SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F
[ ] 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, 2000
or
[ ] 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: 000-29871
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:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None N/A
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
(Title of Class)
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
as of December 31, 2000..........................19,144,984
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 ____
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 __ Item 18 X
TABLE OF CONTENTS
Page
PART I.......................................................................1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...........1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.........................1
ITEM 3. KEY INFORMATION.................................................1
A. Selected Financial Data.....................................1
B. Capitalization and Indebtedness.............................2
C. Reasons for the Offer and Use of Proceeds...................2
D. Risk Factors................................................2
ITEM 4. INFORMATION ON THE COMPANY.....................................13
A. History and Development of the Company.....................13
B. Business Overview..........................................14
C. Organizational Structure...................................30
D. Property, Plants and Equipment.............................30
ITEM 5. OPERATION AND FINANCIAL REVIEW AND PROSPECTS...................31
A. Operating Results..........................................31
B. Liquidity and Capital Resources............................42
C. Research and Development, Patents and Licenses.............44
D. Trend Information..........................................46
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................47
A. Directors and Senior Management............................47
B. Compensation...............................................55
C. Board Practices............................................56
D. Employees..................................................57
E. Share Ownership............................................58
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............62
A. Major Shareholders.........................................62
B. Related Party Transactions.................................64
C. Interests of Experts and Counsel...........................68
ITEM 8. FINANCIAL INFORMATION..........................................68
A. Consolidated Statements and Other Financial Information....68
B. Significant Changes........................................69
ITEM 9. THE offer and listing..........................................69
A. Offer and Listing Details..................................69
B. Plan of Distribution.......................................70
C. Markets....................................................70
D. Selling Shareholders.......................................70
E. Dilution...................................................70
F. Expense of the Issue.......................................70
ITEM 10. ADDITIONAL INFORMATION.........................................70
A. Share Capital..............................................70
B. Memorandum and Articles of Association.....................70
C. Material Contracts.........................................73
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D. Exchange Controls..........................................73
E. Taxation...................................................73
F. Dividend and Paying Agents.................................84
G. Statement by Experts.......................................84
H. Documents on Display.......................................84
I. Subsidiary Information.....................................85
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.....85
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........86
PART II.....................................................................86
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................86
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS............................................86
ITEM 15. Reserved.......................................................87
ITEM 16. Reserved.......................................................88
PART III....................................................................88
ITEM 17. FINANCIAL STATEMENTS...........................................88
ITEM 18. FINANCIAL STATEMENTS...........................................88
ITEM 19. EXHIBITS.......................................................88
S I G N A T U R E S......................................................90
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The statements contained in this annual report that are not purely
historical are forward-looking statements. Such forward-looking statements also
include statements in Item 4 - "Information on the Company" and Item 5 -
"Operating and Financial Review and Prospects." These statements involve risks
and uncertainties and actual results could differ materially from such results
discussed in these statements as a result of the risk factors set forth in this
annual report. All forward-looking statements included in this annual report are
based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
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, 2000, are derived from our audited consolidated
financial statements which have been prepared in accordance with U.S. GAAP. Our
consolidated financial statements were examined by Luboshitz Kasierer, a member
of Arthur Andersen, independent auditors whose report with respect to the three
years ended December 31, 2000 and as of December 31, 1999 and 1998 appears in
this Report.
Year ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
Revenues......................... $ 1,491 $ 4,899 $ 8,894 $17,550 $ 45,911
Cost of revenues................. 770 1,211 1,412 2,853 11,446
Gross profit..................... 721 3,689 7,482 14,697 34,465
Operating expenses:
Research and development......... 1,775 2,763 4,379 7,667 14,263
Less participation by the Chief
Scientist...................... 497 890 1,140 1,097 353
Research and development, net.... 1,278 1,873 3,239 6,570 13,910
Marketing and selling, net....... 1,260 2,384 4,425 9,502 17,358
General and administrative....... 250 494 670 1,426 3,458
Royalties to Chief Scientist..... - - - - 3,666
Total operating expenses......... 2,788 4,751 8,334 17,498 38,392
Operating loss................... (2,067) (1,062) (852) (2,801) (3,927)
Financing income (expenses), net. 42 6 23 105 4,176
Net income (loss)................ $(2,025) $(1,056) $ (829) $(2,696) $ 249
Net earnings (loss) per ordinary
share.......................... $ (0.21) $ (0.10) $ (0.08) $ (0.26) $ 0.014
Weighted average number of
ordinary shares................ 9,499 10,234 10,492 10,538 17,174
Diluted earnings (loss) per
ordinary share................. - - $ (0.08) $ (0.26) $ 0.013
Weighted average number of
ordinary shares.............. - - 10,492 10,538 19,873
December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents........ $ 1,349 $ 435 $ 3,305 $ 2,605 $ 41,617
Working capital.................. 1,071 873 4,318 814 73,659
Total assets..................... 3,073 3,704 9,371 13,261 116,350
Total bank debt, less current
maturities...................... 23 106 130 67 19
Shareholders' equity............. 1,453 1,363 5,450 3,481 94,345
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
We have a history of losses and we cannot assure you that we will operate
profitably in the future.
We incurred significant losses in every fiscal year from our inception
until 1999, and we incurred an operating loss in 2000. We reported net losses of
$829,000 and $2,696,000 in 1998 and 1999 and incurred an operating loss before
financing income of $3,927,000 in 2000. We may continue to incur losses in the
future. As of December 31, 2000, our accumulated deficit was $9,028,000. We
cannot assure you that we will operate profitably in the future.
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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 communications 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 communications. 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 communications 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:
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o timely identify new market trends; and
o 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 which
comply with those industry standards which we believe have been, or will be,
broadly adopted. If one or more alternative standards were to gain greater
acceptance than the standards which 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 communications 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 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 communications solutions. Our systems integrator customers either
purchase our full suite of products or integrate our individual products of
other manufacturers to build complete IP communications 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.
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
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market for our products currently include Polycom Inc. which acquired Accord
Networks Inc., First Virtual Communications, which merged with CUseeMe Networks
Inc. (formerly known as White Pine Software Inc.), Ezenia (formerly known as
Video-Server), and the in-house developers employed by manufacturers of
telecommunications equipment and systems. Our principal competitors in the
market for our technology which is primarily sold in the form of software
development kits, currently include DynamicSoft, Trillium Digital Systems
(acquired by Intel in Q42000) and Hughes Software 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.
Our software development kit revenues will decrease if our customers choose to
use source code which is available for free.
Both Vovida Networks, Inc. (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. 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.
Most 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:
o benefit from greater economies of scale;
o offer more aggressive pricing; or
o 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 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 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
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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.
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
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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 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. 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. 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, Lucent alleged that some products
manufactured by us infringed specified Lucent patents. See "Item 8A. Financial
Information - Consolidated Statements and Other Financial Information, 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.
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Our growth will continue to place a significant strain on our resources and must
be managed effectively. If we are unable to manage our expanding operations
effectively, our revenues may not increase, our cost of operations may rise and
we may remain unprofitable.
Because of the growth in our revenues, we are actively expanding our
operations. If we are unable to manage our expanding operations effectively, our
revenues may not increase, our cost of operations may rise and we may remain
unprofitable. From January 1, 1998 through December 31, 2000, the number of our
employees increased from 42 to 280. This growth has placed, and will continue to
place, a significant strain on our managerial, operational and financial
resources. We cannot assure you that:
o we have made adequate allowance for the costs and risks associated
with this expansion; or
o our systems, procedures or controls will be adequate to support our
expanding operations.
Any delay in implementing, or transitioning to, new or enhanced systems,
procedures or controls may seriously harm our ability to forecast sales demand
accurately, manage our product inventory and record and report financial and
management information on a timely and accurate basis.
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 business could be adversely affected if our senior managers, including our
new chief executive officer, do not work together effectively as a team.
Our chief executive officer joined us in April 2001 and has not previously
worked with us. If our senior managers do not work together effectively as a
team to successfully manage our growth, our business could be adversely
affected.
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
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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 do not have
non-competition agreements with our employees outside of Israel.
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 Communications Commission and other regulations affecting the
transmission of voice, video and data over telecommunications 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.
Risks Relating to Our Location in Israel
Conditions in Israel affect our operations and may limit our ability to produce
and sell our products, which could decrease our revenues.
We are incorporated under the laws of, and our main offices and our
production facilities are located in, the State of Israel. We are directly
affected by the political, economic and military conditions affecting Israel.
Any major hostilities involving Israel or the interruption or curtailment of
trade between Israel and its present trading partners 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 state of hostility has
existed, varying in degree and intensity, between Israel and the Arab countries.
While Israel has entered into peace agreements with both Egypt and Jordan and
several other countries have announced their intentions to establish trade and
other relations with Israel, Israel has not entered into any peace arrangement
with Syria or Lebanon. Moreover, while Israel is in the process of conducting
peace negotiations with the Palestinian Authority, since September 2000 there
has been a significant deterioration in the
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relationship between Israel and the Palestinian Authority and as a result of
riots in Gaza and the West Bank, the peace process between the parties has
stagnated. Efforts to resolve the problem have failed to result in an agreeable
solution. Continued hostilities between the Palestinian community and Israel and
any failure to settle the conflict may have a material adverse effect on our
business and us. Further deterioration of hostilities into a full scale conflict
might require more widespread military reserve service by some of our employees,
which may have a material adverse effect on our business.
Because all 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.
All 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 1997 and 1998, the rate of devaluation of the NIS
against the dollar exceeded the rate of inflation, a reversal from prior years.
However, in 1999 and 2000 while the rate of inflation was low, 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 that we currently receive 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 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 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 for the period in which we benefited from the tax exemption or reduced tax
rates and would likely be denied these benefits in the future.
We may be adversely affected by proposed tax reform in Israel.
On July 26, 2000, the Government of Israel published a legislative proposal
which adopts the recommendations of a committee chaired by the Director General
of the Israeli Ministry of Finance regarding a sweeping reform in the Israeli
system of taxation. The proposed reform would significantly alter the taxation
of individuals and would also affect corporate taxation. In particular, the
proposed reform would reduce but not eliminate, the tax benefits available to
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facilities that were granted approved enterprise status, such as ours.
Implementation of the reform requires legislation by Israel's parliament. We
cannot be certain whether the proposed reform will be adopted, when it will be
adopted or what form any reform will ultimately take or what effect it will have
on our company.
It may be difficult to enforce a U.S. judgment against us and most of our
officers and directors or to assert U.S. securities laws claims in Israel or
serve process on most of our officers and directors.
We are incorporated in Israel. Most of our executive officers and
directors are nonresidents of the United States, and a substantial portion of
our assets and the assets of these persons are located outside the United
States. Therefore, it may be difficult for an investor, or any other person or
entity, to enforce a U.S. court judgment based upon the civil liability
provisions of the U.S. federal securities laws in an Israeli court against us or
any of those persons or to effect service of process upon these persons in the
United States. Additionally, it may be difficult for an investor, or any other
person or entity, to enforce civil liabilities under U.S. federal securities
laws in original actions instituted in Israel.
Risk factors related to our ordinary shares
Holders of our ordinary shares who are United States residents face income tax
risks.
There is a substantial risk that we will be classified as a passive foreign
investment company ("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 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.
As a result of our substantial cash position and the decline in the value
of our stock, there is a substantial risk that we will be classified as a PFIC
under the asset test described in the preceding paragraph. However, because the
determination of whether we are a PFIC is based upon the composition of our
income and assets from time to time, this determination can not be made with
certainty until the end of the calendar year.
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.
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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:
o quarterly variations in our operating results;
o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o announcements of technological innovations or new products by us or
our competitors;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o changes in the status of our intellectual property rights;
o announcements by third parties of significant claims or proceedings
against us;
o additions or departures of key personnel;
o future sales of our ordinary shares; and
o 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 often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
Anti-takeover provisions could negatively impact our shareholders.
The new 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% shareholder of the company. This
rule does not apply if there is already another 25% 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 become a 45% shareholder of the company. There
is an
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exception to this provision, if someone else is already a majority shareholder
of the company. Regulations under the Companies Law provide that the 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.
Finally, Israeli tax law treats certain acquisitions, particularly
stock-for-stock swaps between an Israeli company and a foreign company, less
favorably than United States tax law. Israeli tax law may, for instance, subject
a shareholder who exchanges his company shares for shares in a foreign
corporation to immediate taxation.
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our ordinary shares.
We currently intend to retain any future earnings to finance operations and
expand our business and, therefore, do not expect to pay any dividends in the
foreseeable future.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Our legal and commercial name is RADVISION LTD. We were incorporated under
the laws of the State of Israel in 1992 for an indefinite term and began
operations in October 1992. Our registered office and principal executive
offices are located at 24 Raoul Wallenberg St., Tel Aviv 69719, Israel and our
telephone number is 011-972-3-645-5220. Our address on the internet is
www.radvision.com. The information on our website is not incorporated by
reference into this annual report.
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 Electro Mechanics and Samsung
Venture Investment Corporation, members 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, 2000, we had approximately
$41.6 million in cash and cash equivalents, $39.5 million in short-term liquid
investments and $15.9 in long-term liquid investments totaling $97.0 million in
cash and liquid investments. Our working capital at year-end was approximately
$73.7 million. For a discussion of our capital expenditures and divestitures,
see "Item 5-Operating and Financial Review and Prospects-Liquidity and Capital
Resources."
We are a leading designer, developer and supplier of 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 or IP. Our products and technology are used by our customers to develop
systems that enable enterprises and service providers to use next generation
packet networks for real-time IP communications. We have approximately 400
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customers worldwide including Alcatel, Bosch, Cisco, NTT, Nortel, Philips,
Panasonic, Samsung, Shanghai Bell, Siemens and Sony.
In the latter part of 2000, 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. The "Networking" business unit (NBU) focuses on
networking products, and it is responsible for developing networking products
for IP-centric voice, video and data conferencing services. Enterprises and
service providers of all sizes use our family of innovative, scalable and market
proven IP-centric networking solutions for migrating from traditional telephony
to converged networks. The "Technology" business unit (TBU) focuses on creating
developer toolkits for the underlying IP communication protocols needed for
real-time voice and video over IP. 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 you may find RADVISION protocols 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.
The new organizational structure allows us to be more nimble and responsive
to the different market dynamics and product requirements that derive from the
development of our enabling technologies for developers and the development of
our networking solutions for customers who are deploying IP-centric networks.
B. BUSINESS OVERVIEW
Industry Background
Growth in Communications
In recent years, communications networks have experienced dramatic growth
in traffic. This growth is expected to continue due to a number of factors,
including:
o an increasing need for enterprises to expand their networks to enable
them to send, access and receive information quickly, economically and
globally;
o an increasing use of the Internet and other packet networks for
communicating and engaging in commercial transactions;
o an increase in available bandwidth at declining prices; and
o the introduction of new voice, video and data communications services
and applications.
Limitations of Traditional Networks
Traditionally, circuit-switched networks have been the principal medium for
the transmission of communications. 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
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usage. The recent growth in data communications 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 communications. These networks were not
designed to handle data efficiently and cannot scale cost-effectively to
accommodate the growth in data traffic. Moreover, circuit-switched networks were
built based on proprietary, complex technologies, which have historically
limited the entrance of new competitors and hindered the development and
introduction of new services.
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
communications 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 Industry Standards for Real-time IP Communications
Originally, enterprises and communications 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 communications. 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 communications,
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 communications 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 inter-operate with one another.
To enable the global deployment of real-time IP communications networks,
industry standards and protocols were developed to promote interoperability of
real-time communications over packet networks. H.323 is currently the most
widely deployed industry-wide protocol for real-time IP communications. H.323
was developed by a team of computing, telephony and networking experts under the
direction and auspices of the International Telecommunications Union, or ITU-T,
a United Nations organization, with the goal of specifying a universal real-time
standard that would ensure interoperability of all packet-based networks and
products. 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.
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Today, H.323 is the standard of choice for the builders of real-time IP
communications solutions for enterprises. The ITU-T is continuously enhancing
H.323 and publishing new versions to support the evolving requirements of next
generation packet networks. Other emerging standards like MGCP, or Media Gateway
Control Protocol, and SIP, or Session Initiation Protocol, are also being
developed to address the complex requirements of multi-protocol packet networks.
The widespread acceptance of industry protocols and standards for IP
communications has enabled the deployment of packet networks for real-time
communications by ensuring interoperability and is facilitating the migration to
IP communications.
Growth in Real-time Voice and Video IP Communications
Due to the inherent benefits of packet networks and the advent of new
technologies and standards that have enabled real-time communications over these
networks, the use of packet networks for real-time voice, video and data
communications is expected to grow dramatically. ICM Global Intelligence, a
market research firm, forecasts that revenues for network equipment associated
with voice-over-IP, or IP telephony, will grow from $477 million in 1999 to $7.1
billion in 2004. Perey Research & Consulting, an industry consulting firm,
forecasts revenues for network equipment associated with IP video communications
to grow from $22 million in 1999 to more than $643 million in 2003.
This anticipated growth in real-time IP communications is expected to be
driven primarily by enterprises and communications 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 communications 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:
o cost-effective increases in capacity to meet increasing communications
traffic demands;
o support for new communications applications, like video conferencing
and data collaboration, for improved workforce productivity;
o interoperability with different network configurations of their
customers, suppliers and partners; and
o cost savings associated with simplified network management resulting
from creating a single network that handles all communications, rather
than having to maintain separate telephone and computer networks.
Communications 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 communications service providers, increased competition among
traditional telecommunications carriers, lower prices, innovative new product
and service offerings and accelerated customer turnover. To remain
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competitive, communications 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.
Key Attributes of Real-time Voice and Video IP Communications Solutions
To migrate their voice and video communications to packet networks,
enterprises and communications service providers require a real-time IP
communications solution that provides:
o reliable real-time voice, video and data communications functionality;
o interoperability with the existing circuit-switched networks as well
as with other IP equipment and systems;
o applications, features and functionality comparable to those available
over traditional telephone networks, including call transfer,
conferencing and caller identification;
o scalability to permit cost-effective increases in capacity to meet
demand;
o standards compliance, so that products from different vendors can work
together in one network; and
o flexibility to adapt to rapidly changing network environments in
response to the evolving needs of enterprises and to accommodate a
mobile business environment.
Our Solution
We provide standards-based IP-centric networking products for real-time
voice, video and data communications over packet networks for enterprises and
service providers. We also provide enabling technology in the form of software
toolkits for key IP communications protocols that are needed to develop
standards-based IP-centric products and services for real time voice and video
communication. Our networking products and software toolkits offer the following
benefits:
Real-time Voice, Video and Data Communications Functionality. We are one of
the few companies that offer IP communications products which support both
voice-only, as well as combined voice, video and data communications. We believe
that this dual functionality is attractive to enterprises and service providers
that seek a flexible IP communications solution, which can provide enhanced
multimedia functionality in addition to IP telephony capabilities. We believe
our products enable developers of IP communications solutions to offer features
and functions generally unavailable in competitive solutions.
Market Leading Technology for Standards Based Real-time IP Communications.
We were one of the original five members of the ITU-T committee responsible for
defining the
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H.323 standard, which has been adopted worldwide for real-time packet-based
communications. We believe our technology is recognized as the market-leading
implementation of the H.323 industry standard for real-time voice, video and
data communications over packet networks. We have been actively involved in the
development of protocols for real-time communications 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 communications over IP
networks. We continue to be actively involved in the specification of evolving
IP communications protocols and offer a complete suite of IP communications
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 communications systems. Because we
were first to market and have achieved broad market penetration, 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 communications 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 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 communications systems. Our
products and technology have been integrated into IP communications systems
developed by hundreds of communications equipment providers. Because our
products and technology are broadly deployed across various segments of the IP
communications industry, we believe that the interoperability of our products
and technology with products from different vendors is virtually assured. 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 communications
protocols to ensure continued interoperability of our products and technology
across multiple protocols.
Improved Time to Market. Our customers rely on our accumulated expertise
with IP communications standards and core technology to significantly reduce
their development cycle and improve time to market. Communications equipment
providers seeking to market standards-compliant systems for real-time voice and
video communications over packet 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 communications using our
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full suite of products or integrate RADVISION products with their own products
or other vendor products into their real-time IP communications 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 a real-time IP communications solutions.
Distributed Architecture. We designed our products based on a distributed
architecture. With a distributed architecture, the core functions needed for
real-time IP communications are dispersed throughout the network at the site of
each gateway, IP conferencing bridge and gatekeeper, rather than aggregated at a
single centralized location. This distributed approach offers several advantages
compared to a traditional centralized architecture. The distributed architecture
of our products enables better utilization of network bandwidth, because
communications need not be routed through a centralized location but rather can
be routed over the shortest path to minimize bandwidth usage. Similarly, our
distributed architecture is a scalable solution, allowing a network manager to
add network resources at distributed locations incrementally as the network
grows. Our distributed architecture also provides redundancy and increased fault
tolerance and reliability because, unlike a centralized architecture, failure at
one location will not compromise the entire network.
Our Strategy
Our goal is to be the leading provider of innovative products and
technology that enable real-time voice and video communications over packet
networks. The combination of offering IP-centric networking products and
software toolkits uniquely positions us in the center of the IP communication
revolution. Both of our product lines are essential for building IP networks
that support real time voice and video communication. Key elements of our
strategy include the following:
o 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 communications
products and services. We have accumulated extensive knowledge and
expertise as designers and developers of commercial products and
technology for real-time packet-based communications. We 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, to enhance our existing products and to
introduce on a timely basis new commercially viable products
addressing the needs of our customers. We intend to continue to devote
a significant portion of our personnel and financial resources to
research and development.
o Strengthen and expand our relationships with OEM customers. We have
established and continue to maintain collaborative working
relationships with many OEMs in the IP communications market,
including Alcatel, Bosch, Cisco,
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NTT, Nortel, Philips, Panasonic, Samsung, Shanghai Bell, 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 have generally established 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 leading OEMs focused on the
IP communications market.
o Continue to offer new and enhanced products and features. We believe
we have consistently been either first, or among the first, to market
products that support real-time voice, video and data communications
over packet networks. We were the first to market with IP gateways
that provide combined voice, video and data functionality, and first
to market with software development kits for the development of
H.323-compliant IP communications products and applications. We intend
to utilize our technological expertise as a basis for market
leadership by continuing 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 to develop new products and technologies that are at the
forefront of technological evolution in the IP communications
industry.
In 2000, the Technology business unit expanded its product offering
to include a complete suite of key IP communications protocol
toolkits for voice and video over IP. RADVISION toolkits now include
SIP, MGCP, MEGACO and H.323. The introduction of SIP, MGCP and MEGACO
moves us closer to achieving our goal of becoming the premier,
one-stop-shop for all voice and video technologies and reinforces
RADVISION's leadership position as the V2oIP technology experts. For
our networking products, the Networking Business Unit introduced the
viaIP multi-function platform for deploying IP-centric voice, video
and data conferencing services over large-scale networks. The viaIP
product family complements our OnLAN product family, which was
designed for small to medium size networks. We now have a broad range
of product offerings that address the IP communication requirements
of small, medium and large scale networks in the enterprise,
government and service provider markets.
We will continue to introduce new or enhanced products in 2001. We
plan to introduce upgrades to our software toolkits that include
added functionality defined by new versions of the standards that are
ratified by the various international standards bodies responsible
for the different IP communications protocols. In 2000, we
demonstrated prototype software for H.323-SIP and H.323-MGCP
interworking. For our networking products we plan to upgrade our
OnLAN family of standalone gateways and conferencing to a new
architecture based on the design of our recently
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introduced multi-function chassis-based viaIP product family. We will
be introducing new plug-in boards for viaIP platform such as our
V2oIP gateway card. We are also developing an enhanced "media
processing" capabilities for higher quality voice and video that will
be integrated into our IP-centric conferencing solutions.
o Expand the distribution channels for our products. We intend to
continue to focus our sales and marketing efforts on expanding our
distribution channels, including broadening the number of channel
partners that distribute our products. 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.
o Continue our active involvement in shaping industry standards for IP
communications. We actively participate in and contribute to the
formulation of standards for IP communications. We intend to continue
our active involvement in the organizations that define the standards
for real-time communications over next generation packet networks. Our
knowledge and expertise gained in participating in the development of
these industry standards enable us to be among the first to market our
Products and Technology products based on new standards adopted. We
are continually improving, enhancing and expanding our core competency
in real time IP communications protocols including H.323, SIP, MGCP
and MEGACO. Because of our involvement in defining these IP
communications standards, we believe we are well-positioned to quickly
develop enhanced functionality and new products based on multiple
protocols.
Our Products and Technology
RADVISION networking and technology products provide the core building
blocks needed for standards-based real-time voice, video and data communications
over packet networks. Our customers can deploy our products as a complete
network solution for IP communications, integrate our products into their own IP
communications systems or use our technology to build their own
standards-compliant IP communications products, systems and applications for
enterprises and service providers.
Our networking products developed by our Networking Business Unit consist
of:
o RADVISION gateways, which interface between traditional
circuit-switched networks and IP networks;
o RADVISION gatekeepers, which control, manage and monitor real-time
voice, video and data traffic over packet networks;
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o RADVISION IP conferencing bridges, which enable voice or multimedia
conferencing over packet networks among three or more participants;
and
Our software toolkits developed by our Technology Business Unit consist of:
o RADVISION's complete suite of key IP communications protocols (H.323,
SIP, MGCP and MEGACO) for building interoperable, standards-compliant
products, systems and applications for real-time voice and video
communication over packet networks.
NBU Networking Products
RADVISION Gateways and Conferencing Bridges
To achieve the successful deployment of IP communications systems by
enterprises and service providers, users who are connected to packet networks
must be able to communicate with users who are connected to circuit-switched
telephone networks. RADVISION gateways provide an interface between traditional
circuit-switched telephone networks and the new packet-based networks. A gateway
converts voice, video and data signals received from a circuit-switched network
into packets, that it then transmits in real-time over a packet-based network.
When the direction of the communication is reversed, the gateway converts the
packets back into circuit-switched signals.
Our IP-centric networking solutions include V2oIP multimedia gateways,
which support real-time voice, video and data communications. Our standalone
OnLAN gateways were designed for small to medium sized networks. Our plug-in
viaIP gateway boards for our new viaIP chassis-based platform were designed for
large scale networks.
Conferencing Bridges (sometimes called MCUs) are networking products that
connect multiple callers into a single conference that allows them to talk to
each other. Our conferencing bridges support voice, video and data, allowing the
callers to see each other, and also share data.
RADVISION V2oIP Multimedia Gateways
Our OnLAN RADVISION multimedia gateways can support up to 16 voice calls or
8 multimedia calls simultaneously in a 1U, 19" system. Our viaIP gateway boards,
which we began selling during the first quarter of 2001, can support up to 60
voice calls or 30 multimedia calls simultaneously. A single 2U, 19" viaIP
chassis can be configured for high capacity with 4 gateway boards, which can
support 240 voice calls or 120 multimedia calls simultaneously. We sell these
gateways principally to systems integrators and OEMs who offer IP communications
solutions to enterprises for next generation networks. These gateways provide
the following benefits:
o Real-time voice, video and data communications. Our multimedia
gateways support real-time voice and video calls, data collaboration
as well as voice-only calls.
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o Interoperability. Our multimedia gateways are H.323 compliant and are
designed to be fully interoperable with other IP network components.
o Embedded gatekeeper. Our standalone OnLAN multimedia gateways contain
an embedded gatekeeper that provides the gateway with similar
functionality to that of a corporate telephone system, known as a
private branch exchange, or PBX, including call and network management
capabilities such as controlling how calls are routed, who may use the
networks and how bandwidth is allocated. This embedded gatekeeper is
offered free to the customer who may choose to use it or disable it.
Customers who disable the embedded gatekeeper can purchase a
standalone Microsoft Windows NT-based gatekeeper application that
provides advanced gatekeeper functionality from us or they may choose
to use a gatekeeper from another vendor.
o Advanced call functionality. Our multimedia gateways can support
advanced PBX-like functions including call transfer and call
forwarding.
RADVISION Video Interface Units
Enterprises have invested significant resources in outdated, or legacy,
videoconferencing equipment that are designed to function only over
circuit-switched networks. Our RADVISION OnLAN video interface unit was designed
to extend the life of this equipment by allowing legacy videoconferencing
systems to be connected directly to a packet network rather than the
circuit-switched network. Our RADVISION OnLAN video interface units are
affordable, single user gateways designed specifically to interconnect legacy
video equipment with packet networks. Because most new videoconferencing systems
are designed to connect directly to packet networks, we expect that the market
for these units will decrease significantly over time. We have stopped
development of our VIU and do not expect to record meaningful revenues in the
coming years.
RADVISION Gatekeepers
Gatekeepers perform the essential network function of controlling and
managing real-time voice, video and data communications on a packet-based
network. Gatekeepers define and control how traffic is routed over a
packet-based network by identifying the IP destination address and routing the
traffic to that destination. Gatekeepers also enable the provisioning of
advanced PBX-like functions, including call forwarding, multi-point conferencing
and call transfer. Network managers use gatekeepers to configure, monitor and
manage the voice and video call activity on a packet network to ensure optimal
implementation of the network. Gatekeepers log and track call activity and
maintain details of network activity which permit the network manager to monitor
IP communications activity on the network, including number of calls, number of
users and bandwidth usage.
We provide a free embedded gatekeeper in our OnLAN gateways that provide
basic gatekeeper functionality. For our viaIP multi-function chassis-based
system, we sell an Enhanced Communication Server ("ECS") application that
provides advanced gatekeeper functionality. The ECS application is a Microsoft
Windows NT-based application that was
-23-
designed to run as an embedded viaIP application on a Windows NT-based
"application server" card. We also sell versions of our Windows NT-based
gatekeeper application as a standalone application that can be installed on any
computer that supports the Microsoft Windows NT operating system. We sell this
off-the-shelf application to systems integrators as a complementary product to
both our OnLAN and viaIP product families. These customers combine RADVISION
gatekeeper application software with other IP network components to build
complete IP communications solutions.
We also sell gatekeeper technology in the form of software development kits
that enable our OEM customers to build and customize their own gatekeeper
applications. Our gatekeeper software development kit offers the software
developer full control over a wide range of gatekeeper functions and the
flexibility to customize and further differentiate the gatekeeper to respond to
the needs of their particular market. By using RADVISION software development
kits, our customers can build upon our proven technology and bring their
gatekeeper products to market quickly.
RADVISION IP Conferencing Bridges
While communications between two parties involves point-to-point
connections, conferencing between multiple parties involves multipoint
communications among three or more participants. In traditional circuit-switched
networks, conferencing bridges connect callers to each other through a central
bridge that conducts the conference call. As enterprises migrate to packet
networks, IP conferencing bridges are needed to conduct conference calls over
these next generation networks. We were one of the first and remain one of a few
companies to offer IP conferencing bridges for multipoint communications.
Traditionally, voice or video conferencing required the conference to be
arranged in advance by a network administrator and remain attended by an
operator for the duration of the conference. Our RADVISION IP conferencing
bridges allow voice or video conferencing among multiple participants over IP
networks without any advance arrangements or the assistance of an operator.
Participants simply dial a number and the conferencing bridge automatically
arranges the conference call. Additional participants can join the conference
while it is in progress or by being added to the conference by any party already
participating in the conference. Traditional conferencing bridges were primarily
built as large complex carrier class bridges that were not appropriate for
installation within an enterprise, requiring enterprises to contract with
external service providers to conduct conference calls. Our RADVISION standalone
OnLAN IP conferencing bridges can support up to 15 simultaneous voice and video
calls or 24 voice-only calls. Our multi-service viaIP platform supports 3
different capacity MCU boards ranging from 45 voice calls or 30 multimedia
calls, to 150 voice calls or 100 multimedia calls. A single 2U, 19" viaIP
chassis can be configured for high capacity with 4 MCU boards, which can support
600 voice calls or 400 multimedia calls simultaneously. Like our gateways, our
conferencing bridges include an embedded gatekeeper. Our distributed
conferencing architecture provides a highly scalable solution that enables
multiple conferencing bridges to be linked together to provide a solution for
very large conferences, allowing for multiple conference panels with many remote
viewers.
-24-
RADVISION Carrier Class Gatekeepers.
Gatekeepers are generally designed to manage hundreds of simultaneous voice
calls. Large packet networks operated by telecommunications carriers and service
providers require gatekeepers that can support a practically unlimited number of
calls. Our family of standalone ECS applications provide advanced gatekeeper
functionality and support large numbers of simultaneous calls and registered
users. We have enhanced our gatekeeper toolkit to provide core functionality
necessary for large IP communications networks operated by telecommunications
carriers and services providers. Our carrier class gatekeeper software
development kit release will support high performance, high reliability, carrier
class platforms, including network platforms developed by Cisco, Compaq and
Hewlett-Packard.
TBU Technology Products
As a driving force behind evolving technologies for real-time IP
communications, RADVISION is in a unique position to deliver one of the most
complete set of V2oIP enabling technology. We sell the core enabling technology
for real-time IP communications in the form of software development kits.
Communications equipment providers and developers seeking to market industry
standard compliant IP telephony and multimedia products, systems and
applications need core IP communication protocol software to develop their
IP-centric solutions. Rather than dedicate in-house resources to developing this
core technology, these providers seek to build upon our proven enabling
technologies. RADVISION toolkits enables our customers to focus on their core
competencies and dramatically reduces the time to market of industry standard
compliant IP communications products, systems and applications.
RADVISION SIP Software Development Kit
The Session Initiation Protocol (SIP) is a new signaling protocol for
initiating, managing and terminating voice and video sessions across packet
networks. RADVISION's complete SIP solution includes the Express SIP toolkit and
the Universal SIP toolkit. Express SIP was designed, from conception, for
building high performance, compact SIP user agents. This optimized design offers
superior functionality to other "reduced function" implementations that are
derived by simply eliminating features from other fuller implementations. This
"nuclear SIP toolkit" is ideal for developing products that require full
user/agent functionality, but are limited in resources, particularly memory,
such as wireless IP phones and PDAs, web clients and video terminals. The
Universal SIP Toolkit is designed to provide high scalability and extensibility
for both small and large-scale projects. It is ideal for implementing all types
of feature rich SIP entities such as application servers, softswitches, IP-PBXs,
gateways and conferencing bridges.
RADVISION H.323 Software Development Kit
H.323 is currently the most widely deployed standard for real-time IP
communications. All components of an H.323-compliant network, including
terminals, gateways, gatekeepers and conferencing bridges, use the H.323
protocol to communicate. Our RADVISION H.323 software development kits provide
developers with the core software building blocks needed to develop
H.323-compliant products, systems and applications. Our RADVISION H.323 software
development kit is an integrated set of software programs which execute the
H.323 protocol and
-25-
perform the functions necessary to establish and maintain real-time voice, video
and data communications over packet-based networks. Our 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 Software Development Kits.
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 telecommunications carriers and service providers that require
gateways that can support a practically unlimited 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
telecommunications companies and Internet service providers as well as by cable
television companies building IP communications solutions over their networks.
Our RADVISION MGCP software development kit is used to build MGCP compliant
media gateways controllers and media gateways
RADVISION MEGACO Software Development Kits.
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 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 eliminated the need for developers to write code for
interpreting MEGACO/H.248 messages.
Products and Technology Under Development
We intend to capitalize upon our technological leadership in real-time IP
communications to develop new products and technology that meet the evolving
needs of the IP communications 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 sell our 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 communications
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 communications 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.
-26-
We sell our technology in the form of software development kits to
developers of IP communications products, systems and applications for
developing their own IP communications solutions based on our core enabling
technology.
The following is a representative list of our customers who purchased more
than $225,000 of our products or technology during the year 2000:
NETWORKING PRODUCTS:
-------------------
Cisco Systems
M2Networks
Nortel Networks
Philips
PictureTel Corp.
Polycom, Inc.
Siemens
VCON, Israel
VOGT electronic Witten GmbH
Vtel Corp
Wire One
Zydacron, Inc.
TECHNOLOGY PRODUCTS:
-------------------
Accord
Audio Codes
CCL-ITRI
Cisco Systems
Cosmobridge Co., Ltd.
Hewlett Packard - France
Human Technology Ltd.
IMAG Industries
LG
Mitel Corporation
Nortel
Nortel Networks
NTT - ME Corp
Polycom Inc.
Siemens
U & I Corporation
Virdais, Inc.
Sales and Marketing
Sales organization. We market and sell our products through multiple
channels in North America, Europe, the Far East and Israel. Our networking
products are sold to end-users principally through indirect channels by OEMs,
system integrators and value added resellers.
-27-
We market and sell our technology products, primarily in the form of software
development kits, directly to developers of IP communications products and
applications. In Taiwan, Korea and Japan, 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,
in Hong Kong, and in the United Kingdom. The geographic breakdown of our total
sales for the year ended December 31, 2000 was: 63% in North America, 26% in
Europe, the Middle East and Africa and 11% in Asia Pacific.
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
support 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
communications 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 V2oIP experts
through quality content including providing information related to issues
relevant to the IP communications 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 communications, we actively participate in
key industry consortia and standards bodies. We are also active in defining and
reviewing evolving IP communications standards that are being developed by
international standards bodies including:
o the ITU-T, which has published the H.323 and MEGACO standards;
o the Internet Engineering Task Force, or IETF, which has published
the SIP and MEGACO standards;
o CableLabs, an organization of cable operators, which is currently
working on defining the MGCP standard; and
o IMTC, a global organization to promote interoperable multimedia
communications solutions based on international standards.
We regularly participate in IMTC-sponsored InterOP events, a vendor-neutral
forum where IMTC members test the interoperability of their products.
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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, Mahwah, New Jersey, Sunnyvale, California, Hong Kong and China. We
assist our customers with the initial installation, set-up and training. In
addition, our technical support team trains and certifies our customers to
provide local support in each of the geographical areas in which our products
are sold. We also provide customers the option of obtaining, for a fee, 24 hours
a day, 7 days a week help-desk support.
In addition, customers who purchase our 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.
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 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.
-29-
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 and software
development kits currently include:
Products Software development kits
-------------------------------- -----------------------------------------
o DataBeam, a subsidiary of
o Ezenia!, formerly known Lotus/IBM
as Video-Server o DynamicSoft
o CUseeMe Networks Inc. o Elemedia, a subsidiary of Lucent
(formerly known o Trillium Digital Systems,
as White Pine Software acquired by Intel Corp.
Inc., merged with o Hughes Software Systems
First Virtual Communications) o In-house developers employed by
o Accord (acquired by Polycom) manufacturers of telecommunications
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.
C. ORGANIZATIONAL STRUCTURE
Our wholly owned subsidiaries in the United States, the Netherlands, United
Kingdom and Hong Kong, RADVISION Inc., Radvision B.V, RADVISION (UK) LTD. and
RADVision (HK) Limited, respectively, act as marketing and customer service
organizations in those countries and for neighboring countries.
D. PROPERTY, PLANTS AND EQUIPMENT
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
$806,000 in 2000. The lease for our principal offices expires in June 2005. In
the United States, we lease approximately 11,000 square feet in Mahwah, New
Jersey expiring in May 2002 and approximately 1,232 square feet in Sunnyvale,
California expiring in December 2002. In April 2001, we leased 24,077 square
feet in Paramus, New Jersey under a lease expiring in March 2006. We expect to
vacate one of our New Jersey premises in 2001. We also lease approximately 1,246
square feet in Hong Kong expiring in June 2002 and approximately 872 square feet
in China expiring in April 2003.
-30-
The aggregate annual rent for our sales and service offices in the United
States, Hong Kong and China was approximately $209,000 in 2000.
ITEM 5. OPERATION AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
The following discussion of our operating 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 dollars. Consequently, we
use the dollar as our functional currency. Transactions and balances in other
currencies are converted into dollars according to the principles in Financial
Accounting Standards Board Statement No. 52. Gains and losses arising from
conversion are recorded as interest income or expense, as applicable.
Overview
We are a leading designer, developer and supplier of products and
technology that enable real-time voice, video and data communications 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.
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. We generally recognize revenues from
the sale of our products upon shipment and when collection is probable. 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 Far East and Israel. For the year ended December 31,
2000, approximately 62.8% of our revenues were generated in the United States.
-31-
Significant Costs and 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, net. 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. All of our research and development costs are expensed as incurred.
Historically our research and development expenses were presented net of
payments received from the Chief Scientist. In 2000 we voluntarily repaid
$3,666,000 in 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 do not currently intend to apply for grants from the Chief
Scientist in the future. However, we expect to continue to make substantial
investments in research and development.
Marketing and selling expenses, net. 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, trade show exhibit expenses and
royalties paid to the government of Israel. Marketing and selling expenses until
December 31, 1999 are presented net of marketing grants received from the
government of Israel. We do not intend to apply for any grants from the Fund for
the Encouragement of Marketing Activities in the future.
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.
Financing income, net. Our financing income consists primarily of interest
earned on bank deposits and other liquid investments, gains and losses from the
conversion of monetary
-32-
balance sheet items denominated in non-dollar currencies into dollars and
interest expense incurred on outstanding debt.
Taxes. Israeli companies are generally subject to income tax at the
corporate tax rate of 36%. However, several of our investment programs at our
manufacturing facility in Tel Aviv have been granted approved enterprise status
and, therefore, we are eligible for the reduced tax benefits described later in
this annual report in "Item 10 - Additional Information, Taxation." 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.
Results of Operations
The following discussion of our results of operations for the years ended
December 31, 1998, 1999 and 2000, including the percentage data in the following
table, is based upon our statements of operations contained in our financial
statements for those periods, and the related notes, included in this annual
report:
1998 1999 2000
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of revenues......................... 15.9 16.3 24.9
Gross profit............................. 84.1 83.7 75.1
Operating expenses:
Research and development............... 49.2 43.7 31.1
Less participation by the Chief 12.8 6.3 0.8
Scientist............................
Research and development, net.......... 36.4 37.4 30.3
Marketing and selling, net............. 49.8 54.1 37.8
General and administrative............. 7.5 8.1 7.5
Repayment of future royalties.......... - - 8.0
Total operating expenses................ 93.7 99.6 83.6
Operating loss........................... (9.6) (15.9) (8.5)
Financing income, net.................... 0.3 0.6 9.1
Net income (loss)........................ (9.3)% (15.3)% 0.6%
====== ====== =====
Year Ended December 31, 2000 as Compared with Year Ended December 31, 1999
Revenues. Revenues increased from $17.5 million for the year ended December
31, 1999 to $45.9 million for the year ended December 31, 2000, an increase of
$28.4 million, or 162.3%. This increase was due to an $18.1 million, or 212.9%,
increase in sales of our networking products, as well as a $10.3 million, or
114.4%, increase in sales of technology products.
Revenues from networking products increased from $8.5 million for the year
ended December 31, 1999 to $26.6 million for the year ended December 31, 2000.
The increase in revenue from networking products is attributable to a global
increase in demand for these units as customers moved from integrated services
digital networks, or ISDN to IP-based networks, as well as from new OEM
agreements that generated additional product sales.
-33-
Revenues from technology products increased from $9.0 million for the year
ended December 31, 1999 to $19.3 million for the year ended December 31, 2000.
This increase in revenues from technology products was primarily attributable to
increased market demand.
Revenue from sales to customers in the United States increased from $9.1
million, or 51.6% of revenue, for the year ended December 31, 1999, to $27.9
million, or 60.9% of revenue, for the year ended December 31, 2000, an increase
of $18.8 million, or 206.6%. This increase in sales to customers in the United
States was primarily attributable to the more rapid adoption of our technology
in the United States as compared to the rest of the world.
Revenue from sales to customers in Europe increased from $4.0 million, or
23.1% of revenue, for the year ended December 31, 1999, to $7.3 million, or
16.0% of revenue, for the year ended December 31, 2000, an increase of $3.3
million, or 82.5%. This increase in sales to customers in Europe was primarily
attributable to increased market demand for our products in this region.
Revenue from sales to customers in the Far East increased from $2.7
million, or 15.4% of revenue, for the year ended December 31, 1999, to $5.3
million, or 11.5% of revenue, for the year ended December 31, 2000, an increase
of $2.6 million, or 96.3%. This increase in sales to customers in the Far East
was primarily attributable to increased sales efforts.
Revenue from sales to customers in Israel increased from $1.3 million, or
7.2% of revenue, for the year ended December 31, 1999, to $4.5 million, or 9.7%
of revenue, for the year ended December 31, 2000, an increase of $3.2 million,
or 246.2%. This increase in sales to customers in Israel was primarily
attributable to increased sales efforts in this region.
Cost of Revenues. Cost of revenues increased from $2.9 million for the year
ended December 31, 1999 to $11.4 million for the year ended December 31, 2000,
an increase of $8.5 million, or 293.1%. Gross profit as a percentage of revenues
decreased from 83.7% for the year ended December 31, 1999 to 75.1% for the year
ended December 31, 2000, due to the increased proportion of networking products
sales.
Research and Development, Net. Research and development expenses, net
increased from $6.6 million for the year ended December 31, 1999 to $13.9
million for the year ended December 31, 2000, an increase of $7.3 million, or
111.7%. This increase was primarily attributable to an increase in the number of
research and development personnel whom we employed, as well as a decrease in
grants received from the Chief Scientist. We have increased our research and
development personnel to support our existing and expected new product lines and
to accommodate the growth of our business. Research and development expenses,
net as a percentage of revenues decreased from 37.4% for the year ended December
31, 1999 to 30.3% for the year ended December 31, 2000.
Marketing and Selling, Net. Marketing and selling expenses, net increased
from $9.5 million for the year ended December 31, 1999 to $17.4 million for the
year ended December 31, 2000, an increase of $7.9 million, or 83.2%. This
increase was primarily attributable to a $3.7 million, or 78.7%, increase in
personnel-related expenses resulting from our increasing the number of our sales
and marketing employees. We have increased our sales and
-34-
marketing expenses in response to current and expected growth in the market for
our products. Marketing and selling expenses, net as a percentage of revenues
decreased from 54.1% for the year ended December 31, 1999 to 37.8% for the year
ended December 31, 2000.
General and Administrative. General and administrative expenses increased
from $1.4 million for the year ended December 31, 1999 to $3.5 million for the
year ended December 31, 2000, an increase of $2.1 million or 142.5%. This
increase was primarily attributable to an increase of $1.3 million, or 175%, in
personnel expenses. General and administrative expenses as a percentage of
revenues was 8.1% for the year ended December 31, 1999 and 7.5% for the year
ended December 31, 2000.
Royalty Payments to the Chief Scientist. In 2000 we determined to repay all
future royalty payments due to the Chief Scientist. This decision has been made
as part of our strategy to discontinue the relationship with the Chief Scientist
to reduce the growing restrictions imposed by the Chief Scientist on our
business. By doing so, we will also save the increased interest rates that are
imposed by the Chief Scientist on part of the royalties due.
Operating Income. Our operating loss increased from $2.8 million for the
year ended December 31, 1999 to $3.9 million for the year ended December 31,
2000 as a result of our $3.7 million repayment of future royalties to the Chief
Scientist.
Financial Income. Financial income increased from $105,000 for the year
ended December 31, 1999 to $4.2 million for the year ended December 31, 2000
principally as a result of the increased interest income we derived from the
investment of the proceeds of our March 2000 initial public offering and private
placement.
Net Income(Loss). Net income increased from a net loss of $2.7 million, or
15.4%, for the year ended December 31 1999 to net income of $249,000, or 0.6% as
a percentage of revenues, for the year ended December 31, 2000.
Year Ended December 31, 1999 as Compared with Year Ended December 31, 1998
Revenues. Revenues increased from $8.9 million for the year ended December
31, 1998 to $17.5 million for the year ended December 31, 1999, an increase of
$8.6 million, or 97.3%. This increase was due to a $4.6 million, or 117.9%,
increase in sales of our networking products, as well as a $4.0 million, or
80.0%, increase in sales of technology products.
Revenues from networking products increased from $3.9 million for the year
ended December 31, 1998 to $8.5 million for the year ended December 31, 1999.
The increase in revenues from networking products was primarily attributable to
a global growth in demand for these units as customers moved from integrated
services digital networks, or ISDN, to IP-based networks.
Revenues from technology products increased from $5.0 million for the year
ended December 31, 1998 to $9.0 million for the year ended December 31, 1999.
This increase in revenues from technology products was primarily attributable to
increased market demand for this technology.
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Revenue from sales to customers in the United States increased from $4.6
million, or 51.7% of revenue, for the year ended December 31, 1998, to $9.1
million, or 51.6% of revenue, for the year ended December 31, 1999, an increase
of $4.5 million, or 97.8%. This increase in sales to customers in the United
States was primarily attributable to the more rapid adoption of our technology
in the United States as compared to the rest of the world.
Revenue from sales to customers in Europe increased from $2.3 million, or
25.8% of revenue, for the year ended December 31, 1998, to $4.0 million, or
23.1% of revenue, for the year ended December 31, 1999, an increase of $1.7
million, or 73.9%.
Revenue from sales to customers in the Far East increased from $942,000, or
10.6% of revenue, for the year ended December 31, 1998, to $2.7 million, or
15.2% of revenue, for the year ended December 31, 1999, an increase of $1.8
million, or 191.1%. This increase in sales to customers in the Far East as a
percentage of total sales was primarily attributable to increased sales efforts
in this region.
Cost of Revenues. Cost of revenues increased from $1.4 million for the year
ended December 31, 1998 to $2.9 million for the year ended December 31, 1999, an
increase of $1.5 million, or 107.1%. This increase was attributable to the
increase in our revenues. Gross profit as a percentage of revenues decreased
from 84.1% for the year ended December 31, 1998 to 83.7% for the year ended
December 31, 1999.
Research and Development, Net. Research and development expenses, net
increased from $3.2 million for the year ended December 31, 1998 to $6.6 million
for the year ended December 31, 1999, an increase of $3.4 million, or 106.3%.
This increase was primarily attributable to an increase in the number of
research and development personnel whom we employed. We have increased our
research and development personnel to support our existing and expected new
product lines and to accommodate the growth of our business. Research and
development expenses net as a percentage of revenues increased from 36.4% for
the year ended December 31, 1998 to 37.4% for the year ended December 31, 1999.
Marketing and Selling, Net. Marketing and selling expenses, net increased
from $4.4 million for the year ended December 31, 1998 to $9.5 million for the
year ended December 31, 1999, an increase of $5.1 million, or 115.9%. This
increase was primarily attributable to a $2.5 million, or 114.7%, increase in
personnel-related expenses resulting from our increasing the number of our sales
and marketing employees in 1999 and to an increase of $836,000, or 78.8%, in
promotional expenses. We have increased our sales and marketing expenses in
response to current and expected growth in the market for our products.
Marketing and selling expenses net as a percentage of revenues increased from
49.8% for the year ended December 31, 1998 to 54.1% for the year ended December
31, 1999.
General and Administrative. General and administrative expenses increased
from $670,000 for the year ended December 31, 1998 to $1.4 million for the year
ended December 31, 1999, an increase of $730,000, or 109.0%. This increase was
primarily attributable to an increase of $340,000, or 89.5%, in personnel
expenses and occupancy costs and to an increase of $96,000, or 114.3%, in
recruitment costs. General and administrative expenses as a percentage of
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revenues increased from 7.5% for the year ended December 31, 1998 to 8.1% for
the year ended December 31, 1999.
Net Loss. Net loss increased from $829,000 for the year ended December 31,
1998 to $2.7 million for the year ended December 31, 1999, an increase of $1.9
million, or 229.2%. Net loss increased as a percentage of revenues from 9.3% for
the year ended December 31, 1998 to 15.4% for the year ended December 31, 1999.
Financial Income. Financial income increased from $22,000 for the year
ended December 31, 1998 to $105,000 for the year ended December 31, 1999
principally as a result of the increased interest income we derived from the
investment of the cash surplus from our June 1998 private placement.
Consolidated Balance Sheet
Trade Receivables. Trade receivables increased from $3.2 million at
December 31, 1999 to $7.0 million at December 31, 2000, an increase of $3.8
million, or 118.5%. This increase was primarily attributable to an increase in
sales of our products during the year ended December 31, 2000.
Allowance for Doubtful Accounts. Allowance for doubtful accounts increased
from $225,000 at December 31, 1999 to $577,000 at December 31, 2000, an increase
of $352,000, or 156.4%. Allowance for doubtful accounts as a portion of trade
receivables increased from 6.5% as of December 31, 1999 to 7.6% as of December
31, 2000. This increase was primarily attributable to an increase in the balance
of receivables.
Other Receivables and Prepaid Expenses. Other receivables and prepaid
expenses decreased from $1.5 million at December 31, 1999 to $1.1 million at
December 31, 2000, a decrease of $465,000 or 30.7%. This decrease was primarily
attributable to a decrease in prepaid rental expenses.
Inventories. Inventories increased from $2.4 million at December 31, 1999
to $4.9 million at December 31, 2000, an increase of $2.5 million, or 103.7%.
This increase was primarily attributable to an increase in inventory in response
to growth in our sales.
Trade Payables. Trade payables increased from $2.6 million at December 31,
1999 to $3.7 million at December 31, 2000, an increase of $1.1 million, or
45.3%. This increase was primarily attributable to an increase in the volume of
activities during the year.
Other Payables and Accrued Expenses. Other payables and accrued expenses
increased from $6.3 million at December 31, 1999 to $16.8 million at December
31, 2000, an increase of $10.5 million, or 164.9%. This increase was primarily
attributable to an increase in accrued expenses and in accrued deferred income
which will be recognized only after all criteria for revenue recognition
according to SOP 97-2 are met.
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Quarterly Results of Operations
The following tables present consolidated statements of operations data for
each of the eight fiscal quarters ended December 31, 2000, 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, June 30, Sept. 30, Dec. 31, Mar, 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999 2000 2000 2000 2000
------ ------- ------- ------- ------ ------- -------- ----------
Revenues.............. $3,393 $3,979 $4,623 $5,555 $7,827 $10,201 $12,708 $15,176
Cost of revenues...... (454) (592) (642) (1,165) (1,944) (2,579) (3,102) (3,822)
Gross profit.......... 2,939 3,387 3,981 4,390 5,833 7,622 9,606 11,354
Operating expenses:
Research and
development........ 1,408 1,917 2,124 2,217 2,529 3,332 3,749 4,653
Less participation
by the Chief
Scientist.......... (208) (318) (245) (325) (236) (365) 247 -
Research and
development, net... 1,200 1,599 1,879 1,892 2,293 2,967 3,996 4,653
Marketing and
selling, net....... 1,661 1,844 2,327 3,670 3,611 4,523 4,470 4,754
General and
administrative..... 240 291 299 596 615 670 779 1,393
Repayment of future
royalties.......... - - - - - - - 3,666
Operating income
(loss).............. (162) (347) (524) (1,768) (636) (538) 361 (3,112)
Financing income
(expenses), net..... 97 (1) 20 (11) 115 1,279 1,291 1,490
Net income (loss). $(65) $(348) $(504) $(1,779) $ (521) $ 741 $ 1,652 $(1,622)
As a percentage of
revenues:
Revenues.............. 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenues...... (13) (15) (14) (21) (25) (25) (24) (25)
Gross profit.......... 87 85 86 79 75 75 76 75
Operating expenses:
Research and
development......... 42 48 46 40 32 33 30 31
Less participation
by the
Chief Scientist... (6) (8) (5) (6) (3) (4) 2 0
Research and
development, net.. 36 40 41 34 29 29 32 31
Marketing and
selling, net........ 49 47 50 66 46 44 35 31
General and
administrative...... 7 7 6 11 8 7 6 9
Repayment of future
royalties....... - - - - - - - 24
Operating income
(loss) ............. (5) (9) (11) (32) (8) (5) 3 (20)
Financing income
(expenses), net..... 3 0 0 (0) 1 13 10 10
Net income (loss). (2)% (9)% (11)% (32)% (7)% 8 % 13 % (10)%
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.
-38-
Conditions in Israel
We are incorporated under the laws of, and our principal offices and
manufacturing and research and development facilities are located in, the State
of Israel. Therefore, we are directly affected by political, economic and
military conditions in 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. Israel signed a peace treaty with
Egypt in 1979 and a peace treaty with Jordan in 1994. Since 1993, a joint
Israeli-Palestinian declaration of principles and several other agreements have
been signed between Israel and the Palestinians. As of the date of this annual
report, Israel has not entered into any peace agreement with Syria and Lebanon.
We cannot assure you whether any peace agreement with Syria and Lebanon will be
signed. Moreover, while Israel is in the process of conducting peace
negotiations with the Palestinian Authority, since September 2000 there has been
a significant deterioration in the relationship between Israel and the
Palestinian Authority and as a result of riots in Gaza and the West Bank, the
peace process between the parties has stagnated. Efforts to resolve the problem
have failed to result in an agreeable solution. Continued hostilities between
the Palestinian community and Israel and any failure to settle the conflict may
have a material adverse effect on our business and us. Further deterioration of
hostilities into a full scale conflict might require more widespread military
reserve service by some of our employees that may have a material adverse effect
on our business.
Despite the progress towards peace between Israel and its Arab neighbors
and the Palestinians, some countries, companies and organizations continue to
participate in a boycott of Israeli firms and others doing business with Israel
or with Israeli companies. Although we are precluded from marketing our products
to these countries, we believe that in the past the boycott has not had a
material adverse effect on us. However, restrictive laws, policies or practices
directed towards Israel or Israeli businesses could have an adverse impact on
the expansion of our business.
All male adult citizens and permanent residents of Israel under the age of
48 are, unless exempt, obligated to perform up to 39 days of military reserve
duty annually. Additionally, these residents are subject to being called to
active duty at any time under emergency circumstances. Some of our officers and
employees are currently obligated to perform annual reserve duty. While we have
operated effectively under these requirements since we began operations, 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 us of any
expansion or reduction of these obligations.
Economic Conditions
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has intervened in
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various sectors of the economy by utilizing fiscal and monetary policies, import
duties, foreign currency restrictions and control of wages, prices and foreign
currency exchange rates. In 1998, the Israeli currency control regulations were
liberalized significantly to allow Israeli residents to deal in foreign currency
and non-residents of Israel to purchase and sell Israeli currency and assets.
The Israeli government has periodically changed its policies in all these areas.
There are currently no Israeli currency control restrictions on remittances of
dividends on our ordinary shares or the proceeds from the sale of our shares.
However, legislation remains in effect under which currency controls can be
imposed by administrative action at any time.
The Israeli government's monetary policy contributed to relative price and
exchange rate stability in recent years, despite fluctuating rates of economic
growth and a high rate of unemployment. We cannot assure you that the Israeli
government will be successful in its attempts to keep prices and exchange rates
stable. Price and exchange rate instability may have a material adverse effect
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 Global Agreement on Trade in Services. 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 these programs either duty-free or at reduced
tariffs.
Israel and the EEC, known now as the European Union, concluded a free trade
agreement in July 1975 which confers various advantages on Israeli exports to
most European countries and obligates Israel to lower its tariffs on 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 specified 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 redefinement of rules of
origin and other improvements, including providing for 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.
Market Risk
We currently do not invest in, or hold for trading or other purposes, any
financial instruments subject to market risk. We invest our cash surplus in time
deposits, cash deposits, U.S. federal agency securities and corporate bonds with
an average credit rating of A2. We currently pay interest on our equipment term
loan facility based on the London interbank offered rate. As a result, changes
in the general level of interest rates directly affect the amount of interest
payable by us under this facility. However, because our outstanding debt under
this
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facility has never exceeded $218,000, we do not expect our exposure to market
risk from changes in interest rates to be material.
Effective Corporate Tax Rate
Israeli companies are generally subject to income tax at the corporate tax
rate of 36%. 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.
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:
Year after we
begin generating
taxable income Tax benefit
------------------ --------------------------------------------------
1-2............... Tax-exempt
3-7............... Corporate tax of up to 25%
8-10.............. Corporate tax of up to 25% if more than 25% of
our shares are held by non-Israeli investors
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.
As of December 31, 2000, our net operating loss carry-forwards for Israeli
tax purposes amounted to approximately $15.0 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, 2000, the net operating loss carry-forwards of our U.S.
subsidiary for U.S. tax purposes amounted to approximately $8.0 million. These
losses are available to offset any future U.S. taxable income of our U.S.
subsidiary and will expire in the years 2010 through 2014.
Impact of Inflation and Currency Fluctuations
The dollar cost of our operations is influenced by the extent to which any
inflation in Israel is offset, 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
-41-
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:
Israeli
Israeli Israeli inflation
Year ended inflation devaluation rate adjusted for
December 31, rate % % devaluation %
------------ --------- ---------------- -------------
1996 10.6 3.7 6.6
1997 7.0 8.8 (1.7)
1998 8.6 17.6 (7.7)
1999 1.3 (0.1) 1.3
2000 0.0 (2.7) 2.8
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, 2000, we had approximately $41.6 million in cash
and cash equivalents and our working capital was approximately $73.7 million.
-42-
Capital expenditures for the years ended December 31, 1998, 1999 and 2000
were approximately $1.1 million, $2.4 million and $4.2 million respectively.
These expenditures were principally for research and development equipment,
motor vehicles, office furniture and equipment and leasehold improvements. We
currently do not have significant capital spending or purchase commitment, but
we expect to continue to engage in capital spending consistent with anticipated
growth in our operations, infrastructure and personal.
Net cash provided by operating activities was approximately $8.6 million
for the year ended December 31, 2000. This amount was primarily attributable to
an increase of $10.4 million in other payables and accrued expenses and an
increase in depreciation of $1.8 million. These increases in cash provided by
operating activities were offset in part by an increase in trade receivables of
$3.8 million and an increase in inventory of $2.5 million.
The increase in inventory for the year ended December 31, 2000 was
primarily in anticipation of expected growth in product sales. The increase in
accounts receivable for the year ended December 31, 2000 was primarily the
result of increased sales. Net cash used in investing activities was
approximately $59.5 million for the year ended December 31, 2000. For the year
ended December 31, 2000, $39.5 million of cash used in investing activities were
invested in short term deposits and $15.9 million were invested in long term
investments. During the year ended December 31, 2000, $4.2 million of cash used
in investing activities was for purchases of property and equipment.
Net cash provided by financing activities was $90.0 million for the year
ended December 31, 2000. For the year ended December 31, 2000, cash provided by
financing activities was attributable principally to the proceeds from our
initial public offering and a private placement of our ordinary shares.
As of December 31, 2000, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments for
capital expenditures, we anticipate an increase in capital expenditures and
lease commitments consistent with our anticipated growth in operations,
infrastructure and personnel. We also may establish additional operations as we
expand globally.
As of December 31, 2000, we had $65,000 outstanding under an equipment term
loan facility and a $2.5 million line of credit, all of which was unused.
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.
Our February 28, 2001, we announced that our Board of Directors has
authorized the repurchase of up to 10% of our outstanding Ordinary Shares in the
open market from time to time at prevailing market prices. No time limit has
been placed on the duration of the share
-43-
repurchase program. We may use the repurchased shares for issuance upon exercise
of employee stock options or other corporate purposes.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
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, the Company has not capitalized
any of its research and development expenses and does not anticipate that its
development process will differ materially in the future.
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 net investment in research and development for the
three years ended December 31, 1998, 1999 and 2000 was $4.4 million, $7.7
million and $14.3 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.
As of December 31, 2000, our research and development staff consisted of
approximately 153 employees. Our research and development activities are
conducted at our facilities in Tel Aviv, Israel and in our office in Mahwah, New
Jersey. 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.
Manufacturing and Assembly
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 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
-44-
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 9002
supplier. The ISO 9002 standard defines the procedures required for the
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 9002 standard.
Government Grants
We principally conduct our research and development operations in Israel.
Our research and development efforts have been financed through internal
resources and in the past from grants from the Chief Scientist. The Chief
Scientist provided grants for research and development efforts of approximately
$1.1 million both in 1998 and 1999, and $353,000 in 2000, representing 26.0%,
14.3% and 2.5%, respectively, of our total research and development expenses in
these periods. We do not intend to apply for grants from the Chief Scientist in
the future.
For the last three years, we have paid or accrued royalties to the Israeli
government as follows:
Year ended Royalties paid
December 31, or accrued
------------ ----------
1998 $ 178,000
1999 495,000
2000 4,198,000
In 2000 we determined to repay all future royalty payments to the Chief
Scientist. This decision was made as part of the strategy to discontinue our
relationship with the Chief Scientist in order to reduce the growing
restrictions imposed by the Chief Scientist on our business. By doing so, we
also save the increased interest rates that are imposed by the Chief Scientist
on part of the royalties due. The $3.7 million repayment of future royalties
will benefit our operating results in future periods.
The Israeli government, through the Fund for the Encouragement of Marketing
Activities, awards grants to Israeli companies for overseas marketing expenses,
including expenses for maintaining branches, advertising, catalogs, exhibitions
and surveys, up to a maximum rate of 33% of these expenses, not to exceed $1.2
million annually. In 1998, we received grants from the marketing fund totaling
approximately $178,000, and are required to pay royalties in connection with
these grants at a rate of 3.0% of the increase in our sales generated outside of
Israel from the date of the grant up to the total dollar-linked amount of the
grants. Marketing grants are currently awarded only to companies whose annual
exports in the year preceding the application did not exceed $15.0 million. As
of December 31, 2000, our contingent liability to the Israeli government for
grants received from the marketing fund was $200,000. If we fail to satisfy the
terms and conditions of the grants, we may be required to refund the grants
already received and would likely be denied these grants in the future. We do
-45-
not intend to apply for any grants from the Fund for the Encouragement of
Marketing Activities in the future.
D. TREND INFORMATION
As a result of a less predictable business environment and ongoing softness
in enterprise spending in the United States, we are unable to provide any
guidance as to current sales and profitability trends. Nevertheless, we expect
revenues for fiscal 2001 to be no less than what we reported in fiscal 2000. In
order to compensate for the lower revenue expectations for fiscal 2001 we have
reduced overall spending and have implemented a 10% reduction in our workforce.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
established accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We believe that the
adoption of SFAS No. 133 will not have a material effect on our financial
statements.
In March 2000, the FASB issued interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25." The interpretation clarifies the application of APB No. 25 in
certain situations, as defined. The interpretation is effective July 1, 2000,
but covers certain events occurring during the period after December 15, 1998
but before the effective date. To the extent that events covered by this
interpretation occur during the period after December 15, 1998, but before the
effective date the effects of applying this interpretation would be recognized
on a prospective basis from the effective date. Accordingly, upon initial
application of the final interpretation, (a) no adjustments would be made to the
financial statements for periods before the effective date, (b) no expense would
be recognized for any additional compensation cost measured that is attributable
to periods before the effective date, and (c) no expense would be recognized for
any additional compensation cost measured that is attributable to periods before
the effective date. We believes that the adoption of this interpretation would
not have any effect on the accompanying financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We adopted SAB
101 as required in the second quarter of 2000. The adoption of SAB 101 did not
have a material impact on our consolidated results of operations and financial
position.
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Cautionary Statement Regarding Forward-Looking Statements
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
shareholders 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. Investors
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 a Risk Factors section
which appears in Item 3 - Key Information.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
------------------------ --- -----------------------------------------------
Zohar Zisapel (1)....... 52 Chairman of the Board of Directors
Yehuda Zisapel (1)...... 59 Director
Gadi Tamari (1)......... 56 Chief Executive Officer, President and Director
Ami Amir (1)............ 57 Director
Eli Doron............... 49 Chief Technical Officer and Executive Vice
President
David Seligman.......... 43 Chief Financial Officer
Adi Gan (1)............. 33 Director
Dan Goldstein (2)....... 47 Director
Hillel E. Milo (1)...... 51 Director
Efraim Wachtel (1)...... 56 Director
Andreas Mattes (1)...... 40 Director
Liora Katzenstein (2)... 45 Director
----------------
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(1) Zohar Zisapel, Yehuda Zisapel, Gadi Tamari, Ami Amir, Adi Gan, Hillel E.
Milo, Efraim Wachtel, and Andreas Mattes will serve as directors until our
2001 annual general meeting of shareholders.
(2) Liora Katzenstein and Dan Goldstein will serve as outside directors
pursuant to the provisions of the Israeli Companies Law for a three-year
term (i.e., January 2003 for Mr. Goldstein and December 2003 for Prof.
Katzenstein). Thereafter, their term of service may be renewed for one
additional three-year term.
Adi Gan, Dan Goldstein, Liora Katzenstein and Hillel Milo are independent
directors.
Zohar Zisapel has served as a director of RADVISION since November 1992,
and as our Chairman of the Board of Directors until August 1999. He again
assumed the position of Chairman of the Board in April 2001. Mr. Zisapel is a
founder and a director of RAD Data Communications Ltd., or RAD, a leading
worldwide data communications company headquartered in Israel, of which he has
served as president from January 1982 until 1999, and a director of other public
companies in the RAD-BYNET group, including RADCOM, SILICOM, RIT, Ceragon and
RADWARE. During the last five years, Mr. Zisapel has been engaged mainly in
management of high technology companies. Mr. Zisapel has B.Sc. from the
Technion, Israel Institute of Technology and M.Sc. degrees from Tel Aviv
University
Yehuda Zisapel has served as a director of RADVISION since November 1992
and as our chairman of the board of directors until April 2001. Mr. Zisapel is
also a founder and a director of RAD, of which he has served as a director since
1979, and its affiliate, BYNET Data Communications Ltd. Mr. Zisapel also serves
as the chairman of the board of RIT Technologies Ltd. and RADWARE Ltd. and as a
director of other companies in the RAD-BYNET group, including SILICOM Ltd. and
RADCOM Ltd. Mr. Zisapel has a B.Sc. and an M.Sc. degree in electrical
engineering from the Technion, Israel Institute of Technology and an M.B.A.
degree from Tel Aviv University. Yehuda Zisapel and Zohar Zisapel are brothers.
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. During the years 1996-1999 he was chief operating officer of Excel
Switching Corporation responsible for international sales, operations, marketing
and customer support. Mr. Tamari has a B.Sc. degree in mechanical engineering
and an M.Sc. degree in industrial engineering from the Technion, Israel
Institute of Technology and attended Harvard University's Advanced Management
Program.
Ami Amir, our co-founder, served as our president and chief executive
officer from November 1992 until April 2001 and has served as a director since
November 1992. From March 1987 to November 1992, Mr. Amir was the president of
RAD Data Communications Inc. Before March 1987, Mr. Amir held senior engineering
positions for Simtech Advanced Training and Simulation Systems, Tadiran
Electronic Industries and Elbit Systems Ltd. Mr. Amir has a B.Sc. degree in
electronics and computer science from the Technion Israel Institute of
Technology.
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Eli Doron, our co-founder, has served as our executive vice president and
chief technical officer since July 1998. From October 1992 to July 1998, Mr.
Doron was our vice president of research and development. From October 1983 to
October 1992, Mr. Doron held senior engineering positions at Simtech Advanced
Training and Simulation Systems. Mr. Doron has a B.Sc. degree in electronics and
computer science from Ben Gurion University.
David Seligman has served as our chief financial officer since November
1999. From July 1996 until November 1999, Mr. Seligman was the chief financial
officer and secretary of LanOptics Ltd. From October 1993 until June 1996, Mr.
Seligman was a senior financial analyst for Fidelity Investments Systems
Company. Mr. Seligman has a B.A. in political science and geography and an
M.B.A. in accounting and finance from Tel Aviv University.
Adi Gan has served as a director of RADVISION since August 1998. Since
January 1998, Mr. Gan has been an investment manager with Evergreen's Venture
Capital Group. From August 1995 until January 1998, Mr. Gan was employed by
TesCom Ltd., initially as a project manager and then as a manager of the
real-time system division of TesCom Ltd. Mr. Gan has a B.Sc. in physics from the
Technion, Israel Institute of Technology, and an M.Sc. in chemistry from Tel
Aviv University.
Dan Goldstein has served as an outside director of RADVISION since January
2000. In 1985, Mr. Goldstein founded Formula Systems (1985) Ltd. and has been
its chief executive officer and chairman of the board of directors since that
time. Mr. Goldstein is also the chairman of the board of directors of other
companies in the Formula Systems group, including Magic Software Enterprises
Ltd., Sintec Advanced Technologies Ltd., F.C.T. Formula Computer Technologies
Ltd. and Applicom Software Industries (1990) Ltd., and is a director of Crystal
Systems Solutions Ltd. Mr. Goldstein has a B.Sc. degree in mathematics and
computer science and an M.B.A. in business administration from Tel Aviv
University.
Hillel E. Milo has served as a director of RADVISION since May 1995. Until
July 1999, Mr. Milo was president and chief executive officer of Israel Infinity
Venture Capital Fund. Since January 1995, Mr. Milo has been chief executive
officer and managing director of Clal Venture Capital Fund L.P. In 1993, Mr.
Milo co-founded Walden Israel Venture Capital fund and has been the general
partner of that fund since that time. Mr. Milo has a B.Sc. in mechanical
engineering and an M.A. in management science from the University of Alabama.
Efraim Wachtel has served as a director of RADVISION since March 1998. Mr.
Wachtel has been president and chief executive officer of 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.
Andreas Mattes has served as a director of RADVISION since March, 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
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of Siemens PN. From October 1985 until January 1996, Mr. Mattes held various
sales, marketing and business administration positions at Siemens.
Liora Katzenstein has served as an outside director of RADVISION since
December 2000. Prof. Liora Katzenstein specializes in Business Administration
and Entrepreneurship. During the last five years she founded, and serves as the
President and CEO of, ISEMI - Israel School of Entrepreneurial Management and
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 Clal Industries &
Investments Ltd., Discount Issuers Ltd., Amanat Ltd., Palafric Investments Ltd.
and Tachlit - Discount Bank, 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.
Other key managers are as follows:
Name Age Position
----------------------------- --- -------------------------------------------
Boaz Raviv................... 40 General Manager of the Technology Group
Avinoam Barak................ 38 General Manager of the Networking Group
Gene Wolf.................... 52 Senior Vice President of Worldwide Sales
and Support
Michelle Blank............... 46 Senior Vice President, Global Marketing
Ofer Shapiro................. 31 Senior Vice President, Business Development
Boaz Raviv has served as general manager of the technology group since
December 2000. 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. Raviv served his apprenticeship at Robotic in CEMAGREF and he holds a
bachelor's degree from the Technion, Israel Institute of Technology in Haifa.
Avinoam Barak has served as the general manager of our networking business
unit since June 2000. Prior to joining RADVision, and since 1989 Mr. Barak held
various positions at MLM, a division of Israel Aircraft Industries. In his last
position, he was a business manager for a communications-system unit. Mr. Barak
holds a B.Sc. in Computer Engineering from the Technion Israel Institute of
Technology and an M.B.A. in Information Systems and Finance from Bar Ilan
University.
Gene Wolf has served as our senior vice president of worldwide sales and
support since January 2001. Prior to that, and since 1999, Mr. Wolf served as
president of RADVISION Inc. Prior to that, he served as the president and chief
executive officer of Controlware
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Communications Systems, Inc. (U.S. subsidiary of Controlware GmbH, Inc.). Prior
to Controlware, he served as vice president of international sales for Teleos
Corporation.
Michelle Blank has served as our senior vice president of global marketing
since May 1999. From June 1997 to May 1999, Ms. Blank was president of RADVISION
Inc. From September 1990 to June 1997, Ms. Blank acted as an independent
consultant to several technology companies. Ms. Blank has a Ph.D. degree in
cognitive science from The University of Texas.
Ofer Shapiro has served as our Senior Vice President of Business
Development since September 2000. While at RADVISION, Mr. Shapiro has held a
variety of key positions including Vice President of Strategic Accounts and
leading the development of RADVISION's first gatekeeper and multipoint
conferencing unit products. Prior to joining us, Mr. Shapiro managed
electro-optics related projects in the Israeli Defense Force for five years. He
holds a B.Sc. degree in math and physics from the Hebrew University in Jerusalem
and an M.Sc. in applied physics from Tel Aviv University.
Election of Directors
Pursuant to our articles of association, all of our directors, other than
our outside 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. Outside directors are elected for a three-year term. All
the members of our Board of Directors (except the outside directors as detailed
below) 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. Seven of our directors currently in office were elected by our
shareholders at our 2000 annual meeting of shareholders and Mr. Gadi Tamari was
appointed a director by the Board of Directors in April 2001.
Independent and Outside 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:
o an employment relationship;
o a business or professional relationship maintained on a regular basis;
o control; and
o service as an officer holder.
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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 are present at the meeting. 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 and the audit committee must include all of the outside directors. 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 Stock Market requires us to have at least three
independent directors on our Board of Directors and to establish an audit
committee, at least a majority of whose members are independent of management.
Our current audit committee complies with the Nasdaq rules. In addition, we are
required to adopt an audit committee charter. We have adopted an audit committee
charter that complies with Nasdaq specifications.
Approval of Related Party Transactions Under Israeli Law
The 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 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 listed as a
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director or executive officer in the table under " -- Directors and Officers"
above is an office holder. Under the Companies Law, all arrangements as to
compensation of office holders who are not directors require approval of our
Board of Directors, and the compensation of office holders who are directors
must be approved by our Audit Committee, Board of Directors and shareholders.
The 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.
The 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. Moreover, an extraordinary transaction with a
controlling shareholder or the terms of compensation of a controlling
shareholder 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 and are present at the meeting. 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. In addition, 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 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% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the 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 45% shareholder of the company, unless
there is a 50% shareholder
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of the company. Regulations under the Companies Law provide that the 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 of Directors and Officers
The 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 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. 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:
o a breach of his duty of care to us or to another person;
o 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
o 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, we may indemnify an office holder against:
o 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
o reasonable litigation expenses, including attorneys' fees, expended by
such office holder or charged to him by a court, in proceedings we
institute 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.
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 enter into an insurance contract that would provide coverage for any
monetary liability incurred as a result of any of the following:
o a breach by the office holder of his duty of loyalty unless the office
holder acted in good faith and had a reasonable basis to believe that
the act would not prejudice the company;
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o a breach by the office holder of his duty of care if such breach was
done intentionally or in disregard of the circumstances of the breach
or its consequences;
o any act or omission done with the intent to derive an illegal personal
benefit; or
o any fine levied against the office holder as a result of a criminal
offense.
Under the Companies Law, our shareholders may amend our Articles of
Association to include either of the following provisions:
o Prospectively undertake to indemnify an office holder of the Company,
provided that the undertaking is limited to types of events which our
board of directors deems to be anticipated and limited to an amount
determined by the board of directors to be reasonable under the
circumstances; or
o Retroactively indemnify an office holder of the Company.
In addition, pursuant to the Companies Law, indemnification of, and
procurement of insurance coverage for, our office holders must be approved by
our Audit Committee and our Board of Directors and, in specified circumstances,
by our shareholders.
We have 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.
B. COMPENSATION
The following table presents all compensation we paid to all of our
directors and officers as a group for the year ended December 31, 2000. The
table does not include any amounts we paid to reimburse any of our affiliates
for costs incurred in providing us with services during this period.
Salaries, fees, Pension, retirement
commissions and and other similar
bonuses benefits
--------------- -------------------
All directors and officers as a group,
consisting of fifteen persons........... $2,112,779 $134,808
As of December 31, 2000, our directors and executive officers as a group,
consisting of fifteen persons, held options to purchase an aggregate of 608,950
ordinary shares. Other than reimbursement for expenses, we do not compensate our
directors for serving on our board of directors.
Under the Companies Law, the board of directors must approve all
compensation arrangements of office holders who are not directors. Directors'
compensation arrangements also require audit committee approval before board
approval and shareholder approval.
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C. BOARD PRACTICES
Audit Committee
Our audit committee currently composed of Dan Goldstein, Liora Katzenstein
and Efraim Wachtel. It is currently contemplated that the audit committee will
meet at least two times each year. The responsibilities of the audit committee
include: (i) examining the manner in which management ensures and monitors the
adequacy of the nature, extent and effectiveness of accounting and internal
control systems; (ii) reviewing prior to publication the statutory accounts and
other published financial statements and information; (iii) monitoring
relationships with our independent auditors, ensuring that there are no
restrictions on the scope of the statutory audit, making recommendations on the
auditors' appointment and dismissal, and reviewing the activities, findings,
conclusions and recommendations of the independent auditors; (iv) reviewing
arrangements established by management for compliance with regulatory and
financial reporting requirements; and (v) reviewing the scope and nature of the
work of the internal auditing unit.
The 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.
The Israeli Companies Law provides that public companies must appoint an
audit committee. The responsibilities of the audit committee also include
approving related-party transactions as required by law. Under the Israeli
Companies Law, an audit committee must consist of at least three members and
include all of the company's outside directors. However, the chairman of the
board of directors, any director employed by the company or providing services
to the company on a regular basis, any controlling shareholder and any relative
of a controlling shareholder may not be a member of the audit committee. 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.
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.
Committees
Our board of directors has formed an audit committee, an option and
compensation committee and an executive committee.
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Our option and compensation committee, which consists of Zohar Zisapel,
Efraim Wachtel and Gadi Tamari, administers our consultants option plan and sets
the annual compensation for Gadi Tamari, our chief executive officer. Our
executive committee, which consists of Zohar Zisapel, Dan Goldstein, Gadi Tamari
and Ami Amir, is responsible for managing our daily operations and acting on
behalf of our board of directors in exigent circumstances.
D. EMPLOYEES
As of April 30, 2001, we had 277 employees worldwide, of whom 155 were
employed in research and development, 77 in sales and marketing, 25 in
management and administration and 20 in operations. We have standard employment
agreements with all of our employees located in Israel. Of our employees, 215
are based in Israel and 52 are based in the United States, 9 are based in Hong
Kong and China and one is based in the United Kingdom.
Our relationships with our employees in Israel are governed by Israeli
labor legislation and regulations, extension orders of the Ministry of Labor and
personal employment agreements.
Israeli labor laws and regulations are applicable to all of our employees.
The laws concern various matters, including severance pay rights at termination,
retirement or death, length of work day and work week, 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.
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 are approximately 14.5% of wages, up to a specified
amount, of which the employee contributes approximately 66.0% and the employer
contributes approximately 34.0%. 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 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.
Employment Agreements
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.
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E. SHARE OWNERSHIP
Beneficial Ownership of Executive Officers and Directors
The following table sets forth certain information as of March 31, 2001
regarding the beneficial ownership by each of our directors and executive
officers:
Number of Ordinary
Shares Percentage of
Name Beneficially Owned (1) Ownership (2)
---- ---------------------- -------------
Zohar Zisapel (3)................... 2,028,041 10.53%
Yehuda Zisapel (4).................. 2,134,561 11.08%
Twelve directors and
executive officers
as a group (5)..................... 4,232,714 21.80%
------------------
(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 19,260,480 ordinary shares issued and
outstanding as of March 31, 2001.
(3) Includes 477,213 ordinary shares owned of record by Rad Data Communications
Ltd.
(4) Includes 477,213 ordinary shares owned of record by Rad Data Communications
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) Includes 155,036 ordinary shares subject to currently exercisable options
granted under our stock option plans, at an average exercise price of $4.22
per share. Such options expire between June 2003 to March 2011.
1996 Stock Option Plan
In April 1996, we adopted our key employee share incentive plan. Employees
of RADVISION and its subsidiaries of or affiliates of RADVISION belonging to the
RAD-BYNET group are eligible to participate in the 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 this plan as
of March 31, 2001:
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Ordinary shares reserved Options Weighted average
for option grants granted 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 this plan and our consultants option plan in the aggregate. We
intend to grant further options under this plan to our executive officers and
employees.
Plan Administration
The share incentive committee of our board of directors administers the
plan. Under the plan, the committee has the authority to recommend to the Board
or determine, as applicable, in its discretion:
o the persons to whom options are granted;
o the number of shares underlying each option award;
o the time or times at which the award shall be made;
o the exercise price, vesting schedule and conditions under which the
options may be exercised; and
o any other matter necessary or desirable for the administration of the
plan.
Option Trust
Under the 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. The trustee may not release the options or ordinary shares
to the beneficiaries of these options or shares before the second anniversary of
the registration of the options in the name of the trustee.
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 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. Our employees and
directors and consultants employed by us are eligible to participate in the
plan. Options granted under the
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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 March
2001:
Ordinary shares Weighted average
reserved for option grants Options granted exercise price
-------------------------- --------------- ----------------
3,163,523 63,300 $1.18
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 this plan and our key employee share incentive plan in the
aggregate.
Plan Administration
The option committee of our board of directors administers the plan. Under
the plan, the committee has the authority to determine, in its discretion:
o the persons to whom options are granted;
o the number of shares underlying each option award;
o the time or times at which the award shall be made;
o the exercise price, vesting schedule and conditions under which the
options may be exercised; and
o any other matter necessary or desirable for the administration of the
plan.
Option Trust
Under the 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 option
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 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, authorizes the grant
of options to purchase up to 636,477 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
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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. 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.
The option and compensation committee appointed by the Board of Directors
administers the 2000 Plan. Subject to the provisions of the 2000 Plan and
applicable law, the option and compensation committee has the authority, in its
sole discretion, to:
o grant awards under the 2000 Plan and select the persons to whom such
awards are granted;
o determine 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);
o prescribe the form and provisions of the notice of exercise and
payment of the option;
o nominate a trustee for options issued under Section 102 of the Israeli
Tax Ordinance;
o 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;
o interpret the provisions of the 2000 Plan; and
o prescribe, amend, and rescind rules and regulations relating to the
2000 Plan or any award thereunder as it may deem necessary or
advisable.
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
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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 this plan as of
March 2001:
Ordinary shares Range of exercise
reserved for option grants Options granted prices
-------------------------- --------------- -----------------
1,531,422 1,065,118 $10.20 - $28.00
Exercise of options during 2000 and the first quarter of 2001
During the period January 2000 through March 31, 2001, we issued 714,634
ordinary shares, par value NIS 0.1 per share each, 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. See "Item 7B. Related Party Transactions - Voting
Agreement."
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Number of ordinary Percentage of
shares outstanding
beneficially ordinary
Name owned(1) shares (2)
------------------------------------------- ------------------ -------------
Yehuda Zisapel (3)......................... 2,134,561 11.08%
Zohar Zisapel (4).......................... 2,028,041 10.53%
Siemens Aktiengesellschaft (5)............. 1,625,228 8.44%
Clal Venture Capital Fund LP (6)........... 722,230 3.75%
Samsung entities (7)....................... 1,000,000 5.19%
Morgan Stanley Dean Witter & Co. (8)....... 1,695,826 8.64%
Morgan Stanley Dean Witter Investment
Management Inc.(8)........................ 1,695,826 8.64%
--------------
(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 19,620,480 ordinary shares issued and
outstanding as of March 31, 2001.
(3) Includes 477,213 ordinary shares owned of record by Rad Data Communications
Ltd.
(4) Includes 477,213 ordinary shares owned of record by Rad Data Communications
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) The address of Siemens Aktiengesellschaft is Hofmannstrasse 51, D-81359,
Munich, Germany.
(6) The address of Clal Venture Capital Fund LP is Atidim Technological Park,
Building No. 4, Tel Aviv, Israel. Hillel Milo, chief executive officer and
managing director of Clal Venture Capital Fund LP and a director of
RADVISION, disclaims beneficial ownership of the ordinary shares held by
Clal Venture Capital Fund LP except to the extent of his proportional
interest in the ordinary shares.
(7) The address of Samsung Electro-Mechanics Co. Ltd. is 314 Maetan 3-Dong,
Paldal-Gu, Suwon, Kyunggi-D, Korea 442-743. The address of Samsung Venture
Investment Corporation is Samsung Yeok Sam Bldg. 647-9, Yeok Sam-Dong, Kang
Nam-Gu, Korea 135-080.
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(8) Based solely upon, and qualified in its entirety with reference to, a
Schedule 13G filed with the Commission on February 8, 2001.
Concurrent with our initial public offering, Samsung Venture Investment
Corporation, a member of the Samsung group, and Siemens Aktiengesellschaft
purchased an aggregate of 2,625,228 of our ordinary shares in a private
transaction. We sold 590,822 ordinary shares in the private placement and the
remaining 2,034,406 ordinary shares were sold by some of our shareholders,
including our former chairman of the board, former chief executive officer and
some of our directors.
To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any government, and there are no arrangements that
might result in a change in our control.
As of April 25, 2001, there were 112 holders of record of our ordinary
shares, of which 15 record holders, holding approximately 61.16% of our ordinary
shares, had registered addresses in the United States. As of April 24, 2001
there were approximately 3,524 beneficial holders of our ordinary shares.
B. RELATED PARTY TRANSACTIONS
The RAD-BYNET Group
Yehuda and Zohar Zisapel are directors and principal shareholders of
RADVISION. 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:
AB-NET Ltd. Axerra Networks Inc. RADView Software Ltd.
BYNET Data Communications Ltd. RADCOM Ltd. RADWARE Ltd.
BYNET Electronics Ltd. RAD Data Communications RADWIN Ltd.
BYNET SEMECH Ltd. RADLAN Computer RIT Technologies Ltd.
BYNET Systems Applications Ltd. Communications Ltd. RND Networks
BYNET Personal Computers Ltd. Sanrad Inc.
Commerce.net Ltd. SILICOM Ltd.
Ceragon Networks Ltd.
Modules INC.
In addition to engaging in other businesses, members of the RAD-BYNET group
are actively engaged in designing, manufacturing, marketing and supporting data
communications 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.
Members of the RAD-BYNET group provide us with legal, human resources and
administrative services, and we reimburse each company for its costs in
providing these services. The aggregate amount of these reimbursements was
approximately $152,000, $196,000,
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$271,793 and $29,968 in 1998, 1999, 2000 and the three months ended March 31,
2001, respectively.
Agreement with RADCOM Ltd.
In January 1999, we entered into an agreement to license our H.323 software
development kit to RADCOM Ltd., an affiliated company controlled by Yehuda and
Zohar Zisapel and a member of the RAD-BYNET group. The agreement, which was
based on our standard form, provides for an aggregate fee of $187,000. This fee
includes maintenance and support services for one year and minimum royalty
payments on sales of products which incorporate the technology contained in the
software development kit during the first two years of the agreement. In
addition, the agreement provides that RADCOM has an option to extend the
maintenance and support services for additional annual periods as well as an
option to purchase additional RADVISION products and technology at specified
discounts.
Agreement with IP-RAD Ltd.
In September 2000, we entered into an agreement to license our MGCP MG
software to IP-RAD Ltd., an affiliated company controlled by Yehuda and Zohar
Zisapel and a member of the RAD-BYNET group. The agreement, which was based on
our standard form, provides for an aggregate fee of $80,000. This fee includes
maintenance and support services for one year. In addition, the agreement
provides that IP-RAD has an option to extend the maintenance and support
services for additional annual periods.
Lease Arrangements
We lease from RAD Data Communications, an affiliated company controlled by
Yehuda Zisapel and Zohar Zisapel and a member of the RAD-BYNET group,
approximately 11,000 square feet of office space for our facility in New Jersey,
for a monthly rent of approximately $8,800. The term of the lease is five years,
commencing May 1997 and terminating in May 2002. The monthly rent payments
include a 15% intra-group discount. If the property is sold, this discount would
no longer apply and our monthly payments will increase.
We lease from Zohar Zisapel Properties, Inc., a company controlled by Zohar
Zisapel, and from Yehuda Zisapel Properties, Inc., a company controlled by
Yehuda Zisapel, approximately 24,077 square feet of office space located in
Paramus, New Jersey, for a monthly rent of approximately $32,132. The term of
the lease is five years, commencing April 2001 and terminating in April 2006. We
expect to vacate one of our New Jersey premises in 2001.
Supply Arrangement
We purchase from RAD Data Communications components which we integrate into
our multimedia RADVISION products. The aggregate purchase price of these
components was approximately $252,000 for the year ended December 31, 1998,
$301,000 for the year ended December 31, 1999, and $798,374 for the year ended
December 31, 2000.
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
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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.
Private Placements
See "Item 7A. Major Shareholders and Related Party Transactions - Major
Shareholders."
Registration Rights
In the private placement of our ordinary shares in April 1995, several of
our shareholders were granted registration rights for their ordinary shares. The
agreements grant registration rights to each of:
o Yehuda Zisapel, Zohar Zisapel, RAD Data Communications Ltd. and the
employees' trust, as a group;
o Clal Venture Capital Fund LP and ECI Telecom Ltd., as a group; and
o other shareholder groups specified in the agreements.
Under the agreements, each of these shareholder groups will have the right
to make a single demand for the registration of their ordinary shares
outstanding at the time of our public offering in March 2000 provided that:
o the shareholder group owns at least 2% of our outstanding share capital;
and
o the demand covers shares representing a market value of at least $3 million
and does not include shares which may be sold without restriction within
three months from the date of the demand.
The shareholders' rights will be exercisable at any time commencing on
March 13, 2001 and for a period of three years thereafter. In addition, each of
the investors in the April 1995 private placement has the right to have its
ordinary shares included in some of our registration statements, provided that
the shareholder owns at least 2% of our outstanding share capital at the time it
exercises this right.
In the private placement of our ordinary shares in September 1996, Intel
Corporation was granted registration rights for their ordinary shares. The
agreement provides for registration rights on the same terms and conditions as
contained in the private placement agreements of April 1995.
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In the private placement of our preferred shares in May 1998, several of
our shareholders were granted registration rights for the ordinary shares
outstanding or to be issued upon conversion of their preferred shares, which
represent 2,957,165 ordinary shares in the aggregate.
The agreement provides that the purchasers of the preferred shares in May
1998, as a group, will have the right to make a demand on two occasions for the
registration of their ordinary shares outstanding at the time of this offering,
provided that:
o the demand covers shares representing a market value of at least $3
million; and
o the demand does not include shares which may be sold without
restriction within three months from the date of the demand.
The shareholders' rights will be exercisable at any time commencing on the
first anniversary of the consummation of our public offering in March 2000 and
for a period of three years thereafter or, in specified cases, for a period of
five years. In addition, each of the investors in the May 1998 private placement
has the right to have its ordinary shares included in some of our registration
statements. The agreement also provides that if subsequent investors in
RADVISION are granted more favorable terms concerning demand or other
registration rights, each of the investors will be granted identical rights, for
so long as they own at least 5% of our outstanding shares at that time.
Agreements with Our Former Chief Executive Officer
Founders Agreement
In January 1992, Messrs. Yehuda and Zohar Zisapel entered into an agreement
with Ami Amir, under which Ami Amir agreed to serve as our chief executive
officer for a period of not less than 5 years. In consideration for his
services, Zohar Zisapel and Yehuda Zisapel transferred 11% of our then
outstanding share capital to Ami Amir. The agreement provides that so long as
Ami Amir is our shareholder or director, he may not engage in business
activities that compete with us or pertain to data communications. In addition,
none of the parties may disclose to third parties information pertaining to our
business. The agreement also gives each of Messrs. Yehuda and Zohar Zisapel and
Ami Amir a right of first refusal if any of them offers to transfer their shares
to a third party.
Grant of Securities
Under agreements between us, Messrs. Yehuda and Zohar Zisapel and Ami Amir
dated April 7, 1995 and January 1, 1999, we issued 196,652 ordinary shares and
granted 119,848 options to Ami Amir. The options began to vest over a two and
one-half year period, commencing January 1, 1999.
Loan Agreement
In July 1997, we entered into an agreement with Ami Amir under which we
loaned him approximately $66,000 at an annual interest rate of 1% linked to the
Israel consumer price index. The loan is scheduled to be repaid upon the earlier
of the termination of his employment with us
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or the sale by Ami Amir of all or any portion of his shares of RADVISION. During
April 2000 Mr. Amir repaid his loan to us.
Voting Agreement
Upon the completion of the private placement, 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
will 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 shall
unanimously propose to serve as directors. However, the number of directors that
the other shareholders propose to serve as directors shall at a minimum be equal
to the number of directors which these shareholders have appointed to the board
prior to our initial public offering in March 2000. If all directors, except for
one director, decide that the continuation of a director on our board may damage
our business prospects, then the director shall be removed from our board.
The voting agreement expires in March 2003, except that it will be
automatically extended for two additional one-year periods, unless any of the
parties to the agreement notifies each of the other parties 60 days before the
expiration date of the then current term that such party wishes to terminate the
agreement. 6,399,605 ordinary shares, representing approximately 33.2% of the
outstanding shares, are subject to the voting agreement.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See the consolidated financial statements, including the notes thereto, and
exhibits listed in Item 19 hereof and incorporated herein by this reference.
Legal Proceedings
We are not party to any material legal proceedings.
In 1998, Lucent sent correspondence to our affiliate, RAD Data
Communications Ltd., alleging that some products manufactured by RAD and some of
its affiliates, including us, infringe upon specified Lucent patents and
offering to license these patents to RAD and its affiliates. In subsequent
correspondence, RAD requested that Lucent 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 Lucent in which Lucent has reiterated its claims. RAD does
not believe Lucent has substantiated its claims and has communicated this belief
to Lucent. RAD advises us that the alleged infringement claims are unresolved.
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The elements of our products that Lucent 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 Lucent's 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 Lucent's patents would not have a
material impact on our earnings. As a result, we do not believe that Lucent's
allegations will have a material adverse effect upon us, our business, financial
condition or liquidity.
Dividend Distribution
We have never paid cash dividends to our shareholders. We intend to retain
future earnings for use in our business and do not anticipate paying cash
dividends on our ordinary shares in the foreseeable future. Any future dividend
policy will be determined by the Board of Directors and will be based upon
conditions then existing, including our results of operations, financial
condition, current and anticipated cash needs, contractual restrictions and
other conditions as the Board of Directors may deem relevant.
According to the Israeli Companies Law, a company may distribute dividends
out of its profits, so long as the company reasonably believes that such
dividend distribution will not prevent the company from paying all its current
and future debts. Profits, for purposes of the Companies Law, means the greater
of retained earnings or earnings accumulated during the preceding two years. In
the event cash dividends are declared, such dividends will be paid in NIS.
B. SIGNIFICANT CHANGES
Since the date of the annual consolidated financial statements included in
this annual report, no significant change has occurred.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Quarterly Stock Information
Our ordinary shares are traded on the Nasdaq National Market under the
symbol RVSN. The following table sets forth, for the periods indicated, the high
and low sale prices of our ordinary shares as reported by the Nasdaq National
Market since our initial public offering on March 14, 2000:
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2000 High Low
---- ------- --------
First Quarter (from March 14, 2000)...... $65 $40-1/2
Second Quarter .......................... 52-3/4 16-1/8
Third Quarter ........................... 40-1/2 24-5/8
Fourth Quarter........................... 29-1/2 11-5/16
Monthly Stock Information
The following table sets forth, for each month in the last six months of
2000, the range of high and low sales prices of the ordinary shares on the
Nasdaq National Market:
2000 High Low
---- --------- --------
July................................... $40-1/2 $25-1/4
August................................. 38-3/4 30-5/8
September.............................. 32-13/64 24-5/8
October................................ 29-1/2 18-3/8
November............................... 25-5/8 13-7/8
December............................... 20-5/8 11-5/16
B. PLAN OF DISTRIBUTION
Not applicable
C. MARKETS
Our ordinary shares have been traded on the Nasdaq National Market under
the symbol RVSN since our initial public offering on March 14, 2000.
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
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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."
The authority of our directors to enter into borrowing arrangements on our
behalf is not limited, except in the same manner as any other transaction by us.
Rights Attached to Shares
Our authorized share capital consists of 25,000,000 shares, divided into
23,984,470 ordinary shares of a nominal value of NIS 0.10 each, and 15,530
deferred shares of a nominal value of NIS 0.10 each. All outstanding ordinary
shares are validly issued, fully paid and non-assessable.
Deferred Shares. The deferred shares confer no rights or privileges on
their holders, except for the right to receive upon our dissolution or
liquidation NIS 0.10 per deferred share. Holders of deferred shares will not
receive any share dividends.
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. 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
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exercise effective control with respect to the election of directors. See "Item
7B. Related Party Transactions - Voting Agreement."
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." Concurrent
with our initial public offering in March 2000, certain of our shareholders have
entered into a voting agreement. As a result, such shareholders may be able to
exercise effective control with respect to the election of directors. See "Item
7B. Related Party Transactions - Voting Agreement."
Rights in the 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-
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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 "Item 10B. 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.
C. MATERIAL CONTRACTS
None.
D. EXCHANGE CONTROLS
The Israeli Currency Control Law, 1978 imposes certain limitations
concerning foreign currency transactions and transactions between Israeli and
non-Israeli residents, which limitations may be regulated or waived by the
Controller of Foreign Exchange at the Bank of Israel, through "general" and
"special" permits. In May 1998, a new "general permit" was issued pursuant to
which substantially all transactions in foreign currency are permitted. Any
dividends or other distributions paid in respect of ordinary shares and any
amounts payable upon the dissolution, liquidation or winding up of our affairs,
as well as the proceeds of any sale in Israel of our securities to an Israeli
resident are freely repatriable into non-Israeli currencies at the rate of
exchange prevailing at the time of conversion, provided that Israeli income tax
has been paid on (or withheld from) such payments. Because exchange rates
between the NIS and the U.S. dollar fluctuate continuously, U.S. shareholders
will be subject to any such currency fluctuation during the period from when
such dividend is declared through the date payment is made in U.S. dollars.
E. TAXATION
The following is a discussion of Israeli and United States tax consequences
material to our shareholders. To the extent that the discussion is based on new
tax legislation which has not been subject to judicial or administrative
interpretation, the views expressed in the discussion might not be accepted by
the tax authorities in question. The discussion is not intended, and should not
be construed, as legal or professional tax advice and does not exhaust all
possible tax considerations.
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o Holders of our ordinary shares should consult their own tax advisors
as to the United States, Israeli or other tax consequences of the
purchase, ownership and disposition of ordinary shares, including, in
particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure
Israeli companies are subject to company tax at the rate of 36% of taxable
income. However, the effective tax rate payable by a company, which derives
income from an approved enterprise discussed further below, may be considerably
less.
Tax Benefits Under the Law for the Encouragement of Capital Investments, 1959
The Law for the Encouragement of Capital Investments, 1959, 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, for example,
the equipment to be purchased and utilized under the program. The tax benefits
derived from any 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.
Taxable income of a company derived from an approved enterprise is subject
to company tax at the maximum rate of 25%, rather than 36%, for the benefit
period. This period is ordinarily seven years, or ten years if the company
qualifies as a foreign investors' company as described below, commencing with
the year in which the approved enterprise first generates taxable income.
However, this period is limited to twelve years from commencement of production
or 14 years from the date of approval, whichever is earlier. The Investment Law
also provides that a company that has an approved enterprise within Israel will
be eligible for a reduced tax rate for the remainder of the benefit period.
A company owning an approved enterprise may elect to receive 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 the company will be eligible for a reduced tax rate for the
remainder of the 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. Income
derived from the approved enterprise program will be exempt from tax for a
period of two years and will be subject to a reduced tax for an additional eight
years. The tax rate is for the additional eight
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years is 25% unless the level of foreign investment exceeds 49%, in which case
the tax rate is 20% if the foreign investment is more than 49% and less than
74%; 15% if more than 74% and less than 90%; and 10% if 90% or more.
A company that has elected the alternative package of benefits and that
subsequently pays a dividend out of income derived from the approved enterprise
during the tax exemption period will be subject to tax on of the amount
distributed. The rate of the tax will be the rate which would have been
applicable had the company not elected the alternative package of benefits. This
rate is generally 10%-25%, depending on the percentage of the company's shares
held by foreign shareholders. The dividend recipient is taxed at the reduced
rate applicable to dividends from approved enterprises which is 15%, if the
dividend is distributed during the tax exemption period or within 12 years after
the period. 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. Under the Investment Law, a company
that has elected the alternative package of benefits is not obliged to
distribute exempt retained profits, and may generally decide from which year's
profits to declare dividends. We currently intend to reinvest any income derived
from our approved enterprise programs and not to distribute the income as a
dividend.
The Investment Center bases its decision whether or not to approve an
application on the criteria in the Investment Law and regulations, the then
prevailing policy of the Investment Center and the specific objectives and
financial criteria of the applicant. Therefore, we cannot assure you that any of
our applications will be approved. In addition, 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 in the
specific certificate of approval, as described above. If a company does not meet
these conditions, it would be required to refund the amount of tax benefits,
with the addition of the consumer price index linkage adjustment and interest.
The Investment Center of the Ministry of Industry and Trade has granted
several investment programs at our manufacturing facility approved enterprise
status under Israeli law. We have elected the alternative package of benefits
under these approved enterprise programs. The portion of our income derived from
these approved enterprise programs will be exempt from tax for a period of two
years and will be subject to a reduced tax for an additional five to eight years
depending on the percentage of our share capital held by non-Israelis,
commencing when we begin to realize net income from these programs. 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.
We have derived, and expect to continue to derive, a substantial portion of
our income from our approved enterprise programs. Subject to compliance with
applicable requirements, income derived from our approved enterprise programs
will be tax exempt for a period of two years commencing in the first year in
which there is taxable income and will be subject for the subsequent period of
five years to a reduced company tax of up to 25%, or eight years if the
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percentage of non-Israeli investors who hold our ordinary shares exceeds 25%.
The period of tax benefits for our approved enterprise programs has not yet
commenced, because we have yet to realize taxable income.
Grants under the Law for the Encouragement of Industrial Research and
Development, 1984
Under the Law for the Encouragement of Industrial Research and Development,
1984, commonly referred to as the Research Law, research and development
programs which meet specified criteria and are approved by a governmental
committee of the Office of the Chief Scientist are eligible for grants of 50% of
the project's expenditure (except as provided under the Research Law), as
determined by the research committee, in exchange for the payment of royalties
from the sale of products developed under the program. Regulations under the
Research Law generally provide for the payment of royalties to the Chief
Scientist of 3-5% on sales of products and services derived from our technology
developed using these grants until 100%-150% of the dollar-linked grant is
repaid. Following the full repayment of the grant, there is no further liability
for repayment.
The terms of the Israeli government participation also require that the
manufacture of products developed with government grants be performed in Israel.
However, under the regulations of the Research Law, if any of the manufacturing
is performed outside Israel by any entity other than us, assuming we receive
approval from the Chief Scientist for the foreign manufacturing, we may be
required to pay increased royalties. The increase in royalties depends upon the
manufacturing volume that is performed outside of Israel follows:
Manufacturing volume Royalties to the Chief Scientist
outside of Israel as a percentage of grant
-------------------- --------------------------------
less than 50% 120%
between 50% and 90% 150%
more than 90% 300%
The technology developed with Chief Scientist grants may not be transferred
to third parties without the prior approval of a governmental committee under
the Research Law. The approval, however, is not required for the export of any
products developed using the grants. Approval of the transfer of technology may
be granted in specific circumstances, only if the recipient abides by the
provisions of the Research Law and related regulations, including the
restrictions on the transfer of know-how and the obligation to pay royalties in
an amount that may be increased. We cannot assure you that any consent, if
requested, will be granted.
Effective for grants received from the Chief Scientist under programs
approved after January 1, 1999, the outstanding balance of the grants will be
subject to interest equal to the 12 month London interbank offered rate
applicable to dollar deposits that is published on the first business day of
each calendar year.
The funds generally available for grants from the Chief Scientist were
reduced for 1998, and the Israeli authorities have indicated that the government
may further reduce or abolish grants from the Chief Scientist in the future.
Even if these grants are maintained, we cannot assure you that we will receive
Chief Scientist grants in the future. In addition, each application
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to the Chief Scientist is reviewed separately, and grants are based on the
program approved by the research committee. Generally, expenditures supported
under other incentive programs of the State of Israel are not eligible for
grants from the Chief Scientist. We cannot assure you that applications to the
Chief Scientist, if any will be submitted by us in the future, will be approved
and, until approved, the amounts of any grants are not determinable.
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:
o the expenditures are approved by the relevant Israeli government
ministry, determined by the field of research;
o the research and development is for the promotion of the company; and
o the research and development is carried out by or on behalf of the
company seeking the deduction.
Expenditures not so approved are deductible over a three-year period.
However, expenditures made out of 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,
generally referred to as 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 specified
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. We believe that we currently qualify as an industrial company within
the definition of the Industry Encouragement Law.
Under the Industry Encouragement Law, industrial companies are entitled to
the following preferred corporate tax benefits:
o deduction of purchases of know-how and patents over an eight-year
period for tax purposes;
o deduction of specified expenses incurred for a public issuance of
securities over a three-year period for tax purposes;
o right to elect, under specified conditions, to file a consolidated tax
return with additional related Israeli industrial companies; and
o accelerated depreciation rates on equipment and buildings.
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Eligibility for benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority.
We believe that we currently qualify as an industrial company within the
definition of the Industry Encouragement Law. 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 described as follows:
o There is a special tax adjustment for the preservation of equity as
follows: Where a company's equity, as calculated under the
Inflationary Adjustments Law, exceeds the depreciated cost of fixed
assets, a deduction from taxable income is permitted equal to the
excess multiplied by the applicable annual rate of inflation. The
maximum deduction permitted in any single tax year is 70% of taxable
income, with the unused portion permitted to be carried forward. Where
a company's depreciated cost of fixed assets exceeds its equity, then
the excess multiplied by the applicable annual rate of inflation is
added to taxable income.
o Subject to specified limitations, depreciation deductions on fixed
assets and losses carried forward are adjusted for inflation based on
the increase in the consumer price index.
o Gains on sales of traded securities, which are normally exempt from
tax, are taxable in specified circumstances. 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
Israeli law imposes a capital gains tax on the sale of capital assets. The
law distinguishes between real gain and inflationary surplus. The inflationary
surplus is a portion of the total capital gain that is equivalent to the
increase of the relevant asset's purchase price which is attributable to the
increase in the Israeli consumer price index between the date of purchase and
the date of sale. The real gain is the excess of the total capital gain over the
inflationary surplus. The inflationary surplus accumulated from and after
December 31, 1993, is exempt from any capital gains tax in Israel while the real
gain is added to ordinary income, which is taxed at ordinary rates of 30% to 50%
for individuals and 36% for corporations.
Under current law, sales of our ordinary shares offered by this annual
report are exempt from Israeli capital gains for so long as they are quoted on
Nasdaq or listed on a stock exchange in specified countries and we qualify as an
industrial company. We cannot assure that we will
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maintain this qualification or our status as an industrial company. Moreover,
dealers in securities in Israel are taxed at regular tax rates applicable to
business income.
Under the convention between the United States and Israel concerning taxes
on income, Israeli capital gains tax will not apply to the sale, exchange or
disposition of ordinary shares by a person:
o who qualifies as a resident of the United States within the meaning of
the U.S.-Israel tax treaty; and
o who is entitled to claim the benefits available to the person by the
U.S.-Israel tax treaty.
However, this exemption will not apply if the treaty U.S. resident holds,
directly or indirectly, shares representing 10% or more of our voting power
during any part of the 12-month period preceding the sale, exchange or
disposition, subject to specified conditions. In this case, the sale, exchange
or disposition would be subject to Israeli tax, to the extent applicable.
However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be
permitted to claim a credit for the taxes against the U.S. federal income tax
imposed on the sale, exchange or disposition, subject to the limitations in U.S.
laws applicable to foreign tax credits. The U.S.-Israel tax treaty does not
relate to U.S. state or local taxes.
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. These sources of income include passive income,
including dividends, royalties and interest, as well as non-passive income from
services provided in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax is withheld at source. Unless a different
rate is provided in a treaty between Israel and the shareholder's country of
residence, the withholding rate is as follows:
Dividends generated by an Dividends not generated by an
approved enterprise approved enterprise
-------------------------------------- ------------------------------------
U.S. company holding U.S. company holding
10% or more of our Other 10% or more of our Other
shares non-resident shares non-resident
--------------------- ------------ -------------------- ------------
15% 15% 12.5% 25%
Under an amendment to the Inflationary Adjustments Law, non-Israeli
corporations might be subject to Israeli taxes on the sale of traded securities
in an Israeli company, subject to the provisions of any applicable double
taxation treaty.
Foreign Exchange Regulations
We are permitted to pay in Israeli and non-Israeli currency:
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o dividends to holders of our ordinary shares; and
o any amounts payable to the holders of our ordinary shares upon our
dissolution, liquidation or winding up.
If we make any payments in Israeli currency, the payments may be converted
into freely repatriable dollars at the rate of exchange prevailing at the time
of conversion.
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 (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:
o broker-dealers,
o financial institutions,
o certain insurance companies,
o investors liable for alternative minimum tax,
o tax-exempt organizations,
o non-resident aliens of the U.S. or taxpayers whose functional currency
is not the U.S. dollar,
o persons who hold the ordinary shares through partnerships or other
pass-through entities,
o investors that actually or constructively own 10 percent or more of
our voting shares, and
o investors holding ordinary shares as part of a straddle 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.
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For purposes of this summary, a U.S. Holder is:
o an individual who is a citizen or, for U.S. federal income tax
purposes, a resident of the United States;
o a partnership, corporation or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof;
o an estate whose income is subject to U.S. federal income tax
regardless of its source; or
o a trust if:
(a) a court within the United States is able to exercise primary
supervision over administration of the trust, and
(b) one or more United States persons have the authority to control all
substantial decisions of the trust.
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 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.
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, subject to certain limitations set out in the Code (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 financial services income for
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United States foreign tax credit purposes. Foreign income taxes exceeding the
credit limitation for the year of payment or accrual may be carried back for two
taxable years and forward for five taxable years in order to reduce U.S. federal
income taxes, subject to the credit limitation applicable in each of such years.
Other restrictions on the foreign tax credit include a prohibition on the use of
the credit to reduce liability for the U.S. individual and corporation
alternative minimum taxes by more than 90%. 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.
Dispositions 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 generally will
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 generally be 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
(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.
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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) 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 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.
As a result of our substantial cash position and the decline in the value
of our stock, there is a substantial risk that we will be classified as a PFIC
under the asset test described in the preceding paragraph. However, because the
determination of whether we are a PFIC is based upon the composition of our
income and assets from time to time, this determination can not be made with
certainty until the end of the calendar 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:
o 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,
o 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,
o gain recognized upon the disposition of ordinary shares would be
taxable as ordinary income and
o 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.
-83-
Alternatively, if you elect to "mark-to-market" your ordinary shares, you
will generally include in income 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 generally would 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.
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 a 31 percent U.S. backup
withholding tax. Backup withholding will not apply, however, if you (i) are a
corporation or come 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. Any amount withheld under these rules may
be credited against your federal income tax liability.
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 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.
-84-
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. Although we are not required to make our
Securities and Exchange Commission filings electronically, we do so in order to
make them available on the Securities and Exchange Commission's website. In
addition, we are not required under the Exchange Act to file periodic reports
and financial statements as frequently or as promptly as United States companies
whose securities are registered under the Exchange Act. However, we distribute
annually to our shareholders an annual report containing financial statements
that have been examined and reported on, with an opinion expressed by, an
independent public accounting firm and we file reports with the Securities and
Exchange Commission on Form 6-K containing unaudited financial information for
the first three quarters of each fiscal year.
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: 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549; Seven World Trade Center, Suite 1300, New York, NY 10048; Room 3190,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. 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 or by visiting the Securities and Exchange
Commission's website at http://www.sec.gov/. The Exchange Act file number for
our Securities and Exchange Commission filings is 000-29871.
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
Interest Rate Risk
We currently do not invest in, or otherwise hold, for trading or other
purposes, any financial instruments subject to market risk. We pay interest on
our credit facilities and short-term loans based on LIBOR, for
dollar-denominated loans, and Israeli prime or adjustment differences to the
Israeli consumer price index, for some of our NIS-denominated loans. As a
result, changes in the general level of interest rates directly affect the
amount of interest payable by us under this facility. However, we expect our
exposure to market risk from changes in interest rates to be minimal and not
material. Therefore, no quantitative tabular disclosures are required.
-85-
Foreign Currency Exchange Risk
A devaluation of the NIS in relation to the U.S. dollar has the effect of
reducing the U.S. dollar amount of any of our expenses or liabilities which are
payable in NIS (unless such expenses or payables are linked to the U.S. dollar).
As of December 31, 2000, we had liabilities payable in NIS which are not linked
to the U.S. dollar in the amount of $2.6 million. An increase of 1% of the NIS
against the dollar will increase our financial expenses in $26,000. A
devaluation of 1% of the NIS against the dollar will decrease our financial
expenses in the same amount. However, the amount of liabilities payable in NIS
is likely to change from time to time. As of December 31, 2000 we had cash and
receivables in the amount of $503,000 denominated in NIS. A devaluation of 1% of
the NIS against the dollar will increase our financial expenses in the amount of
$5,000. An increase of 1% of the NIS against the dollar will decrease our
financial expenses in the same amount.
Because exchange rates between the NIS and the U.S. dollar fluctuate
continuously (albeit 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.
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
Use of Proceeds
The effective date of the registration statement for which the
information is being disclosed is March 14, 2000 (File No. 333-30916) (the
"Registration Statement"). The following table sets forth, with respect to the
ordinary shares registered, the amount of securities registered, the aggregate
offering price of amount registered, the amount sold and the aggregate offering
price of the amount sold, for both the account of our company and the account of
any selling security holder.
-86-
For the account
For the account of of the
the company selling shareholder
------------------ --------------------
Number of ordinary shares registered .. 4,370,000 N/A
Aggregate offering price of shares
registered ......................... $87,400,000 N/A
Number of ordinary shares sold ........ 4,370,000 N/A
Aggregate offering price of shares sold $87,400,000 N/A
The following table sets forth the expenses incurred by us in connection
with our public offering during the period commencing the effective date of the
Registration Statement and ending December 31, 2000. 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.
Direct or indirect payments to
persons other than affiliated persons
-------------------------------------
Underwriting discounts and commissions .... $6,118,000
Finders' fees ............................. 550,000
Expenses paid to or for underwriters ...... 41,290
Other expenses ............................ 2,241,113
---------
Total expenses ............................ $8,950,403
==========
The net public offering proceeds to us, after deducting the total expenses
(set forth in the table above), were $78,449,597.
The following table sets forth the amount of net public offering proceeds
used by us for the purposes listed below. None of such payments were paid
directly or indirectly to directors, officers, persons owning 10% or more of any
class of our equity securities or to our affiliates.
Direct or indirect payments
to persons other than to
Purpose affiliated persons
------------------------------------------------ -----------------------------
Acquisition of other companies and
business(es) ............................... N/A
Construction of plant, building and facilities N/A
Purchase and installation of machinery
and equipment ........................... N/A
Purchase of real estate .................... N/A
Repayment of indebtedness .................. N/A
Working capital ............................ $78,449,597
Temporary investments ...................... N/A
Other purposes ............................. N/A
ITEM 15. RESERVED
-87-
ITEM 16. RESERVED
PART III
ITEM 17. FINANCIAL STATEMENTS
The Company has elected to furnish financial statements and related
information specified in Item 18.
ITEM 18. FINANCIAL STATEMENTS
Consolidated Financial Statements.
Index to Consolidated Financial Statements..............................F-1
Report of Independent Public Accountants................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000............F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000.................................F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1999 and 2000............................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000.................................F-6
Notes to Consolidated Financial Statements..............................F-7
ITEM 19. EXHIBITS
Index to Exhibits
Exhibit Description
------- -----------
*3.1 Memorandum of Association of the Registrant
*3.2 Articles of Association of the Registrant
*4.1 Form of Ordinary Share Certificate
*4.2 Agreement, dated as of April 14, 1995, by and among Registrant, RAD
Data Communications Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.3 Agreement, dated as of April 18, 1995, by and among Registrant, Clal
Venture Capital Fund LP and Yehuda Zisapel and Zohar Zisapel
-88-
*4.4 Agreement, dated as of April 18, 1995, by and among Registrant, Lannet
Data Communications Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.5 Agreement, dated as of April 19, 1995, by and among Registrant, ECI
Telecom Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.6 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
*4.7 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
*4.8 Agreement, dated as of April 27, 1995, by and among Registrant,
Finovelec, Factory Systemes, Houston Venture Partners, Ltd. and Yehuda
Zisapel and Zohar Zisapel
*4.9 Agreement, dated September 12, 1996, by and among Registrant and Intel
Corporation, as amended
*4.10 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.
*10.1 Key Employee Share Incentive Plan, as amended
*10.2 Consultant Option Plan, as amended
*10.3 License Agreement, dated January 13, 1999, between Registrant and
RADCOM Ltd.
*10.5 Lease Agreement, dated May 12, 1997, between RADVision Inc. and RAD
Data Communications Inc., as amended
10.6 Lease Agreement, dated January 19, 2001, between Zohar Zisapel
Properties, Inc., Yehuda Zisapel Properties, Inc. and RADVision Inc.
23 Consent of Luboshitz Kasierer, Member Firm of Arthur Andersen, with
respect to the Registration Statements on Form S-8.
-------------------
* Incorporated by reference to our registration statement on Form F-1,
registration number 333-30916, as amended, filed with the Securities
and Exchange Commission.
-89-
RADVISION LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 F-6
Notes to the Consolidated Financial Statements F-7
F-1
Arthur Andersen
Luboshitz Kasierer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders of
RADVision Ltd.:
---------------
We have audited the accompanying consolidated balance sheets of RADVision Ltd.
(an Israeli corporation) as of December 31, 1999 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides 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
RADVision Ltd. as of December 31, 1999 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/Luboshitz Kasierer
Luboshitz Kasierer
Member Firm of Arthur Andersen
February 5, 2001
F-2
RADVISION LTD.
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
Note 1999 2000
---- ----------- ------------
Current assets
Cash and cash equivalents (3) $ 2,604,735 $ 41,616,732
Short-term investments (4) - 39,549,589
Trade receivables, net (5) 3,214,462 7,024,800
Other receivables and prepaid expenses (5) 1,516,576 1,051,481
Inventories (6) 2,433,422 4,955,796
--------- ---------
Total current assets 9,769,195 94,198,398
--------- ----------
Long-term investments (4) - 15,897,320
--------- ----------
Property and equipment, net (7) 3,021,015 5,199,980
--------- ---------
Deposit with insurance companies (10) 470,361 1,054,730
------- ---------
Total assets $13,260,571 $116,350,428
=========== ============
Current liabilities
Current maturities of long-term loans $ 63,901 $ 46,375
Trade payables 2,557,978 3,716,003
Other payables and accrued expenses (8) 6,333,376 16,776,634
--------- ----------
Total current liabilities 8,955,255 20,539,012
--------- ----------
Long-term liabilities
Bank loans (9) 67,383 18,750
Accrued severance pay (10) 756,812 1,448,094
------- ---------
824,195 1,466,844
------- ---------
Total liabilities 9,779,450 22,005,856
--------- ----------
Commitments and contingencies (11)
Shareholders' equity (12)
Preferred shares of NIS 0.1 par value:
Authorized - 5,275,000 shares as of
December 31, 1999; issued and outstanding -
2,957,165 shares as of December 31, 1999 3,825 -
Ordinary shares of NIS 0.1 par value:
Authorized - 12,332,317 and 24,984,470 shares
as of December 31, 1999 and 2000; issued and
outstanding - 10,627,859 and 19,144,984 shares
as of December 31, 1999 and 2000 16,820 164,675
Additional paid-in capital 13,788,618 103,848,699
Deferred compensation (1,051,549) (641,128)
Accumulated deficit (9,276,593) (9,027,674)
---------- ----------
Total shareholders' equity 3,481,121 94,344,572
--------- ----------
Total liabilities and shareholders' equity $13,260,571 $116,350,428
=========== ============
/s/Ami Amir /s/David Seligman
----------- -----------------
AMI AMIR DAVID SELIGMAN
Chief Executive Officer Chief Financial Officer
Date of approval of financial statements:
February 5, 2001
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
RADVISION LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31,
------------------------------------------
Note 1998 1999 2000
---- ----------- ----------- -----------
Revenues (13) $ 8,894,414 $17,549,903 $45,911,292
Cost of revenues 1,412,147 2,853,393 11,446,399
--------- --------- ----------
Gross profit 7,482,267 14,696,510 34,464,893
--------- ---------- ----------
Operating expenses
Research and development expenses 4,378,829 7,666,583 14,263,347
Less - participation by the Chief
Scientist of the Government of Israel (11) 1,139,749 1,096,722 352,994
--------- --------- -------
Research and development expenses, net 3,239,080 6,569,861 13,910,353
Marketing and selling expenses, net (14) 4,425,231 9,501,682 17,357,667
General and administrative expenses 669,578 1,426,154 3,458,004
Repayment of future royalties (11A)
to the Chief Scientist - - 3,665,910
--------- ---------- ---------
Total operating expenses 8,333,889 17,497,697 38,391,934
--------- ---------- ----------
Operating loss (851,622) (2,801,187) (3,927,041)
Financing income, net 22,447 105,133 4,175,960
------ ------- ---------
Net income (loss) $ (829,175) $(2,696,054) $ 248,919
=========== =========== ===========
Earnings (loss) per ordinary share (2) $ (0.08) $ (0.26) $ 0.014
=========== =========== ===========
Weighted average number of ordinary
shares outstanding 10,491,764 10,538,395 17,174,453
========== ========== ==========
Diluted earnings (loss) per ordinary share (2) $ (0.08) $ (0.26) $ 0.013
=========== =========== ===========
Weighted average number of shares 10,491,764 10,538,395 19,873,222
========== ========== ==========
The accompanying notes form an integral part of these consolidated financial
statements.
F-4
RADVISION LTD.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
Preferred shares Ordinary shares Additional Deferred Accumulated Total
----------------- --------------- paid-in compensation deficit -----
Shares Amount Shares Amount capital ------------ -------
------ ------ ------ ------ -------
Balance as of January 1, 1998 - $ - 10,438,381 $ 16,482 $ 7,180,255 $ (82,493) $(5,751,364) $ 1,362,880
Ordinary shares issued - - 89,675 159 - - - 159
Preferred shares issued 2,957,165 3,825 - - 4,795,895(1) - - 4,799,720
Deferred compensation - - - - 112,000 (112,000) - -
Amortization of deferred
compensation - - - - - 116,115 - 116,115
Net loss - - - - - - (829,175) (829,175)
--------- ------- ---------- -------- ------------ ----------- ----------- -----------
Balance as of December 31, 1998 2,957,165 $ 3,825 10,528,056 $ 16,641 $ 12,088,150 $ (78,378) $(6,580,539) $ 5,449,699
Ordinary shares issued - - 158,250 179 249,821 - - 250,000
Deferred compensation - - - - 1,466,647 (1,466,647) - -
Amortization of deferred
compensation - - - - (16,000) 493,476 - 477,476
Net loss - - - - - - (2,696,054) (2,696,054)
--------- ------- ---------- -------- ------------ ----------- ----------- -----------
Balance as of December 31, 1999 2,957,165 $ 3,825 10,686,306 $ 16,820 $ 13,788,618 $(1,051,549) $(9,276,593) $ 3,481,121
Ordinary shares issued - - 4,960,822 125,052 89,094,289(2) - - 89,219,341
Conversion of preferred shares (2,957,165) (3,825) 2,957,165 3,825 - - - -
Cancellation of ordinary shares - - (58,447) - - - - -
Deferred compensation - - - - 218,000 (218,000) - -
Options exercised - - 599,138 18,978 779,802 - - 798,780
Amortization of deferred
compensation - - - - (32,010) 628,421 - 596,411
Net income - - - - - - 248,919 248,919
--------- ------- ---------- -------- ------------ ----------- ----------- -----------
Balance as of December 31, 2000 - $ - 19,144,984 $164,675 $103,848,699 $ (641,128) $(9,027,674) $94,344,572
========= ======= ========== ======== ============ =========== =========== ===========
(1) Net of issuance expenses of approximately $85,000.
(2) Net of issuance expenses of approximately $8,400,000.
The accompanying notes form an integral part of these consolidated financial
statements.
F-5
RADVISION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
--------------------------------------------
1998 1999 2000
------------ ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (829,175) $(2,696,054) $ 248,919
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Income and expenses not affecting operating cash flows:
Depreciation 360,331 718,444 1,843,449
Severance pay 39,051 103,616 106,913
Amortization of deferred compensation 116,115 477,476 596,411
Other 17,159 19,308 35,115
Changes in operating assets and liabilities:
Increase in trade receivables, net (724,060) (647,116) (3,810,338)
Decrease (increase) in other receivables and prepaid
expenses (625,820) (429,625) 465,095
Increase in inventories (447,200) (1,560,790) (2,522,374)
Increase in trade payables 282,924 1,923,895 1,158,025
Increase in other payables and accrued expenses 963,589 3,528,540 10,443,258
------- --------- ----------
Net cash provided by (used in) operating activities (847,086) 1,437,694 8,564,473
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in short-term investments - - (39,549,589)
Increase in long-term investments - - (15,897,320)
Purchase of property and equipment (1,102,164) (2,388,490) (4,175,250)
Proceeds from sale of property and equipment 19,285 74,257 117,721
------ ------ -------
Net cash used in investing activities (1,082,879) (2,314,233) (59,504,438)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital 4,799,879 250,000 90,018,121
Decrease in short-term credit (54,055) (10,701) -
Long-term loans received 100,000 - -
Repayment of long-term loans (45,734) (62,763) (66,159)
------- ------- -------
Net cash provided by financing activities 4,800,090 176,536 89,951,962
--------- ------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,870,125 (700,003) 39,011,997
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 434,613 3,304,738 2,604,735
------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 3,304,738 $ 2,604,735 $ 41,616,732
=========== =========== ============
CASH PAID DURING THE YEAR IN RESPECT OF
INTEREST $ 22,715 $ 15,839 $ 8,367
=========== =========== ============
NON-CASH ACTIVITY $ - $ 200,000 $ -
=========== =========== ============
The accompanying notes form an integral part of these consolidated financial
statements.
F-6
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Note 1 - General
RADVision Ltd. referred to in these consolidated financial statements
as the Company, an Israeli corporation, 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.
The consolidated financial statements of the Company have been
prepared in U.S. dollars, as the currency of the primary economic
environment in which the operations of the Company are conducted is
the U.S. dollar. All of the Company's sales are in U.S. dollars or are
dollar-linked. Most purchases of materials and components and most
marketing costs are denominated in U.S. dollars. Therefore, the
functional currency of the Company is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in
other currencies are remeasured into U.S. dollars in accordance with
the principles set forth in Statement No. 52 of the Financial
Accounting Standards Board of the United States ("FASB"). Items have
been remeasured as follows:
- Monetary items - at the exchange rate in effect on the balance
sheet date.
- Non monetary items - at historical exchange rates.
- Revenue and expense items - at the exchange rates in effect as of
the date of recognition of those items, excluding depreciation
and other items deriving from non-monetary items.
All exchange gains and losses from the remeasurement mentioned above,
which are immaterial for all periods presented are reflected in the
statement of operations. The representative rate of exchange at
December 31, 2000 was U.S.$ 1.00 = NIS 4.041; and at December 31, 1999
and 1998 = NIS 4.153 and NIS 4.16, respectively.
Note 2 - Significant Accounting Policies
The financial statements are prepared according to generally accepted
accounting principles in the United States. The significant accounting
policies
F-7
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
followed in the preparation of the financial statements, applied on a
consistent basis, are as follows:
A. Principles of Consolidation
The financial statements include the accounts of the Company and
its wholly-owned subsidiaries in the United States, Netherlands
and Hong Kong. Material intercompany balances and transactions
have been eliminated.
B. Cash and Cash Equivalents
All highly liquid investments with an original maturity of three
months or less are considered cash equivalents.
C. Allowance for Doubtful Accounts
Allowance for doubtful accounts is computed for specific debts
the collectibility of which is doubtful based upon the Company's
experience.
D. Inventories
Inventories are valued at the lower of cost or market. Cost is
determined on the moving average basis.
E. Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful
life of the assets, ranging from 3 to 15 years.
F. Investments
The Company accounts for investments in debentures under
Statement of Financial Accounting Standard ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Under SFAS No. 115, investments in debentures for which the
Company has the positive intent and ability to hold to maturity,
are reported at amortized cost, which approximates fair market
value.
F-8
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
G. Revenue Recognition
Revenues from sales of products and technology are recognized in
accordance with Statement of Position (SOP) 97-2, as amended by
SOP 98-4, upon delivery, when collection is probable, the
vendor's fee is fixed or determinable and persuasive evidence of
an arrangement exists. Provided that all other elements of SOP
97-2 are met, revenues are recognized upon delivery, whether the
customer is a distributor or the final end user. Revenues for
maintenance and support services are deferred and recognized
ratably over the service period.
In accordance with SOP 97-2, revenues for multi-element
arrangements, that is, sales of products or technology in
conjunction with post-contract customer support services, are
segregated. Revenues allocated to the delivered elements are
recognized upon delivery, provided that the other elements of SOP
97-2 are satisfied. Revenues allocated to the undelivered
elements (post-contract customer support services) are deferred
and recognized ratably over the service period. The portion of
the fee for multi-element arrangements allocated to the
undelivered elements (post-contract customer support services) is
based on vendor-specific objective evidence determined, in the
case of post-contract customer support services, based on the
annual renewal rate for such services actually charged to
customers for years subsequent to the first year following sale.
The remaining portion of the fee is allocated to the delivered
elements based on the residual value method.
H. Research and Development Costs
Research and development costs, net of participations by the
Government of Israel through the Ministry of Industry and Trade,
Office of the Chief Scientist, 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,
the Company has not capitalized any of its research and
development expenses and does not anticipate that its development
process will differ materially in the future.
F-9
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
I. Income Taxes
The Company accounts for income taxes under the liability method
of accounting. Under the liability method, deferred taxes are
determined based on the differences between the financial
statement and tax basis of assets and liabilities at enacted tax
rates in effect in the year in which the differences are expected
to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts expected to be realized.
J. Fair Value of Financial Instruments
Unless otherwise noted, the carrying amount of financial
instruments approximates fair value.
K. Provision for Warranty Costs
The Company warranties its products for a twelve month period.
Provision for warranty costs are based on Company's past
experience.
L. Basic and Diluted Net Earnings (Loss) Per Share
Basic and diluted net earnings (loss) per share are presented
according to SFAS No. 128, "Earnings per share", for all periods
presented.
Basic and diluted net earnings (loss) per share have been
computed using the weighted average number of ordinary shares
outstanding during the period.
M. Share-based Compensation
The Company has adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," and the
accounting rules in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", including the
FASB Issued Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation on Interpretation of
APB 25." The Company has provided the necessary pro forma
disclosures as if the fair value method had been applied. See
Note 12(E).
F-10
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
N. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
O. Recently Issued New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 as amended by SFAS 138 established
accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet at its
fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the
statement of operations. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. The Company believes that
the adoption of SFAS No. 133 will not have a material effect on
its financial statements.
Note 3 - Cash and Cash Equivalents
December 31,
-----------------------
1999 2000
---------- -----------
Cash in banks, primarily in U.S. dollars $1,828,335 $ 5,004,185
Bank deposits in U.S. dollars, bearing
annual interest rate of 6.5% 615,875 36,150,532
Bank deposits in NIS, bearing annual
interest rate of 7.1% 160,525 462,015
------- -------
$2,604,735 $41,616,732
========== ===========
The interest rates are as of December 31, 2000.
F-11
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 4 - Investments
December 31,
-------------------
1999 2000
---- ----------
Bank deposits in U.S. dollars bearing
annual interest rate of 6.7% - 12,208,190
Marketable debentures, bearing annual
interest of 7%. - 27,341,399
---- ----------
- 39,549,589
==== ==========
Marketable debentures in the amount of $15,897,320 that mature later
than December 31, 2001, bearing annual interest of 7%, are presented
as long-term investments.
The interest rates are as of December 31, 2000.
Note 5 - Trade Receivables, Net
A. Trade receivables are presented net of allowance for doubtful
accounts in the amount of $224,705 and $577,028 as of December
31, 1999 and 2000. The Company generally provides customers
with a thirty to sixty day post-sale acceptance period, during
which customers can return products for a full refund.
Historically, returns during this period have been negligible.
B. Other receivables and prepaid expenses include grants
receivable from the Government of Israel in the amount of
$864,444 and zero as of December 31, 1999 and 2000.
Note 6 - Inventories
December 31,
------------------------
1999 2000
---------- ----------
Materials and components $1,037,633 $2,377,026
Work in process 634,969 609,637
Finished products 760,820 1,969,133
------- ---------
$2,433,422 $4,955,796
========== ==========
F-12
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 7 - Property and Equipment, net
December 31,
-------------------------
1999 2000
---------- ----------
COST
Research and development equipment $1,370,345 $2,694,941
Motor vehicles 1,039,715 1,090,178
Manufacturing equipment 236,208 280,047
Office furniture and equipment and
leasehold improvements 1,753,264 4,288,005
--------- ---------
$4,399,532 $8,353,171
---------- ----------
ACCUMULATED DEPRECIATION
Research and development equipment 669,773 1,232,186
Motor vehicles 148,674 241,872
Manufacturing equipment 109,383 169,159
Office furniture and equipment and
leasehold improvements 450,687 1,509,974
------- ---------
1,378,517 3,153,191
--------- ---------
NET BOOK VALUE $3,021,015 $5,199,980
========== ==========
For the years ended December 31, 1998, 1999 and 2000, depreciation
expense was $360,331, $718,444 and $1,843,449, respectively.
The Company's property and equipment are primarily located in Israel.
Note 8 - Other Payables and Accrued Expenses
December 31,
--------------------------
1999 2000
---------- -----------
Deferred income $2,903,587 $10,298,334
Employees and employee institutions (1) 1,493,704 2,345,104
Accrued royalties 476,000 410,681
Tax withholding payable 403,000 310,068
Accrued expenses 1,030,085 3,412,447
--------- ---------
$6,333,376 $16,776,634
========== ===========
F-13
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(1) Employees and employee institutions include salaries, bonuses and
employee institutions payable. The employee institutions include
amounts deducted from employees payroll for December 1999 and
2000, respectively for educational funds and insurance policies
funds. For the years ended December 31, 1998, 1999 and 2000
educational funds expenses were $122,239, $232,996 and $547,491
and insurance policies funds expenses were $208,145, $409,598 and
$375,035.
Note 9 - Long-term Bank Loans
December 31,
---------------------
1999 2000
-------- -------
Loans linked to the U.S. dollar $131,284 $65,125
Less - current maturities 63,901 46,375
------ ------
$ 67,383 $18,750
======== =======
The loans bear interest at an annual rate of Libor plus 1%, which was
7.3% at December 31, 2000, and mature in equal quarterly installments
through 2002.
Note 10 - Accrued Severance Pay
Under Israeli law and labor agreements, the Company is required to
make severance payments to its dismissed employees and employees
leaving its employment in certain other circumstances. The Company's
severance pay liability to its employees, which is calculated on the
basis of the salary of each employee for the last month of the
reported period multiplied by the years of the employee's employment,
is reflected in the Company's balance sheet on the accrual basis, and
is partially funded by purchase of insurance policies in the name of
the Company. The severance pay expense for the years ended December
31, 1998, 1999 and 2000 amounted to $134,248, $365,076, and $606,187.
Note 11 - Commitments and Contingencies
A. In connection with its research and development, the Company
received and accrued participation payments from the Office of
the Chief Scientist of the Ministry of Industry and Trade in
Israel in the total amount of approximately $4.9 million. In
December 2000 the Company
F-14
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
repaid all its remaining commitment with regard to this
participation in the amount of approximately $3.7 million.
B. In connection with its marketing activities, the Company received
and accrued participation payments from the Government of Israel
- Fund for the Encouragement of Marketing Activities, in the
total amount of approximately $686,000. In return for the
participation payments, the Company is committed to pay royalties
at a rate of 3% of the Company's total increase in export sales,
from the end of the second year of implementation of the
marketing plan until the date at which the participation has been
fully repaid. The Company's total commitment for royalties
payable with respect to future sales, based on Government of
Israel participations received or accrued, net of royalties paid
or accrued, totaled approximately $200,000 as of December 31,
2000.
C. In connection with its research and development, the Company
received and accrued participation payments from the Israel U.S.
Binational Industrial Research and Development Foundation
(BIRDF), in the total amount of approximately $188,000. 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
Government participations received or accrued, net of royalties
paid or accrued, totaled approximately $276,000 as of December
31, 2000.
D. The Company and its subsidiaries operate from leased premises in
Israel, United States, China and Hong Kong. Lease agreements
expire in May 2001 through March 2006 (some with renewal
options). Annual minimum future rental payments due under the
above agreements, at the exchange rate in effect on December 31,
2000, are approximately as follows:
2001 $1,932,482
2002 1,939,109
2003 1,888,664
2004 1,888,664
2005 and thereafter 1,273,360
---------
$8,922,279
==========
F-15
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
E. The Company is committed to pay royalties to 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, for as long as the Company uses these
technologies, without limit on the amount of royalties payable.
The rates of these royalties are based on a fixed amount per
product sold by the Company in the range of $1.00 to $5.00 per
unit sold. The agreements pursuant to which the royalties are
payable have no expiration date. Annual minimum future royalty
payments are approximately as follows:
2001 $25,000
2002 25,000
2003 25,000
------
$75,000
=======
F. In 1998, a third party sent correspondence to the Company's
affiliate 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 affiliate requested that the third
party specifically substantiate each allegation of infringement
before the Company's affiliate 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 affiliate has received further correspondence from
the third party, in which the third party has, among other
things, reiterated its claims. The Company's affiliate does not
believe the third party has substantiated its claims and has
communicated this belief to the third party. The Company's
affiliate has advised the Company that the alleged infringement
claims are unresolved.
Note 12 - Shareholders' Equity
A. On January 18, 2000, the Company increased its authorized
Ordinary Share Capital to 24,984,470 Ordinary Shares and 15,530
deferred shares of NIS 0.1 par value per share and all
outstanding preferred shares were converted into an identical
number of ordinary shares.
In January 2000, the Company effected a 211 to 1 share split in
the form of a share dividend.
F-16
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
All references to per share amounts and the number of shares in
these financial statements have been restated to reflect the
abovementioned changes.
B. The Company has an authorized share capital of 15,530 deferred
shares of par value NIS 0.1 each. The deferred shares confer no
rights or privileges on their holders except for the right to
receive upon dissolution or liquidation the par value of the
deferred shares.
C. In March 2000, the Company issued 590,822 ordinary shares in a
private placement to Siemens Aktiengesellschaft, Samsung
Electro-Mechanics Co. Ltd. and Samsung Venture Investment
Corporation for an aggregate consideration of approximately $10
million.
D. On March 13, 2000, the Company issued 4,370,000 ordinary shares
in an initial public offering for $87 million, or $20 per share.
E. 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 3,800,000 ordinary shares to
officers, employees, directors and consultants of the Company,
its subsidiaries and affiliates. The options vest ratably over
vesting periods ranging from three to five years. The options
expire 62 to 120 months from the date of issuance. The exercise
price of options, under the plan is at varying prices ranging
from $0.95 to $28.
Transactions related to the share incentive plan during the years
ended December 31, 1998, 1999 and 2000 and the weighted average
exercise prices per share and weighted average fair value of the
options at the date of grant are summarized as follows:
F-17
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Outstanding Weighted Weighted
options average average fair
exercise value of
price per options
share granted
----------- --------- ------------
Outstanding as of January 1, 1998 649,880 $ 1.41
Options granted 791,250 1.18 $0.29
Options forfeited (10,550) 1.64
------- ----
Outstanding as of December 31, 1998 1,430,580 1.28
Options granted 1,421,296 1.18 $1.14
Options forfeited (184,625) 1.80
-------- ----
Outstanding as of December 31, 1999 2,667,251 1.23
Options granted 1,390,795 16.68 $9.38
Options exercised (599,138) 1.46
Options forfeited (230,252) 7.30
-------- ----
Outstanding as of December 31, 2000 3,228,656 $ 7.48
========= ======
The following table summarizes information about options outstanding
and exercisable at December 31, 2000:
Options outstanding Options exercisable
--------------------------------------- --------------------------
Exercise Number Weighted - Weighted - Number Weighted -
price outstanding at average average outstanding at average
December 31, remaining exercise December 31, exercise
2000 contractual prices 2000 prices
life
----------- -------------- ---------- ---------- -------------- ----------
$0.95-$0.98 663,494 2.86 $ 0.95 201,621 $0.95
1.18 718,799 2.55 1.18 343,826 1.18
1.58-1.64 503,881 3.48 1.58 132,771 1.59
1.74 49,010 1.41 1.74 33,276 1.74
10.20 118,478 4.04 10.20 29,620 10.20
12.00 305,472 4.20 12.00 8,111 12.00
12.94 186,000 4.97 12.94 - -
17.00 440,022 4.56 17.00 - -
28.00 243,500 4.91 28.00 - -
------- -------
3,228,656 749,225
========= =======
F-18
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
The amounts of deferred compensation recognized arising from the
difference between the exercise price and the fair market value on the
date of the grant of $112,000, $1,466,647 and $218,000 for options
granted in the years ended December 31, 1998, 1999 and 2000, are
included in shareholders' equity and are amortized over the vesting
periods of the options according to APB 25. Under APB 25, the deferred
compensation expense for the years ended December 31,1998, 1999 and
2000 amounted to $116,115, $477,476 and $596,411.
If deferred compensation had been determined under the
alternative fair value accounting method provided for under SFAS
Statement No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per share would have been
increased to the following pro forma amounts:
For the year ended December 31,
---------------------------------------
1998 1999 2000
---------- ------------ -----------
Net income (loss):
As reported $(829,175) $(2,696,054) $248,919
Pro forma (956,396) (2,749,826) (3,196,900)
Net earnings (loss)
per share:
Basic (0.08) (0.26) 0.014
Diluted (0.08) (0.26) 0.013
Pro forma
Basic (0.09) (0.26) (0.19)
Diluted - - -
Under SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1999 and 2000: (1) expected
life of the options of 2.72, 2.84 and 2.39; (2) no dividend
yield; (3) expected volatility of 0% for 1998 and 1999 and
expected volatility of 80% for 2000; and (4) risk-free interest
rate of 5%.
F-19
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Note 13 - Revenues
The Company's sales by geographic area are as follows:
For the year ended
December 31,
--------------------------------------
1998 1999 2000
---------- ----------- -----------
North America, principally
the United States $4,845,522 $ 9,530,948 $28,830,023
Europe 2,248,880 4,045,882 7,327,630
Far East 942,460 2,662,865 5,286,587
Israel 857,552 1,310,208 4,467,052
------- --------- ---------
$8,894,414 $17,549,903 $45,911,292
========== =========== ===========
The Company manages its business on the basis of one reportable
segment.
For the years ended December 31, 1998 and 1999, no single customer
represented more than 10% of sales. For the year ended December 31,
2000, one customer accounted for approximately 22% of sales for that
period.
Note 14 - Marketing and Selling Expenses, Net
For the year ended
December 31,
-------------------------------------
1998 1999 2000
---------- ---------- -----------
Marketing and selling expenses $4,603,336 $9,699,745 $17,491,503
Participation by the Government
of Israel 178,105 198,063 133,836
------- ------- -------
Marketing and selling expenses, net $4,425,231 $9,501,682 $17,357,667
========== ========== ===========
Marketing and selling expenses include:
Royalties to the Government of Israel $ 366,736 $ 896,249 $ 749,556
========== ========== ===========
Note 15 - Concentration of Credit Risk
For the period ended December 31, 1999, no single customer accounted
for more than 10% of the Company's sales and no customer represented
more
F-20
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
than 10% of trade receivables. As of December 31, 2000, current
balances of two customers accounted for 22% and 20% of the Company's
trade receivables. The Company does not generally require collateral
to support credit sales. Allowances are maintained for potential
credit losses.
Note 16 - Related Party Balances and Transactions
A. Balances with Related Parties
December 31,
-------------------
1999 2000
-------- --------
Receivables $124,264 $ 72,923
Trade payables 305,325 197,496
B. Transactions with Related Parties
For the year ended
December 31,
----------------------------------
1998 1999 2000
-------- -------- ----------
Revenues (1) $ 47,429 $166,812 $ 251,019
Cost of revenues (3) (4) 252,655 384,951 842,143
Research and development
expenses (2)(3) 3,017 362,573 621,510
Marketing, selling, general
and administrative 201,238
expenses (2) (3) 343,873 1,210,381
Purchase of property and
equipment (5) 64,225 283,752 722,157
(1) Includes revenues from agreements to license the Company's
technology to Radcom Ltd. and Rad Data Communications Ltd.,
affiliated companies. The agreements are based on the Company's
standard form and include a licensing fee, maintenance and
support services for one year and minimum royalty payments on
sales of products which incorporate the technology.
F-21
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(2) Includes legal, human resources and administrative services
provided to the Company by affiliated companies which the Company
reimburses for the costs incurred in providing these services.
(3) Includes rental fees based on lease agreements with Rit
Technologies Ltd., Rad Data Communications Ltd., and several
other affiliated companies. Under these lease agreements, the
Company leases office space of approximately 21,830 and 9,000
square feet, in Israel and in New Jersey, respectively. The
expiration dates of these lease agreements range from August 2000
to May 2002.
(4) Includes the purchase of components from Rad Data Communications
Ltd., an affiliated company, which the Company integrates into
its products.
(5) Includes property and equipment that were purchased mainly from
Bynet Data Communications Ltd., an affiliated company.
Note 17 - Taxes on Income
A. The Company's investment program totaling $122,000 has been
granted Approved Enterprise status under the Law for
Encouragement of Capital Investments, 1959. In addition, the
Company was granted Approved Enterprise status for an expansion
of a previous program totaling $375,000. The Company is entitled
to a tax benefit period of seven 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 25% (instead of
the regular rate of 36%) for the remaining five year period. If
foreign shareholdings in the Company exceed 25%, the period for
which the Company is entitled to a reduced income tax is extended
to eight years.
If the Company distributes a cash dividend out of retained
earnings which were tax exempt due to its approved enterprise
status, the Company would have to pay a 25% corporate tax on the
amount distributed, and a further 15% withholding tax would be
deducted from the amounts distributed to the recipients.
Should the Company derive income from sources other than the
approved enterprise programs during the relevant period of
benefits,
F-22
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
this income will be taxable at the regular corporate tax rate,
which is 36%.
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
believes that it has complied with these conditions.
B. The Company is subject to the Income Tax Law (Inflationary
Adjustments), 1985, measuring income on the basis of changes in
the Israeli Consumer Price Index.
C. The Company is an "Industrial Company" under the Law for
Encouragement of Industry (Taxes), 1969 and is therefore entitled
to certain tax benefits, mainly accelerated depreciation of
machinery and equipment and deduction of expenses incurred in
connection with a public offering.
D. Through December 31, 1994, the Company's losses for tax purposes
were assigned to a shareholder, and are not available to the
Company.
E. As of December 31, 2000, the Company's net operating loss
carryforwards for tax purposes amounted to approximately $15.0
million. These net operating losses may be carried forward
indefinitely and 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 there will be no tax benefit
available from these losses and no deferred income taxes have
been included in these financial statements. Deferred taxes in
respect of other temporary differences are immaterial.
F. The U.S. subsidiary's carryforward tax losses through December
31, 2000 amounted to approximately $8.0 million. These losses are
F-23
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
available to offset any future U.S. taxable income of the U.S.
subsidiary and will expire in the years 2010 - 2014.
Details of deferred tax assets are as follows:
December 31,
-----------------------
1999 2000
---------- ------------
Net operating loss carryforwards $ 770,000 $ 2,835,000
Less - valuation allowance (770,000) (2,835,000)
--------- -----------
$ - $ -
========= ===========
G. A reconciliation between the theoretical tax benefit, 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 operations, is as follows:
For the year ended December 31,
------------------------------------
1998 1999 2000
---------- ---------- ----------
Theoretical tax expense
(benefit) computed at the
statutory rate (36%) $(298,503) $(970,579) $ 89,611
Loss and other items for
which deferred taxes were
not provided, net 277,000 936,423 (181,665)
Non-deductible expenses 21,503 34,156 92,054
------ ------ ------
Income tax benefit $ - $ - $ -
========= ========= =========
H. The Company has been assessed for tax purposes through the year
1996.
# # # # # # #
F-24
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.
By: /s/Gadi Tamari
--------------
Name: Gadi Tamari
Title: Chief Executive Officer
By: /s/David Seligman
-----------------
Name: David Seligman
Title: Chief Financial Officer
Dated: June 4, 2001
-90-
Exhibits
Exhibit Description
------- -----------
*3.1 Memorandum of Association of the Registrant
*3.2 Articles of Association of the Registrant
*4.1 Form of Ordinary Share Certificate
*4.2 Agreement, dated as of April 14, 1995, by and among Registrant, RAD
Data Communications Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.3 Agreement, dated as of April 18, 1995, by and among Registrant, Clal
Venture Capital Fund LP and Yehuda Zisapel and Zohar Zisapel
*4.4 Agreement, dated as of April 18, 1995, by and among Registrant, Lannet
Data Communications Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.5 Agreement, dated as of April 19, 1995, by and among Registrant, ECI
Telecom Ltd. and Yehuda Zisapel and Zohar Zisapel
*4.6 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
*4.7 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
*4.8 Agreement, dated as of April 27, 1995, by and among Registrant,
Finovelec, Factory Systemes, Houston Venture Partners, Ltd. and Yehuda
Zisapel and Zohar Zisapel
*4.9 Agreement, dated September 12, 1996, by and among Registrant and Intel
Corporation, as amended
*4.10 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.
*10.1 Key Employee Share Incentive Plan, as amended
*10.2 Consultant Option Plan, as amended
*10.3 License Agreement, dated January 13, 1999, between Registrant and
RADCOM Ltd.
*10.5 Lease Agreement, dated May 12, 1997, between RADVision Inc. and RAD
Data Communications Inc., as amended
10.6 Lease Agreement, dated January 19, 2001, between Zohar Zisapel
Properties, Inc., Yehuda Zisapel Properties, Inc. and RADVision Inc.
23 Consent of Luboshitz Kasierer, Member Firm of Arthur Andersen, with
respect to the Registration Statements on Form S-8.
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* Incorporated by reference to our registration statement on Form F-1,
registration number 333-30916, as amended, filed with the Securities
and Exchange Commission.