B.O.S. Better Online Solutions Ltd. — 2015 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2015; filed April 21, 2016. This is an annual report, not a standalone quarterly filing. Amounts below are U.S. dollars unless otherwise stated.
Business context
BOS is an Israeli provider of RFID and mobile automatic-identification solutions and a distributor of electronic components and supply-chain services. It reports two divisions: RFID and Mobile Solutions, and Supply Chain Solutions. In 2015, they represented 36% and 64% of revenue, respectively. Israel accounted for 74% of revenue; exports were 26%.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $25.599 million | $27.601 million |
| Gross profit / margin | $5.137 million / 20.0% | $5.045 million / 18.3% |
| Operating income | $688,000 | $120,000 |
| Net income (loss) | $334,000 | ($433,000) |
| Basic and diluted earnings (loss) per share | $0.17 | ($0.30) |
| Cash from operating activities | $370,000 | $1.084 million |
| Cash and cash equivalents at year-end | $1.419 million | $1.522 million |
| Working capital | $5.246 million | $634,000 |
| Bank debt at year-end, including current maturities | $3.858 million | $5.057 million |
| Total assets / shareholders’ equity | $16.825 million / $6.505 million | $16.261 million / $5.297 million |
Fourth-quarter 2015 revenue was $7.376 million, versus $6.678 million in Q4 2014. The filing does not provide a clear standalone Q4 profit or cash-flow value in the supplied text.
Material changes versus 2014
- Revenue fell 7.2%, mainly because RFID and Mobile Solutions sales to an Israeli food-retail chain declined.
- Gross profit rose modestly and gross margin improved from 18.3% to 20.0%. Management attributed the margin improvement to stronger customer relationships and lower slow-moving inventory allowances.
- Operating expenses declined to $4.449 million from $4.925 million, including lower sales and marketing costs and a reduction in bad-debt allowance.
- BOS returned to profitability, reporting $334,000 net income after a $433,000 loss in 2014.
- Operating cash flow declined to $370,000 from $1.084 million, primarily as higher Q4 sales increased working-capital needs. Trade receivables rose to $7.071 million from $6.144 million.
- Debt declined from approximately $5.1 million to $3.858 million. The 2015 balance sheet showed $400,000 of current maturities and $3.458 million of long-term loans, with no short-term bank loans reported.
Outlook, risks and unusual items
- Management aims to expand both divisions, with plans to broaden RFID and Mobile offerings and expand Supply Chain manufacturer representation and international sales. It anticipates gradual growth in RFID and Mobile’s share of revenue; the filing gives no specific revenue or earnings guidance.
- In January 2016, BOS completed its acquisition of iDnext and Next-Line business operations for approximately $411,000 cash and 162,734 BOS shares, plus potential additional payments based on 2016 and 2017 operating profit. Integration and execution risks apply.
- Also in January 2016, BOS and its Israeli subsidiaries refinanced bank debt into long-term loans. The agreement requires repayment of $1.2 million plus interest in 36 installments beginning in 2016; the remaining $2.658 million is due December 31, 2018. The loans carry financial covenants and are secured by company assets. Management expects to meet the covenants and anticipates negotiating refinancing of the 2018 balance.
- Liquidity depends on continued operating cash generation, access to financing, and the bank relationship. Variable-rate borrowing, customer concentration, supplier dependence, inventory obsolescence, currency fluctuations, competition, and Israel’s political and security environment are notable risks. One Supply Chain customer represented 13% of revenue in each of 2013–2015.
- At year-end, BOS disclosed an approximately $3.7 million contingent royalty obligation to Israel’s Office of the Chief Scientist, payable only on sales of funded products. The relevant software was no longer being sold, and no royalty expense was recorded in 2015, 2014, or 2013.
- BOS reported no legal proceedings. Goodwill was $4.122 million; no impairment was recorded in 2015, but the valuation depends on forecast assumptions. Management reported effective disclosure controls and internal control over financial reporting; the external auditor did not attest to ICFR.
- Share count increased from 2,192,268 at December 31, 2015 to 2,382,404 at March 31, 2016. The filing also describes standby equity facilities that could result in further share issuance and dilution.
Important facts for investors to verify
- Whether operating cash flow can recover and receivables can be collected promptly, given the year-over-year cash-flow decline and higher receivables.
- Compliance with Bank Leumi’s financial covenants and the company’s ability to refinance the $2.658 million due in 2018.
- Acquisition consideration, contingent payments, integration progress, and the acquired businesses’ contribution to results.
- Customer and supplier concentration, inventory quality, and whether gross-margin improvement is sustainable.
- Potential dilution from equity facilities and other share issuances, including the post-year-end acquisition shares.
- Whether future product sales could trigger Office of the Chief Scientist royalties and whether goodwill assumptions remain supportable.