B.O.S. Better Online Solutions Ltd. Reports Results for the Second Quarter of 2006.TERADYON, Israel Israel, in the Bible Israel (ĭz`rēəl, ĭz`rāəl) [as understood by Hebrews,=he strives with God], according to the book of Genesis, name given to Jacob as eponymous ancestor of the Hebrews, the chosen people of God. -- B.O.S. Better Online Solutions Ltd. (the "Company" or "BOS") (Nasdaq:BOSC) (TASE TASE Tel Aviv Stock Exchange TASE The All Seeing Eye TASE Tactical Air Support Element TASE Thrust Assessment Support Environment TASE Telecontrol Application Service Elements (IEC communications protocol) :BOSC) reported today its results for the second quarter of 2006. Revenues for the second quarter of 2006 amounted to $4.5 million compared to $5.1 million in the first quarter of 2006 and $7.3 million in the second quarter of 2005. The revenues of the second quarter of 2005 included $1.1 million revenues of product lines (Thin Client and Software Utilities) and of the Communication segment, that were sold during year 2005, which generated most of the losses for that quarter. Gross profit for the second quarter of 2006 was $1.1 million (gross margin of 25%), compared to $1.2 million in the first quarter of 2006 (gross margin of 23.6%) and $2 million (gross margin of 27.8%) in the second quarter of the year 2005. The decrease in gross margin in comparison to 2005, is related mainly to the Communication segment (that was sold in late 2005) whose gross margin in the second quarter of 2005 was 30.6%. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the second quarter amounted to $457 thousand, compared to $43 thousand in the first quarter of 2006 and to $431 thousand in the second quarter of 2005. Operating loss includes options and shares compensation cost in the amount of $334 thousand in the second quarter of 2006, compared to $61 thousand in the first quarter of 2006 and $105 thousand in the second quarter of 2005. Exclusive of the options and shares compensation cost, the operating loss for the second quarter of 2006 was $123 thousands, compared to an operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for the first quarter of 2006 of $18 thousand and an operating loss in the second quarter of 2005 of $326 thousand. Other income net, for the second quarter of 2006, includes a gain of $358 thousand composed of consideration paid in Qualmax Inc. (Pink Sheets: QMXI) shares on account of the earn out shares contemplated as part of the sale of the Communication segment to IP Gear Ltd., (a subsidiary of Qualmax Inc.), in December December: see month. 2005, and an additional gain of $250 thousand due to the conversion of debt owed to BOS by IP Gear Ltd., into Qualmax Inc. shares. Other income for the first quarter of 2006 includes a gain of $350 thousand as a result of the conversion of debt owed to BOS by IP Gear Ltd., into Qualmax shares. Net profit for the second quarter of 2006 amounted to $37 thousand (or $0.01 basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. profit per share), compared to net income of $137 thousand (or $0.02 basic and diluted profit per share) in the first quarter of 2006 and to net loss of $940 thousand (or -$0.19 per share) in the second quarter of 2005. The net profit for the six months period ending June June: see month. 30 2006, amounted to $174 thousand (or $0.03 basic and diluted profit per share) compared to net loss of $1.9 million (or -$0.39 per share) in the six month period ending June 30 2005. As of June 30, 2006, the Company's balance sheet shows financial resources (cash and cash equivalents) of $2.5 million and loans (long and short term) of $4.4 million. In June 2006, the Company participated in a financing round in Surf Communication Solutions Surf Communication Solutions develops a suite of hardware and software products that drives a wide variety of applications whose common goal is high-capacity distribution of voice and video. Ltd., and invested an amount of $300,000. Following the investment, the Company's holds 7.8% of Surf's issued and outstanding share capital. Adiv Baruch Baruch, in the Bible Baruch (bər  k`, bā`rk), in the Bible. , BOS' President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. commented: "The
second quarter of the year reflects the operations that remain in B.O.S.
after the reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. and improvement processes performed during
2005, when we sold the Communication segment. Despite the fact that this
decision led to a reduction in revenues, we succeeded in maintaining a
substantial gross profit."Edouard Cukierman, Chairman of the Board of Directors, added: "Recently, we began negotiations for raising capital that will allow B.O.S to identify opportunities in purchasing an essential operation. The company is making an intensive effort identifying and screening target companies for merger or acquisition to take place in the near future. Our guidance for the full year 2006, given in May 2006, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. which we expect revenues to exceed $20 million and that the Company will generate a net profit in its audited financials (exclusive of M&A transactions that may transpire), remains unchanged." About BOS B.O.S. Better Online Solutions Ltd. (the "Company" or "BOS") (Nasdaq:BOSC) (TASE:BOSC) was established in 1990. Through its wholly owned subsidiaries Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , BOS activities are focused on two segments: Electronic Components segment, based on Odem ODEM Order of Our Lady of Mercy (religious order) Electronic Technologies 1992 Ltd., providing solutions in RFID (Radio Frequency IDentification) A data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label," "transponder" or "code plate," is made up of an RFID chip attached to an antenna. , semiconductors, electronic components, CCD CCD in full charge-coupled device Semiconductor device in which the individual semiconductor components are connected so that the electrical charge at the output of one device provides the input to the next device. , imaging, networking, telecom and automation fields. Connectivity A generic term for connecting devices to each other in order to transfer data back and forth. It often refers to network connections, which embraces bridges, routers, switches and gateways as well as backbone networks. segment, with products marketed under the BOSaNOVA brand name. These products deliver instant and transparent (1) Refers to a change in hardware or software that, after installation, causes no noticeable change in operation. Also known as "feature transparency." Contrast with "seamless integration," which means that an additional component to the system can be added without incurring any connectivity from IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) iSeries A family of midrange servers from IBM that are based on IBM's POWER CPUs and run under the i5/OS, OS/400 and AIX operating systems. Windows and Linux can also be run in an attached x86-based server (see IXS). computers to personal computers, thin clients and browsers. BOS, www.boscorporate.com is traded on NASDAQ and on the Tel-Aviv stock exchange. The forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. contained herein reflect management's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially from those in the forward-looking statements, all of which are difficult to predict and many of which are beyond the control of BOS. These risk factors and uncertainties include, amongst others, the dependency dependency In international relations, a weak state dominated by or under the jurisdiction of a more powerful state but not formally annexed by it. Examples include American Samoa (U.S.) and Greenland (Denmark). of sales being generated from one or few major customers, the uncertainty of our being able to maintain current gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. , inability to keep up or ahead of technology and to succeed in a highly competitive industry, inability to maintain marketing and distribution arrangements and to expand our overseas markets, uncertainty with respect to the prospects of legal claims against BOS; and additional risks and uncertainties detailed in BOS' periodic reports and registration statements filed with the U.S. Securities Exchange Commission.. BOS undertakes no obligation to publicly update or revise any such forward-looking statements to reflect any change in its expectations or in events, conditions or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------
U.S. dollars in thousands
June December
30, 31,
2006 2005
------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,470 $ 2,346
Marketable securities - 1,333
Trade receivables 4,465 5,199
Other accounts receivable and prepaid
expenses 635 592
Inventories 3,253 3,323
------- -------
Total current assets 10,823 12,793
------- -------
LONG-TERM ASSETS:
Severance pay fund 708 937
Investment in companies 6,631 5,412
------- -------
Total long-term assets 7,339 6,349
------- -------
OTHER ASSETS 59 49
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 598 667
------- -------
GOODWILL 952 952
------- -------
CUSTOMER LIST, NET 1,733 1,836
------- -------
$21,504 $22,646
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term loans from banks $ 3,155 $ 2,271
Current maturities of long-term bank loans and
convertible note 642 354
Trade payables 2,122 3,367
Employees and payroll accruals 420 772
Deferred revenues 228 258
Accrued expenses and other liabilities 901 1,571
------- -------
Total current liabilities 7,468 8,593
------- -------
LONG-TERM LIABILITIES:
Bank loans (net of current maturities) 10 17
Convertible note (net of current maturities) 579 921
Deferred taxes 392 422
Accrued severance pay 871 1,190
------- -------
Total long-term liabilities 1,852 2,550
------- -------
LIABILITIES RELATED TO DISCONTINUED OPERATIONS 237 237
------- -------
Total shareholders' equity 11,947 11,266
------- -------
Total liabilities and shareholder's equity $21,504 $22,646
======= =======
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
U.S. dollars in thousands, except per share data
Six months Three months Year
ended ended ended
June 30, June 30, December
---------------- --------------- 31,
2006 2005 2006 2005 2005
------- -------- ------- ------- ----------
Revenues $9,559 $14,593 $4,457 $7,321 $27,053
Cost of revenues 7,240 10,598 3,342 5,284 20,109
Reversal of royalties - - - - 84
------ ------- ------ ------ -------
Gross profit 2,319 3,995 1,115 2,037 7,028
------ ------- ------ ------ -------
Operating costs and
expenses:
Research and development 289 1,457 141 721 2,608
Less - grants and
participation - (133) - (133) (296)
Sales and marketing 996 1,918 472 999 3,563
General and
administrative 1,534 1,717 959 881 3,267
------ ------- ------ ------ -------
Total operating costs and
expenses 2,819 4,959 1,572 2,468 9,142
------ ------- ------ ------ -------
Operating loss (500) (964) (457) (431) (2,114)
Financial expenses, net (206) (322) (128) (161) (448)
Other income, net 867 27 609 27 1,134
------ ------- ------ ------ -------
Loss before taxes on
income 161 (1,259) 24 (565) (1,428)
Taxes on income 13 (234) 13 (175) (204)
------ ------- ------ ------ -------
Profit (loss) after taxes 174 (1,493) 37 (740) (1,632)
Equity in losses of an
affiliated company - (240) - (95) (1,750)
Minority interest in
earnings of a subsidiary - (150) - (105) (223)
------ ------- ------ ------ -------
Net profit (loss) $ 174 $(1,883) $ 37 $ (940) $(3,605)
====== ======= ====== ====== =======
Basic profit (loss) per
share $ 0.03 $ (0.39) $ 0.01 $(0.19) $ (0.64)
Diluted profit (loss) per
share $ 0.03 $ (0.39) $ 0.01 $(0.19) $ (0.64)
====== ======= ====== ====== =======
SEGMENT INFORMATION
----------------------------------------------------------------------
U.S. dollars in thousands
Three months ended June 30, 2006
-------------------------------------------
Electronics
Connectivity Communication(a) Components
------------ ---------------- -------------
Revenues $ 451 $ - $4,006
Gross profit $ 247 $ - $ 868
Operating profit (loss) $(118) $ - $ 71
Not
allocated Consolidated
-------------- ----------------
Revenues $ - $4,457
Gross profit $ - $1,115
Operating profit (loss) $ (410) $ (457)
Three months ended June 30, 2005
---------------------------------------------
Electronics
Connectivity Communication(a) Components
------------ ------------------ -------------
Revenues $1,055 $ 872 $5,450
Gross profit $ 600 $ 267 $1,170
Operating profit (loss) $ (66) $(549) $ 507
Not
allocated Consolidated
-------------- -----------------
Revenues $ (56) $ 7,321
Gross profit $ - $ 2,037
Operating profit (loss) $ (323) $ (431)
Six months ended June 30, 2006
-----------------------------------------
Electronics
Connectivity Communication(a) Components
------------ ---------------- -----------
Revenues $1,018 $ - $8,541
Gross profit $ 665 $ - $1,654
Operating profit (loss) $ (71) $ - $ 102
Not
allocated Consolidated
------------- ---------------
Revenues $ - $9,559
Gross profit $ - $2,319
Operating profit (loss) $ (531) $ (500)
Six months ended June 30, 2005
-----------------------------------------
Electronics
Connectivity Communication(a) Components
------------ ---------------- -----------
Revenues $2,561 $ 1,789 $10,298
Gross profit $1,455 $ 531 $ 2,009
Operating profit (loss) $ 73 $(1,147) $ 704
Not
allocated Consolidated
------------ ---------------
Revenues $ (55) $14,593
Gross profit $ - $ 3,995
Operating profit (loss) $ (594) $ (964)
Year ended December 31, 2005
-----------------------------------------
Electronics
Connectivity Communication(a) Components
------------ ---------------- -----------
Revenues $3,926 $ 2,954 $20,253
Gross profit $2,425 $ 783 $ 3,820
Operating profit (loss) $ 235 $(2,374) $ 727
Not
allocated Consolidated
------------ ---------------
Revenues $ (80) $27,053
Gross profit $ - $ 7,028
Operating profit (loss) $(702) $(2,114)
(a) Communication segment was sold at December 2005.
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