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Orca Interactive Ltd (ORCA)

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Monday 10 March, 2008

Orca Interactive Ltd

Final Results and Merger

Orca Interactive Ltd
10 March 2008



10 March 2008



                           RECOMMENDED ACQUISITION OF
                 ORCA INTERACTIVE LTD ('Orca' or 'the Company')
         BY VIACCESS S.A. ('Viaccess'), a subsidiary of France Telecom


                  RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007


The Board of Orca Interactive Ltd. (LSE: ORCA), which specialises in developing
middleware and applications for IPTV, announces that it has agreed the terms of
the recommended cash acquisition of the Company by Viaccess, a wholly owned
subsidiary of France Telecom SA.  The transaction is structured as a merger
under the Israeli Companies Law 1999 (as amended) and is not subject to the City
Code on Takeovers and Mergers.

Orca is also announcing its preliminary results for the year ended 31 December
2007.


Recommended Merger:

•         The total Merger consideration consists of an amount of US$13 million
          plus the Company's Net Cash balances as at the closing of the merger

•         A portion of the Merger consideration will be placed in an escrow
          account for subsequent release to Orca Shareholders subject to certain
          post-completion adjustments to the Net Cash amount and any deductions 
          in respect of warranty and indemnity claims, if any

•         Based on the Directors' current estimates and subject to adjustment in
          accordance with the terms of the Merger Agreement, the total Merger
          consideration is expected to be approximately US$21.4 million which 
          equates to a value per Orca Share of approximately US$0.59 
          (approximately £0.29)

•         The Merger consideration will be paid in cash in a number of
          installments:

          o        An estimated US$16.6 million (approximately US$0.46  
                   (or approximately £0.23) per Orca Share) to be paid as soon 
                   as practicable after Closing;

          o        US$0.65 million of the escrow account is expected to be 
                   distributed to Orca Shareholders upon completion of closing 
                   accounts approximately three months after Closing;

          o        A further two tranches of up to US$1.3 million and US$2.6 
                   million to be paid 18 months and 36 months after Closing 
                   respectively, subject to deductions in respect of certain 
                   warranty and indemnity claims

•         The Merger is subject to the approval of Orca Shareholders at a
          general meeting convened for 15 April 2008. For the Merger to be 
          approved, Orca Shareholders representing over 50 per cent of the 
          shares participating and voting at the General Meeting must vote in 
          favour of the Merger

•         Irrevocable undertakings to vote in favour of the Merger have been
          received in respect of 59.2 per cent of the issued share capital of 
          the Company



For indicative purposes only, US$ amounts in this announcement have been
converted into £ sterling at an exchange rate of US$ 2.009 = £ 1, the rate
prevailing at 6 March 2008, the latest practicable date prior to this
announcement. Actual £ sterling amounts receivable by Orca Shareholders will
depend upon the exchange rates prevailing on the relevant payment date.



2007 Results:

  • Revenues of $6.4 million (2006: $3.3 million)
  • Gross profit margin of 71% (2006: 80.4%)
  • Net loss of $4.3 million (2006: $5.4 million)
  • Loss per share of $0.12 (2006: $0.15 loss per share)
  • Strong net cash position of $12.7 million at period end
  • Various new deployments signed throughout the year in EMEA, Russia and
    the Americas



Haggai Barel, Chief Executive of Orca, commented:

'As our shareholders know, we have witnessed a challenging business environment
lately, due in part to consolidation activity among our customer base and other
market participants.  With this in mind, we have for some time been looking to
be acquired by a large, established corporation with greater access to potential
customers and complementary products and technologies.  We believe that
Viaccess, a wholly-owned subsidiary of France Telecom, is such an acquirer,
given its worldwide reputation in content protection technologies.  The fact
that the merger consideration is all in cash allows our shareholders to realize,
the Board believes, fair value for their investment.'



For further information please contact:


Orca Interactive Ltd                                  +972 9 769 9444
Haggai Barel, Chief Executive Officer

Financial Dynamics (PR to Orca)                       +44 20 7831 3113
James Melville-Ross / Matt Dixon

Altium (Nominated adviser to Orca)                    +44 20 7484 4040
Tim Richardson



About Orca Interactive

Orca Interactive Ltd. (LSE:ORCA) is an international  provider of IPTV
middleware and applications, bringing the power of next generation interactive
TV to help service providers and broadband network operators drive growth.
Transforming the way people consume television content, Orca Interactive's
dynamic IP video and feature-rich multimedia solutions combine live TV, video on
demand (VOD), personal video recording (PVR), home media and personalized
services, including content discovery and user generated content, across a
multi-device platform, and over the Internet through its leading WebTV solution.
Orca Interactive's RiGHTv solution provides a flexible approach for tailored
IPTV solutions. For more information visit www.orcainteractive.com.



PART ONE


                           RECOMMENDED ACQUISITION OF

                 ORCA INTERACTIVE LTD ('Orca' or the 'Company')

                         BY VIACCESS S.A. ('Viaccess')



INTRODUCTION



The Board of Orca announces that it has agreed with Viaccess, a wholly owned
subsidiary of France Telecom, the terms of the recommended acquisition of the
Orca by Viaccess, through a cash merger under the Israeli Companies Law.



Under the terms of the Merger Agreement, Orca's Shareholders will be entitled to
receive a cash payment for each Ordinary Share or Depository Interest therein in
an amount to be determined in accordance with the Merger Agreement. Based on the
current estimates of the Board, the payment per Ordinary Share is expected to be
approximately US$0.59 (approximately £0.29) of which approximately US$0.46
(approximately £0.23) would be paid as soon as practicable after the Closing of
the Merger with the possibility of further payment(s) pursuant to the release of
the balance of US$0.13 (approximately £0.06) which is to be held in escrow and
subject to possible adjustment under the terms of the Merger Agreement.



ORCA SHAREHOLDERS' MEETING



The Merger is conditional, inter alia, upon the affirmative vote of the holders
of a majority of the Ordinary Shares present (in person or by proxy) at the
General Meeting and voting on the proposal to approve the Merger and the Merger
Agreement.



The General Meeting will be held at the offices of Financial Dynamics, Holborn
Gate, 26 Southampton Buildings, London WC2A 1PB, at 10.00 am on 15 April 2008.
A Notice convening the General Meeting will be posted to Shareholders later
today. The Circular, containing further details of the Merger and other matters
to be considered at the General Meeting will also be issued to Shareholders in
due course.



The Directors are unanimously recommending that Orca Shareholders vote 'FOR' the
proposed Merger Agreement and the Merger.



In connection with the Merger, Viaccess has entered into an agreement with
Emblaze, a substantial shareholder in Orca, under which Emblaze has agreed to
vote its Ordinary Shares (representing approximately 59.2 per cent of the
outstanding Ordinary Shares) in favour of the Merger.



SUMMARY DETAILS OF THE TERMS OF THE MERGER


1.                   The Merger

The Merger Agreement provides that Merger Sub, a newly formed Israeli company,
and wholly owned subsidiary of Viaccess, will merge with and into the Company,
with the Company continuing as the surviving corporation and as an indirect,
wholly owned subsidiary of Viaccess. In the Merger, each Ordinary Share and each
Depositary Interest therein, issued and outstanding as of the Effective Time
shall be deemed transferred to Viaccess and each holder of an Ordinary Share
(other than Capita IRG Trustees (Nominees) Limited) and each holder of a
Depositary Interest shall have the right to receive in cash, a proportionate
share of the Merger consideration.

2.                   The Merger consideration

The Merger consideration consists of an amount of US$13 million plus the
Company's Net Cash as of Closing. The 'Net Cash' reflects the aggregate amount
of cash held by the Company as of Closing, subject to certain agreed adjustments
and deductions.

Assuming that Closing is on 29 May 2008, the Board estimates that the total
Merger consideration will be approximately US$21.4 million, which represents
approximately US$0.59 (approximately £0.29) per Ordinary Share. The Merger
Agreement contains provisions pursuant to which the actual Merger consideration
payable at Closing will be adjusted based on updated estimates delivered by the
Company no later than seven business days prior to Closing (the 'Closing
Estimates'), but subject to certain potential maximum and minimum amounts of
such Merger consideration. The Merger Agreement also provides that the actual
amount of Net Cash as of Closing will be determined, based on final accounts to
be prepared after Closing.

The final Merger consideration payable is not certain and will depend on the
implementation of the various adjustment provisions in the Merger Agreement, and
there can be no assurance that the final Merger consideration will be the amount
that the Board has estimated.



3.                   Payment of the Merger consideration

The amount per Ordinary Share to be payable to each holder of Ordinary Shares or
Depository Interests is to be paid in a number of installments, based on the
total Merger consideration, as adjusted in accordance with the Merger Agreement.

As of Closing, Viaccess will deposit the Merger consideration, based on the
Closing Estimate relating to the Net Cash as follows (i) an amount of US$4.75
million (reflecting an amount of approximately US$0.13 per Ordinary Share) to be
deposited with an escrow agent, to be held in escrow as described below (the '
Escrow Amount'), and (ii) the balance of the Merger consideration (which based
on the Current Estimate is expected to be approximately US$16.6 million, to be
deposited with a paying agent, in order to be distributed to the holders of
Ordinary Shares, Depositary Interests and 'in the money' options. Based on the
Board's current estimate, the amount to be distributed to the holders of
Ordinary Shares and Depositary Interests in accordance with (ii) above is
expected to be approximately US$0.46 (approximately £0.23) per Ordinary Share.



4.                   The Escrow Amount

The Escrow Amount is meant to serve two purposes:

•           upon completion of the final accounts relating to Closing, a final
determination of the Net Cash amount shall be made (the 'Final Adjustment'); in
the event that such Final Adjustment results in the final Net Cash amount being
less than the Net Cash included in the Closing Estimates, then such deficiency
(the 'Negative Difference') shall be paid to Viaccess out of the Escrow Amount.

•           upon completion of the Final Adjustment, to the extent the Net Cash
amount is determined to be greater than the Net Cash included in the Closing
Estimates, then Viaccess shall deposit with the Escrow Agent an amount
reflecting such difference (the 'Positive Difference'), up to an agreed cap.

•           if after Closing it is determined, pursuant to the Merger Agreement,
that any of the representations, warranties or covenants made by the Company in
the Merger Agreement was breached or otherwise incorrect, then Viaccess may
bring a claim against the Escrow Amount for indemnification for any Losses (as
defined in the Merger Agreement) caused to Viaccess and its related parties as a
result of such breach or inaccuracy. The Escrow Amount serves as the sole remedy
for the Final Adjustment and for such indemnification for specific periods as
described in paragraph 5 below.

If any claim is made by Viaccess for indemnification, then such claim is
required to be submitted to the escrow agent, and to the nominated Shareholder
Representative who may challenge such claim on behalf of the former
Shareholders.

The Merger Agreement contains provisions that appoint the Shareholder
Representative to serve in such position and provide the Shareholder
Representative with full authority and discretion to handle the matters
designated to it, including retention of advisors and consultants, payment of
their fees out of the amounts that would otherwise be payable to the former
Shareholders and the defense and settlement of any claims with Viaccess.



5.                   Distributions of Escrow Amounts

Upon completion of the Final Adjustment, an amount of US$650,000 plus the
Positive Difference (if any) or minus the Negative Difference (if any) will
become available for distribution to the former holders of Ordinary Shares and
Depositary Interests, on a pro rata basis, and to the holders of 'in the money'
options.

Upon the expiration of 18 months after Closing, any amounts forming part of the
Escrow Amount, including accrued interest, that exceed US$2.6 million, if any,
will become available for distribution to the former holders of Ordinary Shares
and Depositary Interests, on a pro rata basis, (except for amounts that are
subject to pending claims for indemnification). Subsequent to the 18 months
anniversary, the remaining Escrow Amount will be available solely for claims
with respect to specific intellectual property related representations.

Upon the expiration of 36 months after Closing, any amounts forming part of the
Escrow Amount, including accrued interest, if any, will become available for
distribution to the former holders of Ordinary Shares and Depositary Interests,
on a pro rata basis (except for amounts that are subject to pending claims for
indemnification).



6.                   Other terms of the Merger Agreement



Non-Solicitation

Under the Merger Agreement, the Company has entered into certain restrictive
covenants.  In particular, the Company will not:

•         solicit or encourage any approaches from, or engage in any discussions
with, any third party in relation to a possible acquisition of the Company, a
significant interest in the Company or a substantial part (or the whole) of the
business and assets of the Company;

•         provide any information not already in the public domain to any such
third party.

Under certain circumstances described in the Merger Agreement, the Board may
terminate the Merger Agreement in the event that a proposal to acquire the
Company is received which is on terms that are more favorable then the terms of
the Merger, provided that upon termination, a termination fee in the amount of
US$2 million is paid to Viaccess.



Closing Conditions

•         The obligation of Viaccess to effect the Merger is subject to the
satisfaction or waiver of certain conditions, including:

          o        the representations and warranties of the Company being true
                   and accurate, except for inaccuracies that do not result in a
                   Company Material Adverse Effect (as defined in the Merger 
                   Agreement);

          o        all of the Company's covenants and obligations in the Merger
                   Agreement being complied with, unless such non-compliance 
                   does not result in a Company Material Adverse Effect; and

          o        there being no Company Material Adverse Effect between
                   signing and closing and there being no pending legal 
                   proceeding relating to the proposed transaction.

•         In addition, the obligation of all parties to the Merger Agreement to
effect the Merger is subject to the satisfaction or waiver of the following
conditions: approval of the Merger from the Investment Center of the Israeli
Ministry of Trade, Industry and Labor and certain filings with the Israeli
Office of the Chief Scientist; the Merger Agreement, the Merger and the
transactions contemplated thereby being duly approved by the Shareholders; and
there being no temporary restraining order, preliminary or permanent injunction
or other order preventing the consummation of the Merger.



BACKGROUND TO THE MERGER

At the end of 2005 the Board determined that in order to enhance its potential
to penetrate its target markets the Company should consider, among other
alternatives, a business combination with a larger and more established
corporation that has greater access to potential customers and complementary
products and technologies. Accordingly, since that time, while continuing to
pursue its business objectives as an independent company, the Company explored
possibilities for an acquisition of the Company by a third party. Over the
course of the following 18 months the Company considered a number of
alternatives and engaged in discussions with a number of potential bidders for
its business. In addition, in May 2006, the Company engaged Jefferies, a
reputable U.S. based investment bank with expertise in technology, to identify
potential candidates for an acquisition of the Company. None of the discussions
with the potential candidates resulted in a definitive agreement.

Since February 2007, the Company has been engaged in discussions with Viaccess,
a wholly owned subsidiary of France Telecom. Viaccess conducted due diligence
with respect to the Company's business, technology, financial condition and
various legal, accounting and tax aspects of the Company's affairs, and
discussions were held with respect to the price to be paid. After an exchange of
a number of offers and counter offers, Viaccess provided its final offer in
December 2007 reflecting an enterprise value of US$13 million plus the Company's
Net Cash as of Closing. The Board considered the proposal and, taking into
account various legal issues relating to the proposed transaction, including the
fiduciary duties of the directors, potential conflicts of interest and the
structure of the proposed transaction, authorized and approved the definitive
Merger Agreement.

The Audit Committee and the Board, acting with the advice and assistance of
Jefferies and the Company's Israeli legal advisors, evaluated the terms of the
Merger, including the terms and conditions of the Merger Agreement.



RECOMMENDATION OF THE MERGER

The Audit Committee and the Board unanimously approved and recommended the
Merger Agreement and the Merger based upon the totality of the information
presented to and considered by it.

In the course of reaching its determination, the Audit Committee and the Board
considered, inter alia, the following factors and potential benefits of the
Merger, each of which the Audit Committee and the Board believe supported its
decision:

•           the Board's familiarity with, and information provided by Company's
management as to, the business, financial condition, results of operations,
current business strategy and future prospects of the Company, as well as the
risks involved in achieving those prospects and objectives under current
industry and market conditions, the nature of the markets in which the Company
operates and the Company's position in such markets;

•           the Board's extended consideration of strategic alternatives for the
Company, including discussions with a number of potential strategic and
financial buyers, and the fact that to date no other prospective purchaser has
indicated a willingness to pay consideration greater than that to be paid by
Viaccess in the Merger;

•           the current and historical market prices and trading information for
the Ordinary Shares and the fact that the consideration payable in the Merger
represents a fair value compared to those historical prices;

•           the possible alternatives to the Merger, including the prospects of
continuing to operate the Company as an independent public entity, and the risks
and uncertainties associated with such alternatives, including the risks
associated with the Company's ability to meet its projections for future results
of operations, compared to the opportunity of realizing in cash a fair value for
their investment provided to the Shareholders by the Merger;

•           the fact that the Merger is with an entity that has conducted no
activities prior to the Merger and no material assets or liabilities other than
its rights and obligation under the Merger Agreement, so no reasonable concern
exists that, as a result of the Merger, the Company will not be able to fulfill
the obligations of the Company to its creditors;

•           the financial and other terms and conditions of the Merger Agreement
as reviewed by the Board and the fact that they were the product of arm's-length
negotiations between the parties;

•           the fact that the Merger Consideration is all in cash, allowing the
Shareholders to realise value for their investment; and

•           recent developments in the industries in which the Company operates
and the impact of such developments on the business and prospects of the
Company, including the continuing challenging business environment and the
impact of consolidation among market participants.



FAIRNESS OPINION

The Board retained Jefferies to provide it with a fairness opinion in connection
with the Merger. The Board selected Jefferies based on such firm's
qualifications, reputation and expertise in this respect. Jefferies has advised
the Board that, as of the date of the Merger Agreement, based upon and subject
to the various conditions, considerations and assumptions set forth in its
opinion provided to the Board, the consideration to be received by the holders
of Ordinary Shares is fair, from a financial point of view, to such holders.
For the purposes of its opinion, Jefferies assumed, based on estimates provided
by the Board, that each holder of Ordinary Shares would receive US$0.59 per
Ordinary Share.

The written opinion of Jefferies is directed to the Board only and not the Orca
Shareholders or any potential investor, only addressing the fairness of the
consideration to be received by Orca Shareholders (which consideration was
assumed to be US$0.59 per Ordinary Share) from a financial point of view as of
the date of the opinion. It does not address any other aspects of the Merger and
does not constitute a recommendation to any Orca Shareholder as to how to vote
at the General Meeting.



MANAGEMENT ARRANGEMENTS

The Board, acting upon the recommendation of each of the remuneration committee
and Audit Committee has approved special cash bonuses of (i) 2.5 per cent of the
Merger consideration, based on the Closing Estimates (without giving effect to
any subsequent adjustment), provided that for this purpose the Merger
consideration shall also include the amount of such bonus (i.e. approximately
US$548,000, based on the Board's current estimates), to Mr. Haggai Barel, Chief
Executive Officer and a Director, and (ii) US$100,000 to Mr. Moshe Nachman,
Chief Financial Officer and a Director.  These cash bonuses are payable to the
recipients contingent upon the completion of the Merger and in recognition of
their efforts and contribution to the successful consummation of the Merger.

In connection with the execution of the Merger Agreement, Mr. Haggai Barel has
agreed with Viaccess to enter into an agreement with the Company concerning his
continued service to the Company after Closing. In addition, the Company has
entered, prior to the execution of the Merger Agreement, into agreements with
certain other key employees of the Company concerning their future employment by
the Company after Closing.



CANCELLATION OF ADMISSION



In accordance with AIM Rule 41, Orca hereby notifies shareholders that, if it is
fully implemented, the Merger will result in the subsequent cancellation of the
admission of Orca Shares and Depository Interests to trading on AIM ('
Cancellation') with effect from Closing. On the basis of the currently envisaged
timetable for the Merger, and assuming the requisite approvals are received from
Orca Shareholders at the General Meeting, the last day of dealings in Orca
Shares is expected to be 29 May 2008. Following the Cancellation, share
certificates in respect of Orca Shares and Depository Interests will cease to be
valid and entitlements to Orca Shares and Depository Interests held within the
CREST system will be cancelled.





GENERAL



The Circular, containing further details of the Merger and other matters to be
considered at the General Meeting will be issued to Shareholders in due course.





PART TWO





                  RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007


Overview


The return to momentum that Orca witnessed during the first half of the year
continued in the second half, culminating in a revenue line which almost doubled
against the prior year.  Much of the activity during 2007 was driven out of our
EMEA markets, which has been the key focus for Orca's sales team during the
year, but the Company also saw positive momentum in the Americas with promising
wins in the US and Colombia.  Orca intends to expand on these footprints in the
coming years and has recently redeployed staff to bolster its US operation.


A significant event during the year was the development of COMPASS, Orca's
groundbreaking solution for content discovery designed to help operators attract
IPTV subscribers and differentiate themselves from other providers through
personalised recommendations and fast, intuitive content navigation.


Financial performance


Revenues in 2007 were $6.4m, compared to $3.3 million in 2006, boosted by new
deals with On Telecom, UNE EPM Telecommunications, STA Andorra, Sibir Telecom,
Lattelecom and W.T. Services, Inc.   Overall gross margins were lower at 70.9%
(2006: 80.4%) mainly as a result of the On Telecom, Union Electrica &
BlockBuster projects 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 $3.7 million was reduced marginally during
the year (2006: $4.3m) as Orca focused its attention on the core EMEA market and
extending relationships with existing customers.  Research and development
expenditure at $3.2m, compared to $3.0 million in 2006 as the Company invested
in product developments geared to secure its leadership position in innovation.



The operating loss for the period narrowed to $4.1 million (2006: $6.2 million).
The net loss reduced to $4.3 million (2006: $5.4 million) resulting in a
reduced net loss per share of $0.12 (2006: $0.15 loss per share).


At 31 December 2007, the Company had cash balances of $12.7 million. Operating
cash outflow during the period was $4.2 million (2006: $4.0 million).


Product development


The Company continues to invest in product development in order to maintain the
market leading position of its technology.  For example, as announced during the
year, Orca has launched its unique hybrid IPTV and WebTV solution and is
delivering this new technology to Blockbuster Israel, enabling it to deliver
advanced digital content services to its subscribers.


In October, Orca also announced the launch of COMPASS, a Content Discovery
solution designed to quickly and intuitively provide television viewers with the
content of their choice. With all the live, on-demand and pre-recorded
programming available, COMPASS aims to provide the right content to the right
viewers to provide quality - rather than quantity - in content choice.


Customers and Partners


In the announcement of its last interim results in September 2007, Orca
described some of the new business successes that it had secured during the
first half of the year with the likes of ON Telecoms in Greece, Lattelecom in
Latvia, WT Services in the US and Sibir Telecom in Russia,


Since then, the Company has also secured new wins with UNE EPM
Telecommunications in Colombia and STA Andorra in EMEA.  The Colombian
deployment was the country's first IPTV service rollout and is expected to be
available in major cities across Colombia by the end of the current quarter. The
deployment will be carried out by Union Electrica S.A., Orca's partner and
system integrator in the project, providing a seamless end-to-end solution.


Since the year end, Orca's partner Comverse also announced that it had signed a
deal to sell Orca's middleware in a deployment with STA, the Andorran
telecommunications operator. The arrangement included live channels, Pay Per
View, Video On Demand and a number of innovative convergence services such as:
Caller ID, voice mail from the TV and call initiation from the TV through a
unified address book.

Current trading and prospects


The momentum witnessed during 2007 has continued into the early months of the
current financial year and the Company is seeing a positive response to its
recent product innovations.  This, allied to the continued growth in the number
of international IPTV deployments across our marketplace, means that the Board
remains confident about the Company's prospects in the year ahead.



BALANCE SHEETS

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


                                                                                          31 December
                                                                                          2006              2007
ASSETS



CURRENT ASSETS:

Cash and cash equivalents                                                                1,878             8,698

Short-term available-for-sale-marketable securities                                      9,166             2,998

Trade receivables                                                                          698               835

Other accounts receivable and prepaid expenses                                             331               537



Total current assets                                                                    12,073            13,068



NON-CURRENT ASSETS:

Long-term available-for-sale marketable securities                                       5,963               994

Property and equipment, net                                                                394               244

Investment in an associate                                                               2,425             1,617



Total non-current assets                                                                 8,782             2,855



Total assets                                                                            20,855            15,923



LIABILITIES AND EQUITY



CURRENT LIABILITIES:

Trade payables                                                                             425               499

Deferred revenues                                                                          321               128

Other accounts payable and accrued expenses                                              1,947             2,098

Advances from customers, net of work in process                                          3,045             1,954

Parent company                                                                             234               218



Total current liabilities                                                                5,972             4,897



SEVERANCE PAY LIABILITY, NET  *)                                                            99               116



Total liabilities                                                                        6,071             5,013



EQUITY:

Share capital -

Ordinary shares of NIS 0.01 par value-Authorized: 55,000,000

shares as of December 31, 2006 and 2007; Issued and

outstanding - 35,573,299 and 35,599,924 shares as of

December 31, 2006 and 2007, respectively                                                    82                82

Additional paid-in capital                                                              46,411            46,521

Net unrealised loss reserve                                                               (86)               (5)

Foreign currency translation adjustments                                                    13               227

Accumulated deficit   *)                                                              (31,636)          (35,915)



Total equity                                                                            14,784            10,910



                                                                                        20,855            15,923


   *) Restated to conform to the current year methodology for
      calculating value of assets of severance pay fund according to IAS-19.





STATEMENTS OF OPERATIONS

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


                                                                                Year ended 31 December
                                                                                          2006              2007


Revenues *)                                                                              3,339             6,388

Cost of revenues **)                                                                       655             1,858



Gross profit                                                                             2,684             4,530



Operating expenses:

Research and development, net ***)                                                       3,014             3,168

Selling and marketing ***)                                                               4,268             3,709

General and administrative ***)                                                          1,563             1,802



Total operating expenses                                                                 8,845             8,679



Operating loss                                                                         (6,161)           (4,149)

Financial income, net                                                                      854               652



Loss before share in losses of an associate                                            (5,307)           (3,497)

 Share of losses of an associate and impairment of investment
 in an associate                                                                          (88)             (782)



Net loss                                                                               (5,395)           (4,279)



Basic and diluted net loss per share                                                    (0.15)            (0.12)



Weighted average number of shares used in computing basic
and diluted net loss per share                                                      35,533,652        35,583,224



*) Including income in the amount of $0 and $1,090 from related-party and cost
of revenues to related party of $0 and $363 for the years ended December 31, 
2006 and 2007, respectively.


**) Including cancellation of unrealised gain in the amount of $0 and $242 from
revenues to related-party for the years  ended December 31, 2006 and 2007, 
respectively.


***) Restated to conform to the current year methodology for calculating value
of assets of severance pay fund according to IAS-19.





STATEMENTS OF CHANGES IN EQUITY

U.S. dollars in thousands, except share data


                                                                                                          Net
                                                                                  Additional       unrealised
                                                      Ordinary shares                paid-in           income
                                                        Shares       Amount          capital           (loss)

Balance as of 1 January 2006                        35,477,299           81           45,755            (163)

Issuance of shares upon exercise of
employees' share options, net                           96,000            1               25                -
Cancellation of issuance expenses                            -            -              455                -
Unrealised income on available-for-sale

marketable securities                                        -            -                -               77
Share-based compensation                                     -            -              176                -
Foreign currency translation adjustments                     -            -                -                -
Net loss **)                                                 -            -                -                -

Balance as of 31 December 2006                      35,573,299           82           46,411             (86)

Issuance of shares upon exercise of
employees' share options, net                           26,625        *)  -                7                -
Unrealised income on available-for-sale
marketable securities                                        -            -                -               81
Share-based compensation                                     -            -              103                -
Foreign currency translation adjustments                     -            -                -                -
Net loss **)                                                 -            -                -                -

Balance as of 31 December 2007                      35,599,924           82           46,521              (5)


                                                    Foreign                                               Total
                                                   currency                                          recognised
                                                translation         Accumulated                      income and
                                                adjustments             deficit        Total           expenses

Balance as of 1 January 2006                              -            (26,241)       19,432            (3,681)

Issuance of shares upon exercise of
employees' share options, net                             -                   -           26
Cancellation of issuance expenses                         -                   -          455
Unrealised income on available-for-
sale marketable securities                                -                   -           77                $77
Share-based compensation                                  -                   -          176                  -
Foreign currency translation adjustments                 13                   -           13                 13
Net loss **)                                              -             (5,395)      (5,395)            (5,395)

Balance as of 31 December 2006                           13            (31,636)       14,784            (5,305)

Issuance of shares upon exercise of
employees' share options, net                             -                   -            7                  -
Unrealised income on available-for-sale
marketable securities                                     -                               81                 81
Share-based compensation                                  -                   -          103                  -
Foreign currency translation adjustments                214                   -          214                214
Net loss **)                                              -             (4,279)      (4,279)            (4,279)

Balance as of 31 December 2007                          227            (35,915)       10,910            (3,984)



*) Represents an amount lower than $ 1.

**)     Restated to conform to the current year methodology for calculating
value of assets of severance pay fund according to IAS-19.





STATEMENTS OF CASH FLOWS


U.S. dollars in thousands, except share data


                                                                                           Year ended 31 December

                                                                                           2006              2007

Cash flows from operating activities:

Net loss *)                                                                             (5,395)           (4,279)

Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation                                                                                284               188

Share-based compensation                                                                    176               103

Amortization of premiums and acceleration of discounts on
available-for-sale marketable debt securities, net                                           69                18

Decrease (increase) in trade receivables, other accounts
receivable and prepaid expenses                                                           1,050             (343)

Increase (decrease) in trade payables and other accounts
payable and accrued expenses                                                              (538)               395

Decrease in deferred revenues                                                             (278)             (193)

Increase (decrease) in advances from customers, net of work
 in progress                                                                                545           (1,091)

Increase in accrued severance pay, net *)                                                    39                17



Equity in losses of an associate and impairment of investment
 in an associate                                                                             88             1,022



Net cash used in operating activities                                                   (3,960)           (4,163)



Cash flows from investing activities:

Proceeds from redemption of available-for-sale marketable
securities, net                                                                           5,212            11,200

Purchase of property and equipment                                                        (190)              (38)



Net cash provided by investing activities                                                 5,022            11,162



Cash flows from financing activities:

Refundable grants received from the Chief Scientist Office                                   27                 -

Payments of royalties to Chief Scientist Office                                            (96)             (170)

Parent company, net                                                                       (102)              (16)

Proceeds from exercise of employees' share options, net                                      26                 7



Net cash used in financing activities                                                     (145)             (179)



Increase in cash and cash equivalents                                                       917             6,820

Cash and cash equivalents at the beginning of the year                                      961             1,878



Cash and cash equivalents at the end of the year                                          1,878             8,698



Supplemental disclosure of cash flows activities:

Cash received during the year for:

Interest                                                                                    855               759

Non-cash activities:

Cancellation of issuance expenses payable                                                   455                 -



Investment in associate                                                                   2,500                 -


*) Restated to conform to the current year methodology for calculating value of
assets of severance pay fund according to IAS -19.




DEFINITIONS



The following words and expressions have the following meanings, unless the
context requires otherwise:


Audit Committee                          the audit committee of the Board of Directors;


Board or Directors or                    the board of directors of the Company
Board of Directors

Closing                                  the closing under the Merger Agreement;


Company                                  Orca Interactive Ltd.;


Depositary Interests                     depositary interests representing a beneficial interest in the
                                         underlying Ordinary Shares on a one for one basis;


Emblaze                                  Emblaze Ltd., an Israeli company and a 59.2% shareholder of the
                                         Company;


General Meeting                          the extraordinary general meeting of the Company convened for 15
                                         April 2008


Jefferies                                Jefferies Broadview, a division of Jefferies Company, Inc., the
                                         Company's financial advisers in relation to the Merger;


Merger                                   the proposed merger to be effected in accordance with the Merger
                                         Agreement under the Israeli Companies Law;


Merger Agreement                         means the agreement of merger, dated March 9, 2008 by and
                                         between the Company, Viaccess and Merger Sub;


Merger Sub                               Ocean Merger Sub Ltd., a company incorporated in Israel and a
                                         wholly owned subsidiary of Viaccess;


Ordinary Shares                          ordinary shares of NIS 0.01 each in the capital of the Company;


Shareholders or Orca Shareholders        the holders of Ordinary Shares;


Shareholder Representative               Bronze Holdings Ltd., an Israeli company controlled by Naveh,
                                         Kantor, Even-Har Law Offices, which under the Merger Agreement
                                         is appointed to serve as a representative of the former holders
                                         of Ordinary Shares and Depositary Interests for various purposes
                                         under the Merger Agreement;


Viaccess                                 a company incorporated and registered in France and which is the
                                         parent company of the Merger Sub, and a wholly owned subsidiary
                                         of France Telecom.


US$ or £                                 the currency of the United States of America or of the United
                                         Kingdom, respectively



Throughout Part One of this document, unless otherwise stated, the exchange rate
used has been US$ 2.009 = £ 1, as published in the Financial Times on 6 March
2008, the latest practicable date prior to this announcement.


                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                 

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