Orcadian Engy Regulatory News (ORCA)

10 Mar 2008 07:02

Orca Interactive Ltd10 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 developingmiddleware and applications for IPTV, announces that it has agreed the terms ofthe recommended cash acquisition of the Company by Viaccess, a wholly ownedsubsidiary of France Telecom SA. The transaction is structured as a mergerunder the Israeli Companies Law 1999 (as amended) and is not subject to the CityCode on Takeovers and Mergers. Orca is also announcing its preliminary results for the year ended 31 December2007. 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 beenconverted into £ sterling at an exchange rate of US$ 2.009 = £ 1, the rateprevailing at 6 March 2008, the latest practicable date prior to thisannouncement. Actual £ sterling amounts receivable by Orca Shareholders willdepend 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 environmentlately, due in part to consolidation activity among our customer base and othermarket participants. With this in mind, we have for some time been looking tobe acquired by a large, established corporation with greater access to potentialcustomers and complementary products and technologies. We believe thatViaccess, a wholly-owned subsidiary of France Telecom, is such an acquirer,given its worldwide reputation in content protection technologies. The factthat 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 9444Haggai Barel, Chief Executive Officer Financial Dynamics (PR to Orca) +44 20 7831 3113James Melville-Ross / Matt Dixon Altium (Nominated adviser to Orca) +44 20 7484 4040Tim Richardson About Orca Interactive Orca Interactive Ltd. (LSE:ORCA) is an international provider of IPTVmiddleware and applications, bringing the power of next generation interactiveTV to help service providers and broadband network operators drive growth.Transforming the way people consume television content, Orca Interactive'sdynamic IP video and feature-rich multimedia solutions combine live TV, video ondemand (VOD), personal video recording (PVR), home media and personalizedservices, including content discovery and user generated content, across amulti-device platform, and over the Internet through its leading WebTV solution.Orca Interactive's RiGHTv solution provides a flexible approach for tailoredIPTV 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 ownedsubsidiary of France Telecom, the terms of the recommended acquisition of theOrca by Viaccess, through a cash merger under the Israeli Companies Law. Under the terms of the Merger Agreement, Orca's Shareholders will be entitled toreceive a cash payment for each Ordinary Share or Depository Interest therein inan amount to be determined in accordance with the Merger Agreement. Based on thecurrent estimates of the Board, the payment per Ordinary Share is expected to beapproximately 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 ofthe Merger with the possibility of further payment(s) pursuant to the release ofthe balance of US$0.13 (approximately £0.06) which is to be held in escrow andsubject 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 holdersof a majority of the Ordinary Shares present (in person or by proxy) at theGeneral Meeting and voting on the proposal to approve the Merger and the MergerAgreement. The General Meeting will be held at the offices of Financial Dynamics, HolbornGate, 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 latertoday. The Circular, containing further details of the Merger and other mattersto be considered at the General Meeting will also be issued to Shareholders indue course. The Directors are unanimously recommending that Orca Shareholders vote "FOR" theproposed Merger Agreement and the Merger. In connection with the Merger, Viaccess has entered into an agreement withEmblaze, a substantial shareholder in Orca, under which Emblaze has agreed tovote its Ordinary Shares (representing approximately 59.2 per cent of theoutstanding 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 eachDepositary Interest therein, issued and outstanding as of the Effective Timeshall be deemed transferred to Viaccess and each holder of an Ordinary Share(other than Capita IRG Trustees (Nominees) Limited) and each holder of aDepositary Interest shall have the right to receive in cash, a proportionateshare of the Merger consideration. 2. The Merger consideration The Merger consideration consists of an amount of US$13 million plus theCompany's Net Cash as of Closing. The "Net Cash" reflects the aggregate amountof cash held by the Company as of Closing, subject to certain agreed adjustmentsand deductions. Assuming that Closing is on 29 May 2008, the Board estimates that the totalMerger consideration will be approximately US$21.4 million, which representsapproximately US$0.59 (approximately £0.29) per Ordinary Share. The MergerAgreement contains provisions pursuant to which the actual Merger considerationpayable at Closing will be adjusted based on updated estimates delivered by theCompany no later than seven business days prior to Closing (the "ClosingEstimates"), but subject to certain potential maximum and minimum amounts ofsuch Merger consideration. The Merger Agreement also provides that the actualamount of Net Cash as of Closing will be determined, based on final accounts tobe prepared after Closing. The final Merger consideration payable is not certain and will depend on theimplementation of the various adjustment provisions in the Merger Agreement, andthere can be no assurance that the final Merger consideration will be the amountthat the Board has estimated. 3. Payment of the Merger consideration The amount per Ordinary Share to be payable to each holder of Ordinary Shares orDepository Interests is to be paid in a number of installments, based on thetotal Merger consideration, as adjusted in accordance with the Merger Agreement. As of Closing, Viaccess will deposit the Merger consideration, based on theClosing Estimate relating to the Net Cash as follows (i) an amount of US$4.75million (reflecting an amount of approximately US$0.13 per Ordinary Share) to bedeposited with an escrow agent, to be held in escrow as described below (the "Escrow Amount"), and (ii) the balance of the Merger consideration (which basedon the Current Estimate is expected to be approximately US$16.6 million, to bedeposited with a paying agent, in order to be distributed to the holders ofOrdinary Shares, Depositary Interests and "in the money" options. Based on theBoard's current estimate, the amount to be distributed to the holders ofOrdinary Shares and Depositary Interests in accordance with (ii) above isexpected 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 finaldetermination of the Net Cash amount shall be made (the "Final Adjustment"); inthe event that such Final Adjustment results in the final Net Cash amount beingless 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 Cashamount is determined to be greater than the Net Cash included in the ClosingEstimates, then Viaccess shall deposit with the Escrow Agent an amountreflecting 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 inthe Merger Agreement was breached or otherwise incorrect, then Viaccess maybring a claim against the Escrow Amount for indemnification for any Losses (asdefined in the Merger Agreement) caused to Viaccess and its related parties as aresult of such breach or inaccuracy. The Escrow Amount serves as the sole remedyfor the Final Adjustment and for such indemnification for specific periods asdescribed in paragraph 5 below. If any claim is made by Viaccess for indemnification, then such claim isrequired to be submitted to the escrow agent, and to the nominated ShareholderRepresentative who may challenge such claim on behalf of the formerShareholders. The Merger Agreement contains provisions that appoint the ShareholderRepresentative to serve in such position and provide the ShareholderRepresentative with full authority and discretion to handle the mattersdesignated to it, including retention of advisors and consultants, payment oftheir fees out of the amounts that would otherwise be payable to the formerShareholders 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 thePositive Difference (if any) or minus the Negative Difference (if any) willbecome available for distribution to the former holders of Ordinary Shares andDepositary 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 theEscrow Amount, including accrued interest, that exceed US$2.6 million, if any,will become available for distribution to the former holders of Ordinary Sharesand Depositary Interests, on a pro rata basis, (except for amounts that aresubject to pending claims for indemnification). Subsequent to the 18 monthsanniversary, the remaining Escrow Amount will be available solely for claimswith respect to specific intellectual property related representations. Upon the expiration of 36 months after Closing, any amounts forming part of theEscrow Amount, including accrued interest, if any, will become available fordistribution to the former holders of Ordinary Shares and Depositary Interests,on a pro rata basis (except for amounts that are subject to pending claims forindemnification). 6. Other terms of the Merger Agreement Non-Solicitation Under the Merger Agreement, the Company has entered into certain restrictivecovenants. In particular, the Company will not: • solicit or encourage any approaches from, or engage in any discussionswith, any third party in relation to a possible acquisition of the Company, asignificant interest in the Company or a substantial part (or the whole) of thebusiness and assets of the Company; • provide any information not already in the public domain to any suchthird party. Under certain circumstances described in the Merger Agreement, the Board mayterminate the Merger Agreement in the event that a proposal to acquire theCompany is received which is on terms that are more favorable then the terms ofthe Merger, provided that upon termination, a termination fee in the amount ofUS$2 million is paid to Viaccess. Closing Conditions • The obligation of Viaccess to effect the Merger is subject to thesatisfaction 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 toeffect the Merger is subject to the satisfaction or waiver of the followingconditions: approval of the Merger from the Investment Center of the IsraeliMinistry of Trade, Industry and Labor and certain filings with the IsraeliOffice of the Chief Scientist; the Merger Agreement, the Merger and thetransactions contemplated thereby being duly approved by the Shareholders; andthere being no temporary restraining order, preliminary or permanent injunctionor 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 potentialto penetrate its target markets the Company should consider, among otheralternatives, a business combination with a larger and more establishedcorporation that has greater access to potential customers and complementaryproducts and technologies. Accordingly, since that time, while continuing topursue its business objectives as an independent company, the Company exploredpossibilities for an acquisition of the Company by a third party. Over thecourse of the following 18 months the Company considered a number ofalternatives and engaged in discussions with a number of potential bidders forits business. In addition, in May 2006, the Company engaged Jefferies, areputable U.S. based investment bank with expertise in technology, to identifypotential candidates for an acquisition of the Company. None of the discussionswith 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 diligencewith respect to the Company's business, technology, financial condition andvarious legal, accounting and tax aspects of the Company's affairs, anddiscussions were held with respect to the price to be paid. After an exchange ofa number of offers and counter offers, Viaccess provided its final offer inDecember 2007 reflecting an enterprise value of US$13 million plus the Company'sNet Cash as of Closing. The Board considered the proposal and, taking intoaccount various legal issues relating to the proposed transaction, including thefiduciary duties of the directors, potential conflicts of interest and thestructure of the proposed transaction, authorized and approved the definitiveMerger Agreement. The Audit Committee and the Board, acting with the advice and assistance ofJefferies and the Company's Israeli legal advisors, evaluated the terms of theMerger, including the terms and conditions of the Merger Agreement. RECOMMENDATION OF THE MERGER The Audit Committee and the Board unanimously approved and recommended theMerger Agreement and the Merger based upon the totality of the informationpresented to and considered by it. In the course of reaching its determination, the Audit Committee and the Boardconsidered, inter alia, the following factors and potential benefits of theMerger, each of which the Audit Committee and the Board believe supported itsdecision: • the Board's familiarity with, and information provided by Company'smanagement as to, the business, financial condition, results of operations,current business strategy and future prospects of the Company, as well as therisks involved in achieving those prospects and objectives under currentindustry and market conditions, the nature of the markets in which the Companyoperates and the Company's position in such markets; • the Board's extended consideration of strategic alternatives for theCompany, including discussions with a number of potential strategic andfinancial buyers, and the fact that to date no other prospective purchaser hasindicated a willingness to pay consideration greater than that to be paid byViaccess in the Merger; • the current and historical market prices and trading information forthe Ordinary Shares and the fact that the consideration payable in the Mergerrepresents a fair value compared to those historical prices; • the possible alternatives to the Merger, including the prospects ofcontinuing to operate the Company as an independent public entity, and the risksand uncertainties associated with such alternatives, including the risksassociated with the Company's ability to meet its projections for future resultsof operations, compared to the opportunity of realizing in cash a fair value fortheir investment provided to the Shareholders by the Merger; • the fact that the Merger is with an entity that has conducted noactivities prior to the Merger and no material assets or liabilities other thanits rights and obligation under the Merger Agreement, so no reasonable concernexists that, as a result of the Merger, the Company will not be able to fulfillthe obligations of the Company to its creditors; • the financial and other terms and conditions of the Merger Agreementas reviewed by the Board and the fact that they were the product of arm's-lengthnegotiations between the parties; • the fact that the Merger Consideration is all in cash, allowing theShareholders to realise value for their investment; and • recent developments in the industries in which the Company operatesand the impact of such developments on the business and prospects of theCompany, including the continuing challenging business environment and theimpact of consolidation among market participants. FAIRNESS OPINION The Board retained Jefferies to provide it with a fairness opinion in connectionwith the Merger. The Board selected Jefferies based on such firm'squalifications, reputation and expertise in this respect. Jefferies has advisedthe Board that, as of the date of the Merger Agreement, based upon and subjectto the various conditions, considerations and assumptions set forth in itsopinion provided to the Board, the consideration to be received by the holdersof Ordinary Shares is fair, from a financial point of view, to such holders.For the purposes of its opinion, Jefferies assumed, based on estimates providedby the Board, that each holder of Ordinary Shares would receive US$0.59 perOrdinary Share. The written opinion of Jefferies is directed to the Board only and not the OrcaShareholders or any potential investor, only addressing the fairness of theconsideration to be received by Orca Shareholders (which consideration wasassumed to be US$0.59 per Ordinary Share) from a financial point of view as ofthe date of the opinion. It does not address any other aspects of the Merger anddoes not constitute a recommendation to any Orca Shareholder as to how to voteat the General Meeting. MANAGEMENT ARRANGEMENTS The Board, acting upon the recommendation of each of the remuneration committeeand Audit Committee has approved special cash bonuses of (i) 2.5 per cent of theMerger consideration, based on the Closing Estimates (without giving effect toany subsequent adjustment), provided that for this purpose the Mergerconsideration shall also include the amount of such bonus (i.e. approximatelyUS$548,000, based on the Board's current estimates), to Mr. Haggai Barel, ChiefExecutive 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 therecipients contingent upon the completion of the Merger and in recognition oftheir efforts and contribution to the successful consummation of the Merger. In connection with the execution of the Merger Agreement, Mr. Haggai Barel hasagreed with Viaccess to enter into an agreement with the Company concerning hiscontinued service to the Company after Closing. In addition, the Company hasentered, prior to the execution of the Merger Agreement, into agreements withcertain other key employees of the Company concerning their future employment bythe Company after Closing. CANCELLATION OF ADMISSION In accordance with AIM Rule 41, Orca hereby notifies shareholders that, if it isfully implemented, the Merger will result in the subsequent cancellation of theadmission of Orca Shares and Depository Interests to trading on AIM ("Cancellation") with effect from Closing. On the basis of the currently envisagedtimetable for the Merger, and assuming the requisite approvals are received fromOrca Shareholders at the General Meeting, the last day of dealings in OrcaShares is expected to be 29 May 2008. Following the Cancellation, sharecertificates in respect of Orca Shares and Depository Interests will cease to bevalid and entitlements to Orca Shares and Depository Interests held within theCREST system will be cancelled. GENERAL The Circular, containing further details of the Merger and other matters to beconsidered 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 yearcontinued in the second half, culminating in a revenue line which almost doubledagainst the prior year. Much of the activity during 2007 was driven out of ourEMEA markets, which has been the key focus for Orca's sales team during theyear, but the Company also saw positive momentum in the Americas with promisingwins in the US and Colombia. Orca intends to expand on these footprints in thecoming years and has recently redeployed staff to bolster its US operation. A significant event during the year was the development of COMPASS, Orca'sgroundbreaking solution for content discovery designed to help operators attractIPTV subscribers and differentiate themselves from other providers throughpersonalised recommendations and fast, intuitive content navigation. Financial performance Revenues in 2007 were $6.4m, compared to $3.3 million in 2006, boosted by newdeals 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 professionalservices and 3rd party software and hardware as part of the IPTV solution. Sales and marketing expenditure at $3.7 million was reduced marginally duringthe year (2006: $4.3m) as Orca focused its attention on the core EMEA market andextending relationships with existing customers. Research and developmentexpenditure at $3.2m, compared to $3.0 million in 2006 as the Company investedin 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 areduced 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. Operatingcash 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 themarket leading position of its technology. For example, as announced during theyear, Orca has launched its unique hybrid IPTV and WebTV solution and isdelivering this new technology to Blockbuster Israel, enabling it to deliveradvanced digital content services to its subscribers. In October, Orca also announced the launch of COMPASS, a Content Discoverysolution designed to quickly and intuitively provide television viewers with thecontent of their choice. With all the live, on-demand and pre-recordedprogramming available, COMPASS aims to provide the right content to the rightviewers to provide quality - rather than quantity - in content choice. Customers and Partners In the announcement of its last interim results in September 2007, Orcadescribed some of the new business successes that it had secured during thefirst half of the year with the likes of ON Telecoms in Greece, Lattelecom inLatvia, WT Services in the US and Sibir Telecom in Russia, Since then, the Company has also secured new wins with UNE EPMTelecommunications in Colombia and STA Andorra in EMEA. The Colombiandeployment was the country's first IPTV service rollout and is expected to beavailable in major cities across Colombia by the end of the current quarter. Thedeployment will be carried out by Union Electrica S.A., Orca's partner andsystem 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 adeal to sell Orca's middleware in a deployment with STA, the Andorrantelecommunications operator. The arrangement included live channels, Pay PerView, 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 aunified address book. Current trading and prospects The momentum witnessed during 2007 has continued into the early months of thecurrent financial year and the Company is seeing a positive response to itsrecent product innovations. This, allied to the continued growth in the numberof international IPTV deployments across our marketplace, means that the Boardremains 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 2007ASSETS 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 basicand 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 costof 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 fromrevenues to related-party for the years ended December 31, 2006 and 2007, respectively. ***) Restated to conform to the current year methodology for calculating valueof 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 ofemployees' share options, net 96,000 1 25 -Cancellation of issuance expenses - - 455 -Unrealised income on available-for-sale marketable securities - - - 77Share-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 ofemployees' share options, net 26,625 *) - 7 -Unrealised income on available-for-salemarketable securities - - - 81Share-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 ofemployees' share options, net - - 26Cancellation of issuance expenses - - 455Unrealised income on available-for-sale marketable securities - - 77 $77Share-based compensation - - 176 -Foreign currency translation adjustments 13 - 13 13Net 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 ofemployees' share options, net - - 7 -Unrealised income on available-for-salemarketable securities - 81 81Share-based compensation - - 103 -Foreign currency translation adjustments 214 - 214 214Net 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 calculatingvalue 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 operatingactivities:Depreciation 284 188 Share-based compensation 176 103 Amortization of premiums and acceleration of discounts onavailable-for-sale marketable debt securities, net 69 18 Decrease (increase) in trade receivables, other accountsreceivable and prepaid expenses 1,050 (343) Increase (decrease) in trade payables and other accountspayable 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 marketablesecurities, 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 ofassets of severance pay fund according to IAS -19. DEFINITIONS The following words and expressions have the following meanings, unless thecontext requires otherwise: Audit Committee the audit committee of the Board of Directors; Board or Directors or the board of directors of the CompanyBoard 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 rateused has been US$ 2.009 = £ 1, as published in the Financial Times on 6 March2008, the latest practicable date prior to this announcement. This information is provided by RNS The company news service from the London Stock Exchange