29th Apr 2008 08:14
Emblaze Ltd. ("Emblaze" or "the Group") Preliminary Unaudited Results for the year ended 31 December 2007
Ra'anana, Israel, 29April 2008: Emblaze Ltd , announces today its preliminary results for the 12 months ended 31 December 2007. All references to $ are to US Dollars.
Financial Highlights
* Emblaze Group consists of two main operating arms: Growth and Innovation.
The Growth arm relates to the stable, mature and operational companies managed under the Formula group. The Innovation arm relates to the investments made by the group in in-house technology research and development of future wireless and cellular products; * The Group began consolidation of the Formula Group financials as of Q2 2007, upon reaching a 50.1% holding in the Formula Group;
* As a result, Formula contributed $379 million in revenue and $12.4 million
in net income to the Emblaze Group;
* Net loss from continuing operations was circa $3.0 million incurred mainly
due to continuous R&D investments in the Innovation arm of the Group
(mainly Emblaze Mobile and EMOZE);
* The Group has a strong balance sheet with total assets amounting to $694
million (2006: $250 million); and * The financial statements for the periods include reclassifications with respect to the discontinued operations of the distribution and trading activities of Emblaze Mobile and Orca Interactive.
Operational Highlights
* Formula, our growth arm, has experienced an exceptional year both from a
financial and operational point of view as a direct result of efforts
invested by the Group in refining Formula's activities. Formula's
subsidiaries have collectively improved on their operational performance in
a substantial manner. Sapiens moved to operational profit and significantly
reduced its net loss. Magic achieved operating income of $1.3 million for
2007 compared to operating loss of $6.7 million in 2006. Matrix increased
its operational profit in 2007 by 27% to $24.5 million compared to $19.2
million in 2006 and its net profit for the period increased by 14% to $19.3
million. In addition, Formula's financial resources increased significantly
due to the issue of debentures in its subsidiary Matrix, the sale of the
entire holdings in BluePhoenix, a private placement in Sapiens and the sale
of a subsidiary of Magic. These financial activities resulted in over $150
million in cash to the Formula Group; and
* Each of the Group's innovation activities is making significant progress
towards fulfillment of their goals and objectives in terms of technological
capabilities as well as market exposure. The Group believes that its
investment in these innovation activities creates assets that will generate
significant value in the future.
EnquiriesEmblaze
Hadas Gazit / Hagit Gal +972 9 7699 302 / 339
Review
During 2007, Emblaze adopted a strategic approach to focus on its core competency and skills in the technology arena by addressing both growth and innovation activities. As part of this approach, the Group divided its activity into two main sections being the Growth activity and the Innovation arm.
The contribution of each activity to the Emblaze Group is presented in thetable below (selected items):Emblaze Group - Financial Twelve months ended Highlights December 31, 2007 (unaudited) US$ in thousands Growth Innovation Consolidated Activity Arm (Q2-Q4 2007) Revenues 378,881 8,395 387,276 Gross profit 94,016 4,933 98,949 Operating income (loss) 17,231 (12,180) 5,051 Income (loss) from continuing 9,914 (12,918) (3,004) operation
Income (loss) from discontinued 2,459 (2,691) (232)
operations Net income (loss) 12,373 (15,609) (3,236) GROWTH ACTIVITYThe growth activity of the Group includes Formula Systems (1985) Ltd.("Formula") and its subsidiaries. Emblaze owns 50.1% of Formula andconsequently began consolidating the Formula results as of Q2 2007. Formula isa NASDAQ and TASE listed company principally engaged, through its subsidiaries,in providing software consulting services, developing proprietary softwareproducts and providing computer-based business solutions.
Formula consists of established companies, with developed products and services that are delivering revenue and profit as outlined henceforth:
Matrix IT Ltd. ("Matrix")
Matrix IT Ltd. (TASE: MTRX)is one of Israel's leading integration and information technology services companies with expertise in banking, insurance, telecom, commerce and government IT solutions.
2007 was a great year for Matrix and its growth was mainly organic. The companywon many projects in the Israeli market, completed a private fund raising ofapproximately $60 million through the issuance of bonds rated AA3 by Moodys(Israel), expanded its offshore operation through the acquisition of Unicodersin Bulgaria, executed an MOU with Microsoft for a 3 year distribution agreementfor Microsoft's ERP system and acquired Tangram providing Matrix with a leadingpositioning in the Java and Mainframe market segment.Matrix's revenues for the year ended 31 December, 2007 amounted to $313.9million, up from $262.4 million in the corresponding period last year. Itsoperational profit for the period increased by 27.3% to $24.5 million, up from$19.2 million in 2006 and its net profit for the period increased by 14% to$19.3 million compared to $16.9 million in 2006. Matrix has a dividend policyof distributing at least 50% of net profits and therefore distributed $11.5million as a dividend to its shareholders on account of 2007 net profits.
Looking ahead, Matrix's main focus will be on expanding its international reach as well as maintaining its position as market leader in the Israeli IT sector.
Magic Software Enterprises Ltd. ("Magic")
Magic provides leading software development and integration technology that enable organisations to improve their business processes while retaining more value from their existing investments, thereby increasing their business agility and improving efficiency. The company has worldwide presence and a strong customer base in Europe, the United States, Japan, APAC and Israel.
Following implementation of a restructuring program led by the Group, Magic'soperating income for 2007 improved to $1.3 million compared to an operatingloss of $6.7 million in 2006. Net profit for 2007 was $12.6 million, comparedto a net loss of $5.0 million in 2006. During the fourth quarter of 2007,Emblaze initiated and managed the sale of Magic's wholly owned subsidiary,Advanced Answers on Demand (AAOD), to Fortissimo Capital for the sum of $17million in cash. As part of the transaction, Magic entered into a three-yearlicense agreement with AAOD worth $3 million in total. The net profit of $12.6million includes a $9.3 million capital gain from the sale of AAOD. Due to themeasures implemented by the Group, Magic is now positioned for success during2008 as a better focused and more efficient company with over $30 million incash.
Sapiens International Corporation N.V. ("Sapiens")
Sapiens International Corporation N.V. is a provider of IT solutions, mainly for financial uses and core applications for insurance organisations.
Sapiens achieved an operating profit of $0.8 million for the year ended 31December 2007, a significant improvement from the operating loss of $1.3million in 2006 and the first annual operating profit since 1999. There wasalso a significant reduction of 34.2% in the company's annual net loss, downfrom $3.8 million in 2006 to $2.5 million in 2007. In June 2007, Sapienssuccessfully completed a $20 million private placement and has to-date repaidapproximately 50% of the principal of its convertible debentures. During 2007the company generated $4 million of cash flow from operations.
nextSource Inc. ("NextSource")
NextSource is a private 100% owned subsidiary of Formula. It is a provider ofhuman capital management solutions. It designs, develops and implementsweb-based workforce management solutions. Based in New York, it is an Oracleand Microsoft Certified Partner. Customers span all sectors and includeAccenture, American Express, BP, EDS, IBM, and Pfizer.Revenues of the Formula Group for the year ended 31 December 2007 totaled$493.4 million compared to $416.8 million in 2006 with operating income in 2007of $27.2 million compared to $10.1 million in 2006, representing an increase of170%. In 2007, Formula recorded a net income of $37.3 million compared to a netincome of $10.0 million in 2006.
During the year, Formula sold its entire holdings in BluePhoenix Solutions Ltd for a consideration of approximately $64 million, which resulted in capital gain of approximately $18 million.
The table below summarises the 2007 performance of our growth activity in comparison to its 2006 performance (selected items):
Formula Systems - financial highlights Twelve months ended (unaudited) December 31, Emblaze Group consolidation is for period Q2-Q4 2007 2007 2006 US$ in thousands % of change Revenues 493,350 416,807 18% Gross profit 124,240 107,360 16% Operating income 27,235 10,097 170% Income (loss) from continuing operation 12,461 (461)
Income from discontinued operations 24,798 10,476 137%
Net income 37,259 10,015 272% INNOVATION ARM
Our innovation arm includes advanced technology companies. While high-risk innature, Emblaze believes in the potential value derived from such activitiesand will seek to mitigate risks by sharing its investment with leading globalindustry partners and close management.
Emblaze Mobile Ltd. ("Emblaze Mobile")
Emblaze Mobile, wholly owned by the Emblaze Group, is a designer of advancedmobile devices. It has embarked on an ambitious project to design the ultimate"all-in-one" mobile device. The main principle of the futuristic device is tocreate an all-in-one communication device whereby each part of the device (e.g.telephone, camera, MP3 player, GPS, Email, movie player etc.) providesfunctionality to match standalone dedicated devices (like a digital camera ,iPod, etc.) while maintaining an exceptional ease and simplicity of use. Thedevice is designed to have a revolutionary and intuitive operating systemcoupled with a unique User Interface that will rival giants such as Symbian andWindows Mobile in the market. Emblaze Mobile has signed an agreement withJapanese firms Sharp and Access for the development and manufacturing of thedevice.EMOZE Ltd. ("EMOZE")
EMOZE, wholly owned by the Emblaze Group, is a provider of Push email and PIM synchronization to mobile users. The company represents realisation of the mobile office vision, free and accessible for all mobile users around the world.
There are reportedly about 3bn mobile devices and 1.4 billion email accountsbut only around 15 million users of email from a mobile device (mostlyBlackberry users). Push email is clearly a potentially high-growth service forcorporate users and is likely to penetrate the mass market - there is thussignificant potential for growth in mobile email usage and this has resulted ina number of corporate transactions in this space.During 2007, EMOZE moved from a technological incubator to having a mass marketproduct. EMOZE was chosen by Nokia to be included in the Download folder of theNokia Symbian 60 devices as the only consumer email solution. The total numberof these handsets is expected to amount to over 300 million by the end of 2008.
EMOZE has also moved to address the business community with the recent release of the EMOZE software of Enterprise Server.
ZONE-IP Ltd. ("ZONE-IP")
ZONE-IP Ltd. is a 65% held subsidiary of the Emblaze Group and aholding company for Emblaze VCON Ltd. Emblaze VCON is engaged in thedevelopment and deployment of Video over-IP Conferencing Solutions, enablingenterprises of all sizes to optimize their productivity and efficiency throughenhanced interaction and communication.
The year ended 31 December 2007 was a turnaround year for ZONE-IP. Following the completion of a strategic review in the last quarter of 2006, ZONE-IP focused its efforts on the launch of new products.
On the operational side, ZONE-IP has improved its execution capabilities. Therelease of a brand new up-to-standard product line has enabled the company tosign distribution agreements with leading audio and video resellers across theworld and win new business. It has also enabled ZONE-IP to embark on new OEMdiscussions with leading video vendors.
Revenues for the period ending 31 December 2007 increased by 26% to $8.3m (2006: $6.6m), the operating loss decreased by 51% to $2.6m (2006: $5.3m) and net loss decreased by 53% to $2.75m (2006: $5.9m)
Orca Interactive Ltd. ("ORCA")
Orca Interactive Ltd. (BLZ: ORCA) provides IPTV middleware and applications for broadband network operators and service providers.
On March 2008, Orca has agreed the terms of its acquisition by Viaccess S.A., a wholly owned subsidiary of France Telecom SA, through a cash merger (the "Merger").
The Merger consideration consists of an amount of $13 million plus Orca's netcash as of the closing of the Merger. It is expected that the total Mergerconsideration to be approximately US$21.4 million. The merger was approved byOrca Shareholders at a general meeting on 15 April 2008.CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands December 31, 2006 2007 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 10,784 $ 173,161 Short-term bank deposits 5,347 1,330 Short-term marketable securities 47,383 54,865 Trade Receivables 1,800 142,120 Other receivables and prepaid expenses 3,492 35,620 Inventories 1,407 5,887 Totalcurrent assets 70,213 412,983
LONG-TERM RECEIVABLE AND INVESTMENTS: Long-term marketable securities 49,545 6,402
Long-term deposits - 10,669 Investments in affiliates - 3,682
Other long-term receivables and investments 84,110 4,147
Severance pay fund 690 37,599 Total long-term receivable and investments 134,345 62,499 PROPERTY AND EQUIPMENT, NET 1,017 16,297 GOODWILL AND OTHER ASSETS, NET 1,230
184,769
ASSETS OF DISCONTINUED OPERATIONS 42,858 17,307 Total assets $ $ 693,855 249,663 CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
December 31, 2006 2007
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: Trade payables $ 2,257 $ 59,763 Short-term borrowing 45,423 33,811 Other payables and accrued expenses 18,126 77,175 Convertible Debt - 3,725 Total current liabilities 65,806 174,474 LONG-TERM LIABILITIES Convertible Debt - 71,679 Liabilities to bank and other - 25,058 Deferred taxes - 5,766 Other long term liabilities 847 2,997 Accrued severance pay 1,133 44,477 Totallong-term liabilities 1,980 149,977
LIABILITIES OF DISCONTINUED OPERATIONS 32,937 9,726
MINORITY INTEREST 2,448 208,602 SHAREHOLDERS' EQUITY: Share capital: 416 416 Additional paid-in capital 468,400 470,891 Treasury stock, at cost (76,441) (76,433)
Accumulated other comprehensive income (loss) (328) 4,993
Accumulated deficit (245,555) (248,791) Totalshareholders' equity 146,492 151,076 $ $ 693,855 249,663
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except share and per share data
Year ended December 31, 2005 2006 2007 Revenues $ 8,076 $ 7,629 $ 387,276 Cost of revenues 4,022 4,071 288,327 Gross Profit 4,054 3,558 98,949 Operational expenses: Research and development, net 2,674 5,571 13,742 Selling and marketing 10,853 7,185 36,898 General and Administrative 4,950 6,634 43,177 Restructuring Expenses (720) 81 Total Operational Expenses 17,757 19,390 93,898 Operating Income (Loss) (13,703) (15,832) 5,051 Financial Income (Expenses) 9,455 5,830 (3,692) Other Income (Expenses) 6,446 (3,600) 7,189 Income (Loss) before taxes on income 2,198 (13,602) 8,548 Taxes on income - - 718
Net Income (Loss) before minority 2,198 (13,602) 7,830 Interest and Equity Gains (Loss)
Equity gains (Loss) (613) 327 622 Minority Interest 353 2,174 (11,456) Net income (loss) from continuing 1,938 (11,101) (3,004) operations Gain (loss) from discontinued (23,012) 1,262 (232) operations, net Net Loss $ (21,074) $ (9,839) $ (3,236)
Basic and diluted earnings (loss) per
share: From continuing operations $ 0.01 $ (0.09) $ (0.03) From discontinued operations (0.16) 0.01 0.00 Net loss per share $ (0.15) $ (0.08) $ (0.03)
Weighted average number of shares used 135,765,992 123,595,330 111,476,440 in computing basic and diluted earnings
(loss) per share
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands Share Additional Treasury Accumulated Accumulated Total Total deficit capital paid-in Stock, other comprehensive capital at cost comprehensive income (loss) income (loss) Balance as of 416 $ 465,896 $ $ 1,501 $ (214,642) $ January 1, 2005 (8,623) 244,548 Issuance of shares - 452 1,242 - - 1,694 upon exercise of stock options Debt security from - (2,500) - - - (2,500) related party Comprehensive loss: Unrealized gains - - - (1,857) - $ (1,857) (1,857) from available-for-sale marketable securities, net Foreign currency - - - (1,831) - (1,831) (1,831) translation adjustments Net loss - - - - (21,074) (21,074) (21,074) Total $ (24,762) comprehensive loss Balance as of 416 463,848 (7,381) (2,187) (235,716) 218,980 December 31, 2006 Repurchase of - - (70,953) - - (70,953)shares from related parties, net Issuance of shares - 49 182 - - 231 upon exercise of stock options Issuance of shares - 1,139 1,711 - - 2,850 upon business combinations, net Debt security from - 2,500 - - - 2,500 related party Share based - 864 - - - 864 compensation expenses Comprehensive loss: Unrealized gains - - - 1,905 - 1,905 1,905 from available-for-sale marketable securities, net Foreign currency - - - (46) - (46) (46) translation adjustments Net loss - - - - (9,839) (9,839) (9,839) Total $ (7,980) comprehensive loss Balance as of 416 468,400 (76,441) (328) (245,555) 146,492 December 31, 2006 Issuance of shares (1) 8 7 upon exercise of stock options Tax benefits 243 243 related to exercise of options in a subsidiary Increase of 1,897 1,897 investment due to decrease in percentage in holding in a development stage subsidiary Share based 352 352 compensation expenses Comprehensive loss: Unrealized gains 752 752 752 from available-for-sale marketable securities, net Foreign currency 4,569 4,569 4,569 translation adjustments Net loss (3,236) (3,236) (3,236) Total $ 2,085 comprehensive Income Balance as of 416 470,891 $(76,433) $ 4,993 $ (248,791) $151,076 December 31, 2007
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands Year ended December 31, 2005 2006 2007
Cash flows from operating activities:
Net loss $ $ $ (21,074) (9,839) (3,236)
Less: loss (gain) from discontinued 23,012 (1,262) 232
operations Net income (loss) from continuing operations 1,938 (11,101) (3,004) Depreciation and amortisation 715 907 10,065
Amortisation of marketable debt securities 612 511 380 premiums and accretion of discounts, net Share based compensation expenses - 300 577 Share based compensation expenses of 248 461 564
subsidiaries
Net loss (gain) on sales of marketable 92 778 1,335 securities and changes in accrued interest,
net Impairment of investment in Marketable 4,980 1,244 4,250 securities Equity (gain) losses 613 (327) (622)
Changes in value of long term loans and - - 708
deposits, net
Other Income and Capital losses (gains), net (11,010) 2,356 (8,580)
Minority interests in gains (losses) of (353) (2,174) 19,582 subsidiaries
Decrease (increase) in trade receivables, (5,366) 6,863 (2,986) other receivables and prepaid expenses and
inventories
Increase (decrease) in trade payables, other (2,288) 2,491 (14,156) payables and accrued expenses , accrued
severance pay, net and other long term
liabilities Changes in deferred income taxes, net - - (2,383) Other 58 205 (320)
Net cash provided by (used in) operating (9,761) 2,514 5,410 activities from continuing operations
Net cash used in operating activities from 641 18,333 (18,611)discontinued operations Net cash provided by (used in) operating (9,120) 20,847 (13,201)activities
Cash flows from investing activities:
Purchase of property and equipment, net (805) (395) (3,515)
Proceeds from sale of property and equipment 123 54 108
Investment in (proceed from) short-term bank (45) 396 6,603 deposits and deposits held in escrow
Investment in short-term marketable (234,700) (111,945) (27,432)securities
Proceeds from maturity of short-term 255,366 111,088 801
marketable securities Investment in long-term marketable (59,530) (12,994) (2,680) securities Proceeds from sales, calls and maturity of 32,851 86,545 76,917 marketable securities
Proceeds from (investment in) long-term bank 51,712 3,751 (10,233) deposits and restricted deposits
Capitalisation of software development and - - (4,138) other costs of subsidiaries Purchase of minority interest in - - (4,368) subsidiaries Proceeds from realisation of investment in - - 62,279 BluePhoenix Solutions Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands Year ended December 31, 2005 2006 2007 Investment in and loans to affiliated and (2,772) (1,215) (2,319) other companies
Cash paid by a subsidiary in conjunction with - - (5,305) the acquisition of subsidiaries thereof , net
of cash acquired
Purchase of intangible assets by consolidated (1,225) - (499)
companies
Payment for acquisition of Formula Systems - (84,414) -
(1985) Ltd Cash acquired in conjunction with the - - 88,865 acquisition of Formula Systems (1985) Ltd ,
net of cash paid
Net cash provided by (used in) investing 40,975 (9,129) 175,084 activities from continuing operations
Net cash provided by (used in) investing (66,139) 2,038 11,447 activities from discontinued operations
Net cash provided by (used in) investing (25,164) (7,091) 186,531 activities
Cash flows from financing activities: Proceeds from exercise of stock options in - - 1,557 subsidiaries
Proceeds from exercise of stock options 2,759 257 7 Issuance of convertible debt in a subsidiary - -
64,602
Dividend to minority shareholders in a - - (3,498) subsidiary Short-term borrowing and bank credit, net - 44,759
(37,417)
Repayment of long-term loans in subsidiaries - -
(61,717)
Receipt of long-term loans in subsidiaries - -
13,000
Issuance of ordinary shares in a subsidiary 1,803 - 14,980 to minority shareholders, net
Deposits - SWAP deal in a subsidiary - -
(1,040)
Repayment of convertible debt in a - - (7,260) subsidiary Purchase of treasury stock in a subsidiary - - 3,017 by a subsidiary thereof
Purchase of treasury stock - (70,953) - Debt security from a related party (2,500) - -
Net cash provided by (used in) financing 2,062 (25,937) (13,769) activities from continued operations
Net cash provided by (used in) financing 25,424 713 7 activities from discontinued operations Net cash provided by (used in) financing 27,486 (25,224) (13,762)activities Effect of exchange rate on cash - (966)
3,310
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands Year ended December 31, 2005 2006 2007 Increase (decrease) in cash and cash 33,276 (32,552) 170,035 equivalents from continuing operations
Increased (decrease) in cash and cash (40,074) 20,118 (7,157) equivalents from discontinued operations
Cash and cash equivalents from continuing 1,977 15,238 10,784 operations at the beginning of the year
Cash and cash equivalents from discontinued 29,931 9,872 1,892 operations at the beginning of the year
Cash and cash equivalents from continuing operations at the end of the year $ 15,238 $ 10,784 $
173,161
Cash and cash equivalents from discontinues $ 9,872 $ 1,892 $ 2,393 operations at the end of the year
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