BOS Boosts Sales in Q2, Bottom Line Hit by Note Conversion

Published: August 6, 2007

by Timothy Prickett Morgan

The midrange connectivity software and thin client business is doing better by Better Online Solutions. The Israeli company reported a substantial increase in sales in the second quarter ended June 30, and the company would have showed profit increases, too, if an investor had not cashed in convertible notes during the quarter, too.

During the second quarter, BOS had total sales of $5.7 million, up 27.6 percent compared to the year-ago quarter. The company's product sales backlog was $7.8 million as well, up 28 percent compared to the beginning of 2007 and foreshadowing what could be improving sales in the coming quarters. At the same time, BOS cut operating expenses to $1.4 million, down 13 percent. Laurus Master Fund converted $2.2 million in notes to ordinary shares of BOS, which are traded on the Tel Aviv and Nasdaq exchanges. This conversion is expected to save BOS $250,000 in financing expenses in the second half of 2007 and $350,000 in the two following years, which is a great reason to do it. But the conversion did require BOS to book a non-cash expense charge of $611,000 in the quarter. That pushed BOS to report a net loss of $824,000 in the quarter, or about 9 cents a share. Without that conversion, BOS would have been a lot closer to profitability than it was a year ago, when it had a net loss of $572,000 on much smaller sales.

Investors clearly think that BOS can turn this around and be profitable. In the second quarter, BOS raised $4.4 million in a rights offering to shareholders, another $600,000 through a private placement, and as mentioned above, $2.2 million in debt was converted into equity.

"I'm very proud in the Q2 results that reflect the implementation of our operating strategy to increase sales of existing products and expand our product offerings," said Shmuel Koren, president and chief executive officer at BOS, who came on board last October. "After many years of losses, we show a non-GAAP operating income and break even at the bottom line. In Q2, we were also able to significantly increase our product offerings, and are now well positioned to continue pursuing our objectives and implementing our strategy."

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