SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
20-F
o |
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
|
|
OR |
|
x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the fiscal year ended December 31, 2004 |
|
OR |
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the transition period from __________ to __________
Commission
file number 0-15375
RADVISION
LTD.
(Exact
Name of Registrant as specified in its charter
and
translation of Registrant's name into English)
Israel
(Jurisdiction
of Incorporation or Organization)
24
Raoul Wallenberg Street, Tel Aviv 69719, Israel
(Address
of Principal Executive Offices)
Securities
registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary
Shares, NIS 0.1 Par Value
(Title of
Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report:
Ordinary
Shares, par value NIS 0.1 per share…………… 20,569,018
(as of
December 31, 2004)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x No
o
Indicate
by check mark which financial statement item the registrant has elected to
follow:
Item
17 o Item
18 x
TABLE
OF CONTENTS
PART
I |
|
|
3 |
|
|
|
|
ITEM
1. |
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
3 |
ITEM
2. |
OFFER
STATISTICS AND EXPECTED TIMETABLE |
3 |
ITEM
3. |
KEY
INFORMATION |
3 |
|
A. |
Selected
Financial Data |
3 |
|
B. |
Capitalization
and Indebtedness |
4 |
|
C. |
Reasons
for the Offer and Use of Proceeds |
4 |
|
D. |
Risk
Factors |
4 |
ITEM
4. |
INFORMATION
ON THE COMPANY |
17 |
|
A. |
History
and Development of the Company |
17 |
|
B. |
Business
Overview |
19 |
|
C. |
Organizational
Structure |
39 |
|
D. |
Property,
Plants and Equipment |
40 |
ITEM
5. |
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS |
40 |
|
A. |
Operating
Results |
40 |
|
B. |
Liquidity
and Capital Resources |
54 |
|
C. |
Research
and Development, Patents and Licenses |
56 |
|
D. |
Trend
Information |
56 |
|
E. |
Off-balance
Sheet Arrangements |
57 |
|
F. |
Tabular
Disclosure of Contractual Obligations |
57 |
ITEM
6. |
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES |
57 |
|
A. |
Directors
and Senior Management |
57 |
|
B. |
Compensation |
61 |
|
C. |
Board
Practices |
62 |
|
D. |
Employees |
70 |
|
E. |
Share
Ownership |
71 |
ITEM
7. |
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
76 |
|
A. |
Major
Shareholders |
76 |
|
B. |
Related
Party Transactions |
78 |
|
C. |
Interests
of Experts and Counsel |
80 |
ITEM
8. |
FINANCIAL
INFORMATION |
80 |
|
A. |
Consolidated
Statements and Other Financial Information |
80 |
|
B. |
Significant
Changes |
81 |
ITEM
9. |
THE
OFFER AND LISTING |
82 |
|
A. |
Offer
and Listing Details |
82 |
|
B. |
Plan
of Distribution |
83 |
|
C. |
Markets |
83 |
|
D. |
Selling
Shareholders |
83 |
|
E. |
Dilution |
83 |
|
F. |
Expense
of the Issue |
83 |
ITEM
10. |
ADDITIONAL
INFORMATION |
84 |
|
A. |
Share
Capital |
84 |
|
B. |
Memorandum
and Articles of Association |
84 |
|
C. |
Material
Contracts |
87 |
|
D. |
Exchange
Controls |
87 |
|
E. |
Taxation |
87 |
|
F. |
Dividend
and Paying Agents |
98 |
|
G. |
statement
by Experts |
98 |
|
H. |
Documents
On Display |
98 |
|
I. |
Subsidiary
Information |
99 |
ITEM
11. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS |
99 |
ITEM
12. |
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES |
100 |
|
|
|
PART
II |
|
|
100 |
|
|
|
|
ITEM
13. |
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES |
100 |
ITEM
14. |
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS |
100 |
ITEM
15. |
CONTROLS
AND PROCEDURES |
100 |
ITEM
16. |
RESERVED |
101 |
ITEM
16A. |
AUDIT
COMMITTEE FINANCIAL EXPERT |
101 |
ITEM
16B. |
CODE
OF ETHICS |
101 |
ITEM
16C. |
PRINCIPAL
ACCOUNTING FEES AND SERVICES |
101 |
ITEM
16D. |
EXEMPTIONS
FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT
COMMITTEE |
102 |
ITEM
16E. |
PURCHASE
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND
PURCHASERS |
102 |
|
|
|
PART
III |
|
|
103 |
|
|
|
|
ITEM
17. |
FINANCIAL
STATEMENTS |
103 |
ITEM
18. |
FINANCIAL
STATEMENTS |
103 |
ITEM
19. |
EXHIBITS |
103 |
|
|
|
SIGNATURES |
107 |
INTRODUCTION
RADVISION
Ltd., incorporated under the laws of the State of Israel, is a designer,
developer and supplier of products and technology that enable real-time voice,
video and data communication over packet networks, including the Internet and
other Internet Protocol, or IP, networks. Since our initial public offering on
March 14, 2000, our ordinary shares have been listed on the NASDAQ National
Market (symbol: RVSN). Since October 20, 2002, our ordinary shares have also
traded on the Tel Aviv Stock Exchange. We were incorporated in
January 1992, commenced operations in October 1992 and commenced sales of
our products in the fourth quarter of 1994. Following a bidding process held
under the supervision of a United States Bankruptcy Court, we acquired
substantially all of the assets of First Virtual Communications, Inc, or FVC,
and its wholly owned subsidiary, CUseeMe Networks, Inc. on March 15, 2005. FVC
creates leading software products that enable interactive voice, video and data
collaboration over IP-based networks. The acquired products provide
cost-effective, integrated end-to-end solutions for large-scale deployments from
the desktop to the conference room. They also enable best-of-breed collaborative
conferencing solutions to be extended to ISDN and ATM networks. We currently
have sales offices in the United States and Israel and marketing, representative
and liaison offices in Brazil, China, Hong Kong, India, Japan, Korea and the
United Kingdom. As used in this annual report, the terms “we,” “us”, “our,” and
“RADVISION” mean RADVISION Ltd. and its subsidiaries, unless otherwise
indicated.
RADVISION
Ltd. is a "foreign private issuer" as defined in Rule 3b-4 under the
Securities Exchange Act of 1934. As a result, we are eligible to file this
annual report pursuant to Section 13 of the Securities Exchange Act of 1934
Act on Form 20-F and to file interim reports on Form 6-K. However,
since 2001, we voluntarily filed our annual and interim reports on Forms 10-K,
10-Q and 8-K. On March 14, 2005, we filed a Form 8-K advising that we would
begin to file our annual reports with the U.S. Securities and Exchange
Commission, or the Commission, on Form 20-F for foreign private issuers,
effective as of the year ended December 31, 2004 and that we would timely
furnish our quarterly financial statements under a Report of Foreign Private
Issuer on Form 6-K.
This
Annual Report on Form 20-F contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and within the
Private Securities Litigation Reform Act of 1995, as amended. Such
forward-looking statements reflect our current view with respect to future
events and financial results. Forward-looking statements usually include the
verbs, "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"projects," "understands" and other verbs suggesting uncertainty. We remind
readers that forward-looking statements are merely predictions and therefore
inherently subject to uncertainties and other factors and involve known and
unknown risks that could cause the actual results, performance, levels of
activity, or our achievements, or industry results, to be materially different
from any future results, performance, levels of activity, or our achievements
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. We
have attempted to identify additional significant uncertainties and other
factors affecting forward-looking statements in the Risk Factors section which
appears in Item 3.D "Key Information -Risk Factors."
Our
consolidated financial statements appearing in this annual report are prepared
in U.S. dollars and in accordance with generally accepted accounting principles
in the United States, or U.S. GAAP, and audited in accordance with the standards
of the Public Company Accounting Oversight Board (United States) generally
accepted in the United States. All references in this annual report to “dollars”
or “$” are to U.S. dollars and all references in this annual report to “NIS” are
to New Israeli Shekels.
Statements
made in this annual report concerning the contents of any contract, agreement or
other document are summaries of such contracts, agreements or documents and are
not complete descriptions of all of their terms. If we filed any of these
documents as an exhibit to this annual report or to any registration statement
or annual report that we previously filed, you may read the document itself for
a complete description of its terms.
PART
I
ITEM
1. IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
Not
applicable.
ITEM
2. OFFER
STATISTICS AND EXPECTED TIMETABLE
Not
applicable.
ITEM
3. KEY
INFORMATION
A. SELECTED
FINANCIAL DATA
The
following selected consolidated financial data for and as of the five years
ended December 31, 2004, are derived from our audited consolidated financial
statements which have been prepared in accordance with U.S. GAAP. The selected
consolidated financial data as of December 31, 2004 and 2003 and for the years
ended December 31, 2004, 2003 and 2002 have been derived from our audited
consolidated financial statements and notes thereto included elsewhere in this
annual report. The selected consolidated financial data as of December 31, 2002,
2001 and 2000 and for the years ended December 31, 2001 and 2000 have been
derived from audited consolidated financial statements not included in this
annual report. The selected consolidated financial data set forth below should
be read in conjunction with and are qualified by reference to Item 5, “Operating
and Financial Review and Prospects” and our consolidated financial statements
and notes thereto included elsewhere in this annual report.
Our
consolidated financial statements at December 31, 2003 and for the year then
ended have been restated. See Note 1.b. to our consolidated financial statements
included in this annual report on Form 20-F and Item 5.A. "Operating and
Financial Review and Prospects - Operating Results - Restatement of
Previously-Issued Financial Statements."
|
|
Year
Ended December 31, |
|
|
|
2000 |
|
2001 |
|
2002 |
|
2003* |
|
2004 |
|
|
|
(in
thousands, except per share data) |
|
Consolidated
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
45,911 |
|
$ |
46,227 |
|
$ |
49,095 |
|
$ |
51,304 |
|
$ |
64,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
11,446 |
|
|
10,362 |
|
|
10,946 |
|
|
11,351 |
|
|
13,108 |
|
Research
and development |
|
|
14,263 |
|
|
17,933 |
|
|
15,338 |
|
|
14,573 |
|
|
17,484 |
|
Less
participation by the Chief Scientist |
|
|
353 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Research
and development, net |
|
|
13,910 |
|
|
17,933 |
|
|
15,338 |
|
|
14,573 |
|
|
17,484 |
|
Marketing
and selling, net |
|
|
17,358 |
|
|
16,735 |
|
|
18,624 |
|
|
19,969 |
|
|
24,620 |
|
General
and administrative |
|
|
3,458 |
|
|
4,438 |
|
|
4,098 |
|
|
4,040 |
|
|
4,900 |
|
Restructuring
costs (income) |
|
|
- |
|
|
3,023 |
|
|
- |
|
|
(1,061 |
) |
|
- |
|
Royalties
to Chief Scientist |
|
|
3,666 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total
operating expenses |
|
|
49,838 |
|
|
52,491 |
|
|
49,006 |
|
|
48,872 |
|
|
60,112 |
|
Operating
income (loss) |
|
|
(3,927 |
) |
|
(6,264 |
) |
|
89 |
|
|
2,432 |
|
|
4,124 |
|
Financial
income, net |
|
|
4,176 |
|
|
4,652 |
|
|
2,667 |
|
|
2,130 |
|
|
1,860 |
|
Net
income (loss) |
|
$ |
249 |
|
$ |
(1,612 |
) |
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
Basic
net earnings (loss) per ordinary share |
|
$ |
0.014 |
|
$ |
(0.09 |
) |
$ |
0.15 |
|
$ |
0.24 |
|
$ |
0.30 |
|
Weighted
average number of Ordinary shares used to compute basic net earnings
(loss) per share |
|
|
17,174 |
|
|
18,943 |
|
|
18,353 |
|
|
18,660 |
|
|
19,822 |
|
Diluted
net earnings (loss) per ordinary share |
|
$ |
0.013 |
|
$ |
(0.09 |
) |
$ |
0.15 |
|
$ |
0.23 |
|
$ |
0.28 |
|
Weighted
average number of Ordinary shares used to compute diluted net earnings
(loss) per share |
|
|
19,873 |
|
|
18,943 |
|
|
18,983 |
|
|
19,963 |
|
|
21,399 |
|
|
|
|
As
At December 31, |
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003* |
|
|
2004 |
|
|
|
|
(in
thousands) |
|
Consolidated
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
41,617 |
|
$ |
6,717 |
|
$ |
13,825 |
|
$ |
16,433 |
|
$ |
20,206 |
|
Working
capital |
|
|
73,660 |
|
|
53,377
|
|
|
38,158
|
|
|
44,411 |
|
|
65,395 |
|
Total
assets |
|
|
116,351 |
|
|
99,767 |
|
|
106,671 |
|
|
117,012 |
|
|
131,882 |
|
Total
debt |
|
|
19 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Shareholders'
equity |
|
|
94,345 |
|
|
83,549 |
|
|
85,015 |
|
|
94,302 |
|
|
106,776 |
|
* Restated (see Note
1.b. to the consolidated financial
statements).
B. CAPITALIZATION
AND INDEBTEDNESS
Not
applicable.
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS
Not
applicable.
D. RISK
FACTORS
Investing
in our ordinary shares involves a high degree of risk and uncertainty. You
should carefully consider the risks and uncertainties described below before
investing in our ordinary shares. If any of the following risks actually occurs,
our business, prospects, financial condition and results of operations could be
harmed. In that case, the value of our ordinary shares could decline, and you
could lose all or part of your investment.
Risks
Relating to Our Business
Our
quarterly financial performance is likely to vary significantly in the future.
Our revenues and operating results in any quarter may not be indicative of our
future performance and it may be difficult for investors to evaluate our
prospects.
Our
quarterly revenues and operating results have varied significantly in the past
and are likely to continue to vary significantly in the future. Fluctuations in
our quarterly financial performance may result from the fact that we may receive
a small number of relatively large orders in any given quarter. Because these
orders generate disproportionately large revenues, our revenues and the rate of
growth of our revenues for that quarter may reach levels that may not be
sustained in subsequent quarters. In addition, some of our products have lengthy
sales cycles. For example, it typically takes from three to twelve months after
we first begin discussions with a prospective customer before we receive an
order from that customer. We also have a limited order backlog, which makes
revenues in any quarter substantially dependent upon orders we deliver in that
quarter. Because of these factors, our revenues and operating results in any
quarter may not meet market expectations or be indicative of future performance
and it may be difficult for investors to evaluate our prospects.
Unless
our revenues grow in excess of our increasing expenses, we will not be
profitable.
We expect
that our operating expenses will increase significantly in the future, both to
finance the planned expansion of our sales and marketing and research and
development activities and to fund the anticipated growth in our revenues.
However, our revenues may not grow apace or even continue at their current
level. If our revenues do not increase as anticipated or if expenses increase at
a greater pace than our revenues, we will not be profitable. Even if we achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
If
the use of packet-based networks as a medium for real-time voice, video and data
communication does not continue to grow, the demand for our products and
technology will slow and our revenues will decline.
Our
future success depends on the growth in the use of packet-based networks,
including the Internet and other IP networks, as a medium for real-time voice,
video and data communication. If the use of packet-based networks does not
expand, the demand for our products and technology will slow and our revenues
will decline. Market acceptance of packet-based networks as a viable alternative
to circuit-switched networks for the transmission of real-time voice and video
communication is not proven and may be inhibited by concerns about quality of
service and potentially inadequate development of the necessary infrastructure.
We
must develop new products and technology and enhancements to existing products
and technology to remain competitive. If we fail to do so, we may lose market
share to our competitors and our revenues may decline.
The
market for our products and technology is characterized by rapid technological
change, new and improved product introductions, changes in customer requirements
and evolving industry standards. Our future success will depend to a substantial
extent on our ability to:
· |
timely
identify new market trends; and |
· |
develop,
introduce and support new and enhanced products and technology on a
successful and timely basis. |
If we
fail to develop and deploy new products and technology or product and technology
enhancements on a successful and timely basis, we may lose market share to our
competitors and our revenues may decline.
We are
currently developing new products and technology and enhancements to our
existing products and technology. We may not be successful in developing or
introducing these or any other new products or technology to the market.
We
have invested, and will continue to invest, in products and technology that
comply with those industry standards that we believe have been, or will be,
broadly adopted. If one or more alternative standards were to gain greater
acceptance than the standards that we believe have or will be broadly adopted,
sales of our products and technology might suffer.
Currently,
we offer networking products that comply with the H.323 industry standard for
real-time voice, video and data communication over packet networks. During 2000,
we expanded our enabling technology product family to include additional key IP
protocols. Our current suite of IP communication protocol toolkits include
H.323, SIP, MGCP and MEGACO. We also support the 3G-324M protocol for real time
multimedia services over 3G networks. We believe that IP networks will be
designed with components built around each of these protocols. If these
expectations ultimately prove to be incorrect, our investments may be of little
or no value.
We
rely on a small number of marketing partners who distribute our products either
under our name or as private label products for a significant portion of our
business.
We rely
in great measure on OEMs, systems integrators and value added resellers, or
VARs, to sell our products. Our OEM customers purchase our products to integrate
with products that they developed in-house to build complete IP communication
solutions. Our systems integrator customers either purchase our full suite of
products or integrate our individual products of other manufacturers to build
complete IP communication solutions. Our VAR customers purchase our products to
resell to end-users as separate units, or as part of a family of related product
offerings, either under our RADVISION label or under their private label. If we
are unable to maintain these marketing partners or obtain new marketing
partners, our future revenues and profitability will be affected and we may lose
market share. For the year ended December 31, 2004 one OEM customer accounted
for approximately 27% (2003 - 21%) of sales.
Competition
in the markets for our products and technology is intense. We may not be able to
compete effectively in these markets and we may lose market share to our
competitors.
The
markets for our products and technology are highly competitive and we expect
competition to intensify in the future. We may not be able to compete
effectively in these markets and we may lose market share to our competitors.
The principal competitors in the market for our NBU products currently include
Polycom Inc., which acquired Accord Networks Inc. and Codian Ltd. The principal
competitors in the market for our TBU products currently include Hughes Software
Systems acquired in 2004 by Flextronix
Software Systems,
DynamicSoft, Dilithium, and in-house developers employed by manufacturers of
telecommunication equipment and systems. Additional competitors may enter each
of our markets at any time. Moreover, our customers may seek to develop
internally the products that we currently sell to them and compete with us.
Major
solutions providers who currently work with us might compete with us in the
future.
We
currently provide our technology either directly to or in association with,
major solutions providers such as Alcatel, Cisco, Siemens, and Microsoft. If
these providers choose to develop their own technologies, acquire technologies
from our competitors, or acquire such competitors, our financial condition and
operating results could be adversely impacted and we may face increased levels
of competition from these major companies.
Our
software development kit revenues will decrease if our customers choose to use
source code that is available for free.
Both
Vovida Networks, Inc., now owned by Cisco Systems Inc., and Open H323 offer
H.323 source code for free. In addition, Vovida offers MGCP and SIP source code
for free. If our customers choose to use the free source code offered by these
organizations instead of purchasing our technology, our revenues from the sale
of our software development kits will decline. Other companies, including
Microsoft, may offer similar development kits as part of their product
offerings.
Most
of our competitors have greater resources than we do. This may limit our ability
to compete effectively with them and discourage customers from purchasing our
products and technology.
Some of
our competitors have greater financial, personnel and other resources than we
do, which may limit our ability to compete effectively with them. These
competitors may be able to respond more quickly to new or emerging technologies
or changes in customer requirements. These competitors may also:
· |
benefit
from greater economies of scale; |
· |
offer
more aggressive pricing; or |
· |
devote
greater resources to the promotion of their products.
|
Any of
these advantages may discourage customers from purchasing our products and
technology. If we are unable to compete successfully against our existing or
potential competitors, our revenues and margins will decline.
Our
agreements with our customers generally do not have minimum purchase
requirements. If our customers decrease or cease purchasing our products and
technology, our revenues will decline.
Our
agreements with our customers generally do not have minimum purchase
requirements nor do they require our customers to purchase any products from us.
If any or all of our customers cease to purchase or reduce their purchases of
our products and technology at any time, our revenues will decline. We cannot
assure you that our customers will not choose to independently develop for
themselves, or purchase from others, products and technology similar to our
products and technology. Moreover, if our customers do not successfully market
and sell the systems and products into which they incorporate our products and
technology, the demand of these customers for our products and technology will
decline. Our customers' sales of systems and products containing our products
and technology may be adversely affected by circumstances over which we have no
control and over which our customers may have little, if any, control.
We
are dependent upon a limited number of suppliers of key components. If these
suppliers delay or discontinue manufacture of these components, we may
experience delays in shipments, increased costs and cancellation of orders for
our products.
We
currently obtain key components used in the manufacture of our products from a
single supplier or from a limited number of suppliers. We do not have long-term
supply contracts with our suppliers. Any delays in delivery of or shortages in
these components could interrupt and delay manufacturing of our products and
result in the cancellation of orders for our products. In addition, these
suppliers could discontinue the manufacture or supply of these components at any
time. We may not be able to identify and integrate alternative sources of supply
in a timely fashion or at all. Any transition to alternate suppliers may result
in delays in shipment and increased expenses and may limit our ability to
deliver products to our customers. Furthermore, if we are unable to identify an
alternative source of supply, we would have to modify our products to use a
substitute component, which may cause delays in shipments, increased design and
manufacturing costs and increased prices for our products.
We
intend to manufacture and maintain an inventory of customized products for some
customers who will have no obligation to purchase these products. If these
customers fail to purchase these products, our financial results may be
harmed.
To
satisfy the timing requirements of some of our larger customers, we intend to
manufacture and maintain an inventory of some of our products that we will
customize to the specifications of these customers. The size of this inventory
will be based upon the purchasing history and forecasts of these customers,
which we currently estimate to be approximately two months of sales to these
customers. These customers will have no obligation to purchase the inventoried
products at any time. If the customers for whom the inventoried products are
manufactured do not purchase them, we may be required to modify the products for
sale to others and we may be unable to find other purchasers. In either case,
the value of the products may be materially diminished which may have a negative
impact on our financial results.
We
provide 3G-324M-based solutions to both service providers and equipment
developers. If our 3G customers move to all IP networks the demand for these
products will end.
The
3G-324M protocol is a circuit switched protocol for delivering real-time
services (video primarily) over 3G mobile networks. This is a strong market both
for our service provider gateways and our TBU developer toolkits. However, we
believe that the 3G-324M will only be used until an all-IP broadband mobile 3G
network can sustain high quality, high bandwidth services. While this is not
expected to happen for a few years, if the technology for real-time IP
communications appears earlier, service providers are expected to gradually move
to an all-IP architecture so will no longer need our 3G-324M gateway. As service
provider move to all-IP networks, our telecom equipment developer customers will
no longer need to develop 3G-324M-based devices leading to sales of 3G-324M
toolkits being adversely affected.
We
may encounter difficulties in realizing the potential financial or strategic
benefits of our acquisition of the business of First Virtual Communications,
Inc.
Following
a bidding process held on February 28, 2005, under the supervision of a United
States Bankruptcy Court we acquired substantially all of the assets of First
Virtual Communications, Inc, or FVC, and its wholly owned subsidiary, CUseeMe
Networks, Inc. The transaction, provided for a cash purchase price of $7,150,000
plus additional consideration in the form of assumption of certain costs.
Although we believe that this acquisition will assist us in reaching our goals,
it presents risks commonly encountered in the acquisition of businesses. Such
risks include:
· |
difficulty
in combining technology, operations or workforce of the acquired
business; |
· |
adverse
effects on our reported operating results due to the amortization of
goodwill associated with acquisitions; |
· |
diversion
of management attention from running our existing business;
and |
· |
increased
expenses, including compensation expenses resulting from newly-hired
employees. |
Undetected
errors may increase our costs and impair the market acceptance of our products
and technology.
Our
products and technology have occasionally contained, and may in the future
contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify the cause of
the problem. Regardless of the source of these errors, we must divert the
attention of our engineering personnel from our research and development efforts
to address the errors. We cannot assure you that we will not incur warranty or
repair costs, be subject to liability claims for damages related to product
errors or experience delays as a result of these errors in the future. Any
insurance policies that we may have, may not provide sufficient protection or
coverage should a claim be asserted. Moreover, the occurrence of errors, whether
caused by our products or technology or the products of another vendor, may
result in significant customer relations problems and injury to our reputation
and may impair the market acceptance of our products and technology.
We
rely on third party technology licenses. If we are unable to continue to license
this technology on reasonable terms, we may face delays in releases of our
products and may be required to reduce the functionality of our products derived
from this technology.
We rely
on technology that we license from third parties, including software that is
integrated with internally developed software and used in our products to
perform key functions. For example, we license T.120 data collaboration software
from Data Connection Limited and voice compression technology from Siemens. If
we are unable to continue to license any of this software on commercially
reasonable terms, we will face delays in releases of our products or will be
required to reduce the functionality of our products until equivalent technology
can be identified, licensed or developed, and integrated into our current
products.
Third
parties may infringe upon or misappropriate our intellectual property, which
could impair our ability to compete effectively and negatively affect our
profitability.
Our
success depends upon the protection of our technology, trade secrets and
trademarks. Our profitability could suffer if third parties infringe upon our
intellectual property rights or misappropriate our technology and other assets
or the intellectual property rights licensed from third parties. To protect our
rights to our intellectual property, we rely on a combination of trade secret
protection, trademark law, confidentiality agreements and other contractual
arrangements. We rely on third parties to protect their intellectual property
which is licensed to us, but we do not generally investigate to what extent such
intellectual property is protected. The protective steps we have taken may be
inadequate to deter infringement or misappropriation. We may be unable to detect
the unauthorized use of our intellectual property or take appropriate steps to
enforce our intellectual property rights. Policing unauthorized use of our
products and technology is difficult. In addition, the laws of some foreign
countries in which we currently or may in the future sell our products do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Failure to adequately protect or to promptly detect unauthorized
use of our intellectual property could devalue our proprietary content and
impair our ability to compete effectively. Further, defending our intellectual
property rights could result in the expenditure of significant financial and
managerial resources, whether or not the defense is successful.
Our
products may infringe on the intellectual property rights of others, which could
increase our costs and negatively affect our
profitability.
Third
parties may assert against us infringement claims or claims that we have
infringed a patent, copyright, trademark or other proprietary right belonging to
them. For example, in 1998, a third party alleged that some products
manufactured by us infringed specified patents of the third party. See "Item 8.
Financial Information” for Legal Proceedings. Any
infringement claim, even if not meritorious, could result in the expenditure of
significant financial and managerial resources and could negatively affect our
profitability.
We
are dependent on our senior management. Any loss of the services of our senior
management could negatively affect our business.
Our
future success depends to a large extent on the continued services of our senior
management and key personnel. We do not carry key-man life insurance for any of
our senior management. Any loss of the services of members of our senior
management or other key personnel could negatively affect our business.
Our
failure to retain and attract personnel could harm our business, operations and
product development efforts.
Our
products require sophisticated research and development, marketing and sales,
and technical customer support. Our success depends on our ability to attract,
train and retain qualified research and development, marketing and sales and
technical customer support personnel. We intend to increase substantially the
number of our employees who perform these functions. Competition for personnel
in all of these areas is intense and we may not be able to hire sufficient
personnel to achieve our goals or support the anticipated growth in our
business. The market for the highly-trained personnel we require is very
competitive, due to the limited number of people available with the necessary
technical skills and understanding of our products and technology. If we fail to
attract and retain qualified personnel, our business, operations and product
development efforts would suffer.
Our
non-competition agreements with our employees may not be enforceable. If any of
these employees leaves us and joins a competitor, our competitor could benefit
from the expertise our former employee gained while working for
us.
We
currently have non-competition agreements with our key employees in Israel.
These agreements prohibit those employees, if they cease to work for us, from
directly competing with us or working for our competitors. Under current U.S.
and Israeli law, we may not be able to enforce these non-competition agreements.
If we are unable to enforce any of these agreements, our competitors that employ
our former employees could benefit from the expertise our former employees
gained while working for us. In addition, we have non-competition agreements
with only a limited number of employees outside of Israel, and we can not
guarantee that such agreements are enforceable under applicable law.
Government
regulation could delay or prevent product offerings, resulting in decreased
revenues.
Our
products are designed to operate with local telephone systems throughout the
world and therefore must comply with the regulations of the Federal
Communication Commission and other regulations affecting the transmission of
voice, video and data over telecommunication and other media. Each time we
introduce a new product, we are required to obtain regulatory approval in the
countries in which it is offered. In addition, we must periodically obtain
renewals of the regulatory approvals for the use of our products in countries
where we have already obtained approval. We cannot assure you that regulatory
approval for our current products will be renewed or that regulatory approval
for future products will be obtained. If we do not obtain the necessary
approvals and renewals, we may be required to delay the sales of our products in
those countries until approval for use is granted or renewed. This could result
in decreased revenues.
Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, new Securities and
Exchange Commission regulations and NASDAQ Stock Market rules, are creating
uncertainty for companies such as ours. We are committed to maintaining high
standards of corporate governance and public disclosure. As a result, we intend
to invest reasonably necessary resources to comply with evolving standards, and
this investment may result in increased general and administrative expenses and
a diversion of management time and attention from revenue-generating activities
to compliance activities, which could harm our operating results and business
prospects.
The
implementation of SFAS No. 123R, which will require us to record compensation
expense in connection with equity share based compensation as of the third
quarter of 2005, may reduce our profitability.
On
December 16, 2004, the Financial Accounting Standards Board, or FASB, issued
Statement No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which
is a revision of SFAS No. 123. Generally, the approach in SFAS 123R is similar
to the approach described in Statement 123. However, SFAS No. 123 permitted, but
did not require, share-based payments to employees to be recognized on the basis
of their fair values while SFAS No. 123R requires, as of the third quarter of
2005, all share-based payments to employees to be recognized on the basis of
their fair values. SFAS No. 123R also revises, clarifies and expands guidance in
several areas, including measuring fair value, classifying an award as equity or
as a liability and attributing compensation cost to reporting periods. The
adoption of SFAS No. 123R may have a significant effect on our results of
operations in the future. In addition, such adoption could limit our ability to
use stock options as an incentive and retention tool, which could, in turn,
negatively impact our ability to recruit employees and retain existing
employees.
Risks
Relating to Our Location in Israel
Conducting
business in Israel entails special risks.
We are
incorporated under the laws of Israel, and most of our offices and our
production facilities are located in the State of Israel. As a result, the
political, economic and military conditions affecting Israel directly influence
us. Any major hostilities involving Israel, a full or partial mobilization of
the reserve forces of the Israeli army, the interruption or curtailment of trade
between Israel and its present trading partners, or a significant downturn in
the economic or financial condition of Israel could have a material adverse
effect on our business, financial condition and results of operations.
Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors, and a state of hostility,
varying from time to time in intensity and degree, has led to security and
economic problems for Israel. Since September 2000, there has been a marked
increase in violence, civil unrest and hostility, including armed clashes,
between the State of Israel and the Palestinians, and acts of terror have been
committed inside Israel and against Israeli targets in the West Bank and Gaza.
There is no indication as to how long the current hostilities will last or
whether there will be any further escalation. Any continuation of or further
escalation in these hostilities or any future armed conflict, political
instability or violence in the region may have a negative effect on our business
condition, harm our results of operations and adversely affect our share price.
Furthermore, there are a number of countries, primarily in the Middle East, as
well as Malaysia and Indonesia, that restrict business with Israel or Israeli
companies, and we are precluded from marketing our products to these countries.
Restrictive laws or policies directed toward Israel or Israeli businesses may
have an adverse impact on our operations, our financial results or the expansion
of our business. No predictions can be made as to whether or when a final
resolution of the area’s problems will be achieved or the nature thereof and to
what extent the situation will impact Israel’s economic development or our
operations.
Political
trade relations could limit our ability to sell or buy
internationally.
We could
be adversely affected by the interruption or reduction of trade between Israel
and its trading partners. Some countries, companies and organizations continue
to participate in a boycott of Israeli firms and others doing business with
Israel or with Israeli companies. To date, these measures have not had a
material adverse affect on our business. However, there can be no assurance that
restrictive laws, policies or practices towards Israel or Israeli businesses
will not have an adverse impact on our business.
Our
results of operations may be negatively affected by the obligation of our
personnel to perform military service.
Many of
our officers and employees in Israel, including certain key employees, are
obligated to perform annual reserve duty in the Israeli army and are subject to
being called up for reserve duty at any time. The obligation to perform
compulsory military reserve service on an annual basis extends in certain cases
up to a maximum age of 54 for most male Israeli citizens. We cannot assess the
full impact of these requirements on our workforce or business if conditions
should change, and we cannot predict the effect on our business in the event of
an expansion or reduction of these obligations.
Because
most of our revenues are generated in U.S. dollars or are linked to the U.S.
dollar while a portion of our expenses are incurred in New
Israeli Shekels, our results of operations would be adversely affected if
inflation in Israel is not offset on a timely basis by a devaluation of the new
Israeli shekel against the U.S. dollar.
Most of
our revenues are in dollars or are linked to the dollar, while a portion of our
expenses, principally salaries and the related personnel expenses, are in new
Israeli shekels, or NIS. As a result, we are exposed to the risk that the rate
of inflation in Israel will exceed the rate of devaluation of the NIS in
relation to the dollar or that the timing of this devaluation lags behind
inflation in Israel. This would have the effect of increasing the dollar cost of
our operations. In the years 2001 and 2002 the rate of devaluation of the NIS
against the dollar exceeded the rate of inflation.
In 2003
and 2004 there was a devaluation of the dollar against the NIS. We cannot
predict any future trends in the rate of inflation in Israel or the rate of
devaluation of the NIS against the dollar. If the dollar cost of our operations
in Israel increases, our dollar-measured results of operations will be adversely
affected.
The
tax benefits from our approved enterprise programs require us to satisfy
specified conditions. If we fail to satisfy these conditions, we may be required
to pay additional taxes and would likely be denied these benefits in the
future.
The
Investment Center of the Israeli Ministry of Industry and Trade has granted
approved enterprise status to several investment programs at our manufacturing
facility. The portion of our income derived from these approved enterprise
programs commencing when we begin to generate net income from these programs
will be exempt from tax for a period of two years and will be subject to a
reduced tax rate for an additional five to eight years, depending on the
percentage of our share capital held by non-Israelis. The benefits available to
an approved enterprise program are dependent upon the fulfillment of conditions
stipulated in applicable law and in the certificate of approval. If we fail to
comply with these conditions, in whole or in part, we may be required to pay
additional taxes during the period in which we would have benefited from the tax
exemption or reduced tax rates and would likely be denied these benefits in the
future.
Service
and enforcement of legal process on us and our directors and officers may be
difficult to obtain.
Service
of process upon our directors and officers and the Israeli experts named herein,
most of whom reside outside the United States, may be difficult to obtain within
the United States. Furthermore, since substantially all of our assets, all of
our directors and officers and the Israeli experts named in this annual report
are located outside the United States, any judgment obtained in the United
States against us or these individuals or entities may not be collectible within
the United States.
There is
doubt as to the enforceability of civil liabilities under the Securities Act and
the Securities Exchange Act in original actions instituted in Israel. However,
subject to certain time limitations and other conditions, Israeli courts may
enforce final judgments of United States courts for liquidated amounts in civil
matters, including judgments based upon the civil liability provisions of those
Acts.
Provisions
of Israeli law may delay, prevent or make difficult an acquisition of us, which
could prevent a change of control and therefore depress the price of our
shares.
Provisions
of Israeli corporate and tax law may have the effect of delaying, preventing or
making more difficult a merger with, or other acquisition of, us. This could
cause our ordinary shares to trade at prices below the price for which third
parties might be willing to pay to gain control of us. Third parties who are
otherwise willing to pay a premium over prevailing market prices to gain control
of us may be unable or unwilling to do so because of these provisions of Israeli
law.
The
rights and responsibilities of our shareholders are governed by Israeli law and
differ in some respects from the rights and responsibilities of shareholders
under U.S. law.
We are
incorporated under Israeli law. The rights and responsibilities of holders of
our ordinary shares are governed by our articles of association and by Israeli
law. These rights and responsibilities differ in some respects from the rights
and responsibilities of shareholders in typical U.S. corporations. In
particular, a shareholder of an Israeli company has a duty to act in good faith
toward the company and other shareholders and to refrain from abusing his power
in the company, including, among other things, in voting at the general meeting
of shareholders on certain matters. Israeli law provides that these duties are
applicable in shareholder votes on, among other things, amendments to a
company's articles of association, increases in a company's authorized share
capital, mergers and interested party transactions requiring shareholder
approval. In addition, a shareholder who knows that it possesses the power to
determine the outcome of a shareholder vote or to appoint or prevent the
appointment of a director or executive officer in the company has a duty of
fairness toward the company. However, Israeli law does not define the substance
of this duty of fairness. Because Israeli corporate law has undergone extensive
revision in recent years, there is little case law available to assist in
understanding the implications of these provisions that govern shareholder
behavior.
Risks
Relating to Our Ordinary Shares
Holders
of our ordinary shares who are United States residents face income tax
risks.
There is
a risk that we will be classified as a passive foreign investment company, or
PFIC. Our treatment as a PFIC could result in a reduction in the after-tax
return to the holders of our ordinary shares and would likely cause a reduction
in the value of such shares. For U.S. Federal income tax purposes, we will be
classified as a PFIC for any taxable year in which either (i) 75% or more of our
gross income is passive income, or (ii) at least 50% of the average value of all
of our assets for the taxable year produce or are held for the production of
passive income. For this purpose, passive income includes dividends, interest,
royalties, rents, annuities and the excess of gains over losses from the
disposition of assets that produce passive income. If we were determined to be a
PFIC for U.S. federal income tax purposes, highly complex rules would apply to
U.S. Holders owning ordinary shares. Accordingly, you are urged to consult your
tax advisors regarding the application of such rules.
As a
result of our substantial cash position, if the value of our shares declines,
there is a substantial risk that we will be classified as a PFIC under the asset
test described in the preceding paragraph. Based on advice received from our tax
advisor, we believe that we were not deemed to be classified as a PFIC in 2002.
In addition and as a result of the increase in the value of our stock, we
believe that we were not deemed to be classified as a PFIC in 2003 or 2004. We
have, however, no assurance that the U.S. Internal Revenue Services will accept
this determination and there can be no assurance that we will not be classified
as a PFIC in the future. We believe that our ordinary shares should not be
treated as stock of a passive foreign investment company for United States
federal income tax purposes, but this conclusion is a factual determination made
annually and may be subject to change. We advise each of our investors to
consult with tax advisor.
United
States residents should carefully read “Item 10E. Additional Information -
Taxation, United States Federal Income Tax Consequences” for a more complete
discussion of the U.S. federal income tax risks related to owning and disposing
of our ordinary shares.
Our
share price has been volatile in the past and may decline in the
future.
Our
ordinary shares have experienced significant market price and volume
fluctuations in the past and may experience significant market price and volume
fluctuations in the future in response to factors such as the following, some of
which are beyond our control:
· |
quarterly
variations in our operating results; |
· |
operating
results that vary from the expectations of securities analysts and
investors; |
· |
changes
in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;
|
· |
announcements
of technological innovations or new products by us or our competitors;
|
· |
announcements
by us or our competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
|
· |
changes
in the status of our intellectual property rights;
|
· |
announcements
by third parties of significant claims or proceedings against us;
|
· |
additions
or departures of key personnel; |
· |
future
sales of our ordinary shares; and |
· |
stock
market price and volume fluctuations. |
Domestic
and international stock markets often experience extreme price and volume
fluctuations. Market fluctuations, as well as general political and economic
conditions, such as a recession or interest rate or currency rate fluctuations
or political events or hostilities in or surrounding Israel, could adversely
affect the market price of our ordinary shares.
In the
past, securities class action litigation has been brought against a company
following periods of volatility in the market price of its securities. We could
potentially in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
ITEM
4. INFORMATION
ON THE COMPANY
A. HISTORY
AND DEVELOPMENT OF THE COMPANY
We were
incorporated under the laws of the State of Israel in January 1992, commenced
operations in October 1992 and commenced sales of our products in the fourth
quarter of 1994. We are a public limited liability company under the Israeli
Companies Law, 5759-1999 and operate under this law and associated legislation.
Our registered offices and principal place of business are located at 24 Raoul
Wallenberg Street, Tel Aviv 69719, Israel, and our telephone number is
+972-3-767-9300. Our address on the Internet is www.radvision.com. The
information on our website is not incorporated by reference into this annual
report.
With over
a decade of operations, we are the industry’s leading provider of high quality,
scalable and easy-to-use products and technologies for videoconferencing, video
telephony, and the development of converged voice, video and data over IP and 3G
networks. Hundreds of thousands of end-users around the world today communicate
over a wide variety of networks using products and solutions based on or built
around our multimedia communication platforms and software development
solutions.
We have
approximately 420 customers worldwide including Alcatel, Brazil Telecom, Cisco,
FastWeb, Lucent, Microsoft, Nortel, NTT/DoCoMo, Orange Telecom, Philips,
Panasonic, Qualcomm, Samsung, Shanghai Bell, Siemens, Sony and Telecom
Italia.
In the
beginning of 2001, we created two separate business units corresponding to our
two product lines to enable our product development and product marketing teams
to respond quickly to evolving market needs with new product introductions.
Our
Networking Business Unit, or NBU, offers one of the broadest and most complete
set of multimedia communication and videoconferencing network solutions for IP,
ISDN, SIP and 3G-based networks, supporting most end points in the industry
today. These products are sold to the enterprise and service provider markets.
In the
enterprise market we sell to resellers, OEMs, and system integrators who use our
infrastructure products to develop and install advanced IP and ISDN-based
visual communication systems to the company meeting room and employee desktop.
The NBU also provides video services solutions to service providers, both 3G
mobile and IP wireline. We sell our products and platforms to major telecom
equipment vendors, such as Alcatel, which then integrate our solutions into
their larger communications platforms/architectures. These integrated solutions
enable the delivery of real-time interactive IP and 3G-based multimedia
streaming and video telephony services over both broadband connections (cable,
DSL, etc.) and 3G mobile networks.
Our
Technology Business Unit, or TBU, is a one-stop-shop for developer platforms
that equipment vendors use to build voice and video over IP and 3G products and
solutions. The TBU provides protocol development tools and platforms, as well as
associated solutions such as testing platforms and IP phone toolkits that enable
equipment vendors and service providers to develop and deploy new IP and
3G-based converged networks, services, and technologies. Our TBU also provides
professional services to customers, assisting them to integrate our technology
into their products.
Our TBU
solutions include developer toolkits for SIP, MEGACO/H.248, MGCP, H.323, and
3G-324M and our ProLab™ Test Management Suite and IP Phone Toolkit. Our toolkits
have been used by developers in a wide range of environments from chipsets to
simple user devices like IP phones, and from integrated video systems through
carrier class network devices like gateways, switches, soft switches and 3G
multimedia gateways.
Following
a bidding process held under the supervision of a United States Bankruptcy
Court, we acquired substantially all of the assets of FVC and its wholly owned
subsidiary, CUseeMe Networks, Inc. on an “as is” basis. The transaction closed
on March 15, 2005. The transaction, provided for a cash purchase price of
$7,150,000. Due to certain cash adjustments the actual purchase price was less
then $7,000,000. We have hired approximately thirty one former employees of FVC
that were based in Nashua, New Hampshire and hired the former Chief Executive
Officer of FVC on a consulting basis. The newly hired employees will be involved
in marketing, selling and supporting the acquired FVC products. We are presently
looking to lease office space for this division in the area of Manchester, New
Hampshire. We acquired leading software products that enable interactive voice,
video and data collaboration over IP-based networks. The products provide
cost-effective, integrated end-to-end solutions for large-scale deployments from
the desktop to the conference room and also enable best-of-breed collaborative
conferencing solutions to be extended to ISDN and ATM networks. FVC’s Click to
Meet™ product provides integrated and scalable desktop conferencing solutions.
Click to Meet products are fully integrated with a single software architecture
consisting of the Conference Server, the Conference Client and the Middleware to
tie them together. Click to Meet products are widely deployed worldwide and
offer a robust set of functionalities. Additional information about the newly
acquired products and technology can be found at www.fvc.com.
Our
capital expenditures for the years ended December 31, 2002, 2003 and 2004 were
approximately $1.7 million, $1.3 million and $2.3 million, respectively.
These expenditures were principally for research and development equipment,
office furniture and equipment and leasehold improvements.
B. BUSINESS
OVERVIEW
Our goal
is to be the leading provider of solutions that enable real-time multimedia
(voice, video and data) collaboration and communication over packet networks. We
provide solutions at every level – protocol developer toolkits,
professional services, network infrastructure, as well as integrated solutions
that complement the communication solutions of other vendors such as those from
Cisco, Sony, Microsoft and Alcatel. We believe that the combination of offering
IP-centric networking products, along with and software toolkits, positions us
as a key enabling vendor in the evolution of IP communications. Key elements of
our strategy include the following:
Maintain
and Extend our Technology Leadership.
We
believe that we have established ourselves as a technology leader in providing
core-enabling technology for a broad range of IP and 3G communication products
and services. In this regard, in 2004 we announced support both for Microsoft’s
Office Live Communications Server 2005/Windows Messenger and Cisco’s new desktop
IP-video telephony architecture. In the service provider marketplace we also
announced an advanced 3G video streaming platform and the launch of a new
carrier-grade architecture called SCOPIA™.
We have
accumulated extensive knowledge and expertise as designers and developers of
commercial products and technologies for real-time packet-based communication.
We continue to place considerable emphasis on research and development to expand
the capabilities of our existing products, to develop new products and to
improve our existing technology and capabilities. We believe that our future
success will depend upon our ability to maintain our technological leadership;
bring value to the communications solutions of our partners’ such as Cisco,
Microsoft, Alcatel, and others; enhance our existing products; and introduce on
a timely basis new commercially viable products addressing the needs of our
customers. We intend to continue to allocate significant resources to research
and development.
Enable
the Migration of Visual Communications from the Traditional Conference Room
(Videoconferencing) Application to the Desk Top, the Home, and onto the Road
Over 3G And Wireless.
We have
been working with leading technology vendors such as Cisco and Microsoft, as
well as developing partnerships with broadband and wireless service providers,
to transform videoconferencing from a meeting room application to a new mode of
personal communication. In 2004 we saw major milestones in these activities.
Cisco announced and began deploying desktop video networks based, in part, on
RADVISION technology. RADVISION initiated pilots, based on its Microsoft
solution, with enterprise customers around the world. 3G operators around the
world began pilots of RADVISION-powered video telephony and video streaming
applications.
RADVISION’s
platforms are key technologies in all of these solutions and we will continue to
work to expand the use of video for communications and entertainment at the
desktop, in the home and over broadband mobile networks.
Strengthen
and Expand our Relationships with our OEM Customers.
We have
established and continue to maintain collaborative working relationships with
many company’s in the IP communication market, including Alcatel, Cisco,
Hutchinson, Nokia, Nortel, Samsung, Siemens and Sony. We work closely with our
OEM customers to integrate our products and core technology into their
solutions. Our core technology and our system design expertise enable us to
assist these customers in the development of complete solutions that contain
enhanced features and functionality compared to competitive alternatives. We
strive to establish long-term relationships with our OEM customers by starting
with a few products and subsequently expanding these relationships by increasing
the number and range of products sold to these customers. We intend to expand
the depth and breadth of our existing OEM relationships while initiating similar
new relationships with other leading OEMs focused on the IP communication
market.
Become
a Key Enabling Technology Solution for IP Communications.
We
continue to strive to ensure that our infrastructure solutions are key enabling
components in larger solution vendors’ portfolios. To that end, in 2004, we
announced the further deepening of our relationships with Sony, Cisco and,
Microsoft. We also substantially increased the number of telecom equipment
vendors who use our video services platform as part of their larger
solutions.
Continue
to Offer New and Enhanced Products and Features.
We
believe that we have consistently been either first, or among the first, to
market products that support real-time voice, video and data communication over
packet networks. We were the first-to-market with IP gateways that provide
combined voice, video and data functionality, first to market with software
development kits for the development of H.323-compliant IP communication
products and applications, and this year, the first to announce support for SIP
(Session Initiation Protocol) in our infrastructure platform. We intend to
utilize our technological expertise as a basis for market leadership by striving
to be first-to-market with new and enhanced products and features that address
the increasingly sophisticated needs of our customers and the evolving markets
they serve. In addition, we believe that our participation in the drafting of
industry standards gives us the ability to quickly identify emerging trends
enabling us to develop new products and technologies that are at the forefront
of technological evolution in the IP communication industry.
Deepen
the Distribution Channels for our Products.
We intend
to continue to focus our sales and marketing efforts on deepening the
relationship with our distribution channels. Channel partners provide us
feedback from their customers, the end-users of our products, which gives us
valuable insight into evolving industry trends and customer requirements. OEMs,
resellers and systems integrators are all important channel partners for our
products. They provide us with increased market presence through their
distributor relationships and existing customer base. In addition, endorsements
by key channel partners strengthen our brand name awareness.
Leverage
Service Provider Opportunities.
We are
working closely with telecom equipment providers, 3G mobile carriers, and
residential IP (wireline) service providers to enable video services (both
communications and streaming /entertainment) to be delivered to the home and to
mobile devices. In 2004, 3G carriers around the world began deploying pilots for
video services and we expect to see that market continue to grow into general
deployments in the next few years.
Enable
Desktop Conferencing and Communication through Strategic Partners.
We plan
to continue our efforts to maintain our position as a key enabling solution
provider for major vendors’ activities to drive visual communication beyond the
meeting room and onto the desktop. In this regard, we intend to strengthen our
relationship with Microsoft and its sales channels. We also intend to leverage
our close relationship with Cisco and their efforts in enterprise video
telephony by virtue of our AVVID certification in early 2004.
Continue
our Active Involvement in Shaping Industry Standards for IP Communication.
We
actively participate in and contribute to the formulation of standards for IP
communication. We intend to continue our active involvement in the organizations
that define the standards for real-time communication over next generation
packet networks. Our knowledge and expertise gained in participating in the
development of these industry standards should enable us to continue to be among
the first to market our products and technology based on new standards adopted.
We work to continually improve, enhance and expand our core competency in real
time IP communication protocols including H.323, SIP, MGCP and MEGACO. Because
of our involvement in defining these IP communication standards, we believe that
we are well-positioned to quickly develop enhanced functionality and new
products based on multiple protocols.
The
following discussion of our business is separated into two sections: the first
addresses our videoconferencing network infrastructure unit, or NBU, and the
second addresses our software developer toolkit business, or TBU. In each
section we will provide an overview of our products, our competitive advantage,
and industry trends that are beneficial to our business.
Networking
Business Unit
NBU
Products
RADVISION’s
award-winning multimedia communication, videoconferencing and video services
network infrastructure products provide both the platform and applications to
enable advanced video-based conferencing and collaboration functionality between
any video-enabled device, such as a meeting room or a desktop videoconferencing
end point, with other telephony and videoconferencing systems. Additionally,
RADVISION’s portfolio of telecommunication carrier solutions enables the
development and delivery of real-time video services (both streaming and
communications) to wireless, wireline, and broadband mobile users. The RADVISION
solution, can be used by institutions, enterprises, and service providers to
create high quality, easy-to-use voice, video, and data communication,
collaboration, and entertainment environments, regardless of the communication
network -- IP, SIP, ISDN or next generation 3G.
RADVISION’s
core infrastructure solution for the enterprise is viaIP™, a customizable,
scalable array of ports, management solutions, and custom functionality with
which customers can design and quickly deploy a highly configured, highly
scalable visual communication network for each client’s individual needs. With
the viaIP product line, the customer can choose the best port configuration,
management solution and additional applications, and the entire solution is
delivered in an integrated chassis.
Within
the viaIP
product line we offer INVISION™, a plug-and-play line of videoconferencing
network appliances targeted to the enterprise. INVISION offers an off-the-shelf,
completely pre-configured solution with the functionality of a complete IP/ISDN
videoconferencing infrastructure, from centralized management and multipoint
conferencing to gateway services and value-added applications, in an integrated,
easy-to-order and easy-to-install device.
To
complement the viaIP
product, we offer the iVIEW™ family of management applications to meet such
videoconferencing needs such as robust network management and easy-to-use
conference scheduling. iVIEW has been extended to address the desktop
conferencing market which requires a scalable, robust software-based
architecture to enable the delivery of video services to the employees’
PCs.
The
complete RADVISION solution is customizable to layer video, voice, and data
collaboration onto a customer’s network. Key components of the solution
include:
· |
Gateways
- Provide videoconferencing interoperability between IP, circuit-switched
ISDN and next generation 3G end points and
networks. |
· |
Gatekeepers
- Control, manage, and monitor real-time voice, video and data traffic
over the visual communication networks. |
· |
Conferencing
Bridges (or multipoint conferencing units/MCUs) - Enable voice or
multimedia conferencing over packet and ISDN networks among three or more
participants. |
· |
Data
Collaboration Servers (DCS) - Enable conference participants to
collaborate and share applications. The DCS allows users to view diagrams,
graphic presentations and slide lectures simultaneously with other
videoconferencing participants. It also makes possible text chats,
whiteboard exchanges, and rapid file transfers during multipoint
videoconferences of three or more
participants. |
For
carriers, RADVISION’s NBU offers video-based solutions for the services provider
market - both IP wireline and more recently broadband wireless. In November
2004, we announced SCOPIA™, our new advanced services platform that enables
service providers to offer point-to-point and multipoint real-time video-based
services such as video calling and video streaming. Initially targeted to the 3G
provider, this carrier-class architecture can also deliver video-based services
to residential IP (wireline) customers.
Leveraging
technologies pioneered by RADVISION over two years ago and which can already be
found powering 3G networks trials worldwide, SCOPIA is a key component in
enabling new revenue-generating video-based services that will complement
traditional voice and data services these providers already offer.
Sample
services that can be delivered off the SCOPIA platform include:
· |
Video
mail, video messaging |
· |
Multimedia
content streaming (television, movies,
etc.) |
· |
Remote
surveillance and reporting |
· |
Live
entertainment and communications services |
· |
Video
telephony and conferencing |
The new
SCOPIA advanced services platform will come in three configurations. The first
is the SCOPIA 400, a 4-slot, 2U chassis configuration which is available today.
For serving new emerging service provider network architectures and higher
density needs expected in large-scale deployments, RADVISION expects to deliver
the SCOPIA 1000, a larger 21-slot 12U chassis version of the product, in the
first half of 2005. RADVISION expects that both of these hardware solutions will
be followed by RADVISION’s SCOPIA ATCA, a software video media server designed
to be used in an Advanced Telecommunications Computing Architecture (ATCA).
See Item
5 - Operating and Financial Review and Prospects for financial information
relating to our NBU.
NBU
Product Benefits
While our
products fully support ISDN, we believe that the principal competitive advantage
of our family of solutions, for both our enterprise and service provider
offerings, is our IP expertise. Our products are among the leading visual
communication infrastructure solutions in the industry today by virtue of our
technological innovation in five key areas:
Distributed
Architecture. We
believe that no competing product can match the capacity of the viaIP400. Because
of its unique architecture, the viaIP system
is not limited to a single chassis. As a result, a single MCU (multiconferencing
unit) can support up to six gateway boards, achieving a capacity of up to six
hundred (600) simultaneous calls on the same chassis and nearly limitless
calls on a stacked multi-chassis system. Additionally, due to the system’s IP
architecture, the entire infrastructure does not need to be mounted in a single
integrated rack but can be distributed throughout a network. By
distributing intelligence throughout the network, the enterprise benefits from
increased redundancy, network traffic optimization, resource management, and
high scalability.
Extensive
Protocol Support. In
addition to supporting both ISDN and H.323, our solution also supports SIP and
3G-324M - two emerging protocols for desktop and mobile
communication.
Advanced
Chips Provide Superior Performance and Functionality at a Lower Cost. As an
IP-centric platform with ISDN support, the RADVISION solution is able to take
advantage of the advances in integrated IP multifunction chip technology.
The system’s on-board CPU is a PPC 400 MHz. We also use Texas Instrument’s
advanced C6x programmable 100 MHz chipset for call functionality.
IP
Protocol Expertise. RADVISION
is a leader in developing and delivering advanced voice and video protocols over
IP networks, primarily H.323 and SIP. As a result, our solutions support
the most recent versions of each of the signal protocols with the associated
features they enable. Also, as most IP videoconferencing endpoints in the market
use RADVISION protocol stacks, our solutions are interoperable with virtually
every standards-based end point on the market today.
Visual
Communication Market Trends Benefiting RADVISION
Evolution
in the Way People Communicate in the Office. With
the need for greater efficiency and the importance of accurate communication,
companies are turning to new ways of communicating to enable remote parties to
interact as if they were in the same room. Conference calls and e-mail usage
have increased dramatically and Instant Messaging (IM) is being adopted
increasingly in the enterprise. This trend to new forms of communication has
also sparked enterprises to explore multimedia applications that provide
advanced voice, video and data experiences to maximize information flow, whether
in a group meeting or person to person.
Major
Vendors Providing Video Telephony and Desktop Multimedia
Communications. 2003 saw
the entry of Microsoft into the desktop multimedia communications space with the
launch of its Live Communications server and Windows Messenger. It also saw
Cisco’s acquisition of Latitude and its flagship product MeetingPlace. Both of
these architectures are for personal (desktop) multimedia conferencing and
communications. We believe that due to our unique IP-based architecture and
support of standards such as SIP our company is in a strong position to provide
complementary solutions and/or capitalize on the strong marketing and solution
trends that these two large companies, as well as others in the industry,
including Nortel with its own desktop solution, are offering to the IT manager
and CEO/CIO/CTO.
The
Spread of Video Telephony beyond the Enterprise and into the Home and on the
Road. End
users are beginning to use multimedia applications for their communication not
only in the enterprise through meeting rooms and desktops, but also at home and
on the road. RADVISION is experiencing this trend and is realizing sales from
service providers as they are beginning to use our technology to deliver video
telephony services to residential homes as just another broadband application
like Internet access and video-on-demand. Additionally, 3G wireless providers
are increasingly looking to deliver real-time multimedia content to their mobile
subscribers. We believe RADVISION is well suited to play a role in this market
with its 3G-324M architecture and multimedia services support.
The
Evolution from ISDN to IP. Traditional
(legacy) videoconferencing systems are ISDN-based. This means expensive
technology, a separate high-speed line into the office for video only, and a
separation between video running over ISDN and data running over IP. However,
IP-based videoconferencing recently has been gaining greater acceptance. As
companies put voice over their IP networks (VoIP), they are also beginning to
put video over their IP networks. RADVISION is the pioneer in videoconferencing
over IP. Because its technology is sited in the core of the IP network,
RADVISION’s solutions enable network managers to leverage their installed high
speed data networks, merge video with voice and data applications (running over
the same IP connection) and centrally manage a host of video end points, from
meeting room to desktop to PC based systems, and eventually to wireless video
phones.
Technology
Business Unit
RADVISION’s
TBU provides standards-based toolkits and testing systems for the development of
real-time voice, video and data communication solutions over packet networks and
3G networks.
TBU
Products
RADVISION
offers one of the most complete sets of EnsembleSM
Development toolkits. RADVISION sells the core enabling technology for real-time
IP and 3G-based communication in the form of software development kits.
Communication equipment providers and developers seeking to create and market
industry standard compliant IP telephony and multimedia products, systems and
applications need core IP communication protocol software to develop their
IP-centric solutions. The same holds true for developers of 3G-based multimedia
solutions.
Developers
can use RADVISION toolkits rather than dedicate in-house resources to developing
this core technology themselves. RADVISION believes its toolkits enable
customers to focus on their core competencies and reduce the time to market of
industry standard compliant IP communication products, systems and
applications.
RADVISION
SIP Development Toolkit
SIP is a
popular signaling protocol for initiating, managing and terminating voice and
video sessions across packet networks. SIP was designed for building high
performance user agents. The RADVISION SIP Toolkit enables the development of
products that require full user/agent functionality. The SIP Toolkit is designed
to provide high scalability and extensibility for both small and large-scale
projects. It enables the implementation of feature-rich SIP entities such as
application servers, softswitches, IP-PBXs, gateways and conferencing bridges.
The RADVISION SIP Server Toolkit enables the development of SIP-based
infrastructure devices such as IP-PBXs and softswitches.
RADVISION
H.323 Development Toolkit
H.323 is
currently the most widely deployed standard for real-time IP communication. All
components of an H.323-compliant network, including terminals, gateways,
gatekeepers and conferencing bridges, use the H.323 protocol to communicate.
RADVISION’s H.323 software development kits provide developers with the core
software building blocks needed to develop H.323-compliant products, systems and
applications. The RADVISION H.323 software development kit is an integrated set
of software programs that execute the H.323 protocol and perform the functions
necessary to establish and maintain real-time voice, video and data
communication over packet-based networks. The RADVISION H.323 software
development kits can be used to develop a broad spectrum of products, including
gateways, gatekeepers, conferencing bridges, IP telephones and other
H.323-compliant products.
RADVISION
MGCP Development Toolkit
Media
gateway control protocol, commonly referred to as MGCP, provides functions that
complement H.323 and has been developed for large packet networks operated by
telecommunication carriers and service providers that require gateways that can
support a high number of calls. MGCP is the protocol by which a centralized
gateway controller communicates with and controls the numerous gateways
throughout a packet network and manages the network traffic through those
gateways. MGCP has been adopted by large telecommunication companies and
Internet service providers as well as by cable television companies building IP
communication solutions over their networks. The RADVISION MGCP software
development kit is used to build MGCP compliant media gateways controllers and
media gateways.
RADVISION
MEGACO Development Toolkit
MEGACO/H.248
is the official industry standard media gateway control protocol for large-scale
IP-centric communication networks. Like MGCP, it is an internal protocol used
between “intelligent” centralized gateway controllers and numerous “dumb” media
gateways that handle voice and video media streams. The standard is the result
of a unique collaborative effort between the IETF and ITU standards
organizations. Derived from MGCP, MEGACO/H.248 offers several key enhancements
including support for multimedia and conferencing calls, improved handling of
protocol messages and a formal process for creating extensions to support
advanced functionality. RADVISION's MEGACO/H.248 Toolkit includes a unique Media
Device Manager to greatly simplify application development and reduce
development time by eliminating the need for developers to write code for
interpreting MEGACO/H.248 messages.
3G-324M
Developer Toolkit
The IP
network has not evolved sufficiently to support high-quality real-time video and
voice services over 3G networks. As a result, the 3G standards body, 3GPP,
specified the 3G-324M protocol as the signaling and transport mechanism for
real-time media over 3G (video streaming, video chat, etc.) 3G-324M routes
traffic over the circuit switched network rather than the IP network, enabling
the delivery of higher quality services. Because it is circuit-switched based,
the standard is well suited for streaming real-time multimedia. 3G-324M enables
the development, deployment and support of a wide variety of delay-sensitive
applications immediately. These include multimedia conferencing with other 3G
mobile end points and wire lined H.323 or SIP terminals, video streaming, cell
phone TV, video-on-demand (news, sports, etc.), and multimedia,
multi-participant gaming. We were one of the first companies to introduce a
toolkit for the development of 3G-324M-based products in early 2003 and we
continue to develop improved versions of this solution.
IP
Phone Toolkit
In
mid-2003, we introduced a product for the manufacture of IP Phones. The toolkit
bundles TBU toolkits along with call control and endpoint management software to
provide an IP Phone application for any IP protocol (such as H.323 and SIP). It
is now used for the development of a wide variety of applications and devices -
from video phones and IP phones to small SoHo PBX systems and IP voice gateways.
The advanced functionality and broad flexibility in both protocols supported and
features enabled makes this toolkit a useful solution for the development of IP
communications solutions by our customers.
RADVISION
ProLab Test Manager
RADVISION’s
ProLab™ is designed for debugging and simulating numerous testing scenarios.
Based on RADVISION’s SIP and H.323 Protocol Toolkit, this testing tool simulates
a full VoIP network with a professional quality assurance laboratory, enabling
developers or QA specialists to test SIP and H.323 version compliance, version
upgrade compliance, stress and load. The ProLab Test Manager is a scalable tool
designed to be aware of any changes to the SIP and H.323 standards. It provides
the:
· |
capability
to run the same tests on the application each time the underlying protocol
version is upgraded; |
· |
flexibility
to mix and match scenarios to develop a broad range of testing
possibilities; and |
· |
ability
to define numerous scripts and scale up the test scenario by linking them
as the test plan progresses. |
See Item
5 - Operating and Financial Review and Prospects for financial information
relating to our TBU business.
Professional
Services
RADVISION
created a Professional Services Division in 2003 to assist customers in
developing specialized telecommunications products based on the RADVISION
developer toolkit and reference design solution. This division offers a full
range of consulting, engineering and software development services to support
our customers in bringing innovative voice and video products to market on time
using the RADVISION ENSEMBLE suite of developer toolkits and RADVISION’s
protocol and development expertise. Our Professional Services team handles the
complete project life-cycle from design, through the product development, and
on-site deployment. In 2004, we saw strong growth in this business, both in
developing IP communications product for clients based on our toolkits and also
products that mix both our developer expertise/toolkits with multimedia
communications infrastructure from our NBU.
TBU
Product Benefits
Market
Leading Technology for Standards - Based Real-time IP
Communication. We were
one of the original five members of the ITU-T committee responsible for defining
the H.323 standard, which has been adopted worldwide for real-time packet-based
communication. We believe our technology is recognized as the market-leading
implementation of the H.323 industry standard for real-time voice, video and
data communication over packet networks. We also believe that our technology is
recognized as one of the market-leading implementations of the Session
Initiation Protocol, or SIP, and other protocols such as MGCP and MEGACO/ H.248.
We have
been actively involved in the development of protocols for real-time
communication since the inception of the industry in 1994 and believe that we
were the first-to-market with enabling products and technology for voice, video
and data communication over IP networks. We continue to be actively involved in
the specification of evolving IP communication protocols and offer a complete
suite of IP communication software toolkits to developers of IP-centric
products, applications and services.
We
believe that our technology has become the technology of choice among developers
of standards-compliant IP communication systems. We believe our customers
benefit from our ability to develop and provide them market-tested, proven
products and technology. Using our products and technology, our customers can
develop unique capabilities with increased functionality that will differentiate
their IP communication solutions in the market. We believe that the accumulated
knowledge that we have gained participating in the development of industry
standards provides us with a competitive advantage, and positions us to be among
the first to market new products and technology based on the latest
technological advances.
Interoperability. We
provide our customers with products and technology that are interoperable across
a broad range of IP communication systems. Our products and technology have been
integrated into IP communication systems developed by hundreds of communication
equipment providers. Because our products and technology are broadly deployed
across various segments of the IP communication industry, we believe that our
products and technology are interoperable with products from different vendors.
We believe that our long-standing involvement in the definition of standards and
accumulated experience with product development across our broad customer base
provides us with a competitive advantage in addressing interoperability needs.
We continue to participate actively in defining industry standards by working
closely with industry consortia on a broad spectrum of IP communication
protocols to ensure continued interoperability of our products and technology
across multiple protocols.
Real-time
Voice, Video and Data Communication Functionality. We are
one of the few companies that offer IP communication products that support both
voice-only, as well as combined voice, video and data communication. We believe
that this dual functionality is attractive to enterprises and service providers
that seek a flexible IP communication solution, which can provide enhanced
multimedia functionality in addition to IP telephony capabilities. We believe
our products enable developers of IP communication solutions to offer features
and functions generally unavailable in competitive solutions.
Improved
Time to Market. Our
customers rely on our accumulated expertise with communication standards and
core technology to significantly reduce their development cycle and improve time
to market. Communication equipment providers seeking to market
standards-compliant systems for real-time voice and video communication over
packet and 3G networks require standards-compliant building blocks to develop
their products. Implementing standards as deployable products and technology is
a complex task that requires significant technical knowledge and expertise as
well as substantial investments of time and resources. Our products and
technology enable our customers to shorten their own development time by
integrating our proven enabling products and technology into their solutions.
Rather than dedicate in-house resources to implementing industry standards,
these developers can use our products and technology and focus their core
competencies on building enhanced systems, products and applications.
Broad
Range of Product Environments. Our
products and technology provide our customers with flexibility to design
individual products and applications or complete systems. Our customers can
build a complete network solution for real-time IP communication using our full
suite of products or integrate RADVISION products with their own products or
other vendor products into their real-time IP communication solution. Similarly,
our technology has been designed to enable the development of a broad range of
products and applications, from those that can service single users, including
hand held devices and residential IP phones, to multi-user products, like highly
complex, powerful carrier class gateways. Taken together, our products and
technology provide all of the key network components necessary to build
real-time IP communication solutions.
Industry
Trends That Benefit RADVISION’s Developer
Toolkits:
Growth
in IP Communications
In the
1990’s, IP communication experienced dramatic growth in traffic. Even during the
downturn of 2000 and 2001, IP communications continue to grow. We believe this
trend will continue due to:
· |
an
increasing need for enterprises to expand their networks to enable them
to send,
access and receive information quickly, economically and globally;
|
· |
an
increasing use of the Internet and other packet networks for communicating
and engaging in commercial transactions; |
· |
an
increase in available bandwidth at declining prices;
|
· |
the
introduction of new voice, video and data communication services and
applications; |
· |
the
dramatic growth of wireless and broadband mobile networks and the interest
by consumers to use WiFi and 3G-based devices and networks for new
multimedia services such as video streaming and video
telephony; |
· |
the
increasing focus by both major vendors, such as Cisco and Microsoft, and
IT managers to deploy IP-based multimedia communications to employee
desktops; and |
· |
the
emergence of low cost, high quality IP communications devices that enable
people, both in business and in every day life, to communicate more
effectively and access real-time video over broadband mobile or
residential IP or 3G connections. |
Limitations
of Traditional Networks
Traditionally,
circuit-switched networks have been the principal medium for the transmission of
communication. Circuit-switched technology dedicates a circuit with a fixed
amount of bandwidth for the duration of the connection, regardless of a user’s
actual bandwidth usage. The growth in data communication traffic, particularly
the growth in the number of Internet users, has placed significant strains on
the capacity of traditional circuit-switched networks. Circuit-switched networks
were initially deployed to handle only voice communication and are not well
suited for the types of converged multimedia services now seen over IP networks.
These networks were not designed to handle data and broadband applications such
as video efficiently and cannot scale cost-effectively to accommodate the growth
in data traffic.
Advantages
of Packet-based Networks
While
circuit-switched networks were principally designed to handle analog voice
traffic, packet-based networks were principally designed for transmitting
digital information. Packet-based networks, including IP networks, transmit
voice, video and data information in the form of small digital packages called
packets. Voice, video and data packets are sent over a single network
simultaneously and reassembled at the destination. Packet switching enables more
efficient utilization of available network bandwidth than circuit-switching,
allowing more calls to travel through a packet network at the same time.
Moreover, packet networks allow for the cost-efficient expansion of capacity as
communication traffic increases. In addition, packet networks are built using
open standards, like IP, which promote competition by allowing different vendors
to build products and applications that can interoperate with one another. By
using packet technologies based on open standards, new services can be deployed
rapidly and economically.
The
Need for Products that Deliver Industry Standards for Real-time IP
Communications
Originally,
enterprises and communication service providers deployed packet networks
primarily for handling data traffic and not for real-time IP communications.
Technical barriers initially hampered the use of packet networks for real-time
communication. For example, packet networks were not designed to guarantee the
sequential delivery of packets and packets could be lost. In addition, the time
of delivery of packets was dependent upon the amount of packet traffic being
transmitted over the network. For real-time communication, it is critical that
the packets associated with a specific voice or video communication be
transmitted in the correct sequence and in a timely manner. Early attempts at
real-time IP communication solved these technical problems by using proprietary
solutions developed by individual vendors. However, proprietary solutions from
different vendors meant that different vendor products could not interoperate
with one another.
To enable
the global deployment of real-time IP communication networks, industry standards
and protocols were developed to promote interoperability of real-time
communication over packet networks. H.323 is currently the most widely deployed
protocol for real-time IP communication. H.323 was developed by a team of
computing, telephony and networking experts under the auspices of the
International Telecommunication Union, or ITU-T, a United Nations organization,
with the goal of specifying a universal real-time standard that would ensure
interoperability of rich-media communication on packet-based networks. H.323
provides the technical framework for developing standards-compliant products and
systems for real-time voice and video communication over packet networks. All
components of an H.323 compliant network, including terminals, gateways,
gatekeepers and conferencing bridges, use the H.323 protocol to communicate.
Additionally,
many companies are beginning to develop SIP-based products. RADVISION is one of
the leading vendors in this space, providing solutions for the development of
SIP phones and devices, SIP servers and registrars, IP-PBX’s and a wide variety
of other SIP-based communication devices.
Our
leadership position stems from the pioneering work we began in 1993. We were the
first to develop and demonstrate commercially viable technology for establishing
real-time voice, video, and data on IP networks. Since our inception, we have
been helping to develop the industry standards that are driving the emergence
and growth of the use of packet networks for real-time communication. RADVISION
was an original member of the ITU (International Telecommunication Union) team
that defined the H.323 standard, and we continue to work closely with the ITU,
the IETF, IMTC, and other industry consortia to define a broad spectrum of IP
telephony protocols for voice and video communication including, Session
Initiation Protocol (SIP), Media Gateway Control Protocol (MGCP) and
MEGACO/H.248.
Our
protocol toolkits provide the underpinning technology required for the rapid
development of next generation products and applications for real-time VoIP.
Industry giants and emerging technology companies use our family of IP
communication protocol toolkits to reduce their time to market for developing
interoperable, standards-compliant V2oIP® products,
applications and services. Today RADVISION protocols are implemented in a wide
range of environments from chipsets to simple user devices like IP phones and
video systems through carrier class network devices like gateways, switches and
softswitches.
Growth
in Real-time Voice and Video IP Communication
Due to
the inherent benefits of packet networks and the advent of new technologies and
standards that have enabled real-time communication over these networks, the use
of packet networks for real-time voice, video and data communication is expected
to grow dramatically. This
anticipated growth in real-time IP communication is expected to be driven
primarily by enterprises and communication service providers migrating to packet
networks. As enterprises move from centralized organizations to distributed
networks of employees, customers, suppliers and business partners, they require
more effective communication capabilities to support their operations and remain
competitive in a global and rapidly changing market. Packet networks are well
suited for enterprises because they provide enterprises with the following
advantages:
· |
cost-effective
increases in capacity to meet increasing communication traffic demands;
|
· |
support
for new communication applications, like video conferencing and data
collaboration, for improved workforce productivity;
|
· |
interoperability
with different network configurations of their customers, suppliers and
partners; and |
· |
cost
savings associated with simplified network management resulting from
creating a single network that handles all communication, rather than
having to maintain separate telephone and computer networks.
|
Communication
service providers have also begun to deploy packet networks in an effort to
compete more effectively in a deregulated market. Global deregulation and rapid
technological advances have resulted in the emergence of many new communication
service providers, increased competition among traditional telecommunication
carriers, lower prices, innovative new product and service offerings and
accelerated customer turnover. To remain competitive, communication service
providers must be able to develop and introduce new services to differentiate
themselves in the market and attract and maintain customers. Packet networks are
well suited to accomplish these objectives because they enable the rapid
deployment of new and differentiated solutions. In addition, packet-based
technology allows new competitors to enter the market quickly without
substantial investment in infrastructure.
Broadband
Mobile
The roll
out of 3G broadband mobile services is moving rapidly in a number of key world
markets. While these efforts are proceeding more cautiously in North America, a
number of 3G networks in Asia and Europe are already in operation and serving
millions of customers.
Both 3G
standards bodies, 3GPP and 3GPP2, envision 3G as running entirely over an
IP-based communication network (the Internet). However, the recent business
environment may have pushed this vision out by quite a few years. The current
telecom downturn may further extend the length of time until 3G is entirely
IP-based.
The main
problem is that today’s IP network (the Internet) is not sufficiently robust for
delay sensitive applications and, in fact, will not be so until service
providers move to IPv6 and SIP-based IP communication. IP, with its variant
transmission delays (many hops routing and congestion effects) and packet
overheads, is ill equipped at this time to provide high quality, real time
multimedia delivery over 3G (WCDMA and CDMA2000) networks.
While the
vision of a true IP-based 3G network has been delayed, the promise of a
feature-rich, multimedia wireless experience has not. This is due to the
emergence of a standard, called 3G-324M, which addresses and supports the
real-time streaming of multimedia broadband wireless communication by routing
traffic over the circuit switched network. Being circuit-switched based, the
standard has all the hallmarks of a protocol ideal for streaming real-time
multimedia, including a fixed delay, low overhead of CODECS, and no IP/UDP/RTP
header overheads.
3G-324M,
based on ITU H.324M and specified in detail by 3GPP (3GPP TS 26.112 and 3GPP TS
26.111 Working Groups), enables the development, deployment and support of a
wide variety of delay-sensitive applications immediately. Enabled applications
include multimedia conferencing with other 3G mobile end points, and wire lined
H.323 or SIP terminals, video streaming, cell phone TV, video-on-demand (news,
sports, etc.) and multimedia, multi-participant gaming.
RADVISION
has taken a pioneering role in providing 3G-324 developer toolkits (as well as
3G-324M-based infrastructure in our NBU) that enable equipment developers to
develop products, ranging from 3G handsets to gateways and media servers, that
will deliver real time multimedia services over 3G.
Products
and Technology Under Development
We intend
to capitalize upon our technological leadership in real-time IP communication
and visual communication network appliance and functionality to develop new
products and technology that meet the evolving needs of the IP, 3G, and visual
communication market. Our future product and technology offerings are expected
to include platforms and tools needed for creating value-added IP-centric
enhanced services.
Customers
We
generally sell our NBU enterprise products to OEMs, systems integrators and
value added resellers, or VARs. Our OEM customers purchase our products to
integrate with products that they developed in-house to build complete IP
communication solutions. Our systems integrator customers either purchase our
full suite of products or integrate our individual products with products of
other manufacturers to build complete IP communication solutions. Our VAR
customers purchase our products to resell to end-users as separate units, or as
part of a family of related product offerings, either under our RADVISION label
or under their private label.
We sell
our service provider products to major telecom equipment vendors such as Alcatel
who take our solution and use it as part of a larger service
portfolio.
We sell
our TBU products in the form of software development kits directly to developers
of IP communication products, systems and applications for developing their own
IP communication solutions based on our core enabling technology.
For the
year ended December 31, 2004 one customer accounted for approximately 27% (2003
- 21%) of our sales.
The
following is a representative list of our customers who purchased more than
$250,000 of our products or technology during the year 2004:
Major
Customers |
ADL
Aethra
Ltd
Alcatel
Ltd
All
New Video
Amtec
AT&T
Broadreach
Brooktrout
China
North Industries
Cisco
Comverse
Critical
E-Soft
Expedite
Glovicom
HS
digital
Iwatsu
Merck
& Co. |
Nortel
NTT
Qualcomm
ReView
Video
Seal
Shanghai
Worldbest
SHANGHAI
ZIJIANG
Siemens
Solutions
Link
Sony
Spirent
SVA
Tandberg
Target
Sales
Telogy
Thomson
Vcon
Wire
One
Yahoo! |
Sales
and Marketing
Sales
organization. We
market and sell our products through multiple channels in North and South
America, Europe, the Middle East and the Far East. Our networking
products
are sold to end-users principally through indirect channels by OEMs, system
integrators and value added resellers. We market and sell our technology
products, primarily in the form of software development kits, directly to
developers of IP and 3G communication products and applications. We sell to
service providers through major telecom equipment vendors such as Alcatel and
Nokia. In several countries in the Far East we sell our software development
kits indirectly through local sales representatives.
We
currently have sales offices in the United States in New Jersey, California,
Maryland and Texas. We also have sales offices in Tel Aviv, Israel, and
marketing or representative/liaison offices in Hong Kong, China, the United
Kingdom, Brazil, Korea, Japan and India. The geographic breakdown of our total
sales for the year ended December 31, 2004 was 52.4% in North America,
29.4% in Europe and the Middle East and 18.2% in the Far East.
We have
dedicated sales teams to support our large strategic accounts as well as to
identify potential strategic customers who would deploy our products on large
scales and generate significant revenues for us.
Marketing
organization. Our
marketing organization develops strategies and implements programs to support
the sale of our products and technology and to sustain and enhance our market
position as an industry leader. Our current marketing efforts include various
sales and channel support programs designed to drive sales, and marketing
communication programs designed to increase industry visibility, including
press/analyst tours, trade shows and events, speaking engagements and ongoing
interaction with analysts and the media as well as targeted marketing programs.
Additional programs include technical seminars where customers and other
industry participants are educated in real-time IP communication technology and
the benefits of our products and technology. We also view our web site as an
important marketing tool for lead generation, customer relations and to support
our market position as the communication experts through quality content
including providing information related to issues relevant to the communication
industry, as well as important product and market trends.
To
reinforce and further strengthen our market position as a technology leader in
the field of real-time IP, 3G and visual communication, we actively participate
in key industry consortia and standards bodies. We are also active in defining
and reviewing evolving IP communication standards that are being developed by
international standards bodies including:
· |
the
ITU-T, which has published the H.323 and MEGACO standards;
|
· |
the
Internet Engineering Task Force, or IETF, which has published the SIP and
MEGACO standards; |
· |
CableLabs,
an organization of cable operators, which is currently working on defining
the MGCP standard; |
· |
IMTC,
a global organization to promote interoperable multimedia communication
solutions based on international standards;
and |
· |
We
regularly participate in IMTC-sponsored InterOP events, a vendor-neutral
forum where IMTC members test the interoperability of their
products. |
Customer
Care and Support
Our
ability to provide our customers with responsive and qualified customer care and
support services globally is essential to attract and retain customers, build
brand loyalty and maintain our leadership position in the market. We believe our
customer care and support organizational structure enables us to provide
superior technical support and customer service on a cost- and time-efficient
basis.
We
provide global customer care and support for our products and technology. Our
customer care and technical support teams are located in Tel Aviv, Israel; Fair
Lawn, New Jersey; Sunnyvale, California; Hong Kong and China and we recently
went to a 24 hour, seven day a week, 365 days a year schedule service program in
certain of our offices to better serve our networking customers who desire the
expanded service. We assist our networking customers with the initial
installation, set-up and training. In addition, our technical support team
trains and certifies our networking customers to provide local support in each
of the geographical areas in which our products are sold.
In
addition, customers who purchase our TBU software development kits generally
request that we provide them with ongoing engineering and technical support
services to integrate our technology into their products, although these
services are not essential for the use of our software development kits. Our
standard software development kit contract provides for one year of support
services, renewable annually at the customer's option. Customers who have
contracted for support services receive all relevant software updates and
enhancements as well as access to our customer care and technical support teams.
In 2003,
we launched our Professional Services Division which provides development
expertise to our TBU customers that might require not only our developer
solutions/toolkits but also our deep protocol experience and development skill.
In this case we work hand-in-hand with the customer throughout the entire
process, providing a full range of consulting, engineering and software
development services to support our customers in bringing innovative voice and
video products to market on time using the RADVISION ENSEMBLE suite of
developer toolkits and RADVISION’s protocol and development expertise. The
Professional Services team handles the complete project life-cycle from design,
throughout the product development, and even on-site deployment.
Intellectual
Property
We rely
on copyright, trademark and trade secret laws, confidentiality agreements and
other contractual arrangements with our customers, third-party distributors,
employees and others to protect our intellectual property.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products and technology or obtain and use information
that we regard as proprietary. Policing unauthorized use of our products and
technology is difficult. In addition, the laws of some foreign countries in
which we currently or may in the future sell products do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our intellectual property.
We rely
on certain technology that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. For example, we license T.120 data collaboration
software from Data Connection Limited and voice compression technology from
Siemens. If we are unable to continue to license any of this software on
commercially reasonable terms, we will face delays in releases of our products
or will be required to reduce the functionality of our products until equivalent
technology can be identified, licensed or developed, and integrated into our
current products.
Competition
We
compete in a new, rapidly evolving and highly competitive and fragmented market.
We expect competition to intensify in the future. We believe that the main
competitive factors in our market are time to market, product quality, features,
cost, technological performance, scalability, compliance with industry standards
and customer relationships.
The
principal competitors in the market for our products currently
include:
Networking
Products |
|
Software
development kits |
|
|
|
· Polycom Networks, a
division of |
|
· DynamicSoft Inc.
acquired by Cisco. |
Polycom
Inc., which was formerly |
|
|
known
as Accord Networks |
|
· Trillium Digital
Systems, acquired by |
|
|
Continuous
Computing. |
· Tandberg
|
|
|
|
|
· Hughes Software
Systems, acquired by |
· Codian Ltd.
|
|
Flextronix
Software Systems |
|
|
|
In
the 3G market: |
|
· DCL |
· Ericsson |
|
|
· Dilithium |
|
· Dilithium |
|
|
|
|
|
· In-house developers
employed by |
|
|
manufacturers of telecommunication |
|
|
equipment and systems |
Additional
competitors may enter any of our markets at any time.
Both
Vovida Networks, now part of Cisco Systems, Inc., and OpenH323 offer H.323
source code for free. In addition, Vovida offers MGCP and SIP source code for
free. If our customers choose to use the free source code offered by these
organizations instead of purchasing our technology, our revenues from the sale
of our software development kits will decline.
Manufacturing
Our
manufacturing operations consist of materials planning and procurement,
out-sourcing of sub-assemblies, final assembly, product assurance testing,
quality control and packaging and shipping. We assemble our products in a
subcontractor’s facilities in Israel and test our products at our facilities in
Tel Aviv, Israel. We test our products both during and after the assembly
process using internally developed product assurance testing procedures. We have
a flexible assembly process that enables us to configure our products at the
final assembly stage for customers who require that our products be modified to
bear their private label. This flexibility is designed to reduce our assembly
cycle time and reduce our need to maintain a large inventory of finished goods.
We use an enterprise resource planning, or ERP, system that we purchased from
BAAN Systems that we modified to our specific needs. This system allows us to
use just in time procurement and manufacturing procedures. We believe that the
efficiency of our assembly process to date is largely due to our product
architecture and our commitment to assembly process design. We manufacture our
software development kits on CD-ROMs and package and ship them accompanied
by relevant documentation.
As part
of our commitment to quality, we have been certified as an ISO 9001:2000
supplier. The ISO 9001:2000 standard defines the procedures required for the
R&D, Customer Support and manufacture of products with predictable and
stable performance and quality. We are continuously trying to improve our
quality based on the guidelines dictated by the ISO 9001:2000
standard.
We
currently obtain key components used in the manufacture of certain of our
products from a single supplier or from a limited number of suppliers. We do not
have long-term supply contracts with our suppliers. Any delays in delivery of or
shortages in these components could interrupt and delay manufacturing of our
products and result in the cancellation of orders for our products. In addition,
these suppliers could discontinue the manufacture or supply of these components
at any time. We may not be able to identify and integrate alternative sources of
supply in a timely fashion or at all. Any transition to alternate suppliers may
result in delays in shipment and increased expenses and may limit our ability to
deliver products to our customers. Furthermore, if we are unable to identify an
alternative source of supply, we would have to modify our products to use a
substitute component, which may cause delays in shipments, increased design and
manufacturing costs and increased prices for our products. To date, we have not
encountered any material interruptions in supply.
C. ORGANIZATIONAL
STRUCTURE
We have
six wholly-owned subsidiaries: RADVISION Inc., in the United States, RADVISION
(HK) Ltd. in Hong Kong, RADVISION (UK) Ltd. in the
United Kingdom, RADVISION Japan KK in Japan that are primarily engaged in the
selling and marketing of the Company's products and technology, RADVISION
Communication Development (Beijing) Co. Ltd. in China. that is primarily engaged
in research and development, and RADVISION B.V. in the Netherlands that is a
holding company.
Zohar
Zisapel our chairman and Yehuda Zisapel, our former director and chairman, are
principal shareholders of our company. Individually or together, they are also
directors and principal shareholders of several other companies which, together
with us and the other subsidiaries and affiliates, are known as the RAD-BYNET
group. In addition to engaging in other businesses, members of the RAD-BYNET
group are actively engaged in designing, manufacturing, marketing and supporting
data communication products, none of which currently compete with our products.
Some of the products of members of the RAD-BYNET group are complementary to, and
may be used in connection with, our products.
D. PROPERTY,
PLANTS AND EQUIPMENT
Facilities
Our
headquarters and principal administrative, finance, sales and marketing and
promotion operations are located in approximately 60,079 square feet of leased
office space in Tel Aviv, Israel at an approximate rental cost of $1,380,000 in
2004. The lease for our principal offices expires in June 2008. In the United
States, we lease approximately 11,640 square feet of office space in Fair Lawn,
New Jersey expiring in September 2007 and approximately 3,156 square feet in
Sunnyvale, California expiring in April 2007. We also lease approximately 2,651
square feet in Hong Kong expiring in May 2005, approximately 800 square feet in
the United Kingdom expiring in October 2005, approximately 6,500 square feet in
the China expiring in December 2006 and approximately 1,200 square feet in
Japan. The aggregate annual rent for our sales and service offices in the United
States, Hong Kong, China, Japan and the United Kingdom was approximately
$600,000 in 2004. We are also seeking facilities in New Hampshire for the
operation of the former FVC business which we purchased on March 15, 2005. We
expect to lease approximately 10,000 square feet in such location.
ITEM
5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING
RESULTS
The
following discussion of our results of operations should be read together with
our consolidated financial statements and the related notes, which appear
elsewhere in this annual report. The following discussion contains
forward-looking statements that reflect our current plans, estimates and beliefs
and involve risks and uncertainties. Our actual results may differ materially
from those discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include those discussed below and elsewhere in
this annual report.
All of
our revenues are generated in U.S. dollars or are linked to the dollar and a
majority of our expenses are incurred in U.S. dollars. Consequently, we use the
dollar as our functional currency. Transactions and balances in other currencies
are re-measured into dollars according to the principles in Financial Accounting
Standards Board Statement No. 52. Gains and losses arising from
re-measurement are reflected in the statements of operations as financial income
or expenses as appropriate.
Overview
We are a
leading designer, developer and supplier of products and technology that enable
real-time voice, video and data communication over packet networks, including
the Internet and other IP networks. We were incorporated in January 1992,
commenced operations in October 1992 and commenced sales of our products in the
fourth quarter of 1994. Before that time, our operations consisted primarily of
research and development and recruiting personnel. In 1995, we established a
wholly owned subsidiary in the United States, RADVISION Inc., which
conducts our sales and marketing activities in North America. We currently have
sales offices in the United States and Israel and marketing, representative and
liaison offices in Brazil, China, Hong Kong, India, Japan, Korea and the United
Kingdom.
Restatement
of Previously-Issued Financial Statements
As
described in Note 13 to the financial statements, in January 2001, we entered
into a lease agreement with related parties for a period of five years.
Subsequently, our company surrendered the property before inception of the
lease. The parties to the lease agreement disputed the extent of damages caused
by this action and agreed to proceed to binding arbitration. The presiding
arbitrator issued his ruling on February 12, 2004, stating the amount we owed
was $400,000. We had previously accrued a liability of $1,461,000 in respect of
the aforementioned dispute.
Prior to
the issuance of the arbitration ruling, we had announced our 2003 financial
results, but had not yet filed our Annual Report on Form 10-K for the year ended
December 31, 2003.
In our
2003 audited financial statements that were included in our Annual Report on
Form 10-K for the year ended December 31, 2003 the arbitration ruling was
treated as a “Type II” event, as defined in AU 560 of the Public Company
Accounting Oversight Board auditing standards, or AU 560, and accordingly
full disclosure concerning the event was provided in the 2003 audited financial
statements while no revision was made to the $1,461,000 accrual. In our
Quarterly Report on Form 10-Q for the period ended March 31, 2004 we recorded
$1,061,000 as restructuring income, representing the surplus of our accruals
that we had made in prior periods for this litigation.
In the
process of preparing our financial statements for the year ended December 31,
2004, the accounting treatment relating to this event was reconsidered and
consequently it was concluded that the arbitration ruling issued on February 14,
2004 represented a “Type I” event according to AU 560, due to the fact that
the ruling, which became available subsequent to the period covered by the 2003
financial statements, but before issuance of such financial statements, provided
additional evidence with respect to conditions that existed on December 31, 2003
and affected estimates used in preparing the 2003 financial statements.
Consequently, the estimated provision relating to the dispute is being revised
from $1,461,000 to $400,000 in the 2003 fiscal year and our financial statements
for the year ended December 31, 2003 are being restated accordingly.
As a
result of this restatement, we recorded restructuring income of $1,061,000 in
the 2003 fiscal year, resulting in increased net income and decreased accrued
expenses in that amount.
The
impact of the aforementioned restatement with respect to the financial
statements as of December 31, 2003 and for the year then ended, and as of March
31, 2004 and for the period then ended, is
summarized below:
Statement
of Operations Data:
|
|
For
the Year ended December 31, 2003 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Restructuring
income |
|
$ |
- |
|
$ |
1,061 |
|
$ |
1,061 |
|
Operating
income |
|
|
1,371 |
|
|
1,061 |
|
|
2,432 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
3,501 |
|
|
1,061 |
|
|
4,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per ordinary share |
|
$ |
0.19 |
|
$ |
0.05 |
|
$ |
0.24 |
|
Basic
and diluted net loss per share |
|
$ |
0.18 |
|
$ |
0.05 |
|
$ |
0.23 |
|
|
|
For
the three months ended March 31, 2004 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Restructuring
income |
|
$ |
1,061 |
|
$ |
1,061 |
|
$ |
- |
|
Operating
income |
|
|
1,368 |
|
|
1,061 |
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
1,780 |
|
|
1,061 |
|
|
719 1,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per ordinary share |
|
$ |
0.09 |
|
$ |
0.05 |
|
$ |
0.04 |
|
Basic
and diluted net loss per share |
|
$ |
0.08 |
|
$ |
0.05 |
|
$ |
0.03 |
|
Balance
sheet data:
|
|
As
of December 31, 2003 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Other
accounts payable and accrued expenses |
|
$ |
13,101 |
|
$ |
(1,061 |
) |
$ |
12,040 |
|
Total
current liabilities |
|
|
20,418 |
|
|
(1,061 |
) |
|
19,357 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit |
|
|
(6,534 |
) |
|
1,061 |
|
|
(5,473 |
) |
Total
stockholders’ equity |
|
|
93,241 |
|
|
1,061 |
|
|
94,302 |
|
|
|
As
of March 31, 2004 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Other
accounts payable and accrued expenses |
|
$ |
9,830 |
|
$ |
(1,061 |
) |
$ |
8,769 |
|
Total
current liabilities |
|
|
20,373 |
|
|
(1,061 |
) |
|
19,312 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit |
|
|
(5,130 |
) |
|
(1,061 |
) |
|
(6,191 |
) |
Total
stockholders’ equity |
|
|
96,400 |
|
|
(1,061 |
) |
|
95,339 |
|
Cash
flow data:
|
|
For
the Year ended December 31, 2003 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Net
income |
|
$ |
3,501 |
|
$ |
1,061 |
|
$ |
4,562 |
|
Restructuring
income |
|
|
- |
|
|
(1,061 |
) |
|
(1,061 |
) |
Net
cash provided from operating activities |
|
$ |
9,053 |
|
$ |
- |
|
$ |
9,053 |
|
|
|
For
the three months ended March 31, 2004 |
|
|
|
Previously
Reported |
|
Adjustment |
|
As
Restated |
|
Net
income |
|
$ |
1,780 |
|
$ |
1,061 |
|
$ |
719 |
|
Restructuring
income |
|
|
1,061 |
|
|
(1,061 |
) |
|
- |
|
Net
cash provided from operating activities |
|
$ |
2,413 |
|
$ |
- |
|
$ |
2,413 |
|
Critical
Accounting Policies
We have
identified the following policies as critical to the understanding of our
financial statements. The preparation of our financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of sales and
expenses during the reporting periods. Areas where significant judgments are
made include, but are not limited to, inventory valuation, intangible assets,
warranty, accruals revenue recognition and income tax valuation allowance.
Actual results could differ materially from these estimates. Our consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States.
Revenue
Recognition. We
account for our revenue in accordance with the provisions of SOP 97-2, “Software
Revenue Recognition,” issued by the American Institute of Certified Public
Accountants and as amended by SOP 98-4 and SOP 98-9 and related interpretations.
We exercise judgment and use estimates in connection with the determination of
the amount of product software license and services revenues to be recognized in
each accounting period. We assess whether collection is probable at the time of
the transaction based on a number of factors, including the customer’s past
transaction history and credit worthiness. If we determine that the collection
of the fee is not probable, we defer the fee and recognize revenue at the time
collection becomes probable, which is generally upon the receipt of
cash.
Allowances
for Doubtful Accounts. We
perform ongoing credit evaluations of our customers’ financial condition and we
require collateral as deemed necessary. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make payments. In judging the adequacy of the allowance for doubtful accounts,
we consider multiple factors including the aging of our receivables, historical
bad debt experience and the general economic environment. Management applies
considerable judgment in assessing the realization of receivables, including
assessing the probability of collection and the current creditworthiness of each
customer. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventories.
Inventories are stated at the lower of cost or market. Cost is determined by the
moving average method. We write down obsolete or slow moving inventory in an
amount equal to the difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than we anticipate, additional
inventory write-downs may be required.
Warranty
Reserves. Upon
shipment of products to our customers, we provide for the estimated cost to
repair or replace products that may be returned under warranty. Our warranty
period is typically 12 months from the date of shipment to the end user
customer. For existing products, the reserve is estimated based on actual
historical experience. For new products, the warranty reserve is based on
historical experience of similar products until such time as sufficient
historical data has been collected on the new product. Factors that may impact
our warranty costs in the future include our reliance on our contract
manufacturer to provide quality products and the fact that our products are
complex and may contain undetected defects, errors or failures in either the
hardware or the software.
Intangible
assets
Intangible assets are amortized over their useful life using a method of
amortization that reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up, in accordance with SFAS No.
142.
The
determination of the value of such intangible assets requires us to make
assumptions regarding future business conditions and operating results in order
to estimate future cash flows and other factors to determine the fair value of
the respective assets. If these estimates or the related assumptions change in
the future, we could be required to record impairment charges.
Tax
Valuation Allowance.
Estimates
and judgments are required in the calculation of certain tax liabilities and in
the determination of the recoverability of certain of the deferred tax assets,
which arise from net operating losses, tax carryforwards and temporary
differences between the tax and financial statement recognition of revenue and
expense. SFAS No. 109, “Accounting for Income Taxes”, also requires that the
deferred tax assets be reduced by a valuation allowance, if based on the weight
of available evidence, it is more likely than not that some portion or all of
the recorded deferred tax assets will not be realized in future periods.
In
evaluating our ability to recover our deferred tax assets, in full or in part,
we consider all available positive and negative evidence including our past
operating results, the existence of cumulative losses in the most recent fiscal
years and our forecast of future taxable income on a jurisdiction by
jurisdiction basis. In determining future taxable income, we are responsible for
assumptions utilized, including the amount of Israel and international pre-tax
operating income, the reversal of temporary differences and the implementation
of feasible and prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable income and are
consistent with the plans and estimates we use to manage the underlying
businesses.
Based on
estimates of future taxable profits and losses in certain foreign tax
jurisdictions, we determined that a valuation allowance of $4.7 million was
required for specific tax loss carryforwards as of December 31, 2004. If these
estimates prove inaccurate, a change in the valuation allowance could be
required in the future.
Revenues
We
generate revenues from sales of our networking products that are primarily sold
in the form of stand-alone products, and our technology products that are
primarily sold in the form of software development kits, as well as related
maintenance and support services. Revenues generated from maintenance and
support services are deferred and recognized ratably over the period of the term
of service. We price our networking products on a per unit basis, and grant
discounts based upon unit volumes. We price our software development kits on the
basis of a fixed-fee plus royalties from products developed using the software
development kits. We sell our products and technology through direct sales and
various indirect distribution channels in North America, Europe, the Middle East
and Far East. For the year ended December 31, 2004, approximately
52.4% of our
revenues were generated in the United States.
Significant
Expenses
Cost
of Revenues Our cost
of revenues consists of component and material costs, direct labor costs,
subcontractor fees, overhead related to manufacturing and depreciation of
manufacturing equipment. Our gross margin is affected by the selling prices for
our products as well as the proportion of our revenues generated from the sale
of our technology products as compared to our networking products. Our revenues
from the sale of our technology products have higher gross margins than our
revenues from the sale of our networking products and we offer greater discounts
to our high volume OEM customers. As the relative proportion of our revenues
from our networking products increases as a percentage of our total revenues and
we generate a higher percentage of our revenues from sales to our high volume
OEM customers, our gross margins will decline.
Research
and development expenses. Our
research and development expenses consist primarily of compensation and related
costs for research and development personnel, expenses for testing facilities
and depreciation of equipment.
Research
and development costs, net are charged to operations as incurred. Software
development costs are considered for capitalization when technological
feasibility is established according to SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed." Costs incurred
after achievement of technological feasibility in the process of software
production have not been material. Therefore, we have not capitalized any of our
research and development expenses.
Historically
our research and development expenses were presented net of payments received
from the Office of the Chief Scientist of Israeli Ministry of Industry and
Trade, or the Chief Scientist. In 2000 we voluntarily repaid approximately $3.7
million in future royalty payments to the Chief Scientist and discontinued our
relationship with the Chief Scientist in order to reduce certain restrictions on
our business and to avoid paying increased interest rates in the future on
royalty payments. We expect to continue to make substantial investments in
research and development.
Marketing
and selling expenses. Our
marketing and selling expenses consist primarily of compensation and related
costs for sales personnel, marketing personnel, sales commissions, marketing
programs, public relations, promotional materials, travel expenses and trade
show exhibit expenses.
General
and administrative expenses. Our
general and administrative expenses consist primarily of salaries and related
expenses for executive, accounting and human resources personnel, professional
fees, provisions for doubtful accounts and other general corporate expenses.
Operating
expenses also include amortization of stock-based compensation, which is
allocated among research and development expenses, marketing and selling
expenses and general and administrative expenses based on the division in which
the recipient of the option grant is employed. Amortization of stock-based
compensation results from the granting of options to employees with exercise
prices per share determined to be below the fair market value per share of our
ordinary shares on the dates of grant. The stock-based compensation is being
amortized to operating expenses over the vesting period of the individual
options.
Financial
income, net. Our
financial income consists primarily of interest earned on bank deposits and
other liquid investments, gains and losses from the re-measurement of monetary
balance sheet items denominated in non-dollar currencies into
dollars.
Results
of Operations
The
following discussion of our results of operations for the years ended December
31, 2002, 2003 and 2004, including the percentage data in the following table,
is based upon our statements of income contained in our financial statements for
those periods, and the related notes, included in this annual
report:
|
|
Year
Ended December 31, |
|
|
|
2002 |
|
2003* |
|
2004 |
|
Revenues |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
22.3 |
|
|
22.1 |
|
|
20.4 |
|
Research
and development |
|
|
31.2 |
|
|
28.4 |
|
|
27.3 |
|
Marketing
and selling |
|
|
37.9 |
|
|
38.9 |
|
|
38.3 |
|
General
and administrative |
|
|
8.4 |
|
|
7.9 |
|
|
7.6 |
|
Restructuring
income |
|
|
- |
|
|
(2.1 |
) |
|
- |
|
Total
operating expenses |
|
|
99.8 |
|
|
95.2 |
|
|
93.6 |
|
Operating
income |
|
|
0.2 |
|
|
4.8 |
|
|
6.4 |
|
Financial
income, net |
|
|
5.4 |
|
|
4.1 |
|
|
2.9 |
|
Net
income |
|
|
5.6 |
% |
|
8.9 |
% |
|
9.3 |
% |
*
Restated (see Note 1.b. to our consolidated financial statements).
Year
Ended December 31, 2004 Compared with Year Ended December 31,
2003
Revenues.
Revenues increased 25.1% from $51.3 million for the year ended December 31, 2003
to $64.2 million for the year ended December 31, 2004. This increase was due to
increased sales of both our technology and networking products. Revenues from
networking products increased 17.6% from $38.1 million for the year ended
December 31, 2003, to $44.8 million for the year ended December 31, 2004.
The
increase in revenues from networking products was attributable to a $4.9 million
increase in networking products from approximately $35.3 million in 2003, to
approximately $40.2 million in 2004, and a
$1.8
million increase
in maintenance revenues.
Revenues
from technology products increased 47.0% from $13.2 million for the year ended
December 31, 2003 to $19.4 million for the year ended December 31, 2004.
The increase in revenues from technology products was attributable to a $3.1
million increase in software license fees from approximately $5.2 million in
2003 to approximately $8.3 million in 2004, a $1.4 million increase in royalty
revenue, a $1 million increase in
research and development services by our Professional Services Division, which
we began to offer in the first quarter of 2003 and a $700,000 increase in
maintenance revenues.
Revenue
from sales to customers in North America increased from $23.7 million, or 46.2%
of revenue, for the year ended December 31, 2003, to $32.6 million, or 50.7% of
revenue, for the year ended December 31, 2004, an increase of $8.9 million, or
37.6%. Revenue from sales to customers in Europe increased from $11.2 million,
or 21.8% of revenue, for the year ended December 31, 2003, to $15.6 million,
or 24.2% of revenue, for the year ended December 31, 2004, an increase of $4.4
million, or 39.3%. This increase in sales to customers in Europe was primarily
attributable to increased
market demand for our products and increased sales efforts in
Europe. Revenue from sales to customers in the Far East decreased from $12.7
million, or 24.8% of revenue, for the year ended December 31, 2003, to $11.7
million, or 18.2% of revenue, for the year ended December 31, 2004, a decrease
of $1 million,
or 7.9%. This decrease in sales was primarily attributable to a decrease
in market demand in this region and the reorganization of our sales force in the
region. Revenue
from sales to customers in Israel increased from $3.0 million, or 5.8% of
revenue, for the year ended December 31, 2003, to $3.3 million, or 5.1% of
revenue, for the year ended December 31, 2004, an increase of $300,000, or
10.0%. This increase in sales to customers in Israel was primarily attributable
to increased sales efforts for our networking products.
Cost
of Revenues. Cost of
revenues increased from $11.4 million for the year ended December 31, 2003 to
$13.1 million for the year ended December 31, 2004, an increase of $1.7 million,
or 14.9%. Gross profit as a percentage of revenues increased from 77.9% for the
year ended December 31, 2003 to 79.6% for the year ended December 31, 2004. The
increase in gross profit margin resulted from increase in revenues volume,
higher percentage of sales of technology revenues products and mix of networking
products.
Research
and Development. Research
and development expenses increased from $14.6 million for the year ended
December 31, 2003 to $17.5 million for the year ended December 31, 2004, an
increase of $2.9 million, or 19.9%. We hired additional research and development
personnel in 2004 consistent with the scope of our research and development
programs. Research and development expenses as a percentage of revenues
decreased from 28.4% for the year ended December 31, 2003 to 27.3% for the year
ended December 31, 2004.
Marketing
and Selling.
Marketing and selling expenses increased from $20.0 million for the year ended
December 31, 2003 to $24.6 million for the year ended December 31, 2004, an
increase of $4.6 million, or 23.0%. Marketing and selling expenses as a
percentage of revenues decreased from 38.9% for the year ended December 31, 2003
to 38.3% for the year ended December 31, 2004.
General
and Administrative. General
and administrative expenses increased from $4.0 million for the year ended
December 31, 2003 to $4.9 million for the year ended December 31, 2004, an
increase of $900,000, or 22.5%. This increase was primarily attributable to an
increase in labor and associated costs. General and administrative expenses as a
percentage of revenues decreased from 7.9% for the year ended December 31, 2003
to 7.6% for the year ended December 31, 2004.
Restructuring
Income. As a
result of the resolution in February 2004 of the pending litigation relating to
our early surrender of an office lease in Paramus, New Jersey we recorded
restructuring income of $1,061,000 in the year ended December 31, 2003. This
income represents the surplus of the accruals we had made in prior periods with
respect to the litigation. We did not have any restructuring income in the year
ended December 31, 2004.
Financial
Income, Net. Financial
income decreased from $2.1 million for the year ended December 31, 2003 to $1.9
million for the year ended December 31, 2004, principally as a result of lower
interest rates.
Year
Ended December 31, 2003 Compared With Year Ended December 31,
2002
Revenues.
Revenues increased 4.5% from $49.1 million for the year ended December 31, 2002
to $51.3 million for the year ended December 31, 2003. This increase was due to
increased sales of networking products. Revenues from networking products
increased 4.7% from $36.3 million for the year ended December 31, 2002 to $38.1
million for the year ended December 31, 2003. The increase in revenue from
networking products is attributable to an increase in demand for these units as
customers moved from integrated services digital networks, or ISDN, to IP-based
networks. Revenues from technology products increased 3.1% from $12.8 million
for the year ended December 31, 2002 to $13.2 million for the year ended
December 31, 2003. This slight increase in revenues from technology products was
primarily attributable to approximately
$866,000 in research and development services by our Professional Services
Division, which we began to offer in the first quarter of 2003.
Revenue
from sales to customers in the United States decreased from $24.6 million, or
50.1% of revenue, for the year ended December 31, 2002, to $23.7 million, or
46.2% of revenue, for the year ended December 31, 2003, a decrease of $900,000,
or 3.7%. Revenue from sales to customers in Europe decreased from $12.0 million,
or 24.5% of revenue, for the year ended December 31, 2002, to $11.2 million,
or 21.8% of revenue, for the year ended December 31, 2003, a decrease of
$800,000, or 6.7%. This decrease in sales to customers in Europe was primarily
attributable to the ongoing softness in enterprise spending in Europe. Revenue
from sales to customers in the Far East increased from $10.2 million, or 20.8%
of revenue, for the year ended December 31, 2002, to $12.7 million, or 24.8% of
revenue, for the year ended December 31, 2003, an increase of $2.5 million,
or 24.5%. This increase in sales to customers in this region was primarily
attributable to increased sales efforts for our networking products.
Revenue
from sales to customers in Israel increased from $2.3 million, or 4.6% of
revenue, for the year ended December 31, 2002, to $3.0 million, or 5.8% of
revenue, for the year ended December 31, 2003, an increase of $700,000, or
30.4%. This increase in sales to customers in Israel was primarily attributable
to increased sales efforts for our networking products.
Cost
of Revenues. Cost of
revenues increased from $10.9 million for the year ended December 31, 2002 to
$11.4 million for the year ended December 31, 2003, an increase of $500,000, or
4.6%. Gross
profit as a percentage of revenues increased from 77.7% for the year ended
December 31, 2002 to 77.9% for the year ended December 31, 2003.
Research
and Development. Research
and development expenses decreased from $15.3 million for the year ended
December 31, 2002 to $14.6 million for the year ended December 31, 2003, a
decrease of $700,000, or 4.6%. We have decreased our research and development
personnel consistent with the scope of our research and development programs.
Research and development expenses as a percentage of revenues decreased from
31.2% for the year ended December 31, 2002 to 28.4% for the year ended December
31, 2003.
Marketing
and Selling.
Marketing and selling expenses increased from $18.6 million for the year ended
December 31, 2002 to $20.0 million for the year ended December 31, 2003, an
increase of $1.4 million, or 7.5%. Marketing and selling expenses as a
percentage of revenues increased from 37.9% for the year ended December 31, 2002
to 38.9% for the year ended December 31, 2003. The increase in Marketing and
selling is due to our efforts in penetrating on new markets.
General
and Administrative. General
and administrative expenses decreased from $4.1 million for the year ended
December 31, 2002 to $4.0 million for the year ended December 31, 2003, a
decrease of $100,000, or 2.4%. This decrease was primarily attributable to a
decrease in personnel expenses. General and administrative expenses as a
percentage of revenues decreased from 8.4% for the year ended December 31, 2002
to 7.9% for the year ended December 31, 2003.
Restructuring
Income. As a
result of the resolution in February 2004 of the pending litigation relating to
our early surrender of an office lease in Paramus, New Jersey we recorded
restructuring income of $1,061,000 in the year ended December 31, 2003. This
income represents the surplus of the accruals we had made in prior periods with
respect to the litigation. We did not have any restructuring income in the year
ended December 31, 2002.
Financial
Income, Net. Financial
income decreased from $2.7 million for the year ended December 31, 2002 to $2.1
million for the year ended December 31, 2003 principally as a result of lower
interest rates.
Consolidated
Balance Sheet Data
Trade
Receivables. Trade
receivables increased from $8.7
million at December 31, 2003 to $10.1 million
at December 31, 2004, an increase of $1.4 million, or 16.1%. This increase was
primarily attributable to increased revenues in the fourth quarter of 2004
compared to the fourth quarter of 2003.
Allowance
for Doubtful Accounts.
Allowance for doubtful accounts decreased from $1.7 million at December 31,
2003 to $1.3 million at December 31, 2004, a decrease of $400,000, or 23.5%
Allowance for doubtful accounts as the percentage of trade receivables decreased
from 19.5% as of December 31, 2003 to 12.9% as of December 31,
2004.
Other
Receivables and Prepaid Expenses. Other
receivables and prepaid expenses increased from $2.7 million at December 31,
2003 to $3.9 million at December 31, 2004, an increase of $1.2 million, or
44.4%. This increase was primarily attributable to prepayment of rent expenses
for 2005.
Inventories.
Inventories increased from $1.0 million at December 31, 2003 to $1.2 million at
December 31, 2004, an increase of $200,000, or 20.0%. Our inventory levels
remain relatively low in 2004 as measured by our increased level of sales and
the number of inventory days outstanding, which were about 35 days at December
31, 2004.
Trade
Payables. Trade
payables increased from $ 1.3 million at December 31, 2003 to $1.9 million
at December 31, 2004, a increase of $600,000, or 46.2%.
Other
Payables, Accrued Expenses and Deferred Revenues. Other
payables and accrued expenses increased from $18.1 million at
December 31, 2003 to $19.5 million at December 31, 2004, an increase of
$1.4 million or 7.7%. This increase was primarily attributable to an increase in
deferred income that will be recognized in the future upon our providing
maintenance services.
Quarterly
Results of Operations
The
following tables present consolidated statements of operations data for each of
the eight fiscal quarters ended December 31, 2004, in dollars and as a
percentage of revenues. In management's opinion, this unaudited information has
been prepared on the same basis as our audited consolidated financial statements
and includes all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the unaudited information for the quarters
presented. The results of operations for any quarter are not necessarily
indicative of results that we might achieve for any subsequent
periods.
|
|
Mar.
31, 2003 |
|
June
30, 2003 |
|
Sept.
30, 2003 |
|
Dec.
31, 2003* |
|
Mar.
31, 2004* |
|
June
30, 2004 |
|
Sept.
30, 2004 |
|
Dec.
31, 2004 |
|
Revenues |
|
$ |
11,053 |
|
$ |
11,605 |
|
$ |
13,080 |
|
$ |
15,566 |
|
$ |
14,261 |
|
$ |
15,705 |
|
$ |
16,708 |
|
$ |
17,562 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
2,360 |
|
|
2,598 |
|
|
2,932 |
|
|
3,461 |
|
|
3,097 |
|
|
3,398 |
|
|
3,426 |
|
|
3,187 |
|
Research
and development |
|
|
3,564 |
|
|
3,596 |
|
|
3,693 |
|
|
3,720 |
|
|
3,780 |
|
|
4,282 |
|
|
4,883 |
|
|
4,539 |
|
Marketing
and selling |
|
|
4,732 |
|
|
4,853 |
|
|
5,023 |
|
|
5,361 |
|
|
5,837 |
|
|
6,127 |
|
|
6,305 |
|
|
6,351 |
|
General
and administrative |
|
|
948 |
|
|
976 |
|
|
1,020 |
|
|
1,096 |
|
|
1,240 |
|
|
1,210 |
|
|
1,213 |
|
|
1,237 |
|
Restructuring
income |
|
|
- |
|
|
- |
|
|
- |
|
|
(1,061 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Operating
income |
|
|
(551 |
) |
|
(418 |
) |
|
412 |
|
|
2,989 |
|
|
307 |
|
|
688 |
|
|
881 |
|
|
2,248 |
|
Financial
income, net |
|
|
566 |
|
|
560 |
|
|
500 |
|
|
504 |
|
|
412 |
|
|
432 |
|
|
500 |
|
|
516 |
|
Net
income |
|
$ |
15 |
|
$ |
142 |
|
$ |
912 |
|
$ |
3,493 |
|
$ |
719 |
|
$ |
1,120 |
|
$ |
1,381 |
|
$ |
2,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a percentage of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
21 |
|
|
22 |
|
|
22 |
|
|
22 |
|
|
22 |
|
|
22 |
|
|
21 |
|
|
18 |
|
Research
and development |
|
|
32 |
|
|
31 |
|
|
28 |
|
|
24 |
|
|
26 |
|
|
27 |
|
|
29 |
|
|
26 |
|
Marketing
and selling |
|
|
43 |
|
|
42 |
|
|
38 |
|
|
34 |
|
|
41 |
|
|
39 |
|
|
38 |
|
|
36 |
|
General
and administrative |
|
|
9 |
|
|
8 |
|
|
8 |
|
|
7 |
|
|
9 |
|
|
8 |
|
|
7 |
|
|
7 |
|
Restructuring
income |
|
|
- |
|
|
- |
|
|
- |
|
|
(7 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Operating
income |
|
|
(5 |
) |
|
(4 |
) |
|
3 |
|
|
20 |
|
|
2 |
|
|
4 |
|
|
5 |
|
|
13 |
|
Financial
income, net |
|
|
5 |
|
|
5 |
|
|
4 |
|
|
3 |
|
|
3 |
|
|
3 |
|
|
3 |
|
|
3 |
|
Net
income |
|
|
0 |
% |
|
1 |
% |
|
7 |
% |
|
23 |
% |
|
5 |
% |
|
7 |
% |
|
8 |
% |
|
16 |
% |
*
Restated (see Note 1.b. to our consolidated financial
statements).
We expect
our operating results to fluctuate significantly in the future as a result of
various factors, many of which are outside our control. Consequently, we believe
that period-to-period comparisons of our operating results may not necessarily
be meaningful and, as a result, you should not rely on them as an indication of
future performance.
Conditions
in Israel
We are
incorporated under the laws of, and our principal executive offices and
manufacturing and research and development facilities are located in, the State
of Israel. Accordingly, we are directly affected by political, economic and
military conditions in Israel. Specifically, we could be adversely affected by
any major hostilities involving Israel, a full or partial mobilization of the
reserve forces of the Israeli army, the interruption or curtailment of trade
between Israel and its present trading partners, and a significant downturn in
the economic or financial condition of Israel.
Political
Conditions
Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors, and a state of hostility,
varying from time to time in intensity and degree, has led to security and
economic problems for Israel. Since September 2000, there has been a marked
increase in violence, civil unrest and hostility, including armed clashes,
between the State of Israel and the Palestinians, and acts of terror have been
committed inside Israel and against Israeli targets in the West
Bank
and Gaza.
There is no indication as to how long the current hostilities will last or
whether there will be any further escalation. Any further escalation in these
hostilities or any future armed conflict, political instability or violence in
the region may have a negative effect on our business condition, harm our
results of operations and adversely affect our share price. Furthermore, there
are a number of countries that restrict business with Israel or Israeli
companies. Restrictive laws or policies of those countries directed towards
Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business. No predictions can be made
as to whether or when a final resolution of the area’s problems will be achieved
or the nature thereof and to what extent the situation will impact Israel’s
economic development or our operations.
In
addition, some of our directors, executive officers and employees in Israel are
obligated to annual reserve duty in the Israeli Defense Forces and are may be
called for active duty under emergency circumstances at any time. If a military
conflict or war arises, these individuals could be required to serve in the
military for extended periods of time. Our operations could be disrupted by the
absence for a significant period of one or more of our executive officers or key
employees or a significant number of other employees due to military service.
Any disruption in our operations could adversely affect our
business.
To date,
no executive officer or key employee has been recruited for military service for
any significant time period. Any further deterioration of the hostilities
between Israel and the Palestinian Authority into a full-scale conflict might
require more significant military reserve service by some of our employees,
which may have a material adverse effect on our business.
Economic
Conditions
In recent
years Israel has been going through a period of recession in economic activity,
resulting in low growth rates and growing unemployment. Our operations could be
adversely affected if the economic conditions in Israel continue to deteriorate.
In addition, due to significant economic measures proposed by the Israeli
Government, there have been several general strikes and work stoppages in 2003
and 2004, affecting all banks, airports and ports. These strikes have had an
adverse effect on the Israeli economy and on business, including our ability to
deliver products to our customers. Following the passing by the Israeli
Parliament of laws to implement the economic measures, the Israeli trade unions
have threatened further strikes or work-stoppages, and these may have a material
adverse effect on the Israeli economy and on us.
Trade
Relations
Israel is
a member of the United Nations, the International Monetary Fund, the
International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a member of the World Trade Organization and is a
signatory to the General Agreement on Tariffs and Trade. In addition, Israel has
been granted preferences under the Generalized System of Preferences from the
United States, Australia, Canada and Japan. These preferences allow Israel to
export the products covered by such programs either duty-free or at reduced
tariffs.
Israel
and the European Union Community, known now as the "European Union," concluded a
Free Trade Agreement in July 1975 that confers some advantages with respect to
Israeli exports to most European countries and obligates Israel to lower its
tariffs with respect to imports from these countries over a number of years. In
1985, Israel and the United States entered into an agreement to establish a Free
Trade Area. The Free Trade Area has eliminated all tariff and some non-tariff
barriers on most trade between the two countries. On January 1, 1993, an
agreement between Israel and the European Free Trade Association, known as the
"EFTA," established a free-trade zone between Israel and the EFTA nations. In
November 1995, Israel entered into a new agreement with the European Union,
which includes a redefinition of rules of origin and other improvements, such as
allowing Israel to become a member of the Research and Technology programs of
the European Union. In recent years, Israel has established commercial and trade
relations with a number of other nations, including Russia, China, India, Turkey
and other nations in Eastern Europe and Asia.
Impact
of Currency Fluctuation and of Inflation
The
dollar cost of our operations is influenced by the extent to which any inflation
in Israel is offset on a lagging basis, or is not offset by the devaluation of
the NIS in relation to the dollar. When the rate of inflation in Israel exceeds
the rate of devaluation of the NIS against the dollar, companies experience
increases in the dollar cost of their operations in Israel. Unless offset by a
devaluation of the NIS, inflation in Israel will have a negative effect on our
profitability as we receive payment in dollars or dollar-linked NIS for all of
our sales while we incur a portion of our expenses, principally salaries and
related personnel expenses, in NIS.
The
following table presents information about the rate of inflation in Israel, the
rate of devaluation of the NIS against the U.S. dollar, and the rate of
inflation of Israel adjusted for the devaluation:
Year
ended December
31, |
|
Israeli
inflation rate % |
|
Israeli
devaluation rate % |
|
Israeli
inflation adjusted for devaluation % |
|
|
|
|
|
|
|
|
|
2000 |
|
|
0.0 |
|
|
(2.7) |
|
|
2.8 |
|
2001 |
|
|
1.4 |
|
|
9.3 |
|
|
(7.8) |
|
2002 |
|
|
6.5 |
|
|
7.3 |
|
|
(0.7
) |
|
2003 |
|
|
(1.9) |
|
|
(7.6) |
|
|
6.1 |
|
2004 |
|
|
1.2 |
|
|
(1.6) |
|
|
(0.4) |
|
We cannot
assure you that we will not be materially and adversely affected in the future
if inflation in Israel exceeds the devaluation of the NIS against the dollar or
if the timing of the devaluation lags behind inflation in Israel.
A
devaluation of the NIS in relation to the dollar has the effect of reducing the
dollar amount of any of our expenses or liabilities which are payable in NIS,
unless these expenses or payables are linked to the dollar. This devaluation
also has the effect of decreasing the dollar value of any asset which consists
of NIS or receivables payable in NIS, unless the receivables are linked to the
dollar. Conversely, any increase in the value of the NIS in relation to the
dollar has the effect of increasing the dollar value of any unlinked NIS assets
and the dollar amounts of any unlinked NIS liabilities and expenses.
Because
exchange rates between the NIS and the dollar fluctuate continuously, with a
historically declining trend in the value of the NIS, exchange rate fluctuations
and especially larger periodic devaluations will have an impact on our
profitability and period-to-period comparisons of our results. The effects of
foreign currency re-measurements are reported in our consolidated financial
statements in current operations.
B. LIQUIDITY
AND CAPITAL RESOURCES
From our
inception until our initial public offering in March 2000, we financed our
operations through cash generated by operations and a combination of private
placements of our share capital and borrowings under lines of credit. Through
December 31, 1999, we raised a total of approximately $12.2 million in
aggregate net proceeds in four private placements. In March 2000, we sold
4,370,000 of our ordinary shares in an initial public offering and 590,822
ordinary shares in a private placement to Samsung Venture Investment
Corporation, a member of the Samsung group, and Siemens Aktiengesellschraft. We
received net proceeds of $89.2 million from the public offering and private
placement.
As of
December 31, 2004, we had approximately $20.2 million
in cash and cash equivalents, $51.4 million
in short term investments and our working capital was approximately
$65.4 million.
Taking into account long-term liquid investments, we had approximately $110.4
million in cash and liquid investments as of December 31, 2004.
Another
financial measure that our management believes is important in assessing our
company’s financial condition is day’s sales outstanding, or DSOs. In 2004, our
DSOs were 51 days
at December 31, 2003 vs. 52 days at December 31, 2004.
Capital
expenditures for the years ended December 31, 2002, 2003 and 2004 were
approximately $1.7 million, $1.3 million and $2.3 million, respectively.
These expenditures were principally for research and development equipment,
office furniture and equipment and leasehold improvements. We currently do not
have significant capital spending or purchase commitments, but we expect to
continue to engage in capital spending consistent with anticipated growth in our
operations, infrastructure and personnel. Net cash provided by operating
activities was approximately $9.6 million for the
year ended December 31, 2004. This amount was primarily attributable to net
income of $6.0 million, an increase of $1.5 million in deferred revenues, an
increase of $700,000 in trade payables and increase in deprecation and
amortization expenses of $2.5 million. The increase in cash provided by
operating activities was offset in part by a increase in accounts receivables of
$1.4 million and an increase in other accounts receivable and prepaid expenses
of $700,000.
Net cash
used in investing activities was approximately $11.9 million for the year ended
December 31, 2004. For the year ended December 31, 2004, $52.4 million
of cash provided by investing activities were from sales of bank deposits and
marketable securities and $60.6 million were invested in bank deposits and
marketable securities. During the year ended December 31, 2004, $2.3 million
of cash used in investing activities was for purchases of property and
equipment.
On
February 28, 2001, we announced that our board of directors authorized the
repurchase of up to 10% of our outstanding shares in open market transactions at
prevailing market prices. We completed the share repurchase program in the first
fiscal quarter of 2002, having purchased 1,866,117 ordinary shares at a total
cost of $11.8 million, or an average price of $6.30 per share.
On August
28, 2002, we announced that our board of directors authorized the repurchase of
up to $10 million or 2 million of our ordinary shares in the open market from
time to time at prevailing market prices. During
April 2003, we started to repurchase our ordinary shares based on the
instruction of our board of directors. As of December 31, 2003, we had
purchased 14,000 ordinary shares at a total cost of $77,000, or an average price
of $5.5 per share. In 2004
we didn’t repurchase any shares. As of December 31, 2004 we reissued all of our
purchased ordinary shares.
Net cash
provided by financing activities was $6.0 million
for the year ended December 31, 2004, as
compared to $4.6 million in the year ended December 31, 2003. For both years,
cash provided by financing activities was principally attributable to the
issuance
of ordinary shares and treasury stock for cash upon exercise of
options.
As of
December 31, 2004, our principal commitments consisted of obligations
outstanding under operating leases. Our capital requirements are dependent on
many factors, including market acceptance of our products and the allocation of
resources to our research and development efforts, as well as our marketing and
sales activities. In the last three years, we have experienced substantial
increases in our expenditures as a result of the growth in our operations and
personnel. We intend to increase our expenditures in the future consistent with
our anticipated growth. We anticipate that our cash resources will be used
primarily to fund our operating activities, as well as for capital expenditures.
As of
December 31, 2004, we had an unused $2.1 million line of credit.
C. RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
We place
considerable emphasis on research and development to expand the capabilities of
our existing products and technology, to develop new products and to improve our
existing technologies and capabilities. We believe that our future success will
depend upon our ability to maintain our technological leadership, to enhance our
existing products and technology and to introduce on a timely basis new
commercially viable products and technology addressing the needs of our
customers. Our gross investment in research and development for the years ended
December 31, 2002, 2003 and 2004 was $15.3 million, $14.6 million and $ 17.2
million, respectively. We intend to continue to devote a significant portion of
our personnel and financial resources to research and development. As part of
our product development process, we seek to maintain close relationships with
our customers to identify market needs and to define appropriate product
specifications.
In 2004,
we purchased the assets of VisionNex, a company headquartered in Beijing China.
In connection with such transaction we also entered into employment agreements
with all key employees of this company. We have formed a company in China known
as RADVISION Communication Development (Beijing) Co. Ltd., or RCD to operate
this entity. RCD is primarily engaged in research and development, but also is
involved in providing customization of RADVISION products to the large and
growing Chinese marketplace.
As of
December 31, 2004, our research and development staff consisted of approximately
175 employees. Our research and development activities are conducted at our
facilities in Tel Aviv, Israel and in Beijing, China. To introduce new, high
quality products, we deploy procedures for the design, development and quality
assurance of our new product developments. Our team is divided according to our
existing product lines. Each product line team is headed by a team leader and
includes software or hardware engineers and quality control
technicians.
D. TREND
INFORMATION
Revenues
increased 25.1% to $64.2 million for the year ended December 31, 2004. This
increase was due to increased sales of both our technology and networking
products. Revenues from networking products increased 17.6% to $44.8 million and
revenues from technology products increased 47.0% to $19.4 million for the year
ended December 31, 2004.
We expect
that during 2005 we will benefit from the purchase of the assets of FVC and its
wholly owned subsidiary, CUseeMe Networks, Inc. on March 15, 2005.
E. OFF-BALANCE
SHEET ARRANGEMENTS
We are
not a party to any material off-balance sheet arrangements. In addition, we have
no unconsolidated special purpose financing or partnership entities that are
likely to create material contingent obligations.
F. TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The
following table summarizes our minimum contractual obligations and commercial
commitments, as of December 31, 2004 and the effect we expect them to have on
our liquidity and cash flow in future periods.
Contractual
Obligations |
|
Payments
due by Period |
|
|
|
Total |
|
less
than 1 year |
|
1-3
Years |
|
3-5
Years |
|
more
than 5 years |
|
Operating
lease obligations |
|
$ |
7,547,000 |
|
$ |
2,706,000 |
|
$ |
4,051,000 |
|
$ |
790,000 |
|
$ |
- |
|
Accrued
severance pay |
|
|
3,701,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
3,701,000 |
|
Total |
|
$ |
11,248,000 |
|
$ |
2,706,000 |
|
$ |
4,051,000 |
|
$ |
790,000 |
|
$ |
3,701,000 |
|
ITEM
6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS
AND SENIOR MANAGEMENT
Set forth
below are the name, age, principal position and a biographical description of
each of our directors and executive officers:
Name |
|
Age |
|
Position |
Zohar
Zisapel |
|
56 |
|
Chairman
of the Board of Directors |
Gad
Tamari |
|
60 |
|
Chief
Executive Officer and Director |
Tsipi
Kagan |
|
39
|
|
Chief
Financial Officer |
Joseph
Atsmon |
|
56 |
|
Director |
Liora
Katzenstein |
|
49 |
|
Director |
Andreas
Mattes |
|
44 |
|
Director |
Efraim
Wachtel |
|
60 |
|
Director |
At our
2004 annual general meeting of shareholders, our shareholders approved an
amendment to our Articles of Association to provide for classification of the
non-external members of our Board of Directors into three classes. Gadi Tamari
was elected as a Class A director to serve for one year term until our 2005
annual general meeting of shareholders. Andreas Mattes was elected as a Class B
director to serve for a term ending as of our 2006 annual general meeting of
shareholders. Zohar Zisapel and Efraim Wachtel were elected as Class C directors
to serve for a term ending as of our 2007 annual general meeting of
shareholders. Liora Katzenstein will serve as an outside director pursuant to
the provisions of the Israeli Companies Law, for her second three-year term,
until our 2006 annual general meeting of shareholders, following which the
service of Ms. Katzenstein as an outside director may not be extended. Joseph
Atsmon will serve for a three-year term as an outside director pursuant to the
provisions of the Israeli Companies Law until our 2006 annual general meeting of
shareholders, following which his service as an outside director may be renewed
for only one additional three-year term.
Zohar
Zisapel has
served as a director since November 1992, and as our Chairman of our Board of
Directors until August 1999. He again assumed the position of Chairman in April
2001. During the last several years, Mr. Zisapel has been engaged mainly in
management of high technology companies. Mr. Zisapel is a founder and a director
of RAD Data Communication Ltd., of which he has served as president from January
1982 until 1999, and a director of other public companies including RADCOM Ltd.,
RIT Technologies Ltd., Ceragon Networks Ltd. and Verisity Ltd. Mr. Zisapel has a
B.Sc. from the Technion, Israel Institute of Technology and M.Sc. degrees from
Tel Aviv University.
Gadi
Tamari has
served as our chief executive officer since April 2001. From November 1999 to
April 2001, Mr. Tamari was the vice president, international operations of the
OpenNet Softswitch organization of Lucent Technologies. Prior thereto and since
1996, Mr. Tamari was chief operating officer of Excel Switching Corporation
responsible for international sales, operations, marketing and customer support.
He also served for many years in senior management positions with a number of
telecommunication companies. Mr. Tamari has a B.Sc. degree in mechanical
engineering and a M.Sc. degree in industrial engineering from the Technion,
Israel Institute of Technology and attended Harvard University’s Advanced
Management Program.
Tsipi
Kagan has
served as our chief financial officer since August 1, 2003. Prior to joining us
and since April 2000, Ms. Kagan was Chief Financial Officer for Phone-Or Ltd., a
leader in advanced optical microphones and sensors. Previously and since
September 1994, Ms. Kagan was Senior Manager for Ernst & Young in Israel and
served as a Certified Public Accountant (CPA) for Miller, Kaplan, Arase &
Co., an accounting firm in Los Angeles from February 1991 to August 1994. Ms.
Kagan holds a B.A. degree in Accounting and Economics from Tel-Aviv University
and is a licensed CPA in Israel.
Joseph
Atsmon has
served as an outside director since June, 2003. From July 2001 until November
2002, he served as Chairman of Discretix Ltd. He has served as a director of
Nice Ltd. since July 2001 and Ceragon Networks Ltd. since July 2001. From 1995
until 2000, he served as chief executive officer of Teledata Communication Ltd.,
a public company acquired by ADC Telecommunication Inc. in 1998. From 1986 until
1995, Mr. Atsmon served in various positions at Tadiran Ltd., among them a
division president and corporate vice president for Business Development. Mr.
Atsmon received a B.Sc. in Electrical Engineering, summa cum laude, from the
Technion, Israel Institute of Technology.
Liora
Katzenstein has
served as an outside director since December 2000. Prof. Liora Katzenstein
specializes in Business Administration and Entrepreneurship. During the last
five years she founded, and serves as the President of ISEMI - The Institute for
the Study of Entrepreneurship and Management of Innovation. Prof. Katzenstein
has also served as a Senior Lecturer in various academic institutions in Israel
and abroad including the Harvard Business School, Nanyang University and the
Technion, Israel Institute of Technology. Prof. Katzenstein currently serves as
a director of RIT, Inc., Radware Inc., OTI Inc. and Palafric Investments Ltd. In
the past she has served on the boards of Clal Industries & Investments Ltd.,
Discount Issuers Ltd., and Amanat Ltd. and holds various other academic and
business related positions, including as a member of the Israeli Governmental
Committee on Start-Up Companies. Over the last fifteen years Prof. Katzenstein
served as a faculty member and on the management of universities and management
institutes both in Israel and abroad and published numerous business articles in
the Israeli professional press.
Andreas
Mattes has
served as a director since February 2000. Since April 1999, Mr. Mattes has
been the president of enterprise networks of Siemens ICN. From October 1998
until April 1999, Mr. Mattes was the president of central sales of Siemens
ICN. From June 1997 until October 1998, Mr. Mattes was the president of
international sales of Siemens PN. From January 1996 until June 1997,
Mr. Mattes was the vice president of product management of Siemens PN. From
October 1985 until January 1996, Mr. Mattes held various sales, marketing
and business administration positions at Siemens.
Efraim
Wachtel has
served as a director since March 1998. Mr. Wachtel has been president
and chief executive officer of RAD Data Communication Ltd., or RAD since
November 1997. From October 1985 to November 1997,
Mr. Wachtel was vice president of sales and marketing of RAD. Before
October 1985, Mr. Wachtel held various research and development
positions in several companies in Israel and in the U.S. Mr. Wachtel has a
B.Sc. degree in electrical engineering from the Technion, Israel Institute of
Technology.
Set forth
below are the name, age, principal position and a biographical description of
each of our other senior officers:
Name |
|
Age |
|
Position |
Meir
Alon |
|
43 |
|
Vice
President Operations and Quality Management
|
Killko
Caballero |
|
46 |
|
Senior
Vice President of Enterprise Strategy
|
Eli
Doron |
|
52 |
|
Chief
Technical Officer and Executive Vice President
|
Irit
Machtey |
|
49 |
|
Senior
Vice President Organization & Human Resources
|
Boaz
Raviv
|
|
45
|
|
General
Manager of the Networking Group and acting General Manager of the
Technology Group
|
Arnie
Taragin |
|
48 |
|
Corporate
Vice President and General Counsel
|
Meir
Alon joined
our company in December 2000 and since November 2003 has been responsible for
all of our manufacturing, operations, and quality management, both on the
corporate and regional levels. In this position he oversees all
engineering, quality, production, purchasing, global customer support,
validation/verification, and the Company’s IT and IS departments. Prior to
joining our company and since 1993, Mr. Alon was employed by Israel Aircraft
Industries, where he held senior positions in its quality and engineering
departments. Mr. Alon holds a B.sc. degree (with honors) in electronic and
computer engineering from Tel Aviv University and a master’s degree (with
honors) in reliability and quality assurance from Technion Israel Institute of
Technology.
Killko
Caballero has been
our senior vice president of enterprise strategy since November 2003.
Based in our Sunnyvale, California office, Mr. Caballero leads our company’s
future product development and strategy for addressing the rapidly emerging
desktop multimedia (video, voice, and data) conferencing and communication
market. Prior to joining our company and since 1995, Mr. Caballero was the
president and Chief Executive Office CTO, of both First Virtual
Communication and CUseeMe, pioneers in the desktop voice, video
and data conferencing over IP market.
Eli
Doron, as
co-founder, executive vice president and chief technology officer at RADVISION
since October 1992, is responsible for leading the Company’s service provider
initiatives, both wireless and wireline. Mr. Doron brings more than 24
years experience defining and designing video and communication systems to his
current position. During his career, Mr. Doron was one of the
original contributors to the H.323 protocol and also designed the first
worldwide videoconference gateway between ISDN and IP, as well as the first
videoconference-over-IP system that included call control, dialing plan, and
protocols. Mr. Doron holds a master’s degree in business administration
from Bradford University, and a bachelor’s degree in electronics and computer
science from Ben-Gurion University.
Irit
Machtey has been
responsible for our organization & human resources department since July 31,
2002 when she joined our company as senior vice president of human resources.
Prior to that and since April 2000, Ms. Machtey was a management and
organizational consultant at My Time, a leading consultancy for high tech and
communication companies in Israel. Prior to joining My Time and since 1986, Ms.
Machtey held a series of senior level positions at Cellcom Ltd., Sapiens
Intentional, and National Semiconductor. Ms. Machtey holds a bachelor’s degree
in behavioral science from the Ben-Gurion University and an M.B.A. in
organizational behavioral from the School of Business Administration of Tel Aviv
University.
Boaz
Raviv has
served as general manager of the technology group since December 2000 and from
late 2004 he has also served as the general manager of the networking business
unit. From December 1999 to December 2000, Mr. Raviv was the vice president of
business development and marketing at Elron TeleSoft. From January 1996 to
November 1999, he was telecom division manager at Elron Software. From July 1989
to December 1995, Mr. Raviv held various key positions at CAP GEMINI, France.
Mr. Raviv served his apprenticeship at Robotic in CEMAGREF and he holds a
bachelor’s degree from the Technion, Israel Institute of Technology in Haifa.
Arnie
Taragin joined
our company in early 2003 as vice president and general counsel. Prior to
joining us and since April 1999, Mr. Taragin was general counsel of Scitex
Corporation, and when Scitex Corporation merged with Creo Inc., he became vice
president and general counsel of CreoScitex Corporation Ltd. Prior thereto and
since 1999 Mr. Taragin was employed by Israeli Aircraft Industries as an
attorney. Before moving to Israel in 1992, Mr. Taragin practiced law in the
United States, first as an associate and then in 1985 as a partner in a law
firm, specializing in business law, international commerce and regulatory
matters. Mr. Taragin graduated with honors from the Johns Hopkins University
(1997) and the University of Maryland Law School (1980) where he received
national awards for achievement.
Voting
Agreement
Upon the
completion of the private placement which took place contemporaneously with our
March 2000 initial public offering, Siemens and some of our existing
shareholders, including our current chairman of the board, our former chief
executive officer, the Evergreen Group, Clal Venture Capital Fund LP and Yehuda
Zisapel, entered into a voting agreement. The voting agreement provided that, in
the election of our directors, the shareholders party to the agreement would
nominate and vote for a nominee of Siemens to serve as a director and as many
other nominees as the other shareholders party to the agreement would
unanimously propose to serve as directors. However, the number of directors that
the other shareholders propose to serve as directors would at a minimum be equal
to the number of directors which these shareholders appointed to the board of
directors prior to March 2000.
The
initial term of the voting agreement was due to terminate in March 2003, but was
subject to automatic extensions for two additional one-year periods unless any
of the parties to the agreement provided notice to the other parties 60 days
before the expiration date of the then current term that such party wishes to
terminate the agreement. Accordingly, the
agreement was automatically extended for two additional one-year periods until
March 31, 2005.
B. COMPENSATION
The
following table sets forth information concerning the total compensation paid
with respect to all of our directors and our executive officers as a group in
fiscal year ended December 31, 2004.
Name
and Principal Position |
|
Salaries,
fees, commissions and bonuses |
|
Pension,
retirement and other similar benefits |
|
|
|
|
|
All
officers and directors as a group (seven persons ) |
|
$538,000 |
|
$53,000 |
The
aggregate value of all other perquisites and other personal benefits furnished
to each of these executive officers was less than 10% of each officer’s salary
for such year.
As of
December 31, 2004, our directors and executive officers as a group, consisting
of seven persons, held options to purchase an aggregate of 733,300 ordinary
shares, having exercise prices ranging from $5.09 to $12.12. Generally, the
options vest over a four-year period. The options will expire between March 2011
to June 2014 (which is ten years from the date of grant of the respective
options) or earlier upon termination of employment as an executive officer or
service as a director of our company. The options were granted under our 2000
Stock Option Plan. See this Item 6.D. “Directors, Senior Management and
Employees ---- Stock Option Plans -- Share ownership."
C. BOARD
PRACTICES
Election
of Directors
An
amendment to our Articles of Association approved at our 2004 annual general
meeting of shareholders, provided for classification of the non-external members
of the Board of Directors into three classes. Gadi Tamari was elected as a Class
A director to serve for one year term until our 2005 annual general meeting of
shareholders. Andreas Mattes was elected as a Class B director to serve for a
term ending as of our 2006 annual general meeting of shareholders. Zohar Zisapel
and Efraim Wachtel were elected as Class C directors to serve for a term ending
as of our 2007 annual general meeting of shareholders. All the members of our
Board of Directors, except the outside directors (who may only be elected for
two, three-year terms), may be reelected upon completion of their term of
office. In the intervals between annual general meetings of the company, our
Board of Directors may elect new directors, whether to fill vacancies or in
addition to those of their body, but only if the total numbers of directors
shall not at any time exceed any maximum number, if any, fixed by or in
accordance with our articles of association. Our directors are nominated by a
majority of our independent directors, as such term is defined under NASDAQ
rules.
Outside
and Independent Directors
The
Israeli Companies Law requires Israeli companies with shares that have been
offered to the public in or outside of Israel to appoint at least two outside
directors. No person may be appointed as an outside director if the person or
the person’s relative, partner, employer or any entity under the person’s
control has or had, on or within the two years preceding the date of the
person’s appointment to serve as outside director, any affiliation with the
company or any entity controlling, controlled by or under common control with
the company. The term affiliation includes:
· |
an
employment relationship; |
· |
a
business or professional relationship maintained on a regular
basis; |
· |
service
as an officer holder, excluding service as an outside director of a
company that is offering its shares to the public for the first
time. |
No person
may serve as an outside director if the person’s position or other activities
create, or may create, a conflict of interest with the person’s responsibilities
as an outside director or may otherwise interfere with the person’s ability to
serve as an outside director. If, at the time outside directors are to be
appointed, all current members of the Board of Directors are of the same gender,
then at least one outside director must be of the other gender.
Outside
directors are elected by shareholders. The shareholders voting in favor of their
election must include at least one-third of the shares of the non-controlling
shareholders of the company who voted on the matter. This minority approval
requirement need not be met if the total shareholdings of those non-controlling
shareholders who vote against their election represent 1% or less of all of the
voting rights in the company. Outside directors serve for a three-year term,
which may be renewed for only one additional three-year term. Outside directors
can be removed from office only by the same special percentage of shareholders
as can elect them, or by a court, and then only if the outside directors cease
to meet the statutory qualifications with respect to their appointment or if
they violate their duty of loyalty to the company.
Any
committee of the board of directors must include at least one outside director.
An outside director is entitled to compensation as provided in regulations
adopted under the Companies Law and is otherwise prohibited from receiving any
other compensation, directly or indirectly, in connection with such
service.
In
addition, the NASDAQ Marketplace Rules currently require us to have at least two
independent directors on our board of directors and to establish an audit
committee. Our board of director has determined that Liora Katzenstein and
Joseph Atsmon qualify both as independent directors under the Securities and
Exchange Commission and NASDAQ requirements and as outside directors under the
Israeli Companies Law requirements.
In
general, under new NASDAQ Marketplace Rules promulgated pursuant to the
Sarbanes-Oxley Act of 2002, effective as of July 31, 2005, a majority of our
board of directors must qualify as independent directors within the meaning of
the NASDAQ Marketplace Rules and our audit committee must have at least three
members and be comprised only of independent directors each of whom satisfies
the respective “independence” requirements of the Securities and Exchange
Commission and NASDAQ. NASDAQ Marketplace Rule 4350, or Rule 4350, was recently
amended to permit foreign private issuers, such as our company, to follow
certain home country corporate governance practices without the need to seek an
individual exemption from NASDAQ. Instead, a foreign private issuer must
provide NASDAQ with a letter from outside counsel in its home country certifying
that the issuer's corporate governance practices are not prohibited by home
country law. We are presently evaluating this regulatory development and
are considering providing NASDAQ with a notice of non-compliance with respect to
the NASDAQ requirement to maintain a majority of independent directors (as
defined under the NASDAQ Marketplace Rules), which is not required by Israeli
law.
Approval
of Related Party Transactions Under Israeli Law
The
Israeli Companies Law codifies the fiduciary duties that "office holders",
including directors and executive officers, owe to a company. An "office holder"
is defined in the Israeli Companies Law as a director, general manager, chief
business manager, deputy general manager, vice general manager, other manager
directly subordinate to the managing director or any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person's title. An office holder's fiduciary duties consist of a duty of care
and a duty of loyalty. The duty of care requires an office holder to act at a
level of care that a reasonable office holder in the same position would employ
under the same circumstances. This includes the duty to utilize reasonable means
to obtain (i) information regarding the appropriateness of a given action
brought for his approval or performed by him by virtue of his position and (ii)
all other information of importance pertaining to the foregoing actions. The
duty of loyalty includes avoiding any conflict of interest between the office
holder's position in the company and his personal affairs, avoiding any
competition with the company, avoiding exploiting any business opportunity of
the company in order to receive personal gain for the office holder or others,
and disclosing to the company any information or documents relating to the
company's affairs which the office holder has received due to his position as an
office holder. Each person identified as a director or executive officer in the
first table in the section is an office holder. Under the Israeli Companies Law
and our Articles of Association, all arrangements as to compensation of office
holders who are not directors require approval of our Audit Committee and Board
of Directors if the transaction is an "extraordinary transaction," or if such
transaction is not an "extraordinary transaction," the approval of our General
Manager according to guidelines of the Board of Directors. The compensation of
office holders who are directors must be approved by our Audit Committee, Board
of Directors and shareholders.
The
Israeli Companies Law requires that an office holder promptly disclose any
personal interest that he or she may have and all related material information
known to him or her, in connection with any existing or proposed transaction by
us. In addition, if the transaction is an extraordinary transaction, that is, a
transaction other than in the ordinary course of business, other than on market
terms, or likely to have a material impact on the company's profitability,
assets or liabilities, the office holder must also disclose any personal
interest held by the office holder's spouse, siblings, parents, grandparents,
descendants, spouse's descendants and the spouses of any of the foregoing, or by
any corporation in which the office holder or a relative is a 5% or greater
shareholder, director or general manager or in which he or she has the right to
appoint at least one director or the general manager. Some transactions, actions
and arrangements involving an office holder (or a third party in which an office
holder has an interest) must be approved by the board of directors or as
otherwise provided for in a company's articles of association, as not being
adverse to the company's interest. In some cases, such a transaction must be
approved by the audit committee and by the board of directors itself (with
further shareholder approval required in the case of extraordinary
transactions). An office holder who has a personal interest in a matter, which
is considered at a meeting of the board of directors or the audit committee, may
not be present during the board of directors or audit committee discussions and
may not vote on this matter, unless the majority of the members of the board or
the audit committee have a personal interest, as the case may be, in which case
such transaction will also require the approval of shareholders.
The
Israeli Companies Law also provides that some transactions between a public
company and a controlling shareholder, or transactions in which a controlling
shareholder of the company has a personal interest but which are between a
public company and another entity, require the approval of the board of
directors and of the shareholders. The Companies Law defines a controlling
shareholder as a person who holds 25% or more of the voting rights at the
company’s general meeting, provided there is no other person that holds more
than 50% of the voting rights in the company; for purposes of holding, two or
more persons who hold voting rights in the company and each of whom has a
personal interest in the approval of the same transaction up for approval by the
company shall be deemed one holder. Moreover, an extraordinary transaction with
a controlling shareholder or the terms of compensation of a controlling
shareholder, or an extraordinary transaction with another person in whom the
controlling shareholder has a personal interest must be approved by the audit
committee, the board of directors and shareholders. The shareholder approval for
an extraordinary transaction must include at least one-third of the shareholders
who have no personal interest in the transaction who voted on the matter. The
transaction can be approved by shareholders without this one-third approval, if
the total shareholdings of those shareholders who have no personal interest and
voted against the transaction do not represent more than one percent of the
voting rights in the company.
However,
under the Companies Regulations (Relief From Related Party Transactions),
5760-2000, promulgated under the Israeli Companies Law and amended in January
2002, certain transactions between a company and its controlling shareholder(s)
do not require shareholder approval.
In
addition, pursuant to an amendment to these regulations, directors’ compensation
and employment arrangements do not require the approval of the shareholders if
both the audit committee and the board of directors agree that such arrangements
are for the benefit of the company. If the director or the office holder is a
controlling shareholder of the company then, the employment and compensation
arrangements of such director or office holder do not require the approval of
the shareholders providing certain criteria is met.
The above
relief will not apply if one or more shareholder, holding at least 1% of the
issued and outstanding share capital of the company or of the company’s voting
rights, objects to the grant of such relief, provided that such objection is
submitted to the company in writing not later than seven (7) days from the date
of the filing of a report regarding the adoption of such resolution by the
company pursuant to the requirements of the Israeli Securities Law. If such
objection is duly and timely submitted, then the compensation arrangement of the
directors will require shareholders’ approval as detailed above.
In
addition, since our ordinary shares are listed on the Tel Aviv Stock Exchange,
we are subject to additional provisions of the Companies Law. Under these
provisions, a private placement of securities that will increase the relative
holdings of a shareholder that holds 5% or more of the company's outstanding
share capital or that will cause any person to become, as a result of the
issuance, a holder of more than five percent of the company's outstanding share
capital, requires approval by the board of directors and the shareholders of the
company.
The
Israeli Companies Law provides that an acquisition of shares in a public company
must be made by means of a tender offer if as a result of the acquisition the
purchaser would become a 25% or greater shareholder of the company. This rule
does not apply if there is already another 25% or greater shareholder of the
company. Similarly, the Israeli Companies Law provides that an acquisition of
shares in a public company must be made by means of a tender offer if as a
result of the acquisition the purchaser would hold greater than a 45% interest
in the company, unless there is another shareholder holding more than a 45%
interest in the company. These requirements do not apply if, in general, the
acquisition (1) was made in a private placement that received shareholder
approval, (2) was from a 25% or greater shareholder of the company which
resulted in the acquiror becoming a 25% or greater shareholder of the company,
or (3) was from a shareholder holding more than a 45% interest in the company
which resulted in the acquiror becoming a holder of more than a 45% interest in
the company.
If, as a
result of an acquisition of shares, the acquirer will hold more than 90% of a
company’s outstanding shares, the acquisition must be made by means of a tender
offer for all of the outstanding shares. If less than 5% of the outstanding
shares are not tendered in the tender offer, all the shares that the acquirer
offered to purchase will be transferred to the acquirer. The Israeli Companies
Law provides for appraisal rights if any shareholder files a request in court
within three months following the consummation of a full tender offer. If more
than 5% of the outstanding shares are not tendered in the tender offer, then the
acquiror may not acquire shares in the tender offer that will cause his
shareholding to exceed 90% of the outstanding shares
Regulations
under the Israeli Companies Law provide that the Israeli Companies Law's tender
offer rules do not apply to a company whose shares are publicly traded outside
of Israel, if pursuant to the applicable foreign securities laws and stock
exchange rules there is a restriction on the acquisition of any level of control
of the company, or if the acquisition of any level of control of the company
requires the purchaser to make a tender offer to the public
shareholders.
Indemnification
and
Insurance of Directors and Officers Indemnification of Directors and
Officers
The
Israeli Companies Law provides that an Israeli company cannot exculpate an
office holder from liability with respect to a breach of his duty of loyalty,
but may, if permitted by its articles of association, exculpate in advance an
office holder from his liability to the company, in whole or in part, with
respect to a breach of his duty of care. However, a company may not exculpate in
advance a director from his liability to the company with respect to a breach of
his duty of care in the event of distributions.
In
accordance with the Israeli Companies Law, our Articles of Association provide
that, subject to any restrictions imposed by the Companies Law, we may enter
into a contract for the insurance of the liability of any of our office holders
with respect to:
· |
a
breach of his duty of care to us or to another person;
|
· |
a
breach of his duty of loyalty to us, provided that the office holder acted
in good faith and had reasonable cause to assume that his act would not
prejudice our interests; or |
· |
a
financial liability imposed upon him in favor of another person in respect
of an act performed by him in his capacity as an office holder.
|
In
addition, in accordance with the Israeli Companies Law, under our Articles of
Association we may indemnify an office holder with respect to an act performed
in his capacity as an office holder against:
· |
a
financial liability imposed on him in favor of another person by any
judgment, including a settlement or an arbitrator's award approved by a
court in respect of an act performed in his capacity as an office holder;
and |
· |
reasonable
litigation expenses, including attorney’s fees, incurred by the office
holder as a result of an investigation or proceeding instituted against
him by a competent authority, provided that such investigation or
proceeding concluded without the filing of an indictment against him or
the imposition of any financial liability in lieu of criminal proceedings,
or concluded without the filing of an indictment against him and a
financial liability was imposed on him in lieu of criminal proceedings
with respect to a criminal offense that does not require proof of criminal
intent. |
· |
reasonable
litigation expenses, including attorneys' fees, incurred by such office
holder or which were imposed on him by a court, in proceedings we
instituted against him or instituted on our behalf or by another person,
or in a criminal charge from which he was acquitted, all in respect of an
act performed in his capacity as an office
holder. |
In
accordance with the Israeli Companies Law, our Articles of Association may
permit us to:
· |
Prospectively
undertake to indemnify an office holder of our company, provided that the
undertaking is limited to types of events which our board of directors
deems to be anticipated due to our company's activities and limited to an
amount or standard determined by the board of directors to be reasonable
under the circumstances. |
· |
Retroactively
indemnify an office holder of our company. |
Under our
Articles of Association provide, we may indemnify an office holder to the
fullest extent permitted under the Israeli Companies Law.
These
provisions are specifically limited in their scope by the Israeli Companies Law,
which provides that a company may not indemnify an office holder, nor exculpate
an office holder, nor enter into an insurance contract that would provide
coverage for any monetary liability incurred as a result of any of the
following:
· |
a
breach by the office holder of his duty of loyalty unless, with respect to
insurance coverage or indemnification, the office holder acted in good
faith and had a reasonable basis to believe that the act would not
prejudice the company; |
· |
a
breach by the office holder of his duty of care if such breach was
committed intentionally or recklessly, unless the breach was committed
only negligently. |
· |
any
act or omission done with the intent to unlawfully yield a personal
benefit; or |
· |
any
fine imposed on the office holder. |
In
addition, pursuant to the Israeli Companies Law, exculpation of, an undertaking
to indemnify or indemnification of, and procurement of insurance coverage for,
our office holders must be approved by our Audit Committee and our Board of
Directors and, if such office holder is a director, also by our
shareholders.
On
January 18, 2000, our shareholders agreed to indemnify our office holders to the
fullest extent permitted under the Companies Law. We have obtained directors and
officers liability insurance for the benefit of our office holders.
Audit
Committee
Our audit
committee, established in accordance with Section 114 of the Israeli Companies
Law and Section 3(a)(58)(A) of the Securities Exchange Act of 1934, assists our
board of directors in overseeing the accounting and financial reporting
processes of our company and audits of our financial statements, including the
integrity of our financial statements, compliance with legal and regulatory
requirements, our independent public accountants’ qualifications and
independence, the performance of our internal audit function and independent
public accountants, finding any defects in the business management of our
company for which purpose the audit committee may consult with our independent
auditors and internal auditor, proposing to the board of directors ways to
correct such defects, approving related-party transactions as required by
Israeli law, and such other duties as may be directed by our board of directors.
Our audit
committee is currently composed of Joseph Atsmon, Liora Katzenstein and Efraim
Wachtel, each of whom satisfies the requirements of Israeli law applicable to
members of audit committees. We will comply with the audit committee
independence requirements of the Securities and Exchange Commission and the
NASDAQ Marketplace Rules by July 31, 2005. Joseph Atsmon has been elected as the
Chairperson of the Audit Committee. The audit committee meets at least once each
quarter. Our Audit Committee charter is available on our website at
www.radvision.com.
The
responsibilities of the audit committee also include approving related-party
transactions as required by law. Under
Israeli law, an audit committee may not approve an action or a transaction with
a controlling shareholder, or with an office holder, unless at the time of
approval two outside directors are serving as members of the audit committee and
at least one of the outside directors was present at the meeting in which an
approval was granted.
Our Audit
Committee is authorized generally to investigate any matter within the scope of
its responsibilities and has the power to obtain from the internal auditing
unit, our independent auditors or any other officer or employee any information
that is relevant to such investigations.
Our Audit
Committee has adopted and our Board of Directors has approved a company-wide
Code of Business Conduct and Ethics which appears on our company’s
website.
Other
Committees
In
addition to our audit committee, our board of directors has established an
option committee, which administers our employees’ option plan. Messrs. Zohar
Zisapel, Efraim Wachtel and Gad Tamari are the current members of our option
committee.
Other
Corporate Governance Matters
Our Board
of Directors has recently passed a resolution which provides that the
independent directors of our company will meet at least twice a year in
executive session. At such
sessions the independent directors will recommend the compensation of all our
senior officers and will nominate directors to be approved by our shareholders
at the Annual General Meeting. Our executive officers do not participate in any
discussions or decisions that involve any aspect of their compensation.
We have
adopted a Code of Business Conduct and Ethics applicable to all of our principal
officers and all employees. The Code of Ethics which is distributed to all
officers and employees may be viewed at our website.
Our Audit
Committee approves all audit and non-audit services rendered by our independent
registered public accountants. All member of our Audit Committee are considered
financially literate in accordance with the NASDAQ definition.
Internal
Audit
The
Israeli Companies Law also requires the board of directors of a public company
to appoint an internal auditor nominated by the audit committee. A person who
does not satisfy the Companies Law's independence requirements may not be
appointed as an internal auditor. The role of the internal auditor is to
examine, among other things, the compliance of the company's conduct with
applicable law and orderly business practice. Our internal auditor complies with
the requirements of the Companies Law. Our Internal Auditor is currently Mr.
Gideon Duvshani, C.P.A. of Schwartz, Lerner, Duvshani & Co.
As of
December 31, 2004, we had 335 employees worldwide, of whom 175 were employed in
research and development, 107 in sales and marketing, 29 in management and
administration and 24 in operations. Of our employees, 208 are based in Israel,
54 are based in the United States, 60 are based in Hong Kong and China and 13
are based in the United Kingdom. We have standard employment agreements with all
of our employees located in Israel. We are in the process of hiring
approximately 31 employees who were former employees of FVC, the company that we
purchased, see Item 4.A "Information on the Company - History and Development of
the Company."
As of
December 31, 2003, we had 258 employees worldwide, of whom 114 were employed in
research and development, 94 in sales and marketing, 30 in management and
administration and 20 in operations.
As of
December 31, 2002, we had 245 employees worldwide, of whom 116 were employed in
research and development, 94 in sales and marketing, 23 in management and
administration and 12 in operations.
Our
relationships with our employees in Israel are governed by Israeli labor
legislation and regulations, extension orders of the Israeli Ministry of Labor
and Welfare and personal employment agreements. Israeli labor laws and
regulations are applicable to all of our employees in Israel. The laws concern
various matters, including severance pay rights at termination, notice period
for termination, retirement or death, length of workday and workweek, minimum
wage, overtime payments and insurance for work-related accidents. We currently
fund our ongoing legal severance pay obligations by paying monthly premiums for
our employees' insurance policies and or pension funds.
In
addition, Israeli law requires Israeli employees and employers to pay specified
sums to the National Insurance Institute, which is similar to the United States
Social Security Administration. Since January 1, 1995, such amounts also include
payments for national health insurance. The payments to the National Insurance
Institute that include health insurance fees are approximately 16.25% of wages,
of which the employee contributes approximately 64.0% and the employer
contributes approximately 36.0%. The majority of our permanent employees are
covered by life and pension insurance policies providing customary benefits to
employees, including retirement and severance benefits. We contribute 13.3% to
15.8%, depending on the employee, of base wages to such plans and the employee
contributes about 5.0%. RADVISION and its employees are not parties to any
collective bargaining agreements. However, certain provisions of the collective
bargaining agreements between the Histadrut, the General Federation of Labor in
Israel, and the Coordination Bureau of Economic Organizations, including the
Manufacturers' Association of Israel, are applicable to our employees by
"extension orders" of the Israeli Ministry of Labor and Welfare. These
provisions principally concern periodic cost of living adjustments, procedures
for dismissing employees, travel allowances, recuperation pay and other
conditions of employment.
At the
start of their employment, our employees in North America generally sign offer
letters specifying basic terms and conditions of employment as well as
non-disclosure agreements. At the start of their employment, our employees in
Israel generally sign written employment agreements that include confidentiality
and non-compete provisions.
E. SHARE
OWNERSHIP
Beneficial
Ownership of Executive Officers and Directors
The
following table and the footnotes thereto contain information as of December 31,
2004 concerning the beneficial ownership of our ordinary shares by each of our
directors and executive officers and all of our directors and executive officers
as a group, including currently exercisable stock options:
Name |
|
Number
of ordinary shares (1) |
|
Percentage
of outstanding ordinary shares (2) |
Zohar
Zisapel |
|
2,103,041 |
|
10.07% |
|
|
|
|
|
Gad
Tamari |
|
295,800 |
|
1.40 |
|
|
|
|
|
Tsipi
Kagan |
|
* |
|
* |
|
|
|
|
|
Joseph
Atsmon |
|
* |
|
* |
|
|
|
|
|
Liora
Katzenstein |
|
* |
|
* |
|
|
|
|
|
Andreas
Mattes |
|
* |
|
* |
|
|
|
|
|
Efraim
Wachtel |
|
* |
|
* |
|
|
|
|
|
All
directors and executive officers as a group (7 persons) |
|
2,532,286 |
|
12.17% |
* Less
than 1%.
___________
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options currently
exercisable or exercisable within 60 days of the date of this annual
report are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
|
(2) |
The
percentage of ordinary shares for each person and the group shown in this
table is based on the 20,809,800 ordinary shares outstanding on March 7,
2005. |
Stock
Option Plans
1996
Stock Option Plan
In
April 1996, we adopted our key employee share incentive plan, or the 1996
Plan. Employees of RADVISION and its subsidiaries of or affiliates of RADVISION
belonging to the RAD-BYNET group are eligible to participate in the 1996 Plan.
Options granted under this plan are for a term of sixty-two months from the date
of the grant of the option. The following table presents option grant
information for the 1996 Plan as of January 31, 2005:
Ordinary
shares reserved
for
option grants |
|
Options
granted |
|
Weighted
average
exercise
price |
|
|
|
|
|
3,163,523 |
|
3,100,223 |
|
$ 2.86 |
|
|
|
|
|
The
3,163,523 ordinary
shares indicated in the table as having been reserved for option grants reflect
the total number of ordinary shares reserved for grants under the 1996 Plan and
our consultants option plan in the aggregate. We intend to grant further options
under the 1996 Plan to our executive officers and employees. As of January 31,
2005, options to purchase 289,355 ordinary shares may be exercised under the
1996 Plan.
Plan
Administration
The share
incentive committee of our board of directors administers the 1996 Plan subject
to the Board of Directors' ratification. Under the 1996 Plan, the committee has
the authority to recommend to the Board of Directors:
· |
the
persons to whom options are granted; |
· |
the
number of shares underlying each option award;
|
· |
the
time or times at which the award shall be made;
|
· |
the
exercise price, vesting schedule and conditions under which the options
may be exercised; and |
· |
any
other matter necessary or desirable for the administration of the plan.
|
Option
Trust
Under the
1996 Plan, all options, or shares issued upon exercise of options, are held in
trust and registered in the name of a trustee selected by the share incentive
committee. During this period, voting rights attached to the ordinary shares
issued upon exercise of the options may be exercised by the trustee.
Termination
and Amendment
Our board
of directors may terminate or amend the 1996 Plan, provided that any action by
our board of directors which will alter or impair the rights of an option holder
requires the prior consent of that option holder.
Consultants
Option Plan
In
March 1999, we adopted our consultants option plan, the 1999 Plan.
Employees and directors and consultants employed by us are eligible to
participate in the 1999 Plan. Options granted under the plan are for a term of
sixty-two months from the date of grant of the option. The following table
presents option grant information for this plan as of January 31, 2005:
Ordinary
shares
reserved
for option grants |
|
Options
granted |
|
Weighted
average exercise price |
|
|
|
|
|
3,163,523 |
|
63,300 |
|
$1.18 |
|
|
|
|
|
The
ordinary shares indicated in the table as having been reserved for option grants
reflect the total number of ordinary shares reserved for grants under the 1999
Plan and our 1996 Plan in the aggregate. As of January 31, 2004, there were no
options eligible for exercise under the 1999 Plan.
Plan
Administration
The
option and compensation committee of our board of directors administers the
plan, subject to Board of Directors' ratification. Under the 1999 Plan, the
committee has the authority to recommend to the Board of Directors:
· |
the
persons to whom options are granted; |
· |
the
number of shares underlying each option award;
|
· |
the
time or times at which the award shall be made;
|
· |
the
exercise price, vesting schedule and conditions under which the options
may be exercised; and |
· |
any
other matter necessary or desirable for the administration of the plan.
|
Option
Trust
Under the
1999 Plan, all options, or shares issued upon exercise of options, are held in
trust and registered in the name of a trustee selected by the share option and
compensation committee. The 1999 Plan provides that the trustee will empower
Yehuda and Zohar Zisapel to exercise the voting rights attached to the ordinary
shares issued upon exercise of the options.
Termination
and Amendment
Our board
of directors may terminate or amend the 1999 Plan, provided that any action by
our board of directors which will alter or impair the rights of an option holder
requires the prior consent of that option holder.
2000
Stock Option Plan
Our 2000
Employee Stock Option Plan, or the 2000 Plan, currently authorizes the grant of
options to purchase up to 5,916,376 ordinary shares. Employees and consultants
of our company and its subsidiaries are eligible to participate in the 2000
Plan. The 2000 Plan also provides for the grant of options equal in the amount
of up to 4% of our share capital, on a fully diluted basis, in each subsequent
year following the year 2000 for issuance under the 2000 Stock Option Plan. An
additional 894,945 ordinary shares were authorized for grant in 2001 based on 4%
of our share capital at December 31, 2000, an additional 887,630 ordinary shares
were authorized for grant in 2002 based on 4% of our share capital at December
31, 2001, an additional 748,997 ordinary shares were authorized for grant in
2003 based on 3.3% of our share capital at December 31, 2002, an additional
795,290 ordinary shares were authorized for grant in 2004 based on 3.3% of our
share capital at December 31, 2003 and an additional 820,537 ordinary shares
were authorized for grant in 2005 based on 3.3% of our share capital at December
31, 2004. Options, which are canceled or not exercised within the option period
will become available for future grants. Awards under the 2000 Plan may be
granted in the form of incentive stock options as provided in Section 422 of the
U.S. Internal Revenue Code of 1986, as amended, non-qualified stock options,
options granted pursuant to Section 102 of the Israeli Tax Ordinance and options
granted pursuant to Section 3.(9) of the Israeli Tax Ordinance. Other options
were granted to directors of the company and the CEO in accordance with the
approval of the Company shareholders at the respective Annual General
Meetings.
Plan
Administration
The
option and compensation committee appointed by the Board of Directors
administers the 2000 Plan, subject to the Board of Directors' ratification.
Subject to the provisions of the 2000 Plan and applicable law, the option
committee has the authority to recommend to the Board of Directors:
· |
the
persons to whom such awards are granted; |
· |
the
form, terms and conditions of the written stock option agreement
evidencing the option, including the type of option and the number of
shares to which it pertains, the option price, the option period and its
vesting schedule, and exercisability of the option in special cases (such
as death, retirement, disability and change of control); and
|
· |
the
form and provisions of the notice of exercise and payment of the
option. |
Subject
to the provisions of the 2000 Plan and applicable law, the Board of Directors
has the authority to:
· |
nominate
a trustee for options issued under Section 102 of the Israeli Tax
Ordinance; |
· |
adjust
any or all of the number and type of shares that thereafter may be made
the subject of options, the number and type of shares subject to
outstanding options, and the grant or exercise price with respect to any
option, or, if deemed appropriate, make provision for a cash payment to
the holder of any outstanding option in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the 2000 Plan in the event of any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares or other
securities; |
· |
interpret
the provisions of the 2000 Plan; and |
· |
prescribe,
amend, and rescind rules and regulations relating to the 2000 Plan or any
award there under as it may deem necessary or
advisable. |
Except as
set forth in the 2000 Plan, neither the Board of Directors nor the option and
compensation committee may, without the consent of the optionee, alter or in any
way impair the rights of such optionee under any award previously granted.
Neither the termination of the 2000 Plan nor the change of control of our
company, except to the extent provided in the 2000 Plan, will affect any option
previously granted.
The
option price per share may not be less than 100% of the fair market value of
such share on the date of the award; provided, however, that in the case of an
award of an incentive stock option made to a 10% owner, the option price per
share may not be less than 110% of the fair market value (as such term is
defined in the 2000 Plan) of such share on the date of the award.
An option
may not be exercisable after the expiration of ten (10) years from the date of
its award. No option may be exercised after the expiration of its term. In the
case of an award of incentive stock options made to a 10% owner, such options
may not be exercisable after the expiration of five (5) years from its date of
award.
Options
are not assignable or transferable by the optionee, other than by will or the
laws of descent and distribution, and may be exercised during the lifetime of
the optionee only by the optionee or his or her guardian or legal
representative; provided, however, that during the optionee’s lifetime, the
optionee may, with the consent of the option and compensation committee transfer
without consideration all or any portion of his options to members of the
optionee’s immediate family (as defined in the 2000 Plan), a trust established
for the exclusive benefit of members of the optionee’s immediate family, or a
limited liability company in which all members are members of the optionee’s
immediate family.
The
following table presents option grant information for the 2000 Plan as of
January 31, 2005:
Ordinary
shares reserved
for option grants |
|
Options
granted |
|
Range
of exercise prices |
|
|
|
|
|
5,916,376 |
|
4,984,053 |
|
$4.57-
$28.00 |
|
|
|
|
|
As of
January 31, 2005, options to purchase 3,856,964 ordinary shares may be exercised
under the 2000 Plan.
Exercise
of Options During 2004
During
the year ended December 31, 2004, we issued 1,224,169 ordinary
shares, par value NIS 0.1 per share each, at an average exercise price of
$5.31 per share to employees and consultants as a result of the exercise of
stock options.
ITEM
7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR
SHAREHOLDERS
The
following table sets forth certain information, as of the date of this annual
report, regarding the beneficial ownership by all shareholders known to us to
own beneficially more than 5% of our ordinary shares. The voting rights of our
major shareholders do not differ from the voting rights of other holders of our
ordinary shares. However, concurrent with our initial public offering in March
2000, certain of our shareholders entered into a voting agreement. As a result,
such shareholders may be able to exercise control with respect to the election
of directors.
Name |
|
Number
of ordinary shares beneficially owned (1) |
|
Percentage
of outstanding ordinary
shares
(2) |
|
Yehuda
Zisapel (3) |
|
|
1,839,561 |
|
|
8.84 |
% |
|
Zohar
Zisapel (4) |
|
|
2,103,041 |
|
|
10.07 |
% |
|
Saranac
Capital Management LP(5) |
|
|
3,214,000 |
|
|
15.44 |
% |
|
The
Baupost Group, L.L.C. (6) |
|
|
3,555,875 |
|
|
17.09 |
% |
|
______________
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options currently
exercisable or exercisable within 60 days of the date of this annual
report are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
|
(2)
|
The
percentages shown are based on 20,809,800 ordinary shares issued and
outstanding as of March 7, 2005.
|
(3)
|
Includes
477,213 ordinary shares owned of record by Rad Data Communication
Ltd.
|
(4)
|
Includes
477,213 ordinary shares owned of record by Rad Data Communication Ltd.,
310,856 ordinary shares owned of record by Michael and Klil Holdings (93)
Ltd., and 306,456 ordinary shares owned of record by Lomsha
Ltd.
|
(5)
|
Based
solely upon, and qualified in its entirety with reference to, a Schedule
13G filed with the Securities and Exchange Commission on February 14,
2005. The Schedule 13G reflects that Saranac Capital Management GP LLC is
the general partner of Saranac Capital Management LP and, in such
capacity, may be deemed to have investment discretion over and be the
beneficial owner of securities held for the account of Saranac Capital
Management LP. Mr. Ross Margolies, in his capacity as the managing member
of Saranac Capital Management GP LLC, may be deemed to have investment
discretion over, and may be deemed to be the beneficial owner of,
securities held for the account of Saranac Capital Management LP, in
addition to 20,012 ordinary shares held for the benefit of members of his
family.
|
(6)
|
Based
solely upon, and qualified in its entirety with reference to, a Schedule
13G filed with the Securities and Exchange Commission on February 11,
2005.
|
Significant
Changes in the Ownership of Major Shareholders
As of
December 31, 2002 Siemens Venture Capital Gmbh held 1,389,378, or 7.56%, of our
ordinary shares. The Siemens ownership interest fell below 5.0% in 2003. Various
Samsung entities held 1,000,000, or 5.44%, of our ordinary shares, as of
December 31, 2002 and 2003. The Samsung entities’ interest in our company fell
below 5.0% in 2004. On February 14, 2004 Salomon Bros. Asset Management and
various Citigroup Inc. entities, or Citigroup, filed a Schedule 13G with the
Commission reflecting ownership of 1,560,900, or 7.7%, of our ordinary shares.
In an amendment to the Schedule 13G report filed with the Commission on March
10, 2004, Citigroup reported ownership of 2,076,800, or 10.3%, of our ordinary
shares. In a second amendment to the Schedule 13G filed with the Commission on
October 11, 2004, Citigroup reported ownership of 3,125,100, or 15.5%, of our
ordinary shares. In a final amendment to the Schedule 13G filed with the
Commission on February 14, 2005, Citigroup reported that it no longer held an
ownership interest in our company.
On
February 14, 2005, Saranac Capital Management LP, filed a Schedule 13G filed
with the Commission reflecting ownership of 3,214,000, or 16.07%, of our
ordinary shares. The Schedule 13G reflects that Saranac Capital Management GP
LLC is the general partner of Saranac Capital Management LP and, in such
capacity, may be deemed to have investment discretion over and be the beneficial
owner of securities held for the account of Saranac Capital Management LP. In
his capacity as the managing member of Saranac Capital Management GP LLC, Mr.
Ross Margolies may be deemed to have investment discretion over, and may be
deemed to be the beneficial owner of, securities held for the account of Saranac
Capital Management LP, in addition to 20,012 ordinary shares held for the
benefit of members of his family.
Record
Holders
Based on
a review of the information provided to us by our transfer agent, as of March
24, 2005, there were 41 holders of record of our ordinary shares, of which 18
record holders holding approximately 16.43% of our ordinary shares had
registered addresses in Israel and 20 record holders holding approximately
80.47% of our ordinary shares had registered addresses in the United States,
including banks, brokers and nominees. Because these holders of record in the
United States include banks, brokers and nominees, the beneficial owners of
these ordinary shares may include persons who reside outside the United States.
On March 15, 2004, we had approximately 2,460 beneficial holders of our ordinary
shares. We do not believe this number has materially changed since such
date.
B. RELATED
PARTY TRANSACTIONS
The
RAD-BYNET Group
Zohar
Zisapel our chairman and Yehuda Zisapel, our former director and chairman, are
principal shareholders of our company. Individually or together, they are also
directors and principal shareholders of several other companies which, together
with us and the other subsidiaries and affiliates, are known as the RAD-BYNET
group. These corporations include but not limited to:
AB-NET Ltd.
Axerra
Networks Inc.
BYNET
Data Communication Ltd.
BYNET
Electronics Ltd.
BYNET
Properties Ltd.
BYNET
SEMECH Outsourcing Ltd.
BYNET
Systems Applications Ltd.
BYNET
Personal Computers Ltd. |
Ceragon
Networks Ltd.
RAD-BYNET
Properties and Services (1981) Ltd.
Modules
INC.
RAD
Data Communication Ltd.
RAD-OP
Inc.
E-BEAT
Software and Internet Services
Ltd. |
RADWARE Ltd.
RADCOM Ltd.
RADWIN Ltd.
RIT
Technologies Ltd.
Sanrad
Inc.
SILICOM Ltd.
WISAIR
Inc. |
In
addition to engaging in other businesses, members of the RAD-BYNET group are
actively engaged in designing, manufacturing, marketing and supporting data
communication products, none of which currently compete with our products. Some
of the products of members of the RAD-BYNET group are complementary to, and may
be used in connection with, our products.
Efraim
Wachtel, who is a director of our Company, serves as the president and chief
executive officer of RAD Data Communication.
We
generally ascertain the market prices for goods and services that can be
obtained at arms’ length from unaffiliated third parties before entering into
any transaction with a member of the RAD-BYNET group for those goods and
services. In addition, all of our transactions to date with members of the
RAD-BYNET group were approved unanimously by our shareholders. As a result, we
believe that the terms of the transactions in which we have engaged and are
currently engaged with other members of the RAD-BYNET group are beneficial to us
and no less favorable to us than terms which might be available to us from
unaffiliated third parties. Any future transactions and arrangements with
entities, including other members of the RAD-BYNET group, in which our office
holders have a personal interest will require approval by our audit committee,
our board of directors and, if applicable, our shareholders.
Transactions
with related parties:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
Revenues
(1) |
|
$ |
199 |
|
$ |
- |
|
$ |
214 |
|
Cost
of revenues (3) |
|
$ |
244 |
|
$ |
66 |
|
$ |
39 |
|
Research
and development expenses (2) |
|
$ |
44 |
|
$ |
379 |
|
$ |
143 |
|
Marketing,
selling, general and administrative expenses (2) |
|
$ |
157 |
|
$ |
207 |
|
$ |
455 |
|
Purchase
of property and equipment (4) |
|
$ |
576 |
|
$ |
530 |
|
$ |
624 |
|
(1) |
Includes
revenues from the Company's products and maintenance sold to affiliated
companies. |
|
|
(2) |
Includes
administrative services provided to the Company by affiliated companies
that the Company reimburses for the costs incurred in providing these
services. |
|
|
(3) |
Includes
the purchase of components from affiliated companies. |
|
|
(4) |
Includes
property and equipment that were purchased from affiliated companies.
|
Arbitration
with related parties
In
January 2001, we entered into an agreement with Zohar Zisapel Properties Inc.
and Yehuda Zisapel Properties Inc. (entities that are wholly owned by Zohar
Zisapel, the Chairman of our Board of Directors and a principal shareholder, and
Yehuda Zisapel, a principal shareholder and our former Chairman, respectively)
to lease approximately 24,000 square feet of office space in Paramus, New Jersey
for a period of five years, which space we subsequently surrendered. The parties
disagreed as to the extent of damages caused by this action, if any. In December
2003, the parties proceeded to binding arbitration before Judge Robert E.
Tarleton (retired) in Hackensack, New Jersey. Our potential liability under the
claim filed against us was approximately $1.5 million and an appropriate
provision was taken for such amount. Judge Tarleton issued his ruling on
February 12, 2004 stating the amount we owed to the Zisapel entities was
$400,000. As of December 31, 2003, we revised the related accrual to $400,000
and recorded restructuring income in the amount of $1,061,000 in our financial
statements for the year ended December 31, 2003. See Note 1.b to our
consolidated financial statements. See Item 5.A. "Operating and Financial Review
and Prospects - Operating Results - Restatement of Previously-Issued Financial
Statements."
Voting
Agreement
Upon the
completion of the private placement which took place contemporaneously with our
March 2000 initial public offering, Siemens and some of our existing
shareholders, including our current chairman of the board, our former chief
executive officer, the Evergreen Group, Clal Venture Capital Fund LP and Yehuda
Zisapel, entered into a voting agreement. The voting agreement provided that, in
the election of our directors, the shareholders party to the agreement would
nominate and vote for a nominee of Siemens to serve as a director and as many
other nominees as the other shareholders party to the agreement would
unanimously propose to serve as directors. However, the number of directors that
the other shareholders propose to serve as directors would at a minimum be equal
to the number of directors which these shareholders appointed to the board of
directors prior to March 2000.
The
initial term of the voting agreement was due to terminate in March 2003, but was
subject to automatic extensions for two additional one-year periods unless any
of the parties to the agreement provided notice to the other parties 60 days
before the expiration date of the then current term that such party wishes to
terminate the agreement. Accordingly, the
agreement was automatically extended for two additional one-year periods until
March 31, 2005.
C. INTERESTS
OF EXPERTS AND COUNSEL
Not
applicable.
ITEM
8. FINANCIAL
INFORMATION
A. CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
Legal
Proceedings
In
January 2001, we entered into an agreement with Zohar Zisapel Properties Inc.
and Yehuda Zisapel Properties Inc. (entities that are wholly owned by Zohar
Zisapel, the Chairman of our Board of Directors and a principal shareholder, and
Yehuda Zisapel, a principal shareholder and our former Chairman, respectively)
to lease approximately 24,000 square feet of office space in Paramus, New Jersey
for a period of five years, which space we subsequently surrendered. The parties
disagreed as to the extent of damages caused by this action, if any. In December
2003, the parties proceeded to binding arbitration before Judge Robert E.
Tarleton (retired) in Hackensack, New Jersey. Our potential liability under the
claim filed against us was approximately $1.5 million and an appropriate
provision was taken for such amount. Judge Tarleton issued his ruling on
February 12, 2004 stating the amount owed to the Zisapel entities was $400,000.
As of December 31, 2003, we revised the related accrual to $400,000 and recorded
restructuring income in the amount of $1,061,000. See Note 1.b to our
consolidated financial statements. See Item 5.A. "Operating and Financial Review
and Prospects - Operating Results - Restatement of Previously-Issued Financial
Statements."
In 1998,
a third party sent correspondence to our affiliate, RAD Data
Communication Ltd., alleging that some products manufactured by RAD and
some of its affiliates, including us, infringe upon specified patents of the
third party and offering to license these patents to RAD and its affiliates. In
subsequent correspondence, RAD requested that the third party specifically
substantiate each allegation of infringement before RAD or any of its affiliates
considers entering into any licensing arrangements. RAD has recently received
further correspondence from the third party in which the third party has
reiterated its claims. RAD does not believe the third party has substantiated
its claims and has communicated this belief to the third party. RAD advises us
that the alleged infringement claims are unresolved.
The
elements of our products that the third party has alleged infringe upon its
patents are contained within components which we obtain from a third party
manufacturer. We believe that the third party manufacturer has a license to use
these patents and that we may be entitled to the benefits of this license.
In
addition, based on the third party fee and royalty schedule for licensing the
relevant patents, we believe that any licensing fee and royalty payments that we
may be required to pay for the right to use the third party's patents would not
have a material impact on our earnings. As a result, we do not believe that the
third party's allegations will have a material adverse effect upon us, our
business, financial condition or liquidity. The Company has recorded sufficient
provision for such allegation.
In 2003,
another third party sent correspondence to the Company alleging that some
products manufactured by the Company infringe upon patents held by the third
party and offered to license these patents to the Company. Subsequent
correspondence was exchanged during 2004, in which additional requests were made
by the third party. The Company has recorded sufficient provision for such
allegation.
Other
than the above, we are not involved in any legal proceedings that are material
to our business or financial condition.
B. SIGNIFICANT
CHANGES
Since the
date of the annual consolidated financial statements included in this annual
report, no significant changes have occurred except as described below.
Following
a bidding process held under the supervision of a United States Bankruptcy
Court, we acquired substantially all of the assets of FVC and its wholly owned
subsidiary, CUseeMe Networks, Inc. on an “as is” basis on March 15, 2005. The
transaction, provided for a cash purchase price of $7,150,000. Due to certain
cash adjustments the actual purchase price was less then $7,000,000. We have
hired approximately thirty-one former employees of FVC who were based in Nashua
New Hampshire. These employees will be involved in marketing, selling and
supporting the FVC products. We also entered into a one year consulting and
non-compete agreement with the former Chief Executive Officer of FVC.
ITEM
9. THE
OFFER AND LISTING
A. OFFER
AND LISTING DETAILS
Annual
Stock
Information
The
following table sets forth, for each of the years indicated, the high and low
sale prices of our ordinary shares as reported by the NASDAQ National Market and
the Tel Aviv Stock Exchange:
|
|
|
NASDAQ
National Market |
|
Tel
Aviv Stock Exchange |
|
Year |
|
|
High |
|
Low |
|
High |
|
Low |
|
2000 |
|
|
$ |
65.00 |
|
$ |
11.31 |
|
|
- |
|
|
- |
|
2001 |
|
|
|
16.25 |
|
|
5.02 |
|
|
- |
|
|
- |
|
2002 |
|
|
|
7.90 |
|
|
4.05 |
|
|
5.95 |
|
|
4.70 |
|
2003 |
|
|
|
13.26 |
|
|
5.05 |
|
|
12.97 |
|
|
5.30 |
|
2004 |
|
|
|
16.00 |
|
|
9.05 |
|
|
15.72 |
|
|
9.17 |
|
Quarterly
Stock Information
The
following table sets forth, for the each of the full financial quarters in the
years indicated, the high and low sale prices of our ordinary shares as reported
by the NASDAQ National Market and the Tel Aviv Stock Exchange:
|
|
|
|
NASDAQ
National Market |
|
|
Tel
Aviv Stock Exchange |
|
|
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter |
|
|
$ |
7.70 |
|
$ |
5.50 |
|
$ |
7.16 |
|
$ |
5.66 |
|
Second
Quarter |
|
|
|
7.20 |
|
|
5.05 |
|
|
7.17 |
|
|
5.30 |
|
Third
Quarter |
|
|
|
9.00 |
|
|
6.50 |
|
|
8.99 |
|
|
6.81 |
|
Fourth
Quarter |
|
|
|
13.26 |
|
|
7.81 |
|
|
12.97 |
|
|
7.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter |
|
|
$ |
16.00 |
|
$ |
11.20 |
|
$ |
15.72 |
|
$ |
10.61 |
|
Second
Quarter |
|
|
|
14.00 |
|
|
10.13 |
|
|
13.78 |
|
|
10.20 |
|
Third
Quarter |
|
|
|
12.76 |
|
|
9.09 |
|
|
12.28 |
|
|
9.32 |
|
Fourth
Quarter |
|
|
|
13.91 |
|
|
9.05 |
|
|
13.23 |
|
|
9.17 |
|
Monthly
Stock Information
The
following table sets forth, for the most recent six months, the high and low
sale prices of our ordinary shares as reported by the NASDAQ National Market and
the Tel Aviv Stock Exchange:
|
|
|
NASDAQ
National Market |
|
|
Tel
Aviv Stock Exchange |
|
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
October |
|
$ |
11.28 |
|
$ |
9.05 |
|
$ |
10.98 |
|
$ |
9.17 |
|
November |
|
|
13.85 |
|
|
10.54 |
|
|
13.03 |
|
|
10.60 |
|
December |
|
|
13.91 |
|
|
12.79 |
|
|
13.23 |
|
|
12.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
|
$ |
15.17 |
|
$ |
13.46 |
|
$ |
15.23 |
|
$ |
|
|
February |
|
|
14.77 |
|
|
12.39 |
|
|
14.69 |
|
|
12.50 |
|
March |
|
|
13.50 |
|
|
12.15 |
|
|
13.10 |
|
|
12.16 |
|
Dual
Listing
In
addition to trading on the NASDAQ National Market, on October 20, 2002, our
ordinary shares began trading on the Tel Aviv Stock Exchange. According to a
publication of the Israeli Tax Authorities, sales of securities of an industrial
company, such as us, by individuals and companies to whom Chapter B of the
Inflationary Law does not apply will continue to enjoy benefits of a lower
Israeli capital gains tax after a dual listing.
B. PLAN
OF DISTRIBUTION
Not
applicable.
C. MARKETS
Our
ordinary shares have been listed on the NASDAQ National Market under the symbol
RVSN since our initial public offering on March 14, 2000. Since October 20,
2002, our ordinary shares have also traded on the Tel Aviv Stock
Exchange.
D. SELLING
SHAREHOLDERS
Not
applicable.
E. DILUTION
Not
applicable.
F. EXPENSE
OF THE ISSUE
Not
applicable.
ITEM
10. ADDITIONAL
INFORMATION
A. SHARE
CAPITAL
Not
applicable.
B. MEMORANDUM
AND ARTICLES OF ASSOCIATION
Purposes
and Objects of the Company
We are a
public company registered under the Israel Companies Law as RADVISION LTD.,
registration number 51-165181-2. Pursuant to our memorandum of association, we
were formed for the purpose of developing, manufacturing and supplying products
in the electronics filed in general, and specifically, in the field of data
communication.
The
Powers of the Directors
Under the
provisions of the Israel Companies Law and our articles of association, a
director cannot participate in a meeting nor vote on a proposal, arrangement or
contract in which he or she is materially interested. In addition, our directors
cannot vote compensation to themselves or any members of their body without the
approval of our audit committee and our shareholders at a general meeting. See
"Item 6B. Directors, Senior Management and Employees -
Compensation."
Directors
may not enter into borrowing arrangements on our behalf except in the manner
approved by the Company. The Board of Directors have approved a resolution
regarding signing authority to ensure the proper oversight and regulation of
officers and directors acting on our behalf.
Rights
Attached to Shares
Our
authorized share capital consists of 25,000,000 ordinary shares of
a nominal value of NIS 0.1 each. All outstanding ordinary shares are validly
issued, fully paid and non-assessable.
Ordinary
shares. The
rights attached to the ordinary shares are as follows:
Dividend
rights. Holders
of our ordinary shares are entitled to the full amount of any cash or share
dividend subsequently declared. The board of directors may declare interim
dividends and propose the final dividend with respect to any fiscal year only
out of the retained earnings, in accordance with the provisions of the Israeli
Companies Law. Our articles of association provide that the declaration of a
dividend requires approval by an ordinary resolution of the shareholders, which
may decrease but not increase the amount proposed by the board of directors. See
"Item 10E. Additional Information - Taxation." If after one year a dividend has
been declared and it is still unclaimed, the board of directors is entitled to
invest or utilize the unclaimed amount of dividend in any manner to our benefit
until it is claimed. We are not obligated to pay interest or linkage
differentials on an unclaimed dividend.
Voting
rights. Holders
of ordinary shares have one vote for each ordinary share held on all matters
submitted to a vote of shareholders. Such voting rights may be affected by the
grant of any special voting rights to the holders of a class of shares with
preferential rights that may be authorized in the future.
The
quorum required for an ordinary meeting of shareholders consists of at least two
shareholders represent in person or by proxy who hold or represent, in the
aggregate, at least one third of the voting rights of the issued share capital.
A meeting adjourned for lack of a quorum generally is adjourned to the same day
in the following week at the same time and place or any time and place as the
directors designate in a notice to the shareholders. At the reconvened meeting,
the required quorum consists of any two members present in person or by
proxy.
An
ordinary resolution, such as a resolution for the declaration of dividends,
requires approval by the holders of a majority of the voting rights represented
at the meeting, in person, by proxy or by written ballot and voting thereon.
Under our articles of association, a special resolution, such as amending our
memorandum of association or articles of association, approving any change in
capitalization, winding-up, authorization of a class of shares with special
rights, or other changes as specified in our articles of association, requires
approval of a special majority, representing the holders of no less than 65% of
the voting rights represented at the meeting in person, by proxy or by written
ballot, and voting thereon.
Pursuant
to our articles of association, our directors are elected at our annual general
meeting of shareholders by a vote of the holders of a majority of the voting
power represented and voting at such meeting. See “Item 6A. Directors, Senior
Management and Employees - Election of Directors.”
Rights
to share in our company’s profits. Our
shareholders have the right to share in our profits distributed as a dividend
and any other permitted distribution. See “Item 10B. Rights Attached to Shares -
Dividend Rights.”
Rights
in the event of liquidation. In the
event of our liquidation, after satisfaction of liabilities to creditors, our
assets will be distributed to the holders of ordinary shares in proportion to
the nominal value of their holdings. This right may be affected by the grant of
preferential dividend or distribution rights to the holders of a class of shares
with preferential rights that may be authorized in the future.
Changing
Rights Attached to Shares
According
to our articles of association, in order to change the rights attached to any
class of shares, unless otherwise provided by the terms of the class, such
change must be adopted by a general meeting of the shareholders and by a
separate general meeting of the holders of the affected class with a majority of
65% of the voting power participating in such meeting.
Annual
and Extraordinary Meetings
The Board
of Directors must convene an annual meeting of shareholders at least once every
calendar year, within fifteen months of the last annual meeting. Notice of at
least twenty-one days prior to the date of the meeting is required. An
extraordinary meeting may be convened by the board of directors, as it decides
or upon a demand of any two directors or 25% of the directors, whichever is
lower, or of one or more shareholders holding in the aggregate at least 5% of
our issued capital. An extraordinary meeting must be held not more than
thirty-five days from the publication date of the announcement of the meeting.
See this “Item 10B. Additional Information - Memorandum and Articles of
Association- Rights Attached to Shares-Voting Rights.”
Limitations
on the Rights to Own Securities in Our Company
Neither
our memorandum of association or our articles of association nor the laws of the
State of Israel restrict in any way the ownership or voting of shares by
non-residents, except with respect to subjects of countries which are in a state
of war with Israel.
Changes
in Our Capital
Changes
in our capital are subject to the approval of the shareholders at a general
meeting by a special majority of 65% of the votes of shareholders participating
and voting in the general meeting.
Provisions
Restricting Change in Control of Our Company
The
Israeli Companies Law requires that mergers between Israeli companies be
approved by the board of directors and general meeting of shareholders of both
parties to the transaction. The approval of the board of directors of both
companies is subject to such boards’ confirmation that there is no reasonable
doubt that after the merger the surviving company will be able to fulfill its
obligations towards its creditors. Each company must notify its creditors about
the contemplated merger. Under our articles of association, such merger must be
approved by a resolution
of the shareholders, as explained above. The approval of the merger by the
general meetings of shareholders of the companies is also subject to additional
approval requirements as specified in the Israeli Companies Law and regulations
promulgated thereunder. See also Item 6C. “Directors, Senior Management and
Employees - Board Practices - Approval of Related Party Transactions Under
Israeli Law.”
Disclosure
of Shareholders’ Ownership
The
Israeli Securities Law, 5728-1968 and regulations promulgated thereunder contain
various provisions regarding the ownership threshold above which shareholders
must disclose their share ownership. However, these provisions do not apply to
companies, such as ours, whose shares are publicly traded in Israel as well as
outside of Israel. As a
result of the listing of our ordinary shares on the Tel Aviv Stock Exchange, we
are required pursuant to the Israeli Securities Law and the regulations
promulgated thereunder to deliver to the Israeli Share Registrar, the Israeli
Securities Exchange Commission and the Tel Aviv Stock Exchange, all reports,
documents, forms and information received by us from our shareholders regarding
their shareholdings, provided that such information was published or required to
be published under applicable foreign law.
C. MATERIAL
CONTRACTS
While we
have numerous contracts with customers, resellers and distributors we do not
deem any such individual contract to be material.
D. EXCHANGE
CONTROLS
Israeli
law and regulations do not impose any material foreign exchange restrictions on
non-Israeli holders of our ordinary shares. In May 1998, a new “general permit”
was issued under the Israeli Currency Control Law, 1978, which removed most of
the restrictions that previously existed under such law, and enabled Israeli
citizens to freely invest outside of Israel and freely convert Israeli currency
into non-Israeli currencies.
Non-residents
of Israel who purchase our ordinary shares will be able to convert dividends, if
any, thereon, and any amounts payable upon our dissolution, liquidation or
winding up, as well as the proceeds of any sale in Israel of our ordinary shares
to an Israeli resident, into freely repatriable dollars, at the exchange rate
prevailing at the time of conversion, provided that the Israeli income tax has
been withheld (or paid) with respect to such amounts or an exemption has been
obtained.
E. TAXATION
General
Corporate Tax Structure
Israeli
companies are generally subject to income tax at the corporate tax rate of 35%.
In June 2004, the Israeli Parliament approved an amendment to the Income Tax
Ordinance (No. 140 and Temporary Provision), which progressively reduces the
corporate tax rate from 36% to 35% in 2004 and to a rate of 30% in 2007.
However, several investment programs at our manufacturing facility in Tel Aviv
have been granted approved enterprise status and we are, therefore, eligible for
tax benefits under the Law for the Encouragement of Capital Investments, 1959.
We have derived, and expect to continue to derive, a substantial portion of our
income from the approved enterprise programs at our manufacturing facility.
As of
December 31, 2004, our net operating loss carry-forwards for Israeli tax
purposes amounted to approximately $11.3 million. Under Israeli law, these
net-operating losses may be carried forward indefinitely and offset against
future taxable income. We expect that, during the period in which these tax
losses are utilized, our income will be substantially tax-exempt. Therefore,
there will be no tax benefit available from these losses and no deferred income
taxes have been included in our financial statements. Deferred taxes for other
temporary differences are immaterial.
As of
December 31, 2004, the net operating loss carry-forwards of our U.S.
subsidiary for U.S. tax purposes amounted to approximately $13.4 million. These
losses are available to offset any future U.S. taxable income of our U.S.
subsidiary and will expire in the years 2015 through 2023.
Tax
Benefits Under the Law for the Encouragement of Capital Investments,
1959
The Law
for the Encouragement of Capital Investments, 1959, as amended, commonly
referred to as the Investment Law, provides that a proposed capital investment
in eligible facilities may, upon application to the Investment Center of the
Ministry of Industry and Trade of the State of Israel, be designated as an
approved enterprise. Each certificate of approval for an approved enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital sources, and by its physical characteristics, e.g., the
equipment to be purchased and utilized pursuant to the program. An approved
enterprise is entitled to benefits including Israeli Government cash grants and
tax benefits in specified development areas. The tax benefits derived from any
such certificate of approval relate only to taxable income attributable to the
specific approved enterprise. If a company has more than one approval or only a
portion of its capital investments is approved, its effective tax rate is the
result of a weighted average of the applicable rates.
Subject
to compliance with applicable requirements, the portion of our income derived
from the approved enterprise programs will be eligible for the following tax
benefits commencing in the first year in which it generates taxable income: a
full income tax exemption for the first two years, and a reduced income tax rate
of 10% -25% (instead of the regular rate of 35%) for the remaining five to eight
years (depending on the level of non-Israeli investments in the Company). The
period of tax benefits for our approved enterprise programs has not yet
commenced, because we have yet to realize taxable income. These benefits should
result in income recognized by us being tax exempt or taxed at a lower rate for
a specified period after we begin to report taxable income and exhaust any net
operating loss carry-forwards. However, these benefits may not be applied to
reduce the tax rate for any income derived by our U.S. subsidiary.
A company
owning an approved enterprise may elect to forego entitlement to the grants
otherwise available under the Investment Law and in lieu thereof participate in
an alternative package of benefits. Under the alternative package of benefits, a
company's undistributed income derived from an approved enterprise will be
exempt from company tax for a period of between two and ten years from the first
year of taxable income, depending on the geographic location of the approved
enterprise within Israel, and such company will be eligible for a reduced tax
rate for the remainder, if any, of the otherwise applicable benefits
period.
A company
that has an approved enterprise program is eligible for further tax benefits if
it qualifies as a foreign investors' company. A foreign investors' company is a
company more than 25% of whose share capital and combined share and loan capital
is owned by non-Israeli residents. A company which qualifies as a foreign
investors' company and has an approved enterprise program is eligible for tax
benefits for a ten year benefit period. The company tax rate applicable to
distributed income earned in the benefit period and to income (distributed or
not) earned in the benefit period is as follows:
For
a company with foreign investment of |
|
The
company tax rate is |
|
|
|
Over
25% but less than 49% |
|
25% |
49%
or more but less than 74% |
|
20% |
74%
or more but less than 90% |
|
15% |
90%
or more |
|
10% |
In
addition, the dividend recipient is taxed at the reduced rate applicable to
dividends from approved enterprises (15%), if the dividend is distributed during
the tax benefit period or within 12 years thereafter, yet, no time limit is
applicable to dividends from a foreign investment company. The company must
withhold this tax at source, regardless of whether the dividend is converted
into foreign currency.
Subject
to applicable provisions concerning income under the alternative package of
benefits, all dividends are considered to be attributable to the entire
enterprise and their effective tax rate is the result of a weighted average of
the various applicable tax rates. We currently intend to reinvest any income
derived from our approved enterprise programs and not to distribute such income
as a dividend.
The
Investment Center bases its decision as to whether or not to approve an
application on the criteria set forth in the Investment Law and regulations, the
then prevailing policy of the Investment Center and the specific objectives and
financial criteria of the applicant. Accordingly, we cannot assure you that any
of our applications, if made, will be approved in the future.
The
benefits available to an approved enterprise are conditional upon the
fulfillment of conditions stipulated in the Investment Law and its regulations
and the criteria set forth in the specific certificate of approval, as described
above. In the event that a company does not meet these conditions, it would be
required to refund the amount of tax benefits, with the addition of the Israeli
consumer price index linkage adjustment and interest.
Tax
Benefits and Grants for Research and Development
Israeli
tax law allows, under specific conditions, a tax deduction in the year incurred
for expenditures, including capital expenditures, relating to scientific
research and development projects, if the expenditures are approved by the
relevant Israeli Government ministry, determined by the field of research, and
the research and development is for the promotion of the company and is carried
out by or on behalf of the company seeking such deduction. Expenditures not so
approved are deductible over a three-year period. However, expenditures from
proceeds made available to us through government grants are not deductible
according to Israeli law.
Tax
Benefits Under the Law for the Encouragement of Industry (Taxes), 1969
According
to the Law for the Encouragement of Industry (Taxes), 1969, or the Industry
Encouragement Law, an Industrial Company is a company resident in Israel, at
least 90% of the income of which, in a given tax year, determined in Israeli
currency (exclusive of income from some government loans, capital gains,
interest and dividends), is derived from an Industrial Enterprise owned by it.
An "Industrial Enterprise" is defined as an enterprise whose major activity in a
given tax year is industrial production activity.
Under the
Industry Encouragement Law, Industrial Companies are entitled to the following
preferred corporate tax benefits:
· |
amortization
of purchases of acquired technology and patents over an eight-year period
for tax purposes; |
· |
amortization
of specified expenses incurred in connection with a public issuance of
securities over a three-year period for tax
purposes; |
· |
right
to elect, under specified conditions, to file a consolidated tax return
with additional related Israeli Industrial Companies;
and |
· |
accelerated
depreciation rates on equipment and buildings.
|
Eligibility
for benefits under the Industry Encouragement Law is not subject to receipt of
prior approval from any governmental authority.
We cannot
assure you that we will continue to qualify as an Industrial Company or that the
benefits described above will be available to us in the future.
Special
Provisions Relating to Taxation under Inflationary
Conditions
The
Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the
Inflationary Adjustments Law, represents an attempt to overcome the problems
presented to a traditional tax system by an economy undergoing rapid inflation.
The Inflationary Adjustments Law is highly complex. Its features, which are
material to us can be summarized as follows:
There is
a special tax adjustment for the preservation of equity whereby some corporate
assets are classified broadly into fixed assets and non-fixed assets. Where a
company's equity, as defined in such law, exceeds the depreciated cost of fixed
assets, a deduction from taxable income that takes into account the effect of
the applicable annual rate of inflation on such excess is allowed up to a
ceiling of 70% of taxable income in any single tax year, with the unused portion
permitted to be carried forward on a linked basis. If the depreciated cost of
fixed assets exceeds a company's equity, then such excess multiplied by the
applicable annual rate of inflation is added to taxable income.
· |
Subject
to specific limitations, depreciation deductions on fixed assets and
losses carried forward are adjusted for inflation based on the increase in
the consumer price index. |
· |
Capital
gains on specific traded securities, are normally exempt from tax for
individuals and are taxable for companies. However, dealers in securities
are subject to the regular tax rules applicable to business income in
Israel. |
Capital
Gains Tax on Sales of Our Ordinary Shares
Prior to
the tax reform, sales of our ordinary shares by individuals were generally
exempt from Israeli capital gains tax so long as (i) our ordinary shares were
listed on certain stock exchanges, including the NASDAQ National Market, or
listed on a stock exchange in a country appearing on a list approved by the
Controller of Foreign Currency and (ii) we qualified as an Industrial
Company.
Pursuant
to the tax reform, generally, capital gains tax is imposed at a rate of 15% on
real gains derived on or after January 1, 2003, from the sale of shares in
companies (i) publicly traded on the Tel Aviv Stock Exchange, or “TASE” (such as
our company) or; (ii) (subject to a necessary determination by the Israeli
Minister of Finance) Israeli companies publicly traded on a recognized stock
exchange outside of Israel (such as our company). This tax rate does not apply
to: (i) dealers in securities; (ii) shareholders that report in accordance with
the Inflationary Adjustment Law; or (iii) shareholders who acquired their shares
prior to an initial public offering (that are subject to a different tax
arrangement). The tax basis of shares acquired prior to January 1, 2003 will be
determined in accordance with the average closing share price in the three
trading days preceding January 1, 2003. However, a request may be made to the
tax authorities to consider the actual adjusted cost of the shares as the tax
basis if it is higher than such average price.
Non-Israeli
residents are exempt from Israeli capital gains tax on any gains derived from
the sale of shares publicly traded on the TASE, and shall be exempt from Israeli
capital gains tax on any gains derived from the sale of shares of Israeli
companies publicly traded on a recognized stock exchange outside of Israel,
provided such shareholders did not acquire their shares prior to an initial
public offering. However, non-Israeli corporations will not be entitled to such
exemption if an Israeli resident (i) has a controlling interest of 25% or more
in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly.
Tax
Reform
On
January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment
No.132), 5762-2002, known as the Tax Reform, came into effect, following its
enactment by the Israeli Parliament on July 24, 2002. On December 17, 2002, the
Israeli Parliament approved a number of amendments to the tax reform, which came
into effect on January 1, 2003.
The tax
reform, aimed at broadening the categories of taxable income and reducing the
tax imposed on employment income, introduced the following, among other
things:
· |
Reduction
of the tax rate levied on capital gains (other than gains deriving from
the sale of listed securities) derived after January 1, 2003, to a general
rate of 25% for both individuals and corporations. Regarding assets
acquired prior to January 1, 2003, the reduced tax rate will apply to a
proportionate part of the gain, in accordance with the holding periods of
the asset, before or after January 1, 2003, on a linear
basis; |
· |
Imposition
of Israeli tax on all income of Israeli residents, individuals and
corporations, regardless of the territorial source of income, including
income derived from passive sources such as interest, dividends and
royalties; |
· |
Introduction
of controlled foreign corporation (CFC) rules into the Israeli tax
structure. Generally, under such rules, an Israeli resident who holds,
directly of indirectly, 10% or more of the rights in a foreign corporation
whose shares are not publicly traded, in which more than 50% of the rights
are held directly or indirectly by Israeli residents, and a majority of
whose income in a tax year is considered passive income, will be liable
for tax on the portion of such income attributed to his holdings in such
corporation, as if such income were distributed to him as a dividend;
|
· |
Imposition
of capital gains tax on capital gains realized by individuals as of
January 1, 2003, from the sale of shares of publicly traded companies
(such gain was previously exempt from capital gains tax in Israel). For
information with respect to the applicability of Israeli capital gains
taxes on the sale of ordinary shares, see “Capital Gains Tax on Sales of
Our Ordinary Shares” above; and |
· |
Introduction
of a new regime for the taxation of shares and options issued to employees
and officers (including directors). |
Taxation
of Non-Resident Holders of Shares
Non-residents
of Israel are subject to income tax on income accrued or derived from sources in
Israel. Such sources of income include passive income such as dividends,
royalties and interest, as well as non-passive income from services rendered in
Israel. On distributions of dividends other than bonus shares or stock
dividends, income tax at the rate of 25% (12.5% for dividends not generated by
an approved enterprise if the non-resident is a U.S. corporation and holds 10%
of our voting power, and 15% for dividends generated by an approved enterprise)
is withheld at source, unless a different rate is provided in a treaty between
Israel and the shareholder's country of residence. Under the U.S.-Israel Tax
Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is
a Treaty U.S. Resident will be 25%. However, under the Investment Law, dividends
generated by an approved enterprise are taxed at the rate of 15%.
United
States Federal Income Tax Consequences
The
following is a summary of certain material U.S. federal income tax consequences
that apply to U.S. Holders who hold ordinary shares as capital assets. This
summary is based on the United States Internal Revenue Code of 1986, as amended,
or the Code, Treasury regulations promulgated thereunder, judicial and
administrative interpretations thereof, and the U.S.-Israel Tax Treaty, all as
in effect on the date hereof and all of which are subject to change either
prospectively or retroactively. This summary does not address all tax
considerations that may be relevant with respect to an investment in ordinary
shares. This summary does not account for the specific circumstances of any
particular investor, such as:
· |
financial
institutions, |
· |
certain
insurance companies, |
· |
investors
liable for alternative minimum tax, |
· |
tax-exempt
organizations, |
· |
non-resident
aliens of the U.S. or taxpayers whose functional currency is not the U.S.
dollar, |
· |
persons
who hold the ordinary shares through partnerships or other pass-through
entities, |
· |
persons
who acquire their ordinary shares through the exercise or cancellation of
employee stock options or otherwise as compensation for
services, |
· |
investors
that actually or constructively own 10% or more of our voting shares,
and |
· |
investors
holding ordinary shares as part of a straddle, or appreciated financial
position or a hedging or conversion
transaction. |
This
summary does not address the effect of any U.S. federal taxation other than U.S.
federal income taxation. In addition, this summary does not include any
discussion of state, local or foreign taxation.
You are
urged to consult your tax advisors regarding the foreign and United States
federal, state and local tax considerations of an investment in ordinary
shares.
For
purposes of this summary, a U.S. Holder is:
· |
an
individual who is a citizen or, for U.S. federal income tax purposes, a
resident of the United States; |
· |
a
corporation created or organized in or under the laws of the United States
or any political subdivision thereof; |
· |
an
estate whose income is subject to U.S. federal income tax regardless of
its source; or |
· |
a
trust that (a) is subject to the primary supervision of a court within the
United States and the control of one or more U.S. persons or (b) has a
valid election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person. |
Taxation
of Dividends
The gross
amount of any distributions received with respect to ordinary shares, including
the amount of any Israeli taxes withheld therefrom, will constitute dividends
for U.S. federal income tax purposes to the extent of our current and
accumulated earnings and profits, as determined for U.S. federal income tax
principles. You will be required to include this amount of dividends in gross
income as ordinary income. Distributions in excess of our current and
accumulated earnings and profits will be treated as a non-taxable return of
capital to the extent of your tax basis in the ordinary shares and any amount in
excess of your tax basis will be treated as gain from the sale of ordinary
shares. See "-Disposition of Ordinary Shares" below for the discussion on the
taxation of capital gains. Dividends will not qualify for the dividends-received
deduction generally available to corporations under Section 243 of the Code.
Dividends
that we pay in NIS, including the amount of any Israeli taxes withheld
therefrom, will be included in your income in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day such dividends are received.
A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at
an exchange rate other than the rate in effect on such day may have a foreign
currency exchange gain or loss that would be treated as ordinary income or loss.
U.S. Holders should consult their own tax advisors concerning the U.S. tax
consequences of acquiring, holding and disposing of NIS.
Subject
to complex limitations, any Israeli withholding tax imposed on such dividends
will be a foreign income tax eligible for credit against a U.S. Holder's U.S.
federal income tax liability (or, alternatively, for deduction against income in
determining such tax liability). The limitations set out in the Code include
computational rules under which foreign tax credits allowable with respect to
specific classes of income cannot exceed the U.S. federal income taxes otherwise
payable with respect to each such class of income. Dividends generally will be
treated as foreign-source passive income or, in the case of certain U.S.
Holders, financial services income for United States foreign tax credit
purposes. U.S.
Holders should note that recently enacted legislation eliminates the “financial
services income” category with respect to taxable years beginning after December
31, 2006. Under this legislation, the foreign tax credit limitation categories
will be limited to “passive category income” and “general category income.”
Further,
there are special rules for computing the foreign tax credit limitation of a
taxpayer who receives dividends subject to a reduced tax, see discussion
below. A U.S.
Holder will be denied a foreign tax credit with respect to Israeli income tax
withheld from dividends received on the ordinary shares to the extent such U.S.
Holder has not held the ordinary shares for at least 16 days of the 30-day
period beginning on the date which is 15 days before the ex-dividend date or to
the extent such U.S. Holder is under an obligation to make related payments with
respect to substantially similar or related property. Any days during which a
U.S. Holder has substantially diminished its risk of loss on the ordinary shares
are not counted toward meeting the 16-day holding period required by the
statute. The rules relating to the determination of the foreign tax credit are
complex, and you should consult with your personal tax advisors to determine
whether and to what extent you would be entitled to this credit.
Subject
to certain limitations, “qualified dividend income” received by a noncorporate
U.S. Holder in tax years beginning on or before December 31, 2008 will be
subject to tax at a reduced maximum tax rate of 15 percent. Distributions
taxable as dividends paid on the ordinary shares should qualify for the 15
percent rate provided that either:
(i) we are entitled to benefits under the income tax treaty between the Untied
States and Israel, or the Treaty, or (ii) the
ordinary shares are readily tradable on an established securities market in the
United States and certain other requirements are met. We believe that
we are
entitled to benefits under the Treaty and that the
ordinary shares currently are readily tradable on an established securities
market in the United States. However, no assurance can be given that the
ordinary shares will remain readily tradable. The rate reduction does not apply
unless certain holding period requirements are satisfied. With respect to the
ordinary shares, the U.S. Holder must have held such shares for at least 61 days
during the 121-day period beginning 60 days before the ex-dividend date. The
rate reduction also does not apply to dividends received from passive foreign
investment companies, see discussion below, or in respect of certain hedged
positions or in certain other situations. The legislation enacting the reduced
tax rate contains special rules for computing the foreign tax credit limitation
of a taxpayer who receives dividends subject to the reduced tax rate. U.S.
Holders of ordinary shares should consult their own tax advisors regarding the
effect of these rules in their particular circumstances.
Disposition
of Ordinary Shares
If you
sell or otherwise dispose of ordinary shares, you will recognize gain or loss
for U.S. federal income tax purposes in an amount equal to the difference
between the amount realized on the sale or other disposition and the adjusted
tax basis in ordinary shares. Subject to the discussion below under the heading
"Passive Foreign Investment Companies," such gain or loss will generally be
capital gain or loss and will be long-term capital gain or loss if you have held
the ordinary shares for more than one year at the time of the sale or other
disposition. In general, any gain that you recognize on the sale or other
disposition of ordinary shares will be U.S.-source for purposes of the foreign
tax credit limitation; losses will be generally allocated against U.S. source
income. Deduction of capital losses is subject to certain limitations under the
Code.
In the
case of a cash basis U.S. Holder who receives NIS in connection with the sale or
disposition of ordinary shares, the amount realized will be based on the U.S.
dollar value of the NIS received with respect to the ordinary shares as
determined on the settlement date of such exchange. A U.S. Holder who receives
payment in NIS and converts NIS into United States dollars at a conversion rate
other than the rate in effect on the settlement date may have a foreign currency
exchange gain or loss that would be treated as ordinary income or
loss.
An
accrual basis U.S. Holder may elect the same treatment required of cash basis
taxpayers with respect to a sale or disposition of ordinary shares, provided
that the election is applied consistently from year to year. Such election may
not be changed without the consent of the Internal Revenue Service, or the IRS.
In the event that an accrual basis U.S. Holder does not elect to be treated as a
cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign
currency transactions), such U.S. Holder may have a foreign currency gain or
loss for U.S. federal income tax purposes because of differences between the
U.S. dollar value of the currency received prevailing on the trade date and the
settlement date. Any such currency gain or loss would be treated as ordinary
income or loss and would be in addition to gain or loss, if any, recognized by
such U.S. Holder on the sale or disposition of such ordinary
shares.
Passive
Foreign Investment Companies
For U.S.
federal income tax purposes, we will be considered a passive foreign investment
company ("PFIC") for any taxable year in which either (i) 75% or more of our
gross income is passive income, or (ii) the average percentage of our assets for
the taxable year which are produced or held for the production of passive income
is at least 50%. For this purpose, passive income includes generally dividends,
interest, royalties, rents, annuities and the excess of gains over losses from
the disposition of assets which produce passive income. If we were determined to
be a PFIC for U.S. federal income tax purposes, highly complex rules would apply
to U.S. Holders owning ordinary shares. Accordingly, you are urged to consult
your tax advisors regarding the application of such rules.
Based on
our current and projected income, assets and activities, we believe that we are
not currently a PFIC nor do we expect to become a PFIC in the foreseeable
future. However, because the determination of whether we are a PFIC is based
upon the composition of our income and assets from time to time, there can be no
assurances that we will not become a PFIC for any future taxable
year.
If we are
treated as a PFIC for any taxable year, then, unless you elect either to treat
your investment in ordinary shares as an investment in a "qualified electing
fund" (a "QEF election") or to "mark-to-market" your ordinary shares, as
described below, dividends
could not qualify for the reduced maximum tax rate, discussed above,
and
· |
you
would be required to allocate income recognized upon receiving certain
dividends or gain recognized upon the disposition of ordinary shares
ratably over the holding period for such ordinary
shares, |
· |
the
amount allocated to each year during which we are considered a PFIC other
than the year of the dividend payment or disposition would be subject to
tax at the highest individual or corporate tax rate, as the case may be,
and an interest charge would be imposed with respect to the resulting tax
liability allocated to each such year, |
· |
the
amount allocated to the current taxable year and any taxable year before
we became a PFIC would be taxable as ordinary income in the current year,
and |
· |
you
would be required to make an annual return on IRS Form 8621 regarding
distributions received with respect to ordinary shares and any gain
realized on your ordinary shares. |
If you
make either a timely QEF election or a timely mark-to-market election in respect
of your ordinary shares, you would not be subject to the rules described above.
If you make a timely QEF election, you would be required to include in your
income for each taxable year your pro rata share of our ordinary earnings as
ordinary income and your pro rata share of our net capital gain as long-term
capital gain, whether or not such amounts are actually distributed to you. You
would not be eligible to make a QEF election unless we comply with certain
applicable information reporting requirements. We will provide U.S. Holders with
the information needed to report income and gain under a QEF election if we are
classified as a PFIC.
Alternatively,
if you elect to "mark-to-market" your ordinary shares, you will generally
include in income, in each year in which we are considered a PFIC, any excess of
the fair market value of the ordinary shares at the close of each tax year over
your adjusted basis in the ordinary shares. If the fair market value of the
ordinary shares had depreciated below your adjusted basis at the close of the
tax year, you may generally deduct the excess of the adjusted basis of the
ordinary shares over its fair market value at that time. However, such
deductions would generally be limited to the net mark-to-market gains, if any,
that you included in income with respect to such ordinary shares in prior years.
Income recognized and deductions allowed under the mark-to-market provisions, as
well as any gain or loss on the disposition of ordinary shares with respect to
which the mark-to-market election is made, is treated as ordinary income or
loss. Gain or loss from the disposition of ordinary shares (as to which a
“mark-to-market” election was made) in a year in which we are no longer a PFIC,
will be capital gain or loss.
Backup
Withholding and Information Reporting
Payments
in respect of ordinary shares may be subject to information reporting to the
U.S. Internal Revenue Service and to U.S. backup withholding tax at a rate equal
to the fourth lowest income tax rate applicable to individuals, which, under
current law, is 28%. Backup withholding will not apply, however, if you (i) are
a corporation or fall within certain exempt categories, and demonstrate the fact
when so required, or (ii) furnish a correct taxpayer identification number and
make any other required certification.
Backup
withholding is not an additional tax. Amounts withheld under the backup
withholding rules may be credited against a U.S. Holder’s U.S. tax liability,
and a U.S. Holder may obtain a refund of any excess amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
Any U.S.
Holder who holds 10% or more in vote or value of our ordinary shares will be
subject to certain additional United States information reporting
requirements.
U.S.
Gift and Estate Tax
An
individual U.S. Holder of ordinary shares will generally be subject to U.S. gift
and estate taxes with respect to ordinary shares in the same manner and to the
same extent as with respect to other types of personal property.
F. DIVIDEND
AND PAYING AGENTS
Not
applicable.
G. STATEMENT
BY EXPERTS
Not
applicable.
H. DOCUMENTS
ON DISPLAY
We are
subject to the reporting requirements of the United States Securities Exchange
Act of 1934, as amended, as applicable to “foreign private issuers” as defined
in Rule 3b-4 under the Exchange Act, and in accordance therewith, we file annual
and interim reports and other information with the Securities and Exchange
Commission.
As a
foreign private issuer, we are exempt from certain provisions of the Exchange
Act. Accordingly, our proxy solicitations are not subject to the disclosure and
procedural requirements of Regulation 14A under the Exchange Act, transactions
in our equity securities by our officers and directors are exempt from reporting
and the “short-swing” profit recovery provisions contained in Section 16 of the
Exchange Act. In addition, we are not required under the Exchange Act to file
periodic reports and financial statements as frequently or as promptly as U.S.
companies whose securities are registered under the Exchange Act. However, since
2001, we elected to file our annual and interim reports on Forms 10-K, 10-Q and
8-K. On March 14, 2005, we filed a Form 8-K advising that we would begin to file
our annual reports with the Securities and Exchange Commission on Form 20-F for
foreign private issuers, effective as of the year ended December 31, 2004 and
that we would timely furnish our quarterly unaudited financial statements under
a Report of Foreign Private Issuer on Form 6-K.
This
annual report and the exhibits thereto and any other document we file pursuant
to the Exchange Act may be inspected without charge and copied at prescribed
rates at the following Securities and Exchange Commission public reference rooms
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549
and on the Securities and Exchange Commission Internet site (http://www.sec.gov)
and on our website www.eltekglobal.com You may obtain information on the
operation of the Securities and Exchange Commission's public reference room in
Washington, D.C. by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange
Commission filings is 0-28884.
The
documents concerning our company which are referred to in this annual report may
also be inspected at our offices located at 24 Raoul Wallenberg Street, Tel Aviv
69719, Israel.
I. SUBSIDIARY
INFORMATION
Not
applicable.
ITEM
11. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are
exposed to a variety of risks, including changes in interest rates and foreign
currency fluctuations.
Interest
Rate Risk
As of
December 31, 2004, we had cash and cash equivalents and short-term investments
of $71.6 million.
We invest our cash surplus in time deposits, cash deposits, U.S. federal agency
securities and corporate bonds with an average credit rating of AA. These
investments are not purchased for trading or other speculative purposes. Due to
the nature of these investments, we believe that we do not have a material
exposure to market risk.
Our
exposure to market risks for changes in interest rates is limited since we do
not have any material indebtedness.
Foreign
Currency Exchange Risk
We
develop products in Israel and sell them in North America, Asia and several
European countries. As a result our financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets.
Our
foreign currency exposure with respect to our sales is mitigated, and we expect
it will continue to be mitigated, through salaries, materials and support
operations, in which part of these costs are denominated in NIS.
Since the
beginning of 2004, the NIS has appreciated approximately 1.6% against the
dollar. The appreciation has resulted in a low inflation rate in Israel, which
was approximately 1.2% in 2004 compared to an annual deflation rate of 1.9% in
2003.
Since
most of our sales are quoted in dollars, and a portion of our expenses are
incurred in NIS, our results may be adversely affected by a change in the rate
of inflation in Israel or if such change in the rate of inflation is not offset,
or is offset on a lagging basis, by a corresponding devaluation of the NIS
against the dollar and other foreign currencies.
ITEM
12. DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
Not
applicable.
PART
II
ITEM
13. DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM
14. MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Material
Modifications to the Rights of Security Holders
None.
Use
of Proceeds
We sold
4,370,000 of our ordinary shares in our initial public offering on March 14,
2000. The aggregate offering price of the shares sold was $87.4 million. The
total expenses of the offering were approximately $8,950,000. None of such
expenses were paid directly or indirectly to directors, officers, persons owning
10% or more of any class of equity securities of our company or to our
affiliates. The net public offering proceeds to us, after deducting the total
expenses were approximately $78,500,000. Such proceeds have been invested in
liquid investments and short-term bank deposits and have been used for working
capital purposes. As of December 31, 2004, we had $71.6 million in cash, cash
equivalents and short-term bank deposits.
ITEM
15. CONTROLS
AND PROCEDURES
Our
management, including our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered
by this Form 20-F. Based upon that evaluation, our chief executive officer
and chief financial officer have
concluded that, as of such date, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by our company in
reports that we file or submit under the U.S. Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms
and that such information was made known to them by others within the company,
as appropriate to allow timely decisions regarding required disclosure.
Following
restatement of our 2003 financial statements, we have changed our disclosure
controls to require an extensive review of events subsequent to our earnings
release for possible recognition of their effects in our financial statements
when filed. Other that with respect to such change, there were no changes to our
internal control over financial reporting that occurred during the period
covered by this annual report on Form 20-F that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
All
internal control systems no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective may not prevent or
detect misstatements and can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
ITEM
16. RESERVED
ITEM
16A. AUDIT
COMMITTEE FINANCIAL EXPERT
Our board
of directors has determined that Joseph Atsmon, who serves as Chairman of our
audit committee, meets the definition of an audit committee financial expert, as
defined in Item 401 of Regulation S-K.
We have
adopted a Code of Business Conduct and Ethics that applies to our executive and
financial officers and all of our employees. The Code of Business Conduct and
Ethics is publicly available on our website at www.radvision.com and we
will provide shareholders with a written copy upon request. If we make any
substantive amendments to the Code of Business Conduct and Ethics or grant any
waivers, including any implicit waiver, from a provision of these codes to our
chief executive officer, chief financial officer or corporate controller, we
will disclose the nature of such amendment or waiver on our website.
ITEM
16C. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Fees
Paid to Independent Public Accountants
The
following table sets forth, for each of the years indicated, the fees paid to
our independent public accountants and the percentage of each of the fees out of
the total amount paid to the accountants:
|
|
Year
ended December 31, |
|
|
|
2003 |
|
2004 |
|
Services
Rendered |
|
Fees |
|
Percentages |
|
Fees |
|
Percentages |
|
|
|
|
|
|
|
|
|
|
|
Audit
(1) |
|
$ |
43,000 |
|
|
53.8 |
% |
$ |
91,500 |
|
|
74 |
% |
Audit-related
(2) |
|
|
5,000 |
|
|
6.2 |
|
|
5,000 |
|
|
4 |
|
Tax
(3) |
|
|
32,000 |
|
|
40.0 |
|
|
25,000 |
|
|
20 |
|
Other
(4) |
|
|
- |
|
|
- |
|
|
2,000 |
|
|
2 |
|
Total |
|
$ |
80,000 |
|
|
100.0 |
% |
$ |
123,500 |
|
|
100.0 |
% |
______________
(1) |
Audit
fees consist of services that would normally be provided in connection
with statutory and regulatory filings or engagements, including services
that generally only the independent accountant can reasonably
provide. |
|
|
(2) |
Audit-related
fees relate to assurance and associated services that traditionally are
performed by the independent accountant, including consultation concerning
financial accounting and reporting standards. |
|
|
(3) |
Tax
fees relate to services performed by the tax division for tax compliance,
planning, and advice. |
|
|
(4) |
Other
fees include fees for consulting services rendered to
us. |
Pre-Approval
Policies and Procedures
Our Audit
Committee has adopted policies and procedures for the pre-approval of audit and
non-audit services rendered by our independent registered public accountants,
Kost Forer Gabbay & Kasierer, a member of Ernest & Young Global. The
policy generally pre-approves certain specific services in the categories of
audit services, audit-related services, and tax services up to specified
amounts, and sets requirements for specific case-by-case pre-approval of
discrete projects, those which may have a material effect on our operations or
services over certain amounts. Pre-approval may be given as part of the Audit
Committee’s approval of the scope of the engagement of our independent auditor
or on an individual basis. Any proposed services exceeding general pre-approved
levels also requires specific pre-approval by our audit committee. The
pre-approval of services is sometimes delegated to one or more of the Audit
Committee’s members, but the decision must be presented to the full Audit
Committee at its next scheduled meeting. The policy prohibits retention of the
independent public accountants to perform the prohibited non-audit services
defined in Section 201 of the Sarbanes-Oxley Act or the rules of the Securities
and Exchange Commission, and also considers whether proposed services are
compatible with the independence of the public accountants.
ITEM
16D. EXEMPTIONS
FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT
COMMITTEE
Not
applicable.
ITEM
16E. PURCHASE
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND
PURCHASERS
Issuer
Purchase of Equity Securities
The
following table sets forth, for each of the months indicated, the total number
of shares purchased by us or on our behalf or any affiliated purchaser, the
average price paid per share, the number of shares purchased as part of a
publicly announced repurchase plan or program, the maximum number of shares or
approximate dollar value that may yet be purchased under the plans or
programs.
Month
in 2004 |
|
Total
number of shares purchased |
|
Average
price paid per share |
|
Total
number of shares purchased as part of publicly announced
plans or programs |
|
Maximum
number of shares that may yet be purchased under the plans or
programs |
|
|
|
|
|
|
|
|
|
October |
|
- |
|
- |
|
- |
|
1,986,000 |
November |
|
- |
|
- |
|
- |
|
1,986,000 |
December |
|
- |
|
- |
|
- |
|
1,986,000 |
PART
III
ITEM
17. FINANCIAL
STATEMENTS
Not
applicable.
ITEM
18. FINANCIAL
STATEMENTS
Consolidated
Financial Statements
|
Index
to Financial Statements |
F -
1 |
|
|
|
|
Report
of Independent Auditors |
F -
2 |
|
|
|
|
Consolidated
Balance Sheets |
F -
3 |
|
|
|
|
Consolidated
Statements of Operations |
F -
4 |
|
|
|
|
Statements
of Changes in Shareholders' Equity |
F -
5 |
|
|
|
|
Consolidated
Statements of Cash Flows |
F -
6 |
|
|
|
|
Notes
to Consolidated Financial Statements |
F -
7 |
|
|
|
|
Schedule
II |
106 |
|
Exhibit |
|
Description |
|
1.1*
|
|
Memorandum
of Association of the Registrant
|
|
1.2*
|
|
Articles
of Association of the Registrant
|
|
2.1*
|
|
Form
of Ordinary Share Certificate
|
|
4.1*
|
|
Agreement,
dated as of April 14, 1995, by and among Registrant, RAD Data
Communication Ltd. and Yehuda Zisapel and Zohar Zisapel
|
|
4.2*
|
|
Agreement,
dated as of April 18, 1995, by and among Registrant, Clal Venture Capital
Fund LP and Yehuda Zisapel and Zohar Zisapel
|
|
4.3*
|
|
Agreement,
dated as of April 18, 1995, by and among Registrant, Lannet Data
Communication Ltd. and Yehuda Zisapel and Zohar Zisapel
|
|
4.4*
|
|
Agreement,
dated as of April 19, 1995, by and among Registrant, ECI Telecom Ltd. and
Yehuda Zisapel and Zohar Zisapel
|
|
4.5*
|
|
Agreement,
dated as of April 24, 1995, by and among Registrant, Zohar Gilon, Avraham
Neuman, Yair Tauman and W.S.P. Capital Investment Ltd., and Yehuda Zisapel
and Zohar Zisapel
|
|
4.6*
|
|
Agreement,
dated as of April 26, 1995, by and among Registrant, Lerosh Investments
Ltd., Gevahim Investments House Limited Ltd., Yoav Chelouche, Permal
Emerging Growth V Ltd., Maritime—Julex Investment Ltd., Shraga Blazer and
Eli Luz and Yehuda Zisapel and Zohar Zisapel
|
|
4.7*
|
|
Agreement,
dated as of April 27, 1995, by and among Registrant, Finovelec, Factory
Systemes, Houston Venture Partners, Ltd. and Yehuda Zisapel and Zohar
Zisapel
|
|
4.8*
|
|
Agreement,
dated September 12, 1996, by and among Registrant and Intel Corporation,
as amended
|
|
4.9*
|
|
Agreement,
dated May 12, 1998, by and among Registrant, Evergreen Canada Israel
Management Ltd., IJT Technologies Ltd., Periscope I Fund Israeli
Partnership, Dovrat Shrem Trust Company Ltd., Rubin Gruber, C.E.
Unterberg, Towbin LLC, C.E. Unterberg, Towbin Private Equity Partners LP,
C.E. Unterberg, Towbin Private Equity Partners CV, C.E. Unterberg, Private
Profit Sharing Plan FBO Alex Bernstein and Steimatzsky Ltd.
|
|
4.10***
|
|
Form
of 2000 Employee Stock Option Plan
|
|
4.11*
|
|
Key
Employee Share Incentive Plan, as amended
|
|
4.12*
|
|
Consultant
Option Plan, as amended
|
|
4.13*
|
|
License
Agreement, dated January 13, 1999, between Registrant and RADCOM
Ltd.
|
|
4.14*
|
|
Lease
Agreement, dated May 12, 1997, between RADVISION Inc. and RAD Data
Communication Inc., as amended
|
|
4.15**
|
|
Lease
Agreement, dated January 19, 2001, between Zohar Zisapel Properties, Inc.,
Yehuda Zisapel Properties, Inc. and RADVISION Inc.
|
|
6
|
|
Statements
regarding computation of per share earning
|
|
8
|
|
Subsidiaries
of RADVISION Ltd.
|
|
12.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended
|
|
12.2
|
|
Certification
by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as amended
|
|
13.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
13.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
23.1
|
|
Consent
of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global,
with respect to the Registration Statements on Form S-8.
|
|
___________________ |
* |
Filed
as an exhibit to our registration statement on Form F-1, registration
number 333-30916, as amended, filed with the Securities and Exchange
Commission, and incorporated herein by reference. |
** |
Filed
as an exhibit to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2000, filed with the Securities and Exchange Commission, and
incorporated herein by reference. |
*** |
Filed
as an exhibit to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, filed with the Securities and Exchange Commission, and
incorporated herein by reference. |
RADVISION
LTD. AND ITS SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2004
U.S.
DOLLARS IN THOUSANDS
INDEX
|
Page |
|
|
Report
of Independent Registered Public Accounting Firm |
F
- 2 |
|
|
Consolidated
Balance Sheets |
F
- 3 |
|
|
Consolidated
Statements of Income |
F
- 4 |
|
|
Statements
of Changes in Shareholders' Equity |
F
- 5 |
|
|
Consolidated
Statements of Cash Flows |
F
- 6 |
|
|
Notes
to the Consolidated Financial Statements |
F
- 7 - F - 34 |
-
- - - - - - - - - - - - - -
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders of
RADVISION
LTD.
We have
audited the accompanying consolidated balance sheets of RADVISION Ltd. ("the
Company") and its subsidiaries as of December 31, 2003 and 2004, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the accompanying financial statement schedule II. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2003 and 2004, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As
discussed in Note 1b, the consolidated financial statements as of December 31,
2003 and for the year then ended have been restated for the matters set forth
therein.
|
/s/
Kost Forer Gabbay and Kasierer |
Tel-Aviv,
Israel |
KOST
FORER GABBAY & KASIERER |
March
1, 2005 |
A
Member of Ernst & Young Global |
RADVISION LTD. AND ITS
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
U.S.
dollars in thousands, except share and
per share data
|
|
December
31, |
|
|
|
*)
2003 |
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS: |
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
16,433 |
|
$ |
20,206 |
|
Short-term
bank deposits |
|
|
13,574 |
|
|
11,799 |
|
Short-term
marketable securities |
|
|
21,403 |
|
|
39,612 |
|
Trade
receivables (net of allowance for doubtful accounts of $ 1,704 and $ 1,276
at
December 31, 2003 and 2004, respectively) |
|
|
8,685 |
|
|
10,063 |
|
Other
accounts receivable and prepaid expenses |
|
|
2,704 |
|
|
3,900 |
|
Inventories |
|
|
969 |
|
|
1,220 |
|
|
|
|
|
|
|
|
|
Total
current
assets |
|
|
63,768 |
|
|
86,800 |
|
|
|
|
|
|
|
|
|
LONG-TERM
INVESTMENTS AND RECEIVABLES: |
|
|
|
|
|
|
|
Long-term
bank deposits |
|
|
4,004 |
|
|
5,384 |
|
Long-term
marketable securities |
|
|
44,497 |
|
|
33,365 |
|
Severance
pay fund |
|
|
2,171 |
|
|
2,733 |
|
|
|
|
|
|
|
|
|
Total
long-term investments and receivables |
|
|
50,672 |
|
|
41,482 |
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET |
|
|
2,572 |
|
|
2,647 |
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
- |
|
|
647 |
|
|
|
|
|
|
|
|
|
OTHER
INTANGIBLE ASSETS, NET |
|
|
- |
|
|
306 |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
117,012 |
|
$ |
131,882 |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
|
|
|
Trade
payables |
|
$ |
1,270 |
|
$ |
1,939 |
|
Deferred
revenues |
|
|
6,047 |
|
|
7,517 |
|
Accrued
expenses and other accounts payable |
|
|
12,040 |
|
|
11,949 |
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
19,357 |
|
|
21,405 |
|
|
|
|
|
|
|
|
|
ACCRUED
SEVERANCE PAY |
|
|
3,353 |
|
|
3,701 |
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
22,710 |
|
|
25,106 |
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY: |
|
|
|
|
|
|
|
Ordinary
shares of NIS 0.1 par value: |
|
|
|
|
|
|
|
Authorized
- 25,000,000 shares as of December 31, 2003 and 2004; Issued -20,152,045
and 20,569,018 as of December 31, 2003 and 2004 respectively; Outstanding
- 19,344,849 and 20,569,018 shares as of December 31, 2003 and 2004,
respectively |
|
|
187 |
|
|
196 |
|
Additional
paid-in capital |
|
|
104,663 |
|
|
107,267 |
|
Treasury
stock (807,196 and 0 Ordinary shares as of December 31, 2003 and 2004,
respectively) |
|
|
(5,075 |
) |
|
- |
|
Accumulated
deficit |
|
|
(5,473 |
) |
|
(687 |
) |
|
|
|
|
|
|
|
|
Total
shareholders' equity |
|
|
94,302 |
|
|
106,776 |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity |
|
$ |
117,012 |
|
$ |
131,882 |
|
*) Restated
(see Note 1b).
The
accompanying notes are an integral part of the consolidated financial
statements.
RADVISION LTD. AND ITS
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
U.S.
dollars in thousands, except per share data
|
|
Year
ended December 31, |
|
|
|
2002 |
|
*)
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
Products |
|
$ |
34,577 |
|
$ |
35,286 |
|
$ |
40,212 |
|
License
and royalties |
|
|
6,619 |
|
|
8,329 |
|
|
13,758 |
|
Maintenance
services |
|
|
7,899 |
|
|
7,689 |
|
|
10,266 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
|
49,095 |
|
|
51,304 |
|
|
64,236 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
10,946 |
|
|
11,351 |
|
|
13,108 |
|
Research
and development |
|
|
15,338 |
|
|
14,573 |
|
|
17,484 |
|
Marketing
and selling |
|
|
18,624 |
|
|
19,969 |
|
|
24,620 |
|
General
and administrative |
|
|
4,098 |
|
|
4,040 |
|
|
4,900 |
|
Restructuring
income |
|
|
- |
|
|
(1,061 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses |
|
|
49,006 |
|
|
48,872 |
|
|
60,112 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
|
89 |
|
|
2,432 |
|
|
4,124 |
|
Financial
income, net |
|
|
2,667 |
|
|
2,130 |
|
|
1,860 |
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per Ordinary share |
|
$ |
0.15 |
|
$ |
0.24 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per Ordinary share |
|
$ |
0.15 |
|
$ |
0.23 |
|
$ |
0.28 |
|
*) Restated
(see Note 1b).
The
accompanying notes are an integral part of the consolidated financial
statements.
RADVISION LTD. AND ITS
SUBSIDIARIES
STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
U.S.
dollars in thousands, except share data
|
|
|
|
Additional |
|
Deferred |
|
|
|
|
|
Total |
|
|
|
Ordinary
shares |
|
paid-in |
|
stock |
|
Treasury |
|
Accumulated |
|
shareholders' |
|
|
|
Number |
|
Amount |
|
capital |
|
compensation |
|
stock |
|
deficit |
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2002 |
|
|
18,304,244 |
|
$ |
182 |
|
$ |
104,209 |
|
$ |
(299 |
) |
$ |
(9,903 |
) |
$ |
(10,640 |
) |
$ |
83,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock |
|
|
(280,669 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(1,854 |
) |
|
- |
|
|
(1,854 |
) |
Exercise
of share options by employees |
|
|
262,355 |
|
|
5 |
|
|
377 |
|
|
- |
|
|
- |
|
|
- |
|
|
382 |
|
Amortization
of deferred stock compensation |
|
|
- |
|
|
- |
|
|
- |
|
|
182 |
|
|
- |
|
|
- |
|
|
182 |
|
Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
2,756 |
|
|
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2002 |
|
|
18,285,930 |
|
|
187 |
|
|
104,586 |
|
|
(117 |
) |
|
(11,757 |
) |
|
(7,884 |
) |
|
85,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock |
|
|
(14,000 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(77 |
) |
|
- |
|
|
(77 |
) |
Exercise
of share options by employees |
|
|
1,072,919 |
|
|
- |
|
|
77 |
|
|
- |
|
|
6,759 |
|
|
(2,151 |
) |
|
4,685 |
|
Amortization
of deferred stock compensation |
|
|
- |
|
|
- |
|
|
- |
|
|
117 |
|
|
- |
|
|
- |
|
|
117 |
|
Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,562 |
|
|
4,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2003 *) |
|
|
19,344,849 |
|
|
187 |
|
|
104,663 |
|
|
- |
|
|
(5,075 |
) |
|
(5,473 |
) |
|
94,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of share options by employees |
|
|
1,224,169 |
|
|
9 |
|
|
2,604 |
|
|
- |
|
|
5,075 |
|
|
(1,198 |
) |
|
6,490 |
|
Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
5,984 |
|
|
5,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
|
20,569,018 |
|
$ |
196 |
|
$ |
107,267 |
|
$ |
- |
|
$ |
- |
|
$ |
(687 |
) |
$ |
106,776 |
|
*) Restated
(see Note 1b).
The
accompanying notes are an integral part of the consolidated financial
statements.
RADVISION LTD. AND ITS
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
U.S.
dollars in thousands
|
|
Year
ended December 31, |
|
|
|
2002 |
|
*)
2003 |
|
2004 |
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Income |
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
Adjustments
required to reconcile income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
2,665 |
|
|
1,926 |
|
|
2,513 |
|
Loss
(gain) on sale of property and equipment |
|
|
(2 |
) |
|
(45 |
) |
|
75 |
|
Restructuring
income |
|
|
- |
|
|
(1,061 |
) |
|
- |
|
Accrued
interest on and amortization of premium on held-to-maturity marketable
securities and bank deposits |
|
|
**)
785 |
|
|
**)
998 |
|
|
1,589 |
|
Amortization
of deferred stock compensation |
|
|
182 |
|
|
117 |
|
|
- |
|
Decrease
(increase) in trade receivables, net |
|
|
(4,427 |
) |
|
820 |
|
|
(1,378 |
) |
Decrease
(increase) in other accounts receivable and prepaid
expenses |
|
|
(1,577 |
) |
|
124 |
|
|
(729 |
) |
Decrease
(increase) in inventories |
|
|
888 |
|
|
27 |
|
|
(251 |
) |
Increase
(decrease) in trade payables |
|
|
2,582 |
|
|
(2,077 |
) |
|
669 |
|
Increase
(decrease) in deferred revenues |
|
|
(628 |
) |
|
3,184 |
|
|
1,470 |
|
Increase
(decrease) in accrued expenses and other accounts payable |
|
|
2,314 |
|
|
716 |
|
|
(91 |
) |
Increase
(decrease) in accrued severance pay, net |
|
|
748 |
|
|
(238 |
) |
|
(214 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities |
|
|
6,286 |
|
|
9,053 |
|
|
9,637 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Proceeds
from redemption of held-to-maturity marketable securities |
|
|
45,810 |
|
|
56,811 |
|
|
35,240 |
|
Purchase
of held-to-maturity marketable securities |
|
|
**)
(45,848 |
) |
|
**)
(75,111 |
) |
|
(43,630 |
) |
Proceeds
from withdrawal of bank deposits |
|
|
36,998 |
|
|
18,476 |
|
|
17,121 |
|
Purchase
of bank deposits |
|
|
(33,167 |
) |
|
(10,119 |
) |
|
(17,002 |
) |
Purchase
of property and equipment |
|
|
(1,705 |
) |
|
(1,300 |
) |
|
(2,319 |
) |
Proceeds
from sale of property and equipment |
|
|
225 |
|
|
182 |
|
|
23 |
|
Purchase
of intangible assets |
|
|
- |
|
|
- |
|
|
(1,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities |
|
|
2,313 |
|
|
(11,061 |
) |
|
(11,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock |
|
|
(1,854 |
) |
|
(77 |
) |
|
- |
|
Exercise
of share options by employees |
|
|
382 |
|
|
- |
|
|
2,621 |
|
Repayment
of long-term bank loans |
|
|
(19 |
) |
|
- |
|
|
- |
|
Issuance
of Ordinary shares and treasury stock for cash upon exercise of
options |
|
|
- |
|
|
4,693 |
|
|
3,402 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities |
|
|
(1,491 |
) |
|
4,616 |
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents |
|
|
7,108 |
|
|
2,608 |
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the year |
|
|
6,717 |
|
|
13,825 |
|
|
16,433 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the year |
|
$ |
13,825 |
|
$ |
16,433 |
|
$ |
20,206 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash activity: |
|
|
|
|
|
|
|
|
|
|
Receivables
on account of shares |
|
$ |
- |
|
$ |
8 |
|
$ |
475 |
|
*) |
Restated
(see Note 1b). |
The
accompanying notes are an integral part of the consolidated financial
statements.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
|
a. |
RADVISION
Ltd. (the "Company") is an Israeli corporation which designs, develops and
supplies products and technology that enable real-time voice, video and
data communications over packet networks, including the Internet and other
networks based on the Internet Protocol
("IP"). |
The
Company's products and technology are used by its customers to develop systems
that enable enterprises and service providers to use packet networks for
real-time IP communications.
The
Company operates under two reportable segments: 1) the networking business unit
(or "NBU"), which focuses on networking solutions and products and is
responsible for developing networking products for IP-centric voice, video and
data conferencing services; and 2) the technology business unit ("TBU"), which
focuses on creating developer toolkits for the underlying IP communication
protocols and testing tools needed for real-time voice and video over
IP.
The
Company has six wholly-owned subsidiaries: RADVISION Inc. in the United States,
RADVISION HK in Hong Kong, RADVISION U.K. in the United Kingdom, RADVISION Japan
KK in Japan that are primarily engaged in selling and marketing the Company's
products and technology, RADVISION Communication Development (Beijing) Co. Ltd.
in China. (see Note 1b), that is primarily engaged in research and development,
and RADVISION B.V., in the Netherlands that is a holding company.
|
b.
|
Restatement
of previously-issued financial statements: |
As
described in Note 13 to the financial statements, in January 2001, we entered
into a lease agreement with related parties for a period of five years.
Subsequently, our company surrendered the property before inception of the
lease. The parties to the lease agreement disputed the extent of damages caused
by this action and agreed to proceed to binding arbitration. The presiding
arbitrator issued his ruling on February 12, 2004, stating the amount we owed
was $400. We had previously accrued a liability of $1,461 in respect of the
aforementioned dispute.
Prior to
the issuance of the arbitration ruling, the Company had announced its 2003
financial results, but had not yet filed its Annual Report on Form 10-K for the
year ended December 31, 2003.
In the
2003 audited financial statement the arbitration ruling was treated as a “Type
II” event as defined in AU 560 of the PCAOB auditing standards
(“AU 560”) and accordingly full disclosure concerning the event was
provided in the 2003 audited financial statements while no revision was made to
the $1,461 accrual.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
In the
process of preparing the financial statements for the year ended December 31,
2004, the accounting treatment relating to this event was reconsidered and
consequently it was concluded that the arbitration ruling issued on February 14,
2004 represents a “Type I” event according to AU 560, due to the fact that
the above ruling, ,which became available subsequent to the period covered by
the 2003 financial statements, but before issuance of such financial statements,
provided additional evidence with respect to conditions that existed on December
31, 2003 and affected estimates used in preparing the 2003 financial statements.
Consequently, the estimated provision relating to the aforementioned dispute is
being revised from $1,461 to $400 in the 2003 fiscal year and the financial
statements are being restated accordingly.
As a
result of this restatement, the Company recorded restructuring income of $1,061
in the year ended December 31, 2003, resulting in increased net income and
decreased accrued expenses in that amount.
The
impact of the aforementioned restatement with respect to the financial
statements as of December 31, 2003 and for the year then ended is summarized
below:
Statement
of operations data:
|
|
Year
ended December 31, 2003 |
|
|
|
Previously
reported |
|
Adjustment |
|
As
restated |
|
|
|
|
|
|
|
|
|
Restructuring
income |
|
$ |
- |
|
$ |
1,061 |
|
$ |
1,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
$ |
1,371 |
|
$ |
1,061 |
|
$ |
2,432 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income |
|
$ |
3,501 |
|
$ |
1,061 |
|
$ |
4,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per Ordinary share |
|
$ |
0.19 |
|
$ |
0.05 |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per Ordinary share |
|
$ |
0.18 |
|
$ |
0.05 |
|
$ |
0.23 |
|
Balance
sheet data:
|
|
December
31, 2003 |
|
|
|
Previously
reported |
|
Adjustment |
|
As
restated |
|
|
|
|
|
|
|
|
|
Accrued
expenses and other accounts payable |
|
$ |
13,101 |
|
$ |
1,061 |
|
$ |
12,040 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
$ |
20,418 |
|
$ |
(1,061 |
) |
$ |
19,357 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit |
|
$ |
(6,534 |
) |
$ |
1,061 |
|
$ |
(5,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity |
|
$ |
93,241 |
|
$ |
1,061 |
|
$ |
94,302 |
|
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
Cash flow
data:
|
|
Year
ended December 31, 2003 |
|
|
|
Previously
reported |
|
Adjustment |
|
As
restated |
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
3,501 |
|
$ |
1,061 |
|
$ |
4,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
income |
|
$ |
- |
|
$ |
(1,061 |
) |
$ |
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities |
|
$ |
9,053 |
|
$ |
- |
|
$ |
9,053 |
|
|
c. |
Acquisition
of assets of VisionNex Technologies
Inc. |
In May
2004, the Company entered into an asset purchase agreement with VisionNex
Technologies Inc. ("VisionNex"), a U.S. based company with a wholly-owned
Chinese subsidiary, pursuant to which the Company acquired VisionNex's
technologies, intangible assets and intellectual property.
The
assets purchased by the Company consisted of the technology and workforce used
by VisionNex in conducting its business. The consideration for the assets
purchased from VisionNex amounted to $ 1,320. For the useful life of intangible
asset - see Note 6. In addition, the Company hired certain former employees of
VisionNex.
The
transaction has been accounted for as a purchase business combination. The
purchase price was allocated to the technology with the residual recognized as
goodwill. The pro-forma effect of the acquisition is immaterial to the Company’s
results.
In July
2004, the Company incorporated a wholly-owned subsidiary under the laws of
China, RADVISION Communication Development (Beijing) Co. Ltd., for the purpose
of opening a research and development center in China.
|
d. |
Revenues
derived from the Company's largest customer in 2004, represented 27% of
total sales (see Note 12e). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES |
The
consolidated financial statements are prepared according to accounting
principles generally accepted in the United States ("U.S. GAAP").
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
|
b. |
Principles
of consolidation: |
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany transactions and balances have been
eliminated upon consolidation.
|
c. |
Financial
statements in U.S. dollars: |
The
Company's and its subsidiaries' revenues are generated in U.S. dollars
("dollar"). In addition, a significant portion of the Company's and its
subsidiaries' costs is incurred in dollars. The Company's management believes
that the dollar is the currency of the primary economic environment in which the
Company and its subsidiaries operate. Thus, the functional and reporting
currency of the Company and its subsidiaries is the dollar.
Accordingly,
the Company's and its subsidiaries' transactions and balances denominated in
dollars are presented at their original amounts. Non-dollar transactions and
balances have been remeasured into dollars in accordance with Statement of the
Financial Accounting Standard No. 52, "Foreign Currency Translation" ("SFAS No.
52"). Amounts in currencies other than U.S dollars have been remeasured as
follows:
Monetary
balances - at the exchange rate in effect on the balance sheet
date.
Revenues
and costs - at the exchange rates in effect as of the date of recognition of the
transactions.
All
exchange gains and losses from the remeasurement mentioned above are reflected
in the statement of income under financial income, net.
Cash
equivalents are short-term highly liquid investments that are readily
convertible to cash with maturities of three months or less at the date of
purchase.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
e. |
Marketable
securities: |
The
Company accounts for investments in debt securities in accordance with Statement
of Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determinations at each balance sheet
date. Debt securities are classified as held-to-maturity since the Company has
the positive intent and ability to hold the securities to maturity. These
securities are stated at amortized cost and are therefore adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization, accretion and interest on the debt securities are included in
financial income, net.
|
f. |
Short-term
bank deposits: |
Short-term
bank deposits are deposits with maturities of more than three months but less
than one year. The deposits are in dollars and bear interest at an annual
average rate of 1.95% at December 31, 2004. The short-term deposits are
presented at their cost, including accrued interest.
|
g. |
Long-term
bank deposits: |
Long-term
bank deposits are deposits with maturities of more than one year. These deposits
are presented at their cost plus accrued interest. The deposits are in dollars
and bear interest at an annual average rate of 2.58% at December 31, 2004.
These deposits mature in 2006.
Inventories
are stated at the lower of cost or market value.
Cost is
determined as follows:
Raw
materials - using the average cost method.
Finished
products - raw materials as mentioned above and subcontractors' costs on an
average basis.
Inventory
write-offs and write-down provisions are provided to cover risks arising from
slow-moving items or technological obsolescence. The Company and its
subsidiaries periodically evaluate the quantities on hand relative to historical
and projected sales volume and the age of the inventory. Based on this
evaluation, provisions are made when required to write inventory down to its
market prices. The Company's provision for slow-moving items or technological
obsolescence was $ 2,452 and $ 1,505 as of December 31, 2003 and 2004,
respectively.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
i. |
Property
and equipment: |
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation
is calculated using the straight-line method over the estimated useful lives of
the assets, at the following annual rates:
|
|
% |
|
|
|
|
|
Computers
and peripheral equipment |
|
|
15-33 |
|
Office
furniture and equipment |
|
|
7-15 |
|
Motor
vehicles |
|
|
15 |
|
Leasehold
improvements |
|
|
Over
the shorter of the term of the lease or useful lives |
|
Intangible
assets are amortized over their useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the intangible assets are
consumed or otherwise used up, in accordance with SFAS No. 142. The Company
amortizes its intangible assets on a straight line basis.
|
k. |
Impairment
of long-lived assets: |
The
Company's and the subsidiaries' long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment exists when the carrying value of the
asset exceeds the aggregate undiscounted cash flows expected to be generated by
the asset. The impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. As of
December 31, 2004, no impairment indicators have been identified.
The
Company's liability for severance pay is calculated pursuant to Israel's
Severance Pay Law based on the most recent salary of the employees multiplied by
the number of years of employment, as of the balance sheet date. Employees are
entitled to one month's salary for each year of employment or a portion thereof.
The Company's liability for all of its employees is fully provided for by
monthly deposits for insurance policies and by an accrual. The value of these
policies is recorded as an asset in the Company's balance sheet.
The
deposited funds include profits accumulated up to the balance sheet date. The
deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to Israel's Severance Pay Law or labor agreements. The value of the
deposited funds is based on the cash surrendered value of the policies and
includes immaterial profits.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
Severance
pay expenses for the years ended December 31, 2002, 2003 and 2004, amounted to
approximately $ 1,643, $ 482 and $ 590, respectively.
The
Company and its subsidiaries generate revenues mainly from: 1) sales of systems;
2) licensing the rights to use its software products and royalty income; 3)
maintenance and support and 4) customization projects. The Company and its
subsidiaries sell their hardware products through OEMs, system integrators and
value added resellers, all of whom are considered end-users.
Software
licensing, royalties and sales of systems revenues:
The
Company accounts for its product sales in accordance with Statement of
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair value of the
elements. However, the Company has adopted Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions" ("SOP 98-9"). According to SOP No. 98-9, revenues should be
allocated to the different elements in the arrangement under the "residual
method" when Vendor Specific Objective Evidence ("VSOE") of fair value exists
for all undelivered elements and no VSOE exists for the delivered elements.
Under the residual method, at the outset of the arrangement with the customer,
the Company defers revenue for the fair value of its undelivered elements
(maintenance and support) and recognizes revenue for the remainder of the
arrangement fee attributable to the elements initially delivered in the
arrangement (software product) when all other criteria in SOP 97-2 have been
met. Any discount in the arrangement is allocated to the delivered element.
Revenue
from license fees and sales of systems is recognized when persuasive evidence of
an agreement exists, delivery of the product has occurred, no significant
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable.
Revenue
is deferred and recognized upon the receipt of cash when uncertainty as to
collectibility exists.
Maintenance
and support revenue included in multiple element arrangements is deferred and
recognized on a straight-line basis over the term of the maintenance and support
agreement. The VSOE of fair value of the maintenance and support services is
determined based on the price charged when sold separately or when renewed.
Certain
royalty agreements provide for per unit royalties to be paid to the Company
based on the shipments by customers of units containing the Company's products.
Revenues under such agreements are recognized at the time of shipment by
customers as they are reported to the Company by these customers and when
collectability is probable.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
Non-refundable
payments on account of royalties are recognized upon payment, provided that no
future obligation exists.
Revenues
from software licenses that require significant customization, integration and
installation are recognized based on SOP 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts", according to which
revenues are recognized on a percentage of completion basis. Percentage of
completion is determined based on the "Output Method", upon completion of
milestones, when collectibility is probable. After delivery of milestone, if
uncertainty exists about customer acceptance, revenue is not recognized until
acceptance. Provisions for estimated losses on uncompleted contracts are
recognized in the period in which the likelihood of the losses is
identified. As of
December 31, 2004, no such estimated losses were identified.
Deferred
revenue includes unearned amounts received under maintenance and support
contracts, and amounts received from customers but not recognized as
revenues.
The
Company offers a one-year warranty on all of its products. The specific terms
and conditions of those warranties vary depending upon the product sold and
country in which the Company does business. The Company estimates the costs that
may be incurred under its basic limited warranty and records a liability in the
amount of such costs at the time product revenue is recognized. Factors that
affect the Company's warranty liability include the number of installed units,
historical and anticipated rates of warranty claims, and cost per claim. The
Company periodically assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary.
The
Company and its subsidiaries generally do not grant a right of return to its
customers. When returns are expected and estimated, the Company records a
provision for product returns at the time product revenues is recognized; based
on its experience, in accordance with Statement of Financial Accounting Standard
No. 48, "Revenue Recognition When Right of Return Exists". The provision has
been deducted from revenues and amounted to $ 67, $ 17 and $ 66, for the
years ended December 31, 2002, 2003 and 2004, respectively.
Customer
incentives:
The
Company records reductions to revenue and trade receivables for volume-based
incentives, at the time revenue is recorded, based on the estimated amount of
incentives earned. Marketing development programs, when granted, are recorded as
an addition to marketing expense, according to the provisions of EITF 01-9. As
of December 31, 2003 and 2004, the Company deferred an amount of $ 255 and $
310, respectively, due to the abovementioned incentives.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
n. |
Research
and development costs: |
Research
and development costs are charged to the statement of income as incurred.
Statement of Financial Accounting Standard No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working models and the point at which the products are
ready for general release has been insignificant. Therefore, all research and
development costs have been expensed.
|
o. |
Royalty-bearing
grants: |
The
Company received grants from the Israel U.S Binational Industrial Research and
Development Foundation (see Note 9a). These grants are recognized at the time
the Company is entitled to such grants on the basis of the costs incurred and
included as a deduction of research and development costs.
Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This
Statement prescribes the use of the liability method whereby deferred tax assets
and liabilities are determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and for carryforward losses.
Deferred taxes are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The
Company and its subsidiaries provide a valuation allowance, if necessary, to
reduce deferred tax assets to their estimated realizable value.
|
q. |
Fair
value of financial instruments: |
The
carrying amount reported in the balance sheet for cash and cash equivalents,
short-term bank deposits, trade and other receivables and trade and other
payables approximates their fair values due to the short-term maturities of such
instruments.
The fair
value of held-to-maturity marketable securities is based on quoted market prices
and it does not differ significantly from its carrying amount (see Note 3).
The fair
value of long-term bank deposits approximates its carrying amount since the
deposits bear interest at a rate approximating the market rate.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
r. |
Accounting
for stock-based compensation: |
The
Company accounts for stock-based compensation in accordance with the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25) and FASB interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN No. 44") in accounting for its
employee stock options. According
to APB No. 25,
compensation expense is measured under the intrinsic value method, whereby
compensation expense is equal to the excess, if any, of the quoted market price
of the stock over the exercise price at the grant date of the
award.
The
Company adopted the disclosure provisions of Financial Accounting Standards
Board Statement No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS No. 148"), which amended certain provisions of Statement
of Financial Accounting Standard No.123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for
stock-based employee compensation, effective as of the beginning of the fiscal
year. The Company continues to apply the provisions of APB No. 25, in accounting
for stock-based compensation.
Pro forma
information regarding the Company's net income and net earnings per share is
required by SFAS No. 123 as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123.
The fair
value of these options is amortized over their vesting period and estimated at
the date of grant using a Black-Scholes multiple option pricing model with the
following weighted average assumptions; risk-free interest rates of 3%, 2.37%
and 3.41% for 2002, 2003 and 2004, respectively; a dividend yield of 0.0% for
each of those years; a volatility factor of the expected market price of the
Company's Ordinary shares of 0.59 for 2002, 0.77 for 2003 and 0.42 for 2004; and
a weighted-average expected life of the option of 3 years for 2002, 2003 and
2004.
For pro
forma purposes, compensation expenses are amortized on a straight line
basis.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
The
following table illustrates the effect on net income (loss) and net earnings
(loss) per share, assuming that the Company had applied the fair value
recognition provision of SFAS No. 123 on its stock-based employee
compensation:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
|
|
|
|
Net
Income as reported |
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
Add:
stock based compensation expense
determined
under APB 25 intrinsic value |
|
|
182 |
|
|
117 |
|
|
- |
Deduct:
stock-based compensation expense determined
under fair value method for all awards |
|
|
5,440 |
|
|
3,640 |
|
|
3,588 |
|
|
|
|
|
|
|
|
|
|
Pro
forma income (loss) |
|
$ |
(2,502 |
) |
$ |
1,039 |
|
$ |
2,396 |
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per Ordinary share, as reported |
|
$ |
0.15 |
|
$ |
0.24 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
Pro
forma basic net earnings (loss) per Ordinary share |
|
$ |
(0.14 |
) |
$ |
0.06 |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per Ordinary share as reported |
|
$ |
0.15 |
|
$ |
0.23 |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
Pro
forma diluted net earnings (loss) per Ordinary share |
|
$ |
(0.14 |
) |
$ |
0.05 |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used to compute pro forma basic net earnings per
Ordinary share |
|
|
18,353,052 |
|
|
18,660,444 |
|
|
19,822,061 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used to compute pro forma diluted net earnings
per Ordinary share |
|
|
18,
353,052 |
|
|
19,338,692 |
|
|
20,941,474 |
|
s. |
Concentration
of credit risk: |
Financial
instruments that potentially subject the Company and its subsidiaries to
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities, short-term bank deposits, trade receivables and long-term
bank deposits.
The
majority of the Company's cash and cash equivalents, short-term and long-term
bank deposits are invested in dollar investments with major banks in Israel and
the U.S. Such cash and cash equivalents, short-term and long-term bank deposits
in the United States may be in excess of insured limits and are not insured in
other jurisdictions. However, management believes that the financial
institutions that hold the Company's investments are financially sound and
accordingly, minimal credit risk exists with respect to these
investments.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
The
marketable securities of the Company and its subsidiaries include investments in
debentures of U.S corporations, and state and political subdivisions. Management
believes that the portfolio is well diversified, and accordingly, minimal credit
risk exists with respect to these marketable securities.
The trade
receivables of the Company and its subsidiaries related to the NBU business are
derived from sales to large and solid organizations located mainly in North
America, Europe, the Far East and Israel. The Company and its subsidiaries
perform ongoing credit evaluations of their customers and to date have not
experienced any material losses. An allowance for doubtful accounts is
determined with respect to those amounts that the Company and its subsidiaries
have determined to be doubtful of collection. In certain circumstances, the
Company and its subsidiaries may require letters of credit, other collateral or
additional guarantees.
The
Company and its subsidiaries' trade receivables related to the TBU business are
derived from sales to emerging companies located mainly in North America,
Europe, the Far East and Israel. The Company and its subsidiaries perform
ongoing credit evaluations of their customers and record an allowance for
doubtful accounts with respect to those amounts that were determined to be
doubtful of collection. When uncertainty of collectibility exists, the Company
and its subsidiaries defer revenues until such uncertainty expires.
As of
December 31, 2004, the balance of one customer accounted for 16.2% of the
Company's trade receivables for a total of approximately $ 1,626.
The
Company and its subsidiaries do not have significant off-balance-sheet
concentration of credit risk, such as foreign exchange contracts, options
contracts or other foreign hedging arrangements.
|
t. |
Basic
net earnings per share: |
Basic net
earnings per share is computed based on the weighted average number of Ordinary
shares outstanding during the year. Diluted net earnings per share further
includes the effect of dilutive stock options outstanding during the year, all
in accordance with SFAS No. 128, "Earnings Per Share".
Options
outstanding to purchase approximately
2,226,906, 1,202,258 and 947,949 Ordinary shares for the years ended December
31, 2002, 2003 and 2004, respectively, were not included in the computation of
diluted net earnings per share, because option exercise prices were greater than
the average market price of the Ordinary shares and therefore their inclusion
would have been anti-dilutive.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share data
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
u. |
New
accounting pronouncements: |
|
1. |
In
February 2004, the FASB issued EITF Issue No. 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-1"). This EITF was issued to determine the meaning
of other-than-temporary impairment and its application to investments in
debt and equity securities within the scope of SFAS 115. EITF 03-1 also
applies to investments in equity securities that are both outside SFAS
115's scope and are not accounted for by the equity method, which are
defined as "cost method investments." The impairment measurement and
recognition guidance prescribed in EITF 03-1 is delayed until the final
issuance of FSP EITF 03-01-a. The disclosure requirements relating to
investments accounted for under FAS 115 are effective for annual reporting
periods ending after June 15, 2003. The Company does not expect that
the adoption of the measurement and recognition provisions of EITF 03-1
will have a material effect on its financial position or results of
operations. |
|
2. |
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("Statement
123(R)"), which is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation". Statement 123(R) supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and amends FASB Statement No.
95, "Statement of Cash Flows". Generally, the approach in Statement 123(R)
is similar to the approach described in Statement 123. However, Statement
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an alternative.
|
Statement
123(R) must be adopted no later than July 1, 2005. Early adoption will be
permitted in periods in which financial statements have not yet been issued. The
Company expects to adopt Statement 123(R) on the first interim period beginning
after July 1, 2005.
Statement
123(R) permits public companies to adopt its requirements using one of two
methods:
|
a) |
A
"modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective
date and (b) based on the requirements of Statement 123 for all awards
granted to employees prior to the effective date of Statement 123(R) that
remain unvested on the effective date. |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) |
|
b) |
A
"modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented
or (b) prior interim periods of the year of adoption.
|
The
Company is still in the process of evaluating the method it will
use.
As
permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have a
significant impact on the Company's results of operations, although it will have
no impact on the Company's overall financial position. The impact of adoption of
Statement 123(R) cannot be predicted at this time because it will depend on
levels of share-based payments granted in the future. However, had the Company
adopted Statement 123(R) in prior periods, the impact of that standard would
have approximated the impact of Statement 123 as described in the disclosure of
pro forma income and earnings per share in 2t above.
|
3. |
In
November 2004, the FASB issued Statement of Financial Accounting Standard
No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4." ("SFAS
151"). SFAS 151 amends Accounting Research Bulletin ("ARB") No. 43,
Chapter 4, to clarify that abnormal amounts of idle facility expense,
freight handling costs and wasted materials (spoilage) should be
recognized as current-period charges. In addition, SFAS 151 requires that
the allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SAFS 151 is
effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company does not expect that the adoption of SFAS 151
will have a material effect on its financial position or results of
operations. |
NOTE
3:- |
MARKETABLE
SECURITIES |
The
following is a summary of held-to-maturity securities at December 31, 2004 and
2003:
|
|
Amortized
cost |
|
Unrealized
gains (losses) |
|
Estimated
fair value |
|
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debts
of states and political subdivisions |
|
$ |
27,212 |
|
$ |
51,739 |
|
$ |
115 |
|
$ |
(322 |
) |
$ |
27,327 |
|
$ |
51,417 |
|
Corporate
debentures |
|
|
38,688 |
|
|
21,238 |
|
|
(435 |
) |
|
(339 |
) |
|
38,253 |
|
|
20,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
65,900 |
|
$ |
72,977 |
|
$ |
(320 |
) |
$ |
(661 |
) |
$ |
65,580 |
|
$ |
72,316 |
|
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
3:- |
MARKETABLE
SECURITIES (Cont.) |
The
amortized cost and fair value of held-to-maturity debt securities at
December 31, 2004, by contractual maturities, are shown below:
|
|
Amortized
cost |
|
Estimated
fair value |
|
|
|
|
|
|
|
Due
in one year or less |
|
$ |
39,612 |
|
$ |
39,346 |
|
Due
after one year through two years |
|
|
33,365 |
|
|
32,970 |
|
|
|
|
|
|
|
|
|
|
|
$ |
72,977 |
|
$ |
72,316 |
|
The
unrealized losses in the Company's investments in debts of states and political
subdivisions and corporate debentures were caused by interest rate increases. It
is expected that the securities would not be settled at a price less than the
amortized cost of the Company's investment. Based on Company's intention to hold
these investments until maturity, the bonds were not considered to be other than
temporarily impaired at December 31, 2004.
Inventories
are composed of the following:
|
|
December
31, |
|
|
|
2003 |
|
2004 |
|
|
|
|
|
|
|
Raw
materials |
|
$ |
851 |
|
$ |
1,091 |
|
Finished
products |
|
|
118 |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
$ |
969 |
|
$ |
1,220 |
|
NOTE
5:- |
PROPERTY
AND EQUIPMENT |
Composition
of assets, grouped by major classifications, is as follows:
Cost: |
|
|
|
|
|
Computers
and peripheral equipment |
|
$ |
8,153 |
|
$ |
9,970 |
|
Office
furniture and equipment |
|
|
2,294 |
|
|
2,612 |
|
Motor
vehicles |
|
|
198 |
|
|
152 |
|
Leasehold
improvements |
|
|
1,834 |
|
|
1,850 |
|
|
|
|
|
|
|
|
|
|
|
|
12,479 |
|
|
14,584 |
|
Less
- accumulated depreciation |
|
|
9,907 |
|
|
11,937 |
|
|
|
|
|
|
|
|
|
Depreciated
cost |
|
$ |
2,572 |
|
$ |
2,647 |
|
Depreciation
expenses for the years ended December 31, 2002, 2003 and 2004, amounted to
$ 2,665, $ 1,926 and $ 2,146, respectively.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
6:- |
INTANGIBLE
ASSETS, NET |
|
a. |
The
following table shows the Company's intangible assets for the periods
presented: |
|
|
December
31, |
|
|
|
2003 |
|
2004 |
|
Cost: |
|
|
|
|
|
Technology |
|
$ |
- |
|
$ |
673 |
|
Less
- accumulated amortization |
|
|
- |
|
|
367 |
|
|
|
|
|
|
|
|
|
Amortized
cost |
|
$ |
- |
|
$ |
306 |
|
Intangible
assets represent the acquisition of technology acquired upon the purchase of
VisionNex (see Note 1c).
|
b. |
Amortization
expenses amounted to $ 367 for the year ended December 31,
2004. |
|
c. |
Technology
is amortized over a period of 1.5 years. The technology will be fully
amortized during 2005. |
NOTE
7:- |
SHORT-TERM
BANK CREDIT |
The
Company has a $ 2,523 authorized credit line from a certain bank, out of which $
23 is dominated in NIS and $ 2,500 is dominated in dollars. A total of $ 2,057
was not utilized as of December 31, 2004. $ 466 was utilized by the
granting of bank guarantees (see Note 9c).
NOTE
8:- |
ACCRUED
EXPENSES AND OTHER ACCOUNTS PAYABLE
|
|
|
December
31, |
|
|
*)
2003 |
|
2004 |
|
|
|
|
|
|
|
Payroll
and related accruals |
|
$ |
2,415 |
|
$ |
2,408 |
Accrued
expenses |
|
|
9,625 |
|
|
9,541 |
|
|
|
|
|
|
|
|
|
$ |
12,040 |
|
$ |
11,949 |
|
*) |
Restated
(see Note 1b). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
9:- |
COMMITMENTS
AND CONTINGENCIES |
|
a. |
In
connection with its research and development, the Company received
participation payments from the Israel U.S. Binational Industrial Research
and Development Foundation ("BIRD-F"), in the total amount of
approximately $ 188. In return for the participation, the Company is
committed to pay royalties at a rate of 2.5% of proceeds from the first
year's sales and 5% of the proceeds from the succeeding years' sales, up
to the amount of the grant. Once the amount of the grant has been repaid,
royalties will be payable at the rate of 2.5% of proceeds, until
additional royalties equal to one half of the grant amount have been
repaid. The Company's total commitment for royalties payable with respect
to future sales, based on BIRD-F participations received or accrued, net
of royalties paid or accrued, totaled approximately $ 276 as of
December 31, 2003 and 2004. During 2004, the Company did not pay or accrue
royalties to the BIRD-F. |
|
b. |
The
Company and its subsidiaries operate from leased premises in Israel, the
United States, China, Japan, the United Kingdom and Hong Kong. The leases
expire through June 2008 (some with renewal options). The Company leases
its motor vehicles under operating lease agreements that expire on various
dates, the latest of which is in 2008. |
|
|
Annual
minimum future lease payments due under the above agreements, at the
exchange rate in effect on December 31, 2004, are approximately as
follows: |
2005 |
|
$ |
2,706 |
|
2006 |
|
|
2,284 |
|
2007 |
|
|
1,766 |
|
2008 |
|
|
790 |
|
|
|
$ |
7,546 |
|
For the
years ended December 31, 2002, 2003 and 2004, rent expenses and motor vehicle
lease expenses were $ 2,670, $ 2,697 and $ 2,636,
respectively.
|
c. |
The
Company obtained bank guarantees in the amount of $ 466 in connection with
securing its rent agreement of the Company's office space in Israel and in
connection with custom payments. |
|
d. |
The
Company is committed to pay royalties to several third parties for the
integration of these third parties' technologies into the Company's
products. Royalties are payable based on the sales volume of these
products, as long as the Company uses these
technologies. |
The rates
of royalties to the third parties are based on an amount per product sold by the
Company ranging from $ 1.00 to $ 5.00 (in dollars) per unit sold.
The
agreements pursuant to which the royalties are payable have no expiration date.
The
Company expensed royalties in the amount of $ 45, $ 89 and $ 237
in 2002, 2003 and 2004, respectively.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
9:- |
COMMITMENTS
AND CONTINGENCIES (Cont.) |
|
e. |
In
1998, a third party sent correspondence to the Company's related party
alleging that some products manufactured by the Company infringe upon
patents held by the third party and offered to license these patents to
the Company. In subsequent correspondence, the Company's related party
requested that the third party specifically substantiate each allegation
of infringement before the Company's related party would be prepared to
enter into any licensing arrangements. The Company does not believe that
these allegations will have a material adverse effect upon its business,
financial position, results of operations or liquidity. The Company's
related party has received further correspondence from the third party, in
which the third party has, among other things, reiterated its claims. The
Company's related party does not believe the third party has substantiated
its claims and has communicated this belief to the third party. The
Company's related party has advised the Company that the alleged
infringement claims are unresolved. |
In 2003,
another third party sent correspondence to the Company alleging that some
products manufactured by the Company infringe upon patents held by this third
party and offered to license these patents to the Company. Subsequent
correspondence was held during 2004, in which additional requests were made by
this third party.
The
Company has recorded a provision, which it believes covers the potential loss
from such allegations.
Under
Israel's Stamp Tax on Documents Law, certain documents are subject to stamp tax
effectively. Recently promulgated regulations provide for a gradual phase-out of
the stamp tax by 2008. In 2004, however, the tax authorities began an
enforcement campaign involving extensive audits of companies' compliance with
the stamp tax obligation with respect to all agreements which had been signed
since June 2003.
The
Company's management believes that the applicable provision in the financial
statements as of December 31, 2004, is adequate to cover probable costs arising
from this law.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share data
NOTE
10:- |
SHAREHOLDERS'
EQUITY |
|
a. |
The
Ordinary shares of the Company are traded on the NASDAQ National Market.
|
Since
October 20, 2002, the Ordinary shares of the Company have also been traded on
the Tel Aviv Stock Exchange.
The
Ordinary shares confer upon their holders the right to receive notice, to
participate and vote in general meetings of the Company, and the right to
receive dividends, if declared.
The
Company had an authorized share capital of 15,530 deferred shares of NIS 0.1 par
value each. The deferred shares conferred no rights or privileges on their
holders, except for the right to receive, upon dissolution or liquidation, the
par value of the deferred shares. In October 2002, a special shareholders
meeting approved the conversion of the deferred shares to Ordinary
shares.
|
b. |
In
February 2001, the Company announced that its Board of Directors
authorized the purchase of up to 10% of its outstanding Ordinary shares in
the open market, from time to time, at prevailing market prices. No time
limit was given with respect to the duration of the share purchase
program. |
As of
December 31, 2004, the Company reissued all of its purchased Ordinary shares in
consideration for the exercise of stock options by employees.
Such
purchases of Ordinary shares are accounted for as treasury stock and result in a
reduction of shareholders' equity. When treasury stock is reissued, the Company
accounts for the re-issuance in accordance with Accounting Principles Board No.
6, "Status of Accounting Research Bulletins" ("APB No. 6") and charges the
excess of the purchase cost over the re-issuance price (loss) to retained
earnings. The purchase cost is calculated based on the weighted average method.
In case the purchase cost is lower than the re-issuance price, the Company
credits the difference to additional paid-in capital.
|
c. |
The
Company adopted a key employee share incentive plan which provides for the
grant by the Company of option awards to purchase up to an aggregate of
8,259,362 Ordinary shares to officers, employees, directors and
consultants of the Company and its subsidiaries. The options vest ratably
over vesting periods ranging from three to five years. The options expire
5 to 10 years from the date of issuance. The incentive plan provides for
the grant of options equal in the number of up to 4% of the Company's
Ordinary shares on a diluted basis. |
As of
December 31, 2004, 60,333 shares are available for future grant. Options that
are cancelled or forfeited before expiration become available for future
grant.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
10:- |
SHAREHOLDERS'
EQUITY
(Cont.) |
Transactions
related to the share incentive plan during the years ended December 31, 2002,
2003 and 2004, and the weighted average exercise prices per share at the date of
grant, are summarized as follows:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
Amount |
|
Weighted
average
exercise
price
|
|
Amount |
|
Weighted
average
exercise
price
|
|
Amount |
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at the beginning of the year |
|
|
3,885,872 |
|
$ |
7.29 |
|
|
4,410,936 |
|
$ |
6.99 |
|
|
4,754,856 |
|
$ |
7.98 |
|
Granted |
|
|
1,167,000 |
|
$ |
5.19 |
|
|
1,749,700 |
|
$ |
8.19 |
|
|
1,521,750 |
|
$ |
11.61 |
|
Exercised |
|
|
(262,355 |
) |
$ |
1.61 |
|
|
(1,072,919 |
) |
$ |
4.25 |
|
|
(1,224,169 |
) |
$ |
5.31 |
|
Forfeited
|
|
|
(379,581 |
) |
$ |
7.88 |
|
|
(332,861 |
) |
$ |
7.96 |
|
|
(756,695 |
) |
$ |
11.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at the end of the year |
|
|
4,410,936 |
|
$ |
6.99 |
|
|
4,754,856 |
|
$ |
7.98 |
|
|
4,295,742 |
|
$ |
9.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at the end of the year |
|
|
1,485,885 |
|
$ |
7.53 |
|
|
1,610,343 |
|
$ |
8.99 |
|
|
1,456,032 |
|
$ |
9.92 |
|
A summary
of the options outstanding and exercisable at December 31, 2004, is as
follows:
|
|
Options
outstanding |
|
Options
exercisable |
|
Range
of
exercise
price |
|
Outstanding
as of
December
31, 2004 |
|
Weighted
average remaining contractual life (years) |
|
Weighted
average exercise price |
|
Outstanding
as of December 31, 2004 |
|
Weighted
average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
$
4.57 - $ 5.57 |
|
|
856,257 |
|
|
7.34 |
|
$ |
5.18 |
|
|
303,063 |
|
$ |
5.15 |
|
$
5.81 - $ 6.70 |
|
|
926,980 |
|
|
7.12 |
|
$ |
6.26 |
|
|
475,401 |
|
$ |
6.13 |
|
$
7.62 - $ 8.78 |
|
|
312,650 |
|
|
8.50 |
|
$ |
8.21 |
|
|
55,650 |
|
$ |
8.12 |
|
$
9.84 - $ 10.58 |
|
|
388,250 |
|
|
9.68 |
|
$ |
9.90 |
|
|
1,875 |
|
$ |
9.92 |
|
$
10.80 - $ 12.00 |
|
|
667,130 |
|
|
8.13 |
|
$ |
11.18 |
|
|
180,130 |
|
$ |
11.41 |
|
$
12.12 - $ 13.34 |
|
|
862,750 |
|
|
8.92 |
|
$ |
12.61 |
|
|
158,188 |
|
$ |
12.81 |
|
$
17.00 |
|
|
224,725 |
|
|
0.56 |
|
$ |
17.00 |
|
|
224,725 |
|
$ |
17.00 |
|
$
28.00 |
|
|
57,000 |
|
|
5.74 |
|
$ |
28.00 |
|
|
57,000 |
|
$ |
28.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,295,742 |
|
|
|
|
$ |
9.41 |
|
|
1,456,032 |
|
$ |
9.92 |
|
|
|
Under
APB No. 25, the amortization of deferred compensation expense for the
years ended December 31, 2002, 2003 and 2004 amounted to $ 182,
$ 117 and $ 0, respectively. Options granted during 2002, 2003
and 2004 were granted at exercise prices equal to market their
price. |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands, except share and per share
data
NOTE
10:- |
SHAREHOLDERS'
EQUITY
(Cont.) |
The
weighted average fair values on the date grant of the options granted during
2002, 2003 and 2004 were as follows:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
Options |
|
Weighted
average
fair
value |
|
Options |
|
Weighted
average
fair
value |
|
Options |
|
Weighted
average
fair
value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,167,000 |
|
$ |
2.03 |
|
|
1,749,700 |
|
$ |
4.25 |
|
|
1,521,750 |
|
$ |
4.29 |
|
In the
event that cash dividends are declared in the future, such dividends will be
paid in NIS or in foreign currency subject to any statutory limitations. The
Company does not intend to pay cash dividends in the foreseeable future. The
Company has decided not to declare dividends out of tax exempt earnings (see
Note 15).
NOTE
11:- |
NET
EARNINGS PER SHARE |
The
following table sets forth the computation of basic and diluted net earnings per
share:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
*)
2003 |
|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
Net
income |
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Ordinary shares outstanding during the year used to
compute basic net earnings per share |
|
|
18,353,052 |
|
|
18,660,444 |
|
|
19,822,061 |
|
Incremental
shares attributable to exercise of outstanding options (assuming proceeds
would be used to purchase treasury stock) |
|
|
630,278 |
|
|
1,302,816 |
|
|
1,577,263 |
|
Weighted
average number of Ordinary shares used to compute diluted net earnings per
share |
|
|
18,983,330 |
|
|
19,963,260 |
|
|
21,399,324 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per Ordinary share |
|
$ |
0.15 |
|
$ |
0.24 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per Ordinary share |
|
$ |
0.15 |
|
$ |
0.23 |
|
$ |
0.28 |
|
|
*) |
Restated
(see Note 1b). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
12:- |
SEGMENT
REPORTING AND GEOGRAPHICAL
INFORMATION |
|
a. |
The
Company operates under two reportable segments: the technology business
unit ("TBU") and the networking business unit ("NBU").
|
The TBU
is responsible for the development of enabling technologies for real-time voice
and video over IP. The NBU is responsible for developing networking products for
IP-centric voice, video and data conferencing services. There are no significant
transactions between the two segments.
The
Company evaluates segment performance based on revenues and operating income
(loss) of each segment.
|
|
The
Company's reportable operating segments have been determined in accordance
with the Company's internal management structure, which is organized based
on operating activities. The accounting policies of the operating segments
are the same as those described in the summary of significant accounting
policies. |
|
b. |
The
following is information about reported segment gains and
losses: |
|
|
NBU |
|
TBU |
|
Total |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
Total
revenues |
|
$ |
44,812 |
|
$ |
19,424 |
|
$ |
64,236 |
|
Expenses
|
|
|
46,245 |
|
|
13,867 |
|
|
60,112 |
|
Segment
income (loss) |
|
$ |
(1,433 |
) |
$ |
5,557 |
|
|
4,124 |
|
Financial
income |
|
|
|
|
|
|
|
|
1,860 |
|
Income |
|
|
|
|
|
|
|
$ |
5,984 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
$ |
1,809 |
|
$ |
704 |
|
$ |
2,513 |
|
|
|
|
|
|
|
|
|
|
|
|
2003
*) |
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
$ |
38,059 |
|
$ |
13,245 |
|
$ |
51,304 |
|
Expenses
|
|
|
38,454 |
|
|
11,479 |
|
|
49,933 |
|
Segment
income (loss) |
|
$ |
(395 |
) |
$ |
1,766 |
|
|
1,371 |
|
Restructuring
income |
|
|
|
|
|
|
|
|
1,061 |
|
Financial
income |
|
|
|
|
|
|
|
|
2,130 |
|
Income
|
|
|
|
|
|
|
|
$ |
4,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
$ |
1,386 |
|
$ |
540 |
|
$ |
1,926 |
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
$ |
36,336 |
|
$ |
12,759 |
|
$ |
49,095 |
|
Expenses
|
|
|
36,799 |
|
|
12,207 |
|
|
49,006 |
|
Segment
income (loss) |
|
$ |
(463 |
) |
$ |
552 |
|
|
89 |
|
Financial
income |
|
|
|
|
|
|
|
|
2,667 |
|
Income
|
|
|
|
|
|
|
|
$ |
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
$ |
1,918 |
|
$ |
747 |
|
$ |
2,665 |
|
|
*) |
Restated
(see Note 1b). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
12:- |
SEGMENT
REPORTING AND GEOGRAPHICAL INFORMATION
(Cont.) |
|
c. |
Summary
information about geographic areas: |
The
following presents total revenues according to the end customer's location for
the years ended December 31, 2002, 2003 and 2004, and long-lived assets as of
December 31, 2003 and 2004 according to their geographic
location:
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
Total
revenues |
|
Total
revenues |
|
Long-lived
assets |
|
Total
revenues |
|
Long-lived
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (principally the United States) |
|
$ |
24,599 |
|
$ |
24,407 |
|
$ |
527 |
|
$ |
33,660 |
|
$ |
481 |
|
Europe |
|
|
12,029 |
|
|
11,191 |
|
|
40 |
|
|
15,616 |
|
|
9 |
|
Far
East |
|
|
10,200 |
|
|
12,672 |
|
|
98 |
|
|
11,688 |
|
|
785 |
|
Israel |
|
|
2,267 |
|
|
3,034 |
|
|
1,907 |
|
|
3,272 |
|
|
2,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,095 |
|
$ |
51,304 |
|
$ |
2,572 |
|
$ |
64,236 |
|
$ |
3,600 |
|
|
d. |
The
Company does not provide the chief operating decision maker with
information about segment assets and such information is not reviewed by
him. Accordingly, the Company does not allocate its assets to its
reportable segments and asset information by reportable segment is not
presented. |
|
e. |
For
the years ended December 31, 2002, 2003 and 2004, one customer accounted
for approximately 25%, 21% and 27%, respectively, of sales for that
period. For the year ended December 31, 2002, another customer accounted
for approximately 11% of sales for that
period. |
NOTE
13:- |
RESTRUCTURING
INCOME |
In
January 2001, the Company entered into an agreement with related parties, to
lease approximately 24,000 square feet of office space in Paramus, New Jersey
for a period of five years. Subsequently, as part of the restructuring that took
place in 2001, the Company surrendered the property before the inception of the
lease. The parties had a dispute with respect to the extent of damages caused by
this action and agreed to a binding arbitration. The presiding arbitrator issued
his final ruling on February 12, 2004, stating the amount owed by the Company
was $400. In conjunction with the aforementioned restructuring, the Company had
accrued in respect of the above dispute $1,461. As a result of the arbitrator's
ruling, as of December 31, 2003, the Company revised the related accrual to $400
and recorded in 2003 restructuring income in the amount of $ 1,061 (see Note
1b). The amount of $400 was paid to the related party in 2004.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
14:- |
RELATED
PARTIES BALANCES AND TRANSACTIONS |
|
a. |
Balances
with related parties: |
|
|
December
31, |
|
|
|
2003 |
|
2004 |
|
|
|
|
|
|
|
Receivables
|
|
$ |
84 |
|
$ |
17 |
|
Trade
payables |
|
$ |
179 |
|
$ |
158 |
|
|
b. |
Transactions
with related parties: |
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
Revenues
(1) |
|
$ |
199 |
|
$ |
- |
|
$ |
214 |
|
Cost
of revenues (3) |
|
$ |
244 |
|
$ |
66 |
|
$ |
39 |
|
Research
and development expenses (2) |
|
$ |
44 |
|
$ |
379 |
|
$ |
143 |
|
Marketing,
selling, general and administrative expenses (2) |
|
$ |
157 |
|
$ |
207 |
|
$ |
455 |
|
Purchase
of property and equipment (4) |
|
$ |
576 |
|
$ |
530 |
|
$ |
624 |
|
|
(1) |
Includes
revenues from the Company's products and maintenance sold to companies
held by principal shareholders ("affiliated
companies"). |
|
(2) |
Includes
administrative services provided to the Company by affiliated companies
that the Company reimburses for the costs incurred in providing these
services. |
|
(3) |
Includes
the purchase of components from affiliated companies.
|
|
(4) |
Includes
property and equipment that were purchased from affiliated companies.
|
|
c. |
During
2003 the Company recorded a restructuring income due to a reversal of an
accrual in the amount of $1,061 relating to the dispute with related party
(See Note 13). |
NOTE
15:- |
TAXES
ON INCOME |
|
a. |
Tax
benefits under the Law for the Encouragement of Capital Investment, 1959
("the Law"): |
|
|
The
Company has two capital investment programs that have been granted
Approved Enterprise status under the Law for Encouragement of Capital
Investments, 1959. Pursuant to the approved programs, the Company is
entitled to a tax benefit period of seven to 10 years, on income derived
from these programs, as follows: a full income tax exemption for the first
two years and a reduced income tax rate of 10% -25% (instead of the
regular rate of 35% in 2004) for the remaining five to eight years
(depending
on the level of non-Israeli investments in the
Company). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
15:- |
TAXES
ON INCOME (Cont.) |
The
period of tax benefits detailed above is subject to limits of 12 years from the
year of commencement of production, or 14 years from the date of granting the
approval, whichever is earlier. The Company's plans expire between the years
2009 and 2017.
The
Company has not yet generated taxable income and, thus, the tax benefits have
not yet been utilized.
The
tax-exempt income attributable to the "Approved Enterprise" cannot be
distributed to shareholders without subjecting the Company to taxes. If these
retained tax-exempt profits are distributed, the Company would be taxed at the
corporate tax rate applicable to such profits as if the Company had not elected
the alternative system of benefits, currently between 10% - 25% for an "Approved
Enterprise". As of December 31, 2004, the accumulated deficit of the Company
does not include tax-exempt profits earned by the Company's "Approved
Enterprise".
The
benefits from the Company's Approved Enterprise programs are dependent upon the
Company fulfilling the conditions stipulated by the Law for Encouragement of
Capital Investments, 1959 and the regulations published under this law, as well
as the criteria in the approval for the specific investment in the Company's
"Approved Enterprise" programs. If the Company does not comply with these
conditions, the tax benefits may be canceled, and the Company may be required to
refund the amount of the canceled benefits, with the addition of linkage
differences and interest. As of the date of these financial statements, the
Company's management believes that it has complied with these
conditions.
By virtue
of this law, the Company is entitled to claim accelerated depreciation on
equipment used by
the "Approved Enterprise" during five tax years.
Income
from sources other than the "Approved Enterprise" during the benefit period will
be subject to tax at the regular corporate tax rate of 35%.
|
b. |
Reduction
in corporate tax rate: |
In June
2004, the Israeli Parliament approved an amendment to the Income Tax Ordinance
(No. 140 and Temporary Provision) ("the Amendment"), which progressively reduces
the corporate tax rate from 36% to 35% in 2004 and to a rate of 30% in 2007. The
Amendment was signed and published in July 2004 and is, therefore, considered
enacted in July 2004. As the Company currently has no taxable income, and no
deferred taxes were recorded, the Amendment does not have an impact on the
Company's results of operation or financial position.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
15:- |
TAXES
ON INCOME (Cont.) |
|
c. |
Measurement
of taxable income under the Income Tax (Inflationary Adjustments)
Law,
1985: |
Results
for tax purposes are measured and reflected in real terms in accordance with the
change in the Israeli Consumer Price Index ("CPI"). As explained in Note 2c, the
consolidated financial statements are presented in dollars. The differences
between the change in the Israeli CPI and in the NIS/U.S. dollar exchange rate
causes a difference between taxable income or loss and the income or loss before
taxes reflected in the consolidated financial statements. In accordance with
paragraph 9(f) of SFAS No. 109, the Company has not provided deferred income
taxes on the differences resulting from changes in exchange rates and indexing
for tax purposes.
|
d. |
Tax
benefits under Israel's Law for the Encouragement of Industry (Taxation),
1969: |
The
Company is an "industrial company", as defined by the law for the Encouragement
of Industry (Taxation), 1969, and as such, is entitled to claim public issuance
expenses over three tax years and accelerated depreciation on
equipment.
|
e. |
During
the third quarter of 2004, the Company reached an agreement with the
Israeli Tax Authorities in regard to the final tax assessments for the
years ended December 31, 1999, 2000, 2001 and 2002. According to the
agreement, the Company's carryforward tax losses have been reduced (see f
below). |
|
f. |
As
of December 31, 2004, the Company's net operating loss carryforwards
for tax purposes amounted to approximately $ 11,250. These net
operating losses may be carried forward indefinitely and may be offset
against future taxable income. The Company expects that during the period
in which these tax losses are utilized its income would be substantially
tax-exempt. Accordingly, the income tax rate of the Company during the
tax-exempt period will be zero, and as such, no deferred tax asset should
be included in these financial statements. Deferred taxes in respect of
other temporary differences are immaterial. |
|
g. |
The
U.S. subsidiary's carryforward tax losses through December 31, 2004,
amounted to approximately $ 13,350. These losses may offset any future
U.S. taxable income of the U.S. subsidiary and will expire in the years
2010 through 2022. In light of the subsidiary's recent history of
operating losses, the Company has recorded a valuation allowance for all
its deferred tax assets. |
Utilization
of U.S. net operating losses may be subject to substantial annual limitation due
to the "change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitations may result in the expiration of
net operating losses before utilization.
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
15:- |
TAXES
ON INCOME (Cont.) |
|
h. |
Deferred
income taxes: |
Deferred
income taxes reflect the net tax effects of net operating loss carryforwards
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The Company's U.S.
subsidiary's
deferred tax assets resulting from tax loss carryforwards are as
follows:
|
|
December
31, |
|
|
|
2003 |
|
2004 |
|
|
|
|
|
|
|
Net
operating loss carryforwards |
|
$ |
5,220 |
|
$ |
4,672 |
|
Valuation
allowance |
|
|
(5,220 |
) |
|
(4,672 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
$ |
- |
|
The
Company's U.S. subsidiary provided valuation allowances in respect of the
aforementioned deferred tax assets since management currently believes that it
is not more likely than not that the deferred tax regarding the loss
carryforwards will be realized. The change in the valuation allowance as of
December 31, 2004 was a reduction of $ 548.
|
i. |
The
Company's total income before provision for income taxes is as
follows: |
|
|
Year
ended December 31, |
|
|
|
2002 |
|
*)
2003 |
|
2004 |
|
|
|
|
|
|
|
|
|
Domestic
(Israel) |
|
$ |
7,880 |
|
$ |
3,948 |
|
$ |
2,433 |
|
Foreign |
|
|
(5,124 |
) |
|
614 |
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
|
*) |
Restated
(see Note 1b). |
RADVISION
LTD. AND ITS SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S.
dollars in thousands
NOTE
15:- |
TAXES
ON INCOME (Cont.) |
|
j. |
A
reconciliation between the theoretical tax income, assuming all income is
taxed at the statutory tax rate applicable to the income of the Company
and the actual tax expense as reported in the statements of income, is as
follows: |
|
|
Year
ended December 31, |
|
|
|
2002 |
|
*)
2003 |
|
2004 |
|
Income
before taxes on income |
|
$ |
2,756 |
|
$ |
4,562 |
|
$ |
5,984 |
|
Theoretical
tax expense computed at the statutory rate **) |
|
$ |
1,043 |
|
$ |
1,648 |
|
$ |
2,094 |
|
Valuation
allowance for deferred tax assets in respect of loss
carryforwards |
|
|
1,794 |
|
|
215 |
|
|
- |
|
Reversal
of valuation allowance |
|
|
- |
|
|
- |
|
|
(1,279 |
) |
Tax
exempt income due to approved enterprise status |
|
|
(3,080 |
) |
|
(2,034 |
) |
|
(1,118 |
) |
Non-deductible
expenses and others |
|
|
243 |
|
|
171 |
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
Actual
tax expenses |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
*) |
Restated
(see Note 1b). |
|
**) |
The tax rates for domestic income were 36% for the years
2002 - 2003 and 35% for 2004; the tax rate for foreign income is 35%.
|
NOTE
16:- |
SUBSEQUENT
EVENT (UNAUDITED) |
Following
a bidding process held under the supervision of a United States Bankruptcy
Court, the Company acquired substantially all of the assets of First
Virtual Communications ("FVC")
and its wholly-owned subsidiary, CUseeMe Networks, Inc. on an "as is" basis on
March 15, 2005. FVC
creates leading software products that enable interactive voice, video and data
collaboration over IPbased networks. The transaction was provided for by a
cash purchase price of $ 7,150 plus an additional consideration in the form of
the assumption of certain costs.
-
- - - - - - - - - - - - - -
RADVISION
Ltd. and Subsidiaries
Schedule II—Valuation
and Qualifying Accounts
Column
A |
|
Column
B |
|
Column
C |
|
Column
D |
|
Column
E |
|
|
|
Additions |
|
Deductions |
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
|
1,704,000
|
|
|
— |
|
|
— |
|
|
428,000
|
|
|
— |
|
|
1,276,000
|
|
Provision
for slow-moving inventory or technological obsolescence |
|
|
2,452,000
|
|
|
465,000
|
|
|
— |
|
|
1,412,000
|
|
|
— |
|
|
1,505,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes valuation allowances |
|
|
5,220,000
|
|
|
— |
|
|
731,000 |
|
|
— |
|
|
1,279,000
|
|
|
4,672,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,376,000 |
|
|
465,000 |
|
|
731,000 |
|
$ |
1,840,000 |
|
$ |
1,279,000 |
|
$ |
7,453,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
|
1,593,000
|
|
|
111,000
|
|
|
— |
|
|
— |
|
|
— |
|
|
1,704,000
|
|
Provision
for slow-moving inventory or technological obsolescence |
|
|
3,310,000
|
|
|
— |
|
|
— |
|
|
— |
|
|
858,000
|
|
|
2,452,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes valuation allowances |
|
|
3,150,000
|
|
|
1,859,000 |
|
|
211,000 |
|
|
— |
|
|
— |
|
|
5,220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,053,000 |
|
$ |
1,970,000 |
|
$ |
211,000 |
|
|
— |
|
$ |
858,000 |
|
$ |
9,367,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2002: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
|
1,126,000
|
|
|
467,000
|
|
|
— |
|
|
— |
|
|
— |
|
|
1,593,000
|
|
Provision
for slow-moving inventory or technological obsolescence |
|
|
2,914,000
|
|
|
396,000
|
|
|
— |
|
|
— |
|
|
— |
|
|
3,310,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes valuation allowances |
|
|
2,975,000
|
|
|
129,000 |
|
|
46,000 |
|
|
— |
|
|
— |
|
|
3,150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,015,000 |
|
$ |
992,000 |
|
$ |
46,000 |
|
|
— |
|
|
— |
|
$ |
8,053,000 |
|
S I
G N A T U R E S
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
|
|
|
|
RADVISION
LTD. |
|
|
|
Date: April 5, 2005 |
By: |
/s/ Gad Tamari |
|
Gad Tamari |
|
President and Chief Executive
Officer |
Exhibit
6
RADVISION
LTD. AND SUBSIDIARIES
Statements
re Computation of Per Share Earnings (Loss)
|
|
|
Year
ended December 31, |
|
|
|
|
2004 |
|
|
2003* |
|
|
2002 |
|
Net
earnings: |
|
|
(Dollars
in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
on ordinary shares |
|
|
5,984 |
|
|
4,562 |
|
|
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to compute basic earnings per share (weighted average number of
shares outstanding) |
|
|
19,822,061 |
|
|
18,660,444 |
|
|
18,353,052 |
|
Shares
used to compute diluted earnings per share (weighted average number of
shares outstanding assuming the effect of stock options) |
|
|
21,399,324 |
|
|
19,963,260 |
|
|
18,983,330 |
|
Earnings
per ordinary share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.30 |
|
|
0.24 |
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
0.28 |
|
|
0.23 |
|
|
0.15 |
|
*
Restated (see Note 1.b. to the consolidated financial statements).
Exhibit
8
SUBSIDIARIES
OF RADVISION LTD.
Radvision
Ltd. has the following wholly owned subsidiaries:
1. RADVISION
Inc. (incorporated in the United States)
2. RADVISION
B.V. (incorporated in the Netherlands)
3. RADVISION
(HK) Ltd. (incorporated in Hong Kong)
4. RADVISION
(UK) Ltd. (incorporated in the United Kingdom)
5. RADVISION
Communication Development (Beijing) Co. Ltd. (incorporated in
China)
6. RADVISION
Japan KK (incorporated in Japan)