Final Results

RNS Number : 7175G

Somero Enterprises Inc.

17 May 2011

 



Press Announcement

For immediate release

17 May 2011

Somero Enterprises, Inc. ®

Full year results for the twelve months to 31 December 2010

Somero Enterprises, Inc. ®, ("Somero" or the "Company") is pleased to report results for the twelve months to 31 December 2010. 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 ·     Met management's full year revenue and earnings expectations ·     Revenue decreased by 13% to US$21.0m (2009: US$24.2m) ·     Adjusted EBITDA increased by 25% to US$1.0m (2009: US$0.8m)2 3 5 ·     Pre-tax loss of US$2.4m (2009 Pre-tax loss: US$16.6m) ·     Received US$1.0m U.S. federal tax refund relating to fiscal 2009 ·     Adjusted net income/(loss) before amortization increased to US$0.1m (2009: US($13.1m))2 4 ·     EPS before amortization US$0.00 (2009: US($0.29)) ·     Basic EPS US($0.04) (2009: US($0.34)) ·     Reduced net debt by US$0.9m1 ·     Bank loan agreement extended to July 2013 Business Highlights ·     Continued focus on product development with the introduction of the new SMP in October 2010 with US$0.8m in sales in Q4 ·     Began limited outsourcing of production in India for the Indian marketplace ·     Increased investment in emerging markets resulted in a 71% increase in revenue from that region ·     Escalating sales and service presence in China and India ·     Increased utilization of our websites to find and interact with customers ·     Enhanced customer support organization in response to customer feedback 1.      Net Debt is defined as total borrowings under bank obligations less cash and cash equivalents. 2.      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 7 and 8. 3.      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. 4.      Adjusted net income/(loss) before amortization is a calculation of net income/(loss) plus amortization of intangibles. 5.      2009 figures include US$0.2m in restructuring charges

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 SMP 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 72 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 offices in Chesterfield, England and Shanghai, China. Somero has approximately 70 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 quoted 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 processes 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 2010 Chairman's Statement Overview What a difference a year makes. Steady progress on cost control and sales execution has resulted in the first increase in EBITDA since 2007. The strong, open relationship with its bank has enabled the Company to amend and extend its loan facility out until July 2013. The extension, along with simplified covenants, allows management to focus on implementation of its strategic plan, successfully introduce new products into the market and maximize opportunities from investments in emerging markets. People The Company is pleased to report that half of the 10% compensation reduction was reinstated in July 2010. The Board would like to thank the employees for maintaining high morale during difficult times and recognizes the sacrifice each one has made. Markets Despite continued weakness in construction spending in the US and Europe, our emerging market operations performed well in 2010 with sales increasing by 71% in the year. International sales now account for 54% of total Group revenues, up from 47% in 2009, and the Company will continue to position more sales resources in faster growing areas of the world in 2011. New Product Development The Company's product innovation culture continued with the introduction of the SMP, the first ride-on small Laser Screed® machine. This was introduced in the market in Q4, and we've already secured sales of US$0.8m. The company follows a strict, market-driven, 10 step product development process focused on attaining a gross margin of over 50% and providing a compelling value proposition to customers. We have a number of interesting new products currently in development for release in 2011 and beyond. Current Trading & Outlook 2011 revenues to date are consistent with our previously indicated expectations. We are pleased with the growth in our emerging markets business and satisfied that our established markets have stabilized. We continue to focus on every sales opportunity, while maintaining tight controls on cost. The Board remains cautiously optimistic on the outcome for 2011.  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 2010 performance. As expected, revenues were on plan and we realized the benefits of all of our previous cost reduction programs. The combination of meeting revenue and cost targets resulted in the first EBITDA increase since 2007. Our customer support group increased the frequency and quality of customer interaction to increase their level of awareness of our customers' business. As a result, the customer support organization was enhanced to meet the growing needs of our customers and strategically focus sales efforts. We have been refining our websites to improve our customers' experience in obtaining information and customer support. This is evidenced by the fact that contact inquiries increased by 41%, particularly driven by international leads which have more than quadrupled. Product Development We remain committed to developing innovative, state-of-the-art, proprietary, high-margin products that meet the ever changing needs of our customers. 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 provide further growth opportunities for Somero over the medium and longer term. The introduction and early acceptance of the new PowerRake 3.0 in November 2009 led to our adding 3D capability and a new screeding attachment to the machine, both introduced in 2010. These breakthroughs allowed us to migrate the PowerRake product into a new platform product line branded as the SMP (Somero Mid-sized Platform) which was introduced in Q4 2010. This small line product uses Somero's patented laser leveling technology on the first ride-on small Laser Screed® machine, allowing the Company to successfully deliver a product long sought after by customers, which was introduced in Q4 2010. With three interchangeable head options, the ride-on Small line Laser Screed® and raking machine, can now be used in a variety of applications on the jobsite, giving the contractor more flexibility and value for his investment. In late 2010, we upgraded our large line SXP®-D Laser Screed® machine to the GCS 210 control system. This new technology vastly improves the diagnostic capabilities of the machine with fewer components, allowing for faster troubleshooting on the jobsite. Other improvements from the change in control system include the ability to hold the head slightly above grade until the boom is retracted, allowing for more consistent landings and a quick-pass feature which removes excess concrete, allowing for more consistent screeding. All of these feature changes to the SXP®-D have been well received in the marketplace. In our continuing effort to get product input, we conducted formal customer and sales organization surveys during the World of Concrete on our products for future product development. Emerging Markets/Geographic Growth Emerging markets remain a key growth opportunity for Somero as evidenced by a 71% 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. We continue to pursue these three core aims as we increase our penetration and investment in emerging markets as evidenced by new strategic partnerships entered into with World Tech Floors and Flat Floors Asia. Both organizations have been established to educate contractors so that they can deliver high quality floors to their clients. We were encouraged by activity at our annual industry tradeshow, the World of Concrete, and indications from attendees were that activity levels are increasing. In Q1 2011, we booked our largest single sale in the history of the Company. We will look to continuing development of new and innovative products to satisfy our customers' needs and to expand our presence in emerging markets. Jack Cooney President and Chief Executive Officer

Financial Review
	Year ended December 31, 2010	Year ended December 31, 2009
	US$ 000	US$ 000
Revenue	21,035	24,227
Cost of sales	11,182	12,550
Gross profit	9,853	11,677
Operating expenses
Selling expenses	4,394	5,366
Engineering expenses	531	673
General and administrative expenses	6,586	7,636
Restructuring expenses	0	240
Goodwill Impairment	0	13,522
Total operating expenses	11,511	27,437
Operating income/(loss)	(1,658)	(15,760)
Other income (expense)
Interest expense	(477)	(949)
Interest income	0	3
Foreign exchange gain/(loss)	(269)	100
Other	0	7
Income/(loss) before income taxes	(2,404)	(16,599)
Provision/(benefit) income taxes	(180)	(1,214)
Net income/(loss)	(2,224)	(15,385)
Other data
Adjusted EBITDA	1,012	807
Adjusted net income/(loss)before amortization	108	(13,052)
Depreciation expense	288	339
Amortization of intangibles	2,332	2,333
Capital expenditures	42	49

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 stock 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-10	31-Dec-09
	US$ 000	US$ 000
Adjusted EBITDA reconciliation
Net income/(loss)	(2,224)	(15,385)
Tax provision/(benefit)	(180)	(1,214)
Interest expense	477	949
Interest income	0	(3)
Foreign exchange (gain)/loss	269	(100)
Other expense	0	(7)
Depreciation	288	339
Amortization	2,332	2,333
Stock based compensation	50	373
Goodwill impairment	0	13,522
Adjusted EBITDA	1,012	807
Adjusted net income/(loss) before amortization reconciliation
Net income/(loss)	(2,224)	(15,385)
Amortization	2,332	2,333
Adjusted net income/(loss) before amortization reconciliation	108	(13,052)

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 decreased by 13% to US$21.0m (2009: US$24.2m). 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 decrease in revenues for the year was driven by reductions in each of Large line sales and Small line sales. Other revenues would have been down a similar percentage as Large and Small line but were offset by strong growth of refurbished sales. The following table shows the breakdown between Large line sales, Small line sales and other revenues during the 12 months ended December 31, 2010 and 2009:

	12 months ended December 31, 2010		12 months ended December 31, 2009
	(US$ in millions)	Percentage of net sales	(US$ in millions)	Percentage of net sales
Large line sales	5.8	27.5%	9.0	37.2%
Small line sales	5.4	25.8%	5.6	23.1%
Other revenues	9.8	46.7%	9.6	39.7%
Total	21.0	100.0%	24.2	100%

Large line sales decreased to US$5.8m (2009: US$9.0m) as a result of a 34% decrease in volume to 21units (2009: 32), Small line sales decreased to US$5.4m (2009: US$5.6m) as volumes decreased to 110 (2009: 119) and other revenues, including sales of spare parts, refurbished machines, Topping Spreaders, Mini Screeds, 3D systems and accessories, increased to US$9.8m (2009: US$9.6m).

Revenue breakdown by geography
	North America		EMEA		RoW		Total
US$ millions	2010	2009	2010	2009	2010	2009	2010	2009
Large Screed	2.7	3.9	0.9	3.4	2.2	1.7	5.8	9.0
Small Screed	2.3	3.0	1.5	1.6	1.6	1.0	5.4	5.6
Other	4.8	6.0	2.4	2.6	2.6	1.0	9.8	9.6
Total	9.8	12.9	4.8	7.6	6.4	3.7	21.0	24.2

Units breakdown by geography
	North America		EMEA		RoW		Total
	2010	2009	2010	2009	2010	2009	2010	2009
Large Screed	10	14	3	11	8	7	21	32
Small Screed	48	69	29	31	33	19	110	119

Sales to customers located in North America contributed 46% of total revenue (2009: 53%), sales to customers in EMEA (Europe, Middle East & South Africa) contributed 23% (2009: 31%) and sales to customers in RoW (Asia, Australia, Latin America & Pacific) contributed 31% (2009: 16%). Sales in North America generated US$9.8m (2009: US$12.9m) which is down 24% primarily due to lower Large line (10 Large line units in 2010 vs. 14 in 2009) and Small line sales (48 Small line units in 2010 vs. 69 in 2009).  Sales in EMEA generated US$4.8m (2009: US$7.6m) which is down 36% primarily due to lower Large line sales (3 Large line units in 2010 vs. 11 in 2009).  Sales in RoW generated US$6.4m (2009: US$3.7m) which are up 71% primarily due to higher Small line (33 Small line units in 2010 vs. 19 in 2009) and Other sales (primarily higher refurbished sales). Gross Profit Gross profit decreased to US$9.9m (2009: US$11.7m), with gross margins declining to 47% (2009: 48%). The decrease in gross margins was a result of several factors including a change in sales mix from higher margin Large line and Small line to lower margin Other sales, lower production volumes leading to less cost absorption and slightly lower exchange rates. Operating Expenses Operating expenses excluding goodwill impairment decreased by 17% to US$11.5m (2009: US$13.9m). This decrease was driven primarily by the full year impact of the restructurings at the end of 2009, lower sales commissions as a result of lower sales, fewer projects being worked on in 2010 as compared to 2009 but partially offset by the reinstatement of 5% of the 10% compensation reduction in July 2010. Restructuring expenses amounted to US$0m in 2010 and US$0.2m in 2009 as the Company completed its restructuring in 2009. Total employment is up from approximately 56 to 71 people for the period. Other Income (Expense) Other expenses were US$0.7m (2009: US$0.8m). Other expenses consisted 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($0.2m) in 2010 as compared to US($1.2m) in 2009 due to net losses. Overall, Somero's effective tax rate changed from 7.3% to 7.5% due to a net loss and a valuation allowance. The Company has filed its 2010 US Federal Tax Return and expects a refund of US$315,000 due to the ability to carry the 2010 loss back to previous tax years. Net Income/(loss) Net income/(loss) increased to US$(2.2m) from US$(15.4m) in 2009.  The primary cause of the increase in net income/(loss) was the absence of a non-cash goodwill impairment charge and the absence of restructuring charges in 2010 plus lower operating expenses as a result of the full year impact of the restructurings at the end of 2009.  Basic Earnings/(loss) Per Share represents income available to common stockholders 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 stock options. Earnings/(loss) per common share have been computed based on the following:

	2010 US$ 000	2009 US$ 000
Net income/(loss)	(2,224)	(15,385)
Basic weighted shares outstanding	56,425,598	45,748,122
Net dilutive effect of stock options	-	-
Diluted weighted average shares outstanding	56,425,598	45,748,122
The Company had 56,425,598 shares outstanding at December 31, 2010.
Earnings/(loss) per share
Earnings/(loss) per share at December 31, 2010 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, 2010 and 2009
		2010	2009
		US$ 000	US$ 000
Assets
Current Assets:
	Cash and cash equivalents	96	34
	Accounts receivable - net	2,176	2,152
	Inventories	6,393	6,177
	Prepaid expenses and other assets	567	720
	Income tax receivable	284	1,228
	Total current assets	9,516	10,311
Property, plant and equipment - net		3,701	3,954
Intangible assets - net		12,205	14,538
Goodwill		2,878	2,878
Deferred financing costs		17	10
Deferred tax asset		4	4
Other assets		24	35
Total assets		28,345	31,730
Liabilities and stockholders' equity
Current liabilities:
	Notes Payable - current portion	460	460
	Accounts payable	1,659	1,911
	Accrued expenses	357	414
	Total current liabilities	2,476	2,785
Notes payable, net of current portion		4,665	5,493
Other liabilities		67	107
Total liabilities		7,208	8,385
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, 2010 and December 31, 2009	26	26
	Additional paid in capital	28,075	28,025
	Retained earnings/(Accumulated deficit)	(5,881)	(3,657)
	Other comprehensive loss	(1,083)	(1,049)
	Total stockholders' equity	21,137	23,345
Total liabilities and stockholders' equity		28,345	31,730
See notes to consolidated financial statements.

Consolidated Statements of Operations For the years ended December 31, 2010 and 2009
		Year ended December 31 2010	Year ended December 31 2009
		US$ 000	US$ 000
		except per share data
Revenue		21,035	24,227
Cost of sales		11,182	12,550
Gross profit		9,853	11,677
Operating expenses
	Selling expenses	4,394	5,366
	Engineering expenses	531	673
	General and administrative expenses	6,586	7,636
	Restructuring expenses	0	240
	Goodwill impairment	0	13,522
	Total operating expenses	11,511	27,437
Operating income/(loss)		(1,658)	(15,760)
Other income (expense)
	Interest expense	(477)	(949)
	Interest income	0	3
	Foreign exchange gain/(loss)	(269)	100
	Other	0	7
Income/(loss) before income taxes		(2,404)	(16,599)
Provision/(benefit) for income taxes		(180)	(1,214)
Net income/(loss)		(2,224)	(15,385)
Earnings/(loss) per common share
	Basic	(0.04)	(0.34)
	Diluted	(0.04)	(0.34)
Weighted average number of common shares outstanding
Basic		56,425,598	45,748,122
Diluted		56,425,598	45,748,122
See notes to consolidated financial statements.

Consolidated Statements of Changes in Stockholders' Equity For the years ended December 31, 2010 and 2009
	Common Stock		Additional paid-in capital	Other
	Shares	Amount		Retained earnings/ (Accumulated deficit)	Compre-hensive income (loss)	Total stock-holders equity
		US$ 000	US$ 000	US$ 000	US$ 000	US$ 000
Balance - January 1, 2009	34,281,968	4	22,759	11,728	(1,102)	33,389
Cumulative translation adjustment	-	-	-	-	(185)	(185)
Change in fair value of derivative instruments	-	-	-	-	238	238
Net income/(loss)	-	-	-	(15,385)	-	(15,385)
Share based compensation	-	-	373	-	-	373
Equity issue	22,143,630	22	4,893	-	-	4,915
Balance - December 31, 2009	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
Dividend	-	-	0	-	-	0
Equity issue	-	-	-	-	-	-
Balance - December 31, 2010	56,425,598	26	28,075	(5,881)	(1,083)	21,137
See notes to consolidated financial statements.

Consolidated Statements of Cash Flows For the years ended December 31, 2010 and 2009
			Year ended December 31 2010	Year ended December 31 2009
			US$ 000	US$ 000
Cash flows from operating activities:
	Net income/(loss)		(2,224)	(15,385)
	Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
		Deferred taxes	(0)	223
		Depreciation and amortization	2,620	2,672
		Amortization of deferred financing costs	0	42
		Loss/(gain) on sale of assets	0	(8)
		Share based compensation	50	373
		Goodwill impairment	0	13,522
	Working capital changes:
		Accounts receivable	(24)	86
		Inventories	(216)	(161)
		Prepaid expenses and other assets	153	80
		Other assets	11	41
		Accounts payable, accrued expenses and other liabilities	(349)	(1,660)
		Income taxes receivable	944	(1,020)
		Net cash provided by/(used in) operating activities	965	(1,195)
Cash flows from investing activities:
	Proceeds from sale of property and equipment		0	23
	Property and equipment purchases		(42)	(49)
	Net cash provided by/(used in) investing activities		(42)	(26)
Cash flows from financing activities:
	Borrowings from additional financing		12,042	37,593
	Repayment of notes payable		(12,870)	(42,095)
	Payment of dividends		0	0
	Proceeds from equity issue, net of costs		(0)	4,915
		Net cash provided by/(used in) financing activities	(828)	413
Effect of exchange rates on cash and cash equivalents			(33)	53
Net increase/(decrease) in cash and cash equivalents			62	(755)
Cash and cash equivalents:
Beginning of year			34	789
End of year			96	34
See notes to consolidated financial statements.

Notes to the Consolidated Financial Statements As of December 31, 2010 and 2009
1.	Organization and Description of Business Nature of Business Somero Enterprises, Inc. (the "Company" or "Somero") designs, manufactures, refurbishes, sells and distributes concrete leveling, 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, Dubai 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, 2010 and 2009, the allowance for doubtful accounts was approximately US$225,000 and US$232,000, respectively. Bad debts expense/(income) was US$33,000 and US$(51,000) in 2010 and 2009, 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 repayment term of the debt instrument, which is four years from the debt inception date.  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, 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, 2010, but did so for the year ended December 31, 2009 (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, 2010, 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 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, 2010 and 2009.  Total comprehensive income/(loss) for the years was approximately US$(2,258,000) and US$(15,332,000), respectively.
					2010		2009
					US$ 000		US$ 000
	Net Income/(loss)				(2,224)		(15,385)
	Cumulative Translation Adjustment				(138)		(185)
	Change in fair value of derivative instruments - net of income taxes				104		238
	Total Comprehensive Income/(loss)				(2,258)		(15,332)
	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, 2010.  Earnings/(loss) per common share have been computed based on the following:
					2010		2009
					US$ 000		US$ 000
	Net Income/(loss)				(2,224)		(15,385)
	Basic weighted average shares outstanding				56,425,598		45,748,122
	Net dilutive effect of stock options				-		-
	Diluted weighted average shares outstanding				56,425,598		45,748,122
	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, 2010 and 2009 US$ 000	Quoted Prices In Active Markets for Identical Assets (Level 1) US$ 000	Significant Other Observable Inputs (Level 2) US$ 000		Significant Unobservable Inputs (Level 3) US$ 000
	Goodwill	2,878				2,878
	Refer to Footnote 4 for the goodwill impairment impact upon earnings.
	New Accounting Pronouncements In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchase, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for periods beginning January 1, 2010.   This guidance had no material impact upon the 2010 consolidated financial statements.
3.	Inventories Inventories consisted of the following at December 31, 2010 and 2009:
					2010		2009
					US$ 000		US$ 000
	Raw materials				1,713		1,547
	Finished goods and work in process				2,094		2,486
	Refurbished				2,586		2,144
	Total				6,393		6,177
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. As required, the Company performed its annual goodwill impairment analysis by comparing the fair value of the reporting unit with its carrying amount.  The Company has one reporting unit which is defined as the consolidated reporting entity.  As part of the test under Step 1, the Company computed fair value by preparing a discounted cash flow analysis, a market capitalization analysis and a comparison of its market capitalization to that of other comparable companies. Under the discounted cash flow analysis, the cash flows were determined based on assumptions for revenue, expenses, working capital requirements, capital expenditures and were discounted at a weighted average cost of capital. These estimates were based on historical results and the available information as of December 31, 2010 and 2009. The Company calculated fair value by obtaining market data of comparable companies with similar assets and liabilities. The companies selected for comparison included comparable companies with proprietary technology and similar gross margins to that of the Company. The results of Step 1 indicated that Goodwill was not impaired as of December 31, 2010 and that the value of intangible assets including customer relationships and technology was not impaired as of December 31, 2010 and 2009.  Prior to December 31, 2010, there were US$13.5m in accumulated impairment losses, which were recorded as of December 31, 2009 in the accompanying consolidated statement of operations. The following table reflects Other intangible assets:

		Weighted average amortization period	2010 US$ 000	2009 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	4,266	3,479
	Patents	12 years	8,368	6,823
	Other intangibles	3 years	3	2
			12,637	10,304
	Net carrying costs
	Customer relationships	8 years	2,034	2,821
	Patents	12 years	10,170	11,715
	Other intangibles	3 years	1	2
			12,205	14,538

	Amortization expense associated with the intangible assets for the years ended December 31, 2010 and 2009 was approximately US$2,332,000 and US$2,333,000, respectively. Future amortization on intangible assets is expected to be as follows for the years ended:
		December 31
		US$ 000
	2011	2,332
	2012	2,332
	2013	2,004
	2014	1,545
	2015	1,545
		9,758
	Thereafter	2,447
		12,205
5.	Property, Plant and Equipment
	Property, plant and equipment consist of the following at December 31:
			2010	2009
			US$000	US$000
	Land		207	207
	Buildings and improvements		3,572	3,572
	Machinery and equipment		1,450	1,423
			5,229	5,202
	Less: accumulated depreciation and amortization		(1,528)	(1,248)
			3,701	3,954
	Depreciation expense for the years ended December 31, 2010 and 2009, was approximately US$288,000 and US$339,000, respectively.
6.	Notes Payable
	The Company's debt obligations consisted of the following at December 31:
			2010	2009
			US$000	US$000
	Bank debt:
	Five year secured reducing revolving line of credit		3,515	3,883
	Five year secured term loan		1,610	2,070
	Less debt obligations due within one year		(460)	(460)
	Obligations due after one year		4,665	5,493
	Credit Facility The Company has a credit facility with a bank dated March 16, 2007 that has been amended multiple times and composed of the following at December 31, 2010: ·     US$5,750,000 five year secured reducing revolving line of credit ·     US$1,610,000 five year secured reducing term loan The interest rates on the revolver and term loan are Libor 1-month and Libor 3-month plus 4.75%, respectively. The interest rates on the revolver and term loan at December 31, 2010 were 5.01% and 5.04%, respectively. The credit facilities are secured by substantially all of the Company's assets and contain a number of restrictive covenants that among other things limit the ability of the Company to incur debt, issue capital stock, change ownership and dispose of certain assets. Amended Credit Facility The company failed its covenants and received a waiver from its bank for the third quarter of 2010 and completed the amendment of its loan agreement in early 2011. The new agreement is valid until 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 and 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$37,500. Future Payments The future payments by year under the Company's amended loan facility are as follows:
		December 31
		US$ 000
	2011	460
	2012	4,665
	2013	-
	2014	-
	2015	-
	Total payments	5,125
	Interest Interest expense on the credit facility for the years ended December 31, 2010 and 2009, was approximately US$477,000 and US$949,000, respectively, related to the debt obligation.  Interest expense includes US$104,000 and US$380,000 in 2010 and 2009, respectively, related to the loss on cash flow hedges as a result of paying off interest rate swaps 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 after one year of service with the Company.  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 Board of Directors at their discretion and within plan limitations may make a discretionary match at a future date to supplement the changes incurred.  The Company contributed approximately US$0 and US$113,000 to the savings and retirement plan during the years ended December 31, 2010 and 2009, respectively.
8.	Operating Leases
	The Company leases property, vehicles and office equipment under leases accounted for as operating leases without renewal options. Future minimum payments by year under non-cancellable operating leases with initial terms in excess of one year were as follows:
		December 31
		US$ 000
	2011	281
	2012	211
	2013	103
	2014	3
	Total	598
9.	Supplemental Cash Flow and Non-Cash Financing Disclosures
			2010	2009
			US$000	US$000
	Cash paid for interest		332	543
	Cash paid for taxes		(1,176)	(206)
	Non-cash financing activities - Change in fair value of derivative instruments		(104)	(238)
	Inventory received in lieu of payment		274	196
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, 2010 and December 31, 2009, the Company had two customers which represented 40% and 30% 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
	The Company adopted guidance from the FASB in 2007 which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements.  The guidance also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  At December 31, 2010, the Company had a gross unrecognized tax benefit (including interest and penalties) of US$5,000. 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

		2010	2009
		US$ 000	US$ 000
	Current Income Tax
	Federal	(121)	(951)
	State	-	23
	Foreign	(59)	(247)
	Total current income tax provision/(benefit)	(180)	(1,175)
	Deferred tax expense
	Federal	(23)	(119)
	State	7	(20)
	Foreign	16	100
	Total deferred tax provision/(benefit)	(0)	(39)
	Total provision/(benefit)	(180)	(1,214)

The components of the net deferred income tax asset at December 31, 2010 and 2009 were as follows:

		2010	2009
		US$ 000	US$ 000
	Deferred Tax Asset
	Intangibles	1,310	1,101
	Intangibles - Foreign	106	102
	Goodwill	2,733	3,188
	Share-based compensation	443	435
	Net Operating Loss - State	72	71
	Net Operating Loss - Foreign	381	89
	Net Operating Loss - Federal	75	-
	Foreign Tax Credit Carryover	261	-
	Other	264	276
	Gross deferred tax asset	5,645	5,263
	Valuation Allowance	(5,285)	(4,823)
	Deferred tax asset	360	440
	Deferred Tax Liability
	Depreciation	(253)	(279)
	Prepaids	(103)	(157)
	Net deferred tax asset	4	4
	Current	-	-
	Non-current	4	4
	Net deferred tax asset	4	4
	Rate Reconciliation
	Consolidated income/(loss) before tax	(2,404)	(16,599)
	Statutory rate	34%	34%
	Statutory tax expense	(817)	(5,643)
	State taxes	5	(8)
	Revaluation of Deferred Tax Assets	134	-
	Meals and Entertainment	19	28
	Foreign Tax Items	(4)	19
	Valuation Allowance	455	4,387
	Other	28	3
	Tax provision/benefit	(180)	(1,214)

	At December 31, 2010, the Company had a 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, 2010 and December 31, 2009 was not sufficiently assured, a valuation allowance for the amount of the 2010 and 2009 net deferred tax asset was provided for.  The Company has filed its US Federal Tax Return for the year ended December 31, 2010, which reflected the carryback of the 2010 loss to prior years.  Included in income tax receivable on the consolidated balance sheet is US$315,000 reflecting the amount of the tax refund intended to be filed by the Company. The Company has US$4,977,000 in state loss carry forwards with varying expiration dates, US$221,000 of federal net operating losses that will expire in 2031 and US$1,361,000 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:
		2010	2009
		US$000	US$000
	United States and U.S. possessions	8,664	12,368
	Canada	1,089	579
	Rest of world	11,282	11,280
	Total	21,035	24,227
	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$50,000 and US$373,000 for the years ended December 31 2010 and 2009, respectively.  The income tax effect recognized for share based compensation was approximately a benefit of US$18,000 and an expense of US$148,000 for the years ended December 31, 2010 and 2009, respectively. The board felt it was critical to have a meaningful retention/incentive program for key employees while being fair to the shareholders. The Remuneration Committee has developed a substitute Stock Option plan for management retention and incentivizing. This is not expected to have a material impact upon the Company's financial position or operations. The plan was authorized by the Board of Directors on January 20, 2010 and implemented February 17, 2010. There are 5.6 million shares available to be granted under the new plan which is 10% of the 56 million shares that are authorized. The initial grant was 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 3 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 ten 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, 2010 and 2009.
		2010	2009
	Dividend yield	0.00%	0.00%
	Risk-free interest rate	2.11%	1.40%
	Volatility	48.8%	47.3%
	Expected term	4.4 yrs	4.6 yrs
	A summary of option activity under the stock option plan as of December 31, 2010, and changes during the year then ended is presented below:

	Options	Shares	Weighted-Average Exercise Price US$	Weighted-Average Remaining Contractual Term (yrs)	Aggregate Intrinsic Value
	Outstanding at January 1,2009	2,828,895	2.24	-	-
	Granted	602,885	0.24	-	-
	Exercised	-	-	-	-
	Forfeited	(81,542)	2.04	-	-
	Outstanding at December 31, 2009	3,350,238	1.88	7.44	-
	Granted	2,333,711	0.47	9.14
	Exercised	-	-	-	-
	Forfeited	(2,679,319)	2.14	-	-
	Outstanding at December 31, 2010	3,004,630	0.56	8.73	-
	Exercisable at December 31, 2010	372,194	1.40	6.83	-

	The weighted-average grant-date fair value of options granted was US$0.05 and US$0.09 for the years ended December 31, 2010 and 2009, respectively. A summary of the status of the Company's non-vested shares as of December 31, 2010, and changes during the year then ended is presented below:
			Weighted Average Grant-Date Fair Value
		Share	US$
	Non-vested shares as of December 31, 2009	937,799	0.10
	Granted	2,333,711	0.05
	Vested	2,040,245	0.31
	Forfeited	(2,679,319)	0.43
	Non-vested shares as of December 31, 2010	2,632,436	0.06
	As of December 31, 2010, there was US$104,000 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 2.1 years which is the weighted average remaining vesting period. The fair value of options vested in 2010 and 2009 was US$15,000 and US$345,000, respectively.
15.	Subsequent Events
	As discussed in Note 12 the Company has filed its 2010 US Federal Tax Return and expects a refund of US$315,000 due to the ability to carry the 2010 loss back to previous tax years which is included in income tax receivable on the consolidated balance sheet. As discussed in Note 6, in early 2011 the Company amended and extended its loan facility out until July 2013. The extension, along with simplified covenants, allowed management to focus on implementation of its strategic plan, successfully introduce new products into the market and maximize opportunities from investments in emerging markets.

 

END

 

 

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