PTV Peertv

TIDMPTV

RNS Number : 0158O

PeerTV PLC

12 September 2011

12 September 2011

PeerTV PLC

("PeerTV" or "the Company")

Successful placing, publication and posting of readmission document relating to the proposed reverse takeover of Digitek Holdings Ltd. and invitation to General Meeting

Peer TV PLC announces a successful fundraise of GBP2.38m through the placing of mixture of loan notes and shares (the "Placing"). An admission document giving details of the proposals regarding the proposed reverse takeover ("Acquisition") of Digitek Holdings Ltd. ("Digitek") by PeerTV and incorporating a notice convening a General Meeting to be held at the offices of HaysMacIntyre, Fairfax House, 15 Fulwood Place, London, WC1V 6AY, on 28 September 2011 at 10:00am has been posted to shareholders. At the same time notices reconvening the adjourned class meeting of the convertible preference shareholders (the "Class Meeting") and the adjourned annual general meeting ("AGM") have been sent. These meetings are to be held at the same place as the general meeting. The Class Meeting is to be held at 9:00am and the AGM at 9:30am. The Placing and receipt of the funds is conditional, inter alia, on the shareholders approving the Acquisition and the readmission to trading on AIM of the enlarged share capital and the passing of the outstanding resolutions at the Class Meeting and the AGM. The proceeds of the placing will be used to provide additional working capital for the enlarged group and to finance the costs associated with the acquisition of Digitek.

As of today the Placing remains open but may be closed at any time at the discretion of the Directors. The Placing has received irrevocable commitments for a total of GBP2.38 million before expenses (approximately GBP1.7million after expenses) so far and may raise up to a total of GBP3.0 million before expenses (approximately GBP2.25 million after expenses). The Placing was marketed by CSS Partners LLP an appointed representative of Charles Street Securities Europe LLP, in the form of GBP10,000 units, each unit consisting of GBP5,000 face value 2014 Loan Notes and 16,667 Placing Shares at an implied price of 30p per share ("Placing Price").

Following the publication of the shareholder circular regarding the reverse takeover of Digitek, suspension from trading of the shares of PTV is expected to be lifted on 12 September 2011.

In May of this year, the Company announced that it had reached agreement in principle to acquire Digitek, an Israeli electronic assembly manufacturer, having significant experience in the organization, management and quality control of outsourced production of electronic equipment in China. A merger of the two businesses is expected to produce significant operational benefits to the Company in logistics, quality control and production management. The merger constitutes a reverse takeover under the AIM Rules and requires shareholder approval. Following the announcement, the shares of PeerTV were suspended from trading until such time as a shareholder circular could be published.

The Board of PeerTV has conditionally agreed to acquire 13.69% of the issued share capital of Digitek from certain shareholders and has made a conditional offer to acquire the remaining 86.31 per cent by offering 1.325 PeerTV shares per Digitek share. In total the Company will issue up to 25.348,737 PeerTV shares (the "Consideration Shares") to the current holders of Digitek shares. This values Digitek Holdings at GBP7.6 million (based on the Placing Price).

The Company is dispatching the Tender Offer letters conditional amongst other things on shareholder approval, the acquisition of at least 50 percent share capital of Digitek Holdings (including the 13.69 percent of Digitek Holdings conditionally acquired by the Company from certain shareholders). The consideration for the Acquisition will be satisfied by the issue of the Consideration Shares.

If all the necessary resolutions are approved by the shareholders, it is expected that the admission to trading of the existing share capital will be cancelled on 28 September 2011 and the admission to trading on AIM of the enlarged share capital will become effective on 29 September 2011.

Downloadable versions of this announcement, the admission document and the notice of General Meeting will shortly be available from the following web address:

www.peertv.com

Mr Ofer Barda, Chief Executive Officer, says

"We are very pleased to be bringing the Company back to the market with a promising and attractive product. We have addressed the technical issues faced earlier in the year and are looking forward to building the Company with new clients wins. Further to this, the Company intends to release its first Android-based STB in Q3 2011. I would like to thank our existing and new shareholders for their support and will be updating the market on our progress in due course."

ENDS

For further information please contact:

PeerTV Plc

Ofer Barda, CEO +972 3 934 5077

Libertas Capital Corporate Finance Limited

Thilo Hoffmann/Andrew McLennan +44 20 7569 9690

Rivington Street Corporate Finance - Joint Brokers

Jon Levinson/ Dru Edmonstone +44 20 7562 3357

Bishopsgate Communications

Nick Rome/Deepali Schneider/Natalie Quinn +44 207 562 3350

Notes to the editor:

PeerTV provides end to end hardware and software solutions for providers of Internet TV services delivered via broadband internet connections. The solutions allow the Company's clients to provide full scale internet based TV services at a fraction of the price of traditional broadcasting technologies.

Digitek's principal activities are the assembly of electronic products and components and the associated sourcing and logistics for companies principally engaged in the hi-tech and telecommunications industries in Israel and the sourcing and management of outsourced production of electronic products in China.

The below is an excerpt from the Admission Document and definitions are the same as those in the admission document referred to above.

ADMISSION AND PLACING STATISTICS

Number of Existing Ordinary Shares 15,391,451

Price per Placing Share(1) 30 pence

Number of Placing Shares(2, 7) 5,000,000

Number of Consideration Shares 25,348,737

Other Ordinary Shares to be issued(4) 10,473,558

Enlarged Share Capital(2) 56,213,746

Placing Shares as a percentage of the Enlarged Share Capital(2) 8.9%

Consideration Shares as a percentage of the Enlarged Share Capital(2) 45.1%

Fully diluted Share Capital(2,5) 62,728,461

Gross proceeds of the Placing to be received by the Company(2) GBP3,000,000

Net proceeds of the Placing to be received by the Company(2,6) GBP2,190,000

Market capitalisation (at the price per Placing Share) of the Company

following completion of the Placing and the issue of the New Ordinary Shares(2) GBP16.9 million

ISIN GB00B424FM47

Ticker PTV

(1) Calculated by dividing the GBP5,000 of the Placing Price per Unit not attributable to the 2014 Loan Notes by the 16,667 shares issued to the buyer of each Unit.

(2) Assuming Subscription in Full.

(3) The aggregate of the Existing Ordinary Shares and the New Ordinary Shares.

(4) Additional Ordinary Shares will be issued as part of the proposed transaction. These include shares issued upon the proposed conversion of Convertible Preference Shares, shares issued in connection with the extension of bridge loans and other shares issued to third parties providing advisory services in connection with the Acquisition, Placing and Admission. Further details can be found in paragraph 2.14 of Part V of this Document.

(5) The aggregate of the Enlarged Share Capital together with the Ordinary Shares to be issued in the event of exercise of all outstanding options and warrants as well as the conversion of all Deferred Shares.

(6) Assuming estimated expenses of the Placing, the Acquisition and this document of GBP810,000.

(7) It is possible that the Company may offer up to GBP250,000 pursuant to the Placing at a price 15 percent lower than the Placing Price prior to the pre-conditions being met and, as a result, the number of Placing Shares may be slightly increased compared to those figures set out above.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Latest time and date for receipt of Forms of Proxy 10 a.m. on 26 September 2011

General Meeting 10 a.m. on 28 September 2011

reconvened Class Meeting of the holders of the

Convertible Preferred Shares 9:00 a.m. on 28 September 2011

Reconvened AGM 9:30 a.m. on 28 September 2011

Issue of Consideration Shares and Placing Shares 28 September 2011

Admission effective and dealings recommence in the Ordinary Shares on

AIM and dealings commence in the New Ordinary Shares 29 September 2011

CREST accounts credited by 29 September 2011

Despatch of definitive certificates by 12 October 2011

The above dates assume that the General Meeting is not delayed and that all GM Resolutions are approved by the requisite majority.

BACKGROUND TO THE ACQUISITION

Commercial Rationale

The Directors believe that Digitek Holdings' business, production and logistics capabilities provide a compatible and complementary set of skills that can be immediately and effectively integrated with PTV's operations.

PTV is at its core is a hi-tech software applications and tool company providing solutions for internet TV content providers. Its solution is delivered to the end consumer through the sale of set top boxes, a relatively low tech product. This requires a separate set of manufacturing, sourcing and quality control skills, utilizing outsourced manufacturing facilities in China and supplying customers in a variety of countries. Initially, PTV was able to manage this process, utilizing its in-house resources and expertise. The effectiveness of the outsourcing management process suffered during the latter part of 2010.

Digitek Holdings is engaged in the business of outsourced electronics manufacturing and the Directors believe that Digitek Holdings' business and production logistics capabilities provide a compatible and complementary set of skills that can be utilised for the benefit of PTV's operations in the form of improved control of the outsourced production process and in the integration of certain financial and corporate back office functions.

Before committing to the Acquisition, the Company has carried out detailed financial and legal due diligence on Digitek Holdings and Digitek. In addition, the Acquisition Agreement contains such warranties from the Sellers as the Directors deemed appropriate.

PTV Production Issues 2010

During the second half of 2010, certain PTV customers encountered some technical problems with one type of set top box supplied by the Company. At first, these problems appeared to be intermittent and were not considered out of the ordinary. Attempts to replicate the problem in the testing facilities at the manufacturer or at the PTV's offices were not successful. Eventually it became apparent that the issue was caused by electronic interference between the WiFi and HDMI functions of the boxes, caused by the proximity of two wires inside the STB. The close proximity had been introduced at the manufacturing site, where the final assembly plan had been made. Similar difficulties were encountered by other set top box manufacturers during the second half of 2010 due to the increasing number of end users purchasing HDMI TV sets. In order to remedy this issue, a significant number of boxes had to be retrofitted with higher quality antennas and some minor modifications to production procedures had to be made. The problems also caused delays in the production and the hold of new orders as clients wanted to ensure that the issue had been solved. This contributed to the financial results of the Company in Q4 2010 being lower than expected.

As a result of the production difficulties encountered in the second half of 2010, significant additional costs were incurred which created a significant strain on working capital into 2011. As a result the Auditors have issued an unqualified audit opinion which includes an emphasis of matter - going concern statement regarding the Company's requirement to raise additional working capital to continue as a going concern.

During Q1 2011, with the aim of avoiding such problems in the future, Digitek Holdings began assisting PTV in production management in China, including the availability of locally based staff providing much stronger monitoring capability.

PRINCIPAL TERMS OF THE ACQUISITION

Tender Offer

The Tender Offer to be made by the Company to Digitek Holdings' shareholders to acquire up to the entire issued share capital of Digitek Holdings (other than the Sale Shares).

Under the terms of the letter, 1.325 Ordinary Shares are to be offered for every Offer Sale Share.

The Offer remains open until 4 October 2011 ("Acceptance Date"). The Company reserves the right to extend the Acceptance Date for up to 30 days.

The Offer is conditional upon the following:

-- the Company having received acceptances from Digitek Holdings' shareholders holding not less than 37 per cent. of the issued share capital of Digitek Holdings;

-- the Share Purchase Agreement becoming unconditional (save for any conditions relating to the Offer and Admission);

-- the passing of the GM Resolutions;

-- Admission becoming effective; and

-- no material negative event having taken place.

Following completion of the Share Purchase Agreement and assuming that the Offer becomes unconditional, the Company will acquire more than 50 per cent. of the issued share capital of Digitek Holdings.

Under section 337(a) Companies Law, if there is a tender offer for all of the issued shares of an Israeli public company and the shareholders of such company that elect not to tender their shares (Non Tendering Shareholders) own less than 5 per cent. of the issued share capital, those shareholders shall be obliged to tender their shares.

Under Section 337(b) Companies Law, if a tender offer is not accepted in accordance with Section 337(a) Companies Law the offeror shall not purchase shares from shareholders who have accepted the offer that will confer on him a holding of between 90 per cent. and 95 per cent. of all the shares in the company or of all of a class of shares in respect of which the offer was made . As soon as the offeror can acquire 95 per cent. or more of the shares, they may use their squeeze-out rights to acquire 100 per cent.

Accordingly, if the Non Tendering Shareholders hold less than five per cent. of Digitek Holdings' issued share capital on the Acceptance Date then the Non Tendering Shareholders shall be obliged to sell their shares to the Company at the Offer Price.

THE PLACING

As part of and to enable the Acquisition the Company undertook the Placing to strengthen its working capital position to enable the Acquisition. CSS was the authorised person engaged to help in this fundraising effort. Details of the CSS engagement letter can be seen in paragraph 10.1.6 of Part V of this Document.

As at the date of this document the Placing remains open but may be closed at any time at the decision of the Directors but in any event no later than 14 August 2011 or the occurrence of Subscription in Full. As at the date of this document the Placing has received irrevocable commitments for a total of GBP2.38 million before expenses (approximately GBP1.7 million after expenses) and will raise up to a total of GBP3.0 million before expenses (approximately GBP2.2 million after expenses). CSS has marketed the Placing as GBP10,000 units, each unit consisting of GBP5,000 face value 2014 Loan Notes and 16,667 Placing Shares.

The 2014 Loan Notes will be due on 31 December 2014 and carry an interest rate of 8 per cent. 50 per cent. of the interest on the 2014 Loan Notes will be payable to holders of the 2014 Loan Notes six monthly in arrears. The other 50 per cent. will accrue and be payable upon repayment of the 2014 Loan Notes. Further details of the 2014 Loan Notes can be found in paragraph 10.1.5 of Part V of this Document.

The Placing is conditional on passing of the GM Resolutions, the Class Meeting Resolutions, the Admission and completion of the Acquisition in accordance with its terms.

INFORMATION ON DIGITEK HOLDINGS

Introduction

Digitek Holdings was incorporated in Israel as a private limited company on 13 August 2007 as a vehicle to acquire the entire share capital of Digitek. Digitek Holdings has no operations other than acting as the 100 per cent. parent company for Digitek. Digitek Holdings re-registered as a public company on 25 March 2008.

Digitek was formed in 1993 and is the operating subsidiary of Digitek Holdings. Digitek Holdings acquired the share capital of Digitek on 30 January 2008 for the sum of NIS 37.5 million. The acquisition was financed by NIS 14 million of equity and NIS 33 million of debt financing of which NIS 9.5 million was used to cover the expenses of the equity financing, the debt financing and to secure the bank loans granted in order to complete the acquisition.

Business of Digitek

Digitek's principal activities include the assembly of electronic products and the associated sourcing and logistics for companies principally engaged in the hi-tech and telecommunications industries in Israel and the sourcing and management of outsourced production of electronic products in China. Its activity includes the composition of electronic components on circuit boards; the installation of complementary components, such as connectors, and the packing of circuit boards in electronic enclosures.

Digitek uses electronic and computerised equipment, which operates robotically and is geared to the accurate assembly of the electronic components on circuit boards in the least possible time.

From its offices in Shen Zen, China, it manages and audits the production of larger volume production runs by its Chinese subcontractors. It is this latter expertise and experience that is of particular interest to the Company.

Digitek currently employs up to 98 staff in Israel and 3 in its Shen Zen, China office.

Digitek Business Model

The Digitek business model has two distinct income streams:

(a) Assembly Services

Digitek provides contract manufacturing services; receiving material from its clients and returning a finished, assembled product or sub-component and charging an agreed fee for this service. Assembly services involve pre-manufacturing engineering, the preparation of a product file and programming of the Surface Mounting Technology (SMT) machines. The next stage is the manufacturing and subsequent assembly. The final product is shipped either as a PCB product or is combined to a finished product and despatched to the client. Pricing of the assembly service is based on a combination of fixed costs and per unit costs.

(b) Turnkey Service

In the turnkey service Digitek acts as a contractor; sourcing all materials and components, and purchasing them on its account, managing inventory and logistics and in addition performing the value added assembly work, as above. In the turnkey service a mark-up is typically added to the cost of components sourced in addition to the pricing of the assembly service.

Digitek is not engaged in the design of products, the engineering of products, the manufacture of the entire product or the plastic and metal related work surrounding the manufacturing process of the end product. It offers a number of specialised services as part of its overall service including engineering services, development of test systems, calibrations and thermal tests, integration of systems, packing and shipping to a client's customers and specialised medical certification.

Digitek Industry Background and Competition

Electronics represents Israel's leading and largest export sector with overseas sales of more than $20 billion per year, representing over 50 per cent. of Israel's industrial (non-diamond) exports.

Development of the most advanced technologies and high-tech know-how and solutions also makes the electronics sector one of the country's most profitable industries. Initially built around defence industries, many commercial applications have been developed over the years in areas such as telecommunications, medical systems, industrial equipment and components.

The majority of the more than 120 Israeli companies traded on the New York and European stock exchanges, are active in the wider field of electronics and technology. There are over 300 companies operating in the electronics sector in Israel today.

Israel's electronics industry is widely known to excel in developing systems and solutions in a wide range of areas, including: micro-electronics, semiconductors, internet applications, test and measurement equipment, defence electronics, aerospace systems, computerised and peripheral equipment and homeland security systems and equipment.

There are nearly 70,000 people directly employed in the electronics industry, including more than 30,000 engineers and scientists and 20,000 technicians of whom 18,000 are university graduates. Tens of thousands more professionals are employed on a sub-contracting basis.

The depth and breadth of high value-added services and products has attracted numerous international corporations seeking investments and strategic partnerships including Intel, Motorola, Microsoft, CA, IBM, Cisco Systems, Texas Instruments, HP, Google, Johnson & Johnson, General Electric, Philips, Kodak and Siemens.

There tends to be a segmentation of the subcontract electronic board assembly market with the larger companies focussing on large accounts with large minimum unit runs. The larger companies include Flextronic, RH Technologies and SCI Sanmina. Flextronic and SCI-Sanmina are branches of large international companies and have tended to expand by acquisition.

Digitek is among the second tier of companies in the subcontract electronic board assembly market which includes AMS Technologies, AL Electronics and Zicon Electronics.

There are also a number of agents for Far Eastern contract manufacturers operating in Israel. These agencies are generally trying to source contracts for large production runs. Digitek estimates that it is more cost effective for a client to operate with an Israeli sub-contractor for smaller production runs. With much larger production runs, and accounts which are not sensitive to intellectual property or government secrecy, lower unit costs can be obtained in the Far East. However, the advantages of a local manufacturer, offering service and relationship benefits as well as the benefit of shorter lead times and acceptable management of secrecy issues outweigh the apparent Far Eastern cost benefit for all but the largest, non- sensitive accounts.

Barriers to entry

While the business of Digitek is not protected by patents, there are meaningful barriers to entry in the business:

-- the extensive knowledge and experience acquired during almost 20 years of operations in thetechnical processes, the assembly of systems that involve electronic components, in the testing at all levels, and the integration of systems that incorporate software, hardware mechanicaladjustments;

-- the skilled labour force at Digitek consists of engineers, technicians and production workers.

Recruitment and internal and offsite training and length of employment service are all critical factors in developing a skilled and productive labour force;

-- the capital investment in plant, machinery and production lines required to run a business such as Digitek; and

-- the contractual relationships Digitek has with its customers are generally open ended in time and while they can in theory be terminated, a transfer of a large relationship could take as long as one year to implement; with the inherent risks to quality and service that such a change of a major supplier can entail.

If Digitek terminates a relationship with one of its suppliers the end customer could be exposed to a warranty risk without means to service any warranty claims.

Advantages of Digitek

The Directors believe that the following are the main competitive advantages of Digitek:

-- Quick response times - items can be turned around within five days.

-- Ability to produce items in China and Israel - taking advantage of Chinese speed/cost effectiveness and Israel's technical accuracy.

-- Many of the production team have 15 years' experience working together.

-- Benefit of double taxation treaties with the UK and US - items that are put together in China are finished off in Israel and therefore benefit from "preferred partner" status with the UK and US.

INFORMATION ON PTV

PTV's Business

PTV develops and markets proprietary solutions which enable content providers to deliver specific, live, streamed channels and VOD over the Internet on a cost-effective basis for viewing on TV sets. PTV's core customers comprise content owners or aggregators looking to deliver specialised content to customers distributed across the globe. To date, PTV has been particularly successful in servicing providers of "narrowcasting" content - that is niche content with appeal to specific communities of interest. This market encompasses the delivery of ethnic or national content to customers outside of their place of origin. The Company's ability to deliver a cost effective solution for the delivery of such content while providing the end customer with a content rich and high quality viewing experience has been central to its ability to attract business from such content providers.

PTV's Technology

While the delivery of television or video content over the internet (also known as Over the Top or OTT services) brings many advantages to content providers (notably cost and reach) there are a number of technical and practical challenges facing such providers which impact on the quality of service and control over the content.

The Group's product strategy has been formulated on delivering solutions which meet the needs of content providers and consumers in that the PTV solutions:

-- are quick and simple to implement;

-- are cost-effective; and provide a high quality viewing experience.

In order to meet these needs, PTV's product set has been developed in such a way that it can be deployed across the globe over many different internet network environments. As such, it has adopted a number of principles in developing its product set:

-- a robust platform able to support live streaming television channels and VOD at a quality comparable with traditional television;

-- compatibility with a wide number of video encoding formats and streaming technologies ensuring high quality video over the internet;

-- an integrated end-to-end solution, encompassing the MX Software (including content management, subscriber management and billing) supplied to the content providers at the head-end and the provision of cost-effective set-top boxes to the consumer at home. This end-to-end solution allows content owners to set up and deliver services on a timely and cost-effective basis; and

-- the integration of a free-to-air digital terrestrial broadcast receiver and decoder into the PeerStation set-top box.

In addition, PTV has recently adopted the Android technology and is now nearing release of its first Android based STB, thereby allowing a significant change in the way applications and services can be developed and distributed by its target customers.

Instead of a relatively closed application-development environment handled by a single entity, customers using such Android-based STBs can now adopt multiple sources and thousands of ready-made modules to create their own TV software. Exciting new ways to select content, advertise and analyse users' behaviour can now be implemented quickly, easily and cost effectively as a result of co-operation between several software developers.

While other players talk about Android solutions and some early 'Android TV media players' have been announced, few if any have managed to create a TV-service ready Android solution. PTV is taking advantage of its technical expertise to combine the power of the Android OS with the sophistication and robustness needed by PTV's clients for specific components such as the Internet video player, remote device management and TV-optimised user interfaces.

PTV Products

PTV's current product line consists of a software platform offered to operators and content providers and a line of PeerStations that the operators offer to their customers and which comprise three main components:

-- a media decoder for content streamed over the internet;

-- a receiver for digital terrestrial signals; and

-- a home media receiver.

The set-top box PeerStation is a set-top box device similar to those used to receive cable and satellite services, but is connected to the internet as its data source. It can receive video and live streamed television signals and delivers these directly to the television. A PeerStation set top box receives VOD and television content sent through the internet by PTV's customers, then decodes and transforms the signals received into a television format.

PTV has developed the core technology of the PeerStation and the internet video player over a period of several years, with the founders having over 30 years of combined experience in this technology. The result is highly stable video playback, almost replicating the experience of a cable and satellite set-top box.

A PeerStation has the ability to play a wide number of video encoding formats and streaming technologies which enable the efficient delivery of video over the internet. The PeerStation will work with any ISP, enabling PTV's customers to potentially provide services globally to anyone with a broadband connection. PeerStations also enable viewing of content that is delivered by free-to-air digital terrestrial broadcast stations. This is known as a hybrid solution. Additionally they have the ability to serve as a home media devices and deliver content from a consumer's PC to the television.

PeerStations come with a software development kit which enables the operators and content providers to develop their own software to manage the content and appearance of the user interface of the PeerStations.

The MediaXplorer application server is the backbone of PTV's internet television solution. The servers are loaded with the MX software solution and function as head ends for the distribution of the internet television services offered by the Group's clients to subscribers.

PTV's MX Software is a suite of software applications which enables a content provider, i.e. PTV's customer, to manage and deliver content to people's homes over the internet. It provides content and customer management, access to internet video, remote PeerStation management as well as a fully customizable user interface.

PTV's implementation of the MX software allows internet television providers to match the standards of satellite and cable digital television broadcasters, including such features as menu navigation and a multi-level selection tree which allows access to video content, provided that the end-user has a fast enough internet connection.

The server software management system is based on flexible, open software which allows the content provider to manage and deliver his content in a simple and user-friendly format. The system also includes application programming interfaces ("API") allowing content providers to interconnect with services such as CRM ("customer relationship management"), statistics and billing.

The Company intends to release its first Android-based STB in Q3 2011. Instead of a relatively closed application-development environment handled by a single supplier, customers will now be able to adopt multiple sources and thousands of ready-made modules to create their own TV software. The Company believes that it will be one of the first to create a TV-service ready Android platform that can deliver a complete operator solution.

The Directors believe that the Android technology and STB will open up new markets for its products that go beyond its traditional narrowcasting operators, with significant potential markets in the hotel industry (video services to the room), education (distance learning) and corporate video communications (training, internal communications etc). The Company's revenue model may change in this market with the potential to offer a software-only model, without bundling it with set box hardware. Profitability is also expected to improve based on the higher margin the Directors expect can be achieved by bundling Android software.

Revenue Generation

PTV markets and sells its products to content creators, aggregators, narrowcasters, telecoms operators and internet service providers who in turn supply services to the consumer. The use of the internet as a means to deliver a wide range of video entertainment and content has led to the development of a new breed of television service providers.

PTV's mission is to service these entities and to grow and develop with them. The Group's customers are primarily new companies or established companies entering into a new business environment. They are taking advantage of the reduced barriers to entry provided by the internet. In general they are highly cost-conscious.

PTV understands that affordable entry-level systems are crucial to the success of its business. The revenue model consists of a one-time charge per PeerStation, a base charge per software licence for the MX Software and a licence fee per subscriber.

PTV's largest customer historically has been a Russian content provider with operations mainly in Europe and North America. It was responsible for 29 per cent., 66 per cent. and 52 per cent. of revenues in 2008, 2009 and 2010, respectively.

One of the strategic goals of PTV remains to reduce the proportion of revenues generated from any one large customer. However, the board believes that it will take some time before the customer base is broad enough before any one large customer does not represent significant sales and profitability risk.

The Competition

The Directors believe that internet television offers a transformational business model, which will threaten the hegemony of the satellite and cable pay-television incumbents and offers market entry for a wide range of technology vendors, service providers and broadcasters. There are numerous technological solutions that today can be regarded as being competitive with components of PTV's offering and several companies which service, or are attempting to service, the same market.

There are also several companies that are servicing or have stated their intent to service the same market as PTV.

OBJECTIVES AND STRATEGY

PTV product objectives and strategy

The operating and financial objectives of PTV for 2011 are to:

-- substantially reduce manufacturing costs and improve delivery terms by developing relationships with additional manufacturing partners. The management of PTV expects this to translate into shorter delivery schedules and improved margins;

-- improve attractiveness of product offering by reducing size and weight. This has the additional benefit of directly reducing shipping costs to customers worldwide; and

-- introduce in 2012 a new STB model that will be twice as fast than the current model, which would allow more complex Android apps (see below) to run on the box.

The combination of the above is expected to reduce unit costs by approximately 15 per cent. allowing higher profitability as well as potentially permitting more aggressive pricing to achieve rapid increase in overall sales

Product features

-- A new, Android OS based software suite for STBs is expected to enter the market later in 2011. This should allow a richer feature set provided 'out of the box'. It is expected that it will offer a much easier path for developers due to the popularity of the Android OS on smart phones and tablet computers and the availability of off-the-shelf tools and code-libraries.

-- Significantly simplified application development tools, made possible by the Android OS environment, supporting use by new software partners looking to offer ready-made components and customization services.

-- Improve integration of DVB sources, thereby creating an attractive hybrid device that improves the value of the content offered by PTV customers.

By combining these objectives the management of PTV believes that the company will be able to achieve the following:

-- strengthen its position in its current market;

-- penetrate new markets such as hospitality and corporate video by offering a diverse line of integrators on Android-based STBs and the associated tools and applications, allowing them to create solutions tailored to the needs of their target (expertise) segment.

The company will also continue to offer its MX software on the new models allowing simple OTT content services to be established quickly and cost effectively.

Digitek business strategy

-- Digitek intends to continue diversifying its customer base, as it has in 2010 and the first half of 2011. At the same time it is trying to increase the value of orders from individual customers to increase top line revenues. For the customers with larger orders Digitek will continue to try to convince them, if possible or practical, to move production to China as this is significantly more economical.

-- Digitek has a significant amount of state of the art production equipment. Nevertheless new machinery becomes available and Digitek will continue to invest in such Capex to stay competitive and/or to enable it to reduce labour costs where necessary or economically sensible.

-- Digitek will continue its efforts to increase the proportion of its revenues generated from labour projects. While the switch of any individual project from turnkey to labour reduces the sales top line, it significantly increases the profit margin and reduces the working capital requirements of Digitek.

-- Digitek is also exploring the potential for partnerships with original equipment manufacturers for a model of profit share on the finished product rather than the PCB.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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