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Orca Interactive Ltd (ORCA)

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Wednesday 29 August, 2007

Orca Interactive Ltd

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.

                               - - - - - - - - -




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