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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Somero Enterprise Inc. | LSE:SOM | London | Ordinary Share | COM STK USD0.001 (DI) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
7.50 | 2.24% | 342.50 | 335.00 | 350.00 | 342.50 | 335.00 | 335.00 | 68,256 | 16:03:45 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMSOM RNS Number : 0979M Somero Enterprises Inc. 18 May 2010 +-----+--------------------------------------------------------------+ | THIS ANNOUNCEMENT MAY NOT BE RELEASED, PUBLISHED OR DISTRIBUTED IN | | OR INTO THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA OR TO US | | PERSONS (AS DEFINED IN REGULATION S UNDER THE US SECURITIES ACT OF | | 1933, AS AMENDED) OR TO RESIDENTS, NATIONALS OR CITIZENS OF | | CANADA, JAPAN OR AUSTRALIA. | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | For immediate release | +--------------------------------------------------------------------+ | 18 May 2010 | +--------------------------------------------------------------------+ | Somero Enterprises, Inc. | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Full year results for the twelve months to 31 December 2009 | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Somero Enterprises, Inc. , ("Somero" or the "Company") is pleased | | to report results for the twelve months to 31 December 2009. | | 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 | +--------------------------------------------------------------------+ | - | Full year revenue and operating results in line with | | | management's expectations following 23 November 2009 trading | | | update | +-----+--------------------------------------------------------------+ | - | Revenue decreased by 53% to US$24.2m (2008: US$51.9m) | +-----+--------------------------------------------------------------+ | - | Adjusted EBITDA decreased by 87% to US$0.8m (2008: US$6.0m) | | | which includes a US$0.2m restructuring charge (2) (3) | +-----+--------------------------------------------------------------+ | - | Pre-tax loss at US$16.6m (2008 Pre-tax income: US$2.2m) | +-----+--------------------------------------------------------------+ | - | Adjusted net income/(loss) before amortization decreased to | | | US$(13.1m) (2008: US$4.0m) (2) (4) | +-----+--------------------------------------------------------------+ | - | EPS before amortization US($0.29) (Basic EPS: US($0.34)) vs. | | | US$0.12 in 2008 (Basic EPS: US$0.05) | +-----+--------------------------------------------------------------+ | - | Non-cash write down of US$13.5m Goodwill | +-----+--------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Business Highlights | +--------------------------------------------------------------------+ | - | Use of proceeds from June 2009 placing reduced net debt from | | | US$9.7m at the end of 2008 to US$5.9m at 31 December 2009 | | | (1) | +-----+--------------------------------------------------------------+ | - | Successful modification of bank agreements providing added | | | covenant flexibility throughout 2010 | +-----+--------------------------------------------------------------+ | - | Operating costs (excluding depreciation and amortization) in | | | 2010 expected to be around US$8.6m, down from a level of | | | US$23.3m in 2008. Cost reductions included a 10% reduction | | | in employee compensation | +-----+--------------------------------------------------------------+ | - | Continued focus on product development with the introduction | | | of the new PowerRake 3.0 in November 2009, the new Mini | | | Rake and the introduction of 3D Profiler System capability | | | to our Small line equipment in January 2010 | +-----+--------------------------------------------------------------+ | - | First full year of sales for the Mini Screed(TM) Commercial | | | accounted for 6.3% of total Company revenues | +-----+--------------------------------------------------------------+ | - | Increased investment in Asia as a result of continued strong | | | interest and results | +-----+--------------------------------------------------------------+ | - | Increased focus on opportunities for growth in international | | | markets supported by the re-launch of our website in over 50 | | | languages | +-----+--------------------------------------------------------------+ | - | Implemented a new share option plan to retain and | | | incentivize management | +-----+--------------------------------------------------------------+ | - | Lawrence Horsch appointed Non-Executive Chairman in October | | | 2009 | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 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 6 and 7. | +-----+--------------------------------------------------------------+ | 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, other | | | expense, depreciation, amortization, stock based | | | compensation and the write-down of Goodwill. | +-----+--------------------------------------------------------------+ | 4 | Adjusted net income/(loss) before amortization is a | | | calculation of income/(loss) plus Amortization of | | | Intangibles. | +-----+--------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Enquiries | +--------------------------------------------------------------------+ | Hawkpoint Partners Limited | +--------------------------------------------------------------------+ | Chris Robinson | +--------------------------------------------------------------------+ | Serge Rissi | +--------------------------------------------------------------------+ | +44 (0)20 7665 4500 | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Collins Stewart Europe | +--------------------------------------------------------------------+ | Piers Coombs | +--------------------------------------------------------------------+ | +44 (0)20 7523 8000 | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | 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 , and new Mini Screed(TM) C | | 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 non-residential construction projects in over 60 | | 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. It has a sales | | and service office in Chesterfield, England. | | | | Somero has approximately 56 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. | | | | This announcement does not constitute or form part of any offer or | | invitation to sell, or any solicitation of any offer to purchase, | | any securities of Somero Enterprises, Inc. (the 'Company'). | | | | This announcement may not be released, published or distributed in | | or into the United States, Canada, Japan or Australia or to US | | Persons (as defined in Regulation S under the US Securities Act of | | 1933, as amended (the 'US Securities Act')) or to residents, | | nationals or citizens of Canada, Japan or Australia. The | | distribution of this announcement in certain other jurisdictions | | may also be restricted by law and persons into whose possession | | this announcement or any document or other information referred to | | herein comes should inform themselves about and observe any such | | restriction. Any failure to comply with these restrictions may | | constitute a violation of the securities laws of any such | | jurisdiction. | | | | No securities of the Company have been registered under the US | | Securities Act. No securities of the Company may be offered or | | sold in the United States or to US persons (as defined in | | Regulation S under the US Securities Act) except pursuant to an | | effective registration statement under the US Securities Act or | | pursuant to an available exemption from the registration | | requirements under the US Securities Act. | | | | No securities of the Company have been registered under the | | applicable securities laws of Australia, Canada or Japan and may | | not be offered or sold within Australia, Canada or Japan or to, or | | for the account or benefit of citizens or residents of Australia, | | Canada or Japan. | | | +--------------------------------------------------------------------+ | Somero Enterprises, Inc | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Full year results for the twelve months to 31 December 2009 | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Chairman's Statement | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Overview | +--------------------------------------------------------------------+ | In my short time as Chairman, I have become very familiar with the | | serious issues facing the Company and have been impressed with the | | management team's rapid response to these challenges. | | | | The Company is focused on maintaining profitability and its solid | | relationship with its lending bank. This focus has allowed the | | Company to continue to implement its strategic plan, successfully | | introducing new products into the market and maximizing | | opportunities from investments in emerging markets. | | | | Our lending bank remains supportive and we have re-set a 2009 | | year-end covenant and quarterly covenants in 2010 so that they are | | aligned with Somero's 2010 budget. The first quarter of 2010 was | | within bank covenants. | | | +--------------------------------------------------------------------+ | Markets | +--------------------------------------------------------------------+ | Despite the global recession and a 53% reduction in revenues, our | | emerging market operations performed well in 2009 with | | international sales accounting for 47% of total Group revenues, | | down from 50% in 2008. Following this strong result, the Company | | intends to continue its program of investment in emerging markets | | in 2010. Mature market revenue declines were driven by lower | | levels of business for our customers. | | | +--------------------------------------------------------------------+ | New Product Development | +--------------------------------------------------------------------+ | Following its introduction in late 2008, the Mini Screed(TM) | | Commercial generated 6.3% of total Company revenues in its first | | full year of sales. In 2009, new product development focused on | | Small line equipment with the introduction of a more powerful | | PowerRake , a lower-cost Mini Rake and the new development of | | utilizing the 3D Profiler System on Small line Laser Screed | | equipment. We also introduced a new Large line machine, the SXP-D, | | which quickly gained market recognition due to its new diagnostic | | capabilities and the Somero Total Care program, an innovative | | three year total warranty program. | | | | Our refurbished program continued to be successful in 2009 with | | Small line refurbished equipment sales increasing by 84% over 2008 | | with more than 62% of sales from North America. | | | +--------------------------------------------------------------------+ | Board | +--------------------------------------------------------------------+ | On behalf of the Board, I would like to thank Stuart Doughty, the | | former non-executive Chairman who stepped down from the Board in | | the second half of 2009, for his years of service to the Company. | | | +--------------------------------------------------------------------+ | People | +--------------------------------------------------------------------+ | The Board would like to take this opportunity to thank all | | employees for their performance, commitment and dedication | | throughout the past year. We commend their sacrifice to the | | Company by accepting a 10% compensation reduction. | | | +--------------------------------------------------------------------+ | Non-cash charge | +--------------------------------------------------------------------+ | The Company's analysis of its Goodwill accounts resulted in a | | one-time, non-cash write down of US$13.5m. | | | +--------------------------------------------------------------------+ | Current Trading & Outlook | +--------------------------------------------------------------------+ | 2010 revenues to date are consistent with our previously indicated | | expectations. We believe our markets are at or near their bottom | | and we continue to focus on every sales opportunity, while | | maintaining tight controls on cost. | | | | We have seen some increase in sales activity in selected regions. | | We are confident that Somero is well positioned to grow as we | | pursue the increasing internationalization of our business and | | focus on new product development. Notwithstanding encouraging | | trends, the Board remains cautious on the outcome for 2010. | | | +--------------------------------------------------------------------+ | Larry Horsch | | Non-Executive Chairman | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | President and Chief Executive Officer's Statement | +--------------------------------------------------------------------+ | | +--------------------------------------------------------------------+ | Overview | +--------------------------------------------------------------------+ | The unprecedented depth and length of the worldwide recession | | required considerable focus on our bank relationship and | | covenants. The management team reacted promptly making swift and | | significant reductions to our cost structure. Despite these cost | | reductions, the Company remained true to its strategic plan which | | includes focusing on product development and growing the Company's | | presence in emerging markets. During the restructuring there was | | minimal reduction in sales personnel recognizing the critical | | requirement to retain key staff in order to take advantage of | | opportunities as markets start to grow. | | | | We pursued our product development with a single-minded focus to | | introduce new products. We introduced the new PowerRake 3.0 in | | November 2009, and the new Mini Rake and the 3D Profiler System | | capability for our Small line equipment in January 2010. As we | | came into 2009 we introduced the As Is program, which utilized | | some of our trade-in machines, the SXP -D, a new Large line | | machine, and the Somero Total Care program, an innovative three | | year total warranty program for the SXP -D. These new programs | | have had a significant impact on revenues. | | | | New equipment sales are very dependent on taking trade-ins. | | Recognizing trade-ins increase our inventory, we introduced a | | program of selling that equipment in As Is condition. This program | | has been very effective in minimizing our inventory growth. The As | | Is program allowed us to continue taking customer trade-ins and, | | along with the Somero Total Care program, drove new equipment | | sales that would not have happened without these programs. | | | | The redesign of our website was initiated in late 2009 and | | launched in January. Enhancements to the technology and design | | will provide our customers easier access to product information | | and customer support. By utilizing Google(TM) translation software | | on the website, our customers have the ability to roughly | | translate major portions of the information they need in over 50 | | languages. | | | +--------------------------------------------------------------------+ | Product Development | +--------------------------------------------------------------------+ | The introduction of the new Large line machine, the SXP(TM)-D is a | | significant success. This new innovation provides full-time | | electrical system, hydraulic system and engine performance | | diagnostics alerts to the operator instantly should faults occur | | during operation. The machine was developed in response to | | customer feedback and is an excellent example of our close | | relationship with our customers. | | | | The PowerRake 3.0 is a new concept for the raking machine that | | utilizes a two mast system allowing the contractor to place the | | concrete at more precise levels before screeding. This improves | | the final floor quality, making the machine an important asset to | | the contractor. | | | | The new Mini Rake is a complimentary product to the Mini | | Screed(TM) Commercial. It is a lower-cost raking machine that | | levels the concrete in front of the Mini Screed utilizing only one | | person. It improves the quality of the floor and reduces labor for | | the contractor. | | | | The introduction of 3D Profiler System for our Small line | | equipment gives our customers additional utilization for their | | equipment. Previously only available on Large line screeds, the 3D | | system allows the contractor to create parking lots, parking | | garages, and other three dimensional projects using their small | | Laser Screed equipment. The increased utilization of their | | equipment provides more profit for the contractor. | | | | In our continuing efforts to get customer input, we conducted | | formal customer surveys during the World of Concrete tradeshow to | | gather feedback on our products for future product development. | | | +--------------------------------------------------------------------+ | Emerging Markets/Geographic Growth | +--------------------------------------------------------------------+ | Emerging markets remain a key growth opportunity for Somero. We | | will continue to position ourselves to identify and take advantage | | of opportunities by adding additional investments 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. | | | | 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 2010 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 | +-----+--------------------------------------------------------------+ +-----------------------------------------+-----------+--------------+ | Summary of Financial Results | +--------------------------------------------------------------------+ | | Year | Year ended | | | ended | | +-----------------------------------------+-----------+--------------+ | | 31 | 31 December, | | | December, | | +-----------------------------------------+-----------+--------------+ | | 2008 | 2009 | +-----------------------------------------+-----------+--------------+ | | US$ 000 | US$ 000 | +-----------------------------------------+-----------+--------------+ | Revenue | 51,941 | 24,227 | +-----------------------------------------+-----------+--------------+ | Cost of sales | 23,116 | 12,550 | +-----------------------------------------+-----------+--------------+ | Gross profit | 28,825 | 11,677 | +-----------------------------------------+-----------+--------------+ | | | | +-----------------------------------------+-----------+--------------+ | Operating expenses | | | +-----------------------------------------+-----------+--------------+ | Selling expenses | 11,518 | 5,366 | +-----------------------------------------+-----------+--------------+ | Engineering expenses | 1,384 | 673 | +-----------------------------------------+-----------+--------------+ | General and administrative expenses | 12,477 | 7,636 | +-----------------------------------------+-----------+--------------+ | Restructuring expenses | 582 | 240 | +-----------------------------------------+-----------+--------------+ | Goodwill impairment | 0 | 13,522 | +-----------------------------------------+-----------+--------------+ | Total operating expenses | 25,961 | 27,437 | +-----------------------------------------+-----------+--------------+ | Operating income/(loss) | 2,864 | (15,760) | +-----------------------------------------+-----------+--------------+ | Other income (expense) | | | +-----------------------------------------+-----------+--------------+ | Interest expense | (856) | (949) | +-----------------------------------------+-----------+--------------+ | Interest income | 67 | 3 | +-----------------------------------------+-----------+--------------+ | Foreign exchange gain | 99 | 100 | +-----------------------------------------+-----------+--------------+ | Other | (12) | 7 | +-----------------------------------------+-----------+--------------+ | Income/(loss) before income taxes | 2,162 | (16,599) | +-----------------------------------------+-----------+--------------+ | Provision/(benefit) for income taxes | (505) | 1,214 | +-----------------------------------------+-----------+--------------+ | Net income/(loss) | 1,657 | (15,385) | +-----------------------------------------+-----------+--------------+ | Other data | | | +-----------------------------------------+-----------+--------------+ | Adjusted EBITDA (1) (2) (4) | 5,984 | 807 | +-----------------------------------------+-----------+--------------+ | Adjusted net income/(loss) before | 3,989 | (13,052) | | amortization (1) (3) (4) | | | +-----------------------------------------+-----------+--------------+ | Depreciation expense | 373 | 339 | +-----------------------------------------+-----------+--------------+ | Amortization of intangibles | 2,332 | 2,333 | +-----------------------------------------+-----------+--------------+ | Capital expenditures | 589 | 49 | +-----------------------------------------+-----------+--------------+ +-----+--------------------------------------------------------------+ | Notes: | +--------------------------------------------------------------------+ | 1 | Adjusted EBITDA and Adjusted 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 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, other | | | expense, depreciation, amortization, 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 Amortization Reconciliation | +-----+--------------------------------------------------------------+ +-----------------------------------------+-----------+--------------+ | | 12 months | 12 months | | | ended | ended | +-----------------------------------------+-----------+--------------+ | | 31-Dec-08 | 31-Dec-09 | +-----------------------------------------+-----------+--------------+ | | US$ 000 | US$ 000 | +-----------------------------------------+-----------+--------------+ | Adjusted EBITDA reconciliation | | | +-----------------------------------------+-----------+--------------+ | Net income/(loss) | 1,657 | (15,385) | +-----------------------------------------+-----------+--------------+ | Tax provision/(benefit) | 505 | (1,214) | +-----------------------------------------+-----------+--------------+ | Interest expense | 856 | 949 | +-----------------------------------------+-----------+--------------+ | Interest income | (67) | (3) | +-----------------------------------------+-----------+--------------+ | Foreign exchange gain | (99) | (100) | +-----------------------------------------+-----------+--------------+ | Other expense | 12 | (7) | +-----------------------------------------+-----------+--------------+ | Depreciation | 373 | 339 | +-----------------------------------------+-----------+--------------+ | Amortization | 2,332 | 2,333 | +-----------------------------------------+-----------+--------------+ | Stock based compensation | 415 | 373 | +-----------------------------------------+-----------+--------------+ | Goodwill impairment | 0 | 13,522 | +-----------------------------------------+-----------+--------------+ | Adjusted EBITDA | 5,984 | 807 | +-----------------------------------------+-----------+--------------+ | Adjusted net income/(loss) before | | | | amortization reconciliation | | | +-----------------------------------------+-----------+--------------+ | Net income/(loss) | 1,657 | (15,385) | +-----------------------------------------+-----------+--------------+ | Amortization | 2,332 | 2,333 | +-----------------------------------------+-----------+--------------+ | Adjusted net income/(loss) before | 3,989 | (13,052) | | amortization reconciliation | | | +-----------------------------------------+-----------+--------------+ +------------------------------------------------------------------+ | 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 | +------------------------------------------------------------------+ | Somero's consolidated revenues decreased by 53% to US$24.2m | | (2008: US$51.9m). Somero's revenues consist primarily of sales | | from new Large line products (the SXP-D Large Laser Screed and | | its predecessors), sales from new Small line products (the | | CopperHead and PowerRake) and other revenues, which consist of, | | among other things, revenue from sales of spare parts, | | refurbished machines, Topping Spreaders, Mini Screeds, 3D | | systems and accessories. The overall decrease in revenues for | | the year was driven by reductions in each of Large line sales, | | Small line sales and other revenues. The following table shows | | the breakdown between Large line sales, Small line sales and | | other revenues during the 12 months ended 31 December 2008 and | | 2009: | +------------------------------------------------------------------+ +---------------+---------------+---------------+---------------+----------------+ | | 12 months | | 12 months | | | | ended | | ended | | | | 31 December | | 31 December | | | | 2008 | | 2009 | | +---------------+---------------+---------------+---------------+----------------+ | | (US$ in | Percentage of | (US$ in | Percentage of | | | millions) | net sales | millions) | net sales | +---------------+---------------+---------------+---------------+----------------+ | Large line | 21.3 | 41.1% | 9.0 | 37.2% | | sales | | | | | +---------------+---------------+---------------+---------------+----------------+ | Small line | 15.4 | 29.6% | 5.6 | 23.1% | | sales | | | | | +---------------+---------------+---------------+---------------+----------------+ | Other | 15.2 | 29.3% | 9.6 | 39.7% | | revenues | | | | | +---------------+---------------+---------------+---------------+----------------+ | Total | 51.9 | 100% | 24.2 | 100% | +---------------+---------------+---------------+---------------+----------------+ +------------------------------------------------------------------+ | Large line sales decreased to US$9.0m (2008: US$21.3m) as a | | result of a 55% decrease in volume to 32 units (2008: 71), Small | | line sales decreased to US$5.6m (2008: US$15.4m) as volumes | | decreased to 119 (2008: 320) and other revenues, including sales | | of spare parts, refurbished machines, Topping Spreaders, Mini | | Screeds, 3D systems and accessories, decreased to US$9.6m (2008: | | US$15.2m). | | | | Sales to customers located in North America comprise the | | majority of Somero's revenue, constituting 53% of total revenue | | (2008: 51%), while sales to customers in Europe, South Africa | | and the Middle East combined contributed 31% (2008: 40%). The | | remaining sales in these periods were to customers in Asia, | | Australia, Central America and South America. Sales in Europe, | | South Africa and the Middle East generated US$7.6m (2008: | | US$20.5m) with sales of Large line and Small line products in | | these regions decreasing by 67% and 72% respectively. | | | | Sales in Asia, Australia and Latin and South America decreased | | to US$3.7m (2008: US$5.2m) driven by a decrease in Large line | | volumes to 7 units (2008: 9 units) and in Small line units to 19 | | (2008: 28 units). | +------------------------------------------------------------------+ | | +------------------------------------------------------------------+ | Gross Profit | +------------------------------------------------------------------+ | Gross profit decreased to US$11.7m (2008: US$28.8m), with gross | | margins declining to 48% (2008: 55%). 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 and lower production volumes leading to less cost | | absorption. Increased discounting, particularly on Large line, | | was also a factor. | +------------------------------------------------------------------+ | | +------------------------------------------------------------------+ | Operating Expenses | +------------------------------------------------------------------+ | Operating expenses excluding goodwill impairment decreased by | | 46% to US$13.9m (2008: US$26.0m). This decrease was driven by | | the restructurings at the end of 2008 and in 2009, lower sales | | which resulted in decreased sales commissions, the elimination | | of some engineering and administrative personnel and fewer | | projects being worked on in 2009 as compared to 2008. | | Restructuring expenses amounted to US$0.2m as the Company | | continued to streamline its operations during the global | | recession. Total employment is down from approximately 90 to 56 | | people for the period. The company recorded a US$13.5 non-cash | | goodwill impairment charge. | +------------------------------------------------------------------+ | | +------------------------------------------------------------------+ | Other Income (Expense) | +------------------------------------------------------------------+ | Other expenses were US$0.8m (2008: US$0.7m). 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($1.2m) in 2009 | | as compared to US$0.5m in 2008 due to a net loss. Overall, | | Somero's effective tax rate changed from 23.4% to 7.3% due to a | | net loss and a valuation allowance. The Company has filed its | | 2009 US Federal Tax Return and expects a refund of US$1,041,000 | | due to the ability to carry the 2009 loss back to previous tax | | years. | +------------------------------------------------------------------+ | | +------------------------------------------------------------------+ | Net Income/(loss) | +------------------------------------------------------------------+ | Net income/(loss) decreased to US$(15.4m) from US$1.7m in 2008. | | The primary cause of the decrease in net income/(loss) was a | | non-cash goodwill impairment charge and decreased sales. Basic | | Earnings/(loss) Per Share represents income available to common | | stockholders divided by the weighted average number of shares | | outstanding during the period. Diluted earnings/(loss) per share | | reflect additional common shares that would have been | | outstanding if dilutive potential common shares had been issued. | | Potential common shares that may be issued by the Company relate | | to outstanding stock options. Earnings/(loss) per common share | | have been computed based on the following: | +------------------------------------------------------------------+ +-----------------------------------------+------------+--------------+ | | 2008 | 2009 | | | US$ 000 | US$ 000 | +-----------------------------------------+------------+--------------+ | Net income/(loss) | 1,657 | (15,385) | +-----------------------------------------+------------+--------------+ | Basic weighted shares outstanding | 34,281,968 | 45,748,122 | +-----------------------------------------+------------+--------------+ | Net dilutive effect of stock options | - | - | +-----------------------------------------+------------+--------------+ | Diluted weighted average shares | 34,281,968 | 45,748,122 | | outstanding | | | +-----------------------------------------+------------+--------------+ +------------------------------------------------------------------+ | The Company had 56,425,598 shares outstanding at 31 December | | 2009. | +------------------------------------------------------------------+ +-----------------------------------------+-----------+--------------+ | Earnings/(loss) Per Share | +--------------------------------------------------------------------+ | Earnings/(loss) per share at 31 | | | | December 2009 is as follows: | | | +-----------------------------------------+-----------+--------------+ | | | US$ | +-----------------------------------------+-----------+--------------+ | Basic earnings/(loss) per share | | (0.34) | +-----------------------------------------+-----------+--------------+ | Diluted earnings/(loss) per share | | (0.34) | +-----------------------------------------+-----------+--------------+ | Diluted earnings/(loss) per share | | (0.29) | +-----------------------------------------+-----------+--------------+ +---------------------------------------+----------+-------------+ | Consolidated Balance Sheets | | | +---------------------------------------+----------+-------------+ | | | | +---------------------------------------+----------+-------------+ | As of 31 December 2008 and 2009 | | | +---------------------------------------+----------+-------------+ +----------+-------------------------------------+----------+-------------+ | | | 2008 | 2009 | | | | US$ 000 | US$ 000 | +----------+-------------------------------------+----------+-------------+ | Assets | | | +------------------------------------------------+----------+-------------+ | Current Assets: | | | +------------------------------------------------+----------+-------------+ | | Cash and cash equivalents | 789 | 34 | +----------+-------------------------------------+----------+-------------+ | | Accounts receivable - net | 2,434 | 2,152 | +----------+-------------------------------------+----------+-------------+ | | Inventories - net | 5,819 | 6,177 | +----------+-------------------------------------+----------+-------------+ | | Prepaid expenses and other assets | 800 | 720 | +----------+-------------------------------------+----------+-------------+ | | Income tax receivable | 137 | 1,228 | +----------+-------------------------------------+----------+-------------+ | | Deferred tax asset | 466 | 0 | +----------+-------------------------------------+----------+-------------+ | | Total current assets | 10,445 | 10,311 | +----------+-------------------------------------+----------+-------------+ | Property, plant and equipment - net | 4,260 | 3,954 | +------------------------------------------------+----------+-------------+ | Intangible assets - net | 16,872 | 14,538 | +------------------------------------------------+----------+-------------+ | Goodwill | 16,400 | 2,878 | +------------------------------------------------+----------+-------------+ | Deferred financing costs | 52 | 10 | +------------------------------------------------+----------+-------------+ | Deferred tax asset | 0 | 4 | +------------------------------------------------+----------+-------------+ | Other assets | 75 | 35 | +------------------------------------------------+----------+-------------+ | Total assets | 48,104 | 31,730 | +------------------------------------------------+----------+-------------+ | | | | | +----------+-------------------------------------+----------+-------------+ | Liabilities and stockholders' equity | | | +------------------------------------------------+----------+-------------+ | Current liabilities: | | | +------------------------------------------------+----------+-------------+ | | Notes payable - current portion | 1,429 | 460 | +----------+-------------------------------------+----------+-------------+ | | Accounts payable | 1,960 | 1,911 | +----------+-------------------------------------+----------+-------------+ | | Accrued expenses | 1,279 | 414 | +----------+-------------------------------------+----------+-------------+ | | Other liabilities | 360 | 0 | +----------+-------------------------------------+----------+-------------+ | | Total current liabilities | 5,028 | 2,785 | +----------+-------------------------------------+----------+-------------+ | Notes payable, net of current portion | 9,026 | 5,493 | +------------------------------------------------+----------+-------------+ | Deferred income taxes | 239 | 0 | +------------------------------------------------+----------+-------------+ | Other liabilities, net of current portion | 422 | 107 | +------------------------------------------------+----------+-------------+ | Total liabilities | 14,715 | 8,385 | +------------------------------------------------+----------+-------------+ | | | | | +----------+-------------------------------------+----------+-------------+ | Stockholders' equity | | | +------------------------------------------------+----------+-------------+ | | Preferred stock, US$.001 par value, | 0 | 0 | | | 50,000,000 shares authorized, no | | | | | shares issued and outstanding | | | +----------+-------------------------------------+----------+-------------+ | | Common stock, US$.001 par value, | 4 | 26 | | | 80,000,000 shares authorized, | | | | | 34,281,968 and 56,425,598 shares | | | | | issued and outstanding at December | | | | | 31, 2008 and December 31, 2009, | | | | | respectively | | | +----------+-------------------------------------+----------+-------------+ | | Additional paid in capital | 22,759 | 28,025 | +----------+-------------------------------------+----------+-------------+ | | Retained earnings | 11,728 | (3,657) | +----------+-------------------------------------+----------+-------------+ | | Other comprehensive loss | (1,102) | (1,049) | +----------+-------------------------------------+----------+-------------+ | | Total stockholders' equity | 33,389 | 23,345 | +----------+-------------------------------------+----------+-------------+ | Total liabilities and stockholders' equity | 48,104 | 31,730 | +------------------------------------------------+----------+-------------+ | | | | | +----------+-------------------------------------+----------+-------------+ | See notes to consolidated financial | | | | statements. | | | +------------------------------------------------+----------+-------------+ | | | | +------------------------------------------------+----------+-------------+ | Consolidated Statements of Operations | | | +----------+-------------------------------------+----------+-------------+ +----------+-------------------------------------+-------------+-------------+ | For the years ended 31 December 2008 and 2009 | | | +------------------------------------------------+-------------+-------------+ | | Year | Year ended | | | ended 31 | 31 December | | | December | | +------------------------------------------------+-------------+-------------+ | | 2008 | 2009 | | | US$ 000 | US$ 000 | +------------------------------------------------+-------------+-------------+ | | except | except per | | | per | share data | | | share | | | | data | | +------------------------------------------------+-------------+-------------+ | | | | +------------------------------------------------+-------------+-------------+ | Revenue | 51,941 | 24,227 | +------------------------------------------------+-------------+-------------+ | Cost of sales | 23,116 | 12,550 | +------------------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | Gross profit | 28,825 | 11,677 | +------------------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | Operating expenses | | | +------------------------------------------------+-------------+-------------+ | | Selling expenses | 11,518 | 5,366 | +----------+-------------------------------------+-------------+-------------+ | | Engineering expenses | 1,384 | 673 | +----------+-------------------------------------+-------------+-------------+ | | General and administrative expenses | 12,477 | 7,636 | +----------+-------------------------------------+-------------+-------------+ | | Restructuring expenses | 582 | 240 | +----------+-------------------------------------+-------------+-------------+ | | Goodwill impairment | 0 | 13,522 | +----------+-------------------------------------+-------------+-------------+ | | Total operating expenses | 25,961 | 27,437 | +----------+-------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | Operating income/(loss) | 2,864 | (15,760) | +------------------------------------------------+-------------+-------------+ | Other income (expense) | | | +------------------------------------------------+-------------+-------------+ | | Interest expense | (856) | (949) | +----------+-------------------------------------+-------------+-------------+ | | Interest income | 67 | 3 | +----------+-------------------------------------+-------------+-------------+ | | Foreign exchange gain | 99 | 100 | +----------+-------------------------------------+-------------+-------------+ | | Other | (12) | 7 | +----------+-------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | Income/(loss) before income taxes | 2,162 | (16,599) | +------------------------------------------------+-------------+-------------+ | Provision/(benefit) for income taxes | 505 | (1,214) | +------------------------------------------------+-------------+-------------+ | Net income/(loss) | 1,657 | (15,385) | +------------------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | Earnings/(loss) per common share | | | +------------------------------------------------+-------------+-------------+ | | Basic | 0.05 | (0.34) | +----------+-------------------------------------+-------------+-------------+ | | Diluted | 0.05 | (0.34) | +----------+-------------------------------------+-------------+-------------+ | Weighted average number of common shares outstanding | +----------------------------------------------------------------------------+ | | Basic | 34,281,968 | 45,748,122 | +----------+-------------------------------------+-------------+-------------+ | | Diluted | 34,281,968 | 45,748,122 | +----------+-------------------------------------+-------------+-------------+ | | | | | +----------+-------------------------------------+-------------+-------------+ | See notes to consolidated financial | | | | statements. | | | +----------+-------------------------------------+-------------+-------------+ +----------------------------------------------------------------------+ | Consolidated Statements of Changes in Stockholders' Equity | +----------------------------------------------------------------------+ +--------------------+-------------+--------+------------+----------+------------+---------------+ | For the years ended 31 December 2008 and 2009 | +------------------------------------------------------------------------------------------------+ | | | | | | Other | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | | Common | Additional | | Comprehen- | Total | | | Stock | | | | | +--------------------+----------------------+------------+----------+------------+---------------+ | | | | paid | Retained | sive | stockholders' | | | | | In | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | | Shares | Amount | capital | earnings | income | equity | | | | | | | (loss) | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | | | US$ | US$ | US$ | US$ | US$ | | | | 000 | 000 | 000 | 000 | 000 | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Balance - 1 | 34,218,968 | 4 | 22,344 | 12,128 | (248) | 34,228 | | January 2008 | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Cumulative | - | - | - | - | (625) | (625) | | translation | | | | | | | | adjustment | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Change in fair | - | - | - | - | (229) | (229) | | value of | | | | | | | | derivative | | | | | | | | instruments | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Net income/(loss) | - | - | - | 1,657 | - | 1,657 | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Share based | - | - | 415 | - | - | 415 | | compensation | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Dividend | - | - | - | (2,057) | - | (2,057) | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Balance - 31 | 34,281,968 | 4 | 22,759 | 11,728 | (1,102) | 33,389 | | December 2008 | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Cumulative | - | - | - | - | (185) | (185) | | translation | | | | | | | | adjustment | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Change in fair | - | - | - | - | 238 | 238 | | value of | | | | | | | | derivative | | | | | | | | instruments | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Net income/(loss) | - | - | - | (15,385) | - | (15,385) | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Share based | - | - | 373 | - | - | 373 | | compensation | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Equity issue | 22,143,630 | 22 | 4,893 | - | - | 4,915 | +--------------------+-------------+--------+------------+----------+------------+---------------+ | Balance - 31 | 56,425,598 | 26 | 28,025 | (3,657) | (1,049) | 23,345 | | December 2009 | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | | | | | | | | +--------------------+-------------+--------+------------+----------+------------+---------------+ | See notes to consolidated financial statements. | +--------------------+-------------+--------+------------+----------+------------+---------------+ +----------------------------------------+---------+----------+----------------+ | Consolidated Statements of Cash Flows | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | For the years ended 31 December 2008 | | | | and 2009 | | | +----------------------------------------+--------------------+----------------+ | | Year ended | Year ended | +----------------------------------------+--------------------+----------------+ | | 31 December | 31 December | +----------------------------------------+--------------------+----------------+ | | 2008 | 2009 | +----------------------------------------+--------------------+----------------+ | | US$ 000 | US$ 000 | +----------------------------------------+--------------------+----------------+ | Cash flows from operating activities: | | | +----------------------------------------+--------------------+----------------+ | Net income/(loss) | 1,657 | (15,385) | +----------------------------------------+---------+---------------------------+ | Adjustments to reconcile net income/(loss) to net cash provided by/(used | | in) operating activities: | +------------------------------------------------------------------------------+ | Deferred taxes | (100) | 223 | +----------------------------------------+--------------------+----------------+ | Depreciation and amortization | 2,705 | 2,672 | +----------------------------------------+--------------------+----------------+ | Amortization of deferred financing | 42 | 42 | | costs | | | +----------------------------------------+--------------------+----------------+ | Loss/(gain) on sale of assets | 10 | (8) | +----------------------------------------+--------------------+----------------+ | Share based compensation | 415 | 373 | +----------------------------------------+--------------------+----------------+ | Goodwill impairment | 0 | 13,522 | +----------------------------------------+--------------------+----------------+ | Working capital changes: | | | +----------------------------------------+--------------------+----------------+ | Accounts receivable | 1,439 | 86 | +----------------------------------------+--------------------+----------------+ | Inventories | 222 | (161) | +----------------------------------------+--------------------+----------------+ | Prepaid expenses and other assets | 1 | 80 | +----------------------------------------+--------------------+----------------+ | Other assets | 60 | 41 | +----------------------------------------+--------------------+----------------+ | Accounts payable and other | (2,416) | (1,660) | | liabilities | | | +----------------------------------------+--------------------+----------------+ | Income taxes payable | (511) | (1,020) | +----------------------------------------+--------------------+----------------+ | Net cash provided by/(used in) | 3,524 | (1,195) | | operating activities | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | Cash flows from investing activities: | | | +----------------------------------------+--------------------+----------------+ | Proceeds from sale of property and | 680 | 23 | | equipment | | | +----------------------------------------+--------------------+----------------+ | Property and equipment purchases | (575) | (49) | +----------------------------------------+--------------------+----------------+ | Net cash provided by/(used in) | 105 | (26) | | investing activities | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | Cash flows from financing activities: | | | +----------------------------------------+--------------------+----------------+ | Borrowings from additional financing | 5,837 | 37,593 | +----------------------------------------+--------------------+----------------+ | Repayment of notes payable | (10,311) | (42,095) | +----------------------------------------+--------------------+----------------+ | Payment of dividends | (2,057) | 0 | +----------------------------------------+--------------------+----------------+ | Proceeds from equity issue, net of | 0 | 4,915 | | costs | | | +----------------------------------------+--------------------+----------------+ | Net cash provided by/(used in) | (6,531) | 413 | | financing activities | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | Effect of exchange rates on cash and | (151) | 53 | | cash equivalents | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | Net (decrease) in cash and cash | (3,053) | (755) | | equivalents | | | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | Cash and cash equivalents: | | | +----------------------------------------+--------------------+----------------+ | Beginning of year | 3,842 | 789 | +----------------------------------------+--------------------+----------------+ | End of year | 789 | 34 | +----------------------------------------+--------------------+----------------+ | | | | +----------------------------------------+--------------------+----------------+ | See notes to consolidated financial | | | | statements. | | | +----------------------------------------+--------------------+----------------+ | | | | | +----------------------------------------+---------+----------+----------------+ +-----+--------------------------------------------------------------+ | Notes to the Consolidated Financial Statements | | As of 31 December 2008 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 primarily located in the United States. 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 | | | 31 December 2008 and 2009, the allowance for doubtful | | | accounts was approximately US$650,000 and US$232,000, | | | respectively. Bad debts expense/(income) was US$313,000 and | | | US$(51,000) in 2008 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 31 December 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 incurred a goodwill impairment loss for the year | | | ended 31 December 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 31 December 2009, the | | | Company incurred 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 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. | | | | | | 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 31 December 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 31 December | | | 2008 and 2009. Total comprehensive income/(loss) for the | | | years was approximately US$803,000 and US$(15,332,000), | | | respectively. | +-----+--------------------------------------------------------------+ +-------------------------------------+-----------+--------------+ | | 2008 | 2009 | +-------------------------------------+-----------+--------------+ | | US$000 | US$000 | +-------------------------------------+-----------+--------------+ | Net Income/(loss) | $1,657 | $(15,385) | +-------------------------------------+-----------+--------------+ | Cumulative Translation Adjustment | (625) | (185) | +-------------------------------------+-----------+--------------+ | Change in fair value of derivative | (229) | 238 | | instruments - net of income taxes | | | +-------------------------------------+-----------+--------------+ | Total Comprehensive Income/(loss) | $803 | $(15,332) | +-------------------------------------+-----------+--------------+ +-----+--------------------------------------------------------------+ | | Earnings/(loss) Per Share Basic earnings/(loss) per share | | | represents income/(loss) available to common stockholders | | | divided by the weighted average number of shares outstanding | | | during the year. Diluted earnings/(loss) per share reflect | | | additional common shares that would have been outstanding if | | | dilutive potential common shares had been issued. Potential | | | common shares that may be issued by the Company relate to | | | outstanding stock options. All common stock equivalents | | | were anti-dilutive at 31 December 2009. Earnings/(loss) per | | | common share have been computed based on the following: | +-----+--------------------------------------------------------------+ +-----------------------------------+------------+------------+ | | 2008 | 2009 | +-----------------------------------+------------+------------+ | | US$ 000 | US$ 000 | +-----------------------------------+------------+------------+ | Net income/(loss) | 1,657 | (15,385) | +-----------------------------------+------------+------------+ | Basic weighted average shares | 34,281,968 | 45,748,122 | | outstanding | - | - | | Net dilutive effect of stock | | | | options | | | +-----------------------------------+------------+------------+ | Diluted weighted average shares | 34,281,968 | 45,748,122 | | outstanding | | | +-----------------------------------+------------+------------+ +-----+--------------------------------------------------------------+ | | 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: | 31 December | Quoted Prices | Significant | Significant | | | 2009 | In Active | Other | Unobservable | | | US$000 | Markets for | Observable | Inputs | | | | Identical | Inputs | (Level 3) | | | | Assets | | US$000 | | | | (Level 1) | (Level 2) | | | | | US$000 | US$000 | | +----------+---------------+---------------+---------------+----------------+ | Goodwill | 2,878 | | | 2,878 | +----------+---------------+---------------+---------------+----------------+ +-----+--------------------------------------------------------------+ | Refer to Footnote 4 for the goodwill impairment impact upon | | earnings. | +--------------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | | New Accounting Pronouncements | +-----+--------------------------------------------------------------+ | | In March 2008, the FASB issued accounting guidance on | | | disclosures about derivative instruments and hedging | | | activities. The standards require companies to provide | | | enhanced disclosures about (a) how and why they use | | | derivative instruments, (b) how derivative instruments and | | | related hedged items are accounted for, and (c) how | | | derivative instruments and related hedged items affect a | | | company's financial position, financial performance, and | | | cash flows. The Company adopted the new disclosure | | | requirements in the period beginning 1 January 2009. | | | | | | In June 2008, the FASB issued guidance on accounting for | | | nonrefundable maintenance deposits. It also provides revenue | | | recognition accounting guidance for the lessor. The standard | | | is effective for fiscal years beginning after 15 December | | | 2008. The Company adopted the new disclosure requirements | | | in the period beginning 1 January 2009 and there was little | | | impact upon the Company's consolidated financial statements. | | | | | | The FASB issued guidance on measuring the fair value of | | | certain alternative investments that are effective for | | | periods beginning after 15 December 2009. Its intent is to | | | offer investors a practical expedient for measuring the fair | | | value of investments in certain entities that calculate net | | | asset value per share. This guidance is not expected to | | | have any impact upon 2010 financial position and operations. | | | | | | The FASB issued guidance on accounting for distributions to | | | shareholders with components of stock and cash that are | | | effective for periods beginning after 15 December 2009. It | | | clarifies that the stock portion of a distribution to | | | shareholders that allows them to elect to receive cash or | | | stock with a potential limitation on the total amount of | | | cash that all shareholders can elect to receive in the | | | aggregate is considered a share issuance that is reflected | | | to the EPS prospectively and is not a stock dividend. This | | | guidance is not expected to have any impact upon 2010 | | | financial position and operations. | | | | | | The FASB issued guidance on accounting and reporting for | | | decreases in ownership of a subsidiary that are effective | | | for periods ending after 15 December 2009. This guidance | | | had no impact upon 2009 financial position and operations | | | and is not expected to have any impact upon 2010 financial | | | position and operations. | | | | | | The FASB issued guidance on Own-Share Lending Arrangements | | | that are effective for periods beginning after 15 December | | | 2009. The guidance requires an entity that enters into a | | | share-lending arrangement on its own shares (that are | | | classified in equity pursuant to other authoritative | | | accounting guidance) in contemplation of a convertible debt | | | issuance (or other financing) to initially measure the | | | share-lending arrangement at fair value and treat it as an | | | issuance cost and to exclude the shares borrowed under the | | | share-lending arrangement from basic and diluted EPS. This | | | guidance is not expected to have any impact upon 2010 | | | financial position and operations. | | | | | | The FASB issued guidance on accounting for transfers of | | | financial assets that are effective for periods beginning | | | after 15 November 2009. The objective of this statement is | | | to improve the relevance, representational faithfulness, and | | | comparability of the information that a reporting entity | | | provides in its financial statements about a transfer of | | | financial assets; the effects of a transfer on its financial | | | position, financial performance, and cash flows; and a | | | transferor's continuing involvement, if any, in transferred | | | financial assets. This guidance is not expected to have any | | | impact upon 2010 financial position and operations. | | | | | | The FASB issued guidance on consolidations with variable | | | interest entities that are effective for periods beginning | | | after 15 November 2009. The objective of this statement is | | | to improve the financial reporting by enterprises involved | | | with variable interest entities and to provide more relevant | | | and reliable information to users of financial statements. | | | This guidance is not expected to have any impact upon 2010 | | | financial position and operations. | | | | | | The FASB issued guidance on improving disclosures about fair | | | value measurements that are effective for periods beginning | | | after 15 December 2009. It adds new requirements for | | | disclosures about transfers into and out of Levels 1 and 2 | | | and separate disclosures about purchases, sales, issuances, | | | and settlements relating to Level 3 measurements. This | | | guidance is not expected to have any impact upon 2010 | | | financial position and operations. | | | | | | The FASB issued guidance on amendments to certain | | | recognition and disclosure requirements that are effective | | | for periods beginning after 15 November 2009. It addresses | | | certain implementation issues related to an entity's | | | requirement to perform and disclose subsequent-events | | | procedures and is effective immediately. This guidance is | | | not expected to have any impact upon 2010 financial position | | | and operations. | | | | | | Subsequent events have been evaluated through the date the | | | consolidated financial statements were issued on 17 May | | | 2010. No material subsequent events have occurred since 31 | | | December 2009 that required recognition or disclosure in our | | | consolidated financial statements other than as discussed | | | below in Note 15. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 3. | Inventories | +-----+--------------------------------------------------------------+ | | Inventories consisted of the following at 31 December: | +-----+--------------------------------------------------------------+ +-----------------------------------+---------+------------+ | | 2008 | 2009 | +-----------------------------------+---------+------------+ | | US$ 000 | US$ 000 | +-----------------------------------+---------+------------+ | Raw materials | 2,078 | 1,547 | +-----------------------------------+---------+------------+ | Finished goods and work in | 3,231 | 2,486 | | process | 510 | 2,144 | | Refurbished | | | +-----------------------------------+---------+------------+ | Total | 5,819 | 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 31 December 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 impaired. | | | The Company then performed Step 2 where it determined the | | | fair value of all of its assets and liabilities. This step | | | resulted in allocating a portion of the impairment from Step | | | 1 to any assets that were below book value. The result of | | | this analysis indicated that Goodwill was impaired by | | | approximately US$13.5m at 31 December 2009 and that the | | | value of its intangible assets including customer | | | relationships and technology was not impaired. Prior to 31 | | | December 2009, there were no accumulated impairment losses. | | | | | | The following table reflects Other intangible assets: | +-----+--------------------------------------------------------------+ +------------------------+--------------+-------------+--------------+ | | Weighted | | | | | average | | | +------------------------+--------------+-------------+--------------+ | | amortization | 2008 | 2009 | | | period | US$000 | 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 | 2,691 | 3,479 | +------------------------+--------------+-------------+--------------+ | Patents | 12 years | 5,278 | 6,823 | +------------------------+--------------+-------------+--------------+ | Other intangibles | 3 years | 1 | 2 | +------------------------+--------------+-------------+--------------+ | | | 7,970 | 10,304 | +------------------------+--------------+-------------+--------------+ | Net carrying costs | | | | +------------------------+--------------+-------------+--------------+ | Customer relationships | 8 years | 3,609 | 2,821 | +------------------------+--------------+-------------+--------------+ | Patents | 12 years | 13,260 | 11,715 | +------------------------+--------------+-------------+--------------+ | Other intangibles | 3 years | 3 | 2 | +------------------------+--------------+-------------+--------------+ | | | 16,872 | 14,538 | +------------------------+--------------+-------------+--------------+ +-----+--------------------------------------------------------------+ | | Amortization expense associated with the intangible assets | | | for the years ended 31 December 2008 and 2009 was | | | approximately US$2,332,000 and US$2,333,000, respectively. | | | Future amortization on intangible assets is expected to be | | | as follows at: | +-----+--------------------------------------------------------------+ +---------------------------------------------+------------------------+ | | 31 December | | | US$ 000 | +---------------------------------------------+------------------------+ | 2010 | 2,333 | +---------------------------------------------+------------------------+ | 2011 | 2,331 | +---------------------------------------------+------------------------+ | 2012 | 2,331 | +---------------------------------------------+------------------------+ | 2013 | 2,004 | +---------------------------------------------+------------------------+ | 2014 | 1,545 | +---------------------------------------------+------------------------+ | | 10,544 | +---------------------------------------------+------------------------+ | Thereafter | 3,994 | +---------------------------------------------+------------------------+ | | 14,538 | +---------------------------------------------+------------------------+ +-----+--------------------------------------------------------------+ | 5. | Property, Plant and Equipment | +-----+--------------------------------------------------------------+ | | Property, plant and equipment consist of the following at 31 | | | December: | +-----+--------------------------------------------------------------+ +------------------------------------+---------+------------+ | | 2008 | 2009 | +------------------------------------+---------+------------+ | | US$ 000 | US$ 000 | +------------------------------------+---------+------------+ | Land | 207 | 207 | +------------------------------------+---------+------------+ | Buildings and improvements | 3,572 | 3,572 | +------------------------------------+---------+------------+ | Machinery and equipment | 1,410 | 1,423 | +------------------------------------+---------+------------+ | | 5,189 | 5,202 | +------------------------------------+---------+------------+ | Less: accumulated depreciation and | (929) | (1,248) | | amortization | | | +------------------------------------+---------+------------+ | | 4,260 | 3,954 | +------------------------------------+---------+------------+ +-----+--------------------------------------------------------------+ | | Depreciation expense for the years ended 31 December 2008 | | | and 2009, was approximately US$373,000 and US$339,000, | | | respectively. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 6. | Notes Payable | +-----+--------------------------------------------------------------+ | | The Company's debt obligations consisted of the following at | | | 31 December: | +-----+--------------------------------------------------------------+ +------------------------------------+---------+------------+ | | | | +------------------------------------+---------+------------+ | | 2008 | 2009 | +------------------------------------+---------+------------+ | | US$ 000 | US$ 000 | +------------------------------------+---------+------------+ | Bank debt: | | | +------------------------------------+---------+------------+ | Five year secured reducing | 2,954 | 3,883 | | revolving line of credit | | | +------------------------------------+---------+------------+ | Five year secured term loan | 7,501 | 2,070 | +------------------------------------+---------+------------+ | Less debt obligations due within | (1,429) | (460) | | one year | | | +------------------------------------+---------+------------+ | Obligations due after one year | 9,026 | 5,493 | +------------------------------------+---------+------------+ +-----+--------------------------------------------------------------+ | | Credit Facility The Company has a credit facility with a | | | bank dated 16 March 2007 that has been amended multiple | | | times and composed of the following at 31 December 2009: | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | - | US$7,000,000 five year secured reducing revolving line of | | | credit | +-----+--------------------------------------------------------------+ | - | US$2,070,000 five year secured reducing term loan | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | | The interest rates on the revolver and term loan are Libor | | | 1-month and Libor 3-month, respectively, plus 4.75% per the | | | agreed pricing grid subsequent to 31 December 2009. The | | | interest rates were 4.48% and 4.50% on the revolver and term | | | loan at 31 December 2009. 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. | | | | | | In January 2010, the Company again renegotiated its loan | | | covenants. In return for a change in covenants, the Company | | | agreed to a reduction in its line of credit to US$5,750,000. | | | The change in 2009 covenants allowed it to avoid missing its | | | year end 2009 requirements. The new agreement temporarily | | | suspends the funded debt ratio until December 31, 2010, | | | replaces it with a quarterly EBITDA minimum target, and the | | | change fee was US$30,000. | | | | | | Future Payments The future payments by year under the | | | Company's debt obligations are as follows: | | | | +-----+--------------------------------------------------------------+ +------------------------------------+----------------------+ | | 31 December | | | US$ 000 | +------------------------------------+----------------------+ | | | +------------------------------------+----------------------+ | 2010 | 460 | +------------------------------------+----------------------+ | 2011 | 460 | +------------------------------------+----------------------+ | 2012 | 5,033 | +------------------------------------+----------------------+ | 2013 | - | +------------------------------------+----------------------+ | 2014 | - | +------------------------------------+----------------------+ | Total payments | 5,953 | +------------------------------------+----------------------+ +----+---------------------------------------------------------------+ | | Interest Interest expense on the credit facility for the | | | years ended 31 December 2008 and 2009, was approximately | | | US$861,000 and US$949,000, respectively, related to the debt | | | obligation. The 2009 expense includes US$380,000 of 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 for the year ended 31 December 2008 and matched | | | 100% of the employee's contribution, up to the first 6% of | | | the employee's compensation through 30 June 2009. At | | | mid-year, 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$284,000 and US$113,000 to the savings and retirement plan | | | during the years ended 31 December 2008 and 2009, | | | respectively. | +----+---------------------------------------------------------------+ | | | +----+---------------------------------------------------------------+ | 8. | Operating Leases | +----+---------------------------------------------------------------+ | | The Company leases property, vehicles and office equipment | | | under leases accounted for as operating leases without | | | renewal options. Future minimum payments by year under | | | non-cancellable operating leases with initial terms in excess | | | of one year were as follows: | +----+---------------------------------------------------------------+ +-------------------------------------+--------------------------+ | | 31 December | +-------------------------------------+--------------------------+ | | US$ 000 | +-------------------------------------+--------------------------+ | 2010 | 331 | +-------------------------------------+--------------------------+ | 2011 | 230 | +-------------------------------------+--------------------------+ | 2012 | 174 | +-------------------------------------+--------------------------+ | 2013 | 82 | +-------------------------------------+--------------------------+ | 2014 | 0 | +-------------------------------------+--------------------------+ | Total | 817 | +-------------------------------------+--------------------------+ +----+---------------------------------------------------------------+ | 9. | Supplemental Cash Flow and Non-Cash Financing Disclosures | +----+---------------------------------------------------------------+ +----------------------------------------+--------+--------------+ | | 2008 | 2009 | +----------------------------------------+--------+--------------+ | | US$ | US$ 000 | | | 000 | | +----------------------------------------+--------+--------------+ | Cash paid for interest | 856 | 543 | +----------------------------------------+--------+--------------+ | | | | +----------------------------------------+--------+--------------+ | Cash paid for taxes | 1,242 | (206) | +----------------------------------------+--------+--------------+ | Non-cash financing activities - Change | | | | in fair value of derivative | 229 | (238) | | instruments | 0 | 196 | | Inventory received in lieu of payment | | | | | | | +----------------------------------------+--------+--------------+ +-----+--------------------------------------------------------------+ | 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 foreign competitors. Any of the foregoing may | | | significantly affect management's estimates and the | | | Company's performance. At 31 December 2008 the Company had | | | two customers which represented 16% of total accounts | | | receivables and at 31 December 2009, the Company had two | | | customers which represented approximately 30% of total | | | accounts receivable. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 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 entered into a 5 year or minimum purchase | | | obligation of US$625,000 with a supplier in 2007 which it | | | successfully negotiated away so that there is no related | | | contingent liability as of 31 December 2009. 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 financial statements. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 12. | Income Taxes | +-----+--------------------------------------------------------------+ | | Somero 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 31 December 2009, the Company had a gross unrecognized | | | tax benefit (including interest and penalties) of US$4,000. | | | | | | Somero is subject to U.S. federal income tax as well as | | | income tax of multiple state jurisdictions. The Company | | | began business in 2005 and therefore the statute of | | | limitations for all federal, foreign and state income tax | | | matters for tax years from 2005 forward are still open. | | | Somero has no federal, foreign or state income tax returns | | | currently under examination. | +-----+--------------------------------------------------------------+ +-----------------------------------------+---------+------------+ | | 2008 | 2009 | +-----------------------------------------+---------+------------+ | | US$ 000 | US$ 000 | +-----------------------------------------+---------+------------+ | Current Income Tax | | | +-----------------------------------------+---------+------------+ | Federal | (33) | (951) | +-----------------------------------------+---------+------------+ | State | 69 | 23 | +-----------------------------------------+---------+------------+ | Foreign | 513 | (247) | +-----------------------------------------+---------+------------+ | Total current income tax | 549 | (1,175) | | (provision/benefit) | | | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Deferred tax expense | | | +-----------------------------------------+---------+------------+ | Federal | 62 | (119) | +-----------------------------------------+---------+------------+ | State | 10 | (20) | +-----------------------------------------+---------+------------+ | Foreign | (116) | 100 | +-----------------------------------------+---------+------------+ | Total deferred tax (provision/benefit) | (44) | (39) | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Total provision/benefit | 505 | (1,214) | +-----------------------------------------+---------+------------+ +-----------------------------------------+---------+------------+ | The components of the net deferred income tax asset at 31 | | December 2008 and 2009 were as follows: | +----------------------------------------------------------------+ | | 2008 | 2009 | +-----------------------------------------+---------+------------+ | | US$ 000 | US$ 000 | +-----------------------------------------+---------+------------+ | Deferred Tax Asset | | | +-----------------------------------------+---------+------------+ | Intangibles | 833 | 1,101 | +-----------------------------------------+---------+------------+ | Intangibles - Foreign | - | 102 | +-----------------------------------------+---------+------------+ | Goodwill | - | 3,188 | +-----------------------------------------+---------+------------+ | Share-based compensation | 318 | 435 | +-----------------------------------------+---------+------------+ | Net Operating Loss - State | - | 71 | +-----------------------------------------+---------+------------+ | Net Operating Loss - Foreign | - | 89 | +-----------------------------------------+---------+------------+ | Interest Rate Swap | 262 | - | +-----------------------------------------+---------+------------+ | Other | 640 | 276 | +-----------------------------------------+---------+------------+ | Gross deferred tax asset | 2,053 | 5,263 | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Valuation Allowance | - | (4,823) | +-----------------------------------------+---------+------------+ | Deferred tax asset | 2,053 | 440 | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Deferred Tax Liability | | | +-----------------------------------------+---------+------------+ | Depreciation | (347) | 279) | +-----------------------------------------+---------+------------+ | Prepaids | (174) | (157) | +-----------------------------------------+---------+------------+ | Goodwill | (1,305) | - | +-----------------------------------------+---------+------------+ | Deferred tax liability | (1,826) | (436) | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Net deferred tax asset | 227 | 4 | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Current | 466 | - | +-----------------------------------------+---------+------------+ | Non-current | (239) | 4 | +-----------------------------------------+---------+------------+ | Net deferred tax asset | 227 | 4 | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | Rate Reconciliation | | | +-----------------------------------------+---------+------------+ | Consolidated income/(loss) before tax | 2,162 | (16,599) | +-----------------------------------------+---------+------------+ | Statutory rate | 34% | 34% | +-----------------------------------------+---------+------------+ | Statutory tax expense | 735 | (5,643) | +-----------------------------------------+---------+------------+ | | | | +-----------------------------------------+---------+------------+ | State taxes | 52 | (8) | +-----------------------------------------+---------+------------+ | IRC Section 199 Deduction | (35) | - | +-----------------------------------------+---------+------------+ | Meals and Entertainment | 57 | 28 | +-----------------------------------------+---------+------------+ | Foreign Tax Items | (356) | 19 | +-----------------------------------------+---------+------------+ | Valuation Allowance | - | 4,387 | +-----------------------------------------+---------+------------+ | Other | 52 | 3 | +-----------------------------------------+---------+------------+ | Tax provision/benefit | 505 | (1,214) | +-----------------------------------------+---------+------------+ +-----+--------------------------------------------------------------+ | | At 31 December 2009, 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 31 December 2009 was not sufficiently | | | assured, a valuation allowance for the amount of the 2009 | | | net deferred tax asset was provided. At 31 December 2008, | | | no valuation allowance was necessary; thus the valuation | | | allowance increased approximately US$4,800,000 for the year | | | ended 31 December 2009. | | | | | | The Company has filed its US Federal Tax Return for the year | | | ended 31 December 2009, which reflected the carry back of | | | the 2009 loss to prior years. Included in Income tax | | | receivable on the consolidated balance sheet is US$1,041,000 | | | reflecting the amount of the tax refund intended to be filed | | | by the Company. | | | | | | The Company has US$2,200,000 in state loss carry forwards | | | with varying expiration dates and US$300,000 in foreign loss | | | carry forwards with indefinite expiration dates. | | | | | | The Company expenses research and development costs as | | | incurred. Total research and development expense for the | | | research and development tax credit was approximately | | | US$683,000 and US$0 for the years ended 31 December 2008 and | | | 2009, respectively. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 13. | Revenues by Geographic Region | +-----+--------------------------------------------------------------+ | | The Company sells its product to customers throughout the | | | world. The breakdown by location is as follows: | +-----+--------------------------------------------------------------+ +-----------------------------------+----------+------------+ | | 2008 | 2009 | +-----------------------------------+----------+------------+ | | US$ 000 | US$ 000 | +-----------------------------------+----------+------------+ | United States and U.S. | 24,656 | 12,368 | | possessions | | | +-----------------------------------+----------+------------+ | Canada | 1,455 | 579 | +-----------------------------------+----------+------------+ | Rest of world | 25,830 | 11,280 | +-----------------------------------+----------+------------+ | Total | 51,941 | 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$415,000 and US$373,000 for the years ended 31 December | | | 2008 and 2009, respectively. The income tax effect | | | recognized for share based compensation was approximately a | | | benefit of US$148,000 and an expense of US$148,000 for the | | | years ended December 31, 2008 and 2009, respectively. | | | In October 2006, the Company implemented the 2006 Stock | | | Incentive Plan (the "Plan"). The Plan authorizes the Board | | | of Directors to grant incentive and nonqualified stock | | | options to employees, officers, service providers and | | | directors of the Company for up to 3,428,197 shares of its | | | common stock. 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 31 December 2008 and 2009. | +-----+--------------------------------------------------------------+ +-------------------------------------+-----------+--------------+ | | 2008 | 2009 | +-------------------------------------+-----------+--------------+ | Dividend yield | 1.64% | 0.00% | +-------------------------------------+-----------+--------------+ | Risk-free interest rate | 2.90% | 1.40% | +-------------------------------------+-----------+--------------+ | Volatility | 25.50% | 47.3% | +-------------------------------------+-----------+--------------+ | Expected term | 4.6 | 4.6 | +-------------------------------------+-----------+--------------+ +-----+--------------------------------------------------------------+ | | A summary of option activity under the stock option plan as | | | of 31 December 2009, and changes during the year then ended | | | is presented below: | +-----+--------------------------------------------------------------+ +--------------+--------------+-----------+-------------+------------+ | Options | Shares | Weighted- | Weighted- | Aggregate | | | | Average | Average | Intrinsic | | | | Exercise | Remaining | Value | | | | Price | Contractual | | | | | | Term (yrs) | | +--------------+--------------+-----------+-------------+------------+ | | | | | | +--------------+--------------+-----------+-------------+------------+ | Outstanding | | | | | | at | 2,828,895 | 2.24 | - | - | | 1 January | | | | | | 2009 | | | | | +--------------+--------------+-----------+-------------+------------+ | Granted | 602,885 | 0.24 | | | +--------------+--------------+-----------+-------------+------------+ | Exercised | - | - | | | +--------------+--------------+-----------+-------------+------------+ | Forfeited | (81,542) | 2.04 | | | +--------------+--------------+-----------+-------------+------------+ | Outstanding | | | | | | at | 3,350,238 | 1.88 | 7.44 | -- | | 31 December | | | | | | 2009 | | | | | +--------------+--------------+-----------+-------------+------------+ | Exercisable | | | | | | at | 2,412,439 | 2.24 | 5.64 | -- | | 31 December | | | | | | 2009 | | | | | +--------------+--------------+-----------+-------------+------------+ +-----+--------------------------------------------------------------+ | | The weighted-average grant-date fair value of options | | | granted was US$.33 and US$.09 for the years ended 31 | | | December 2008 and 2009, respectively. | | | | | | A summary of the status of the Company's non-vested shares | | | as of 31 December 2009, and changes during the year then | | | ended is presented below: | +-----+--------------------------------------------------------------+ +---------------------------+---------------+--------------------+ | | | Weighted Average | +---------------------------+---------------+--------------------+ | | Shares | Grant-Date Fair | | | | Value | +---------------------------+---------------+--------------------+ | Non-vested shares as of | 1,182,838 | .41 | | 31 December 2008 | | | +---------------------------+---------------+--------------------+ | Granted | 602,885 | .09 | +---------------------------+---------------+--------------------+ | Vested | (766,382) | .45 | +---------------------------+---------------+--------------------+ | Forfeited | (81,542) | .39 | +---------------------------+---------------+--------------------+ | Non-vested shares as of | 937,799 | .10 | | 31 December 2009 | | | +---------------------------+---------------+--------------------+ +-----+--------------------------------------------------------------+ | | As of 31 December 2009, there was US$103,000 of total | | | unrecognized compensation cost related to non-vested | | | share-based compensation arrangements granted under the | | | Company's stock option plan. That cost is expected to be | | | recognized over the vesting period. The fair value of | | | options vested in 2008 and 2009 was US$375,000 and | | | US$345,000, respectively. | +-----+--------------------------------------------------------------+ | | | +-----+--------------------------------------------------------------+ | 15. | Subsequent Events | +-----+--------------------------------------------------------------+ | | 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 20 January 2010 and implemented 17 February | | | 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. | | | | | | As discussed in Note 12, the Company has filed its 2009 US | | | Federal Tax Returnand expects a refund of US$1,041,000 due | | | to the ability to carry the 2009 loss back to previous tax | | | years which is included in income tax receivables on the | | | consolidated balance sheet. | | | | | | As discussed in Note 6, in January 2010, the Company | | | renegotiated its loan covenants. In return for a change in | | | covenants, the Company agreed to a reduction in its line of | | | credit to US$5,750,000. The change in 2009 covenants | | | allowed it to avoid missing its year end 2009 requirements. | | | The agreement temporarily suspends the funded debt ratio | | | until December 31, 2010, replaces it with a quarterly EBITDA | | | minimum target, and the change fee was US$30,000. | +-----+--------------------------------------------------------------+ This information is provided by RNS The company news service from the London Stock Exchange END FR UWSVRRKAVARR
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