Final Results

RNS Number : 2056Z

Somero Enterprises Inc.

13 March 2012

 



Press Announcement

For immediate release

13 March 2012

Somero Enterprises, Inc. ®

Full year results for the twelve months to 31 December 2011

Somero Enterprises, Inc. ®, ("Somero" or the "Company") is pleased to report results for the twelve months to 31 December 2011. Somero is a North American manufacturer of patented laser guided equipment used for the spreading and leveling of high volumes of concrete for floors in the construction industry. Somero has operations worldwide and is primarily focused on the non-residential construction industry. Financial Highlights ·      Exceeded full year revenue and earnings expectations ·      Revenue increased by 4% to US$21.9m (2010: US$21.0m) ·      Adjusted EBITDA decreased by 10% to US$0.9m (2010: US$1.0m)1 2 ·      Pre-tax loss of US$2.3m (2010 Pre-tax loss: US$2.4m) ·      Received US$0.3m US federal tax refund relating to fiscal 2010 ·      Adjusted net income/(loss) before amortization of US$0.0m (2010: US$0.1m)3 ·      EPS before amortization of US$0.00 (2010: US$0.00) ·      Basic EPS US($0.04) (2010: US($0.04)) ·      Reduced net debt by US$0.4m4 ·      Passed banking covenants as of December 31, 2011 Business Highlights ·      Continued focus on product development with the introduction of the new S-840 machine in November 2011 with US$0.6m in sales in Q4 ·      Increased investment in emerging markets resulted in a 3% increase in revenue from that region ·      Escalating sales and service presence in China ·      Increased utilization of our websites to find and interact with customers ·      Introduced service agreements in response to customer feedback 1.    The Company uses non-US GAAP financial measures in order to provide supplemental information regarding the Company's operating performance. See further information regarding non-GAAP measures on pages 9 and 10. 2.    Adjusted EBITDA as used herein is a calculation of its net income/(loss) plus tax provision/(benefit), interest expense, interest income, foreign exchange gain/(loss), other expense, depreciation, amortization, stock based compensation and the write-down of Goodwill. 3.    Adjusted net income/(loss) before amortization is a calculation of net income/(loss) plus amortization of intangibles. 4.    Net Debt is defined as total borrowings under bank obligations less cash and cash equivalents.

Enquiries

Hawkpoint Partners Limited

Chris Robinson

Serge Rissi

[phone]

Collins Stewart Europe

Piers Coombs

[phone]

About Somero Somero® designs, manufactures and sells equipment that automates the process of spreading and leveling large volumes of concrete for commercial flooring and other horizontal surfaces, such as paved parking lots. Somero's innovative, proprietary products, including the large SXP®-D, CopperHead®, Mini Screed™ C and the new S-840 Laser Screed® machines employ laser-guided technology to achieve a high level of precision. Somero's products have been sold primarily to concrete contractors for use in nonresidential construction projects in over 74 countries across every time zone around the globe. Laser Screed equipment has been specified for use in constructing warehouses, assembly plants, retail centers and in other commercial construction projects requiring extremely flat concrete floors by a variety of companies, such as Costco, Home Depot, B&Q, Daimler, various Coca-Cola bottling companies, the United States Postal Service, Lowe's, Toys 'R' Us and ProLogis. Somero's headquarters and manufacturing operations are located in Michigan, USA with executive offices in Florida, USA. It has sales and service operations in the United Kingdom and China, with distributors and direct sales representatives based throughout the world. Somero has approximately 71 employees and markets and sells its products through a direct sales force, external sales representatives and independent dealers in North America, Latin America, Europe, the Middle East, South Africa, Asia and Australia. Somero is listed on the Alternative Investment Market of the London Stock Exchange and its trading symbol is SOM.L. Our Mission Somero manufactures laser-guided and technologically innovative machinery used in horizontal concrete placement, to advance the productivity, concrete flatness and efficiency of the jobsite. Somero promotes customer training, technical support and continuous innovation for all its products. Our Vision The vision for Somero is for our innovative, cutting edge technology and process to be in use wherever a ready-mix truck is discharging concrete for a concrete slab. Somero technology and equipment will enable every installation to be completed faster, flatter and with fewer people. We will continually pass on Somero knowledge and expertise to all our global customers.

Somero Enterprises, Inc ® Full year results for the twelve months to 31 December 2011 Chairman's Statement Overview Overall sales in 2011 were slightly ahead of 2010. There were some regions with significant growth, such as Latin America and Australia with North America holding steady. China experienced a slow start to the year which led to its full year contribution being below plan, although trading in the second half was strong with good momentum going into 2012. A decrease in Large line sales was more than offset by a sizable Small line sales increase. We are very encouraged with the trend of higher parts sales and greater quote activity which have traditionally been leading indicators for future sales growth. People 2011 was a pivotal year for the Company and the Board recognizes the continued dedication of the Company's employees and thanks them for all their efforts. In light of the Company's very strong performance in 2011 and recognizing the compensation reductions taken by employees since the beginning of 2009, management recommended that a bonus be paid to employees equal to half the compensation reduction taken during the period. The Board approved the $228,000 bonus to be accrued for in the 2011 financial statements and to be paid out in early 2012. The Company has also reinstated its pension match in 2012 for all eligible employees which will result in the full reversal of the 10% compensation reduction that was implemented in July 2009. On September 15, 2011 and November 16, 2011, the Board awarded 2,279,349 restricted stock units to 21 key employees under Somero's 2010 Equity Incentive Plan. The awarded stock will vest over a three year period beginning on the date of the grant and require continued employment for the period.  Markets US construction spending was flat and we continue to see weakness in construction spending in Europe. Conditions in emerging markets, however, were more benign, enabling good performance in this region with sales increasing by 3% in 2011. International sales continue to account for a higher percentage of total group revenue than domestic sales at 54% of total group revenues, as in 2010. Our China operation is now established with strong management, sales and service operations and our next area for expansion will be India. We have begun implementing our new sales strategy and will dedicate resources for the India market to position ourselves to take advantage of every business opportunity and build an established market presence. New Product Development The Company's product innovation culture continued with the introduction of the S-840, the second generation of a ride-on small Laser Screed® machine. This was introduced to the market during Q4, and we have already secured sales of US$0.6m. Following our focused, market-driven product development process, the success of the S-840 Laser Screed model has confirmed our capability to develop products that meet our customers' needs globally. We have a number of interesting new products currently in development for release in 2012 and beyond. Current Trading & Outlook 2012 revenues to date are consistent with our expectations. We are pleased with the growth in our emerging markets business and are satisfied that the US market is starting to demonstrate growth, but we remain concerned about lack of visibility to recovery in Europe. We continue to focus on every sales opportunity, while maintaining tight controls on cost, and are using available resources to invest in China and India. The Board remains cautiously optimistic on the outcome for 2012. We are seeing encouraging trends in our market but it is still too early to tell if these will translate into -significantly higher levels of activity. Larry Horsch Non-Executive Chairman

President and Chief Executive Officer's Statement Overview We are pleased with the Company's performance in 2011. Revenues were slightly above plan and we continue to realize the benefits of our previous cost reduction programs. Through the efforts of everyone in the Company we passed our bank covenants at year end and survived the worst economic downturn since the Great Depression. 2011 was a pivotal year for the Company. At a US industry conference in June some contractors reported a 15% uplift in volumes alongside improving margins. At a September US industry conference all contractors reported significant increases in volumes with improving margins. In September, the Company also saw an increase in US activity levels and sales, followed by a slow period in October and November and a very strong December, our best month in years. The Latin and South American region had a strong year. China, Southeast Asia and Australia performed well in the second half while volumes in Europe slowed down in the second half. Our new service contract program generated strong sales in 2011 along with strong spare parts sales of US$3.8m, US$0.7m over last year. The launch of our newest model, the S-840 gave us a big lift late in the year with nine units sold in November & December. We continue to utilize our website to engage our existing customers in sales, customer service and training. In Q4, we implemented a performance marketing program to increase traffic to somero.com and buyusedscreeds.com. Through research, testing, metrics analysis, content creation, design and other methods, the performance marketing program allows us to better understand the movements of visitors to the websites which in turn helps us to convert the traffic into leads and helps visitors utilize the websites to get the information they need. Product Development The Q4 launch of the S-840 Laser Screed model reinforces our long commitment to our customers of developing innovative, state-of-the-art products that meet their ever changing needs. Development of the S-840 machine was a culmination of new breakthroughs with technology and continuous improvement of our product lines. The S-840 uses new technology to achieve improved floor flatness and levelness for the customer on a consistent basis and fits current market projects around the world with speed and less operator fatigue. The S-840 is small, easy to transport and works on a variety of reinforcements in certain spaces - mesh, chaired up rebar, steel and poly fiber. Utilization for the contractor is a key reason for the early success of the S-840 - the machine can also be used as a PowerRake® for fine grading sub grade or spreading concrete and for 3D applications utilizing our 3D Profiler System®. We were honored to learn that the S-840 Laser Screed® won the Most Innovative Product award for 2012 as the Experts' Choice in the Concrete Construction Equipment Category at the World of Concrete tradeshow in January. Held annually at World of Concrete, the MIP Award Program showcases many of the new products exhibited. A panel of industry experts, many of whom serve on the World of Concrete Educational Advisory Board, reviewed and selected MIP award winners in terms of the innovation they bring to the industry. This is the fourth Somero product to receive this prestigious award, the others being the CopperHead® in 2003, the PowerRake® in 2006, and the HoseHog in 2007. Despite overall cost reductions, we have continued to invest 3% of sales in product development and we remain confident that the new product launches of these products will continue to generate further growth opportunities for Somero over the medium and longer term. In our continuing effort to get product input, we conducted formal and informal customer surveys during the World of Concrete tradeshow and throughout the year through our customer training sessions and site visits to gather feedback on our products for future product development.

Emerging Markets/Geographic Growth Emerging markets remain a key growth opportunity for Somero as evidenced by a 3% sales increase over last year. We continue to strategically invest in resources to take advantage of the opportunities in these markets. The implementation of our emerging markets strategy continues on three core aims: ·      To identify international logistics companies, development companies and building operators to ensure Western floor flatness specifications are carried through to new markets; ·      To target local contractors tendering for projects for these major international players and local contractors with a Western joint venture partner; and ·      To develop a package whereby we can provide in-depth floor construction training, beyond the operator training that we currently provide, and selling this training as part of the overall package of equipment and services to install a concrete floor. In 2011 we increased our involvement with our two strategic partnerships - World Tech Floor and Concrete Floors Asia (CFA). Both organizations are international consortia of companies, whose key objectives are to bring new information and expertise to contractors that are involved in the design, construction and delivery process of concrete floors as well as owners and operators who use concrete floors. In 2011 CFA delivered five seminars in five Southeast Asia cities on 'World's Best Practice'. The world's best practice is about using the best current practices, technology and equipment to produce the most appropriate flatness, levelness, durability and longevity in floors. We were encouraged by activity at our annual industry tradeshow, the World of Concrete, and indications from attendees were that activity levels are increasing. We will look to continuing development of new and innovative products to satisfy our customers' needs and to expand our presence in emerging markets. It has been a very long journey which has required talented, hard-working people to work as a team, adapt to change and take on new responsibilities in order to overcome great obstacles. I thank and commend every employee for their determination and loyalty to the Company during this challenging period. Jack Cooney President and Chief Executive Officer

Financial Review

	Year ended December 31, 2011 US$ 000	Year ended December 31, 2010 US$ 000
Revenue	21,872	21,035
Cost of sales	11,656	11,182
Gross profit	10,216	9,853
Operating expenses
Selling expenses	4,402	4,394
Engineering expenses	580	531
General and administrative expenses	6,989	6,586
Total operating expenses	11,971	11,511
Operating income/(loss)	(1,755)	(1,658)
Other income (expense)
Interest expense	(454)	(477)
Interest income	1	0
Foreign exchange gain/(loss)	(120)	(269)
Other	13	0
Income/(loss) before income taxes	(2,315)	(2,404)
Provision/(benefit) income taxes	19	(180)
Net income/(loss)	(2,334)	(2,224)
Other data
Adjusted EBITDA	932	1,012
Adjusted net income/(loss)before amortization	(1)	108
Depreciation expense	264	288
Amortization of intangibles	2,333	2,332
Capital expenditures	133	42

Notes: 1. Adjusted EBITDA and Adjusted net income/(loss) Before Amortization are not measurements of the Company's financial performance under US GAAP and should not be considered as an alternative to net income/(loss), operating income/(loss) or any other performance measures derived in accordance with US GAAP or as an alternative to US GAAP cash flow from operating activities as a measure of profitability or liquidity. Adjusted EBITDA and Adjusted Net Income/(loss) Before Amortization are presented herein because management believes they are useful analytical tools for measuring the profitability and cash generation of the business. Adjusted EBITDA is also used to determine pricing and covenant compliance under the Company's credit facility and as a measurement for calculation of management incentive compensation. The Company understands that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, its calculation of Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies. 2. Adjusted EBITDA as used herein is a calculation of its net income/(loss) plus tax provision/(benefit), interest expense, interest income, foreign exchange gain/(loss), other expense, depreciation, amortization, and share based compensation. 3. Adjusted Net Income/(loss) Before Amortization as used herein is a calculation of Net Income/(loss) plus Amortization of Intangibles. 4. The Company uses non-US GAAP financial measures in order to provide supplemental information regarding the Company's operating performance. The non-US GAAP financial measures presented herein should not be considered in isolation from, or as a substitute to, financial measures calculated in accordance with US GAAP. Investors are cautioned that there are inherent limitations associated with the use of each non-US GAAP financial measure. In particular, non-US GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and many of the adjustments to the US GAAP financial measures reflect the exclusion of items that may have a material effect on the Company's financial results calculated in accordance with US GAAP.

NET INCOME/(LOSS) TO ADJUSTED EBITDA RECONCILIATION AND ADJUSTED NET INCOME/(LOSS) BEFORE AMORITZATION RECONCILIATION
	12 months ended	12 months ended
	31-Dec-11	31-Dec-10
	US$ 000	US$ 000
Adjusted EBITDA reconciliation
Net income/(loss)	(2,334)	(2,224)
Tax provision/(benefit)	19	(180)
Interest expense	454	477
Interest income	(1)	0
Foreign exchange (gain)/loss	120	269
Other income	(13)	0
Depreciation	264	288
Amortization	2,333	2,332
Share  based compensation	90	50
Adjusted EBITDA	932	1,012
Adjusted net income/(loss) before amortization reconciliation
Net income/(loss)	(2,334)	(2,224)
Amortization	2,333	2,332
Adjusted net income/(loss) before amortization reconciliation	(1)	108

Notes: References to "Adjusted Net Income/(loss) Before Amortization" in this document are to Somero's net income/(loss) plus amortization of intangibles. Although Adjusted Net Income/(loss) Before Amortization is not a measure of operating income/(loss), operating performance or liquidity under US GAAP, this financial measure is included because management believes it will be useful to investors when comparing Somero's results of operations both before and after the Somero Acquisition, including by eliminating the effects of increases in amortization of intangibles that have occurred as a result of the write-up of these assets in connection with the Somero Acquisition. Adjusted Net Income/(loss) Before Amortization should not, however, be considered in isolation or as a substitute for operating income/(loss) as determined by US GAAP, or as an indicator of operating performance, or of cash flows from operating activities as determined in accordance with US GAAP. Since Adjusted Net Income/(loss) Before Amortization is not a measure determined in accordance with US GAAP and is thus susceptible to varying calculations, Adjusted Net Income/(loss) Before Amortization, as presented, may not be comparable to other similarly titled measures of other companies. A reconciliation of net income/(loss) to Adjusted EBITDA and Adjusted Net Income/(loss) Before Amortization is presented above.

Revenues The Company's consolidated revenues increased by 4% to US$21.9m (2010: US$21.0m). Company revenues consist primarily of sales from new Large line products (the SXP-D Large Laser Screed and its predecessors), sales from new Small line products (the CopperHead and PowerRake) and other revenues, which consist of, among other things, revenue from sales of spare parts, refurbished machines, Topping Spreaders, Mini Screeds, 3D systems and accessories. The overall increase for the year was driven by an increase in Small line sales. The following table shows the breakdown between Large line sales, Small line sales and other revenues during the 12 months ended December 31, 2011 and 2010:

	12 months ended December 31, 2011		12 months ended December 31, 2010
	(US$ in millions)	Percentage of  net sales	(US$ in millions)	Percentage of net sales
Large line sales	5.4	24.7%	5.8	27.5%
Small line sales	6.2	28.3%	5.4	25.8%
Other revenues	10.3	47.0%	9.8	46.7%
Total	21.9	100.0%	21.0	100.0%

Large line sales decreased to US$5.4m (2010: US$5.8m) as a result of a 14% decrease in volume to 18 units (2010: 21), Small line sales increased to US$6.2m (2010: US$5.4m) as volumes increased to 112 units (2010: 110) and other revenues, including sales of spare parts, refurbished machines, Topping Spreaders, Mini Screeds, 3D systems and accessories, increased to US$10.3m (2010: US$9.8m).

Revenue breakdown by geography
	North America		EMEA		RoW		Total
US$ Millions	2011	2010	2011	2010	2011	2010	2011	2010
Large Screed	2.4	2.7	0.6	0.9	2.4	2.2	5.4	5.8
Small Screed	3.0	2.3	1.8	1.5	1.4	1.6	6.2	5.4
Other	4.8	4.8	2.7	2.4	2.8	2.6	10.3	9.8
Total	10.2	9.8	5.1	4.8	6.6	6.4	21.9	21.0

Units breakdown by geography
	North America		EMEA		RoW		Total
	2011	2010	2011	2010	2011	2010	2011	2010
Large Screed	8	10	2	3	8	8	18	21
Small Screed	52	48	30	29	30	33	112	110

Sales to customers located in North America contributed 47% of total revenue (2010: 46%), sales to customers in EMEA (Europe, Middle East & South Africa) contributed 23% (2010: 23%) and sales to customers in RoW (Asia, Australia, and Latin America & Pacific) contributed 30% (2010: 31%). Sales in North America generated US$10.2m (2010: US$9.8m) which is up 4% primarily due to higher Small line (52 Small line units in 2011 vs. 48 in 2010). Sales in EMEA generated US$5.1m (2010: US$4.8m) which is up 6% primarily due to higher Small line sales (30 Small line units in 2011 vs. 29 in 2010) and higher Other sales including refurb sales. Sales in RoW generated US$6.6m (2010: US$6.4m) which are up 3% primarily due to higher Other sales (primarily higher refurbished sales). Gross Profit Gross profit increased to US$10.2m (2010: US$9.9m), with gross margins remaining at 47% (2010: 47%). Gross margins percentages were flat between 2011 and 2010. Operating Expenses Operating expenses increased by 4% to US$12.0m (2010: US$11.5m). This increase was driven primarily by investments made in Emerging markets and the bonus that was based on one half the amount employees had given up during the compensation reduction period. Total employment remained flat at 71 people for both 2011 and 2010. Other Income (Expense) Other expenses were US$0.6m (2010: US$0.7m) consisting of interest income, interest expense, foreign exchange gains and losses and gains and losses on the disposal of assets. Provision/(benefit) for Income Taxes The provision/(benefit) for income taxes was US$0.0m in 2011 as compared to US($0.2m) in 2010 due to net losses. Overall, Somero's effective tax rate changed from 7.5% to (0.9%) due to a net loss and a valuation allowance. Net Income/(loss) Net income/(loss) decreased to US$(2.3m) from US$(2.2m) in 2011. The primary cause of the decrease in net income/(loss) was the absence of a provision/(benefit) for income taxes in 2011. Basic earnings/(loss) per share represents income available to common shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings/(loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding share options. Earnings/(loss) per common share have been computed based on the following:

	2011 US$ 000	2010 US$ 000
Net income/(loss)	(2,334)	(2,224)
Basic weighted shares outstanding	56,425,598	56,425,598
Net dilutive effect of share options and RSU's	-	-
Diluted weighted average shares outstanding	56,425,598	56,425,598

The Company had 56,425,598 shares outstanding at December 31, 2011. Earnings/(loss) Per Share Earnings/(loss) per share at December 31, 2011 is as follows:

	US$
Basic earnings/(loss) per share	(0.04)
Diluted earnings/(loss) per share	(0.04)
Adjusted net income/(loss) before amortization	0.00

Consolidated Balance Sheets
As of December 31, 2011 and 2010
		2011 US$ 000	2010 US$ 000
Assets
Current Assets:
	Cash and cash equivalents	89	96
	Accounts receivable - net	3,440	2,176
	Inventories	5,717	6,393
	Prepaid expenses and other assets	612	567
	Income tax receivable	0	284
	Total current assets	9,858	9,516
Property, plant and equipment - net		3,551	3,701
Intangible assets - net		9,872	12,205
Goodwill		2,878	2,878
Deferred financing costs		135	17
Deferred tax asset		0	4
Other assets		31	24
Total assets		26,325	28,345
Liabilities and stockholders' equity
Current liabilities:
	Notes Payable - current portion	511	460
	Accounts payable	1,618	1,659
	Accrued expenses	866	357
	Income tax payable	44	0
	Total current liabilities	3,039	2,476
Notes payable, net of current portion		4,244	4,665
Other liabilities		27	67
Total liabilities		7,310	7,208
Stockholders' equity
	Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding	0	0
	Common stock, US$.001 par value, 80,000,000 shares authorized, 56,425,598 shares issued and outstanding at December 31, 2011 and December 31, 2010	26	26
	Additional paid in capital	28,165	28,075
	Retained earnings/(Accumulated deficit)	(8,215)	(5,881)
	Other comprehensive loss	(961)	(1,083)
	Total stockholders' equity	19,015	21,137
Total liabilities and stockholders' equity		26,325	28,345
See notes to consolidated financial statements.
Consolidated Statements of Operations
For the years ended December 31, 2011 and 2010
		Year ended December 31 2011 US$ 000 except per share data	Year ended December 31 2010 US$ 000 except per share data
Revenue		21,872	21,035
Cost of sales		11,656	11,182
Gross profit		10,216	9,853
Operating expenses
	Selling expenses	4,402	4,394
	Engineering expenses	580	531
	General and administrative expenses	6,989	6,586
	Total operating expenses	11,971	11,511
Operating income/(loss)		(1,755)	(1,658)
Other income (expense)
	Interest expense	(454)	(477)
	Interest income	1	0
	Foreign exchange gain/(loss)	(120)	(269)
	Other	13	0
Income/(loss) before income taxes		(2,315)	(2,404)
Provision/(benefit) for income taxes		19	(180)
Net income/(loss)		(2,334)	(2,224)
Earnings/(loss) per common share
	Basic	(0.04)	(0.04)
	Diluted	(0.04)	(0.04)
Weighted average number of common shares outstanding
	Basic	56,425,598	56,425,598
	Diluted	56,425,598	56,425,598
See notes to consolidated financial statements.

Consolidated  Statements of Changes in Stockholders' Equity
For the years ended December 31, 2011 and 2010
Common Stock
	Shares	Amount US$000	Additional paid in Capital US$000	Retained earnings/ Accumulated deficit US$000	Other Comprehensive income (loss) US$000	Total stockholders equity US$000
Balance - January 1, 2010	56,425,598	26	28,025	(3,657)	(1,049)	23,345
Cumulative translation adjustment	-	-	-	-	(138)	(138)
Change in fair value of derivative instruments	-	-	-	-	104	104
Net income/(loss)	-	-	-	(2,224)	-	(2,224)
Share based compensation	-	-	50	-	-	50
Balance - December 31, 2010	56,425,598	26	28,075	(5,881)	(1,083)	21,137
Cumulative translation adjustment	-	-	-	-	18	18
Change in fair value of derivative instruments	-	-	-	-	104	104
Net income/(loss)	-	-	-	(2,334)	-	(2,334)
Share based compensation	-	-	90	-	-	90
Balance - December 31, 2011	56,425,598	26	28,165	(8,215)	(961)	19,015
See notes to consolidated financial statements.

Consolidated Statements of Cash Flows
For the years ended December 31, 2011 and 2010
Cash flows from operating activities:	Year ended December 31 2011 US$ 000	Year ended December 31 2010 US$ 000
Net income/(loss)	(2,334)	(2,224)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Deferred taxes	4	0
Depreciation and amortization	2,597	2,620
Amortization of deferred financing costs	83	0
Share based compensation	90	50
Working capital changes:
Accounts receivable	(1,264)	(24)
Inventories	676	(216)
Prepaid expenses and other assets	(45)	153
Other assets	(7)	11
Accounts payable, accrued expenses and other liabilities	428	(349)
Income taxes receivable/payable	329	944
Net cash provided by/(used in) operating activities	557	965
Cash flows from investing activities:
Proceeds from sale of property and equipment	20	0
Property and equipment purchases	(133)	(42)
Net cash provided by/(used in) investing activities	(113)	(42)
Cash flows from financing activities:
Borrowings from additional financing	15,240	12,042
Loan origination fees	(203)	0
Repayment of notes payable	(15,610)	(12,870)
Net cash provided by/(used in) financing activities	(573)	(828)
Effect of exchange rates on cash and cash equivalents	122	(33)
Net increase/(decrease) in cash and cash equivalents	(7)	62
Cash and cash equivalents:
Beginning of year	96	34
End of year	89	96
See notes to consolidated financial statements.

Notes to the Consolidated Financial Statements

As of December 31, 2011 and 2010

1.   Organization and Description of Business

Nature of Business Somero Enterprises, Inc. (the "Company" or "Somero") designs, manufactures, refurbishes, sells and distributes concrete levelling, contouring and placing equipment, related parts and accessories, and training services worldwide. The operations are conducted from a corporate office in Houghton, Michigan, executive offices in Fort Myers, Florida, a European distribution office in the United Kingdom, and sales offices in Canada, Germany and China.

2.   Summary of Significant Accounting Policies

Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of Consolidation The consolidated financial statements include the accounts of Somero Enterprises, Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Cash and Cash Equivalents Cash includes cash on hand, cash in banks, and temporary investments with a maturity of three months or less when purchased.

Accounts Receivable and Allowances for Doubtful Accounts Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company's accounts receivable are derived from revenue earned from a diverse group of customers. The Company performs credit evaluations of its commercial customers and maintains an allowance for doubtful accounts receivable based upon the expected ability to collect accounts receivable. Allowances, if necessary, are established for amounts determined to be uncollectible based on specific identification and historical experience. As of December 31, 2011 and 2010, the allowance for doubtful accounts was approximately US$280,000 and US$225,000, respectively. Bad debts expense/(income) was US$54,000 and US$33,000 in 2011 and 2010, respectively.

Inventories Inventories are stated at the lower of cost, using the first in, first out ("FIFO") method, or market. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts.

Deferred Financing Costs Deferred financing costs incurred in relation to long-term debt, are reflected net of accumulated amortization and are amortized over the expected remaining term of the debt instrument. These financing costs are being amortized using the effective interest method.

Intangible Assets and Goodwill Intangible assets consist principally of customer relationships and patents, and are carried at their fair value when acquired, less accumulated amortization. Intangible assets are amortized using the straight-line method over a period of three to twelve years, which is their estimated period of economic benefit. Goodwill is not amortized but is subject to impairment tests on an annual basis, and the Company has chosen December 31 as its periodic assessment date. Goodwill represents the excess cost of the business combination over the Group's interest in the fair value of the identifiable assets and liabilities. Goodwill arose from the Company's prior sale from Dover Corporation to The Gores Group in 2005. The Company did not incur a goodwill impairment loss for the year ended December 31, 2011, or for the year ended December 31, 2010 (see Note 4 for more information.)

The Company evaluates the carrying value of long-lived assets, excluding goodwill, whenever events and circumstances indicate the carrying amount of an asset may not be recoverable. For the year ended December 31, 2011, the Company did not incur a goodwill impairment loss and tested its other intangible assets including customer relationships and technology for impairment and found no impairment. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset (or asset group) are separately identifiable and less than the asset's (or asset group's) carrying value. In that event, a loss is recognized to the extent that the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. (See Note 4 for more information.)

Revenue Recognition The Company recognizes revenue on sales of equipment, parts and accessories when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. For product sales where shipping terms are F.O.B. shipping point, revenue is recognized upon shipment. For arrangements which include F.O.B. destination shipping terms, revenue is recognized upon delivery to the customer. Standard products do not have customer acceptance criteria.  Revenues for training are deferred until the training is completed unless the training is deemed inconsequential or perfunctory.

Warranty Liability The Company provides warranties on all equipment sales ranging from 60 days to three years, depending on the product.  Warranty liabilities are estimated net of the warranty passed through to the Company from vendors, based on specific identification of issues and historical experience.

Property, Plant and Equipment Property, plant and equipment is stated at estimated market value based on an independent appraisal at the acquisition date or at cost for subsequent acquisitions, net of accumulated depreciation and amortization. Land is not depreciated.  Depreciation is computed on buildings using the straight-line method over the estimated useful lives of the assets, which is 31.5 to 40 years for buildings (depending on the nature of the building), 15 years for improvements, and 2 to 10 years for machinery and equipment.

Income Taxes The Company determines income taxes using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items reflected in the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance, if necessary, to the extent that it appears more likely than not, that such assets will be unrecoverable.

In June 2006, the Financial Accounting Standards Board (FASB) issued accounting guidance to create a single model to address accounting for uncertainty in tax positions. This guidance clarifies that a tax position must be more likely than not of being sustained before being recognized in financial statements. The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions. This involves a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision/(benefit) for income taxes in general and administrative expenses in the accompanying consolidated financial statements. The Company is subject to a three year statute of limitations by major tax jurisdictions.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Stock Based Compensation The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). The Company measures the cost of employee services in exchange for an award based on the grant-date fair value of the award.

Transactions in and Translation of Foreign Currency The functional currency for the Company's subsidiaries outside the United States is the applicable local currency.  Balance sheet amounts are translated at December 31 exchange rates and statement of operations accounts are translated at average rates.  The resulting gains or losses are charged directly to accumulated other comprehensive income/ (loss).  The Company is also exposed to market risks related to fluctuations in foreign exchange rates because some sales transactions, and some assets and liabilities of its foreign subsidiaries, are

denominated in foreign currencies other than the designated functional currency. Gains and losses from transactions are included as foreign exchange gain (loss) in the accompanying consolidated statements of operations.

Comprehensive Income/(loss) Comprehensive income/(loss), is the combination of reported net income/(loss) and other comprehensive income/(loss) ("OCI"). OCI is changes in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources not included in net income/(loss). OCI was composed of the following for the years ended December 31, 2011 and 2010. Total comprehensive income/(loss) for the years was approximately US$(2,212,000) and US$(2,258,000), respectively.

	2011 US$000	2010 US$000
Net Income/(loss)	(2,334)	(2,224)
Cumulative Translation Adjustment	18	(138)
Change in fair value of derivative instruments - net of income taxes	104	104
Total Comprehensive Income/(loss)	(2,212)	(2,258)

Earnings/(loss) Per Share Basic earnings/(loss) per share represents income/(loss) available to common stockholders divided by the weighted average number of common shares outstanding during the year. Diluted earnings/(loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options. All common stock equivalents were anti-dilutive at December 31, 2011. Earnings/(loss) per common share have been computed based on the following:

	2011 US$ 000	2010 US$ 000
Net income/(loss)	(2,334)	(2,224)
Basic weighted shares outstanding	56,425,598	56,425,598
Net dilutive effect of stock options and RSU's	-	-
Diluted weighted average shares outstanding	56,425,598	56,425,598

Fair Value Measurements The Company uses fair value measurements in areas that include, but are not limited to: impairment testing of goodwill and long-lived asset and share-based compensation arrangements. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments. The carrying value of our long-term debt approximates fair value due to the variable nature of the interest rates under our Credit Facility.

The FASB has issued accounting guidance on fair value measurements. This guidance provides a common definition of fair value and a framework for measuring assets and liabilities at fair values when a particular standard prescribes it.

This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.  These two types of inputs create the following fair value hierarchy.

Level 1 - Quoted prices for identical instruments in active markets. Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. Level 3 -Unobservable inputs for the asset or liability which are supported by little or no market activity and reflect the Company's assumptions that a market participant would use in pricing the asset or liability.

Fair Value Measurements at Reporting Date
Assets:	December 31, 2011 and 2010 US$ 000	Quoted Prices in Active Markets for Identical Assets (Level 1) US$ 000	Significant Other Observable Inputs (Level 2) US$ 000	Significant Other Observable Inputs (Level 3) US$ 000
Goodwill	2,878			2,878

New Accounting Pronouncements

In May 2011, the FASB issued guidance to amend Fair Value Measurement (Topic 820). The amendments result in common fair value measurement and disclose the requirements in U.S. GAAP and IFRS's (International Financial Reporting Standards). The guidance for this update is effective during the first interim or annual period beginning after December 15, 2011, and is not expected to have a material impact on the Company's consolidated financial statements.

In June 2011, the FASB issued guidance to amend Comprehensive Income (Topic 220). The main objective is to eliminate the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders' equity. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011, and is not expected to have a material impact on the Company's consolidated financial statements.

In September 2011, the FASB issued guidance to amend Topic 350, Intangibles-Goodwill and Other. The objective of this update is to simplify how entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with earlier implementation permitted. The Company implemented this guidance when performing its impairment evaluation at December 31, 2011. (See Note 4).

In December 2011, the FASB issued guidance to amend Comprehensive Income (Topic 220). This amendment defers the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in Accounting Standards Update 2011-05 Comprehensive Income (Topic 220) Presentation of Comprehensive Income until the Board is able to reconsider the paragraphs. The guidance is not expected to have a material impact on the Company's consolidated financial statements.

3.  Inventories

Inventories consisted of the following at December 31, 2011 and 2010:

	2011 US$ 000	2010 US$ 000
Raw materials	1,828	1,713
Finished goods and work in process	1,772	2,094
Refurbished	2,117	2,586
Total	5,717	6,393

4.   Goodwill and Intangible Assets
Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. The Company is required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a unit may be below its carrying value.
The Company adopted the amendments to Topic 350, Intangibles-Goodwill and Other, for the fiscal year ended December 31, 2011, which permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350.
The results of the qualitative assessment indicated that Goodwill was not impaired as of December 31, 2011 and that the value of intangible assets including customer relationships and technology was not impaired as of December 31, 2011. Prior to December 31, 2011, there were US$13.5m in accumulated impairment losses.
The following table reflects Other intangible assets:
	Weighted average Amortization Period	2011 US$000	2010 US$000
Capitalized cost
Customer relationships	8 years	6,300	6,300
Patents	12 years	18,538	18,538
Other intangibles	3 years	4	4
		24,842	24,842
Accumulated amortization
Customer relationships	8 years	5,053	4,266
Patents	12 years	9,913	8,368
Other intangibles	3 years	4	3
		14,970	12,637
Net carrying costs
Customer relationships	8 years	1,247	2,034
Patents	12 years	8,625	10,170
Other intangibles	3 years	0	1
		9,872	12,205

Amortization expense associated with the intangible assets for the years ended December 31, 2011 and 2010 was approximately US$2,333,000 and US$2,332,000, respectively. Future amortization on intangible assets is expected to be as follows for the years ended:
	December 31 US$ 000
2012	2,332
2013	2,004
2014	1,545
2015	1,545
2016	1,545
	8,971
Thereafter	901
	9,872

5. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
	2011 US$ 000	2010 US$ 000
Land	207	207
Buildings and improvements	3,572	3,572
Machinery and equipment	1,500	1,450
	5,279	5,229
Less: accumulated depreciation and amortization	(1,728)	(1,528)
	3,551	3,701
Depreciation expense for the years ended December 31, 2011 and 2010, was approximately US$264,000 and US$288,000, respectively.

6.   Notes Payable

The Company's debt obligations consisted of the following at December 31:

	2011 US$ 000	2010 US$ 000
Bank debt:
30 month secured reducing revolving line of credit	1,782	3,515
30 month secured term loan	2,973	1,610
Less debt obligations due within one year	(511)	(460)
Obligations due after one year	4,244	4,665

Amended Credit Facility The Company completed the amendment of its loan agreement in early 2011. The new agreement matures July 2013. ·      US$3,500,000 July 2013 amended, secured revolving line of credit ·      US$1,540,000 July 2013 amended, secured reducing term loan ·      US$2,500,000 July 2013 new, secured revolving line of credit ·      US$1,900,000 July 2013 new, secured reducing term loan The Company restructured its original revolving loan up to a maximum of US$3,500,000. The interest rate on this loan will be adjusted Libor plus 4.0%.  The Company restructured its original term loan equal to US$1,540,000. The interest rate on this loan will be adjusted Libor plus 4.0%.  The Company has a new maximum revolving loan facility equal to US$2,500,000 secured by substantially all of its assets and supported by the Export-Import Bank of the United States. The interest rate on this loan will be adjusted Libor plus 4.0%.  The Company has a new term loan facility equal to US$1,900,000 secured by substantially by all of its business assets. Each of the Company's loans is secured by a mortgage. The interest rate on this loan will be adjusted Libor plus 4.5%. The change fee paid to the bank was US$25,000 and the fee paid to the Export-Import Bank of the United States was US$37,500.

Future Payments The future payments by year under the Company's amended loan are as follows:

	December 31 US$ 000
2012	511
2013	4,244
2014	-
2015	-
2016	-
Total payments	4,755

Interest

Interest expense on the notes payable for the years ended December 31, 2011 and 2010, was approximately US$454,000 and US$477,000, respectively, related to the debt obligations. Interest expense includes US$104,000 in 2011 and 2010, respectively, related to the loss on cash flow hedges as a result of paying off interest rate swaps in 2009 that were recognized in the statement of operations as interest expense and removed from other comprehensive income/(loss).

7.  Retirement Program

The Company has a savings and retirement plan for its employees, which is intended to qualify under Section 401(k) of the Internal Revenue Code ("IRC"). This savings and retirement plan provides for voluntary contributions by participating employees, not to exceed maximum limits set forth by the IRC. The Company match vests immediately.  The Company matched 100% of the employee's contribution up to the first 6% of the employee's compensation through June 30, 2009. Since then, the Company suspended the match. The Company reinstated its 401k match in 2012 for employees up to 6% of their income. The Company contributed approximately US$0 to the savings and retirement plan during the years ended December 31, 2011 and 2010, respectively.

8.  Operating Leases

The Company leases property, vehicles and office equipment under leases accounted for as operating leases without renewal options. Future minimum payments by year under non-cancellable operating leases with initial terms in excess of one year were as follows:

	December 31 US$ 000
2012	173
2013	96
2014	17
2015	10
2016	-
Total	296

The Company's existing lease on its Executive offices in Florida is set to expire June 30, 2013. The Company is currently negotiating an extension.

9. Supplemental Cash Flow and Non-Cash Financing Disclosures

	2011 US$ 000	2010 US$ 000
Cash paid for interest	259	332
Cash paid/ (received) for taxes	(355)	(1,176)
Non-cash financing activities - Change in fair value of derivative instruments	(104)	(104)
Inventory received in lieu of payment	119	274

10. Business and Credit Concentration

The Company's line of business could be significantly impacted by, among other things, the state of the general economy, the Company's ability to continue to protect its intellectual property rights, and the potential future growth of competitors. Any of the foregoing may significantly affect management's estimates and the Company's performance.  At December 31, 2011 and December 31, 2010, the Company had two customers which represented 30% and 40% of total accounts receivables; respectively.

11. Commitments and Contingencies

The Company has entered into employment agreements with certain members of senior management. The terms of these are for renewable one year periods and include non-compete and nondisclosure provisions as well as providing for defined severance payments in the event of termination or change in control.

The Company is subject to various unresolved legal actions which arise in the normal course of its business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible losses, the Company believes these unresolved legal actions will not have a material effect on its consolidated financial statements.

12. Income Taxes

During 2011, the Company had gross tax expense of US$19,026.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company began business in 2005. The statute of limitations for all federal, foreign and state income tax matters for tax years from 2008 forward are still open. The Company has no federal, foreign or state income tax returns currently under examination.

	2011 US$ 000	2010 US$ 000
Current Income Tax
Federal	(24)	(121)
State	-	-
Foreign	43	(59)
Total current income tax provision/(benefit)	19	(180)
Deferred tax expense
Federal	-	(23)
State	-	7
Foreign	-	16
Total deferred tax provision/(benefit)	-	(0)
Total provision/(benefit)	19	(180)

The components of the net deferred income tax asset at December 312011 and 2010 were as follows:
	2011 US$ 000	2010 US$ 000
Deferred Tax Asset
Intangibles	1,530	1,310
Intangibles - Foreign	121	106
Goodwill	2,336	2,733
Share-based compensation	43	443
Net Operating Loss - State	74	72
Net Operating Loss - Foreign	757	381
Net Operating Loss - Federal	442	75
Foreign Tax Credit Carryover	237	261
Other	216	264
Gross deferred tax asset	5,756	5,645
Valuation Allowance	(5,416)	(5,285)
Deferred tax asset	340	360
Deferred Tax Liability
Depreciation	(236)	(253)
Prepaids	(104)	(103)
Net deferred tax asset	-	4
Current	-	-
Non-current	-	4
Net deferred tax asset	-	4
Rate Reconciliation
Consolidated income/(loss) before tax	(2,315)	(2,404)
Statutory rate	34%	34%
Statutory tax expense	(787)	(817)
State taxes	1	5
Revaluation of Deferred Tax Assets	45	134
Meals and Entertainment	22	19
Foreign Tax Items	125	(4)
Valuation Allowance	131	455
Other	482	28
Tax provision/benefit	19	(180)

At December 31, 2011, the Company had no net deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Since realization of any future tax benefit at December 31, 2011 and December 31, 2010 was not sufficiently assured, a valuation allowance for the amount of the 2011 and 2010 net deferred tax asset was provided for.

The Company has US$6,212,311 in state loss carry forwards with varying expiration dates, US$1,299,585 of federal net operating losses that will expire in 2031 and US$2,704,847 in foreign loss carry forwards with indefinite expiration dates.

13. Revenues by Geographic Region

The Company sells its product to customers throughout the world. The breakdown by location is as follows:

	2011 US$ 000	2010 US$ 000
United States and U.S. possessions	9,124	8,664
Canada	1,027	1,089
Rest of world	11,721	11,282
Total	21,872	21,035
A significant portion of the Company's long-lived assets are located in the United States.
14. Stock Based Compensation
The Company has one share-based compensation plan, which is described below. The compensation cost that has been charged against income/ (loss) for the plan was approximately US$90,000 and US$50,000 for the years ended December 31 2011 and 2010, respectively.  The income tax effect recognized for share based compensation was approximately a benefit of US$32,000 and a benefit of US$18,000 for the years ended December 31, 2011 and 2010, respectively.
Share Options
An initial grant was made in February 2010 for 2.3 million shares as replacements for grants under the old option plan, which were cancelled and the old plan was abandoned. The grants have a three year vesting and a strike price of 30p, a 100% premium over the market price on the date of grant. The remaining shares will only be issued for new key employees and superior performance.
Options granted under the Plan have a term of up to 10 years and generally vest over a three-year period beginning on the date of the grant. Options under the Plan must be granted at a price not less than the fair market value at the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected term at the time of grant, volatility is based on the average long-term implied volatilities of peer companies as our Company has limited trading history and the expected life is based on the average of the life of the options of 10 years and an average vesting period of 3 years. The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees for the years ended December 31, 2011 and 2010.

	2011	2010
Dividend yield	0.00%	0.00%
Risk-free interest rate	1.29%	2.11%
Volatility	49.3%	48.8%
Expected term	4.0 yrs	4.4 yrs

A summary of option activity under the stock option plan as of December 31, 2011, and changes during the year then ended is presented below:
Options	Shares	Weighted-Average Exercise Price	Weighted Average Remaining Contractual Term (yrs)	Aggregate Intrinsic Value
Outstanding at January 1, 2011	3,004,630	0.56	8.73	-
Granted	62,715	0.47	9.02	-
Exercised	-	-	-	-
Forfeited	-	-	-	-
Outstanding at December 31, 2011	3,067,345	0.56	7.76	-
Exercisable at December 31, 2011	1,305,174	0.71	7.34	-

The weighted-average grant-date fair value of options granted was US$0.05 for the years ended December 31, 2011 and 2010, respectively.
A summary of the status of the Company's non-vested shares as of December 31, 2011, and changes during the year then ended is presented below:
	Shares	Weighted Average Grant-Date Fair Value
Non-vested shares as of December 31, 2010	2,632,436	0.06
Granted	62,715	0.05
Vested	(932,980)	0.13
Forfeited	-	-
Non-vested shares as of December 31, 2011	1,762,171	0.06

As of December 31, 2011, there was US$51,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's stock option plan. Stock option expense will be recognized over 1.2 years which is the weighted average remaining vesting period. The fair value of options vested in 2011 and 2010 was US$55,000 and US$15,000, respectively.

Restricted Stock Units
	Shares	Weighted Average Grant Date Fair Market Value US$
Outstanding at January 1, 2011	-	-
Granted	2,279,349	360,154
Vested	-	-
Forfeited	-	-
Outstanding at December 31, 2011	2,279,349	360,154
Vested at December 31, 2011	-	-
The weighted-average grant-date fair value of restricted stock units was US$0.16 and US$0.00 for the years ended December 31, 2011 and 2010, respectively.
A summary of the status of the Company's non-vested restricted stock units as of December 31, 2011, and changes during the year then ended is presented below:
	Shares		Weighted Average Grant Date Fair Market Value US$
Non-vested restricted stock units as of December 31, 2010	-		-
Granted	2,279,349		0.16
Vested	-		-
Forfeited	-		-
Non-vested restricted stock units as of December 31, 2011	2,279,349		0.16

As of December 31, 2011, there was US$327,000 of total unrecognized compensation cost related to non-vested restricted stock units. Restricted stock unit expense will be recognized over 2.73 years which is the weighted average remaining vesting period.

15. Employee compensation

In light of the very strong performance and recognizing the compensation reductions employees have taken since the beginning of 2009, management recommended the Company provide for a bonus that would be based on one half the amount employees had given up during the period. The Board approved the $228,000 bonus to be accrued for in the 2011 financial statements and to be paid out in early 2012. The Company reinstated its 401k match in 2012 for employees up to 6% of their income. This will fully complete the reinstatement of the 10% compensation reduction that was implemented in July 2009.

 

END

 

 

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