Tel Aviv company pegs turnaround hopes on garbage.
By AVI KRAWITZtrash 88(photo credit: )
When Odem Electronics Technologies was presented with an opportunity to enter the world of garbage disposal, the one thing it did not waste was time.
Within two months of a request from German waste management giant Otto Group BV, which was looking for ways to make its operations more efficient, the Tel Aviv-based subsidiary of B.O.S. (Better Online Solutions Ltd.) produced the goods.
Odem signed an agreement with Otto to include its product, which uses RFID (radio frequency identification) technology, to provide in-depth information for refuse disposers - a relatively unexplored concept.
"There are similar technologies that have been in Europe but they have been doing the same thing for seven or eight years," Luc Muller, general manager of Otto, says in an interview with The Jerusalem Post. "The US and Asian markets are near virgin ground for applying RFID to garbage disposal operations and I need a more flexible system to take it there."
Muller, a major shareholder in Otto, has been investing in Israel for over 15 years, and he hopes his latest find in Odem will combine the Israeli flare for providing quick technological solutions with Otto's experience in marketing, to capture a major share of the US market while still in its infancy.
"The speed of Israel is fabulous, but it's not strong in marketing," says Muller. "It took less than two months for Odem to find a more modern way of doing what we wanted, which is unheard of in Europe."
Tracking opportunity
What privately owned Otto, with over 65 years experience in the garbage disposal industry, wanted was a better way to track the garbage it was hauling. Using RFID in refuse, a municipality or waste disposal contractor has the ability to recognize the garbage container, weigh it, know how much garbage has been lifted in each truck and bill according to the quantities provided. RFID is a wireless data collection technology that uses electronic tags for storing data and identifying items. These tags are read when located within the proximity of a transmitted radio signal. Under their agreement, Odem and Otto have formed a partnership that will launch Odem's product in the first quarter of 2006. The project follows Odem's success from providing the security tagging for the Maccabiah Games in the summer of 2005.
"The Maccabiah was an important event for us in 2005, for our RFID business, and we are now looking to expand that success to applications in other industries," says Avidan Zelikovsky, CEO of Odem. "Our agreement with Otto promises to do the same for us in 2006 and already we've had interest from various municipalities and contractors in the US."
In addition to sports events and now waste management, Zelikovsky says the company is working on ways to apply the technology to the transportation, diamond and jewelry, health care, and electric industries. Though each application, he says, requires a different technology.
Should it find the success it hopes for with these projects, Odem believes it will be able to build upon the trend that has seen the company double its revenues over the past two years to $20m. in 2005.
B.O.S.'s bet
"Odem is an illustration of how we intend to grow BOS in the future," says BOS Chairman Edouard Cukierman, who is also the CEO of Catalyst Investment, a venture capital fund that is a major investor in BOS.
BOS bought a 64 percent stake in Odem for just over $2m. in November 2004, increased its stake to 88% in September 2005 and then took full control of the company two months later.
With the acquisition, BOS now has two core businesses - Odem and its connectivity division, which includes the BOSaNOVA family of products.
The connectivity division provides emulation solutions for the IBM series (iSeries) servers. BOS empowers the iSeries servers using BOSaNOVA connecting external users to a server through the Web.
BOS is relying on the two businesses to provide a sorely needed turnaround for the company.
After reaching a peak market capitalization of around $200m. in March 2000, BOS, which is dual-traded on the NASDAQ and the Tel Aviv Stock Exchange, was hit when the hi-tech bubble burst. It had slumped to a valuation of $7m. by May 2003 when the Catalyst fund took control. BOS has since bounced off that low, having recently traded at a market capitalization of $15.55m., but still has a long way to go.
When Catalyst took over, BOS had an accumulated net loss of $30m. and has continued on the losing streak ever since. It had a net loss of $2.05m. in 2004 and a loss of $3.6m. for the first nine months of 2005, despite quadrupling its revenue to $20.8m. for the latter period.
Cukierman attributes the poor performance to BOS's communications division, which focuses on Voice over Internet Protocol (VoIP) and "has been losing a lot of money."
Rapid realignment
Given the losses, the company has seen its stock moved from the Nasdaq National Market to a less prestigious and more speculative over-the-counter small cap listing.
To regain its stature and cut its losses, BOS has embarked on a selling spree of the non-core businesses that have been a drag on the company.
"The main focus for Catalyst now is to turn BOS around and bring it to a critical size. So we've added a lot of activity around BOS to make it a profitable business," says Cukierman.
To that effect, BOS this week sold its communications division to US VoIP service and equipment provider Qualmax in exchange for 3.2 million Qualmax shares and 4% of royalties (up to $800,000) from future revenue Qualmax generates from the sold business.
In July, BOS sold its software utilities company, PrintBos, to Consist Technologies Ltd. and Consist International Inc. for $500,000 plus additional payments of up to $1m. per year for the next three years dependant upon PrintBOS revenues.
Now, Cukierman says BOS is ready to continue on the acquisition trail in search of complementary businesses to work with Odem and the connectivity unit.
Nevertheless, it's Odem and its involvement in RFID that BOS believes will most likely drive the company forward - the partnership with Otto being the litmus test.
"Odem is a local pilot that we hope to turn into an international project through our European partners," says Cukierman. "That way we get to a critical size suitable for a NASDAQ-traded company."
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