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Mazal tov, Solbar Industries (TASE: SLBR). The soy products maker returned to the black in the first quarter of 2007, after losing a combined NIS 85 million in the preceding six quarters.

Solbar, which is now controlled by Ishay Davidi's FITE fund, which specializes in turning around troubled companies, and Mivtach Shamir Holdings (TASE: MISH) , not only returned to profitability, but netted a whopping NIS 45.2 million in the first quarter of 2007. In the corresponding quarter of 2006, it had lost NIS 4.8 million.

Most of the increase was due to a debt arrangement Solbar reached with its bondholders.

The company located in Kibbutz Hatzor explains that the arrangement enabled it to book income of NIS 44.1 million, in net terms. That income results from the difference between liabilities in its accounts, before the arrangement, and the value of the debt today (Solbar gave its bondholders a certain amount in cash, and  also some shares).

The NIS 44.1 million in net terms is after deducting various costs involved in implementing the arrangement with its bondholders.

Now, if this accounting arrangement is discounted, Solbar actually netted NIS 1.1 million from its operations. So the company can fairly be said to have returned to the black, even though its revenues slid by 8.2% against the first quarter of 2006 to NIS 125.3 million.

The reason its revenues retreated is that the company's market conditions became even worse. On the other hand, Solbar is now controlled by Davidi et al, and instituted not a few efficiency measures, hence its shift to operating income, from a sea of red ink.

The company's gross margin rose to 13.8% in the first quarter of 2007, or NIS 20 million. For that it can thank mainly a drop in its cost of sales, by 11.5% to NIS 105.3 million.

Management costs at Solbar also shrank, by 6.8% against the parallel quarter to NIS 13.1 million.

Thanks to its costs cutbacks, operating income doubled to NIS 6.8 million, Solbar said.

Cash flow from operations remained negative: it burned up NIS 3.6 million in the quarter. But that's better than its cash burn a year ago, which had amounted to NIS 17 million.

Among Solbar's efficiency measures had been layoffs. It also replaced some management figures, including its CEO.

Solbar hit the headlines in 2004 by virtue of its immensely dramatic initial public offering. Mainly thanks to the mechanism of flotations at the time, the rather small company boasted the highest demand in Tel Aviv history: NIS 1.6 trillion.

Yet not long afterwards, the company sank into trouble, mainly because of heavy costs on running in new production plants, rising energy costs, changes in the global market for soy products.

From 2004 to 2006, the company's results deteriorated, and badly at that. If in 2004 it managed to claw its way to a tiny profit, by 2005 it posted a loss of NIS 43 million. In 2006 it lost another NIS 36 million.

Its horrible losses did nasty things to its equity structure and working capital. As its financial status deteriorated, there was a real question as to whether Solbar could repay its bondholders. Its auditors even marked its 2006 financial statement with a going-concern warning.

But then FITE, Mivtach Shamir and Ori Yehudai of Frutarom (TASE: FRUT, LSE: FRUTq , OTC: FRUTF)  fame came into the game, in September 2006. They infused NIS 80 million. Solbar raised another NIS 20 million from other sources, repaid its bondholders - allocating them 19% of its shares, and paying NIS 100 million in cash.

From the start of 2005, Solbar shares have lost 60% of their value. The company's market cap is now NIS 235 million.