FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d -16
of the Securities Exchange Act of 1934
For the Month of March 2005
B.O.S. BETTER ON-LINE SOLUTIONS, LTD.
(Translation of Registrant's Name into English)
100 BOS ROAD, TERADYON 20179, ISRAEL
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ___________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): ___________
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
THE FINANCIAL STATEMENTS ATTACHED TO THIS FORM 6-K AND ITEM 3 OF THIS FORM 6-K
ARE HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRANT'S REGISTRATION
STATEMENTS ON FORM F-3 (NO. 333-117529) AND FORM S-8 (NOS. 333-110696,
333-100971 AND 333-11650), AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS
REPORT IS SUBMITTED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS
SUBSEQUENTLY FILED OR FURNISHED.
1. Attached hereto and incorporated by reference are the consolidated Financial
Statements of the Registrant as of December 31, 2004.
2. Attached hereto and incorporated by reference is the following Registrant's
press release: B.O.S. Better Online Solutions Ltd. Announces Financial Results
for the Fourth Quarter and Year Ended 2004; Dated March 30, 2005.
3. Mr. Yair Shamir, a member of the Registrant's Board of Directors, has
resigned from the Board due to personal reasons, effective March 31, 2005.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
B.O.S. Better On-Line Solutions, Ltd.
(Registrant)
By: /S/ Adiv Baruch
-------------------
Adiv Baruch
President and CEO
Dated: March 30, 2005
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
U.S. DOLLARS IN THOUSANDS
INDEX
PAGE
----
REPORT OF INDEPENDENT AUDITORS REGISTERED PUBLIC ACCOUNTING FIRM F - 2
CONSOLIDATED BALANCE SHEETS F - 3 - F - 4
CONSOLIDATED STATEMENTS OF OPERATIONS F - 5
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY F - 6
CONSOLIDATED STATEMENTS OF CASH FLOWS F - 7 - F - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 9 - F - 39
[ERNST & YOUNG LOGO] o KOST FORER GABBAY & KASIERER o Phone: 972-3-6232525
3 Aminadav St. Fax: 972-3-5622555
Tel-Aviv 67067, Israel
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
B.O.S. BETTER ONLINE SOLUTIONS LTD.
We have audited the accompanying consolidated balance sheets of B.O.S
Better Online Solutions Ltd. ("the Company") and subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Odem electronic technologies 1992 Ltd ("Odem") a subsidiary, which
statements reflect total assets constituting 30.6% as of December 31, 2004, and
total revenues for the period from November 18, 2004 (date of acquisition of
Odem) to December 31, 2004 constituting 23.5% of the related consolidated
totals. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
Odem, is based solely on the reports of the other auditors. Those auditors
expressed an unqualified opinion on those statements in their report dated
February 17, 2005.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries at December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
March 30, 2005 A Member of Ernst & Young Global
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
ODEM ELECTRONIC TECHNOLOGIES 1992 LTD.
We have audited the consolidated balance sheets of Odem Electronic Technologies
1992 Ltd. (the "Company") and its subsidiaries as of December 31, 2003 and 2004
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years ended on those dates. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and the standards of the Public Company Accounting Oversight Board
(United States), including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Company's Board of Directors and management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2003 and 2004 and the
consolidated results of operations, changes in shareholders' equity and cash
flows for each of the years ended on those dates, in conformity with accounting
principles generally accepted in the United States of America.
Jerusalem, Israel Kesselman & Kesselman
March 25, 2005 Certified Public Accountants (Israel)
A member of PricewaterhouseCoopers International Limited
F - 2
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
DECEMBER 31,
------------------------
2004 2003
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,578 $ 3,872
Marketable securities (Note 5) 2,324 1,014
Trade receivables (net of allowance for doubtful accounts of $ 38 and $ 171 as
of December 31, 2004 and 2003, respectively) 4,557 1,075
Other accounts receivable and prepaid expenses (Note 3) 722 317
Inventories (Note 4) 3,086 961
------- -------
Total current assets 13,267 7,239
------- -------
LONG-TERM ASSETS:
LONG TERM MARKETABLE SECURITIES (Note 5) 757 1,862
------- -------
SEVERANCE PAY FUND 1,143 684
------- -------
INVESTMET IN AN AFFILIATED COMPANY (Note 6) 2,472 2,780
------- -------
OTHER ASSETS 395 -
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 7) 1,019 598
------- -------
GOODWILL (Note 9) 1,569 741
------- -------
CUSTOMER LIST, NET (Note 8) 1,389 -
------- -------
OTHER INTANGIBLE ASSETS, NET (Note 8) 471 -
------- -------
ASSETS RELATED TO DISCONTINUED OPERATIONS (Note 1c) 3 119
------- -------
$22,485 $14,023
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
DECEMBER 31,
---------------------------
2004 2003
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term loans from banks (Note 10) $ 1,354 $ -
Current maturities of long-term bank loans and convertible note 643 -
Trade payables 3,845 464
Employees and payroll accruals 664 404
Deferred revenues 364 378
Accrued expenses and other liabilities (Note 11) 1,141 911
-------- --------
Total current liabilities 8,011 2,157
-------- --------
LONG-TERM LIABILITIES:
Bank loans (net of current maturities) (Note 12) 54 -
Convertible note (net of current maturities) (Note 13) 1,151 -
Put option issued to minority shareholders in a subsidiary 359 -
Deferred taxes 348 -
Accrued severance pay 1,468 951
-------- --------
TOTAL long-term liabilities 3,380 951
MINORITY INTEREST IN A SUBSIDIARY 809 -
======== ========
LIABILITIES RELATED TO DISCONTINUED OPERATIONS (Note 1c) 237 374
======== ========
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)
SHAREHOLDERS' EQUITY (Note 15):
Share capital
Ordinary shares of NIS 4.00 par value: Authorized: 8,750,000 shares at
December 31, 2004 and 2003; Issued: 4,737,658 and 4,167,509 shares at
December 2004 and 2003, respectively; Outstanding: 4,737,658 and 4,162,126
shares at December 2004 and 2003, respectively 4,823 4,309
Additional paid-in capital 44,426 43,247
Deferred stock-based compensation (174) -
Accumulated other comprehensive income 31 -
Treasury shares: 0 Ordinary shares at December 31, 2004 and 5,383 Ordinary
shares at December 31, 2003 - (150)
Accumulated deficit (39,058) (36,865)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 10,048 10,541
-------- --------
TOTAL liabilities and shareholder's equity $ 22,485 $ 14,023
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
YEAR ENDED DECEMBER 31,
-----------------------------------------
2004 2003 2002
------- ------- -------
Revenues $ 8,282 $ 5,728 $ 9,441
Cost of revenues 4,608 1,794 2,300
Non recurring royalty reversal (Note 17a) - 339 -
------- ------- -------
Gross profit 3,674 4,273 7,141
------- ------- -------
Operating costs and expenses:
Research and development 2,296 2,129 2,182
Less - grants and participation (492) (283) -
Sales and marketing 1,706 2,178 3,705
General and administrative 1,705 1,317 1,697
Restructuring and related costs - 678 -
------- ------- -------
Total operating costs and expenses 5,215 6,019 7,584
------- ------- -------
Operating loss (1,541) (1,746) (443)
Financial income (expenses), net (Note 17b) (158) 109 295
Other income (expenses) - 45 (95)
------- ------- -------
Loss before taxes on income (1,699) (1,592) (243)
Taxes on income (Note 16) (20) - -
Equity in losses of an affiliated company (308) (465) (570)
Minority interest in earnings of a subsidiary (17) - -
------- ------- -------
Loss from continuing operations (2,044) (2,057) (813)
income (loss) related to discontinued operations (Note 1c) (9) 2,036 (7,674)
------- ------- -------
Net loss $(2,053) $ (21) $(8,487)
======= ======= =======
Basic and diluted net loss per share from continuing operations
(Note 17c) $ (0.44) $ (0.56) $ (0.26)
======= ======= =======
Basic and diluted net income (loss) per share from discontinued
operations (Note 17c) $ 0.00 $ 0.55 $ (2.46)
======= ======= =======
Basic and diluted net loss of NIS 4.00 par value per share (Note 17c) $ (0.44) $ (0.01) $ (2.72)
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
ACCUMULATED
ADDITIONAL DEFERRED OTHER
ORDINARY SHARE PAID IN SHARE BASED COMPREHENSIVE
SHARES CAPITAL CAPITAL COMPENSATION INCOME
--------- --------- --------- ------------- -------------
Balance at January1, 2002 3,102,264 $ 3,628 $ 41,220 $ - $ -
Issuance of shares 3,750 3 27 - -
Issuance of shares related to the
private placement in 2000 71,250 59 (1) - -
Reversal of accrued issuance expenses - - 66 - -
Stock based compensation related to
warrants issued to service providers - - 7 - -
Net loss - - - - -
Total other comprehensive loss - - - - -
--------- --------- --------- ------------- -------------
Total comprehensive loss
Balance at December 31, 2002 3,177,264 3,690 41,319 - -
Issuance of shares related to share swap
transaction 633,102 537 1,059 - -
Issuance of shares related to the
private placement 357,143 82 846 - -
Stock based compensation related to
warrants issued to service providers - - 23 - -
Net loss - - - - -
Total other comprehensive loss - - - - -
--------- --------- --------- ------------- -------------
Total comprehensive loss
Balance at December 31, 2003 4,167,509 4,309 43,247 - -
Deferred employee share-based
compensation - - 179 (179) -
Amortization of deferred employee
share-based compensation - - 5 -
Issuance of shares related to the
acquisitions of Quasar and Odem 570,149 514 784 -
Stock based compensation related to
warrants issued to service providers - - 117 -
Beneficial conversion feature related to
convertible note - - 99 - -
Other comprehensive loss
Net loss - - - - -
Gain on available for sales marketable
securities - - - 5
Foreign currency translation adjustments - - - 26
--------- --------- --------- ------------- -------------
Total comprehensive loss
Balance at December 31, 2004 4,737,658 $ 4,823 $ 44,426 $ (174) $ 31
========= ========= ========= ============= =============
TOTAL TOTAL
TREASURY ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES DEFICIT LOSS EQUITY
------------- ------------- ------------- ---------
Balance at January1, 2002 $ (150) $ (28,357) $ 16,341
Issuance of shares - - 30
Issuance of shares related to the
private placement in 2000 - - 58
Reversal of accrued issuance expenses - - 66
Stock based compensation related to
warrants issued to service providers - - 7
Net loss - (8,487) $ (8,487) (8,487)
Total other comprehensive loss - - - -
------------- ------------- ------------- ---------
Total comprehensive loss $ (8,487)
=============
Balance at December 31, 2002 (150) (36,844) 8,015
Issuance of shares related to share swap
transaction - - 1,596
Issuance of shares related to the
private placement - - 928
Stock based compensation related to
warrants issued to service providers - - 23
Net loss - (21) $ (21) (21)
Total other comprehensive loss - - - -
------------- ------------- ------------- ---------
Total comprehensive loss $ (21)
=============
Balance at December 31, 2003 (150) (36,865) 10,541
Deferred employee share-based
compensation - - -
Amortization of deferred employee
share-based compensation - - 5
Issuance of shares related to the
acquisitions of Quasar and Odem 150 (140) 1,308
Stock based compensation related to
warrants issued to service providers - - 117
Beneficial conversion feature related to
convertible note - - 99
Other comprehensive loss
Net loss - (2,053) $ (2,053) (2,053)
Gain on available for sales marketable
securities - - 5 5
Foreign currency translation adjustments - - 26 26
------------- ------------- ------------- ---------
Total comprehensive loss $ (2,022)
=============
Balance at December 31, 2004 $ - $ (39,058) $ 10,048
============= ============= =========
F - 6
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
-------------------------------------
2004 2003 2002
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,053) $ (21) $(8,487)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Loss (income) from discontinued operations 9 (2,036) 7,674
Depreciation and amortization of intangible assets 351 307 390
Amortization of marketable securities premium 47 101 89
Impairment of property and equipment - 110 95
Accrued severance pay, net 8 36 (49)
Equity in losses of an affiliated company 308 465 570
Minority interest in earnings in a subsidiary 17 - -
Capital loss from sale of property and equipment 5 6 -
Gain on sale of marketable securities - (13) -
Stock based compensation related to warrants issued to service
providers 126 23 7
Amortization of financial expenses related to issuance of
convertible note 78 - -
Decrease (increase) in trade receivables (342) 448 (28)
Decrease in deferred taxes (47) - -
Decrease in other accounts receivable and prepaid expenses 33 131 186
Increase in inventories (461) (106) (548)
Increase (decrease) in trade payables 961 (580) 596
Decrease in employees and payroll accruals, deferred revenues,
accrued expenses and other liabilities (63) (808) (368)
------- ------- -------
Net cash provided by (used in) operating activities from continuing
operations (1,023) (1,937) 127
Net cash provided by (used in) operating activities from
discontinued operations (96) (1,032) 728
------- ------- -------
Net cash provided by (used in) operating activities (1,119) (2,969) 855
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (214) (64) (163)
Proceeds from sale of property and equipment 38 8 9
Investment in long-term marketable securities (1,247) (971) (196)
Investment in an affiliated company - (155) -
Acquisitions, net of cash acquired (a,b) (1,443) - -
Realization of (investment in) restricted cash - 700 (700)
Proceeds from redemption of marketable securities 1,000 1,001 -
------- ------- -------
Net cash provided by (used in) investing activities from continuing
operations (1,866) 519 (1,050)
Net cash used in investing activities from discontinued operations - - (160)
------- ------- -------
Net cash provided by (used in) investing activities (1,866) 519 (1,210)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short term and long term bank loans (93) - (286)
Proceeds from long term convertible note and warrants, net of
issuance expenses 1,787 - -
Payment of long term convertible note (80) - -
Proceeds from issuance of shares, net - 928 58
Issuance expenses related to investment in a affiliated company - (159) -
------- ------- -------
Net cash provided by (used in) financing activities from continuing
operations 1,614 769 (228)
Net cash used in financing activities from discontinued operations - (47) (3,216)
------- ------- -------
Net cash provided by (used in) financing activities 1,614 722 (3,444)
------- ------- -------
Decrease in cash and cash equivalents (1,371) (1,728) (3,799)
Increase in cash and cash equivalents from discontinued operations 66 354 720
Effect of exchange rate changes on cash and cash equivalents 11 - -
Cash and cash equivalents at the beginning of the year 3,872 5,246 8,325
------- ------- -------
Cash and cash equivalents at the end of the year $ 2,578 $ 3,872 $ 5,246
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F - 7
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
YEAR ENDED DECEMBER 31,
----------------------------------------
2004 2003 2002
------- ----------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
(i) Net cash paid during the year for:
Interest $ 129 $ 1 $ 82
======= =========== =======
(ii) Non-cash activities:
Investment in an affiliated company against issuance of shares $ - $ 1,755 $ 30
======= =========== =======
A. ACQUISITION OF QUASAR:
Fair value of net assets acquired (excluding cash and cash
equivalents) and liabilities assumed at acquisition date: $ 597 $ - $ -
Less - amount acquired by issuance of shares (539) - -
------- ----------- -------
$ 58 $ - $ -
======= =========== =======
B. ACQUISITION OF ODEM:
Fair value of net assets acquired (excluding cash and cash
equivalents) and liabilities assumed at acquisition date: $ 2,293 $ - $ -
Less :
Amount acquired by issuance of shares (769) - -
Unpaid acquisition expenses (139)
------- ----------- -------
$ 1,385 $ - $ -
======= =========== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F - 8
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT FOR SHARE AND SHARE DATA)
NOTE 1:- GENERAL
a. B.O.S. Better Online Solutions Ltd. is an Israeli corporation
(together with its subsidiaries "the Company").
The Company's wholly-owned subsidiary BOScom Ltd. ("BOScom") develops
high technology connectivity solutions that provide PC emulation
products for the IBM iSeries (AS/400) and cross-platform printing
solutions answering a demand for central printing and output
management solutions in organizations. BOScom also engages in the
business of communication solutions which provide multi-path,
intelligent routing voice over IP gateways.
In September 2004, the Company acquired the assets of Quasar
Communication Systems Ltd. Through the acquisition the Company will
expand its communication solutions which will include GSM gateways and
other cellular gateways (see note 1b).
In November 2004, the Company Purchased 63.6% of Odem Electronic
Technologies 1992 Ltd. ("Odem"). Odem is a solutions supplier of
electronic components and systems to the technologies sector (see note
1b).
The Company's products are sold and supported through a network of
distributors and value-added resellers.
B.O.S holds 22.6% interest in Surf Communication Solutions Ltd.
("Surf") which is a developer and supplier of access and network
convergence software solutions to the wire line and wireless
telecommunications and data communications industries.
b. Business combinations:
In September 2004, the Company entered into an agreement with Quasar
Communication Systems Ltd, to purchase the assets and liabilities of
Quasar Communication Systems Ltd, for an aggregate consideration of $
539 by the issuance of 285,000 of the Company's ordinary shares. The
assets and liabilities of Quasar Communication Systems were
transferred into Quasar Telecom (2004) Ltd., a wholly owned subsidiary
("Quasar"). The results of Quasar's operations have been included in
the consolidated financial statements since September 28, 2004 ("the
closing date").
The acquisition will enable the Company to continue developing the
communication division, while offering to the Company's clients an
extended product line that will enable savings in telecommunication
expenses for enterprise.
On November 18, 2004 the Company purchased 63.6% of the outstanding
shares of Odem, from Odem's existing shareholders. In consideration
for Odem's shares the Company (i) issued 290,532 of the Company's
ordinary shares subject to "lock-up" periods of 2 to 4 years and (ii)
paid an amount of $ 1,971 in cash. In addition, Odem's selling
shareholders and the Company have certain put and call options, based
on performance, with respect to all of the remaining Odem shares held
by such sellers, exercisable for a consideration comprised of
additional cash and issuance of additional ordinary shares of the
Company. The Company recorded assets and liability with respect to
these options at fair value. The put option liability will be measured
periodically until it expires or exercised and changes in the fair
value will be charged to finance expenses.
F - 9
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 1:- GENERAL (CONT.)
The Company's consolidated financial statements reflect the purchase price
determined as follows:
QUASAR ODEM
------ ------
Issuance of shares (1) $ 539 $ 769
Cash consideration - 1,971
Transaction costs 58 139
------ ------
Total purchase price $ 597 $2,879
====== ======
(1) The value of the Ordinary shares issued was determined based on the
average market price of the Company's Ordinary shares over the period
including two days before and after the terms of the transaction were
agreed to and announced.
The acquisitions have been treated using the purchase method of
accounting in accordance with SFAS141 "Business Combinations". The
purchase price has been allocated to the assets and liabilities
assumed acquired based on their estimated fair value at the date of
acquisition. The excess of the purchase price over the estimated fair
value of the tangible and intangible assets acquired has been recorded
as goodwill.
Based upon on valuation of tangible and intangible assets acquired, the
Company has allocated the total cost of the acquisitions as follows:
ESTIMATED
ALLOCATION OF PURCHASE CONSIDERATION QUASAR ODEM USEFUL LIFE
--------------------------------------------- --------------- ----------------- ---------------
Cash $ - $ 586
Tangible assets 77 780
Put option to minority shareholders (6) - (359)
Call option to minority shareholders (6) - 230
Inventory purchase commitment (1) (147) -
Customer list (5) - 1,406 10 years
Deferred tax liability - (430) 10 years
Trade name (2) 180 - 7 years
Core technology (3) 125 - 5 years
Distribution networks (4) 200 - 5 years
Goodwill 162 666
------- --------
Total purchase price $ 597 $ 2,879
======= ========
(1) The Company is committed to purchase Quasar Communication Systems Ltd.
inventory in the ordinary course of business for a cash consideration
of $ 517. The fair value of Quasar's inventory at the purchase date
amounted to $ 370. A provision in the amount of $ 147 has been
recorded at the date of the acquisition.
(2) The Company's allocation of purchase price valuated the acquired trade
name using the relief from royalty approach.
F - 10
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 1:- GENERAL (CONT.)
(3) The Company's allocation of purchase price valuated the acquired core
technology using the discounted cash flows to be derived from the
sales of these products to present value.
(4) The Company's allocation of purchase price valuated the acquired
distribution networks by calculating the savings realized by the
Company through obtaining a pre-existing distribution network.
(5) The Company's allocation of purchase price valuated the acquired
customer list by calculating the benefit from the protection against
the loss in revenues and related cash flow as a direct result of the
customer relationship.
(6) The put and call options were valuated by using the Black & Scholes
option pricing model.
The following unaudited pro forma financial information presents the
Company's results of operations as if the acquisitions had occurred as
of the beginning of the fiscal years 2003 and 2004, after giving
effect to certain adjustments, including amortization of intangible
assets. The unaudited pro forma financial information does not
necessarily reflect the results of operations that would have
occurred, and is not necessarily indicative of results which may be
obtained in the future.
YEAR ENDED
----------------------------
DECEMBER 31,
----------------------------
2004 2003
--------- --------
Pro forma revenues $ 24,154 $ 17,960
========= ========
Pro forma net loss from continuing operations $ (2,631) $ (3,642)
========= ========
Pro forma basic and diluted net loss per share from continuing
operations $ (0.56) $ (0.86)
========= ========
c. Discontinued operations:
On June 1, 1998, the Company acquired 100% of the share capital of
Pacific Information Systems Inc. ("Pacinfo"), a U.S. corporation.
Pacinfo was a reseller of computer networking products.
During the fourth quarter of 2002, the Company initiated a plan to
cease operations of Pacinfo.
The results of operations including revenues, operating expenses and
other income and expenses of Pacinfo for 2004, 2003 and 2002 have been
reclassified in the accompanying statements of operations as
discontinued operations. The Company's balance sheets at December 31,
2004 and 2003 reflect the net liabilities of Pacinfo as liabilities
and assets related to discontinued operations.
F - 11
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 1:- GENERAL (CONT.)
The carrying amounts of the major classes of assets and liabilities
included as part of the discontinued operations are:
DECEMBER 31,
------------------------
2004 2003
---------- ----------
Cash $ 3 $ 69
Trade receivables, other receivables and prepaid expenses - 18
Property and equipment, net - 32
---------- ----------
Assets of discontinued operations $ 3 $ 119
========== ==========
Trade payables $ 194 $ 299
Accrued expenses and other liabilities 43 75
---------- ----------
Liabilities of discontinued operations $ 237 $ 374
========== ==========
The results of operations, including revenues, cost of revenues and
operating expenses of Pacinfo's operations for 2004, 2003 and 2002
have been reclassified in the statements of operations. Taxes were not
attributed to the discontinued operations due to utilization of losses
from previous years, for which a valuation allowance was provided.
Summarized selected financial information of the discontinued
operations is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
2004 2003 2002
---------- -------- --------
Revenues $ - $ 25 $ 32,912
========== ======== ========
Net income (loss) $ (9) $ 2,036 $ (7,674)
========== ======== ========
d. The Company had one major customer in 2004 and 2003, which constituted
39% and 52% of the revenues, respectively. This major customer is the
Company's master distributor in the U.S. In the event that the Company
encounters problems working with the master distributor, the Company
may experience an interruption in sales until an alternative source of
distribution can be found, which may have a material adverse effect on
the financial statements.
F - 12
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared according to United
States generally accepted accounting principles ("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
b. Financial statements in U.S. dollars ("dollar"):
A substantial portion of the Company's revenues is generated in U.S.
dollar ("dollars"). In addition, most of the Company's costs are
incurred in dollars. Company's management believes that the dollar is
the primary currency of the economic environment in which the Company
operates. Thus, the functional and reporting currency of the Company
is the dollar.
Accordingly, monetary accounts maintained in currencies other than the
dollar are remeasured into U.S. dollars in accordance with Statement
No. 52 of the Financial Accounting Standards Board ("FASB") "Foreign
Currency Translation". All transactions gains and losses from the
remeasurement of monetary balance sheet items are reflected in the
statements of operations as financial income or expenses as
appropriate.
The financial statements of certain subsidiary, whose functional
currency is other than dollar, have been translated into U.S. dollars.
All balance sheet accounts have been translated using the exchange
rates in effect at the balance sheet date. Statement of operations
amounts have been translated using the average exchange rate for the
period. The resulting translation adjustments are reported as a
component of shareholders' equity in accumulated other comprehensive
income (loss).
c. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and those of Odem (see Note
1b). Inter-company transactions and balances including profits from
inter-company sales not yet realized outside the Company have been
eliminated upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are
readily convertible to cash originally purchased with maturities of
less than three months.
F - 13
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. Marketable securities:
The Company accounts for investments in debt securities in accordance
with Statement of Financial Accounting Standard No.115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
No.115"). Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase and
reevaluates such determinations at each balance sheet date. Debt
securities are classified as held-to-maturity since the Company has
the positive intent and ability to hold the securities to maturity and
are stated at amortized cost. The amortized cost of held-to-maturity
securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and decline in value judged
to be other than temporary and interest are included in financial
income, net.
Other marketable securities consist mutual funds securities classified
as "available-for-sale" securities. Available-for-sale securities are
carried at fair value with unrealized gains, and are reported as a
separate item under "other comprehensive loss".
f. Inventories:
Inventory write-offs are provided to cover risks arising from
slow-moving items or technological obsolescence. As of December 31,
2004, inventory is presented net of $ 300 general provision for
technological obsolescence and slow moving items (see also Note 4).
Inventories are valued at the lower of cost or market value. Cost is
determined as follows: Raw and packaging materials - moving average
cost method.
Products in progress and finished products - on the production costs
basis
g. Grants and royalty-bearing grants:
Grants and royalty-bearing grants from the Chief Scientist of the
Ministry of Industry and Trade in Israel for funding certain approved
research projects are recognized at the time the Company is entitled
to such grants, on the basis of the related costs incurred, and are
presented as a deduction of research and development costs.
h. Investment in an affiliated company:
An affiliated company is a company in which the Company is able to
exercise significant influence, but that is not a consolidated
subsidiary and is accounted for by the equity method, net of
write-down for decrease in fair value which is not of a temporary
nature.
The investment in an affiliated company represents investments in
Ordinary shares and Preferred shares of that Company. The Company
applies EITF 99-10, "Percentage Used to Determine the Amount of Equity
Method Losses". Accordingly, losses of the affiliated company are
recognized based on the ownership level of the particular security of
the affiliated company held by the Company.
F - 14
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company's investment in this company is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the investment may not be recoverable, in accordance with
Accounting Principle Board Opinion No. 18 "The Equity Method of
Accounting for Investments in Common Stock" ("APB No. 18"). During
2004, 2003 and 2002, based on management's analyses, no impairment
losses have been identified.
i. Property plant and equipment:
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated by using the straight-line
method over the estimated useful lives of the assets, at the following
annual rates:
%
------------------
Computers and software 20 - 33
Office furniture and equipment 6 - 15
Leasehold improvements 10
Vehicles 15
Plant 4
j. Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144") whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the assets. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Impairment losses
recorded amounted to $ 110 and $ 95 for the years ended December 31,
2003 and 2002, respectively and none in 2004.
k. Goodwill:
Goodwill represents excess of the costs over the net assets of
businesses acquired. SFAS No. 142 requires goodwill to be tested for
impairment at least annually or between annual tests in certain
circumstances, and written down when impaired. Goodwill attributable
to each of the reporting units is tested for impairment by comparing
the fair value of each reporting unit with its carrying value. Fair
value is determined using income and market approaches. Significant
estimates used in the methodologies include estimates of future cash
flows, future short-term and long-term growth rates, weighted average
cost of capital and estimates of market multiples for each of the
reportable units. During 2004, 2003 and 2002 no impairment losses have
been identified.
F - 15
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
l. Research and development costs:
Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
("SFAS No. 86") requires capitalization of certain software
development costs subsequent to the establishment of technological
feasibility. Based on the Company's product development process,
technological feasibility is established upon completion of a working
model. Research and development costs incurred in the process of
developing product improvements or new products, are generally charged
to expenses as incurred, net of participation of the Office of the
Chief Scientist of the Israeli Ministry of Industry and Trade. Costs
incurred by the Company between completion of the working model and
the point at which the product is ready for general releases are
insignificant.
m. Severance pay:
The Company's liability for severance pay for Israeli resident
employees is calculated pursuant to the Israeli severance pay law
based on the most recent salary of the employees multiplied by the
number of years of employment as of the balance sheet date. Employees
are entitled to one month's salary for each year of employment or a
portion thereof. The Company's liability for its Israeli resident
employees is covered by insurance policies designed solely for
distributing severance pay. The value of these policies is recorded as
an asset in the Company's balance sheet.
The insurance policies include profits accumulated up to the balance
sheet date. The insurance policies may be withdrawn only upon
complying with the Israeli severance pay law or labor agreements. The
value of the deposited funds is based on the cash surrendered value of
these policies and includes profits. Severance expenses for 2004, 2003
and 2002 amounted to $ 214, $ 178 and $ 114, respectively.
n. Revenue recognition:
The Company sells its products primarily through distributors and
resellers.
The Company derives its revenues from the sale of products, license
fees for its products, commissions, maintenance, support and services.
Revenues from product sales are recognized in accordance with Staff
Accounting Bulletin No. 104 "Revenue Recognition in Financial
Statements" ("SAB 104") when delivery has occurred, persuasive
evidence of an arrangement exists, the vendor's fee is fixed or
determinable, no further obligation exists, and collectability is
reasonably assured.
F - 16
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Revenue from license fees is recognized in accordance with Statement
of Position ("SOP") 97-2 "Software Revenue Recognition", when
persuasive evidence of an agreement exists, delivery of the product
has occurred, no significant obligations with regard to implementation
remain, the fee is fixed or determinable, and collectability is
probable. The Company generally does not grant a right of return to
its customers. When a right of return exists, the Company defers
revenue until the right of return expires, at which time revenue is
recognized provided that all other revenue recognition criteria have
been met.
Revenues from maintenance and support are recognized ratably over the
period of the maintenance contract. The fair value of the maintenance
is determined based on the price charged when it sold separately or
renewed.
Revenues derived from the Company's master distributor in the U.S. are
recognized based on consignment method.
Revenues from commissions are recognized upon their actual receipt,
since under agreements with suppliers consideration is received on the
basis of collection from customers.
o. Warranty:
The Company provides a warranty between 3 to 36 months at no extra
charge, whereby defective hardware covered by the warranty should be
sent back to the Company. The Company estimates the costs that may be
incurred under its warranty and records a liability in the amount of
such costs at the time product revenue is recognized. Factors that
affect the Company's warranty liability include the number of
installed units, historical and anticipated rates of warranty claims,
and cost per claim. The Company periodically assesses the adequacy of
its recorded warranty liabilities and adjusts the amounts as
necessary. As of December 31, 2004 and 2003, the Company's product
warranty amounted to $132.
p. Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No 109, "Accounting for Income Taxes".
This Statement prescribes the use of the liability method whereby
deferred tax assets and liability account balances are determined
based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if necessary, to
reduce deferred tax assets to their estimated realizable value.
q. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, trade receivables, other accounts receivable and
marketable securities.
F - 17
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Cash and cash equivalents are invested mainly in U.S. dollars in
deposits with major banks in Israel. Management believes that the
financial institutions that hold the investments of the Company are
financially sound and, accordingly, minimal credit risk exists with
respect to these investments.
The trade receivables of the Company are derived from sales to
customers located primarily in the United States, Europe and Israel.
The Company generally does not require collateral; however, in certain
circumstances, the Company may require letters of credit, other
collateral, additional guarantees or advanced payments.. An allowance
for doubtful accounts is determined with respect to specific debts
that are doubtful of collection.
Investments in marketable securities are conducted through a bank in
Israel, and include investments in corporate and governmental
debentures. Management believes that the financial institutions that
hold the Company's investments are financially sound, the portfolio is
well diversified and accordingly, minimal credit risk exists with
respect to these investments.
The Company has no off-balance-sheet concentrations of credit risk
such as foreign exchange contracts, option contracts or other foreign
hedging arrangements.
r. Basic and diluted net loss per share:
Basic net loss per share is calculated based on the weighted average
number of Ordinary shares outstanding during each year. Diluted net
loss per share is calculated based on the weighted average number of
Ordinary shares outstanding during each year, plus dilutive potential
Ordinary shares considered outstanding during the year, in accordance
with SFAS No. 128, "Earnings Per Share".
The total weighted average number of shares related to the outstanding
options and warrants excluded from the calculations of diluted net
loss per share, since they would have an anti-dilutive effect, were
855,783, 505,178 and 288,804 for the years ended December 31, 2004,
2003 and 2002, respectively.
s. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB-25"), and
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN 44"), in accounting for its employee stock
option plan. Under APB-25, when the exercise price of the Company's
employee stock options equals or is above than the market price of the
underlying shares on the date of grant, no compensation expense is
recognized.
F - 18
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Pro-forma disclosure is required by SFAS No. 123, had the compensation
expense for stock options granted under the Company's plans been
determined based on the fair value at the date of grant. The Company's
net loss and loss per Ordinary share in 2004, 2003 and 2002 would have
changed to the pro forma amounts shown below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2004 2003 2002
------- --------- ---------
Net loss from continuing operations as reported $(2,044) $ (2,057) $ (813)
------- --------- ---------
Add: stock-based compensation expense determined
under intrinsic value method 5 - -
Deduct: stock-based compensation expense
determined under fair value method for all
awards (96) (124) (341)
------- --------- ---------
Pro forma net loss from continuing operations $(2,135) $ (2,181) $ (1,154)
Net income (loss) from discontinuing operations
as reported $ (9) $ 2,036 $ (7,674)
Add: stock-based compensation expense determined
under intrinsic value method - - -
Deduct: stock-based compensation expense
determined under fair value method for all
awards - - -
------- --------- ---------
Pro forma net income (loss) from discontinuing
operations $ (9) $ 2,036 $ (7,674)
------- --------- ---------
Pro forma net loss $(2,144) $ (145) $ (8,828)
======= ========= =========
Basic and diluted earning (loss) per share as
reported:
Continuing operations $ (0.44) $ (0.56) $ (0.26)
Discontinuing operations $ 0.00 $ 0.55 $ (2.46)
------- --------- ---------
Net loss $ (0.44) $ (0.01) $ (2.72)
Pro forma earning (loss) per share:
Continuing operations $ (0.46) $ (0.59) $ (0.37)
Discontinuing operations $ 0.00 $ 0.55 $ (2.46)
------- --------- ---------
Net loss $ (0.46) $ (0.04) $ (2.83)
The fair value of each option granted is estimated on the date of
grant, using the Black & Scholes option pricing model with expected
volatility of approximately 68%, 64% and 71% in 2004, 2003 and 2002,
respectively and using the following weighted average assumptions:
(1) Dividend yield of zero percent for each year.
(2) Risk-free interest rate of 2.5%, 1.8% and 1.5% in 2004, 2003 and
2002, respectively.
(3) Expected average lives of the options of three years from the
date of grant as of 2004, 2003 and 2002.
F - 19
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company applies SFAS No. 123 "Accounting for stock Based
Compensation" ("SFAS No. 123") and EITF 96-18, "Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or
in Conjunction With, Selling, Goods or Services", with respect to
warrants issued to non-employees. SFAS No. 123 requires the use of
option valuation models to measure the fair value of the warrants at
the date of grant.
t. Fair value of financial instruments:
The following methods and assumptions were used by the Company in
estimating their fair value disclosures for financial instruments:
The carrying amounts of cash and cash equivalents, trade receivables,
other accounts receivable and trade payables approximate their fair
value due to the short-term maturities of such instruments. The fair
value for marketable securities is based on quoted market prices.
u. Impact of recently issued accounting standards:
In November 2004, the FASB issued Statement of Financial Accounting
Standard No. 151, "Inventory Costs, an amendment of ARB No. 43,
Chapter 4." ("SAFS 151"). SFAS 151 amends Accounting Research Bulletin
("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle
facility expense, freight handling costs and wasted materials
(spoilage) should be recognized as current-period charges. In
addition, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on normal capacity of
the production facilities. SAFS 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The
Company does not expect that the adoption of SFAS 151 will have a
material effect on its financial position or results of operations.
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued Statement No. 123 (revised 2004), Share-Based Payment
("Statement 123R"), which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement 123"). Generally,
the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statements 123 permitted, but not required,
share-based payments to employees to be recognized based on their fair
values while Statement 123(R) requires all share-based payments to
employees to be recognized based on their fair values. Statement 123R
also revises, clarifies and expands guidance in several areas,
including measuring fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting periods. The
new standard will be effective for the Company in the first interim
period beginning after June 15, 2005 (change if applicable otherwise).
The adoption of Statement 123R will have a significant effect on the
Company's results of operations
r. Reclassification:
Certain amounts from prior years have been reclassified to conform to
the current year presentation. As a result of the decision of the
Board of Directors to cease the operations of Pacinfo, the financial
statements of the Company classify the assets, liabilities and
operations of Pacinfo as discontinued operations.
F - 20
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
DECEMBER 31,
------------------------
2004 2003
---------- ----------
Government authorities - Income tax advances and V.A.T $ 287 $ 62
Grants receivables 103 75
Accrued interest 96 58
Prepaid expenses 231 107
Other 5 15
---------- ----------
$ 722 $ 317
========== ==========
NOTE 4:- INVENTORIES
DECEMBER 31,
--------------------------
2004 2003
---------- ----------
Raw materials (including packaging materials) $ 809 $ 299
Products in progress 367 277
Finished products 1,910 385
---------- ----------
$ 3,086 $ 961
========== ==========
The inventories are presented net of provision for technological
obsolescence and slow-moving items of $ 300 as of December 31, 2004
and 2003.
NOTE 5:- MARKETABLE SECURITIES
The following is a summary of securities:
DECEMBER 31,
---------------------------------------------------------------------------------------------------
2004 2003
---------------------------------------------- ----------------------------------------------
ESTIMATED ESTIMATED
GROSS GROSS FAIR GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------ ------- ------- ------ ------ ------ ------ ------
HELD-TO-MATURITY:
Government debts $ 612 $ 9 $ - $ 621
Corporate
debentures $2,279 $ 14 $ - $2,293 2,264 50 - 2,314
------ ------- ------- ------ ------ ------ ------ ------
$2,279 $ 14 $ - $2,293 $2,876 $ 59 $ - $2,935
====== ======= ======= ====== ====== ====== ====== ======
The fair value of the Company's available for sale securities as of
December 31, 2004 amounted to $ 802. Gain of $ 5 was recorded at
shareholders' equity.
F - 21
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 5:- MARKETABLE SECURITIES (CONT.)
Aggregate maturities of held-to-maturity securities for years subsequent to
December 31, 2004 are:
ESTIMATED FAIR
AMORTIZED COST MARKET VALUE
------ ------
HELD-TO-MATURITY:
2005 (short-term marketable securities) $1,522 $1,529
2006 290 292
2007 206 206
2008 261 266
------ ------
$2,279 $2,293
====== ======
NOTE 6:- INVESTMENT IN AN AFFILIATED COMPANY
Investment in Surf:
In November 2001, the Company invested $ 1,000 as part of a private
placement in Surf Communication System Ltd. ("Surf"). At the same time, the
Company converted its convertible loan in the amount of $ 1,042 (principal
and accrued interest) into Preferred shares in Surf at an exercise price
equal to Surf's fair value as determined in the investment agreement. As a
result of this private placement, the Company's holding in Surf was diluted
to 17%. Accordingly, the investment was accounted based on the cost
accounting method.
In March 2003, the Company engaged with Catalyst Investors L.P.
("Catalyst"), in order to purchase additional 191,548 series C Preferred
shares of Surf. In consideration, the Company issued to Catalyst 633,102
Ordinary shares, at a purchase price of $ 2.77, aggregating to $ 1,755 and
incurred transaction cost of $ 155. The value of the Ordinary shares issued
was determined based on the average market price of the Company's ordinary
shares over the period including two days before and after the terms of the
transaction were agreed to and announced. Catalyst also granted the
Company, at no additional consideration, an option to purchase on or prior
to January 31, 2006, any shares of Surf then held by Catalyst at an
exercise price of $ 9.1632 plus interest of 4.75% and until such purchase
shall be granted voting rights in Surf shares. In the event that Catalyst
will sell its remaining shares in Surf prior to January 1, 2006, the
Company will be entitled to the gain that will be realized in such sale.
As a result of this investment, the Company has the ability to exercise
significant influence over Surf and has become qualified for the use of the
equity method since the Company's holding in Surf exceeded 20%. According
to APB 18 when an investment qualifies for use of the equity method, the
investor should adopt the equity method of accounting by adjusting
retroactively the investment, results of operations (current and prior
periods presented), and retained earnings, in a manner consistent with the
accounting for a step-by-step acquisition of a subsidiary.
F - 22
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 6:- INVESTMENT IN AN AFFILIATED COMPANY (CONT.)
Summarized combined financial information is as follows:
DECEMBER 31,
-------------------
2004 2003
------ ------
Balance sheet items:
Current assets $3,764 $5,339
====== ======
Non-current assets $ 879 $ 893
====== ======
Current liabilities $1,431 $1,175
====== ======
Non-current liabilities $ 525 $ 472
====== ======
Shareholders' equity $2,687 $4,585
====== ======
YEAR ENDED DECEMBER 31,
---------------------------------
2004 2003 2002
------ ------ ------
Statement of operations items:
Revenues $2,762 $1,403 $1,108
====== ====== ======
Cost of sales $ 700 $ 563 $ 758
====== ====== ======
Operating expenses from continuing operation $4,037 $4,332 $7,174
====== ====== ======
Net loss $1,971 $3,427 $6,773
====== ====== ======
F - 23
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 7:- PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31,
-------------------
2004 2003
------ ------
Cost:
Computers and software $2,108 $1,798
Office furniture and equipment 560 532
Leasehold improvements and plant 1,137 778
Vehicles 112 6
------ ------
3,917 3,114
------ ------
Accumulated depreciation:
Computers and software 1,812 1,561
Office furniture and equipment 291 351
Leasehold improvements and plant 749 598
Vehicles 46 6
------ ------
2,898 2,516
------ ------
Depreciated cost $1,019 $ 598
====== ======
Depreciation expenses amounted to $ 300, $ 307 and $ 390 for the years
ended December 31, 2004, 2003 and 2002, respectively.
NOTE 8:- INTANGIBLE ASSETS
DECEMBER 31,
------
2004
------
Cost:
Trade name $ 179
Core technology 125
Distribution network 200
Customer list 1,406
------
1,910
------
Accumulated amortization:
Trade name 6
Core technology 6
Distribution network 21
Customer list 17
------
50
------
Amortized cost $1,860
======
Amortization expenses amounted to $ 50 for the year ended December 31,
2004.
F - 24
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 8:- INTANGIBLE ASSETS (CONT.)
Estimated amortization expenses for the years ended:
DECEMBER 31,
-----------
2005 $ 231
2006 231
2007 231
2008 231
2009 205
NOTE 9:- GOODWILL
Goodwill attributed to operating segments for the years ended December 31,
2004 and 2003 is as follows:
ELECTRONIC
COMMUNICATION COMPONENT TOTAL
------ ------ ------
Balance as of January 1, 2004 $ 741 $ - $ 741
Acquisition of Odem - 666 666
Acquisition of Quasar 162 - 162
------ ------ ------
Balance as of December 31, 2004 $ 903 $ 666 $1,569
====== ====== ======
NOTE 10:- SHORT TERM BANK LOANS
WEIGHTED
INTEREST
RATE DECEMBER 31,
------------- -------------------
% 2004 2003
---- ---- ----
NIS 5.56 $1,354 $ -
Regarding collateral given to insure short-term credit and loans see note
12c.
F - 25
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 11:- ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31,
-------------------
2004 2003
------ ------
Government of Israel - royalties and V.A.T $ 349 $ 635
Provision for warranty 132 132
Issuance cost related to accrued convertible note 160 -
Inventory purchase commitment liability 147 -
Other 353 144
------ ------
$1,141 $ 911
====== ======
NOTE 12:- LONG-TERM BANK LOANS
a. Classified by linkage terms and interest rates, the total amount of
the loans is as follows:
WEIGHTED
INTEREST
RATE DECEMBER 31,
-------- ------------------------
% 2004 2003
-------- -------- ----------
NIS linked to the Israeli CPI 7.95 $ 51 $ -
NIS 6.38 51 -
----- ----------
102 -
Less - current maturities (48) -
----- ----------
$ 54 $ -
===== ==========
b. The loans mature in the following years after the balance sheet dates:
DECEMBER 31,
-------------------
2004 2003
-------- --------
First year (current maturities) $ 48 $ -
Second year 36 -
Third year 17 -
Fourth year 1 -
-------- --------
$ 102 $ -
======== ========
c. The Company's subsidiary (Odem) has registered fixed pledged on its
real estate, plant and equipment and vehicles.
F - 26
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 13:- LONG-TERM CONVERTIBLE NOTE
On June 10, 2004, the Company entered into a Securities Purchase Agreement
("the Purchase Agreement"), with Laurus Master Fund Ltd. ("the Investor"),
under which the Company issued to the Investor in a private placement (i) a
Secured Convertible Term Note of a $ 2,000 principal amount, due June 10,
2007 ("the Note"). According to the agreement, several fees in the amount
of $ 115 were paid to the Investor. These fees are presented as discount of
the principal convertible loan. The Note is convertible into Ordinary
shares at a price of $ 3.08 per share. The principal amount of the Note is
repayable in monthly installments, commencing as of September, 2004, in the
initial amount of $ 20 eventually increasing to $ 74. The Note bears prime
interest rate plus 3% which subject to reduction in certain conditions(ii)
a warrant to purchase 130,000 Ordinary shares at an exercise price of $
4.04 per share ("the Warrant"). The Warrant is exercisable, in whole or in
part, until June 10, 2011. Any delay in registration and/or effectiveness
of the underlying shares of the transaction, or failure to maintain their
effectiveness, will result in penalties to be paid in cash, as liquidated
damages, equal to 2.0% for each thirty (30) day period of the original
principal amount of the note.
The Note conversion price is subject to proportional adjustment in the
event of stock splits, combinations, subdivisions of the Ordinary shares or
if dividend is paid on the Ordinary shares in ordinary shares. In addition,
if the Company issues stock in certain types of transactions at a price
lower than the initial conversion price, then the conversion price will be
adjusted to a lower price based on a weighted average formula.
The fair value of the warrants was calculated using the Black and Scholes
Option Pricing Model with the following assumptions: a risk-free interest
rate of 3.34%, a dividend yield of 0%, a volatility of the expected market
price of the Company's Ordinary shares of 100% and a weighted-average
contractual life of 7 year. The fair value of the warrants in the amount of
$ 99 is presented as a component in shareholders' equity. Since the
effective conversion price was grater than the share price at the
commitment date, no beneficial conversion feature exists.
Aggregate portion:
DECEMBER 31,
2004
------
First year (current maturities) $ 595
Second year 883
Third year 442
------
1,920
Less - discount 174
------
$1,746
======
F - 27
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 14:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Commitments:
1. Royalty commitments:
i) Under the Company's research and development agreements with
the Office of the Chief Scientist ("OCS") and pursuant to
applicable laws, the Company is required to pay royalties at
the rate of 3.5% of sales of products developed with funds
provided by the OCS, up to an amount equal to 100% of the
research and development grants (dollar-linked) received
from the OCS. The obligation to pay these royalties is
contingent upon actual sales of the products. Royalties
payable with respect to grants received under programs
approved by the OCS after January 1, 1999, are subject to
interest on the U.S. dollar-linked value of the total grants
received at the annual rate of LIBOR applicable to U.S.
dollar deposits at the time the grants are received.
As of December 31, 2004, the Company has an outstanding
contingent obligation to pay royalties in the amount of
approximately $ 6,114 in respect of these grants.
ii) The Israeli Government, through the Overseas Marketing Fund,
awarded the Company grants for participation in expenses for
overseas marketing. The Company is committed to pay
royalties to the Fund for Encouragement of Marketing
Activities at the rate of 3% of the increase in export
sales, up to the amount of the grants received by the
Company linked to the dollar and bearing interest of LIBOR
(for a period of six months).
As of December 31, 2004, the Company has an outstanding
contingent obligation to pay royalties of $ 64 with respect
to these grants.
2. Other commitments:
The facilities of the Company are rented under operating lease
agreements that expire on various dates ending in 2005. Minimum
future rental payments for 2005 are $ 153.
The Company's motor vehicles are rented under various operating
lease agreements. The lease agreements for the motor vehicles
expire on various dates ending in 2007. The breach of contract
fees amounted to $61.
Lease payments for the facilities occupied by the Company and the
Company's motor vehicles in 2004, 2003 and 2002 amounted to $
385, $ 426 and $ 383, respectively.
F - 28
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 14:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
b. (1) In July 2002, the Company received a claim letter from car
leasing vendor, under which it claims that the Company's
termination notice of the leasing agreement in March 2002
constitutes a breach of the agreement and the vendor is demanding
compensation in which the nominal claim amount is of $ 292. No
legal proceeding has yet been filed. At this stage, according to
the Company's counsel assessment, the prospects of vendor to
prevail and recover a significant amount, seem remote. The
financial statements do not include any provision in that regard.
(2) In September 2003, a supplier filed a legal claim in the amount
of $107 against the Company. The claim alleges the breach of an
agreement for the purchase of products. The Company's legal
counsel is unable to reasonably estimate the outcome of this
claim. In addition, the Company's management believes that the
chances of the claim are remote. Accordingly, no provision has
been included in the financial statements in respect of this
claim.
(3) In 1998, as part of Pacinfo Share Purchase Agreement between the
Company and Mr. Lee and Ms. Lee ("the Sellers"), certain actions
involving PacInfo, if occurring before the end of 2003, may
trigger a tax event for the Sellers. The Company may be
obligated under the purchase agreement to grant the Sellers a
loan on a full recourse basis for certain tax payments the
Sellers may be liable for, currently estimated at approximately $
2 million. The Company will receive a security interest in shares
of the Company that the Sellers holds at the time of the loan
with a fair market value as of the date of the loan of at least
125% of the amount of the loan as security for the repayment of
the loan. In addition, in the event the Company is required to
lend such sum to the Sellers, the Company may also be required to
reimburse the Sellers for certain interest on taxes that he may
owe. It is possible that the windup of PacInfo during 2002 and
2003 may have triggered such a tax event for the Sellers, which
would result in an obligation by the Company to lend the Sellers
such amount and to reimburse him for interest expenses incidental
to the tax event. Based on the Company's legal consul opinion and
management estimation, no provision was recoded.
NOTE 15:- SHAREHOLDERS' EQUITY
a. On May 29, 2003, the Company effected a one-to-four reverse split. All
shares, options and earnings per share amounts have been retroactively
adjusted for all periods presented to reflect the stock splits.
b. In December 2003, the Company completed a private placement for the
Company's Ordinary shares with two European private investors. The
Company issued to the investors 357,143 shares at a purchase price of
$ 2.80, for consideration of $ 928 (net of $ 72 issuance expenses).
F - 29
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 15:- SHAREHOLDERS' EQUITY (CONT.)
c. Stock option plans:
During 1994, 1995, 1999, 2000, 2001, the Board of Directors of the
Company adopted stock option plans ("the Plans") pursuant to which
656,250 options for the purchase of the Company's Ordinary shares may
be granted to officers, directors, consultants and employees of the
Company. The Board of Directors has resolved that no further grants
shall be made from the above mentioned plans. In May 2003, the
Company's shareholders approved the adoption of the 2003 Stock Option
Plan, pursuant to which 625,000 Ordinary shares are reserved for
purchase by employees, directors, consultants and service providers of
the Company. As of December 31, 2004, an aggregate 141,721 of these
options are still available for future grant. Each option granted
under the Plans expires between 5-10 years from the date of the grant.
The options vest gradually over a period ranging between two to three
years. Options, that are cancelled or forfeited, become available for
future grants.
On November 18, 2004, upon acquisition of Odem, the Company granted
73,000 options to one of Odem's key employee. Each option can be
exercised to purchase one ordinary share of the purchaser
without consideration. The options vest over a period of three years
from the grant date and expire 10 years from the date of the grant.
The market price of the Company's shares on the date of grant was $
2.5. Accordingly, The Company recorded a compensation expense of $ 5.
This expense was included as part of general and administrative
expenses.
Except for these options, all other options are granted to employees
in 2004, 2003 and 2002, have an exercise price equal to the fair
market value of Ordinary shares at the date of grant. The weighted
average fair values of the options granted during 2004, 2003 and 2002
were $ 2.58, $ 3.91 and $ 3.2, respectively.
The following is a summary of the Company's stock options granted to
officers, directors, and employees among the various plans:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2004 2003 2002
--------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF OPTIONS PRICE OF OPTIONS PRICE OF OPTIONS PRICE
------- ------ ------- ------ ------- ------
Options outstanding
at beginning of
year 426,252 $11.93 211,929 $16.00 243,380 $16.48
Changes during the
year:
Granted 92,500 $ 0.54 278,076 $ 8.97 55,000 $ 6.76
Forfeited or
cancelled (88,176) $11.97 (63,753) $12.53 (86,451) $11.40
-------- -------- --------
Options outstanding
at end of year 430,576 $ 9.47 426,252 $11.93 211,929 $16.00
======== ====== ======== ====== ======== ======
Options exercisable
at the end of the
year 248,790 $ 5.49 194,926 $20.36 169,054 $16.24
======== ====== ======== ====== ======== ======
F - 30
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 15:- SHAREHOLDERS' EQUITY (CONT.)
The options outstanding as of December 31, 2004, have been separated
into ranges of exercise price as follows:
WEIGHTED
OPTIONS WEIGHTED OPTIONS AVERAGE
OUTSTANDING WEIGHTED AVERAGE EXERCISABLE EXERCISE
RANGE OF AS OF AVERAGE REMAINING AS OF PRICE OF
EXERCISE DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, OPTIONS
PRICE 2004 PRICE LIFE (YEARS) 2004 EXERCISABLE
----- ---- ----- ------------ ---- -----------
$ 0 73,000 $ 0.00 9.88 - $ 0.00
$ 1.84-2.00 181,997 $ 1.95 7.01 85,961 $ 1.96
$ 3 12,000 $ 3.00 9.00 - $ 3.00
$ 6.8 36,391 $ 6.80 6.78 35,641 $ 6.80
$ 17.00-18.00 11,113 $17.28 2.73 11,113 $17.28
$ 28.00 116,075 $28.00 2.74 116,075 $28.00
------- -------
430,576 $ 9.47 6.27 248,790 $15.49
======= ====== ======= ======
d. Options issued to service providers:
The Company accounts for these options in accordance with the
provisions of SFAS 123 and EITF 96-18. The fair value for these
options was estimated at the date of grant using an option pricing
model with the following assumptions: risk-free interest rate of 1.5%,
dividend yields of 0% volatility of 70%, and an expected life of 2.5
years.
The compensation expenses that have been recorded in the consolidated
financial statements regarding these warrants for the years 2004, 2003
and 2002 were $ 117, $ 23 and $ 7, respectively.
The Company's outstanding warrants to service providers as of December
31, 2004 are as follows:
WARRANTS FOR EXERCISE
ORDINARY PRICE PER WARRANTS EXERCISABLE
ISSUANCE DATE SHARES SHARE EXERCISABLE THROUGH
-------------- ------------- ---------------- ----------------- ----------------
October 2002 75,000 $ 4.00 75,000 June 2011
December 2002 938 $ 8.00 938 December 2005
December 2002 937 $ 4.00 937 December 2005
March 2003 1,025 $ 8.00 1,025 December 2005
March 2003 1,026 $ 4.00 1,026 December 2005
January 2004 216,282 $ 3.00 72,094 December 2013
June 2004 130,000 $ 4.04 130,000 October 2011
------------- -------------
425,208 281,020
============= =============
F - 31
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 16:- TAXES ON INCOME
a. Reduction in corporate tax rate:
On June 2004, the Israeli Parliament approved an amendment to the
Income Tax Ordinance (No. 140 and Temporary Provision) (the
"Amendment"), which progressively reduces the regular corporate tax
rate from 36% to 35% in 2004, 34% in 2005, 32% in 2006 and to a rate
of 30% in 2007 and thereafter. The amendment was signed and published
in July 2004 and is, therefore, considered enacted in July 2004.
b. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959:
The Company's production facilities have been granted an "Approved
Enterprise" status under the above Law under four separate investment
programs. According to the Capital Investments Law, the Company has
elected to receive for the first program state-guaranteed loans and
grants, for the second and third programs, the Company has elected to
receive only state-guaranteed loans. As for the fourth program, the
Company has elected the "alternative benefits" and has waived
Government grants in return for a tax exemption.
The Company is also a "Foreign Investors' Company", as defined by the
abovementioned law, and as such, is entitled to a 10-year period of
benefits and to an additional reduction in tax rates, up to 10% or 25%
(based on the percentage of foreign ownership in each taxable year).
Income from the second, third, fourth programs, which commenced
operations in 1992, 1994, 1997, respectively, are exempt from income
tax for a period of ten years commencing with the first year in which
they generate taxable income. During 2002, as part of the transfer of
operations from the Company to BOScom, all tax benefits that were
related to the Approved Enterprise of the Company were transferred to
BOScom. In addition, since 2002, the Company's investments are not
subject to the Approved Enterprise program. Accordingly, taxable
income generated in that period will be split by the assets ratio into
a taxable income that is entitled to the benefits of the approved
enterprise and into an income that will be taxed at the corporate tax
rate as described in article a above.
BOScom also has a production facility, which was granted an "Approved
Enterprise" status and had a separate investment program. BOScom
elected to receive the "alternative benefits". Income derived from
BOScom's investment program, which commenced operations in 1997 and
2002, is exempt from income tax for a period of ten years commencing
with the first year in which taxable income is generated.
The period of tax benefits detailed above is subject to limits of the
earlier of 12 years from commencement of production, or 14 years from
receiving the approval. Accordingly, the period of benefits relating
to all investment programs expire in the years 2001 through 2014.
F - 32
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 16:- TAXES ON INCOME (CONT.)
The entitlement to the above benefits is conditional upon the
Company's and BOScom's fulfilling the conditions stipulated by the
above law, regulations published thereunder and the instruments of
approval for the specific investments in "Approved Enterprises". In
the event of failure to comply with these conditions, the benefits may
be canceled and the Company and BOScom may be required to refund the
amount of the benefits, in whole or in part, including interest.
The tax-exempt income attributable to the "Approved Enterprise" can be
distributed to shareholders without imposing tax liability on the
Company only upon the complete liquidation of the Company. In the
event of a distribution of such tax-exempt income as a cash dividend
in a manner other than in the complete liquidation of the Company and
BOScom, the Company and BOScom will be required to pay tax at the rate
of 10% to 25% on the amount distributed. In addition, these dividends
will be subject to 15% withholding tax.
The Company's Board of Directors has determined that such tax-exempt
income will not be distributed as dividends. Accordingly, no deferred
taxes have been provided on income attributable to the Company
"Approved Enterprise".
If the Company and BOScom derive income from sources other than an
"Approved Enterprise", such income will be taxable at the regular
corporate tax rate as described in article a above.
Odem operation is subject to regular income tax rate.
c. Loss carryforward:
Domestic (Israel):
The Company and its Israeli subsidiary have accumulated losses for
Israel income tax purposes as of December 31, 2004, in the amount of
approximately $ 24,000. These losses may be carryforward (linked to
the Israeli Consumer Price Index ("CPI")) and offset against taxable
income in the future for an indefinite period.
Foreign:
As of December 31, 2004, the U.S. subsidiaries which were classified
as discontinued operations had U.S. Federal and State net operating
loss carryforward of approximately $ 11,300, that can be carried
forward and offset against taxable income and expire through 2021.
Utilization of U.S. net operating losses may be subject to substantial
annual limitations due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state law provisions. The
annual limitations may result in the expiration of net operating
losses before utilization.
As of December 31, 2004, B.O.S. U.K. had net operating loss
carryforward of approximately $ 3,900, which can be carried forward
indefinitely and offset against taxable income.
F - 33
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 16:- TAXES ON INCOME (CONT.)
d. Taxable income under the Inflationary Income Tax (Inflationary
Adjustments) Law, 1985:
Results of the Company and its Israeli subsidiary for tax purposes are
measured and reflected in real terms in accordance with the changes in
the Israeli CPI. As explained in Note 2b, the financial statements are
presented in U.S. dollars. The difference between the change in the
Israeli CPI and in the NIS/U.S. dollar exchange rate causes a
difference between taxable income or loss and the income or loss
before taxes reflected in the financial statements. In accordance with
SFAS 109, the Company has not provided deferred income taxes on this
difference between the reporting currency and the tax bases of assets
and liabilities.
e. Deferred income taxes:
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows:
DECEMBER 31
-----------------------------
2004 2003
-------- --------
Assets in respect of:
Property, plant and equipment $ 21 $ -
Allowances and provisions 239 273
Net operating loss carry forward 13,851 12,991
-------- --------
14,111 13,264
Liabilities in respect of intangible assets (424) -
-------- --------
Net deferred tax assets before valuation allowance 13,687 13,264
Valuation allowance (1) (14,039) (13,264)
-------- --------
Net deferred tax liability $ (352) $ -
======== ========
Presented in balance sheet:
Current liabilities (4) -
Long-term liabilities (348) -
-------- --------
Net deferred tax liability $ (352) $ -
======== ========
Domestic $ (352) -
Foreign - -
-------- --------
Net deferred tax $ (352) -
======== ========
(1) The Company has provided valuation allowances in respect of
deferred tax assets resulting from tax loss carryforward and
other reserves and allowances due to its history of operating
losses and current uncertainty concerning its ability to realize
these deferred tax assets in the future.
F - 34
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 16:- TAXES ON INCOME (CONT.)
f. Income (Loss) before taxes on income:
YEAR ENDED DECEMBER 31,
-------------------------------------
2004 2003 2002
------- ------- -------
Domestic $(1,883) $ 320 $ 48
Foreign 184 (1,912) (291)
------- ------- -------
Total $(1,699) $(1,592) $ (243)
======= ======= =======
g. Effective tax
YEAR ENDED DECEMBER 31,
---------------------------------------
2004 2003 2002
------- ------- -------
Loss before taxes on income, as reported in the
consolidated statements of operation $(1,699) $(1,592) $ (243)
======= ======= =======
Statutory tax rate 35% 36% 36%
======= ======= =======
Provision at Israel, tax rate 595 573 87
Non deductible expenses (16) (13) (37)
Valuation allowance (599) (560) (50)
------- ------- -------
TOTAL TAX EXPENSES $ (20) $ - $ -
======= ======= =======
h. Tax assessments:
The Company and BOScom received final assessments through 1998 and
Odem through 2000 tax year.
NOTE 17:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS
a. Non recurring royalty reversal:
Certain research and development activities of the Company are
supported by the OCS. In return for the OCS's participation, the
Company was committed to pay royalties as described in Note 14 a.1.
During the third quarter of 2003, the OCS completed its examination of
the Company's technology and use of grant funding for the years 1991
through 1999, which reduced the royalties' expenses provision.
Accordingly, the Company reversed $ 339 of accrued royalties as a
reduction in cost of sales during the third quarter of 2003.
F - 35
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 17:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS (CONT.)
YEAR ENDED DECEMBER 31,
--------------------------------------
2004 2003 2002
------- ------- -------
b. Financial income (expenses), net
Financial income:
Interest on bank deposits and marketable
securities $ 98 $ 158 $ 243
Other (mainly foreign currency translation
income) 100 48 140
------- ------- -------
198 206 383
------- ------- -------
Financial expenses:
In respect of long-term bank loans and
convertible note (324) - (14)
Other (mainly foreign currency translation
losses) (32) (97) (74)
------- ------- -------
(356) (97) (88)
------- ------- -------
$ (158) $ 109 $ 295
======= ======= =======
c. Loss per share:
1. Numerator:
Numerator for basic and diluted net loss
per share -
Net loss from continuing operations $(2,044) $(2,057) $ (813)
======= ======= =======
Net income (loss) from discontinued operation $ (9) $ 2,036 $(7,674)
======= ======= =======
Net loss available to Ordinary shareholders $(2,053) $ (21) $(8,487)
======= ======= =======
2. Denominator (in thousands):
Denominator for basic and diluted net loss
per share -
Weighted average number of shares 4,631 3,683 3,117
======= ======= =======
F - 36
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 18:- SEGMENTS AND GEOGRAPHICAL INFORMATION
Commencing in 2004 and subsequent to the acquisition of Odem and Quasar,
the Company manages its business on three reportable segments, which
consists of connectivity solutions, communication solution and supply of
electronic components.
The Company's management makes financial decisions and allocates resources,
based on the information it receives from its internal management system.
The Company allocates resources and assesses performance for each operating
segment using information about revenues, gross profit and operating income
(loss) before interest and taxes.
Segment information for prior years was not presented on the new basis of
segmentation since it is impracticable to do so.
a. Revenues, gross profit and operating profit (loss) for operating
segments for the year ended 2004 were as follow:
YEAR ENDED DECEMBER 31, 2004
-----------------------------------------------------------------------------
ELECTRONICS
CONNECTIVITY COMMUNICATION COMPONENTS NOT ALLOCATED CONSOLIDATED
------- ------- ------- ------- -------
Revenues $ 5,011 $ 1,363 $ 1,908 $ - $ 8,282
======= ======= ======= ======= =======
Gross profit $ 2,933 $ 414 $ 327 $ - $ 3,674
======= ======= ======= ======= =======
Operating profit (loss) $ 1,009 $(1,846) $ 66 $ (770) $(1,541)
======= ======= ======= ======= =======
b. The following presents total revenues and long-lived assets for the
years ended December 31, 2004, 2003 and 2002 based on the customers'
location:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2004 2003 2002
---------------------- ---------------------- -----------------------
TOTAL LONG-LIVED TOTAL LONG-LIVED TOTAL LONG-LIVED
REVENUES ASSETS *) REVENUES ASSETS *) REVENUES ASSETS *)
------ ------ ------ ------ ------ ------
United States $3,252 $ - $2,974 $ 5 $4,989 $ 10
Europe 1,066 - 1,198 - 2,148 154
Israel and others 3,964 4,448 1,556 1,334 2,304 1,542
------ ------ ------ ------ ------ ------
$8,282 $4,448 $5,728 $1,339 $9,441 $1,706
====== ====== ====== ====== ====== ======
Total revenues are attributed to geographic areas based on the
location of customers in accordance with Statement of Financial
Accounting No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131").
*) Long-lived assets comprise goodwill intangible assets, property
and equipment.
F - 37
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 18:- SEGMENTS AND GEOGRAPHICAL INFORMATION (CONT.)
c. Major customer's data as a percentage of total revenues:
YEAR ENDED DECEMBER 31,
---------------------------------
2004 2003 2002
------- ------- -------
Customer A 39% 52% -
======= ======= =======
Customer B 3% 2% 13%
======= ======= =======
Major customer's balances as of December 31, 2004 and 2003 are $ 603
and $ 476, respectively.
NOTE 19:- RELATED PARTIES
a. M&A Addendum to the Services Agreement of Cukierman & Co.
In 2003, the Company's audit committee and Board of Directors approved
the engagement of Cukierman & Co. Investment House Ltd., to provide
non-exclusive investment-banking services and business development
services to the Company, effective April 15, 2003. Cukierman & Co. is
a company indirectly controlled by Mr. Edouard Cukierman, who, since
June 26, 2003, serves as Chairman of the Company's Board of Directors,
and is a co-manager of the Catalyst Fund, the Company's largest
shareholder. For its services, Cukierman & Co. is paid a monthly sum
of $10,000 plus VAT, in addition to a success fee of 4-6% for a
consummated private placement. According to its terms the Company may
terminate the agreement at any time, by giving one month prior written
notice. The agreement provided that the success fees for securing M&A
transactions shall be discussed and drafted as an Addendum to the
Services Agreement. Such an Addendum was approved on August 22, 2004,
and provides a success fee of 3.5% of the proceeds exchanged in such a
transaction.
The payments the Company paid according to the service agreement are:
DECEMBER 31,
----------------------
2004 2003
-------- --------
Business development $ 120 $ 80
Success fee in respect of issuance of convertible loan 15 -
Success fee in respect of private placement - 60
-------- --------
$ 135 $ 140
======== ========
Current liabilities in respect with related parties as of December 31,
2004 and 2003 were $234 and $18.
F - 38
B.O.S. BETTER ONLINE SOLUTIONS LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
NOTE 19:- RELATED PARTIES (CONT.)
b. Assignment of Voting Rights to Mr. Yair Shamir
On February 5, 2004 the audit committee and Board of Directors
approved an Assignment and Assumption Agreement, between the Company,
Catalyst Investments L.P, and Mr. Yair Shamir (who is a director of
the Company and the Chairman of Catalyst Investments), according to
which the voting rights in all but one of the Surf shares that the
Company has an option to purchase from Catalyst (see Note 6), have
been assigned to Yair Shamir. Pursuant to the agreement, Yair Shamir
irrevocably undertook to assign the voting rights to the Company
immediately upon the earlier to occur of the following, and subject to
the receipt of a written request from the Company to effect such
assignment: a) at the time Surf's shares are offered to the public in
a public offering pursuant to a registration statement filed by Surf
under the Securities Act of 1933 or a similar act of another
jurisdiction, or b) the Company exercises its option to purchase the
additional shares from Catalyst.
NOTE 20: SUBSEQUENT EVENT
On March 23, 2005 the Company received a notice from Laurus Master Fund to
convert $308 of the Convertible note according to the condition of the
Securities Purchase Agreement (see Note 13).
F - 39
B.O.S. BETTER ON-LINE SOLUTIONS LTD. ANNOUNCES FINANCIAL RESULTS FOR THE FORTH
QUARTER AND YEAR END 2004
TERADYON, ISRAEL - March 30, 2005 - B.O.S. Better On-line Solutions Ltd. (the
"Company" or "BOS") (NASDAQ: BOSC, TASE:BOSC) announced today its financial
results for the fourth quarter and year ended December 31, 2004 .
FINANCIAL RESULTS OF CONTINUING SEGMENTS
Revenues for the forth quarter of 2004 were $4,239 thousands, an increase of
178% compared to revenues of $1,526 thousands for the fourth quarter of 2003.
Gross profit for the fourth quarter of 2004 was $1,558 thousands, or 36.7% of
revenues, compared to $1,132 thousands, or 74.2% of revenues, for the fourth
quarter of 2003.
Net loss for the fourth quarter of 2004 was $620 thousands (or -$0.13 per
share), compared to net income of $36 thousands (or $0.01 per share) for the
fourth quarter of 2003.
Revenues for the year 2004 were $8,282 thousands, an increase of 44.5% compared
to revenues of $5,728 thousands for the year 2003.
Gross profit for the year 2004 was $3,674 thousands, or 44.3% of revenues,
compared to $4,273 thousands, or 74.6% of revenues, for the year 2003.
Net loss for the year 2004 was $2,044 thousands (or -$0.44 per share), compared
to net loss of $2,057 thousands (or -$0.56 per share) for the year 2003.
Both periods (fourth quarter and year end) include operating results from the
date of acquisition of the majority of the assets of Quasar Communication
Systems Ltd. on September 29, 2004 and a controlling stake of Odem Electronic
Technologies 1992 Ltd on November 18, 2004.
For comparison purpose, the stand-alone operating results of BOS were as
follows:
Revenues for the forth quarter of 2004 were $1,790 thousands, an increase of
17.3% compared to revenues of $1,526 thousands for the fourth quarter of 2003.
Gross profit for the fourth quarter of 2004 was $1,043 thousands, or 58.3% of
revenues, compared to $1,132 thousands, or 74.2% of revenues, for the fourth
quarter of 2003. The main reason for the decrease is a change in the Company's
product mix towards products with lower gross margins.
Net loss for the fourth quarter of 2004 was $578 thousands (or -$0.14 per
share), compared to a net income of $36 thousands (or $0.01 per share) for the
fourth quarter of 2003.
Revenues for the year 2004 were $5,833 compared to revenues of $5,728 thousands
for the year 2003.
Gross profit for the year 2004 was $3,159 thousands, or 54.2% of revenues,
compared to $4,273 thousands, or 74.6% of revenues, for the year 2003. The main
reason for the decrease is a change in the Company's product mix towards
products with lower gross margins.
Net loss for the year 2004 was $2,002 thousands (or -$0.48 per share), compared
to net loss of $2,057 thousands (or -$0.56 per share) in the year 2003.
As of December 31, 2004, the Company's balance sheet shows liquid financial
resources (cash, cash equivalents and marketable securities) of $5.6 million and
loans (long and short term) of $3.2 million.
The Company's consolidated financial statements are being filed with the
Securities and Exchange Commission on Form 6-K.
Adiv Baruch, BOS' CEO stated:
"Year 2004 reflects the results of the implementation of our decision to grow
the Company through M&As. The full effect of the Odem acquisition will be fully
consolidated in year 2005 (versus one and a half months in 2004). We have begun
year 2005 in a stronger position than we were in 2004."
1
Edouard Cukierman, Chairman of B.O.S. stated:
"We had to overcome many hurdles throughout the year, while bringing new
management on board and implementing the M&A strategy beginning in the second
half of 2004. I have confidence that with the successful acquisition of Odem and
the size of the company today we will continue to grow the business and expand
the company."
FINANCIAL RESULTS OF DISCONTINUED SEGMENT
The Company discloses the financial information related to its US subsidiary,
Pacific Information Systems, Inc. in accordance with accounting standards for
"discontinued operations".
There was no significant operation in the discontinued segment in the quarter
and year ended December 31, 2004.
ABOUT BOS
BOS (www.boscorporate.com) which is traded on the NASDAQ (NASDAQ: BOSC ) and on
Tel-Aviv stock exchange (TASE: BOSC), was established in 1990. Through its
subsidiary BOScom Ltd. it develops and markets three types of products under the
BOSaNOVA brand:
o A communications products line (www.boscom.com) provides innovative
VoIP solutions to companies and organizations;
o A connectivity products line (www.bosweb.com) provides connectivity
solutions for IBM computers, from intermediate computers to personal
computers and LAN networks and
o Software utilities products line (www.printbos.com) provides solutions
for the design, distribution and management documents for a range of
operating systems, including mainframe and UNIX.
In addition BOS supplies cellular adapters based on products of Quasar
Communication Systems Ltd, whose assets were acquired by BOS, and design
components and services through the ODEM Division, based on Odem Electronic
Technologies 1992 Ltd in which a controlling stake was also recently acquired.
THE FORWARD-LOOKING STATEMENTS 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, INCLUDING, BUT NOT LIMITED TO, THOSE 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 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.
2
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
DECEMBER 31,
------------------------
2004 2003
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,578 $ 3,872
Marketable securities 2,324 1,014
Trade receivables 4,557 1,075
Other accounts receivable and prepaid expenses 722 317
Inventories 3,086 961
------- -------
Total current assets 13,267 7,239
------- -------
LONG-TERM ASSETS:
LONG TERM MARKETABLE SECURITIES 757 1,862
------- -------
SEVERANCE PAY FUND 1,143 684
------- -------
INVESTMET IN AN AFFILIATED COMPANY 2,472 2,780
------- -------
OTHER ASSETS 395 -
------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 1,019 598
------- -------
GOODWILL 1,569 741
------- -------
CUSTOMER LIST, NET 1,389 -
------- -------
OTHER INTANGIBLE ASSETS, NET 471 -
------- -------
ASSETS RELATED TO DISCONTINUED OPERATIONS 3 119
------- -------
$22,485 $14,023
======= =======
3
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
DECEMBER 31,
---------------------------
2004 2003
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term loans from banks $ 1,354 $ -
Current maturities of long-term bank loans and convertible note 643 -
Trade payables 3,845 464
Employees and payroll accruals 664 404
Deferred revenues 364 378
Accrued expenses and other liabilities 1,141 911
-------- --------
Total current liabilities 8,011 2,157
-------- --------
LONG-TERM LIABILITIES:
Bank loans (net of current maturities) 54 -
Convertible note (net of current maturities) 1,151 -
Put option issued to minority shareholders in a subsidiary 359 -
Deferred taxes 348 -
Accrued severance pay 1,468 951
-------- --------
TOTAL long-term liabilities 3,380 951
MINORITY INTEREST IN A SUBSIDIARY 809 -
======== ========
LIABILITIES RELATED TO DISCONTINUED OPERATIONS 237 374
======== ========
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Share capital 4,823 4,309
Additional paid-in capital 44,426 43,247
Deferred stock-based compensation (174) -
Accumulated other comprehensive income 31 -
Treasury shares: 0 Ordinary shares at December 31, 2004 and 5,383 Ordinary
shares at December 31, 2003 - (150)
Accumulated deficit (39,058) (36,865)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 10,048 10,541
-------- --------
TOTAL liabilities and shareholder's equity $ 22,485 $ 14,023
======== ========
4
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2004 2003 2004 2003
------- ------- ------- -------
Revenues $ 4,239 $ 1,526 $ 8,282 $ 5,728
Cost of revenues 2,681 394 4,608 1,794
Non recurring royalty reversal (Note 17a) - - - 339
------- ------- ------- -------
Gross profit 1,558 1,132 3,674 4,273
------- ------- ------- -------
Operating costs and expenses:
Research and development 737 442 2,296 2,129
Less - grants and participation (122) (80) (492) (283)
Sales and marketing 773 244 1,706 2,178
General and administrative 553 297 1,705 1,317
Restructuring and related costs - 86 - 678
------- ------- ------- -------
Total operating costs and expenses 1,941 989 5,215 6,019
------- ------- ------- -------
Operating income (loss) (383) 143 (1,541) (1,746)
Financial income (expenses), net (107) 27 (158) 109
Other income (expenses) - (9) - 45
------- ------- ------- -------
Loss before taxes on income (490) 161 (1,699) (1,592)
Taxes on income (20) - (20) -
Equity in losses of an affiliated company (93) (125) (308) (465)
Minority interest in earnings of a subsidiary (17) - (17) -
------- ------- ------- -------
Income (loss) from continuing operations (620) 36 (2,044) (2,057)
Income (loss) related to discontinued operations 9 (78) (9) 2,036
------- ------- ------- -------
Net loss $ (611) $ (42) $(2,053) $ (21)
======= ======= ======= =======
Basic and diluted net loss per share from continuing
operations $ (0.13) $ 0.01 $ (0.44) $ (0.56)
======= ======= ======= =======
Basic and diluted net income (loss) per share from
discontinued operations $ 0.00 $ (0.02) $ 0.00 $ 0.55
======= ======= ======= =======
Basic and diluted net loss of NIS 4.00 par value per
share $ (0.13) $ (0.01) $ (0.44) $ (0.01)
======= ======= ======= =======
5