Interim Results

Orca Interactive Ltd 19 September 2005 Orca Interactive Ltd Interim Results for the six months ended 30 June 2005 Ra'anana, Israel, 19 September 2005 - Orca Interactive Ltd ('Orca'), a global leader in the IPTV middleware market, announces its interim results for the six months ended 30 June 2005. Financial Highlights: - Revenues increased seven-fold to $3.0m (H1 2004: $0.4m) - Gross profit of $2.5m (H1 2004: $0.3m) - Net loss was halved to $1.3m (H1 2004: $2.6m) - Strong balance sheet with $21M Net cash - Loss per share down five-fold to $0.04 (H1 2004: $0.21 loss per share) Operational Highlights: - New partnership agreements with IBM, Lucent and Tata Consulting - New license agreements signed with Lucent, Dansk Bredband and a Western European telco - Agreement with Texas Instruments to develop a low cost end-to-end solution for IPTV and Video on Demand - Commercial market trial with tier 1 operator - Ongoing product development maintaining leading technology position o Launch of Home Media o Release of new Flash SDK - Strong pipeline of future deals continuing to build, currently active in a large number of trials and global tenders Haggai Barel, Chief Executive Officer of Orca, said: 'During the first half of 2005, we continued to see significant growth in demand for IPTV. As one of the leading providers of middleware solutions to this market, we have once again benefited from this growth and our financial performance across all metrics was strong. The second half of the year has started well with a number of additional contract wins. We have continued to make strong progress, especially through our growing partner base, in building our prospects pipeline in our traditional territories of EMEA and APAC. Working alongside our partners, we are already in advanced stages with several contract discussions and expect to be able to make further announcements in this regard in the near future. In July we announced our intention to access the American markets. We are already seeing increased brand recognition for Orca and trials with two tier one operators have already been initiated. We remain confident of meeting full year revenue expectations.' Enquiries: Orca Interactive Ltd Haggai Barel, Chief Executive +972 9 7699400 Financial Dynamics James Melville-Ross / Cass Helstrip +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 During the first half of 2005, we saw a significant growth in demand for IPTV. As one of the leading providers of middleware solutions to this market, we have once again benefited from this growth and our financial performance across all metrics was strong. Revenues increased seven-fold against the equivalent period in 2004, boosted by a number of significant new license agreements and pilots. Our partner programme has also continued to develop and we have added a number of the most high profile names in the industry to our partner roster since the year began. Financial performance Revenues in the first six months were $3.0m, compared to $0.4m in the first half of 2004. In common with other companies at our stage of growth, we currently derive our revenues from a small number of customers. Gross margins were 84.4% (H1 2004: 83.3%). Sales and marketing expenditure increased to $1.95m compared to $1.5m in H1 2004 as we continued to invest in establishing and building relationships with global system integrators and network access vendors. Our sales and marketing and research and development expenditure is expected to rise further during the second half, as we increase our activity with operators in the North and South American markets. Research and development expenditure amounted to $1.25m (H1 2004 $1.07m), representing 41% of first half revenues for 2005. During the second half of the year Orca intends to continue to invest significantly in improving its product infrastructure and offering both to its current niche customer base and to cater for the growing American market. Our operating loss reduced to $1.65m (H1 2004: $2.6m). The net loss reduced from $2.6m to $1.3m resulting in a net loss per share of $0.04 (H1 2004: $0.22 loss per share). Commencing on 1 January 2005, the Company has adopted IFRS 2, 'Share Based Payment'. The effect of the adoption of IFRS 2 on the six months ended 30 June 2005 and the six months ended 2004, is an increase in the employee benefits expenses in the amount of $137,560 and $15,817 respectively, with a corresponding increase in additional paid-in capital. At 30 June 2005, the Company had cash balances of $21.0m. Operating cash outflow during the period was $2.9 million (H1 2004: $1.0 million). Product development The Company continues to invest in product development in order to maintain its technology's market leading position. In June 2005, Orca announced the launch of Home Media, a digital entertainment application that brings digital media content from the PC to the TV. Home Media enables subscribers to view photographs and listen to music via the TV, and empowers IPTV operators to gain a bigger share of the large digital entertainment market. Orca announced its first success in selling this product with the Dansk Bredband contract in early September 2005. Orca also recently launched its SUI SDK for Flash at the IBC Conference in Amsterdam. The SUI SDK for Flash, which will be available as part of Orca's RiGHTv middleware, incorporates Macromedia FlashTM technology for third-party development of IPTV applications, enabling service providers and system integrators to build branded, feature-packed TV interfaces that provide an optimized user experience. We received extremely positive feedback for these new products from potential customers at IBC. Customers and Partners We continued to make good progress with our stated strategy of building a global partner base to sell through. In the first half of the year we announced global distribution agreements with IBM, Tata Consulting Services and Lucent Technologies. The agreement with Lucent was particularly significant for two reasons; Firstly, it delivered a commitment to purchase licenses for our RIGHTv middleware. Secondly, it gave us a significant opportunity to access readily the rapidly evolving North and South American markets. In July 2005 we determined to commit extra resources to our partnership with Lucent to address this sizeable market prospect and to increase customer deal flow. We have also announced four new commercial deals since the start of the year: • an agreement with a leading Western European telecommunications and data transmission carrier which is aiming to launch an IPTV service by the end of the current year. The operator committed to purchasing 150,000 Orca licenses over a three year period, 60,000 of which are to be purchased in the current financial year; • a license agreement with Danish broadband internet services provider Dansk Bredband. The initial service will involve subscribers in the Copenhagen area with planned expansion for over 100,000 subscribers across Denmark and other parts of Scandinavia within three years; and • a market pilot with a tier one telecoms provider which is expected to last until the year end before moving to a full commercial deployment. • an agreement with Texas Instruments that focuses on delivering an end-to-end solution for IPTV and Video on Demand We look forward to announcing more contracts of this type. Management In June 2005, we were delighted to welcome Nina Admoni as an external non-executive director of the Company. Nina brings a wealth of experience following a career that spans four decades of involvement in the international business community, including several senior posts that she held in the service of the Israeli government and on behalf of the United Nations. Outlook During the first half of 2005, we continued to see significant growth in demand for IPTV. As one of the leading providers of middleware solutions to this market, we have once again benefited from this growth and our financial performance across all metrics was strong. The second half of the year has started well with a number of additional contract wins. We have continued to make strong progress, especially through our growing partner base, in building our prospects pipeline in our traditional territories of EMEA and APAC. Working alongside our partners, we are already in advanced stages with several contract discussions and expect to be able to make further announcements in this regard in the near future. In July we announced our intention to access the American markets. We are already seeing increased brand recognition for Orca and trials with two tier one operators have already been initiated. We remain confident of meeting full year revenue expectations. Haggai Barel Chief Executive Officer 18 September 2005 BALANCE SHEETS U.S. dollars June 30 31 December 2005 2004 ---------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,798,894 $ 10,029,427 Short term available-for-sale marketable securities 7,081,450 13,550,000 Trade receivables and unbilled accounts, net 3,594,217 1,335,173 Other accounts receivable and prepaid expenses 369,437 120,410 ---------- ---------- Total current assets 12,843,998 25,035,010 -------------------- ---------- ---------- LONG-TERM AVAILABLE-FOR-SALE MARKETABLE SECURITIES 12,087,480 1,000,000 ---------- ---------- SEVERANCE PAY FUNDS 482,451 444,871 ---------- ---------- PROPERTY AND EQUIPMENT, NET 487,336 493,869 ---------- ---------- Total assets $ 25,901,265 $ 26,973,750 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables $ 255,002 $ 343,060 Deferred revenues 229,902 14,875 Other accounts payable and accrued expenses 2,803,677 2,476,960 Parent company 434,442 875,088 ---------- ---------- Total current liabilities 3,723,023 3,709,983 ------------------------- ---------- ---------- ACCRUED SEVERANCE PAY 759,733 686,945 ---------- ---------- Total liabilities 4,482,756 4,396,928 ---------- ---------- SHAREHOLDERS' EQUITY: Share capital: Ordinary shares of NIS 0.01 par value: Authorized: 55,000,000 shares at 31 December 2004 and 30 June 2005; Issued and outstanding: 35,323,799 shares and 35,410,299 at 31 December 2004 and 30 June 2005, respectively 81,504 81,305 Additional paid-in capital *) 45,568,686 45,424,634 Accumulated deficit *) (24,231,681) (22,929,117) ---------- ---------- Total shareholders' equity 21,418,509 22,576,822 -------------------------- ---------- ---------- $ 25,901,265 $ 26,973,750 ========== ========== *) See Note 2b The accompanying notes are an integral part of the financial information. INFORMATION OF OPERATIONS U.S. dollars, except share data Six months ended Year 30 June ended -------------------------- 31 December 2005 2004 2004 -------------------------- ----------- Unaudited -------------------------- ----------- Revenues $ 3,022,210 $ 408,094 $ 5,201,970 Cost of revenues 476,931 67,913 1,261,675 ----------- ----------- ----------- Gross profit 2,545,279 340,181 3,940,295 ----------- ----------- ----------- Operating expenses: Research and development, net 1,253,552 1,065,927 2,016,330 Sales and marketing 1,950,643 1,535,863 3,174,952 General and administrative 857,331 332,048 795,198 Share based compensation (*) 137,560 15,817 85,911 ----------- ----------- ----------- Total operating expenses 4,199,086 2,949,655 6,072,391 ------------------------ ----------- ----------- ----------- Operating loss 1,653,807 2,609,477 2,132,096 Financial income, net 351,243 50 199,875 ----------- ----------- ----------- Net loss $ 1,302,564 $ 2,609,424 $ 1,932,221 =========== =========== =========== Basic and diluted net loss per share $ 0.04 $ 0.22 $ 0.11 =========== =========== =========== Weighted average number of shares used in computing basic and diluted net loss per share 35,351,187 12,122,227 17,145,648 =========== =========== =========== (*)Share based compensation includes the following: Research and development, net 32,539 4,898 22,839 Sales and marketing 60,730 9,467 43,336 General and administrative 44,291 1,452 19,736 ----------- ----------- ----------- Total expenses 137,560 15,817 85,911 -------------- ----------- ----------- ----------- The accompanying notes are an integral part of the financial information. INFORMATION OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY) U.S. dollars Preferred shares Ordinary shares --------------------- -------------------- Shares Amount Shares Amount ---------- --------- ---------- ---------- At 1 January 2004 As previously stated 12,098,327 $ 29,196 23,900 $ 51 Effect of adopting IFRS 2 - - - - Conversion of convertible loans from Parent Company into Class A Preferred shares 8,968,643 20,096 - - Conversion of Class A Preferred shares into Ordinary shares upon Initial Public Offering (21,066,970) (49,292) 21,066,970 49,292 Issuance of Ordinary shares upon Initial Public Offering, net **) - - 14,141,414 31,757 Issuance of shares upon exercise of employees' share options, net - - 91,515 205 Net loss - - - - ---------- --------- ---------- ---------- Balance as of 31 December 2004 *) - - 35,323,799 81,305 Issuance of shares upon exercise of employees' share options, net - - 86,500 199 Comprehensive income (loss): Net losses on available-for-sale financial assets - - - - Cost of share based compensation - - - - Net loss - - - - ---------- --------- ---------- ---------- Balance as of 30 June 2005 (unaudited) - $ - 35,410,299 $ 81,504 ========== ========= ========== ========== *) See Note 2b **) Net of issuance costs in the amount of approximately $ 3,125,000. The accompanying notes are an integral part of the financial information. INFORMATION OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY) U.S. dollars Total Additional recognized paid-in Accumulated income and capital deficit Total expense ----------- ------------ ------------ ------------ At 1 January 2004 As previously stated $ 3,002,698 $(20,996,896) $(17,964,951) $(20,996,896) Effect of adopting IFRS 2 85,911 (85,911) - - Conversion of convertible loans from Parent Company into Class A Preferred shares 20,286,305 - 20,306,401 - Conversion of Class A Preferred shares into Ordinary shares upon Initial Public Offering - - - - Issuance of Ordinary shares upon Initial Public Offering, net**) 22,024,758 - 22,056,515 - Issuance of shares upon exercise of employees' share options, net 24,962 - 25,167 - Net loss - (1,846,310) (1,846,310) (1,846,310) ----------- ------------- ------------ ------------ Balance as of 31 December 2004 *) 45,424,634 (22,929,117) 22,576,822 (22,843,206) Issuance of shares upon exercise of employees' share options, net 23,588 - 23,787 - Comprehensive income (loss): Net losses on available-for-sale financial assets (17,096) - (17,096) (17,096) Cost of share based compensation 137,560 - 137,560 137,560 Net loss - (1,302,564) (1,302,564) (1,302,564) ----------- ------------ ------------ ------------ Balance as of 30 June 2005 (unaudited) $45,568,686 $(24,231,681) 21,418,509 $(24,025,306) =========== ============ ============ ============ *) See Note 2b **) Net of issuance costs in the amount of approximately $ 3,125,000. The accompanying notes are an integral part of the financial information. INFORMATION OF CASH FLOWS U.S. dollars Six months ended Year ended 30 June 31 December ------------------------- ----------- 2005 2004 2004 ----------- ----------- ----------- Unaudited ------------------------- Cash flows from operating activities: ------------------------------------- Net loss $(1,302,564) $(2,609,424) $(1,932,221) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 143,122 208,167 382,579 Cost of share based compensation 137,560 15,817 85,911 Decrease (increase)in trade receivables, unbilled accounts, other accounts receivables and prepaid expenses (2,319,260) 1,260,254 167,733 Increase in interest receivable (188,811) - - Increase (decrease) in trade and other payables and accrued expenses 347,659 132,767 946,779 Increase (decrease) in deferred revenues 215,027 (13,683) (54,918) Increase in accrued severance pay, net 35,208 13,535 10,953 ----------- ----------- ----------- Net cash used in operating activities (2,932,059) (992,567) (393,184) ----------- ----------- ----------- Cash flows from investing activities: ------------------------------------- Investment in long-term available for sale marketable securities (11,073,876) - (1,000,000) Investment in short-term available for sale marketable securities (60,362,150) - (13,550,000) Proceeds from maturity of short-term available for sale marketable securities 66,800,000 - - Purchase of property and equipment, net (136,589) (27,669) (47,700) ----------- ----------- ----------- Net cash used in investing activities (4,772,615) (27,669) (14,597,700) ----------- ----------- ----------- Cash flows from financing activities: ------------------------------------- Parent Company (440,646) - 875,088 Issuance of shares upon exercise of employees' share options, net 23,787 - 25,167 Issuance of shares upon Initial Public Offering - - 25,181,535 Issuance expenses (109,000) - (2,561,020) Convertible loans from Parent Company - 1,012,163 1,396,417 ----------- ----------- ----------- Net cash provided by financing activities (525,859) 1,012,163 24,917,187 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents (8,230,533) (8,073) 9,926,303 Cash and cash equivalents at the beginning of the period 10,029,427 103,124 103,124 ----------- ----------- ----------- Cash and cash equivalents at the end of the period $ 1,798,894 $ 95,051 $10,029,427 =========== =========== =========== Supplemental disclosure of cash flows activities: Cash received during the year for: Interest $ 261,443 $ - $ 199,676 =========== =========== =========== Non-cash activities: Conversion of convertible loans from Parent Company into shares $ - $ - $20,306,401 =========== =========== =========== Issuance expenses payable $ - $ - $ 564,000 =========== =========== =========== The accompanying notes are an integral part of the financial information. 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. In April 2000, the Company was acquired by Emblaze Ltd. ('the Parent Company'), a company organized under the laws of the State of Israel and traded on the London Stock Exchange. In October 2004, the Company completed an Initial Public Offering ('IPO') on the London Stock Exchanges Alternative Investment Market ('AIM'). The Company issued 14,141,414 Ordinary shares to institutional and other investors at a price of $1.8 per share, raising amount of approximately $ 25.2 million before issuance expenses. b. The Company develops and licenses software for the provision of television and other entertainment services over IP network infrastructures. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES a. The significant accounting policies and methods of computation applied in the preparation of the interim financial information are the same as those applied in the annual financial statements of the Company as of 31 December, 2004, except for the adoption of IFRS 2 (see b below). This financial information have been prepared in a condensed format as of 30 June, 2005, and for the six months then ended ('interim financial information'). This financial information should be read in conjunction with the Company's audited annual financial statements and accompanying notes as of 31 December, 2004 and for the year then ended. Operating results for the six-month period ended 30 June, 2005 are not necessarily indicative of the results that may be expected for the year ended 31 December, 2005. b. Adoption of new standards: Commencing 1 January 2005, the Company has adopted IFRS 2, 'Share Based Payment'. IFRS 2 requires an expense to be recognized where the Company buys goods or services in exchange for shares or rights over shares ('equity-settled transactions'), or in exchange for other assets equivalent in value to a given number of shares of rights over shares ('cash-settled transactions'). The main impact of IFRS 2 on the Company is the expense of employees' and directors' share options and other share-based incentives by using an option-pricing-model. The Company has applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested on or before 31 December 2004. The effect of the adoption of IFRS 2 on the six months ended 30 June 2005, and the six months ended 2004 is an increase in the employee benefits expenses in the amount of $137,560 and $ 15,817, respectively, with a corresponding increase in additional paid-in capital. The effect of the adoption of IFRS 2 on the year ended in December 31, 2004 is an increase in the employee benefits expenses in the amount of $ 85,911, with a corresponding increase in additional paid-in capital. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) In December 2003, the International Accounting Standards Board (''IASB'') released revised IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement. These standards replace IAS 32 (revised 2000), and supersedes IAS 39 (revised 2000), and should be applied for annual periods beginning on or after January 1, 2005. The amendments do not have a material impact on the financial information. In December 2003, as a part of the IASB's project to improve International Accounting Standards, the IASB released revisions to the following standards that supersede the previously released versions of those standards: IAS 1, Presentation of Financial Statements, IAS 2, Inventories; IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors; IAS 10, Events after Balance Sheet Date; IAS 16, Property, Plant and Equipment; IAS 17, Leases; IAS 21, The Effects of Changes in Foreign Exchange Rates, IAS 24, Related Party Disclosures; IAS 27, Consolidated and Separate Financial Statements; IAS 28, Investments in Associates; IAS 31, Interests in Joint Ventures; IAS 33, Earnings per Share and IAS 40, Investment Property. The revised standards should be applied for annual periods beginning on or after January 1, 2005. The amendments do not have a material impact on the financial statements. NOTE 3:- AVAILABILITY OF INTERIM REPORT Copies of the Interim results are being sent to Orca shareholders and will also be available at Financial Dynamics, 26 Southampton Buildings, London WC2A 1PB, UK or from the company's website www.orcainteractive.com. This information is provided by RNS The company news service from the London Stock Exchange

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