Interim Results

Orca Interactive Ltd 29 August 2007 Orca Interactive Ltd Results for the six months ended 30 June 2007 Ra'anana, Israel, 29 August 2007 - Orca Interactive Ltd ('Orca'), a global leader in the IPTV middleware market, announces its results for the six months ended 30 June 2007. Financial Highlights: • Revenues of $3.2m (H1 2006: $0.9m) • Gross profit margin of 72% (H1 2006: 81%) • Net loss of $2.1m (H1 2006: $3.4m) • $0.06 loss per share (H1 2006: $0.1 loss per share) • Strong net cash position with $14.6m at period end • Order book at $4.9m Operational Highlights: • New deployments with On Telecoms in Greece, Sibir Telecom in Russia, Lattelecom in Latvia and WT Services in the US • US office opening announced after the period end • Agreement signed with Blockbuster Israel to deploy first to market integrated IPTV and Web TV offering Haggai Barel, Chief Executive Officer of Orca, said: 'Following a difficult year in 2006, where we saw our revenue impacted by sector consolidation, we have seen a positive return to momentum in the first half of 2007. We have seen a clear increase in new orders, especially in the EMEA region which, as the most advanced market, has been the focus for our sales and marketing investment over the past 18 months. As in previous years, the timing of revenues will continue to be difficult to predict. However, the second half has started well and our pipeline is strong. As a result, we remain confident in the prospects for our business this year.' Enquiries: Orca Interactive Ltd Haggai Barel, Chief Executive +972 9 7699400 Financial Dynamics James Melville-Ross / Matt Dixon +44 20 7831 3113 About Orca Interactive Orca Interactive (LSE-ORCA) is a leading provider of IPTV middleware and applications for broadband network operators and service providers. Orca enables triple-play providers to deliver a full array of attractive video-over-IP services that generate new revenue streams and strengthen customer loyalty. Leveraging a flexible telco-grade middleware platform, Orca empowers operators to deliver broadcast TV, video on demand (VOD), personal video recording (PVR), home media and other compelling interactive services. Orca's SI-enabled solutions are designed for easy outsourcing of integration services by an operator's preferred systems integrator. Orca has formed strategic partnerships with leading players across the IPTV value chain to ensure best-of-breed solutions with low total cost of ownership. For more information, please visit www.orcainteractive.com. Chief Executive's Review Overview Following a difficult year in 2006, where we saw our revenue impacted by sector consolidation, we have seen a positive return to momentum in the first half of 2007. We have seen a clear increase in new orders, especially in the EMEA region which, as the most advanced market, has been the focus for our sales and marketing investment over the past 18 months. We also won our first contract in the US market and are currently in the process of opening an office there. Across the market as a whole we are seeing an increased interest in the application of Web TV services from the customers and partners we talk to. Video is increasingly being viewed via the PC as well as TV and we are responding to this trend with the launch, announced today, of our integrated WebTV and IPTV offering. We are delighted that Blockbuster Israel has already selected this unique offering to be deployed to its subscribers. Financial performance Revenues in the first half of the year were $3.2m, compared to $0.9m in the first half of 2006, boosted by the new deals with On Telecoms, Sibir Telecom, Lattelecom and WT Services. Overall gross margins were 72% (H1 2006: 81%) mainly as a result of the On Telecoms project for which Orca, as prime contractor, supplied professional services and 3rd party software and hardware as part of the IPTV solution. Sales and marketing expenditure at $2.2m was similar to 2006, as we continued to invest in establishing and building relationships with global system integrators and network access vendors. Research and development expenditure at $1.6m, was also broadly similar to 2006 as we invested in product developments geared towards securing our leadership position in allowing operators to leverage the opportunities of Triple Play integration, particularly of voice and video. Our operating loss for the period narrowed to $2.3m (H1 2006: $3.8m), reflecting the increased revenues. The net loss reduced to $2.2m (H1 2006: $3.4m) resulting in a reduced net loss per share of $0.06 (H1 2006: $0.1 loss per share). At 30 June 2007, the Company had cash balances of $14.6m. Operating cash outflow during the period was $2.4 million (H1 2006: $2.6 million). Product development The Company continues to invest in product development in order to maintain the market leading position of its technology. Orca has announced today, 29 August 2007, the launch of a unique hybrid IPTV and WebTV solution. Expanding on our RiGHTv middleware platform, the combined IPTV and WebTV solution supports both managed and unmanaged environments to help service providers expand their customer base and market reach. IPTV service providers will also be able to broaden offerings to existing subscribers with anytime, anywhere TV services for on-the-go digital content over mobile PCs. In addition, content offerings can be extended beyond IPTV to enable WebTV, diverse multimedia, niche content and user generated content. Orca is delivering this new technology to Blockbuster Israel, a franchise of Blockbuster Inc., enabling it to deliver advanced digital content services to its subscribers. Customers and Partners In March, we announced that ON Telecoms, an alternative telecoms provider, had selected our RiGHTv middleware in a pioneering Greek IPTV deployment. The service includes live TV (a hybrid of DVB-T and IP channels), on-demand services such as video on demand (VOD) and super fast broadband up to 10 Mbps. ON Telecoms began offering its Greek IPTV solution just four months after starting the project, thereby demonstrating our ability to enable innovative operators to design their own solutions and launch successful IPTV rollouts in a short time. In April, RiGHTv(TM) was deployed in the Baltic region's first ever MPEG4 IPTV solution. Lattelecom is Latvia's leading provider of information technology and telecommunications services and its landmark service offers broadcast television, video on demand, multi-lingual capabilities and self service functionality. Also in April we announced that Sibir Telecom, one of the largest telecommunication operators in Russia, had selected and deployed RiGHTv(TM). The first phase of their deployment covers Novosibirsk, which is considered to be Russia's third largest city and it is planned to be expanded within the limits of this federal district during 2007. Our solution not only allows Sibir Telecom to scale their solution as they grow, but it also provides them with a telco grade, customized solution from the first day. Developments in the US market On 18 July, we announced our first US customer agreement. W.T. Services, Inc., a wholly owned subsidiary of West Texas Rural Telephone Cooperative, had selected Orca's RiGHTv middleware to provide integrated, carrier-grade IPTV services including live television broadcast, pay-per-view and VOD. At the same time, we announced our intention to open a US office. During the third quarter of 2007, Orca will open an office on the West Coast of the US allowing US customers to benefit from Orca's array of partnerships across the IPTV value chain with companies such as Amino, BitBand, MetaSwitch, Trilithic, Quintrex, Tribune Media Services, Verimatrix and Widevine. Offer talks On 12 January 2007 the Company announced that it had received preliminary approaches expressing an interest in making an offer for the Company. Discussions in this regard are continuing to progress and we expect to give further updates in due course. Current trading and outlook We currently have 12 commercial deals across 11 countries. This is testament to the progress we are making signing new customers and strengthening our relationships with our key channel partners. As in previous years, the timing of revenues will continue to be difficult to predict, however, the second half has started well and our pipeline is strong. As a result, we remain confident in the prospects for our business this year. Haggai Barel Chief Executive Officer 29 August 2007 BALANCE SHEETS U.S. dollars in thousands, except share and per share data 31 December 30 June 2006 2007 Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,878 $ 2,371 Short-term available-for-sale-marketable securities 9,166 9,220 Trade receivables 698 1,374 Other accounts receivable and prepaid expenses 331 491 Total current assets 12,073 13,456 NON-CURRENT ASSETS: Long-term available-for-sale marketable securities 5,963 2,998 Property and equipment, net 394 316 Investment in an associate 2,425 2,265 Total non-current assets 8,782 5,579 Total assets $ 20,855 $ 19,035 LIABILITIES AND EQUITY CURRENT LIABILITIES: Trade payables $ 425 $ 290 Deferred revenues 321 170 Other accounts payable and accrued expenses 1,947 2,467 Advances from customers, net of work in process 3,045 2,985 Parent company 234 255 Total current liabilities 5,972 6,167 SEVERANCE PAY LIABILITY, NET 199 227 Total liabilities 6,171 6,394 EQUITY: Share capital - Ordinary shares of NIS 0.01 par value - Authorized: 55,000,000 shares at 31 December 2006 and 30 June 2007; Issued and outstanding: 35,573,299 and 35,578,924 shares at 31 December 2006 and 30 June 2007, respectively 82 82 Additional paid-in capital 46,411 46,475 Net unrealized loss reserve (86) (32) Foreign currency translation adjustments 13 4 Accumulated deficit (31,736) (33,888) Total equity 14,684 12,641 $ 20,855 $ 19,035 The accompanying notes are an integral part of the financial statements. STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Year ended Six months ended 31 December 30 June 2006 2006 2007 Unaudited Revenues $ 3,339 $ 914 $ 3,225 Cost of revenues 655 172 910 Gross profit 2,684 742 2,315 Operating expenses: Research and development, net 3,001 1,632 1,598 Sales and marketing 4,224 2,163 2,207 General and administrative 1,514 799 852 Total operating expenses 8,739 4,594 4,657 Operating loss 6,055 3,852 2,342 Financial income, net 854 472 340 Loss before share in losses of an associate 5,201 3,380 2,002 Equity in losses of an associate 88 - 150 Net loss $ 5,289 $ 3,380 $ 2,152 Basic and diluted net loss per share $ 0.15 $ 0.10 $ 0.06 Weighted average number of shares used in computing basic and diluted net loss per share 35,533,652 35,430,294 35,577,049 The accompanying notes are an integral part of the financial statements. STATEMENTS OF CHANGES IN EQUITY U.S. dollars in thousands, except share data Foreign Total Additional Net currency recognized Ordinary shares paid-in unrealized translation Accumulated income and Number Amount capital loss adjustments deficit Total expenses Balance as of 1 January 35,477,299 $ 81 $ 45,755 $ (163) $ - $ (26,447) $ 19,226 $ (3,681) 2006 Issuance of shares upon 96,000 1 25 - - - 26 - exercise of employees' share options, net Cancellation of issuance - - 455 - - - 455 - expenses Unrealized income on - - - 77 - - 77 77 available-for-sale marketable securities Share-based compensation - - 176 - - - 176 - Foreign currency - - - - 13 - 13 13 translation adjustments Net loss - - - - - (5,289) (5,289) (5,289) Balance as of 31 December 35,573,299 82 46,411 (86) 13 (31,736) 14,684 (5,199) 2006 Issuance of shares upon 5,625 *) - 2 - - - 2 - exercise of employees' share options, net Unrealized income on - - - 54 - - 54 54 available-for-sale marketable securities Share-based compensation - - 62 - - - 62 - Foreign currency - - - - (9) - (9) (9) translation adjustments Net loss - - - - - (2,152) (2,152) (2,152) Balance as of 30 June 2007 35,578,924 $ 82 $ 46,475 $ (32) $ 4 $ (33,888) $ 12,641 $ (7,306) (unaudited) *) Represents an amount lower than $ 1. The accompanying notes are an integral part of the financial statements. STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year ended Six months ended 31 December 30 June 2006 2006 2007 Unaudited Cash flows from operating activities: Net loss $ (5,289) $ (3,380) $ (2,152) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 284 148 101 Share-based compensation 176 96 62 Amortization of marketable securities premiums - 41 - Decrease (increase) in trade receivables, other accounts receivables and prepaid expenses 1,050 809 (836) Increase (decrease) in trade and other accounts payable and accrued expenses (538) (350) 474 Increase (decrease) in deferred revenues (278) 76 (151) Increase in inventory - (181) - Increase (decrease) in advances from customers, net of work in progress 545 - (60) Increase (decrease) accrued severance pay, net (67) 89 28 Equity in losses of an associate 88 - 150 Net cash used in operating activities (4,029) (2,652) (2,384) Cash flows from investing activities: Investment in long-term available-for-sale marketable securities (492) - - Proceeds from maturity of short-term available-for-sale marketable securities 5,773 3,000 2,950 Purchase of property and equipment (190) (132) (23) Net cash provided by investing activities 5,091 2,868 2,927 Cash flows from financing activities: Refundable grants received from the Office of the Chief Scientist 27 - - Payments of royalties to Office of the Chief Scientist (96) (66) (73) Parent company, net (102) 374 21 Proceeds from exercise of employees' share options, net 26 17 2 Net cash provided by (used in) financing activities (145) 325 (50) Increase in cash and cash equivalents 917 541 493 Cash and cash equivalents at the beginning of the period 961 961 1,878 Cash and cash equivalents at the end of the period $ 1,878 $ 1,502 $ 2,371 Supplemental disclosure of cash flows activities: Cash received during the period for: Interest $ 855 $ 430 $ 426 Non-cash activities: Cancellation of issuance expenses payable $ 455 $ - $ - Investment in associate (see Note 1c) $ 2,500 $ - $ - The accompanying notes are an integral part of the financial statements. NOTE 1:- GENERAL a. Orca Interactive Ltd. ('the Company') was incorporated in Israel and commenced operations in August 1995. The Company is headquartered in Ra'anana, Israel. The Company's shares are traded on AIM of the London Stock Exchange ('LSE'). The Company is a subsidiary of Emblaze Ltd. ('the parent company'), a company incorporated in Israel and traded on the LSE. b. The Company develops and licenses software for the provision of television and other entertainment services over IP network infrastructures. c. On 15 October 2006 the Company signed an agreement to become the owner of 33.33% of the Ordinary shares in an Israeli Franchise ('the Franchise') of one of the world's leading media companies. The Franchise is engaged in the retail business of rental and sale of DVD and video products under an area development agreement and a Franchise agreement with Blockbuster Video International Corporation The Franchise intends to enter into a combined PC download and video-on-demand/ Internet Protocol Television ('IPTV') activities and to establish commercial PC download and IPTV services. On the same date and in consideration of the Franchise's shares, a commercial agreement ('the agreement') that was signed between the Company and the Franchise on 29 December 2005 became effective. Under the agreement, the Company will become the sole provider to the Franchise of an end-to-end IPTV solution system. On August 2007, the company signed an amendment to the commercial agreement. No revenues were recognized in respect of the commercial agreement as of 30 June, 2007. The Company's investment in its associate is accounted for under the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Company's share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. After application of the equity method, the company determines whether it is necessary to recognize any additional impairment loss with respect to the Company's net investment in the associate. Impairment test is performed annually or more frequently when management determines that there are indicators for impairment. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. The reporting dates of the associate and the Company are identical and the associate's accounting policies conform to those used by the Company for like transactions and events in similar circumstances. d. On 16 June, 2007 the Company signed a new agreement ('the Agreement') to lease facilities for its own use under a non-cancelable operating lease agreement, for a period of three years. Future minimal rental commitments under the above lease Agreement as of 30 June 2007 are as follows: 2007 $ 209 2008 418 2009 418 2010 192 $ 1,237 Upon the above new signed Agreement, a provision amounting to $ 260 was recorded as operating expenses due to cancellation of the original lease agreement signed between the company to its parent company. NOTE 2:- BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation The interim condensed financial statements for the six months ended 30 June 2007, have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at 31 December 2006. - - - - - - - - - This information is provided by RNS The company news service from the London Stock Exchange

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