Business Context and Reporting Period
Company: B.O.S. Better Online Solutions Ltd. (BOS)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Fiscal Year Ended December 31, 2007 (Submitted March 31, 2008)
Business Overview: BOS operates two primary segments: Mobile and RFID Solutions, and Supply Chain Solutions. The company is headquartered in Israel with significant operations in the U.S. and Europe. In 2007, the company completed the acquisition of Summit Radio Corp. and other smaller asset purchases, while continuing to manage the aftermath of the 2005 sale of its communication segment.
Key Financial Metrics (Year Ended Dec 31, 2007)
| Metric | 2007 (USD '000s) | 2006 (USD '000s) |
|---|---|---|
| Revenues | $23,774 | $20,917 |
| Gross Profit | $4,675 | $4,717 |
| Gross Margin | 19.7% | 22.5% |
| Operating Loss | $(1,922) | $(1,056) |
| Net Loss | $(8,396) | $92 (Net Income) |
| Cash and Equivalents | $4,271 | $2,033 |
| Total Debt (Short & Long Term) | $8,314 | $4,088 |
| Shareholders' Equity | $14,438 | $12,349 |
Note: All figures in thousands of U.S. dollars unless otherwise noted.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 13.7% to $23.8 million, driven primarily by the Supply Chain Solutions segment ($21.1M vs $18.6M in 2006) following the acquisition of Summit Radio Corp. in November 2007.
- Profitability Decline: The company swung from a net income of $92,000 in 2006 to a net loss of $8.4 million in 2007. This was primarily due to a non-cash impairment loss of $5.6 million on investments in Qualmax Inc. and New World Brands Inc. (consideration received for the 2005 sale of the communication segment).
- Operating Expenses: Total operating costs rose to $6.6 million from $5.8 million. Sales and marketing expenses nearly doubled to $3.8 million, reflecting growth initiatives and the integration of new acquisitions.
- Balance Sheet: Cash reserves more than doubled to $4.3 million due to significant equity financing activities. Total debt increased to $8.3 million, largely due to new long-term bank loans ($3.3M) and short-term borrowings to fund acquisitions.
- Acquisitions: Goodwill increased significantly to $2.9 million (from $0.95M) due to the Summit acquisition.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The 2007 net loss was heavily impacted by a $5.6 million impairment charge on available-for-sale securities (Qualmax and NWB) due to a decline in their market value. Additionally, the company recorded a $170,000 charge for in-process research and development related to the OptimizeIT acquisition.
- Discontinued Operations: The communication segment was sold in 2005. In 2007, the company recognized a gain of $237,000 from discontinued operations, primarily related to the settlement of outstanding obligations from the sale.
- Financing Activity: The company raised approximately $6.6 million in net proceeds from share issuances in 2007, including a rights offering and private placements with Catalyst Fund and D.S. Apex Holdings.
- Risks and Contingencies:
- Legal: A former French distributor (BOS-NOVA EURL) filed a claim alleging breach of exclusive rights and IP ownership, seeking approximately 3.3 million Euros. Management considers the likelihood of a significant recovery by the plaintiff remote.
- Investment Risk: The company holds significant equity in Qualmax and New World Brands, which are subject to market volatility and merger uncertainties (a merger agreement was signed in Feb 2008).
- Concentration: Customer B accounted for 21% of total revenues in 2007.
- Subsequent Events: In March 2008, the company acquired Dimex Systems Ltd. for approximately $12.2 million (cash and stock), expanding its RFID and barcode solutions portfolio.
Investor Verification Checklist
- Investment Impairment: Verify the valuation methodology and recoverability of the remaining holdings in Qualmax and New World Brands, which caused the bulk of the 2007 loss.
- Acquisition Integration: Assess the financial performance and integration progress of Summit Radio Corp. (acquired Nov 2007) and Dimex Systems (acquired Mar 2008) to determine if they will drive future profitability.
- Liquidity and Debt: Review the terms of the new long-term bank loans ($3.3M) and the ability to service debt given the history of operating losses.
- Legal Exposure: Monitor the status of the French distributor lawsuit and the potential impact of the 3.3 million Euro claim.
- Revenue Concentration: Evaluate the stability of revenue from Customer B (21% of sales) and the impact of any potential loss of this client.