B.O.S. Better Online Solutions Ltd.
(Registrant)
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Dated: March 31, 2011
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By:
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/s/ Eyal Cohen
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Eyal Cohen
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CFO
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Page
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F-2 - F3
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F-4 - F-5
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F-6
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F-7
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F-8 - F-10
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F-11 - F-42
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Tel-Aviv, Israel
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KOST FORER GABBAY & KASIERER
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March 31, 2011
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A Member of Ernst & Young Global
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ARIK ESHEL, CPA & ASSOC., PC
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New York, NY
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March 29, 2010
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December 31,
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||||||||
2010
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2009
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|||||||
ASSETS
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||||||||
CURRENT ASSETS:
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||||||||
Cash and cash equivalents
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$ | 703 | $ | 564 | ||||
Trade receivables (net of allowance for doubtful accounts of $ 44 and $ 92 at December 31, 2010 and 2009, respectively)
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7,719 | 7,252 | ||||||
Available for sale securities (Note 6)
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- | 361 | ||||||
Other accounts receivable and prepaid expenses (Note 3)
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1,183 | 914 | ||||||
Inventories (Note 5)
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5,125 | 5,168 | ||||||
Assets related to discontinued operations (Note 1e)
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- | 5,423 | ||||||
Total current assets
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14,730 | 19,682 | ||||||
LONG-TERM ASSETS:
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||||||||
Severance pay fund
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47 | 110 | ||||||
Investment in other company (Note 6)
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107 | 218 | ||||||
Other assets
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161 | 123 | ||||||
Total long-term assets
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315 | 451 | ||||||
PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)
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1,135 | 1,221 | ||||||
OTHER INTANGIBLE ASSETS, NET (Note 8)
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1,512 | 1,836 | ||||||
GOODWILL (Note 9)
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4,438 | 4,172 | ||||||
$ | 22,130 | $ | 27,362 |
December 31,
|
||||||||
2010
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2009
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|||||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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||||||||
CURRENT LIABILITIES:
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||||||||
Short-term bank loans and current maturities (Note 10)
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$ | 7,778 | $ | 7,983 | ||||
Trade payables
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4,317 | 3,906 | ||||||
Employees and payroll accruals
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735 | 645 | ||||||
Deferred revenues
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474 | 731 | ||||||
Accrued expenses and other liabilities (Note 11)
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1,040 | 951 | ||||||
Liabilities related to discontinued operations (Note 1e)
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- | 5,229 | ||||||
Total current liabilities
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14,344 | 19,445 | ||||||
LONG-TERM LIABILITIES:
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||||||||
Long-term bank loans, net of current maturities (Note 12)
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394 | 816 | ||||||
Income tax accruals (Note 16)
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488 | 425 | ||||||
Accrued severance pay
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167 | 228 | ||||||
Convertible note (Note 13)
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2,460 | 1,886 | ||||||
Other long-term liabilities (Note 13)
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564 | 919 | ||||||
Total long-term liabilities
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4,073 | 4,274 | ||||||
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)
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||||||||
SHAREHOLDERS' EQUITY (Note 15) (*):
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||||||||
Share capital:
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||||||||
Ordinary shares of NIS 20.00 nominal value: Authorized; 7,000,000 shares at December 31, 2010 and 2009; Issued and outstanding: 2,752,517 and 2,618,159 shares at December 31, 2010 and 2009, respectively
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13,959 | 13,225 | ||||||
Additional paid-in capital
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56,805 | 57,042 | ||||||
Accumulated other comprehensive profit (loss)
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52 | (156 | ) | |||||
Accumulated deficit
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(67,103 | ) | (66,468 | ) | ||||
Total shareholders' equity
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3,713 | 3,643 | ||||||
Total liabilities and shareholders' equity
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$ | 22,130 | $ | 27,362 |
Year ended December 31,
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||||||||||||
2010
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2009
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2008
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||||||||||
Revenues
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$ | 30,187 | $ | 25,467 | $ | 34,066 | ||||||
Inventory write off
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36 | 2,235 | 339 | |||||||||
Cost of revenues
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22,668 | 19,741 | 26,893 | |||||||||
Gross profit
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7,483 | 3,491 | 6,834 | |||||||||
Operating costs and expenses:
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||||||||||||
Research and development
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372 | 360 | 844 | |||||||||
Sales and marketing
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4,068 | 5,426 | 6,408 | |||||||||
General and administrative
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1,786 | 2,004 | 2,029 | |||||||||
Impairment of goodwill
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- | 383 | 568 | |||||||||
Total operating costs and expenses
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6,226 | 8,173 | 9,849 | |||||||||
Operating Profit (loss)
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1,257 | (4,682 | ) | (3,015 | ) | |||||||
Financial expenses, net (Note 17a)
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(961 | ) | (606 | ) | (431 | ) | ||||||
Other expenses, net (Note 2g)
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(120 | ) | (409 | ) | (1,448 | ) | ||||||
Income (loss) before taxes on income
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176 | (5,697 | ) | (4,894 | ) | |||||||
Tax benefit (taxes on income) (Note 16)
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(5 | ) | (329 | ) | 241 | |||||||
Income (loss) from continuing operations
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171 | (6,026 | ) | (4,653 | ) | |||||||
Loss from discontinued operations (Note 1e)
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(806 | ) | (3,075 | ) | (1,747 | ) | ||||||
Net loss
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$ | (635 | ) | $ | (9,101 | ) | $ | (6,400 | ) | |||
Basic and diluted net earnings (loss) per share from continuing operations (Note 17b) (*)
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$ | 0.07 | $ | (2.32 | ) | $ | (1.94 | ) | ||||
Basic and diluted net loss per share from discontinued operations (Note 17b) (*)
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$ | (0.31 | ) | $ | (1.18 | ) | $ | (0.73 | ) | |||
Basic and diluted net loss per share (Note 17b) (*)
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$ | (0.24 | ) | $ | (3.50 | ) | $ | (2.67 | ) |
Ordinary shares (*)
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Share capital
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Additional paid-in capital
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Accumulated other comprehensive income (loss) (**)
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Accumulated deficit
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Total comprehensive loss
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Total shareholders' equity
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||||||||||||||||||||||
Balance at January 1, 2008
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2,171,599 | 10,628 | 54,758 | 19 | (50,967 | ) | 14,438 | |||||||||||||||||||||
Issuance of Ordinary shares for options exercised
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534 | 3 | (3 | ) | - | - | - | |||||||||||||||||||||
Issuance of shares related to the private placement, net
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311,414 | 1,843 | (52 | ) | - | - | 1,791 | |||||||||||||||||||||
Issuance of shares related to acquisition of Dimex, net
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122,045 | 685 | 546 | - | - | 1,231 | ||||||||||||||||||||||
Share-based compensation expense
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- | - | 581 | - | - | 581 | ||||||||||||||||||||||
Other comprehensive loss:
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||||||||||||||||||||||||||||
Foreign currency translation adjustments
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- | - | - | (397 | ) | - | $ | (397 | ) | (397 | ) | |||||||||||||||||
Net loss
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- | - | - | - | (6,400 | ) | (6,400 | ) | (6,400 | ) | ||||||||||||||||||
Total comprehensive loss
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$ | (6,797 | ) | |||||||||||||||||||||||||
Balance at December 31, 2008
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2,605,592 | 13,159 | 55,830 | (378 | ) | (57,367 | ) | 11,244 | ||||||||||||||||||||
Issuance of Ordinary shares for options exercised
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12,567 | 66 | (66 | ) | - | - | - | |||||||||||||||||||||
Issuance expenses
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- | - | (17 | ) | - | - | (17 | ) | ||||||||||||||||||||
Issuance of warrants related to convertible note
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- | - | 646 | - | - | 646 | ||||||||||||||||||||||
Share-based compensation expense
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- | - | 649 | - | - | 649 | ||||||||||||||||||||||
Other comprehensive loss:
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||||||||||||||||||||||||||||
Foreign currency translation adjustments
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- | - | - | 168 | - | $ | 168 | 168 | ||||||||||||||||||||
Unrealized gain related to available for sale securities
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54 | - | 54 | 54 | ||||||||||||||||||||||||
Net loss
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- | - | - | - | (9,101 | ) | (9,101 | ) | (9,101 | ) | ||||||||||||||||||
Total comprehensive loss
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$ | (8,879 | ) | |||||||||||||||||||||||||
Balance at December 31, 2009
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2,618,159 | $ | 13,225 | $ | 57,042 | $ | (156 | ) | $ | (66,468 | ) | $ | 3,643 | |||||||||||||||
Issuance of Ordinary shares for options exercised
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37,996 | 201 | (201 | ) | - | - | - | |||||||||||||||||||||
Issuance of shares related to the private placement (net of $35 issuance expenses)
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96,362 | 533 | (268 | ) | - | - | 265 | |||||||||||||||||||||
Issuance of warrants related to convertible note
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- | - | 15 | - | - | 15 | ||||||||||||||||||||||
Share-based compensation expense
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- | - | 217 | - | - | 217 | ||||||||||||||||||||||
Other comprehensive loss:
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||||||||||||||||||||||||||||
Foreign currency translation adjustments
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- | - | - | 262 | - | $ | 262 | 262 | ||||||||||||||||||||
Realized gain related to available for sale securities
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(54 | ) | - | (54 | ) | (54 | ) | |||||||||||||||||||||
Net loss
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- | - | - | - | (635 | ) | (635 | ) | (635 | ) | ||||||||||||||||||
Total comprehensive loss
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$ | (427 | ) | |||||||||||||||||||||||||
Balance at December 31, 2010
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2,752,517 | $ | 13,959 | $ | 56,805 | $ | 52 | $ | (67,103 | ) | $ | 3,713 |
Year ended December 31,
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||||||||||||
2010
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2009
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2008
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Cash flows from operating activities:
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||||||||||||
Net loss
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$ | (635 | ) | $ | (9,101 | ) | $ | (6,400 | ) | |||
Loss from discontinued operations
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806 | 3,075 | 1,747 | |||||||||
Net profit (loss) from continuing operations
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171 | (6,026 | ) | (4,653 | ) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
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||||||||||||
Depreciation and amortization
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611 | 596 | 588 | |||||||||
Inventory write off
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36 | 2,235 | 339 | |||||||||
Impairment of goodwill
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- | 383 | 568 | |||||||||
Capital loss (gain) from sale of investment in other company
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7 | - | (8 | ) | ||||||||
Impairment of available for sale securities
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- | 304 | 744 | |||||||||
Impairment of investment in other company
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111 | 53 | 712 | |||||||||
Severance pay, net
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- | (160 | ) | 168 | ||||||||
Share-based compensation expenses related to employees, directors and service providers
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217 | 649 | 581 | |||||||||
Discount on convertible note
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225 | 108 | - | |||||||||
Accrued interest on long-term convertible notes
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196 | 104 | - | |||||||||
Decrease (increase) in trade receivables, net
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(252 | ) | 2,897 | 1,997 | ||||||||
Change in deferred taxes, net
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52 | 343 | (154 | ) | ||||||||
Decrease (increase) in other accounts receivable and other assets
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(114 | ) | (155 | ) | 216 | |||||||
Decrease (increase) in inventories
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138 | (66 | ) | 217 | ||||||||
Increase (decrease) in trade payables
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332 | (818 | ) | (246 | ) | |||||||
Increase (decrease) in employees and payroll accruals, deferred revenues, accrued expenses and other liabilities
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(270 | ) | (426 | ) | 733 | |||||||
Net cash provided by operating activities from continuing operations
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1,460 | 21 | 1,802 | |||||||||
Net cash used in operating activities from discontinued operations
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(176 | ) | (1,291 | ) | (1,386 | ) | ||||||
Net cash provided by (used in) operating activities
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1,284 | (1,270 | ) | 416 | ||||||||
Cash flows from investing activities:
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||||||||||||
Purchase of property, plant and equipment
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(108 | ) | (320 | ) | (217 | ) | ||||||
Proceeds from sale of investment in other company
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150 | - | 165 | |||||||||
Acquisitions, net of cash acquired (a)
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(147 | ) | (967 | ) | (8,709 | ) | ||||||
Net cash used in investing activities from continuing operations
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(105 | ) | (1,287 | ) | (8,761 | ) | ||||||
Net cash used in investing activities from discontinued operations
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- | (74 | ) | (289 | ) | |||||||
Net cash used in investing activities
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(105 | ) | (1,361 | ) | (9,050 | ) | ||||||
Cash flows from financing activities:
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||||||||||||
Proceeds from issuance of shares, net
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265 | (17 | ) | 1,758 | ||||||||
Proceeds (payments) from short and long-term bank loans
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(841 | ) | (363 | ) | 3,273 | |||||||
Proceeds (payments) from long-term convertible note and warrants, net of issuance expenses
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(28 | ) | 1,584 | - | ||||||||
Net cash provided by (used in) financing activities from continuing operations
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(604 | ) | 1,204 | 5,031 | ||||||||
Net cash provided by (used in) financing activities from discontinued operations
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(308 | ) | 385 | 969 | ||||||||
Net cash provided by (used in) financing activities
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(912 | ) | 1,589 | 6,000 | ||||||||
Increase (decrease) in cash and cash equivalents
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267 | (1,042 | ) | (2,634 | ) | |||||||
Increase (decrease) in cash and cash equivalents from discontinued operations
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(128 | ) | 359 | 254 | ||||||||
Cash and cash equivalents at the beginning of the year
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564 | 1,247 | 3,627 | |||||||||
Cash and cash equivalents at the end of the year
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$ | 703 | $ | 564 | $ | 1,247 |
Year ended December 31,
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|||||||||||||
2010
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2009
|
2008
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Supplemental disclosure of cash flow activities:
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|||||||||||||
(i)
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Net cash paid during the year for:
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||||||||||||
Interest
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$ | 463 | $ | 538 | $ | 495 | |||||||
Income tax
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$ | 2 | $ | 1 | $ | 200 | |||||||
(ii)
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Non-cash activities:
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||||||||||||
Conversion of payable into long-term convertible debentures
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$ | 161 | $ | 675 | $ | - | |||||||
Deferred charges related to convertible note
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$ | - | $ | 62 | $ | - | |||||||
Sale of investment in other company
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$ | 150 | $ | - | $ | - | |||||||
Purchase of property and equipment
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$ | - | $ | 47 | $ | - |
Year ended December 31,
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|||||||||||||
2010
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2009
|
2008
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(a)
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Acquisition of BOS - Dimex Ltd.
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Fair value of net tangible assets acquired (excluding cash and cash equivalents) and liabilities assumed at acquisition date
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$ | - | $ | - | $ | 7,326 | |||||||
Fair value of net intangible assets acquired at acquisition date
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- | - | 5,191 | ||||||||||
Less - amount acquired by issuance of shares
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- | - | (1,053 | ) | |||||||||
Less - unpaid balance on account of acquisition
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- | - | (2,755 | ) | |||||||||
Less – repayment of deferred consideration on account of acquisition
|
147 | 967 | - | ||||||||||
$ | 147 | $ | 967 | $ | 8,709 |
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a.
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B.O.S. Better Online Solutions Ltd. ("BOS" or "the Company") is an Israeli corporation.
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b.
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All share and per share data in this report is reported after giving effect to the 1 for 5 reverse split that occurred on January 12, 2010 (see Note 15).
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c.
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The Company has two operating segments, the RFID and Mobile Solutions segment and the Supply Chain Solutions segment.
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(1)
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BOS-Dimex Ltd. (previously "Dimex Solutions Ltd"), which purchased in March 2008 all of Dimex Systems Ltd. assets and activities, and its wholly-owned subsidiary, Dimex Hagalil Projects (2008) Ltd., which was incorporated in January 2008 and purchased all of Dimex Hagalil Ltd. assets and activities (together: "BOS-Dimex"). BOS-Dimex is a part of the RFID and Mobile Solutions segment;
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(2)
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BOS-Odem Ltd. ("BOS-Odem"), an Israeli company, is a distributor of electronics components and advance technologies worldwide. BOS-Odem is a part of the Supply Chain Solutions segments; and
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(3)
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Quasar Telecom (2004) Ltd. ("Quasar Telecom"), which is inactive.
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(1)
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Ruby-Tech Inc., a New York corporation, a wholly-owned subsidiary of BOS-Odem and a part of the Supply Chain Solutions segments;
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(2)
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BOS - Supply Chain Solutions (Lynk) Inc., a Delaware Corporation ("Lynk"), and its subsidiaries BOS-Supply Chain Solutions Inc. (Summit) Ltd. ("Summit"), Pacific Information Systems, Inc. ("PacInfo"), a Delaware corporation and PacInfo's subsidiary and Dean Tech Technologies Associates, LLC., a Texan corporation, both of which are no longer active. On November 23, 2010 the Company announced that its two U.S. subsidiaries that are part of its Supply Chain division, Lynk and its subsidiary Summit, have filed with the US Bankruptcy Court a Chapter 7 petition.
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(3)
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BOS Delaware Inc., a Delaware corporation, which ceased operations in 2002.
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d.
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Business combination:
|
March 1, 2008
|
||||
Cash consideration
|
$ | 4,253 | ||
Issuance of BOS shares (1)
|
1,053 | |||
Deferred payment (include transaction costs of $ 181)
|
7,120 | |||
Total purchase price
|
$ | 12,426 |
|
(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 of two days before and after the terms of the transaction were agreed to and announced.
|
Allocation of purchase price
|
BOS-Dimex
|
Estimated useful life
|
|||
Cash
|
$ | 11 | |||
Tangible assets
|
7,326 | ||||
Customer list (1)
|
462 |
6 years
|
|||
Brand name (2)
|
704 |
8 years
|
|||
Backlog (3)
|
29 | ||||
Deferred tax liability
|
(305 | ) | |||
Goodwill
|
4,199 | ||||
Total purchase price
|
$ | 12,426 |
|
(1)
|
Customer list - the Company's allocation of purchase price to the acquired customer list was performed by calculating cash flow benefits based on the income approach.
|
|
(2)
|
Brand name - the Company's allocation of purchase price to the acquired brand name by calculating cash flow benefits based on relief from the royalties approach.
|
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(3)
|
Backlog - the economic value of the backlog is calculated by deducting the relative expenses which will be accrued to sales equal to the backlog.
|
Year Ended
December 31, 2008
|
||||
(Unaudited)
|
||||
Revenues
|
$ | 52,924 | ||
Net loss
|
$ | (6,300 | ) | |
Net loss per share - basic and diluted
|
$ | (0.50 | ) |
|
e.
|
Discontinued operations:
|
Year ended December 31,
|
||||
2008
|
||||
Revenues
|
$ | 61 | ||
Cost of revenues
|
- | |||
61 | ||||
Operating expenses:
|
||||
Research and development
|
153 | |||
Sales and marketing
|
168 | |||
Total operating expenses
|
321 | |||
Operating loss
|
(260 | ) | ||
Net loss
|
$ | (260 | ) |
2.
|
On November 23, 2010 the Company announced that its two U.S. subsidiaries that are part of its Supply Chain division, Lynk and its subsidiary Summit, have filed with the US Bankruptcy Court a Chapter 7 petition.
|
NOTE 1:-
|
GENERAL (Cont.)
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | - | $ | 33 | ||||
Trade receivables
|
- | 1,433 | ||||||
Other accounts receivable and prepaid expenses
|
- | 129 | ||||||
Inventories
|
- | 3,608 | ||||||
Total current assets
|
- | 5,203 | ||||||
PROPERTY, PLANT AND EQUIPMENT, NET
|
- | 57 | ||||||
OTHER INTANGIBLE ASSETS, NET
|
- | 163 | ||||||
Total Assets
|
$ | - | $ | 5,423 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
LIABILITIES
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Short-term bank loans and current maturities
|
$ | - | $ | 3,804 | ||||
Trade payables
|
- | 1,191 | ||||||
Employees and payroll accruals
|
- | 7 | ||||||
Accrued expenses and other liabilities
|
- | 180 | ||||||
Total current liabilities
|
- | 5,182 | ||||||
LONG-TERM LIABILITIES:
|
||||||||
Deferred taxes and income tax accruals
|
- | 47 | ||||||
Total long-term liabilities
|
- | 47 | ||||||
COMMITMENTS AND CONTINGENT LIABILITIES
|
||||||||
Total liabilities
|
$ | - | $ | 5,229 |
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Revenues
|
$ | 8,338 | $ | 8,615 | $ | 17,018 | ||||||
Cost of revenues
|
6,990 | 7,704 | 13,853 | |||||||||
Gross profit
|
1,348 | 911 | 3,165 | |||||||||
Impairment of goodwill
|
- | 835 | 1,305 | |||||||||
Total operating costs and expenses
|
1,487 | 2,705 | 3,625 | |||||||||
Operating loss
|
(139 | ) | (2,629 | ) | (1,444 | ) | ||||||
Financial expenses, net
|
(213 | ) | (232 | ) | (205 | ) | ||||||
Other expenses, net (*)
|
(496 | ) | - | - | ||||||||
Loss before taxes on income
|
(848 | ) | (2,861 | ) | (1,649 | ) | ||||||
Tax benefit (taxes on income)
|
42 | (214 | ) | 162 | ||||||||
Net loss
|
$ | (806 | ) | $ | (3,075 | ) | $ | (1,487 | ) |
|
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. The most significant assumptions are employed in estimates used in determining values of goodwill and identifiable intangible assets, revenue recognition, tax assets and tax positions, legal contingencies, stock-based compensation costs, and assumptions utilized in troubled debt restructuring. Actual results could differ from those estimates.
|
|
b.
|
Financial statements in U.S. dollars:
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 ASC 830, Foreign Currency Matters. All transactions gains and losses from the remeasurement of monetary balance sheet items are reflected in the statement of operations as financial income or expenses as appropriate.
|
|
c.
|
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances including profits from intercompany 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 purchased with original maturities of less than three months.
|
|
e.
|
Inventories:
Inventories are valued at the lower of cost or market value. Cost is determined using the moving average cost method.
Inventory write-offs and write-downs are provided to cover risks arising from slow-moving items or technological obsolescence. As of December 31, 2010 and 2009, inventory is presented net of $ 1,494 and $ 1,458, respectively, for technological obsolescence and slow- moving items (see also Note 5).
|
|
f.
|
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 and development 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.
There were no grants in 2010, 2009 and 2008.
|
|
g.
|
Investment in other companies:
|
|
1.
|
Investment in NWB and QMX:
The Company accounts for its holdings in NWB shares as available for sale in accordance with ASC 320, Investments - Debt And Equity Securities ("ASC 320"). Unrealized gains and losses, net of the related tax effect are included in other comprehensive loss. Till the consummation of a merger of Qualmax with and into NWB in January 2009 the investment in Qualmax, which was traded in the Pink Sheet, was presented at cost according to ASC 325-20, Cost Method Investments ("ASC 325-20") due to no trading volume in share. Management evaluates investments in other companies for evidence of other than temporary declines in value.
|
|
|
Following the consummation of the merger of Qualmax and NWB, holdings in Qualmax were converted into shares of NWB.
The Company recognizes an impairment charge when a decline in the fair value of its marketable securities below the cost basis is judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the Company's intent and ability to hold the marketable securities for a period of time sufficient to allow for any anticipated recovery in market value, the length of time and extent to which the fair value has been less than the cost basis and the financial condition and near-term prospects of the issuers. If, after consideration of all available evidence to evaluate the realizable value of its marketable securities, impairment is determined to be other than- temporary, then an impairment loss should be recognized equal to the difference between the marketable securities' carrying amount and its fair value. Accordingly, during 2010, 2009 and 2008, an impairment loss, due to other-than-temporary decline in fair value, of $ 0, $ 304 and $ 744, respectively, has been recorded and presented in other expenses, net in the consolidated statements of operations.
During 2008, the Company sold 6.6 million shares of NWB for a total consideration of $ 165 and recorded a gain of $8.
On February 26, 2010, the Company sold all of its holdings in NWB to P&S Spirit LLC.. and recorded a capital loss of $7. The Company sold 61,441,827 shares of common stock of NWB (the "Shares") and 1,430,178 warrants to purchase common stock of NWB at an exercise price of $ 0.2098 per share expiring on December 31, 2010 (the "Warrants"). The consideration for the Shares and Warrants was $ 300 of which $ 150 was paid in March 2010 and the remaining $ 150 plus annual interest of 4% shall be paid in twelve monthly installments commencing March 2011. The Shares and Warrants were delivered to an escrow agent which will release the shares to the Buyer upon full payment of the Remaining Debt.
|
|
2.
|
Investment in Surf:
The Company's holding in Surf (a private company) as of December 31, 2010 is 6.2% of Surf's issued and outstanding shares. The Company's investment in Surf is accounted for based on the cost accounting method. During 2010, 2009 and 2008, an impairment loss, due to other-than- temporary decline in fair value, of $ 111, $ 53 and $712, respectively, has been recorded and presented in other expenses, net in the consolidated statements of operations.
The Company's investment in Surf 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 ASC 325-20.
|
|
h.
|
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 |
(mainly 33%)
|
|||
Office furniture and equipment
|
6 - 15 |
(mainly 10%)
|
|||
Leasehold improvements
|
10 |
(over the shorter of the period
of the lease or the life of the assets)
|
|||
Motor vehicles
|
15 | ||||
Plant
|
4 |
|
i.
|
Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Asset, whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset (or asset group) to the future undiscounted cash flows expected to be generated by the assets (or asset group). 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 their fair value of the assets. During 2010, 2009 and 2008, no impairment losses have been identified.
|
|
j.
|
Goodwill:
Goodwill represents excess of the costs over the net assets of businesses acquired. Under ASC 350, Intangibles - Goodwill and Other ("ASC 350"), goodwill is not amortized but instead is tested for impairment at least annually or between annual tests in certain circumstances, and written-down when impaired.
Testing Methodology:
The Company performs its annual impairment analysis of goodwill as of December 31 of each year, or more often if there are indicators of impairment present. The provisions of ASC 350 require that a two-step impairment test be performed on goodwill at the level of the reporting units. In the first step, or Step 1, the Company compares the fair value of each reporting unit to its carrying value. If the fair value exceeds the carrying value of the net assets, goodwill is considered not impaired, and the Company is not required to perform further testing. If the carrying value of the net assets exceeds the fair value, then the Company must perform the second step, or Step 2, of the impairment test in order to determine the implied fair value of goodwill. To determine the fair value used in Step 1, the Company uses discounted cash flows. If and when the Company is required to perform a Step 2 analysis, determining the fair value of its net assets and its off-balance sheet intangibles would require it to make judgments that involve the use of significant estimates and assumptions.
The Company determines the fair value of each reporting unit using the Income Approach, which utilizes a discounted cash flow model, as it believes that this approach best approximates the reporting unit’s fair value. Judgments and assumptions related to revenue, operating income, future short-term and long-term growth rates, weighted average cost of capital, interest, capital expenditures, cash flows, and market conditions are inherent in developing the discounted cash flow model. The Company considers historical rates and current market conditions when determining the discount and growth rates to use in its analyses. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for its goodwill.
|
|
k.
|
Research and development costs:
|
|
l.
|
Severance pay:
|
|
m.
|
Revenue recognition:
|
|
n.
|
Income taxes:
The Company and its subsidiaries account for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"). ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on the 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 and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.
The Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. During the years ended December 31, 2008 and 2007, the Company had no unrecognized tax positions. During the year ended December 31, 2010 and 2009 the Company recorded an amount of $ 67 and $ 421, respectively in regard to uncertain tax position.
|
|
o.
|
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.
The trade receivables of the Company are derived from sales to customers located primarily in Israel, America, the Far East and Europe. 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.
|
|
p.
|
Derivative financial instruments:
The Company’s Derivatives are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging (originally issued as SFAS 133 and SFAS161). Those derivatives consist primarily of forward contracts the Company uses to hedge the Company’s exposures to currencies other than the U.S. dollar. The Company recognized derivative instruments as either assets or liabilities and measures those instruments at fair value. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, the Company recognizes changes in the fair values in its statement of income in financial income, net, in the same period as the remeasurement gain and loss of the related foreign currency denominated assets and liabilities.
The notional principal of foreign exchange contracts to purchase U.S. dollars with foreign currencies was $ 1,500 at December 31, 2010. The Company recorded the fair value of derivative asset in the amount of $ 63 in other accounts receivable and prepaid expenses.
|
|
q.
|
Basic and diluted net earnings (loss) per share:
Basic net earnings (loss) per share are calculated based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings (loss) per share are 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 ASC 260, Earning Per Share.
The total number of shares related to the outstanding options and warrants excluded from the calculations of diluted net earnings (loss) per share, since they would have an anti-dilutive effect, was 1,442,339, 1,333,370 and 802,662 for the years ended December 31, 2010, 2009 and 2008, respectively.
|
|
r.
|
Accounting for share-based compensation:
The Company accounts for equity-based compensation in accordance with ASC 718, Stock Compensation ("ASC 718") which requires the recognition of compensation expenses based on estimated fair values for all equity-based awards made to employees and nonemployees and directors.
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.
The Company recognizes compensation expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures. The Company considers many factors when estimating forfeitures, including employee class and historical experience.
The Company estimates the fair value of stock options granted using the Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the date of grant, equal to the expected option term. The expected option term represents the period that the Company's stock options are expected to be outstanding and was determined based on the simplified method permitted by SAB 107 and extended by SAB 110 as the average of the vesting period and the contractual term. The Company currently uses the simplified method as adequate historical experience is not available to provide a reasonable estimate. The Company adopted SAB 110 effective January 1, 2008 and will continue to apply the simplified method until enough historical experience is available to provide a reasonable estimate of the expected term for stock option grants. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
The fair value for options granted in 2009 and 2008 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
|
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Risk-free interest
|
1.45 | % | 1.52 | % | ||||
Dividend yields
|
0 | % | 0 | % | ||||
Volatility
|
77 | % | 37 | % | ||||
Expected option term
|
3.46 years
|
3.43 years
|
||||||
Forfeiture rate
|
15 | % | 10 | % |
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Selling and marketing
|
$ | 39 | $ | 377 | $ | 169 | ||||||
General and administrative
|
178 | 252 | 412 | |||||||||
Total stock-based compensation expense
|
$ | 217 | $ | 629 | $ | 581 |
|
s.
|
Fair value of financial instruments:
|
|
Level 1 -
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
Level 2 -
|
Include other inputs that are directly or indirectly observable in the marketplace.
|
|
t.
|
Reclassification:
Certain 2009 figures have been reclassified to conform to the 2010 presentation. The reclassification had no effect on previously reported net income or shareholders' equity.
|
|
u.
|
Impact of recently issued accounting pronouncements:
In January 2010, the FASB issued Accounting Standards Update “ASU” No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which requires disclosures about inputs and valuation techniques used to measure fair value, as well as disclosures about significant transfers, beginning in the first quarter of 2010. Additionally, these amended standards require presentation of disaggregated activity within the reconciliation for fair value measurements using significant unobservable inputs (Level 3) beginning in the first quarter of 2011. The adoption of the effective portions of this ASU did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The Company does not anticipate that the adoption of the remaining portions of this ASU will have a material impact on its consolidated financial position, results of operations or cash flows.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) ("ASU 2009-13") and ASU 2009-14, Certain Arrangements That Include Software Elements, (amendments to FASB ASC Topic 985, Software) ("ASU 2009-14").
|
|
·
|
ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendment eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method.
|
|
·
|
ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact on its consolidated results of operations and financial condition.
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
Government authorities
|
$ | 213 | $ | 248 | ||||
Advances to suppliers
|
536 | 226 | ||||||
Prepaid expenses
|
57 | 130 | ||||||
Deferred expenses attributed to software projects
|
146 | 294 | ||||||
Receivable in respect of investment sale
|
127 | - | ||||||
Derivative asset
|
63 | - | ||||||
Other
|
41 | 16 | ||||||
$ | 1,183 | $ | 914 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
Raw materials
|
$ | 135 | $ | 110 | ||||
Finished goods
|
4,990 | 5,058 | ||||||
$ | 5,125 | $ | 5,168 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
Under long-term assets : Surf Communication Systems Ltd. (see Note 2g)
|
$ | 107 | $ | 218 | ||||
Under current assets :New World Brands Inc. ("NWB") (see Note 2g)
|
- | 361 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cost:
|
||||||||
Computers and software
|
$ | 2,197 | $ | 2,037 | ||||
Office furniture and equipment
|
1,027 | 913 | ||||||
Leasehold improvements and plant
|
1,417 | 1,357 | ||||||
Motor Vehicles
|
205 | 196 | ||||||
4,846 | 4,503 | |||||||
Accumulated depreciation:
|
||||||||
Computers and software
|
2,024 | 1,821 | ||||||
Office furniture and equipment
|
594 | 504 | ||||||
Leasehold improvements and plant
|
930 | 821 | ||||||
Motor vehicles
|
163 | 136 | ||||||
3,711 | 3,282 | |||||||
Depreciated cost
|
$ | 1,135 | $ | 1,221 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
Cost:
|
||||||||
Backlog
|
$ | 29 | $ | 27 | ||||
Technology
|
226 | 226 | ||||||
Brand name
|
722 | 679 | ||||||
Customer list
|
2,483 | 2,455 | ||||||
3,460 | 3,387 | |||||||
Accumulated amortization:
|
||||||||
Backlog
|
29 | 27 | ||||||
Technology
|
226 | 226 | ||||||
Brand name
|
259 | 158 | ||||||
Customer list
|
1,434 | 1,140 | ||||||
1,948 | 1,551 | |||||||
Amortized cost
|
$ | 1,512 | $ | 1,836 |
December 31,
|
||||
2011
|
$ | 376 | ||
2012
|
376 | |||
2013
|
376 | |||
2014
|
351 | |||
2015
|
33 | |||
$ | 1,512 |
RFID and Mobile Solutions
|
Supply
Chain Solutions
|
Total
|
||||||||||
Balance as of January 1, 2009
|
4,143 | 383 | 4,526 | |||||||||
Impairment
|
- | (383 | ) | (383 | ) | |||||||
Foreign currency translation adjustments
|
29 | - | 29 | |||||||||
Balance as of December 31, 2009
|
$ | 4,172 | $ | - | $ | 4,172 | ||||||
Foreign currency translation adjustments
|
266 | - | 266 | |||||||||
Balance as of December 31, 2010
|
$ | 4,438 | $ | - | $ | 4,438 |
Weighted interest
rate as of December 31, 2010
|
December 31,
|
|||||||||||
Loan currency
|
%
|
2010
|
2009
|
|||||||||
NIS
|
5.95 | $ | 5,473 | $ | 4,564 | |||||||
$ | 3.37 | 1,804 | 2,906 | |||||||||
7,277 | 7,470 | |||||||||||
Current maturities
|
5.54 | 501 | 513 | |||||||||
$ | 7,778 | $ | 7,983 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
Government authorities
|
$ | 514 | $ | 454 | ||||
Professional services
|
145 | 171 | ||||||
Liability to BOS-Dimex sellers (see Note 13)
|
301 | 128 | ||||||
Other
|
80 | 198 | ||||||
$ | 1,040 | $ | 951 |
|
a.
|
Classified by linkage terms and interest rates, the total amount of the loans is as follows:
|
Weighted interest
rate as of December 31, 2010
|
December 31,
|
|||||||||||
Loan currency
|
%
|
2010
|
2009
|
|||||||||
NIS
|
5.54 (Prime plus 0 – 2.1)
|
$ | 895 | $ | 1,329 | |||||||
895 | 1,329 | |||||||||||
Less - current maturities
|
5.54 | 501 | 513 | |||||||||
$ | 394 | $ | 816 |
|
b.
|
The loans mature in the following years subsequent to the balance sheet dates:
|
2011 (Current maturities)
|
$ | 501 | ||
2012
|
394 | |||
$ | 895 |
|
a.
|
Commitments:
|
|
1.
|
Royalty commitments:
|
|
a)
|
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. No grants were received during the years 2008 through 2010.
As of December 31, 2010, the Company has an outstanding contingent obligation to pay royalties, including interest, in the amount of approximately $ 3,498, in respect of these grants. Expenses in the amount of $3 were incurred on such royalties during 2010. No expenses were incurred on such royalties during 2009 and 2008.
|
b)
|
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. No grants were received during the years 2008 through 2010.
|
|
As of December 31, 2010, the Company has an outstanding contingent obligation to pay royalties including interest of $ 95 with respect to these grants. No expenses incurred on such royalties during 2010 and 2009. Expenses in the amount of $6 were incurred on such royalties in 2008.
|
2.
|
The facilities of the Company are rented under operating lease agreements that expire on various dates ending in 2012. Minimum future rental payments for 2011, 2012 and 2013 are $ 112, $ 4 and $ 0, respectively. |
|
3.
|
Litigation
In April 2006, BOSâNOVA EURL, a French company and former distributor of the Company, served the Company with a claim filed with the French Trade Tribunal alleging breach of exclusive distributor rights in France and asserting ownership to certain intellectual property rights in the Company’s products. The plaintiff sought an amount of approximately 3.3 million Euros and additional remedies. In June 29, 2008, the parties entered into a settlement agreement, pursuant to which they waived their respective claims against each other and terminated the court proceedings they had initiated on the basis of these claims. In connection with such settlement, the Company paid BOSâNOVA an amount of $20 and offered it a rebate of $40 on future purchases.
In January 2008, a former employee of the Company, filed a claim against the Company in the Labor Court in Tel Aviv, for severance payments in the amount of NIS 306 thousand (approximately $ 80). The plaintiff also demanded compensation for delay in payment of the said severance pay of NIS 207 thousand (approximately $ 54). Pursuant to the Court's judgment issued on January 2010 the Company paid only the severance payments plus interest.
On November 2008, Blockshtil Ltd. filed a claim in the Petach-Tikva Magistrate Court alleging breach of contract by the Company and seeking damages in the amount of NIS 149 thousand (approximately $ 42 Additional hearing was scheduled to March 31, 2011.The Company's financial statements include a provision in this respect.
|
Outstanding and exercisable warrants
|
Weighted average exercise
|
Weighted
average
|
||||||||
as of
|
price of
|
remaining
|
||||||||
December 31,
|
outstanding
|
contractual
|
||||||||
2010
|
warrants
|
life (years)
|
||||||||
108,363 | $ | 13.80 | 1.00 |
|
b.
|
Stock option plans:
In May 2003, the Company's shareholders approved the adoption of the 2003 Israeli Stock Option Plan ("the Plan"), pursuant to which 125,000 Ordinary shares were reserved for purchase by the employees, directors, consultants and service providers of the Company and its subsidiaries. Subsequently, the shareholders approved increases of the shares reserved for issuance under the Plan, initially to 200,000, and thereafter to 300,000, to 520,000 and in May 14, 2009 to 830,000. Any option which is canceled or forfeited before expiration will become available for future grants.
As of December 31, 2010 an aggregate of 234,378 of these options are still available for future grants. Each option granted under the Plan expires between 3-10 years from the date of the grant. The options vest gradually over a period of up to four years.
|
Number of options
|
Weighted-average exercise price
|
Weighted- average remaining contractual term (in years)
|
Aggregate intrinsic value
|
|||||||||||||
Outstanding at January 1, 2010
|
617,047 | $ | 7.10 | 3.79 | $ | 95 | ||||||||||
Changes during the year:
|
||||||||||||||||
Granted
|
- | $ | - | |||||||||||||
Exercised
|
(37,996 | ) | $ | 0.00 | ||||||||||||
Forfeited or cancelled
|
(104,460 | ) | $ | 7.25 | ||||||||||||
Outstanding at December 31, 2010
|
474,591 | $ | 7.69 | 3.26 | $ | 140 | ||||||||||
Vested and expected to vest
|
447,199 | $ | 7.69 | 3.26 | $ | 140 | ||||||||||
Exercisable at December 31,2010
|
352,079 | $ | 7.82 | 2.97 | $ | 140 |
Options
|
Weighted
|
Options
|
Weighted average
|
|||||||||||||||
outstanding
|
average
|
exercisable
|
remaining
|
|||||||||||||||
as of
|
remaining
|
as of
|
contractual
|
|||||||||||||||
exercise
|
December 31,
|
contractual
|
December 31,
|
life of options
|
||||||||||||||
price
|
2010
|
life (years)
|
2010
|
exercisable (years)
|
||||||||||||||
$ | 0 | 84,717 | 3.04 | 84,717 | 3.04 | |||||||||||||
$ | 2.48 | 1,500 | 3.14 | 500 | 3.14 | |||||||||||||
$ | 2.75 | 2,462 | 1.56 | - | - | |||||||||||||
$ | 3.05 | 6,000 | 2.88 | 3,000 | 2.88 | |||||||||||||
$ | 3.49 | 1,500 | 2.88 | 1,000 | 2.88 | |||||||||||||
$ | 5.00 | 91,260 | 3.13 | 23,940 | 3.25 | |||||||||||||
$ | 5.22 | 1,500 | 2.39 | 1,000 | 2.39 | |||||||||||||
$ | 5.64 | 50,000 | 2.88 | 50,000 | 2.88 | |||||||||||||
$ | 7.33 | 1,500 | 2.34 | 1,000 | 2.34 | |||||||||||||
$ | 7.50 | 1,500 | 2.50 | 1,000 | 2.50 | |||||||||||||
$ | 8.40 | 20,000 | 7.24 | 10,000 | 7.24 | |||||||||||||
$ | 8.57 | 1,500 | 2.34 | 1,000 | 2.34 | |||||||||||||
$ | 11.93 | 80,000 | 3.75 | 60,000 | 3.25 | |||||||||||||
$ | 12.60 | 64,920 | 6.30 | 48,690 | 6.30 | |||||||||||||
$ | 12.85 | 1,500 | 1.61 | 1,500 | 1.61 | |||||||||||||
$ | 13.40 | 56,132 | 0.88 | 56,132 | 0.88 | |||||||||||||
$ | 13.48 | 3,000 | 0.39 | 3,000 | 0.39 | |||||||||||||
$ | 15.00 | 5,600 | 4.07 | 5,600 | 4.07 | |||||||||||||
474,591 | 3.26 | 352,079 | 2.97 |
|
c.
|
Warrants issued to service providers and debt providers:
The Company accounts for these options in accordance with the provisions of ASC 505-50, "Equity-Based Payments to Non-Employees”. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions. No warrants were granted to service providers during the years 2008. During the years 2009 and 2010 the Company granted warrants to several service providers (see Note 13).
The compensation expenses that have been recorded in the consolidated financial statements regarding these warrants for the years ended December 31, 2010, 2009 were $ 0, and $ 20, respectively.
The Company's outstanding warrants to service and debt providers as of December 31, 2010 are as follows:
|
Warrants
|
Weighted
|
Warrants
|
Weighted average
|
|||||||||||||||
outstanding
|
average
|
exercisable
|
remaining
|
|||||||||||||||
as of
|
remaining
|
as of
|
contractual
|
|||||||||||||||
exercise
|
December 31,
|
contractual
|
December 31,
|
life of warrants
|
||||||||||||||
price
|
2010
|
life (years)
|
2010
|
exercisable (years)
|
||||||||||||||
$ | 0.00 | 1,320 | 3.00 | 1,320 | 3.00 | |||||||||||||
$ | 2.50 | 20,000 | 5.59 | 13,333 | 5.59 | |||||||||||||
$ | 2.75 | 784,581 | 1.59 | - | - | |||||||||||||
$ | 3.72 | 69,096 | 3.10 | 69,096 | 3.10 | |||||||||||||
$ | 5.00 | 13,200 | 3.00 | 13,200 | 3.00 | |||||||||||||
$ | 11.50 | 2,000 | 0.00 | 2,000 | 0.00 | |||||||||||||
$ | 20.20 | 45,481 | 1.10 | 45,481 | 1.10 | |||||||||||||
$ | 26.50 | 9,741 | 2.63 | 9,741 | 2.63 | |||||||||||||
945,419 | 1.79 | 154,171 | 2.77 |
|
a.
|
Reduction in corporate tax rate:
The rate of the Israeli corporate tax is as follows: 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 - 25%. Tax at a reduced rate of 25% applies on capital gains arising after January 1, 2003, instead of the regular tax rate. In July 2009, the "Knesset" (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%.
|
|
b.
|
Loss carry forward:
The Company and its Israeli subsidiaries have accumulated losses for Israeli income tax purposes as of December 31, 2010, in the amount of approximately $ 30,311. These losses may be carried forward and offset against taxable income in the future for an indefinite period. In addition, the Company and its Israeli subsidiaries have accumulated capital loses which may be carried forward under certain limitations.
|
|
c.
|
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,
|
||||||||
2010
|
2009
|
|||||||
Assets in respect of:
|
||||||||
Allowances and provisions
|
188 | 97 | ||||||
Net operating loss carry forward (1)
|
6,625 | 7,304 | ||||||
6,813 | 7,401 | |||||||
Valuation allowance (2)
|
(6,461 | ) | (6,980 | ) | ||||
352 | 421 | |||||||
Liabilities in respect of intangible assets
|
(352 | ) | (421 | ) | ||||
Net deferred tax assets (liability)
|
$ | - | $ | - |
(1)
|
See Note 16b. |
|
(2)
|
The Company has provided valuation allowances in 2010 on deferred tax assets resulting from tax loss carry forward and other reserves and allowances due to their history of operating losses and current uncertainty concerning the ability to realize these deferred tax assets in the future.
|
|
d.
|
Tax benefit (taxes on income) is comprised as follows:
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Current
|
$ | (2 | ) | $ | (6 | ) | $ | 22 | ||||
Prior years
|
(3 | ) | - | (4 | ) | |||||||
Deferred
|
- | (323 | ) | 223 | ||||||||
$ | (5 | ) | $ | (329 | ) | $ | 241 | |||||
Domestic
|
$ | (73 | ) | $ | (323 | ) | $ | 246 | ||||
Foreign
|
68 | (6 | ) | (5 | ) | |||||||
$ | (5 | ) | $ | (329 | ) | $ | 241 |
|
e.
|
Profit (Loss) before taxes is comprised as follows:
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Domestic
|
$ | 228 | $ | (5,697 | ) | $ | (4,894 | ) | ||||
Foreign
|
(52 | ) | - | - | ||||||||
$ | 176 | $ | (5,697 | ) | $ | (4,894 | ) |
|
f.
|
Reconciliation of the theoretical tax expense to the actual tax expense:
The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carry forward among the Company and various subsidiaries due to uncertainty of the realization of such tax benefits.
|
|
g.
|
Tax assessments:
BOS, BOS Odem, BOS-Dimex and Quasar have final assessments through 2005. Dimex Hagalil was incorporated in 2008, and therefore, does not have any final assessments.
Ruby-Tech Inc., a U.S. subsidiary, has final assessments through 2005.
|
|
h.
|
In accordance with the Company's accounting policy, interest expense and potential penalties related to income taxes are included in the tax expense line of the Company's consolidated statements of operations.
The Company and its subsidiaries file income tax returns in the U.S. and Israel jurisdiction. BOS, BOS-Dimex, BOS-Odem and Quasar may be subject to auditing by the Israel tax authorities for fiscal years 2006 and after. Dimex Hagalil may be subject to auditing by the Israel tax authorities for fiscal years 2008 and thereafter. Ruby-Tech Inc. ,a U.S. subsidiary, may be subject to auditing by the U.S. Internal Revenue Service ("IRS") for fiscal years 2006 and thereafter.
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
Uncertain tax positions, beginning of year
|
$ | 354 | $ | - | ||||
Increases in tax positions for prior years
|
- | 354 | ||||||
Decreases in tax positions for prior years
|
(17 | ) | - | |||||
Increases in tax positions for current year
|
58 | - | ||||||
Uncertain tax positions, end of year
|
$ | 395 | $ | 354 |
a. Financial expenses, net:
|
Year ended December 31,
|
||||||||||||||||||
2010
|
2009
|
2008
|
|||||||||||||||||
Financial income:
|
|||||||||||||||||||
Interest on bank deposits and marketable securities
|
$ | 32 | $ | 9 | $ | 4 | |||||||||||||
Change in fair value of forward contracts
|
141 | 82 | - | ||||||||||||||||
Other (mainly foreign currency transaction income)
|
- | - | 61 | ||||||||||||||||
173 | 91 | 65 | |||||||||||||||||
Financial expenses:
|
|||||||||||||||||||
In respect of bank loans and convertible note
|
(1,039 | ) | (671 | ) | (496 | ) | |||||||||||||
Other (mainly foreign currency transaction losses)
|
(95 | ) | (26 | ) | - | ||||||||||||||
(1,134 | ) | (697 | ) | (496 | ) | ||||||||||||||
$ | (961 | ) | $ | (606 | ) | $ | (431 | ) | |||||||||||
b. |
Net earnings (loss) per share:
|
||||||||||||||||||
1. |
Numerator:
|
||||||||||||||||||
Numerator for basic and diluted net Earning (loss) per share:
|
|||||||||||||||||||
Income (loss) from continuing operations
|
$ | 171 | $ | (6,026 | ) | $ | (4,653 | ) | |||||||||||
Loss from discontinued operations
|
(806 | ) | (3,075 | ) | (1,747 | ) | |||||||||||||
Net loss available to Ordinary shareholders
|
$ | (635 | ) | $ | (9,101 | ) | $ | (6,400 | ) | ||||||||||
2. |
Denominator (in thousands):
|
||||||||||||||||||
Basic weighted average Ordinary shares outstanding (in thousands)
|
2,622 | 2,606 | 2,396 | ||||||||||||||||
Diluted weighted average Ordinary shares outstanding (in thousands)
|
2,757 | 2,606 | 2,396 | ||||||||||||||||
Basic and diluted net earnings (loss) per share from continuing operations
|
$ | 0.07 | $ | (2.32 | ) | $ | (1.94 | ) | |||||||||||
Basic and diluted net earnings (loss) per share from discontinued operations
|
$ | (0.31 | ) | $ | (1.18 | ) | $ | (0.73 | ) | ||||||||||
Basic and diluted net loss per share
|
$ | (0.24 | ) | $ | (3.50 | ) | $ | (2.67 | ) |
|
a.
|
Revenues, gross profit and assets for the operating segments for the years 2010, 2009and 2008 were as follows:
|
RFID and Mobile Solutions
|
Supply
Chain Solutions
|
Not
Allocated/
|
Consolidated
|
|||||||||||||
2010
|
||||||||||||||||
Revenues
|
$ | 12,463 | $ | 17,724 | $ | - | $ | 30,187 | ||||||||
Gross profit
|
$ | 3,632 | $ | 3,851 | $ | - | $ | 7,483 | ||||||||
Assets related to segment
|
$ | 12,418 | $ | 9,605 | $ | 107 | $ | 22,130 |
2009
|
||||||||||||||||
Revenues
|
$ | 10,729 | $ | 14,738 | $ | - | $ | 25,467 | ||||||||
Gross profit
|
$ | 3,375 | $ | 116 | $ | - | $ | 3,491 | ||||||||
Assets related to segment
|
$ | 17,201 | $ | 4,159 | $ | 579 | $ | 21,939 | ||||||||
2008
|
||||||||||||||||
Revenues
|
$ | 11,280 | $ | 22,786 | $ | - | $ | 34,066 | ||||||||
Gross profit
|
$ | 3,367 | $ | 3,467 | $ | - | $ | 6,834 | ||||||||
Assets related to segment
|
$ | 20,645 | $ | 12,018 | $ | 882 | $ | 33,545 |
|
b.
|
The following presents total revenues and long-lived assets for the years 2010, 2009and 2008 based on the location of customers:
|
Year ended December 31,
|
||||||||||||||||||||||||
2010
|
2009
|
2008
|
||||||||||||||||||||||
Total
|
Long-lived
|
Total
|
Long-lived
|
Total
|
Long-lived
|
|||||||||||||||||||
revenues
|
assets *)
|
revenues
|
assets *)
|
revenues
|
assets *)
|
|||||||||||||||||||
America
|
$ | 2,596 | $ | - | $ | 1,548 | $ | - | $ | 3,344 | $ | - | ||||||||||||
Far East
|
2,228 | - | 998 | - | 904 | - | ||||||||||||||||||
Europe
|
811 | - | 566 | - | 1,317 | - | ||||||||||||||||||
Israel and others
|
24,552 | 1,135 | 22,355 | 1,221 | 28,501 | 1,050 | ||||||||||||||||||
$ | 30,187 | $ | 1,135 | $ | 25,467 | $ | 1,221 | $ | 34,066 | $ | 1,050 |
|
*)
|
Long-lived assets comprise of property, plant and equipment.
|
|
c.
|
Major customer data as a percentage of total revenues:
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
Customer A (Supply Chain Segment)
|
7 | % | 14 | % | 15 | % |
|
Year ended December 31,
|
|||||||||||
2010
|
2009
|
2008
|
||||||||||
Business development
|
$ | 95 | $ | 147 | $ | 113 | ||||||
Success fee in respect of merger acquisitions
|
- | - | 143 | |||||||||
Success fee in respect of issuance of convertible loan
|
- | 40 | - | |||||||||
Success fee in respect of issuance of private placements
|
18 | - | 120 | |||||||||
Total
|
$ | 113 | $ | 187 | $ | 376 |
/s/ KOST, FORER GABBAY & KASIERER
|
|
Tel Aviv Israel
|
KOST, FORER GABBAY & KASIERER
|
March 31, 2011
|
A Member of Ernst & Young Global
|
/s/ ARIK ESHEL, CPA & ASSOC., PC
ARIK ESHEL, CPA & ASSOC., PC
New York, NY
March 31, 2011
|
Manhattan Office
462 7th Ave
14th Floor
New York, NY 10018
Tel: (212) 302-7900
Fax: (212) 244-2932
|
Long Island Office
350 Vanderbilt Motor Pkwy.
Suite 300
Hauppauge, NY 11788
Tel: (631) 273-9532
Fax: (631) 273-0448
|
Brooklyn Office
50 Court Street,
Ste 1000
Brookly, NY 11201
Tel: (718) 491-0605
Fax: (718) 491-0609
|