The Orchard showed improvements in the first quarter of 2010, growing revenue while posting a modest net loss. The digital distributor had revenues of approximately $17.8 million, up 16.2% from $15.3 million last year. Net loss improved to $447,000 from $1.06 million. Operating cash flow, a measure of the cash the company generated from its normal course of business, dropped 3% to $1.93 million.

The first quarter showed improvements that were not reflected in the company’s full-year earnings. For the full year of 2009, The Orchard’s revenue increased 9% but the company had a net loss of $17.8 million after taking a $14.1 million charge for impairment of goodwill. In the first quarter, gains from digital sales and cost-cutting were more evident. Operating expenses decreased over $600,000, going from 27.5% of revenue from 37% last year.

Digital revenue was up 11.6% from the first quarter of 2009 and was up 8% over the fourth quarter of 2009. International digital revenue was up 55% over the same period last year.

The earnings results showed some evidence that access models may be gaining traction. As reported, subscription revenues were flat at 11.3% of total revenue and increased just $300,000 year-over-year. But The Orchard includes eMusic revenue in its subscription numbers, and eMusic’s numbers fell sharply. If you back out eMusic – a subscription site that offers MP3s, not streams or tethered downloads – the subscription category actually grew 103% year over year, from $684,000 to $1.4 million.

Download revenue accounted for 69.3% of the company’s total first quarter revenue, down from 72.8% in 2009. Mobile dropped slightly to 7.8% from 8.1%. Physical revenue jumped to 6.5% of revenue from 4.1% last year. Other revenue (which includes licensing and other services) grew by 50% to $900,000.

The Orchard finished the first quarter with 2.1 million tracks in its catalog, an increase of 49% from 2009. That catalog generated about 17.5 million paid downloads, a 7% increase from last year. iTunes, Amazon and eMusic are were the company’s top three accounts in the quarter.

In March, The Orchard entered into a merger agreement with Dimensional Associates, which owns 53% of its voting common stock. The company said it hopes to finish the merger by September.