Although it has made adjustments to cope with lower demand from China, margins and profits failed to improve upon the previous quarter and continue below plan.

Its cash reserves stood at £9.4m with a debt of £700,000.
 
Shares dropped sharply on the news from 58p to 39p but recovered to around 50p.
 
Brokerage Seymour Pierce changed its rating on Xaar to "hold" from "buy".