August 22, 2006

August 22, 2006

TERADYON, Israel -- (BUSINESS WIRE) - August 22, 200 6 -- B.O.S. Better Online Solutions Ltd. (the "Company" or "BOS") (NASDAQ: BOSC; TASE: BOSC) reported today its results for the second quarter of 2006.

Revenues for the second quarter of 2006 amounted to $4.5 million compared to $5.1 million in the first quarter of 2006 and $7.3 million in the second quarter of 2005. The revenues of the second quarter of 2005 included $1.1 million revenues of product lines (Thin Client and Software Utilities) and of the Communication segment, that were sold during year 2005, which generated most of the losses for that quarter.

Gross profit for the second quarter of 2006 was $1.1 million (gross margin of 25%), compared to $1.2 million in the first quarter of 2006 (gross margin of 23.6%) and $2 million (gross margin of 27.8%) in the second quarter of the year 2005. The decrease in gross margin in comparison to 2005, is related mainly to the Communication segment (that was sold in late 2005) whose gross margin in the second quarter of 2005 was 30.6%.

Operating loss for the second quarter amounted to $457 thousand, compared to $43 thousand in the first quarter of 2006 and to $431 thousand in the second quarter of 2005. Operating loss includes options and shares compensation cost in the amount of $334 thousand in the second quarter of 2006, compared to $61 thousand in the first quarter of 2006 and $105 thousand in the second quarter of 2005. Exclusive of the options and shares compensation cost, the operating loss for the second quarter of 2006 was $123 thousands, compared to an operating profit for the first quarter of 2006 of $18 thousand and an operating loss in the second quarter of 2005 of $326 thousand.

Other income net, for the second quarter of 2006, includes a gain of $358 thousand composed of consideration paid in Qualmax Inc. (Pink Sheets: QMXI) shares on account of the earn out shares contemplated as part of the sale of the Communication segment to IP Gear Ltd., (a subsidiary of Qualmax Inc.), in December 2005, and an additional gain of $250 thousand due to the conversion of debt owed to BOS by IP Gear Ltd., into Qualmax Inc. shares. Other income for the first quarter of 2006 includes a gain of $350 thousand as a result of the conversion of debt owed to BOS by IP Gear Ltd., into Qualmax shares.

Net profit for the second quarter of 2006 amounted to $37 thousand (or $0.01 basic and diluted profit per share), compared to net income of $137 thousand (or $0.02 basic and diluted profit per share) in the first quarter of 2006 and to net loss of $940 thousand (or -$0.19 per share) in the second quarter of 2005.

The net profit for the six months period ending June 30 2006, amounted to $174 thousand (or $0.03 basic and diluted profit per share) compared to net loss of $1.9 million (or -$0.39 per share) in the six month period ending June 30 2005.

As of June 30, 2006, the Company's balance sheet shows financial resources (cash and cash equivalents) of $2.5 million and loans (long and short term) of $4.4 million.

In June 2006, the Company participated in a financing round in Surf Communication Solutions Ltd., and invested an amount of $300,000. Following the investment, the Company's holds 7.8% of Surf's issued and outstanding share capital .

Adiv Baruch , BOS' President and CEO commented: "The second quarter of the year reflects the operations that remain in B.O.S. after the reorganization and improvement processes performed during 2005, when we sold the Communication segment. Despite the fact that this decision led to a reduction in revenues, we succeeded in maintaining a substantial gross profit."

Edouard Cukierman, Chairman of the Board of Directors, added: "Recently, we began negotiations for raising capital that will allow B.O.S to identify opportunities in purchasing an essential operation. The company is making an intensive effort identifying and screening target companies for merger or acquisition to take place in the near future. Our guidance for the full year 2006, given in May 2006, according to which we expect revenues to exceed $20 million and that the Company will generate a net profit in its audited financials (exclusive of M&A transactions that may transpire), remains unchanged."

About BOS
B.O.S. Better Online Solutions Ltd. (the "Company" or "BOS") (NASDAQ:BOSC; TASE:BOSC) was established in 1990. Through its wholly owned subsidiaries, BOS activities are focused on two segments:

Electronic Components segment, based on Odem Electronic Technologies 1992 Ltd., providing solutions in RFID, semiconductors, electronic components, CCD, imaging, networking, telecom and automation fields.

Connectivity segment, with products marketed under the BOSaNOVA brand name. These products deliver instant and transparent connectivity from IBM iSeries computers to personal computers, thin clients and browsers.

BOS, www.boscorporate.com is traded on NASDAQ and on the Tel-Aviv stock exchange.

For further information, please contact:
Mr. Emanuel Kahana
Gelbart-Kahana Public Relations &Investors Relations
Tel.  +972-3-6074717  , e-Mail: info@gk-biz.com

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. These risk factors and uncertainties include, amongst others, the dependency of sales being generated from one or few major customers , the uncertainty of our being able to maintain current gross profit margins, inability to keep up or ahead of technology and to succeed in a highly competitive industry, inability to maintain marketing and distribution arrangements and to expand our overseas markets, uncertainty with respect to the prospects of legal claims against BOS; and additional risks and uncertainties detailed in BOS' periodic reports and registration statements filed with the U.S. Securities Exchange Commission.. BOS undertakes no obligation to publicly update or revise any such forward-looking statements to reflect any change in its expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.


CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

June 30,
2006

December 31, 2005

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$ 2,470

$ 2,346

Marketable securities

-

1,333

Trade receivables

4,465

5,199

Other accounts receivable and prepaid expenses

635

592

Inventories

3,253

3,323

Total current assets

10,823

12,793

LONG-TERM ASSETS:

Severance pay fund

708

937

Investment in companies

6,631

5,412

Total long-term assets

7,339

6,349

OTHER ASSETS

59

49

PROPERTY, PLANT AND EQUIPMENT, NET

598

667

GOODWILL

952

952

CUSTOMER LIST, NET

1,733

1,836

$ 21,504

$ 22,646

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Short term loans from banks

$ 3,155

$ 2,271

Current maturities of long-term bank loans and convertible note

642

354

Trade payables

2,122

3,367

Employees and payroll accruals

420

772

Deferred revenues

228

258

Accrued expenses and other liabilities

901

1,571

Total current liabilities

7,468

8,593

LONG-TERM LIABILITIES:

Bank loans (net of current maturities)

10

17

Convertible note (net of current maturities)

579

921

Deferred taxes

392

422

Accrued severance pay

871

1,190

Total long-term liabilities

1,852

2,550

LIABILITIES RELATED TO DISCONTINUED OPERATIONS

237

237

Total shareholders' equity

11,947

11,266

Total liabilities and shareholder's equity

$ 21,504

$ 22,646


CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except per share data

Six months ended
June 30,

Three months ended
June 30,

Year ended December 31, 2005

2006

2005

2006

2005

Revenues

$ 9,559

$ 14,593

$ 4,457

$ 7,321

$ 27,053

Cost of revenues

7,240

10,598

3,342

5,284

20,109

Reversal of royalties

-

-

-

-

84

Gross profit

2,319

3,995

1,115

2,037

7,028

Operating costs and expenses:

Research and development

289

1,457

141

721

2,608

Less - grants and participation

-

(133)

-

(133)

(296)

Sales and marketing

996

1,918

472

999

3,563

General and administrative

1,534

1,717

959

881

3,267

Total operating costs and expenses

2,819

4,959

1,572

2,468

9,142

Operating loss

(500)

(964)

(457)

(431)

(2,114)

Financial expenses, net

(206)

(322)

(128)

(161)

(448)

Other income , net

867

27

609

27

1,134

Loss before taxes on income

161

(1,259)

24

(565)

(1,428)

Taxes on income

13

(234)

13

(175)

(204)

Profit (loss) after taxes

174

(1,493)

37

(740)

(1,632)

Equity in losses of an affiliated company

-

(240)

-

(95)

( 1,750 )

Minority interest in earnings of a subsidiary

-

(150)

-

(105)

(223)

Net profit (loss)

$ 174

$ (1,883)

$ 37

$ (940)

$ (3,605)

Basic profit (loss) per share

$ 0.03

$ (0.39)

$ 0.01

$ (0.19)

$ (0.64)

Diluted profit (loss) per share

$ 0.03

$ (0.39)

$ 0.01

$ (0.19)

$ (0.64)


SEGMENT INFORMATION

U.S. dollars in thousands

Three months ended June 30, 2006

Connectivity

Communication*

Electronics Components

Not allocated

Consolidated

Revenues

$ 451

$ -

$ 4,006

$ -

$ 4,457

Gross profit

$ 247

$ -

$868

$ -

$ 1,115

Operating profit (loss)

$ (118)

$ -

$ 71

$ (410)

$ (457)

Three months ended June 30, 2005

Connectivity

Communication*

Electronics Components

Not allocated

Consolidated

Revenues

$ 1,055

$ 872

$ 5,450

$ (56)

$ 7,321

Gross profit

$ 600

$ 267

$ 1,170

$ -

$ 2,037

Operating profit (loss)

$ (66)

$ (549)

$ 507

$ (323)

$ (431)

Six months ended June 30, 2006

Connectivity

Communication*

Electronics Components

Not allocated

Consolidated

Revenues

$ 1,018

$ -

$ 8,541

$ -

$ 9,559

Gross profit

$ 665

$ -

$ 1,654

$ -

$ 2,319

Operating profit (loss)

$ (71)

$ -

$ 102

$ (531)

$ (500)

Six months ended June 30, 2005

Connectivity

Communication*

Electronics Components

Not allocated

Consolidated

Revenues

$ 2,561

$ 1,789

$ 10,298

$ (55)

$ 14,593

Gross profit

$ 1,455

$ 531

$ 2,009

$ -

$ 3,995

Operating profit (loss)

$ 73

$ (1,147)

$ 704

$ (594)

$ (964)

Year ended December 31, 2005

Connectivity

Communication*

Electronics Components

Not allocated

Consolidated

Revenues

$ 3,926

$ 2,954

$ 20,253

$ (80)

$ 27,053

Gross profit

$ 2,425

$ 783

$ 3,820

$ -

$ 7,028

Operating profit (loss)

$ 235

$ (2,374)

$ 727

$ (702)

$ (2,114)

* Communication segment was sold at December 2005.

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