and ad equately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with suffi cient evidence to give reasonable assurance that the fi nancial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors and transaction services advisers.

Unqualifi ed Opinion

We have obtained all the information and explanations we have required.

In our opinion:(a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and(b) the fi nancial statements on pages 26 to 51:(i) comply with generally accepted accounting practice in New Zealand; and(ii) give a true and fair view of the fi nancial position of the Company and Group as at 31 March 2007 and their fi nancial performance and cash fl ows for the year ended on that date.

Our audit was completed on 15 May 2007 and our unqualifi ed opinion is expressed as at that date.

Chartered Accountants Auckland

PricewaterhouseCoopers188 Quay StreetPrivate Bag 92162Auckland, New ZealandDX CP24073www.pwc.com/nzTelephone +64 9 355 8000Facsimile +64 9 355 8001

53

54

I N F O R M A T I O NS H A R E H O L D E R

Directors

Non-executive directors receive fees determined by the Board on the recommendation of the Remuneration Committee plus reasonable travelling, accommodation and other expenses incurred in the course of performing duties or exercising powers as Directors. Shareholders approved a total pool of $240,000 for the remuneration of non-executive directors in December 2005. Annual Directors’ fees were set at $80,000 for the Chairman and $40,000 for each non-executive director with eff ect from 1 December 2005.

Brent Robinson and Darren Robinson are employed by Rakon as Managing Director and Marketing Director respectively and receive salary and other remuneration and benefi ts in respect of their employment.

The following people held offi ce as a Director during the year and received the following remuneration including benefi ts during the year.

Directors Interests

In association with Rakon ‘s initial public off ering of shares, Ahuareka Trustee Limited (as trustee for the Ahuareka Trust), Tahia Investments Limited, Brent Robinson and Darren Robinson (the Shareholders) entered into a Shareholder Restriction Deed (the Deed) with Rakon Limited and UBS New Zealand Limited. Each of the Shareholders agreed that shares held by each of them would not be transferred (except in limited circumstances) until 30 days after the date Rakon made its preliminary announcement to NZSX for the fi nancial year ending 31 March 2007 (i.e. 14 June 2007).

In August 2006, in accordance with the Deed, Rakon and UBS consented to the transfer of shares by Ahuareka Trustee Limited to Warren John Robinson and Trusts Limited refl ecting a change only in the trustee of Ahuareka Trust. In May 2007, in accordance with the Deed, Rakon Limited and UBS consented to the sale of 1.6 million shares by Tahia Investments Limited.

Trident Investments Limited, a company associated with Warren Robinson, Brent Robinson and Darren Robinson have leased premises to Rakon on arms-length, commercial terms under Deeds of Lease dated 23 August 2005 between Rakon and Trident Investments Limited and receive rental payments from Rakon.

As permitted by the Companies Act 1993, the Company has granted certain indemnities to the Directors and specifi ed employees of the Company or any related company in respect of liability and legal costs incurred by those Directors and specifi ed employees in their capacity as Directors and/or employees of the Company or any related company. As permitted by the Companies Act 1993, the Company has arranged a policy of Directors’ and Offi cers’ Liability Insurance which insures those persons indemnifi ed for certain liabilities and costs.

In accordance with Section 140(2) of the Companies Act 1993 and Section 19(U) of the Securities Markets Act 1988, the Directors named below have made a general disclosure of interest during the period 1 April 2006 to 31 March 2007, by a general notice disclosed to the Board and entered in the Company’s interests register:

Bryan William Mogridge

Shareholder in:• Benefi cial interest in 400,000 ordinary shares in Rakon Limited held by Bryan Mogridge.• Non-benefi cial interest in 859,137 ordinary shares in Rakon Limited, as director of trustee company Rakon ESOP Trustee Limited.• Non-benefi cial interest in 1,100,000 redeemable ordinary shares in Rakon Limited, as director of trustee company Rakon PPS Trustee Limited.• Shareholder in Crime Risk Limited a company that has provided advisory services to Rakon Limited during the period.

Brent John Robinson

Shareholder in:• Benefi cial interest in 9,914,180 ordinary shares in Rakon Limited (following share split of 31,838 ordinary shares at a ratio of 311.394549).• Benefi cial interest in 24,060,024 ordinary shares in Rakon Limited (initially held by Ahuareka Trustee Limited as the registered holder and later following a change in trustee by Warren John Robinson and Trusts Limited as the registered holder).

Name Catergory Remuneration

Bryan Mogridge Independent Chairman $80,000Brent Robinson Executive $552,757Darren Robinson Executive $481,151Warren Robinson Non-executive $40,000Peter Maire Non-executive $40,000Bruce Irvine Independent $40,000

55

• Benefi cial interest in 270,449 redeemable ordinary shares in Rakon Limited (Rakon PPS Trustee Limited as registered holder).

Darren Paul Robinson

Shareholder in:• Benefi cial interest in 9,914,180 ordinary shares in Rakon Limited (following share split of 31,838 ordinary shares at a ratio of 311.394549).• Benefi cial interest in 24,060,024 ordinary shares in Rakon Limited (initially held by Ahuareka Trustee Limited as the registered holder and later following a change in trustee by Warren John Robinson and Trusts Limited as the registered holder).• Benefi cial interest in 234,043 redeemable ordinary shares in Rakon Limited (Rakon PPS Trustee Limited as registered holder).

Warren John Robinson

Shareholder in:• Benefi cial interest in 21,292,225 ordinary shares in Rakon Limited held by Simon Palmer as nominee for the Ahuareka Trust (following a share split of 68,377 ordinary shares at a ratio of 311.394549).• Benefi cial and non-benefi cial interest in 37,767,799 ordinary shares in Rakon Limited held by Ahuareka Trustee Limited as trustee for the Ahuareka Trust (following a share split of 121,286 ordinary shares at a ratio of 311.394549).• Benefi cial and non-benefi cial interest in 24,060,024 ordinary shares in Rakon Limited held by Ahuareka Trustee Limited as trustee for Ahuareka Trust following transfer of 35,000,000 ordinary shares to new investors.• Benefi cial and non-benefi cial interest in 24,060,024 ordinary shares in Rakon Limited held by Warren John Robinson and Trusts Limited following a change in the trustee of Ahuareka Trust.

Charles Peter Maire

Director of:• Non-benefi cial interest as director of Tahia Investments Limited which holds 16,523,218 ordinary shares in Rakon Limited (following share split of 53,062 ordinary shares at a ratio of 311.394549).

Shareholder in:• Non-benefi cial interest in 16,523,218 ordinary shares in Rakon Limited held by Tahia Investments Limited

(following share split of 53,062 ordinary shares at a ratio of 311.394549).

Other:• Consultant to Navman NZ Limited, a customer of Rakon.

Bruce Robertson Irvine

Director of:• Resigned as a director of Kathmandu Limited

Shareholder in:• Benefi cial interest in 40,000 ordinary shares in Rakon Limited held by Bruce Irvine.• Non-benefi cial interest in 859,137 ordinary shares in Rakon Limited, as director of trustee company Rakon ESOP Trustee Limited.• Non-benefi cial interest in 1,100,000 redeemable ordinary shares in Rakon Limited, as director of trustee company Rakon PPS Trustee Limited.

Directors Shareholdings

Directors’ shareholdings are shown as at balance date.

Name 31 March 2007

Bryan Mogridge

shares held with benefi cial interest 400,000 shares held with non-benefi cial interest 1 859,137 shares held with non-benefi cial interest 2 1,100,000

Brent Robinson

shares held with benefi cial interest 33,974,204 shares held with benefi cial interest 3 270,449 held by associated persons 10,363,611 held by associated persons 3 234,043

Darren Robinson

shares held with benefi cial interest 33,974,204 shares held with benefi cial interest 3 234,043 held by associated persons 10,342,361 held by associated persons 3 270,449

Warren Robinson

shares held with benefi cial interest 24,060,024 held by associated persons 20,252,791 held by associated persons 3 504,492

56

Name 31 March 2007

1 Bryan Mogridge and Bruce Irvine jointly hold the same parcel of 859,137 ordinary shares as trustees of the Rakon ESOP Trustee Limited.

2 Bryan Mogridge and Bruce Irvine jointly hold the same parcel of 1,100,000 partly paid redeemable ordinary shares as trustees of the Rakon PPS Trustee Limited. As at 31 March 2007 5 cents of the $1.60 issue price was paid up on each of these securities.

3 Partly paid redeemable ordinary shares currently held by the Rakon PPS Trustee Limited. As at 31 March 2007 5 cents of the $1.60 issue price was paid up on each of these securities.

4 On 21 May 2007, Tahia Investments Limited divested 1,600,000 shares reducing their holding to 14,923,218 shares.

Employees Remuneration

During the year the number of employees or former employees not being Directors of Rakon Limited received remuneration including the value of other benefi ts in excess of $100,000 in the following bands:

Substantial Security Holders

The following information is given pursuant to Section 26 of the Securities Markets Act 1988.The following are recorded by the Company as at 15 May 2007 as Substantial Security Holders in the Company, and have declared the following relevant interest in voting securities under the Securities Markets Act 1988:

1 Partly Paid Redeemable Ordinary Shares: 1,100,000 partially paid securities were on issue as at 15 May 2007. These partly paid securities entitle the holder (Rakon PPS Trustee Limited) to proportionate voting rights to the extent of the issue price paid where the employee member elects for the shares to carry voting rights. As at 15 May 2007 $0.10 of the $1.60 issue price was paid up on each of these securities and no election for the shares to carry voting rights had been made.

$100,000 - $110,000 5 $110,001 - $120,000 2 $120,001 - $130,000 1 $130,001 - $140,000 2 $140,001 - $150,000 2 $150,001 - $160,000 1 $160,001 - $170,000 1 $180,001 - $190,000 1 $190,001 - $200,000 4 $250,001 - $260,000 1 $270,001 - $280,000 2 $280,001 - $290,000 1

Remuneration Number of Employees

Name Shareholding

Trusts Limited - Non-Benefi cial Relevant Interest 24,061,258

Warren John Robinson - Benefi cial Relevant Interest 24,061,258

Tahia Investments Limited - Benefi cial Relevant Interest 16,523,218

Charles Peter Maire - Non-Benefi cial Relevant Interest 16,523,218

Brent John Robinson - Direct Benefi cial Relevant Interest 9,915,414 - Direct Benefi cial Relevant Interest 1 270,449 - Benefi cial Relevant Interest 24,061,258

Darren Paul Robinson - Direct Benefi cial Relevant Interest 9,914,180 - Direct Benefi cial Relevant Interest 1 234,043 - Benefi cial Relevant Interest 24,061,258

Fisher Funds Management Limited - Non-Benefi cial Relevant Interest 12,266,911

Peter Maire

shares held with benefi cial interest 4 16,523,218

Bruce Irvine

shares held with benefi cial interest 40,000 shares held with non-benefi cial interest 1 859,137 shares held with non-benefi cial interest 2 1,100,000

57

Size of Shareholding Number of Holders % Total Number Held %

1 - 999 309 7.15 143,864 0.11 1,000 - 4,999 2,836 65.62 7,402,389 5.85 5,000 - 9,999 674 15.59 4,410,733 3.48 10,000 - 49,999 430 9.95 7,357,797 5.81 50,000 - 99,999 38 0.88 2,353,773 1.86 100,000 - 999,999 27 0.62 7,313,739 5.78 1,000,000 - PLUS 8 0.19 97,591,692 77.11

TOTAL 4,322 100.00 126,573,987 100.00

Spread of Security Holders as at 15 May 2007

Largest Security Holders as at 15 May 2007

Name Shareholding %

New Zealand Central Securities Depository Limited 30,462,405 24.07% Warren John Robinson & Trusts Limited 24,061,258 19.01% Tahia Investments Limited 16,523,218 13.05% Brent John Robinson 9,915,414 7.83% Darren Paul Robinson 9,914,180 7.83% Zeus Zeta Limited 3,556,064 2.81% Custodial Services Limited 2,100,946 1.66% First NZ Capital Custodians Limited 1,058,207 0.84% Rakon ESOP Trustee Limited 859,137 0.68% Custodial Services Limited 662,057 0.52% Hubbard Churcher Trust Management Limited 595,000 0.47% Peter Hanbury Masfen & Joanna Alison Masfen 502,468 0.40% UBS New Zealand Limited 437,521 0.35% Marjorie Susan Robinson 425,665 0.34% Bryan Mogridge & Philip Wells 401,234 0.32% Macquarie Equities Custodians Limited 341,234 0.27% Custodial Services Limited 304,751 0.24% Michele Susan Robinson & Simon Middleton Palmer 263,234 0.21% Custodial Services Limited 239,771 0.19% Anthony Wayne Banks & Janet Raewyn Banks & Peter Allen Lewis 226,234 0.18%

58

In addition 1,100,000 partially paid securities were on issue as at 15 May 2007. These partly paid securities entitle the holder (Rakon PPS Trustee Limited) to proportionate voting rights to the extent of the issue price paid where the employee member elects for the shares to carry voting rights. As at 15 May 2007 $0.10 of the $1.60 issue price was paid up on each of these securities and no election for the shares to carry voting rights had been made.

New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to member. As at 15 May 2007, the ten largest shareholdings in the company held through the NZCSD were:

NZX Waiver

NZX granted a waiver from the requirements of NZSX Listing Rule 8.1.5 in relation to the non-voting partly paid shares held by Brent Robinson and Darren Robinson under the Employee Share Growth Plan. NZSX Listing Rule 8.1.5 provides for partly paid shares to have voting rights in proportion to the amount paid up and the waiver provides that Brent & Darren Robinson’s shares can remain non-voting so as to avoid triggering Takeovers Code obligations.

Name Shareholding

TEA Custodians Limited 7,950,106 NZ Superannuation Fund Nominees Limited 5,596,482 National Nominees New Zealand Limited 3,825,267 HSBC Nominees (New Zealand) Limited 2,379,357 Accident Compensation Corporation 1,366,439 Premier Nominees Limited - ING Wholesale Equity Select 1,296,025 AMP Investments Strategic Equity Growth Fund 1,131,499 Citibank Nominees (New Zealand) Limited 1,036,119 TEA Custodians Limited 788,928 ANZ Nominees Limited 643,800

1 September

2006

First annual meeting as a public company

31 October

2006

First time exceeded $10, 000, 000 revenue in calendar month

13 April

2006

Issued IPO prospectus to public

31 July

2006

First time exceeded 3,000,000 units shipped in calendar month

16 May

2006

Listed on NZX

25 May

2006

FY 2006 results announced. NPAT

65%

31 M

arch

200

6

06

25 November

2006

Surpassed prior year total shipment volume

8 November

2006

FY 2007 half year results announced. NPAT 226%

12 February

2007

Raised $60,000,000 in institution share placement

7 March

2007

Included in NZX50 Index

10 April

2007

Raised $22,000,000 under share purchase plan

7 January

2007

Expansion of Clean Room facility completed

2 March

2007

Acquired FCP division from C-MAC MicroTechnology

15 May

2007

FY 2007 results annnounced. NPAT

122%31

Mar

ch 2

007

07

T E R M SG L O S S A R Y O F

CAGR Cumulative Average Growth Rate

CDXO Calibrated dual Crystal Oscillator

Crystal A solid formed by the solidifi cation of a chemical and having a highly regular atomic structure

E-911 Enhanced-911, an US Federal Communications Commissioned mandate

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

EPS Earnings per share

Form Factor The physical size of a device as measured by outside dimensions

GPS Global positioning system

Oscillator An electronic circuit that generates a specifi c tone or frequency

OCXO Oven controlled Crystal Oscillator

OEM Original equipment manufacturer

PDA Personal digital assistant

Piezoelectric Eff ect A physical phenomenon exhibited by Quartz Crystals which change their dimensions when subjected to an electrical charge. Conversely, when subjected to mechanical stress it creates an electrical charge

Quartz Crystal A hexagonal Crystal of silicon dioxide

RSX Crystal An AT-cut Quartz Crystal encased in ceramic packaging

SMD Surface mount device

TCXO Temperature compensated Crystal Oscillator

Telematics The integration of wireless communications, vehicle monitoring systems and location devices

VCXO Voltage controlled Crystal Oscillator

UM Crystal A high performance AT-cut Crystal that is packaged in metal, with formed legs for a surface mounting

61

Registered Offi ce

Rakon LimitedOne Pacifi c RiseMt WellingtonAUCKLAND 1060Telephone: 09 573 5554Facsimile: 09 573 5559Website: www.rakon.co.nz

Mailing Address

Rakon LimitedPrivate Bag 99943NewmarketAUCKLAND 1149

Directors

Bryan MogridgeBrent RobinsonBruce IrvinePeter MaireDarren RobinsonWarren Robinson

Principal Lawyers

Bell GullyPO Box 4199AUCKLAND

Auditors

PricewaterhouseCoopersPrivate Bag 92162AUCKLAND

Share Registrar

Computershare Investor Services Limited159 Hurstmere RoadNorth ShorePrivate Bag 92119AUCKLAND 1142Telephone: 09 488 8700Facsimile: 09 488 8787Website: www.computershare.co.nz

Bankers

ASB BankPO Box 35Auckland

D I R E C T O R Y

62