Business Context and Reporting Period
This Form 6-K, filed by B.O.S. Better On-Line Solutions, Ltd. on February 28, 2005, incorporates the audited financial statements of Quasar Communication Systems Ltd. (Quasar) as of December 31, 2003, and unaudited interim statements for the nine months ended September 28, 2004. Quasar, an Israeli developer of cellular communication gateways, entered into an asset purchase agreement with B.O.S. on September 29, 2004, under which B.O.S. acquired the majority of Quasar's assets, including product lines and intellectual property. The financial statements reflect Quasar's position immediately prior to this transaction.
Key Financial Metrics
| Metric (in thousands NIS) | Year Ended Dec 31, 2003 | 9 Months Ended Sep 28, 2004 |
|---|---|---|
| Sales | 17,810 | 10,432 |
| Net Loss | (6,554) | (1,710) |
| Operating Loss | (5,009) | (1,489) |
| Cash Flow from Operations | (3,478) | (2,216) |
| Cash and Equivalents (Ending) | 283 | 39 |
| Total Liabilities | 8,095 | 8,532 |
| Shareholders' Equity (Deficiency) | (1,413) | (2,957) |
| Working Capital Deficiency | (1,096) | (3,619) |
Note: 2003 figures are adjusted for Israeli CPI; 2004 figures are reported amounts. All figures in thousands of New Israeli Shekels.
Material Changes vs. Prior Period
- Revenue Decline: Sales decreased from 17,810 (2003) to 10,432 (9 months 2004), indicating a contraction in business activity prior to the asset sale.
- Worsening Liquidity: Cash and cash equivalents plummeted from 283 at year-end 2003 to 39 by September 2004. The company reported negative cash flows from operations in both periods.
- Deepening Deficit: Shareholders' equity deficiency widened from (1,413) in 2003 to (2,957) in September 2004. Working capital deficiency increased significantly from approximately 1.1 million NIS to 3.6 million NIS.
- Debt Structure: Current liabilities increased, driven by a rise in bank credit from 1,565 to 1,864 and the addition of 2,839 in loans from related parties in the 2004 period.
Outlook, Risks, and Management Commentary
Going Concern Uncertainty: The independent auditors issued an unqualified opinion but included an emphasis of matter regarding the company's ability to continue as a going concern. The auditors noted that the company suffered significant losses and capital/working capital deficiencies. Continuation of operations is dependent on increasing profitability or raising additional financial support.
Asset Sale: The filing notes that the financial statements do not reflect the impact of the September 29, 2004, asset purchase agreement with B.O.S., which effectively marks the discontinuance of Quasar's core operations.
Contingencies:
- Legal: A former employee (related party) filed a claim for vacation pay of 186,000 NIS; the outcome is currently unestimable.
- Liens: The company has fixed and floating liens on all assets, including a first-degree fixed lien on checks for collection and goodwill in favor of Bank Leumi.
- Tax: The company holds "approved enterprise" status, but benefits are contingent on meeting specific terms. Failure to comply could result in repayment of tax benefits.
Investor Verification Checklist
- Asset Sale Completion: Verify the final terms and closing status of the asset purchase agreement between Quasar and B.O.S. Better On-Line Solutions, Ltd.
- Related Party Loans: Confirm the repayment status of the 2,839 (thousand NIS) in loans from related parties outstanding as of September 2004.
- Legal Resolution: Monitor the status of the 186,000 NIS claim filed by the former employee.
- Cash Position: Assess the current cash balance of the remaining entity, given the reported drop to 39 (thousand NIS) in September 2004.
- Debt Covenants: Review the terms of the bank credit facilities and related party loans to ensure no defaults occurred post-filing.