Somero Regulatory News (SOM)

Press Announcement

21 August 2012

Somero Enterprises, Inc. ®

("Somero" or "the Company" or "the Group")

Interim Results for the six months ended June 30, 2012

Somero Enterprises, Inc.® is pleased to report its interim results for the six months ended June 30, 2012.

Financial Highlights

·; Group revenue of US$16.1m (H1 2011: US$10.4m)

·; Adjusted Group EBITDA of US$2.5m (H1 2011: US$0.0m)

·; Pre-tax income/(loss) of US$0.9m (H1 2011: US$ (1.5m))

·; Net debt at June 30 of US$2.9m (December 31, 2011: US$4.7m)

Business Highlights

·; Group revenue increased by 55% in H1 2012 compared to H1 2011

·; North American sales increased by 129% primarily due to an increase in Large Line sales

·; Successful introduction of S-840 resulting in US$4.0m in H1 2012 sales

·; Sales in emerging markets were flat in H1 2012 compared to H1 2011

·; 40% increase in parts sales compared to H1 2011, consistent with increasing levels of customer activity

·; Significant investment growth in China and India, with escalating sales and service presence in China

Commenting, Jack Cooney, President and Chief Executive Officer of Somero, said:

"Somero Enterprises, Inc is pleased to announce that the strong trading referred to in the Company's recent trading updates continued through to the end of the first half. Revenues for H1 2012 were over 50% ahead of those reported in H1 2011. Trading continues to be encouraging, and I am very pleased that the Company can now invest in measures aimed at supporting growth into the medium and longer term, as well as in 2012. While confidence in global macroeconomic trends remains fragile, we still see opportunity for Somero to progress through the remainder of the year."

For further information please contact:

Canaccord Genuity Hawkpoint

Chris Robinson/Serge Rissi

+44 (0) 20 7665 4500

Canaccord Genuity Limited

Piers Coombs/Seb Jones

+44 (0) 20 7523 8000

About Somero®

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 commercial construction industry. Expanding into new geographic markets, Somero's innovative, proprietary products help contractors worldwide achieve a high level of precision in flat floor construction which reduces construction time and improves cost savings.

Somero's innovative, proprietary products, including the large SXP®-D, CopperHead® and Mini Screed™ C and the new S-840 Laser Screed® models 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 74 countries across every time zone around the globe. Laser Screed equipment has been specified for use in constructing warehouses, assembly plants, retail centers and in other commercial construction projects requiring extremely flat concrete slab floors by a variety of companies, such as Costco, Home Depot, B&Q, DaimlerChrysler, various Coca-Cola bottling companies, Westinghouse, the United States Postal Service, Lowe's and Toys 'R' Us.

Somero's headquarters and manufacturing operations are located in Michigan, USA with executive offices in Florida, USA. It has sales and service operations in the United Kingdom, China with distributors and direct sales representatives based throughout the world.

Somero has approximately 95 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.

Chairman's and Chief Executive Officer's Statement

Overview

North America showed strong growth in the first half, benefitting from mild weather conditions and a benign economic environment. Performance during this period from the Chinese business was also strong, reflecting the investment made by the Company in the region. Sales from the Company's new product the S-840 and the SXP®-D Large Line machines were significantly higher than in the same period last year. Whilst the Company still anticipates strong trading from these regions/products, it is likely that respective rates of growth are slower in the second half of the year consistent with previous years.

With healthy demand continuing, the Company is implementing plans to add some costs in new product development, training, marketing and sales initiatives to take full advantage of a stronger sales environment. This is intended to put Somero in the best position to deliver growth in the medium and longer term, as well as to sustain the shorter term recovery that is evident in 2012.

Operational Performance

US

Large line and small line revenues were both significantly higher in H1 2012 compared to H1 2011 due to higher unit volumes (large line: 10 units vs. 2 units, small line: 36 units vs. 25 units).

In H1 2012, spare parts sales were up 37% and calls to the US customer support group were up significantly, indicating that customers are using our equipment more frequently. This is also consistent with verbal customer feedback that their business has increased.

EMEA

Despite the largely negative news out of Europe, EMEA Large line revenues were slightly higher in H1 2012 compared to H1 2011 due to higher unit volumes (2 units vs. 1 unit). Small line revenues were significantly higher in H1 2012 compared to H1 2011 due to higher unit volumes (20 units vs. 15 units).

In H1 2012, spare parts sales were up 60% and calls to the UK customer support group were up significantly, indicating that customers are using our equipment more frequently. This is also consistent with verbal customer feedback that their business has increased.

Emerging Markets

Sales in the emerging markets were overall flat in H1 2012 compared to H1 2011. Sales in China were up 155% but offset by a 40% sales decrease in Korea, 27% sales decrease in Latin America and 62% sales decrease in Australia.

The sales increase in China is due to better execution from the sales team and consistent with H2 2011 sales levels. The decline in Latin American sales is partially due to a significant appreciation of the Brazilian currency and a clampdown on imports into Argentina. The declines in Korea and Australia are subject to significant swings due to relatively low unit volumes.

A central component of our business strategy continues to be our entry into emerging international markets where construction demand is expected to recover quickly and demand for ever higher building quality standards continues to rise. We will continue to position ourselves to take advantage of these trends by adding additional resources in these markets.

The rollout of our emerging markets' strategy is centered on three core aims:

·; to identify international blue chip logistics companies, development companies and building owners with a view to ensuring Western floor flatness specifications are carried through to their new markets

·; to target joint venture relationships with major western contractors and local contractors who are tendering for projects for these major international players

·; to enhance our current training program to provide a more comprehensive service offering to contractors for the complete floor/slab construction

Product Development

As well as focusing on emerging market opportunities, we remain committed to developing innovative, state-of-the-art, proprietary, high-margin products that meet the ever changing needs of our customers. Despite overall cost reductions, we have continued to invest 1.6% of sales in product development and expect to launch new products in Q4 2012. We introduced the S-840 Laser Screed® machine in Q4 of 2011 and it generated US$0.6m in sales in Q4 2011 and US$4.0m in H1 2012. We have additional new products in the development pipeline. We remain confident that the launch of these products will continue to provide growth opportunities for Somero.

Liquidity

There was a net cash inflow of US$0.4m during H1 2012 which includes a US$1.8m reduction in Group net debt. The driver for decreased debt is a 55% increase in revenues.

Current Trading and Outlook

The strong trading referred to in the Company's recent trading updates has continued through to the end of the first half. Revenues for H1 2012 were over 50% ahead of those reported in H1 2011 and all banking covenants were passed at the half year. Trading continues to be encouraging, and the Board is pleased that the Company can now invest in measures aimed at supporting growth into the medium and longer term, as well as in 2012. Whilst confidence in global macroeconomic trends remains fragile, we still see opportunity for Somero to progress through the remainder of the year.

Larry Horsch

Chairman

Jack Cooney

President and Chief Executive Officer

For the six months ended June 30

Business and Financial Review

2012

2011

Summary of Financial Results(1)(2)(3)(4)

US$ 000

US$ 000

Revenue

16,103

10,376

Cost of sales

8,186

5,596

Gross profit

7,917

4,780

Operating expenses

Selling expenses

2,536

2,282

Engineering expenses

260

309

General and administrative expenses

3,992

3,519

Total operating expenses

6,788

6,110

Operating income/loss

1,129

(1,330)

Other income (expense)

Interest expense

(192)

(221)

Interest income

1

0

Foreign exchange gain/(loss)

(47)

43

Other

15

2

Income/(loss) before income taxes

906

(1,506)

Provision for income taxes

59

25

Net income/(loss)

847

(1,531)

Earnings/(loss) per share basic and diluted

$0.01

($0.03)

Earnings/(loss) per share basic - adjusted net income/(loss) before amortization

$0.04

($0.01)

Earnings/(loss) per share diluted - adjusted net income/(loss) before amortization

$0.03

($0.01)

Other data

Adjusted EBITDA

2,515

2

Adjusted net income/(loss) before amortization

2,013

(364)

Depreciation expense

137

135

Amortization of intangibles

1,166

1,167

Capital expenditures

175

119

See notes to unaudited condensed consolidated financial statements.

1.

References to adjusted EBITDA are to Somero's net income/(loss) plus interest income, interest expense, taxes, depreciation, amortization, foreign exchange, stock based compensation expense and other expense.

2.

References to adjusted net (loss)/income before amortization are to Somero's net income/(loss) plus amortization expense of intangibles.

3.

Adjusted EBITDA and adjusted net income/(loss) before amortization are not measurements of the Company's financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to 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. See net income/(loss) to EBITDA reconciliation and net income/(loss) before amortization reconciliation.

4.

Earnings/(loss) per share diluted and adjusted net income/(loss) before amortization represents income/(loss) available to shareholders divided by the weighted average shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. Earnings/(loss) per share diluted and net income/(loss) before amortization are not GAAP measurements and have been presented because management believes they are useful analytical tools.

Net income/(loss) to EBITDA reconciliation and net income/(loss) before amortization reconciliation (Unaudited)

For the six months ended June 30

2012

2011

US$ 000

US$ 000

Adjusted EBITDA reconciliation

Net income/(loss)

847

(1,531)

Tax provision

59

25

Interest expense

192

221

Foreign exchange (gain)/loss

47

(43)

Other

(15)

(2)

Depreciation

137

135

Amortization

1,166

1,167

Stock based compensation

82

30

Adjusted EBITDA

2,515

2

Adjusted net income/(loss) before amortization reconciliation

Net loss/(loss)

847

(1,531)

Amortization

1,166

1,167

Adjusted net income/(loss) before amortization reconciliation

2,013

(364)

See notes to unaudited condensed consolidated financial statements.

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, 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 by eliminating the effects of amortization of intangibles that have occurred as a result of the write-up of 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 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 EBITDA reconciliation and net income/(loss) before amortization reconciliation is presented above.

Revenues

Somero's consolidated revenues for the six months ended June 30, 2012 were US$16.1, which represented a 55% increase from US$10.4m for the six months ended June 30, 2011. Somero's revenues consist primarily of sales of new Large Line products (the SXP®-D Large Laser Screed), sales of new Small Line products (the CopperHead®, PowerRake® and S-840) and other revenues, which consist of, among other things, revenue from sales of services, spare parts, refurbished machines, topping spreaders, accessories, and the Mini Screed™ Commercial. The overall increase in revenues for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 was driven by increased Large Line sales, increased Small Line Sales and Other revenues. The table below shows the breakdown between Large Line sales, Small Line sales and Other revenues during the six months ended June 30, 2012 and the six months ended June 30, 2011.

Six months endedJune 30, 2012 (unaudited)

Six months endedJune 30, 2011 (unaudited)

In US$ 000

Percentage of net sales

In US$ 000

Percentage of

 net sales

Large Line Sales

4,538

28.2%

2,109

20.3%

Small Line Sales

5,184

32.2%

3,249

31.3%

Other revenues

6,381

39.6%

5,018

48.4%

Total

16,103

100%

10,376

100%

Revenue by Product Line

Large Line unit sales were 14 units for the period (sales of 7 units in comparable period last year). North America sales were higher with 10 units compared to 2 units last year. EMEA sales were higher with 2 units compared to 1 unit last year. ROW was lower with 2 units compared to 4 units last year.

Small Line unit sales were 70 for the period up from 59 for the comparable period last year. North America units were 36 and 25 for the respective periods, while EMEA contributed 20 and 15 units, respectively.

Other revenues, including sales of spare parts, refurbished machines, topping spreaders and accessories, increased from US$5.0m during the six months ended June 30, 2011 to US$6.4m during the six months ended June 30, 2012.

Units by Geography

North America

EMEA

ROW

Total

2012

2011

2012

2011

2012

2011

2012

2011

Large Screed

10

2

2

1

2

4

14

7

Small Screed

36

25

20

15

14

19

70

59

Revenue by Geography

Sales in North America totalled US$9.5m for the period as compared with US$4.2m last year and represented 59% of total revenues (prior period was 40% of total). Sales in EMEA increased to US$3.2m in H1 2012 compared to US$2.8m in H1 2011.

Gross Profit

Somero's gross profit percentage for H1 2012 was 49.2% as compared to 46.1% in H1 2011. The increase in gross profit percentage is primarily attributable to sales of the new S-840, the price increase implemented in early H2 2012 and an improved sales mix geared towards higher margin new machines.

Operating Expenses

Operating expenses excluding depreciation, amortization and stock based compensation for H1 2012 were US$5.5m (US$4.9m in H1 2011). The increase has been driven by the reinstatement of the salary reductions, additional hires and investments in emerging markets.

Debt Restructuring

As discussed in Note 5, in early 2011 the Company amended and extended its loan facility until July 2013. The extension, along with simplified covenants, allowed management to focus on implementation of its strategic plan, successfully introduce new products into the market and maximize opportunities from investments in emerging markets. In July 2012, the Company amended and extended its loan facility until July 2014.

Income/(loss) per Share

Basic income/(loss) per share represents income/(loss) available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted income/(loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income/(loss) that would result from the assumed issuance.

Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units. Income/(loss) per common share has been computed based on the following:

For the six months ended June 30

2012

2011

US$ 000

US$ 000

Income/(loss) available to shareholders

847

(1,531)

Basic weighted average shares outstanding

56,426

56,426

Diluted weighted average shares outstanding

59,204

56,426

 June 30, 2012

 June 30, 2011

Basic and diluted income/(loss) per share

$0.01

($0.03)

Net income/(loss)/ before amortization of intangibles

Basic income/(loss) per share

 $0.04

 ($0.01)

Net income/(loss)/ before amortization of intangibles

Diluted income/(loss) per share

 $0.03

 ($0.01)

(See note attached to the net income/(loss) to EBITDA reconciliation and adjusted net income/(loss) before amortization table for discussion of the non-GAAP measures used.)

Somero Enterprises, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) As of June 30, 2012 and December 31, 2011 (in thousands, except per share amounts)

2012US$ 000

2011

US$ 000

Assets

Current Assets:

Cash and cash equivalents

533

89

Accounts receivable - net

3,443

3,440

Inventories

5,933

5,717

Prepaid expenses and other assets

562

612

Total current assets

10,471

9,858

Property, plant and equipment - net

3,587

3,551

Intangible assets - net

8,707

9,872

Goodwill

2,878

2,878

Deferred financing costs

123

135

Other assets

31

31

Total assets

25,797

26,325

Liabilities and stockholders' equity

Current liabilities:

Notes payable - current portion

511

511

Accounts payable

1,266

1,618

Accrued expenses

1,015

866

Income tax payable

35

44

Total current liabilities

2,827

3,039

Notes payable, net of current portion

2,960

4,244

Other liabilities

20

27

Total liabilities

5,807

7,310

Stockholders' equity

Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding

0

0

Common stock, US$.001 par value, 80,000,000 shares authorized, 56,425,598 shares issued and outstanding at June 30, 2012 and December 31, 2011

26

26

Additional paid in capital

28,247

28,165

Accumulated deficit

(7,368)

(8,215)

Other comprehensive loss

(915)

(961)

Total stockholders' equity

19,990

19,015

Total liabilities and stockholders' equity

25,797

26,325

See notes to unaudited condensed consolidated financial statements.

Somero Enterprises, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the six months ended June 30

(unaudited)

2012

2011

US$ 000except per share data

US$ 000except per share data

Revenue

16,103

10,376

Cost of sales

8,186

5,596

Gross profit

7,917

4,780

Operating expenses

Selling expenses

2,536

2,282

Engineering expenses

260

309

General and administrative expenses

3,992

3,519

Total operating expenses

6,788

6,110

Operating income/(loss)

1,129

(1,330)

Other income (expense)

Interest expense

(192)

(221)

Foreign exchange gain/(loss)

(47)

43

Other

15

2

Income/(loss) before income taxes

906

(1,506)

Provision for income taxes

59

25

Net income/(loss)

847

(1,531)

Earnings/(Loss) per common share

Basic and Diluted

$0.01

($0.03)

See notes to unaudited condensed consolidated financial statements

Somero Enterprises, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)

For the six months ended June 30, 2012

Common stock

Shares

Amount

Additional paid in capital

Accumulated deficit

Other Comprehen-sive income (loss)

Total stockholders' equity

Balance - December 31, 2011

56,425,598

26

28,165

(8,215)

(961)

19,015

Cumulative translation adjustment

-

-

-

-

20

20

Change in fair value of derivative instruments

-

-

-

-

26

26

Net income/(loss)

-

-

-

847

-

847

Share based compensation

-

-

82

-

-

82

Balance - June 30, 2012

56,425,598

26

28,247

(7,368)

(915)

19,990

See notes to unaudited condensed consolidated financial statements.

Somero Enterprises, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30

(unaudited)

2012(unaudited)

2011(unaudited)

US$ 000

US$ 000

Cash flows from operating activities:

Net income/(loss)

847

(1,531)

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

Deferred taxes

0

1

Depreciation and amortization

1,303

1,302

Amortization of deferred financing costs

59

43

Gain on sale of assets

(15)

(2)

Share based compensation

82

30

Working capital changes:

Accounts receivable

(3)

(976)

Inventories

(216)

(28)

Prepaid expenses and other assets

50

221

Accounts payable, accrued expenses and other liabilities

(210)

360

Income taxes receivable/payable

(9)

330

Net cash provided by/(used in) operating activities

1,888

(250)

Cash flows from investing activities:

Proceeds from sale of property and equipment

16

19

Property and equipment purchases

(175)

(119)

Net cash provided by/(used in) investing activities

(159)

(100)

Cash flows from financing activities:

Borrowings from notes payable

8,242

9,148

Repayment of notes payable

(9,526)

(8,567)

Loan origination fees

(47)

(197)

Net cash provided by/(used in) financing activities

(1,331)

384

Effect of exchange rates on cash and cash equivalents

46

12

Net increase in cash and cash equivalents

444

46

Cash and cash equivalents:

Beginning of period

89

96

End of period

533

142

See notes to unaudited condensed consolidated financial statements.

1.

Organization and Description of Business

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

2.

Summary of Significant Accounting Policies

Basis of Presentation The interim financial data as of June 30, 2012 and the six months ended June 30, 2012 and June 30, 2011 is unaudited. The condensed consolidated financial statements, in the opinion of Somero management, includes all normal recurring adjustments necessary for a fair presentation of the statement of results for the interim periods. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") but do not include all of the information and note disclosures required by US GAAP. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Somero's Annual Report and filing with the AIM exchange for the year ended December 31, 2011. The results for the six month period ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other interim period.

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

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

Accounts Receivable and Allowances for Doubtful Accounts Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company's accounts receivable are derived from revenue earned from a diverse group of customers. The Company performs credit evaluations of its commercial customers and maintains an allowance for doubtful accounts receivable based upon the expected ability to collect accounts receivable. Allowances, if necessary, are established for amounts determined to be uncollectible based on specific identification and historical experience. As of June 30, 2012 and December 31, 2011, the allowance for doubtful accounts was approximately US$269,000 and US$280,000, 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 was four years from the debt inception date. These financing costs are being amortized using the effective interest method.

Intangible Assets 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. The Company evaluates the carrying value of long-lived assets, including goodwill, whenever events and circumstances indicate the carrying amount of an asset may not be recoverable. For the periods ended June 30, 2012 and December 31, 2011, no such events or circumstances were identified. 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.

Goodwill Goodwill is not amortized but is subject to impairment tests on an annual basis or more frequently if events and circumstances indicate that the value of goodwill may not be recoverable. The Company has chosen December 31 as its periodic assessment date. The Company considers factors including continued economic developments and the overall macro-economic environment and determined that a triggering event did not occur at June 30, 2012. 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.

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. For arrangements which include ex works, revenue is recognized when goods are made available to the seller. 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 six months 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 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.

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. The Company uses a two-step approach to recognize and measure 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, tax positions are measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. Interest expense and penalties related to unrecognized tax benefits are recorded as interest expense and penalties, respectively.

Use of Estimates The preparation of financial statements in conformity with US GAAP 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 accounts for its stock option issuance in accordance with guidance set out by the FASB (Financial Accounting Standards Board). This guidance requires recognition of 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 guidance also requires measurement of the cost of employee services in exchange for an award based on the grant-date fair value of the award. Compensation expense related to stock based payments was US$82,000 and US$30,000 for the six month periods ended June 30, 2012 and June 30, 2011, respectively.

Transactions in and Translation of Foreign Currency The functional currency for the Company's subsidiaries outside the United States is the applicable local currency. The preparation of the consolidated financial statements requires the translation of these financial statements to USD. The assets and liabilities of these subsidiaries are translated at period end exchange rates and the statement of operations accounts are translated at average rates for the period. The resulting gains or losses are recorded directly to accumulated other comprehensive income.

The Company is also exposed to market risks related to fluctuations in foreign exchange rates because it has some sales transactions, and some monetary assets and liabilities of its foreign subsidiaries, are denominated in foreign currencies other than the designated functional currency. Gains and losses from such transactions are included as foreign exchange gain/(loss) in the accompanying consolidated statements of operations.

Comprehensive loss Comprehensive loss is the combination of reported net loss and other comprehensive income ("OCI"). OCI consists of 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 six months ended June 30, 2012 and June 30, 2011.

For the six months ended June 30

2012

2011

US$ 000

US$ 000

Net income/(loss)

847

(1,531)

Cumulative translation adjustment

20

(40)

Change in fair value of derivative instruments - net of income taxes

26

52

Total comprehensive income/(loss)

893

(1,519)

Income/(loss) Per Share Basic income/(loss) per share represents income/(loss) available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted loss per share reflects 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 and restricted stock units. Income/(loss) per common share has been computed based on the following:

For the six months ended June 30

2012

2011

US$ 000

US$ 000

Net income/(loss)

847

(1,531)

Basic weighted average shares outstanding

56,425,598

56,425,598

Diluted weighted average shares outstanding

59,204,457

56,425,598

Fair Value Measurements The Company has certain assets and liabilities that may be recorded at fair value at the reporting date. The fair values 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:

UnobservableJune 30, 2012 and December 31, 2011

Quoted Prices in Active Markets for Identical Assets(Level 1)

Significant Other Observable Inputs (Level 2)

Significant Inputs(Level 3)

US$000

US$000

US$000

US$000

2,878

2,878

New Accounting Pronouncements

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

In December 2011, the FASB issued guidance to amend Comprehensive Income (Topic 220). This amendment defers the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in Accounting Standards Update 2011-05 Comprehensive Income (Topic 220) Presentation of Comprehensive Income until the Board is able to reconsider the paragraphs. The Company will adopt this guidance beginning with its December 31, 2012 reporting period and all subsequent periods. The guidance is not expected to have a material impact on the Company's consolidated financial statements.

3.

Inventories

Inventories consisted of the following at June 30, 2012 and December 31, 2011:

2012

2011

US$ 000

US$ 000

Raw materials

1,979

1,828

Finished goods and work in process

1,757

1,772

Refurbished

2,197

2,117

Total

5,933

5,717

4.

Property, Plant and Equipment

Property, plant and equipment consist of the following at June 30, 2012 and December 31, 2011:

2012

2011

US$ 000

US$ 000

Land

207

207

Buildings and improvements

3,572

3,572

Machinery and equipment

1,673

1,500

Sub-total

5,452

5,279

Less: accumulated depreciation and amortization

(1,865)

(1,728)

Total

3,587

3,551

Depreciation expense for the six months ended June 30, 2012 and June 30, 2011 was approximately US$137,000 and US$135,000, respectively.

5.

Notes Payable

The Company's debt consisted of the following at June 30, 2012 and December 31, 2011:

2012

2011

US$ 000

US$ 000

30 month secured reducing revolving line of credit

802

1,782

30 month secured reducing term loan

2,669

2,973

Total bank debt

3,471

4,755

Less debt due within one year

(511)

(511)

Obligations due after one year

2,960

4,244

Amended Credit Facility The Company completed the amendment of its loan agreement in early 2011. The new agreement matures July 2013.

·; US$3,500,000 July 2013 amended, secured revolving line of credit

·; US$1,540,000 July 2013 amended, secured reducing term loan

·; US$2,500,000 July 2013 new, secured revolving line of credit

·; US$1,900,000 July 2013 new, secured reducing term loan

The Company restructured its original revolving loan up to a maximum of US$3,500,000. The interest rate on this loan will be adjusted Libor plus 4.0%. The Company restructured its original term loan equal to US$1,540,000. The interest rate on this loan will be adjusted Libor plus 4.0%. The Company has a new maximum revolving loan facility equal to US$2,500,000 secured by substantially all of its assets and supported by the Export-Import Bank of the United States. The interest rate on this loan will be adjusted Libor plus 4.0%. The Company has a new term loan facility equal to US$1,900,000 secured by substantially by all of its business assets and a mortgage. The interest rate on this loan will be adjusted Libor plus 4.5%.

The Company completed a one year extension of its existing loan agreement in early July 2012. The new agreement matures July 2014.

Future Payments The future payments by year represent the remaining six months for 2012 and the full 12 months of each successive period for the Company's amended loan facility:

June 30US$ 000

2012

256

2013

511

2014

2,704

2015

-

Total payments

3,471

Interest Interest expense on the credit facility for the six months ended June 30, 2012 and June 30, 2011, was approximately US$192,000 (includes $81,000 of amortized swap interest fees and amortized loan origination fees) and US$129,000 (excluding $91,000 of amortized swap interest fees and amortized loan origination fees), respectively, related to the debt obligation. Interest expense includes US$26,000 and US$52,000 in 2012 and 2011, respectively, related to the loss on cash flow hedges as a result of paying off interest rate swaps that were recognized in the statement of operations as interest expense and removed from other comprehensive income/(loss).

6.

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 represent the remaining six months for 2012 and the full 12 months of each successive period:

June 30US$ 000

2012

107

2013

144

2014

57

2015

50

2016

12

Total

370

7.

Commitments and Contingencies

The Company has entered into employment agreements with certain members of senior management. The terms of these agreements range from six months to one year and include non-compete and non-disclosure provisions as well as providing for defined severance payments in the event of termination or change in control.

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

8.

Income Taxes

The Company's effective tax rate for the six months ended June 30, 2012 was 6.5% compared to the federal statutory rate of 34.0%. The effective tax rate is based on the estimated annual effective tax rate as required by US GAAP for interim periods. The effective tax rate is lower than the statutory rate mainly due to the effect of foreign taxes and the impact of applying a valuation allowance to deferred tax assets. The Company has provided a valuation allowance of $5,016,000 and $5,416,000 at June 30, 2012 and December 31, 2011 respectively, on the deferred tax assets.

Somero is subject to US federal income tax as well as income tax of multiple state jurisdictions. The Company began business in 2005. The statute of limitations for all federal, foreign and state income tax matters for tax years from 2009 forward is still open. Somero has no federal, foreign or state income tax returns currently under examination.

At June 30, 2012, the Company had no net deferred tax assets. 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 June 30, 2012 and December 31, 2011 was not sufficiently assured, a valuation allowance for the 2012 and 2011 net deferred tax asset was provided for.

The Company has US $4,892,145 in state loss carry forwards with varying expiration dates and US $3,086,729 in foreign loss carry forwards with indefinite expiration dates as of June 30, 2012.

9.

Supplemental Cash Flow Disclosures

For the six months ended June 30

2012

2011

US$ 000

US$ 000

Cash paid for interest

113

127

Cash paid/(received) for taxes

8

(355)

10.

Intangible Assets

The following table reflects intangible assets that are subject to amortization.

Weighted average amortization period

June 30US$ 000

December 31US$ 000

Capitalized cost

Customer relationships

8 years

6,300

6,300

Patents

12 years

18,538

18,538

Other intangibles

3 years

4

4

24,842

24,842

Accumulated amortization

Customer relationships

8 years

5,446

5,053

Patents

12 years

10,685

9,913

Other intangibles

3 years

4

4

16,135

14,970

Net carrying costs

Customer relationships

8 years

854

1,247

Patents

12 years

7,853

8,625

Other intangibles

3 years

0

0

8,707

9,872

Amortization expense for the six months ended June 30, 2012 and June 30, 2011 was US$1,166,000 and US$1,167,000, respectively.

Estimated amortization expense on intangibles for the remainder of 2012 is US$1,166,000. Future amortization of intangible assets is expected to be as follows at:

June 30US$ 000

2013

2,004

2014

1,545

2015

1,545

2016

1,545

2017

902

7,541