BOS Better Online Solutions Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; filed March 30, 2023. This is an annual report, not a standalone fourth-quarter filing. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context
BOS provides supply-chain distribution, RFID and inventory-management solutions, and custom industrial robotics through three divisions. Supply Chain generated 61% of FY2022 revenue, RFID 37%, and Intelligent Robotics 2%. Israel accounted for 82% of revenue. The company acquired Dagesh’s inventory-counting assets for total consideration of approximately $828,000.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $41.51 million | $33.63 million |
| Gross profit / margin | $9.06 million / 21.8% | $6.59 million / 19.6% |
| Operating income | $1.93 million | $517,000 |
| Net income | $1.276 million | $451,000 |
| Basic and diluted EPS | $0.23 / $0.23 | $0.09 / $0.08 |
| Operating cash flow | $1.283 million | $9,000 |
| Cash and restricted cash at year-end | $1.893 million | $2.117 million |
| Working capital | $9.379 million | $9.118 million |
| Bank debt | $1.880 million total; $586,000 current | $1.421 million total; $740,000 current |
Revenue rose 23%. Supply Chain revenue increased to $25.23 million and RFID revenue increased 16% to $15.32 million; Robotics revenue fell to $961,000. Gross margin improved, primarily on stronger Supply Chain gross profit and a smaller Robotics gross loss. Financial expense increased to $647,000 from $105,000, reflecting currency losses and higher interest expense. FY2022 investing cash outflow was $3.091 million, including property and equipment purchases and the Dagesh acquisition; financing cash inflow was $1.584 million.
Fourth-quarter revenue was $11.327 million, compared with $9.079 million in Q4 2021. The filing text does not provide clear standalone Q4 profit, margin, or cash-flow figures.
Material changes and unusual items
- In May 2022, BOS bought office and warehouse space in Rishon LeZion for approximately $1.9 million; property and equipment increased to $3.270 million from $1.097 million.
- Operating cash flow improved substantially, but the filing attributes much of the 2022 result to a $2.785 million increase in trade payables. Receivables and inventories also increased.
- The company raised approximately $990,000 gross in a May 2022 share-and-warrant offering and issued 450,000 shares. Shares outstanding rose from 5,250,518 at year-end 2021 to 5,701,518 at year-end 2022.
- Financial statements report net income and positive EPS for 2022 and 2021. A narrative passage in the MD&A incorrectly describes the per-share results as net losses; investors should rely on and reconcile this wording against the audited statements.
Outlook, risks and contingencies
Management expected RFID revenue to benefit from the Dagesh acquisition and anticipated Supply Chain growth in 2023, citing expected increases in defense budgets amid the Russia-Ukraine conflict. These are expectations, not quantified guidance. Management said working capital was sufficient for ongoing operations; the company met its bank covenants at year-end and had an unused short-term credit line of approximately $1.354 million. No formal revenue or earnings guidance is provided.
- Key risks include supplier concentration, dependence on maintaining gross margins, customer order cancellations, technology and competition, and the ability to integrate acquisitions. Five suppliers represented 49% of Supply Chain purchases in 2022; Positronic alone represented 13%.
- Exposure includes floating-rate debt, NIS/USD movements and Israeli inflation, economic and supply-chain disruption, and political and security conditions in Israel. Bank loans are secured by charges over company and Israeli subsidiary assets.
- The company disclosed a limited cybersecurity breach that occurred in 2020 and was discovered in 2022; it reported no recurrence or material company or customer information release to its knowledge.
- A customer machine dispute and a former sales agent’s employment-benefits claim were settled in 2022. BOS paid approximately $210,000 plus VAT on the customer claim and received approximately $54,000 in insurance proceeds; the agent settlement was approximately $28,000 plus VAT.
- Year-end goodwill was $4.895 million, principally in RFID. No impairment was recorded in 2022, but the auditor identified the goodwill impairment assessment as a critical audit matter because it relied on projected cash flows and other valuation assumptions.
The auditor issued an unqualified opinion on the U.S. GAAP financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether the improvement in operating cash flow is sustainable given its reliance on higher trade payables, and how receivables and inventory convert to cash.
- Whether FY2023 growth expectations for Supply Chain and RFID materialize, and whether Robotics can reduce project losses.
- Debt repayment capacity, covenant compliance, floating-rate exposure, and the availability and terms of bank credit facilities.
- The assumptions supporting the $4.895 million goodwill valuation and the performance of the Dagesh acquisition.
- The reconciliation of the MD&A’s erroneous “net loss per share” wording with audited positive net income and EPS.