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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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
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RADVISION LTD.
(Exact name of registrant as specified in its charter)
Israel N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Raoul Wallenberg Street
Tel Aviv 69719, Israel
(Address of principal executive offices)
011-972-3-645-5220
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Ordinary Shares, NIS 0.1 par value
(Title of class)
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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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ] (Not applicable. See Preliminary Notes on page
1.)
As of March 11, 2002, 18,071,559 Ordinary Shares of RADVISION Ltd. were
outstanding. The aggregate market value of the Ordinary Shares held by
non-affiliates was approximately $73.1 million.
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DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
PART I........................................................................1
Item 1. Business.......................................................1
Item 2. Properties....................................................29
Item 3. Legal Proceedings.............................................30
Item 4. Submission of Matters to a Vote of Security Holders...........30
PART II......................................................................31
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...........................................31
Item 6. Selected Financial Data.......................................31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................32
Item 7A. Qualitative and Qualitative Disclosures About Market Risk.....44
Item 8. Financial Statement and Supplementary Data....................45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................45
PART III.....................................................................46
Item 10. Directors and Executive Officers of the Registrant............46
Item 11. Executive Compensation........................................54
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................58
PART IV......................................................................64
Item 13. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................64
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Preliminary Notes: RADVISION Ltd. is incorporated in Israel and is a
"foreign private issuer" as defined in Rule 3b-4 under the Securities Exchange
Act of 1934 (the "1934 Act") and in Rule 405 under the Securities Act of 1933.
As a result, it is eligible to file this annual report pursuant to Section 13 of
the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports
on Form 6-K (in lieu of Forms 10-Q and 8-K). However, RADVISION Ltd. elected to
file its annual and interim reports on Forms 10-K, 10-Q and 8-K.
Pursuant to Rule 3a12-3 under the 1934 Act regarding foreign private
issuers, the proxy solicitations of RADVISION Ltd. are not subject to the
disclosure and procedural requirements of Regulation 14A under the 1934 Act, and
transactions in its equity securities by its officers and directors are exempt
from Section 16 of the 1934 Act.
This Annual Report on Form 10-K contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
within the Private Securities Litigation Reform Act of 1995, as amended. Such
forward-looking statements reflect our current view with respect to future
events and financial results. Forward-looking statements usually include the
verbs, "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"projects," "understands" and other verbs suggesting uncertainty. We remind
readers that forward-looking statements are merely predictions and therefore
inherently subject to uncertainties and other factors and involve known and
unknown risks that could cause the actual results, performance, levels of
activity, or our achievements, or industry results, to be materially different
from any future results, performance, levels of activity, or our achievements
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
We have attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in the Risk Factors section
which appears in Item 1 - Business.
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PART I
Item 1. Business
General
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
customers worldwide including Cisco, NTT, Philips, Panasonic, Samsung, Shanghai
Bell, Siemens, Sony and Tandberg.
In the beginning of 2001, we created two separate business units
corresponding to our two product lines to enable our product development and
product marketing teams to respond quickly to evolving market needs with new
product introductions. The "Networking" business unit, or 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, or TBU, focuses on
creating developer toolkits for the underlying IP communication protocols and
testing tools needed for real-time voice and video over IP, or V2oIP(TM).
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 soft
switches.
Business Overview
Growth in Communications
In recent years communications networks have experienced dramatic
growth in traffic. After a decline in growth in 2000 and 2001, we expect this
growth to resume 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
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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 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 protocol for real-time IP
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communications. H.323 was developed by a team of computing, telephony and
networking experts under the 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 rich-media
communications on packet-based networks. H.323 provides the technical framework
for developing standards-compliant products and systems for real-time voice and
video communication over packet networks. All components of an H.323 compliant
network, including terminals, gateways, gatekeepers and conferencing bridges,
use the H.323 protocol to communicate.
Our leadership position stems from the pioneering work we began in
1993. We were the first to develop and demonstrate commercially viable
technology for establishing real-time voice, video, and data on IP networks. We
are helping to develop the industry standards that are driving the emergence and
growth of the use of packet networks for real-time communications. RADVISION was
an original member of the ITU (International Telecommunications Union) team that
defined the H.323 standard and we continue to work closely with the ITU, the
IETF, IMTC, and other industry consortia to define a broad spectrum of IP
telephony protocols for voice and video communication including, Session
Initiation Protocol (SIP), Media Gateway Control Protocol (MGCP) and
MEGACO/H.248.
Our protocol toolkits provide the underpinning technology required for
the rapid development of next generation products and applications for real-time
V2oIP. 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 will 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.
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. 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
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o costsavings 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
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:
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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 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 also
believe that our technology is recognized as one of the market-leading
implementations of the Session Initiation Protocol, or SIP, and other protocols
such as MGCP and MEGACO/ H.248. We have been actively involved in the
development of protocols for real-time 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
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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 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 multimedia collaboration (voice, video and
data) 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
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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 Cisco, Samsung, Siemens, Sony and Tandberg. 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 2001, our TBU 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, H.323 and ProLab Test Manager for network
simulation and testing. The introduction of SIP, MGCP, MEGACO and
ProLab moves us closer to achieving our goal of becoming the
premier, one-stop-shop for all voice and video
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technologies and reinforces RADVISION's leadership position as
the V2oIP technology experts.
We will continue to introduce new or enhanced products in 2002.
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 2001, we demonstrated prototype software for
H.323-SIP and H.323-MGCP interworking. For our networking
products we plan to upgrade our viaIP product family. We will be
introducing new plug-in boards for viaIP platform.
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 as well as
strengthening our existing relationships. 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.
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The 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 or Enhanced Communication Server (ECS), or gatekeepers
applications, which control, manage and monitor real-time voice,
video and data traffic over packet networks;
o RADVISION Multipoint Conferencing Units (MCU), or IP conferencing
bridges, which enable voice or multimedia conferencing over
packet networks among three or more participants;
o RADVISION Video Processing Server (VPS), which supports
continuous presence, rate matching and improved media processing
for multipoint conferences.
o RADVISION Reservation and Scheduling Server (RSS), which is a
central web interface for conference and resource management and
o RADVISION Data Collaboration Server (DCS), for real-time data
sharing and collaboration.
Our technology business unit offers a complete suite of key IP
communications protocol tool kits for building interoperable,
standards-compliant products, systems and applications for real-time voice and
video communication over packet networks. RADVISION tool kits now include SIP,
MGCP, MEGACO, H.323 and ProLab Test Manager.
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.
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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 1.75" by 19" (1U) 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
3.5 " by 19" (2U) 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.
o Interoperability. Our multimedia gateways are H.323 compliant and
are designed to be fully interoperable with other IP network
components.
o Advanced call functionality. Our multimedia gateways can support
advanced PBX-like functions including call transfer and call
forwarding.
RADVISION Enhanced Communication Server (ECS) or 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, or ECS,
application that provides advanced gatekeeper functionality. The ECS application
is a Microsoft Windows NT-based application that was 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
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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 Multipoint Conferencing Units (MCU) or 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 rich-media multipoint
communications.
Traditionally, voice or video conferencing requires the conference to
be arranged in advance by a network administrator and remain attended by an
operator for the duration of the conference. RADVISION's MCUs 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. The RADVISION standalone OnLAN MCU can support up
to 15 simultaneous voice and video calls or 24 voice-only calls. The
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.
RADVISION Video Processing Server (VPS)
The viaIP VPS is a complimentary product to the viaIP MCU. The VPS
performs rate matching, enabling each endpoint in a videoconference to
participate according to individual video bandwidth capabilities without
affecting the connection of other participants. The VPS also allows endpoints
that are not capable of working in an asymmetrical mode to receive a symmetric
media stream, allowing ISDN calls (passing via the Gateway) to receive a
continuous
11
presence video mode. The VPS will be provided as a server application, installed
on a dedicated viaIP as NT board.
RADVISION Reservation and Scheduling Server (RSS)
The RSS is a highly sophisticated reservation and scheduling system for
centralized scheduling of conference rooms and resources. The new RSS provides
an intuitive web-based scheduling interface as well as providing users with the
option to schedule conferences directly from Microsoft Outlook. RSS centrally
manages an organization's conferencing, collaboration and meeting resources,
including multiple time zone scheduling, attendee invitation, recurring events,
reporting capabilities and network resources.
RADVISION Data Collaboration Server (DCS)
The DCS is an easy-to-use data collaboration and application sharing
solution that provides unmatched conference capabilities. The RADVISION DCS, is
a dynamic and scalable solution for data collaboration and greatly enhances
conference capabilities by enabling application sharing based on the T.120
standard. With the RADVISION DCS, any conference can become a real working
session by enabling the conference participants to collaborate and share
applications. The DCS is applicable for both audio and/or video communications
using RADVISION's state-of-the-art MCU. The DCS allows you to view diagrams,
graphic presentations and slide lectures simultaneously with other
videoconferencing participants. It is also possible to conduct text chats,
whiteboard exchanges or rapid file transfers during a multipoint videoconference
of three or more participants. The DCS places particular emphasis on
scalability, reliability and performance.
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 sets 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 Development Toolkit
SIP is a relatively new signaling protocol for initiating, managing and
terminating voice and video sessions across packet networks. The 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 SIP Toolkit is designed to
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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 Development Toolkit
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 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 Development Toolkit
Media gateway control protocol, commonly referred to as MGCP, provides
functions that complement H.323 and has been developed for large packet networks
operated by 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 Development Toolkit
MEGACO/H.248 is the official industry standard media gateway control
protocol for large scale IP-centric communication networks. Like MGCP, it is an
internal protocol used between "intelligent" centralized gateway controllers and
numerous "dumb" media gateways that handle voice and video media streams. The
standard is the result of 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.
RADVISION ProLab H.323 Test Manager
RADVISION's ProLab is designed for debugging and simulating numerous
testing scenarios. Based on RADVISION's award-winning H.323 Protocol Toolkit,
this powerful testing tool simulates a full VoIP network with a professional
quality assurance laboratory, enabling
13
developers or QA specialists to test H.323 version compliance, H.323 version
upgrade compliance, stress and load. The ProLab(TM) H.323 Test Manager is a
highly scalable tool designed to be aware of any changes to the H.323 standard.
It provides the:
o capability to run the same tests on the application each time the
underlying protocol version is upgraded;
o flexibility to mix and match scenarios to develop a broad range
of testing possibilities; and
o ability to define numerous scripts and scale up the test scenario
by linking them as the test plan progresses.
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.
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 $250,000 of our products or technology during the year 2001:
Networking Products
-------------------
ADL Philips
Atlantis PictureTel Corp.
Belgacom Polycom, Inc.
Cisco Systems SKC
Control Tech Sony
First Virtual Tandberg
H.S Digital Wafer
MVC Mobile Video Wire One
NTT - ME Corp Zhizhen
14
Technology Products
-------------------
Alcatel Nortel
Ascom NTT - ME Corp
CCL-ITRI Panasonic
Cintech Samsung
Cisco Systems Siemens
E-soft Spirent
IMAG Industries Teleware
Intel
LG
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. 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,
Hong Kong, China and in the United Kingdom. The geographic breakdown of our
total sales for the year ended December 31, 2001 was: 63.3% in North America,
21.7% in Europe and the Middle East and 15.0% 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 sustain and enhance our market position as an industry leader. Our current
marketing efforts include various sales and channel support programs designed to
drive sales, and marketing communication programs designed to increase industry
visibility, including press/analyst tours, trade shows and events, speaking
engagements and ongoing interaction with analysts and the media as well as
targeted marketing programs. Additional programs include technical seminars
where customers and other industry participants are educated in real-time IP
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;
15
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.
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
16
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.
Research and Development
We place considerable emphasis on research and development to expand
the capabilities of our existing products and technology, to develop new
products and to improve our existing technologies and capabilities. We believe
that our future success will depend upon our ability to maintain our
technological leadership, to enhance our existing products and technology and to
introduce on a timely basis new commercially viable products and technology
addressing the needs of our customers. Our gross investment in research and
development for the three years ended December 31, 1999, 2000 and 2001 was $7.7
million, $14.3 million and $17.9 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, 2001, our research and development staff consisted
of approximately 120 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.
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 Ezenia!, formerly known o DynamicSoft Inc.
as Video-Server
17
o CUseeMe Networks Inc. o Trillium Digital Systems,
(formerly known as White acquired by Intel Corp.
Pine Software Inc., merged
with First Virtual
Communications) o Hughes Software Systems
o Polycom Networks, a
division of Polycom o In-house developers
Inc., formerly known employed by manufacturers
as Accord Networks 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.
Manufacturing
Our manufacturing operations consist of materials planning and
procurement, out-sourcing of sub-assemblies, final assembly, product assurance
testing, quality control and packaging and shipping. We assemble and test our
products at our facilities in Tel Aviv, Israel. We test our products both during
and after the assembly process using internally developed product assurance
testing procedures. We have a flexible assembly process that enables us to
configure our products at the final assembly stage for customers who require
that our products be modified to bear their private label. This flexibility is
designed to reduce our assembly cycle time and reduce our need to maintain a
large inventory of finished goods. We use an enterprise resource planning, or
ERP, system that we purchased from BAAN Systems that we modified to our specific
needs. This system allows us to use just in time procurement and manufacturing
procedures. We believe that the efficiency of our assembly process to date is
largely due to our product architecture and our commitment to assembly process
design. We manufacture our software development kits on CD-ROMs and package and
ship them accompanied by relevant documentation.
As part of our commitment to quality, we have been certified as an ISO
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.
Employees
As of January 31, 2002, we had 243 employees worldwide, of whom 121
were employed in research and development, 84 in sales and marketing, 24 in
management and administration and 14 in operations. We have standard employment
agreements with all of our employees
18
located in Israel. Of our employees, 175 are based in Israel, 54 are based in
the United States, 12 are based in Hong Kong and China and 2 are based
in the United Kingdom.
Our relationships with our employees in Israel are governed by Israeli
labor legislation and regulations, extension orders of the Israeli Ministry of
Labor and Welfare and personal employment agreements.
Israeli labor laws and regulations are applicable to all of our
employees. 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.
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.
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.
19
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 operating losses in 2000 and 2001. We may continue
to incur losses in the future. As of December 31, 2001, our accumulated deficit
was $10.6 million. We cannot assure you that we will operate profitably in the
future.
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.
20
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:
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.
21
Competition in the markets for our products and technology is intense. We may
not be able to compete effectively in these markets and we may lose market share
to our competitors.
The markets for our products and technology are highly competitive and
we expect competition to intensify in the future. We may not be able to compete
effectively in these markets and we may lose market share to our competitors.
The principal competitors in the market for our 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.
22
Our agreements with our customers generally do not have minimum purchase
requirements. If our customers decrease or cease purchasing our products and
technology, our revenues will decline.
Our agreements with our customers generally do not have minimum
purchase requirements nor do they require our customers to purchase any products
from us. If any or all of our customers cease to purchase or reduce their
purchases of our products and technology at any time, our revenues will decline.
We cannot assure you that our customers will not choose to independently develop
for themselves, or purchase from others, products and technology similar to our
products and technology. Moreover, if our customers do not successfully market
and sell the systems and products into which they incorporate our products and
technology, the demand of these customers for our products and technology will
decline. Our customers' sales of systems and products containing our products
and technology may be adversely affected by circumstances over which we have no
control and over which our customers may have little, if any, control.
We are dependent upon a limited number of suppliers of key components. If these
suppliers delay or discontinue manufacture of these components, we may
experience delays in shipments, increased costs and cancellation of orders for
our products.
We currently obtain key components used in the manufacture of our
products from a single supplier or from a limited number of suppliers. We do not
have long-term supply contracts with our suppliers. Any delays in delivery of or
shortages in these components could interrupt and delay manufacturing of our
products and result in the cancellation of orders for our products. In addition,
these suppliers could discontinue the manufacture or supply of these components
at any time. We may not be able to identify and integrate alternative sources of
supply in a timely fashion or at all. Any transition to alternate suppliers may
result in delays in shipment and increased expenses and may limit our ability to
deliver products to our customers. Furthermore, if we are unable to identify an
alternative source of supply, we would have to modify our products to use a
substitute component, which may cause delays in shipments, increased design and
manufacturing costs and increased prices for our products.
We intend to manufacture and maintain an inventory of customized products for
some customers who will have no obligation to purchase these products. If these
customers fail to purchase these products, our financial results may be harmed.
To satisfy the timing requirements of some of our larger customers, we
intend to manufacture and maintain an inventory of some of our products that we
will customize to the specifications of these customers. The size of this
inventory will be based upon the purchasing history and forecasts of these
customers, which we currently estimate to be approximately two months of sales
to these customers. These customers will have no obligation to purchase the
inventoried products at any time. If the customers for whom the inventoried
products are manufactured do not purchase them, we may be required to modify the
products for sale to others and we may be unable to find other purchasers. In
either case, the value of the products may be materially diminished which may
have a negative impact on our financial results.
23
Undetected errors may increase our costs and impair the market acceptance of our
products and technology.
Our products and technology have occasionally contained, and may in the
future contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify the cause of
the problem. Regardless of the source of these errors, we must divert the
attention of our engineering personnel from our research and development efforts
to address the errors. We cannot assure you that we will not incur warranty or
repair costs, be subject to liability claims for damages related to product
errors or experience delays as a result of these errors in the future. Any
insurance policies that we may have, may not provide sufficient protection
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.
24
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 3. Legal
Proceedings." Any infringement claim, even if not meritorious, could result in
the expenditure of significant financial and managerial resources and could
negatively affect our profitability.
We are dependent on our senior management. Any loss of the services of our
senior management could negatively affect our business.
Our future success depends to a large extent on the continued services
of our senior management and key personnel. We do not carry key-man life
insurance for any of our senior management. Any loss of the services of members
of our senior management or other key personnel could negatively affect our
business.
Our failure to retain and attract personnel could harm our business, operations
and product development efforts.
Our products require sophisticated research and development, marketing
and sales, and technical customer support. Our success depends on our ability to
attract, train and retain qualified research and development, marketing and
sales and technical customer support personnel. We intend to increase
substantially the number of our employees who perform these functions.
Competition for personnel in all of these areas is intense and we may not be
able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel
we require is very competitive, due to the limited number of people available
with the necessary technical skills and understanding of our products and
technology. If we fail to attract and retain qualified personnel, our business,
operations and product development efforts would suffer.
Our non-competition agreements with our employees may not be enforceable. If any
of these employees leaves us and joins a competitor, our competitor could
benefit from the expertise our former employee gained while working for us.
We currently have non-competition agreements with our key employees in
Israel. These agreements prohibit those employees, if they cease to work for us,
from directly competing with us or working for our competitors. Under current
U.S. and Israeli law, we may not be able to enforce these non-competition
agreements. If we are unable to enforce any of these agreements, our competitors
that employ our former employees could benefit from the expertise our former
employees gained while working for us. In addition, we do not have
non-competition agreements with our employees outside of Israel.
25
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 Israel, and most of our 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 had conducted
peace negotiations with the Palestinian Authority the increase in violence
primarily in the West Bank and Gaza Strip since October 2000 has caused a
significant deterioration in the relationship between Israel and the Palestinian
Authority and a cessation of peace talks. 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
26
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. In the year 2001
the rate of devaluation of the NIS against the dollar exceeded the rate of
inflation. 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 Israeli Ministry of Industry and Trade has
granted approved enterprise status to several investment programs at our
manufacturing facility. The portion of our income derived from these approved
enterprise programs commencing when we begin to generate net income from these
programs will be exempt from tax for a period of two years and will be subject
to a reduced tax rate for an additional five to eight years, depending on the
percentage of our share capital held by non-Israelis. The benefits available to
an approved enterprise program are dependent upon the fulfillment of conditions
stipulated in applicable law and in the certificate of approval. If we fail to
comply with these conditions, in whole or in part, we may be required to pay
additional taxes during the period in which we would have benefited from the tax
exemption or reduced tax rates and would likely be denied these benefits in the
future.
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. Many 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.
Risks Relating 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, or PFIC. Our treatment as a PFIC could result in a
reduction in the after-tax return to the holders of our ordinary shares and
would likely cause a reduction in the value of such shares. For U.S. Federal
income tax purposes, we will be classified as a PFIC for any taxable year in
27
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, based
on a independent third party opinion, we believe that we were not deemed to be
classified as a PFIC for the year 2001. We have, however, no assurance that the
U.S. Internal Revenue Services will accept this determination and there can be
no assurance that we will not be classified as a PFIC in the future.
United States residents should carefully read "Item 10E. Additional
Information - Taxation, United States Federal Income Tax Consequences" for a
more complete discussion of the U.S. federal income tax risks related to owning
and disposing of our ordinary shares.
Our share price has been volatile in the past and may decline in the future.
Our ordinary shares have experienced significant market price and
volume fluctuations in the past and may experience significant market price and
volume fluctuations in the future in response to factors such as the following,
some of which are beyond our control:
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
28
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 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.
Item 2. Properties
Our headquarters and principal administrative, finance, sales and
marketing and promotion operations are located in approximately 60,079 square
feet of leased office space in Tel Aviv, Israel at an approximate rental cost of
$ 1,178,000 in 2001. The lease for our principal offices expires in June 2005.
In the United States, we lease approximately 10,000 square feet from a related
party in Mahwah, New Jersey expiring in May 2002 and approximately 1,232 square
feet in Sunnyvale, California expiring in December 2002. We also lease
approximately 1,246 square feet in Hong Kong expiring in June 2002,
approximately 872 square feet in China expiring in April 2003 and approximately
500 square feet in the United Kingdom expiring in February 2003.
The aggregate annual rent for our sales and service offices in the
United States, Hong Kong, China and the United Kingdom was approximately
$246,000 in 2001.
29
Item 3. Legal Proceedings
In January 2001, we entered into an agreement with Zohar Zisapel
Properties Inc. and Yehuda Zisapel Properties Inc. (entities that are wholly
owned by Zohar Zisapel, our Chairman of the Board and a principal shareholder,
and Yehuda Zisapel, a principal shareholder and our former Chairman,
respectively) to lease approximately 24,000 feet square of office space in
Paramus, New Jersey for a period of 5 years, which space we subsequently
surrendered. The parties disagree as to the extent of damages caused by this
action, if any. We cannot predict the final outcome of this dispute.
Other than the above, we are not involved in any legal proceedings that
are material to our business or financial condition.
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of securities holders during the
fourth quarter of the fiscal year ended December 31, 2001.
30
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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:
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
2001
- ----
First Quarter................................... $16.25 $6.16
Second Quarter.................................. 8.34 5.02
Third Quarter................................... 5.84 4.70
Fourth Quarter.................................. 8.85 4.85
As of March 11, 2002 we had approximately 3,455 beneficial shareholders
including 52 holders of record.
We have never paid dividends on our ordinary shares since our inception
and we do not anticipate paying any dividends in the foreseeable future. If we
were able to distribute cash dividends out of income that had been exempt from
tax because of our investment program's Approved Enterprise status (for
description of such status please refer to the section entitled "Effective
Corporate Tax Rate" in "Item 7. Management's Division and Analysis of Financial
Conditions and Results of Operations") such income would become subject to
Israeli corporate tax.
If we were to declare dividends in the future, we would declare those
dividends in NIS but pay those dividends to our non-Israeli shareholders in U.S.
dollars. Because exchange rates between NIS and the dollar fluctuate
continuously, a U.S. shareholder would be subject to currency fluctuation
between the date when the dividends were declared and the date the dividends
were paid.
Item 6. Selected Financial Data
The following selected consolidated financial data for and as of the
five years ended December 31, 2001, 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, Arthur
Andersen, independent auditors whose report with respect to the three years
ended December 31, 2001 and as of December 31, 2001 and 2000 appears in this
Annual Report.
31
Year ended December 31,
1997 1998 1999 2000 2001
--------- -------- ------- ------- -------
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
Revenues................................ $ 4,899 $ 8,894 $17,550 $45,911 $46,227
Cost of revenues........................ 1,211 1,412 2,853 11,446 10,362
-------- ------- ------- ------- -------
Gross profit............................ 3,689 7,482 14,697 34,465 35,865
-------- ------- ------- ------- -------
Operating expenses:
Research and development................ 2,763 4,379 7,667 14,263 17,933
Less participation by the Chief
Scientist............................ 890 1,140 1,097 353 -
-------- ------- ------- ------- -------
Research and development, net........... 1,873 3,239 6,570 13,910 17,933
Marketing and selling, net.............. 2,384 4,425 9,502 17,358 16,735
General and administrative.............. 494 670 1,426 3,458 4,438
Restructuring costs..................... - - - - 3,023
Royalties to Chief Scientist............ - - - 3,666 -
-------- ------- ------- ------- -------
Total operating expenses................ 4,751 8,334 17,498 38,392 42,129
-------- ------- ------- ------- -------
Operating loss.......................... (1,062) (852) (2,801) (3,927) (6,264)
Financial income, net................... 6 23 105 4,176 4,652
-------- ------- ------- ------- -------
Net income (loss)....................... $ (1,056) $ (829) $(2,696) $ 249 $(1,612)
======== ======= ======= ======= =======
Net earnings (loss) per ordinary share.. $ (0.10) $ (0.08) $ (0.26) $ 0.014 $ (0.09)
Weighted average number of ordinary
shares............................... 10,234 10,492 10,538 17,174 18,943
Diluted earnings (loss) per
ordinary share ...................... $ (0.10) $ (0.08) $ (0.26) $ 0.013 $(0.09)
Weighted average number of ordinary
shares............................... 10,234 10,492 10,538 19,873 18,943
December 31,
-----------------------------------------------------------------
1997 1998 1999 2000 2001
------ ------- ------- -------- --------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents............... $ 435 $3,305 $ 2,605 $ 41,617 $ 6,717
Working capital......................... 873 4,318 814 73,660 53,377
Total assets............................ 3,704 9,371 13,261 116,351 99,767
Total bank debt, less current maturities 106 130 67 19 -
Shareholders' equity.................... 1,363 5,450 3,481 94,345 83,549
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
32
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. We currently have sales offices in the United States, Hong
Kong, China, United Kingdom and Israel.
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 Asian/Pacific region and Israel. For the year ended
December 31, 2001, approximately 63% of our revenues were generated in the
United States.
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.
33
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.
Research and development costs, net are charged to operations as
incurred. Software development costs are considered for capitalization when
technological feasibility is established according to SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Costs incurred after achievement of technological feasibility in the process of
software production have not been material. Therefore, we have not capitalized
any of our research and development expenses and do not anticipate that our
development process will differ materially in the future.
Historically our research and development expenses were presented net
of payments received from the Office of the Chief Scientist of Israeli Ministry
of Industry and Trade, or the Chief Scientist. In 2000 we voluntarily repaid
$3,666,000 in future royalty payments to the Chief Scientist and discontinued
our relationship with the Chief Scientist in order to reduce certain
restrictions on our business and to avoid paying increased interest rates in the
future on royalty payments. We 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
Government of Israel 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.
Financial income, net. Our financial income consists primarily of
interest earned on bank deposits and other liquid investments, gains and losses
from the conversion of monetary balance sheet items denominated in non-dollar
currencies into dollars and interest expense incurred on outstanding debt.
34
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 tax benefits. 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, 1999, 2000 and 2001, 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:
1999 2000 2001
------ ------ ------
Revenues.......................................... 100.0% 100.0% 100.0%
Cost of revenues.................................. 16.3 24.9 22.4
Gross profit...................................... 83.7 75.1 77.6
Operating expenses:
Research and development....................... 43.7 31.1 38.8
Less participation by the Chief Scientist...... 6.3 0.8 -
Research and development, net.................. 37.4 30.3 38.8
Marketing and selling, net..................... 54.1 37.8 36.2
General and administrative..................... 8.1 7.5 9.6
One time charge/repayment of future royalties.. - 8.0 6.5
Total operating expenses......................... 99.6 83.6 91.1
Operating loss.................................... (15.9) (8.5) (13.5)
Financial income, net............................. 0.6 9.1 10.1
Net income (loss)................................. (15.3)% 0.6% (3.4)%
===== ===== =====
Year Ended December 31, 2001 as Compared with Year Ended December 31, 2000
Revenues. Revenues increased from $45.9 million for the year ended
December 31, 2000 to $46.2 million for the year ended December 31, 2001. This
increase was due to a $3.1 million increase in sales of our networking products
offset by a decrease of $2.8 million from technology products.
Revenues from networking products increased from $26.6 million for the
year ended December 31, 2000 to $29.7million for the year ended December 31,
2001. The increase in revenue from networking products is attributable to an
increase in demand for these units as customers moved from integrated services
digital networks, or ISDN, to IP-based networks, as well as from OEM agreements
that generated additional product sales. Revenues from technology products
decreased from $19.3 million for the year ended December 31, 2000 to $16.5
million for the year ended December 31, 2001. This decrease in revenues from
technology products was primarily attributable to decreased market demand as
budgets for these products declined due to the worldwide economic downturn.
35
Revenue from sales to customers in the United States increased from
$27.9 million, or 60.9% of revenue, for the year ended December 31, 2000, to
$28.3 million, or 61.3% of revenue, for the year ended December 31, 2001, an
increase of $0.4 million, or 1.4%. Revenue from sales to customers in Europe
increased from $7.3 million, or 16.0% of revenue, for the year ended December
31, 2000, to $8.1 million, or 17.5% of revenue, for the year ended December 31,
2001, an increase of $0.8 million, or 11.0%. 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 Asian/Pacific region increased
from $5.3 million, or 11.5% of revenue, for the year ended December 31, 2000, to
$6.9 million, or 15.0% of revenue, for the year ended December 31, 2001, an
increase of $1.6 million, or 30.2%. This increase in sales to customers in this
region was primarily attributable to increased sales efforts for our networking
products.
Revenue from sales to customers in Israel decreased from $4.5 million,
or 9.7% of revenue, for the year ended December 31, 2000, to $1.9 million, or
4.2% of revenue, for the year ended December 31, 2001, a decrease of $2.6
million, or 57.8%. This decrease in sales to customers in Israel was primarily
attributable to the depressed economy in this region.
Cost of Revenues. Cost of revenues decreased from $11.4 million for the
year ended December 31, 2000 to $10.3 million for the year ended December 31,
2001, a decrease of $1.1 million, or 9.6%. Gross profit as a percentage of
revenues increased from 75.1% for the year ended December 31, 2000 to 77.6% for
the year ended December 31, 2001, due to the increased proportion of new
networking products sales with higher profit margins.
Research and Development, Net. Research and development expenses, net
increased from $13.9 million for the year ended December 31, 2000 to $17.9
million for the year ended December 31, 2001, an increase of $4.0 million, or
28.8%. 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 expected future growth of our business.
Research and development expenses, net as a percentage of revenues increased
from 30.3% for the year ended December 31, 2000 to 38.8% for the year ended
December 31, 2001.
Marketing and Selling, Net. Marketing and selling expenses, net
decreased from $17.4 million for the year ended December 31, 2000 to $16.7
million for the year ended December 31, 2001, a decrease of $623,000, or 35.9%.
This decrease was primarily attributable to a reduction of our marketing
activities in the second half of the year as we reduced our sales and marketing
expenses in response to current conditions. Marketing and selling expenses, net
as a percentage of revenues decreased from 37.8% for the year ended December 31,
2000 to 36.2% for the year ended December 31, 2001.
General and Administrative. General and administrative expenses
increased from $3.5 million for the year ended December 31, 2000 to $4.4 million
for the year ended December 31, 2001, an increase of $980,000 or 28.0%. This
increase was primarily attributable to an increase of $581,000, or 29.3%, in
personnel expenses. General and administrative expenses as a
36
percentage of revenues increased from 7.5% for the year ended December 31, 2000
to 9.6% for the year ended December 31, 2001.
One Time Charge / Royalty Payments to the Chief Scientist. In 2000 we
determined to repay all future royalty payments due to the Chief Scientist. This
decision 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. In
2001 we recorded a charge of $3.0 million, mainly for severance costs associated
with a 13.0% reduction in our workforce that was implemented as part of our
efforts to reduce operating expenses in light of the worsening economic climate.
Operating Loss. Our operating loss increased from $3.9 million for the
year ended December 31, 2000 to $6.3 million for the year ended December 31,
2001.
Financial Income, net. Financial income increased from $4.2 million for
the year ended December 31, 2000 to $4.7 million for the year ended December 31,
2001 principally as a result of the investment for a full year of the proceeds
of our March 2000 initial public offering and private placement.
Net Income(Loss). We reported net income of $249,000, for the year
ended December 31, 2000 as compared to a net loss of $1.6 million for the year
ended December 31, 2001.
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.
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
37
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 Asian/Pacific region 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 this
region 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 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.
38
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.
Consolidated Balance Sheet Data
Trade Receivables. Trade receivables decreased from $7.0 million at
December 31, 2000 to $5.1 million at December 31, 2001, a decrease of $1.9
million, or $27.1%. This decrease was attributable to a decrease in sales in the
last quarter of 2001 compared to the sales in the same period of 2000.
Allowance for Doubtful Accounts. Allowance for doubtful accounts
increased from $577,000 at December 31, 2000 to $1,126,000 at December 31, 2001,
an increase of $549,000, or $95.1%. Allowance for doubtful accounts as a portion
of trade receivables increased from $7.6% as of December 31, 2000 to $18.1% as
of December 31, 2001. This increase was primarily attributable to the worldwide
economic downturn.
Other Receivables and Prepaid Expenses. Other receivables and prepaid
expenses increased from $1.1 million at December 31, 2000 to $1.3 million at
December 31, 2001, a increase of $208,000 or 18.9%. This increase was primarily
attributable to an increase in prepaid rental expenses.
Inventories. Inventories decreased from $5.0 million at December 31,
2000 to $1.9 million at December 31, 2001, a decrease of $3.1 million, or 62.0%.
This decrease was primarily attributable to our effort to reduce inventory
levels in light of the uncertain economic conditions.
Trade Payables. Trade payables decreased from $3.7 million at December
31, 2000 to $765,000 at December 31, 2001, a decrease of $2.9 million, or 78.4%.
This decrease was primarily attributable to earlier payments to our trade
payables at the end of 2001.
Other Payables and Accrued Expenses. Other payables and accrued
expenses decreased from $16.8 million at December 31, 2000 to $13.6 million at
December 31, 2001, a decrease of $3.2 million, or 19.0%. This decrease was
primarily attributable to a decrease in accrued
39
deferred income, which will be recognized only after all criteria for revenue
recognition according to SOP 97-2 are met.
Quarterly Results of Operations
The following tables present consolidated statements of operations data
for each of the eight fiscal quarters ended December 31, 2001, 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,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- -------- --------- --------- -------- --------- ---------
Revenues................... $7,827 $10,201 $12,708 $15,176 $14,895 $10,430 $10,208 $10,694
Cost of revenues........... (1,944) (2,579) (3,102) (3,822) (3,725) (2,240) (2,099) (2,298)
Gross profit............... 5,833 7,622 9,606 11,354 11,170 8,190 8,109 8.396
Operating expenses:
Research and development 2,529 3,332 3,749 4,653 4,757 4,563 4,319 4,294
Less participation by
the Chief Scientist.... (236) (365) 247 - - - - -
Research and
development, net....... 2,293 2,967 3,996 4,653 4,757 4,563 4,319 4,294
Marketing and selling,
net.................... 3,611 4,523 4,470 4,754 4,840 4,365 3,690 3,840
General and
administrative......... 615 670 779 1,393 1,169 1,308 1,057 904
One time charge/repayment
of future royalties.... - - - 3,666 - 3,023 - -
Operating income (loss).... (636) (538) 361 (3,112) 404 (5,069) (957) (642)
Financial income, net...... 115 1,279 1,291 1,490 1,404 1,264 1,118 866
Net income (loss)..... $ (521) $ 741 $ 1,652 $(1,622) $ 1,808 $(3,805) $ 161 $ 224
As a percentage of
revenues:
Revenues................... 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenues........... (25) (25) (24) (25) (25) (21) (21) (21)
Gross profit............... 75 75 76 75 75 79 79 79
Operating expenses:
Research and development 32 33 30 31 32 42 42 40
Less participation by
the Chief Scientist... (3) (4) 2 0 - - - -
Research and
development, net...... 29 29 32 31 32 42 42 40
Marketing and selling, net 46 44 35 31 32 42 36 36
General and administrative 8 7 6 9 8 13 10 9
One time charge/repayment
of future royalties.. - - - 24 - 29 - -
Operating income (loss) ... (8) (5) 3 (20) 3 (49) (9) (6)
Financial income, net...... 1 13 10 10 9 12 11 8
Net income (loss)..... (7)% 8 % 13 % (10)% 12 % (37)% 2 % 2 %
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-
40
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.
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, 2001, we had approximately $6.7 million in cash
and cash equivalents, $52.8 million in short term investments and our working
capital was approximately $53.4 million. Taking into account long-term liquid
investments, we had $85.8 million in cash and liquid investments as of December
31, 2001.
Capital expenditures for the years ended December 31, 1999, 2000 and
2001 were approximately $2.4 million, $4.2 million and $2.0 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 personnel.
Net cash provided by operating activities was approximately $221,000
for the year ended December 31, 2001. This amount was primarily attributable to
a decrease of $1.9 million in trade receivables, a decrease of $3.1 million in
inventories and an increase in depreciation of $2.4 million. These increases in
cash provided by operating activities were offset in part by a decrease in trade
payables of $2.9 million and a decrease in other payables and accrued expenses
of $ 3.2 million.
The decrease in inventory for the year ended December 31, 2001 was
primarily due to our efforts to reduce inventories in light of the difficult
economic condition prevailing worldwide. The decrease in accounts receivable for
the year ended December 31, 2001 was primarily attributable to a decrease in
sales in the last quarter of 2001 compared to the sales in the same period of
2000.
Net cash used in investing activities was approximately $25.6 million
for the year ended December 31, 2001. For the year ended December 31, 2001,
$13.2 million of cash used in investing activities were invested in short term
deposits and $10.4 million were invested in long term investments. During the
year ended December 31, 2001, $2.0 million of cash used in investing activities
was for purchases of property and equipment.
On February 28, 2001, we announced that our Board of Directors 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. We purchased
1,585,446 ordinary shares through December 31, 2001 at a cost of $9.9 million,
an average of $6.25 per share. We anticipate that the repurchase
41
program will be completed in the first quarter of 2002. We may use the
repurchased shares for issuance upon exercise of employee stock options or other
corporate purposes.
Net cash use by financing activities was $9.6 million for the year
ended December 31, 2001. For the year ended December 31, 2001, cash used in
financing activities was attributable principally to repurchase of ordinary
shares for a total cash of $9.9 million.
As of December 31, 2001, our principal commitments consisted of
obligations outstanding under operating leases. Our capital requirements are
dependent on many factors, including market acceptance of our products and the
allocation of resources to our research and development efforts, as well as our
marketing and sales activities. In the last three years, we have experienced
substantial increases in our expenditures as a result of the growth in our
operations and personnel. We intend to increase our expenditures in the
future consistent with our anticipated growth. We anticipate that our cash
resources will be used primarily to fund our operating activities, as well
as for capital expenditures.
As of December 31, 2001, we had $19,000 outstanding under an equipment
term loan facility and an unused $2.5 million line of credit.
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 (per Israeli Tax
Authorities' position - invested 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
42
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, 2001, our net operating loss carry-forwards for
Israeli tax purposes amounted to approximately $22.7 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, 2001, the net operating loss carry-forwards
of our U.S. subsidiary for U.S. tax purposes amounted to approximately $9.5
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 2015.
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 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 inflation
Year ended Israeli inflation Israeli devaluation adjusted for
December 31, rate % 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
2001 1.4 9.3 (7.8)
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
43
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.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141
requires all business combinations initiated after September 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. All other
intangible assets will continue to be amortized over their estimated useful
lives. The amortization provisions of SFAS 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142
effective January 1, 2002. We believe that the adoption of SFAS 141 and SFAS 142
will not have an effect on our financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
Although SFAS 144 supersedes SFAS 121, it retains the requirements of SFAS 121
regarding recognition of impairment loss for long-lived assets to be held and
used (based on undiscounted cash flows) and resolves certain implementation
issues. Also, the accounting model used in SFAS 121 for long-lived assets to be
disposed of by sale (lower of carrying amount or fair value less cost to sell)
is broadened by SFAS 144 to include discontinued operations and supersedes APB
Opinion No. 30. Therefore, discontinued operations will no longer be measured on
a net realizable value basis and future operating losses will no longer be
recognized before they occur. SFAS 144 also broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business). The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those years. We believe that the adoption of SFAS 144
will not have an effect on our financial statements.
Item 7A. Qualitative and Qualitative Disclosures About Market Risk
We develop products in Israel and sell them in North America, Asia and
Europe. As a result our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets.
44
As of December 31, 2001 we had cash and cash equivalents and short-term
investments of $59.5 million. We invest our cash surplus in time deposits, cash
deposits, U.S. federal agency securities and corporate bonds with an average
credit rating of A2. These investments are not purchased for trading or other
speculative purposes. Due to the nature of these investments, we believe that we
do not have a material exposure to market risk. 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 facility has never exceeded $218,000, we do not
expect our exposure to market risk from changes in interest rates to be
material.
Item 8. Financial Statement and Supplementary Data
See Index to Financial Statements on page F-1 for a list of the
financial statements being filed therein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with our accountants.
45
PART III
Item 10. Directors and Executive Officers of the Registrant
Our directors and executive officers are as follows:
Name Age Position
- -------------------- --- ----------------------------------------------------
Zohar Zisapel....... 53 Chairman of the Board of Directors
Gadi Tamari......... 57 Chief Executive Officer, President and Director
Eli Doron........... 50 Chief Technical Officer and Executive Vice President
David Seligman...... 44 Chief Financial Officer
Ami Amir............ 58 Director
Dan Goldstein....... 48 Director
Liora Katzenstein... 46 Director
Andreas Mattes...... 41 Director
Efraim Wachtel...... 57 Director
Zohar Zisapel, Gadi Tamari, Ami Amir, Efraim Wachtel, and Andreas
Mattes will serve as directors until our 2002 annual general meeting of
shareholders. Liora Katzenstein and Dan Goldstein will serve as outside
directors pursuant to the provisions of the Israeli Companies Law for three-year
terms (i.e., January 2003 for Mr. Goldstein and December 2003 for Prof.
Katzenstein). Thereafter, their terms of service may be renewed for one
additional three-year term.
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
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.
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
46
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.
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.
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.
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.
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 of Siemens PN.
From October 1985 until January 1996, Mr. Mattes held various sales, marketing
and business administration positions at Siemens.
47
Efraim Wachtel has served as a director of RADVISION since March 1998.
Mr. Wachtel has been president and chief executive officer of Data
Communications Ltd., or RAD since November 1997. From October 1985 to November
1997, Mr. Wachtel was vice president of sales and marketing of RAD. Before
October 1985, Mr. Wachtel held various research and development positions in
several companies in Israel and in the U.S. Mr. Wachtel has a B.Sc. degree in
electrical engineering from the Technion, Israel Institute of Technology.
Other key managers are as follows:
Name Age Position
- ------------------------ --- ------------------------------------------------
Boaz Raviv.............. 42 General Manager of the Technology Group
Avinoam Barak........... 40 General Manager of the Networking Group
Ofer Shapiro............ 33 Senior Vice President, Business Development
Yotam Raz............... 37 Executive Vice President, General Manager of the
Networking Group in North America
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.
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.
Yotam Raz has served as our Executive Vice President since October of
2001. Prior to joining RADVISION Mr. Raz was vice president of new business at
Comverse and chief executive officer and chairman of Gaya Software Industries
before it was sold to Comverse in August 2000. Mr. Raz also co-founded Foresight
Ltd., a high-tech financial consulting firm. He holds an MBA and a bachelor's
degree from Tel-Aviv University.
48
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, 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. Five of our directors currently in office were elected by our
shareholders at our 2001 annual general meeting of shareholders.
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.
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.
49
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.
Audit Committee
Our audit committee currently is 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; (v) reviewing the scope and nature of the work
of the internal auditing unit.; and (vi) approval of related party transactions
under the Companies Law.
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.
Other Committees
In addition to our audit committee, our board of directors has
established an option and compensation committee and an executive committee.
Our option and compensation committee, whose members are 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, whose members are 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.
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
50
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.
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 identified as a director or executive officer in the
first table in the section 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.
51
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 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
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:
52
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;
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.
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.
53
Item 11. Executive Compensation
The following table sets forth information concerning the total
compensation paid to our executive officers whose total salary in fiscal 2001
totaled $100,000 or more:
Salaries, fees, Pension, retirement and
commissions and other similar benefits
Name and Principal Position bonuses
- ----------------------------- --------------- -----------------------
All 9 officers and directors
as a group 461,646 51,204
The aggregate value of all other perquisites and other personal
benefits furnished to each of these executive officers was less than 10% of each
officer's salary for such year.
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 January 31, 2002:
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 subject to Board Ratification. Under the plan, the committee has the
authority to recommend to the Board:
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
54
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 plan are for a term of sixty-two months from the
date of grant of the option. The following table presents option grant
information for this plan as of January 31, 2002:
Ordinary shares Weighted average
reserved for option grants Options granted exercise price
-------------------------- --------------- ----------------
3,163,523 63,300 $1.18
The ordinary shares indicated in the table as having been reserved for
option grants reflect the total number of ordinary shares reserved for grants
under 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,
subject to Board ratification. Under the plan, the committee has the authority
to recommend to the Board:
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
55
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. The plan provides that the trustee will empower Yehuda and Zohar
Zisapel to exercise the voting rights attached to the ordinary shares issued
upon exercise of the options.
Termination and Amendment
Our board of directors may terminate or amend the plan, provided that
any action by our board of directors which will alter or impair the rights of an
option holder requires the prior consent of that option holder.
2000 Stock Option Plan
Our 2000 Employee Stock Option Plan, or the 2000 Plan, currently
authorizes the grant of options to purchase up to 3,009,052 ordinary shares.
Employees and consultants of our company and its subsidiaries are eligible to
participate in the 2000 Plan. The 2000 Plan also provides for the grant of
options equal in the amount of up to 4% of our share capital, on a fully diluted
basis, in each subsequent year following the year 2000 for issuance under the
2000 Stock Option Plan. An additional 894,945 ordinary shares were authorized
for grant in 2001 based on 4% of our share capital at December 31, 2000 and an
additional 887,630 ordinary shares were authorized for grant in 2002 based on 4%
of our share capital at December 31, 2001. 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.
Plan Administration
The option and compensation committee appointed by the Board of
Directors administers the 2000 Plan, subject to Board ratification. Subject to
the provisions of the 2000 Plan and applicable law, the option and compensation
committee has the authority to recommend to the Board:
o the persons to whom such awards are granted;
o the form, terms and conditions of the written stock option
agreement evidencing the option, including the type of option and
the number of shares to which it pertains, the option price, the
option period and its vesting schedule, and exercisability of the
option in special cases (such as death, retirement, disability
and change of control); and
o the form and provisions of the notice of exercise and payment of
the option.
56
Subject to the provisions of the 2000 Plan and applicable law, the
Board has the authority to:
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 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.
57
The following table presents option grant information for this plan as
of January 31, 2002:
Ordinary shares Range of exercise
reserved for option grants Options granted prices
-------------------------- --------------- -----------------
3,009,052 2,066,193 $4.70 - $28.00
Exercise of options during 2001
During the year ended December 31, 2001, we issued 744,706 ordinary
shares, par value NIS 0.1 per share each, at an average exercise price of $1.31
per share to employees and consultants as a result of the exercise of stock
options.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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.
Number of ordinary Percentage of
shares beneficially outstanding
owned (1) ordinary
Name shares (2)
- ----------------------------------------- ------------------ -------------
Yehuda Zisapel (3)....................... 1,964,561 10.87%
Zohar Zisapel (4)........................ 2,028,041 11.22%
Siemens Venture Capital GmbH (5)......... 1,625,228 8.99%
Samsung entities (6)..................... 1,000,000 5.53%
Morgan Stanley Dean Witter & Co. (7)..... 1,695,826 9.38%
Morgan Stanley Dean Witter Investment
Management Inc. (7)................... 1,695,826 9.38%
The Baupost Group, L.L.C. (8)............ 1,360,475 7.53%
- --------------
(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
58
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) The percentages shown are based on 18,071,559 ordinary shares issued
and outstanding as of March 11, 2002.
(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 Venture Capital GmbH is Baierbrunner Str. 23,
81379, Munich, Germany.
(6) 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.
(7) Based solely upon, and qualified in its entirety with reference to, a
Schedule 13G filed with the Securities and Exchange Commission on
February 8, 2002.
(8) Based solely upon, and qualified in its entirety with reference to, a
Schedule 13G filed with the Securities and Exchange Commission on
February 14, 2002.
Directors and Executive Officers
The following table and the footnotes thereto contain information
concerning the beneficial ownership of our ordinary shares by each director and
executive officer of our company and by all of our directors and executive
officers of the as a group including currently exercisable stock options.
Number of ordinary Percentage of outstanding
Name shares ordinary shares (1)
- ------------------------------ ------------------ -------------------------
All directors and executive
officers as a group (9 persons).. 2,252,294 12.46%
- -------------------
(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
59
above have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
(2) The percentage of ordinary shares for each person and the group
shown in this table is based on the 18,071,559 ordinary shares
outstanding on March 11, 2002. Each shareholding is less than
1% except as indicated.
Certain Relationships and Related Transactions
The RAD-BYNET Group
Zohar Zisapel our chairman and Yehuda Zisapel, our former director and
chairman, are principal shareholders of our company. Individually or together,
they are also directors and principal shareholders of several other companies
which, together with us and the other subsidiaries and affiliates, are known as
the RAD-BYNET group. These corporations include:
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 Operation Services Ltd.
BYNET Personal Computers Ltd. Sanrad Inc.
Ceragon Networks Ltd. SILICOM Ltd.
Modules INC. WISAIR Inc.
RADREAL Ltd.
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 human resource and
administrative services, and we reimburse each company for its costs in
providing these services. The aggregate amount of these reimbursements was
approximately $196,000, $272,000 and $107,000 in 1999, 2000 and 2001,
respectively.
Agreement with Axerra Ltd. (formally named IP RAD Ltd)
In September 2000, we entered into an agreement to license our MGCP MG
software to Axerra 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 Axerra has an option to extend the maintenance and support
services for additional annual periods.
60
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 lease terminates in May 2002.
The monthly rent payments include a 15% intra-group discount.
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 $798,000 for the year ended December 31, 2000, and
$ 114,000 for the year ended December 31, 2001.
We generally ascertain the market prices for goods and services that
can be obtained at arms' length from unaffiliated third parties before entering
into any transaction with a member of the RAD-BYNET group for those goods and
services. In addition, all of our transactions to date with members of the
RAD-BYNET group were approved unanimously by our shareholders. As a result, we
believe that the terms of the transactions in which we have engaged and are
currently engaged with other members of the RAD-BYNET group are beneficial to us
and no less favorable to us than terms which might be available to us from
unaffiliated third parties. Any future transactions and arrangements with
entities, including other members of the RAD-BYNET group, in which our office
holders have a personal interest will require approval by our audit committee,
our board of directors and, if applicable, our shareholders.
Registration Rights
In a private placement of our ordinary shares in April 1995, several of
our shareholders were granted registration rights for their ordinary shares. We
granted registration rights to Yehuda Zisapel, Zohar Zisapel, RAD Data
Communications Ltd. and the employees' trust, as a group.
This shareholder group as well as other groups who purchased our
ordinary shares in the private placement, 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
61
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.
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.
Voting Agreement
Upon the completion of the private placement which took place
contemporaneously with our March 2000 initial public offering, Siemens and some
of our existing shareholders, including our current chairman of the board, our
former chief executive officer, the Evergreen Group, Clal Venture Capital Fund
LP and Yehuda Zisapel, entered into a voting agreement. The voting agreement
provided that, in the election of our directors, the shareholders party to the
agreement 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 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
62
each of the other parties 60 days before the expiration date of the then current
term that such party wishes to terminate the agreement. 4,872,337 ordinary
shares, representing approximately 26.91% of the outstanding shares, are
currently subject to the voting agreement.
63
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) See Index to Financial Statements on Page F-1 for a list of the financial
statements being filed herein.
(a)(2) Index to Financial Statement Schedules
Schedule II--Valuation and qualifying accounts (years ended December 31, 2000,
1999 and 1998).
(a)(3) See Exhibits below for all Exhibits being filed or incorporated by
reference herein.
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
64
*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 Form of 2000 Employee Stock Option Plan
*10.2 Key Employee Share Incentive Plan, as amended
*10.3 Consultant Option Plan, as amended
*10.4 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.
11 Statements re computation of Per Share Earnings.
21 Subsidiaries of RADVISION Ltd.
23 Consent of Luboshitz Kasierer, 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.
** Incorporated by reference to our Annual Report on Form 20-F for the
fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the fourth quarter of 2001.
65
RADVISION Ltd. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
- -------- ----------- ------------------------------- ------------ ------------
Additions
Balance at Charged to Balance at
beginning costs and Charged to end
Description of period expenses other accounts Deductions of period
- ----------- --------- ---------- -------------- ----------- -----------
Year ended December 31, 2001:
Allowance for doubtful accounts........ $577,000 $549,000 $1,126,000
======== ==========
Year ended December 31, 2000:
Allowance for doubtful accounts........ 225,000 352,000 577,000
======== ==========
Year ended December 31, 1999:
Allowance for doubtful accounts........ 73,000 152,000 225,000
======== ==========
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 19, 2002
RADVISION LTD.
By: /s/Gadi Tamari
--------------
Gadi Tamari
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/David Seligman
-----------------
David Seligman
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Dated: March 19, 2002
Name Title
---- -----
/s/Zohar Zisapel
- --------------------
Zohar Zisapel Chairman of the Board of Directors
/s/Gadi Tamari
- --------------------
Gadi Tamari Chief Executive Officer, President and Director
/s/Ami Amir
- -------------------- Director
Ami Amir
/s/Dan Goldstein
- --------------------
Dan Goldstein Director
/s/Efraim Wachtel
- -------------------- Director
Efraim Wachtel
/s/Andreas Mattes
- -------------------- Director
Andreas Mattes
/s/Liora Katzenstein
- --------------------
Liora Katzenstein Director
67
RADVISION LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001 F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 F-6
Notes to the Consolidated Financial Statements F-7
F-1
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) and its subsidiaries as of December 31, 2000 and 2001,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
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 provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
RADVISION Ltd. and its subsidiaries as of December 31, 2000 and 2001, and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/Luboshitz Kasierer
Luboshitz Kasierer
Arthur Andersen
Tel-Aviv, Israel
January 30, 2002
F-2
RADVISION LTD.
CONSOLIDATED BALANCE SHEETS
In thousands of U.S. dollars, except share data
December 31,
-----------------------
Note 2000 2001
---- --------- ---------
Current assets
Cash and cash equivalents (3) $ 41,617 $ 6,717
Short-term investments (4) 39,550 52,785
Trade receivables, net (5) 7,025 5,078
Other receivables and prepaid expenses 1,051 1,259
Inventories (6) 4,956 1,884
----- -----
Total current assets 94,199 67,723
------ ------
Long-term investments (4) 15,897 26,326
------ ------
Property and equipment, net (7) 5,200 4,518
----- -----
Deposit with insurance companies (10) 1,055 1,200
----- -----
Total assets $ 116,351 $ 99,767
========= =========
Current liabilities
Current maturities of long-term bank loans $ 46 $ 19
Trade payables 3,716 765
Other payables and accrued expenses (8) 16,777 13,562
------ ------
Total current liabilities 20,539 14,346
------ ------
Long-term liabilities
Bank loans, net of current maturities (9) 19 -
Accrued severance pay (10) 1,448 1,872
----- -----
1,467 1,872
----- -----
Total liabilities 22,006 16,218
------ ------
Commitments and contingencies (11)
Shareholders' equity: (12)
Ordinary shares of NIS 0.1 par value:
Authorized - 24,984,470 shares as of December 31, 2001;
Issued and outstanding - 19,144,984 and 19,889,690 shares
as of December 31, 2000 and 2001 165 182
Additional paid-in capital 103,849 104,209
Deferred compensation (641) (299)
Accumulated deficit (9,028) (10,640)
------ -------
94,345 93,452
Less cost of treasury stock - 1,585,446
Ordinary shares of NIS 0.1 par value as of
December 31, 2001 (2000 - none) - 9,903
---- -----
Total shareholders' equity 94,345 83,549
------ ------
Total liabilities and shareholders' equity $ 116,351 $ 99,767
========== =========
/s/Gadi Tamari /s/David Seligman
-------------- -----------------
GADI TAMARI DAVID SELIGMAN
Chief Executive Officer Chief Financial Officer
Date of approval of financial statements:
January 30, 2002
The accompanying notes form an integral part of these consolidated
financial statements.
F-3
RADVISION LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands of U.S. dollars, except per share data
For the year ended December 31,
---------------------------------------
Note 1999 2000 2001
---- ----------- ----------- -----------
Revenues (13B) $ 17,550 $ 45,911 $ 46,227
Cost of revenues 2,853 11,446 10,362
----- ------ ------
Gross profit 14,697 34,465 35,865
------ ------ ------
Operating expenses
Research and development expenses 7,667 14,263 17,933
Less - participation by the Chief
Scientist of the Government of Israel 1,097 353 -
----- --- ----
Research and development expenses, net 6,570 13,910 17,933
Marketing and selling expenses, net (14) 9,502 17,358 16,735
General and administrative expenses 1,426 3,458 4,438
Restructuring costs (15) - - 3,023
Repayment of future royalties
to the Chief Scientist - 3,666 -
---- ----- ----
Total operating expenses 17,498 38,392 42,129
------ ------ ------
Operating loss (2,801) (3,927) (6,264)
Financing income, net 105 4,176 4,652
---- ----- -----
Net income (loss) $ (2,696) $ 249 $ (1,612)
=========== =========== ===========
Basic earnings (loss) per ordinary share (2M) $ (0.26) $ 0.014 $ $(0.09)
========== =========== ============
Weighted average number of ordinary
shares outstanding 10,538,395 17,174,453 18,943,014
========== ========== ==========
Diluted earnings (loss) per ordinary share (2M) $ (0.26) $0.013 $ (0.09)
=========== ====== ===========
Weighted average number of shares 10,538,395 19,873,222 18,943,014
========== ========== ==========
The accompanying notes form an integral part of these consolidated
financial statements.
F-4
RADVISION LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In thousands of U.S. dollars, except share data
Ordinary shares Preferred shares Additional
------------------ ---------------- paid-in Deferred Accumulated Treasury Total
Shares Amount Shares Amount capital compensation deficit stock
---------- ------ ---------- ------ ---------- ------------ ----------- -------- --------
Balance as of January 1, 1999 10,528,056 $ 17 2,957,165 $ 4 $ 12,088 $ (78) $ (6,581) $ - $ 5,450
Ordinary shares issued 158,250 (*) - - 250 - - - 250
Deferred compensation - - - - 1,467 (1,467) - - -
Amortization of deferred
compensation - - - - (16) 493 - - 477
Net loss - - - - - - (2,696) - (2,696)
---------- ---- ---------- --- -------- ------- -------- ------ --------
Balance as of January 1, 2000 10,686,306 $ 17 2,957,165 $ 4 $ 13,789 $(1,052) $ (9,277) $ - $ 3,481
Ordinary shares issued 4,960,822 125 - - 89,094(**) - - - 89,219
Conversion of preferred shares 2,957,165 4 (2,957,165) (4) - - - - -
Cancellation of ordinary shares (58,447) - - - - - - - -
Deferred compensation - - - - 218 (218) - - -
Options exercised 599,138 19 - - 780 - - - 799
Amortization of deferred
compensation - - - - (32) 629 - - 597
Net income - - - - - - 249 - 249
---------- ---- ---------- --- -------- ------- -------- ------ --------
Balance as of December 31, 2000 19,144,984 $165 - $ - $103,849 $ (641) $ (9,028) $ - $94,345
Purchase of treasury stock (1,585,446) - - - - - - (9,903) (9,903)
Options exercised 744,706 17 - - 924 - - - 941
Payment of issuance expenses - - - - (550) - - - (550)
Amortization of deferred
compensation - - - - (14) 342 - - 328
Net income - - - - - - (1,612) - (1,612)
---------- ---- ---------- --- -------- ------- -------- ------ --------
Balance as of December 31, 2001 18,304,244 $182 - $ - $104,209 $ (299) $(10,640) $(9,903) $83,549
========== ==== ========== === ======== ======= ======== ======= ========
(*) Less than one thousand.
(**) Net of issuance expenses of approximately $8,400.
The accompanying notes form an integral part of these consolidated
financial statements.
F-5
RADVISION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of U.S. dollars
For the year ended December 31,
---------------------------------
1999 2000 2001
-------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,696) $ 249 $ (1,612)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Income and expenses not affecting operating cash flows:
Depreciation 718 1,843 2,407
Severance pay 104 107 279
Amortization of deferred compensation 477 597 328
Other 20 34 174
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables, net (647) (3,810) 1,947
Decrease (increase) in other receivables and prepaid expenses (430) 465 (208)
Decrease (increase) in inventories (1,561) (2,522) 3,072
Increase (decrease) in trade payables 1,924 1,158 (2,951)
Increase (decrease) in other payables and accrued expenses 3,529 10,443 (3,215)
----- ------ ------
Net cash provided by operating activities 1,438 8,564 221
----- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in short-term investments - (39,550) (13,235)
Increase in long-term investments - (15,897) (10,429)
Purchase of property and equipment (2,388) (4,175) (2,045)
Proceeds from sale of property and equipment 74 118 146
----- ----- -----
Net cash used in investing activities (2,314) (59,504) (25,563)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital 250 90,018 941
Purchase of treasury stock - - (9,903)
Decrease in short-term credit (11) - -
Payment of issuance expenses - - (550)
Repayment of long-term bank loans (63) (66) (46)
--- ----- -----
Net cash provided by (used in) financing activities 176 89,952 (9,558)
--- ------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (700) 39,012 (34,900)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,305 2,605 41,617
----- ----- ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,605 $ 41,617 $ 6,717
======= ======== ========
CASH PAID DURING THE YEAR IN RESPECT OF INTEREST $ 16 $ 8 $ 4
======= ======== ========
NON-CASH ACTIVITY $ 200 $ - $ -
======= ======== ========
The accompanying notes form an integral part of these consolidated
financial statements.
F-6
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 1 - General
RADVISION Ltd. (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, 2001 was U.S.$ 1.00 = NIS 4.416; and at December 31, 2000
and 1999 = NIS 4.041 and NIS 4.153, respectively.
F-7
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies
The financial statements are prepared according to generally accepted
accounting principles in the United States. The significant accounting
policies 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,
United-Kingdom 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. Investments
The Company accounts for investments in debentures under the
provisions of Statement of Financial Accounting Standard ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS 115, investments in debentures for which
the Company has the positive intent and ability to hold to
maturity, are reported at their amortized cost basis, which
approximates their fair market value.
E. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the moving average method.
F-8
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies (Cont.)
F. Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets, ranging from three to fifteen years.
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.
F-9
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies (Cont.)
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 Statement
of Financial Accounting Standards ("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.
I. Advertising Costs
Advertising costs are charged to expenses as incurred.
J. 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.
K. Fair Value of Financial Instruments
Unless otherwise noted, the carrying amount of financial
instruments approximates fair value.
L. 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.
F-10
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies (Cont.)
M. Basic and Diluted Net Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of ordinary shares
outstanding during the period. Diluted earnings (loss) per share
is calculated by dividing net income by the sum of the weighted
average number of Ordinary shares outstanding, plus all
additional Ordinary shares that would have been outstanding if
potentially dilutive Ordinary shares had been issued. Options to
purchase 2,667,251, 529,887 and 3,885,872 Ordinary shares were
not included in the computation of years 1999, 2000 and 2001
diluted earnings (loss) per share because such options were
considered anti-dilutive.
N. Share-based Compensation
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards ("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." Under APB 25, when the
exercise price of the Company's share options is less than the
market price of the underlying shares on the date of grant,
compensation expense is recognized. The Company has provided the
necessary pro forma disclosures as if the fair value method had
been applied.
O. 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.
F-11
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies (Cont.)
P. Derivative Financial Instruments
Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities". The adoption of
SFAS 133 had no material impact on reported earnings for the year
ended December 31, 2001.
Q. Segment Reporting
Effective January 2001, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS
131 establishes standards for the manner in which public
companies report information about operating segments in annual
and interim financial statements.
R. Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS 141 requires all business combinations
initiated after June 30, 2001, to be accounted for using the
purchase method. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for
impairment. All other intangible assets will continue to be
amortized over their estimated useful lives. The amortization
provisions of SFAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the Company is
required to adopt SFAS 142 effective January 1, 2002. The Company
believes that adoption of SFAS 141 and SFAS 142 will not have an
effect on its financial statements.
F-12
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 2 - Significant Accounting Policies (Cont.)
R. Recently Issued Accounting Pronouncements (Cont.)
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".
Although SFAS 144 supersedes SFAS 121, it retains the
requirements of SFAS 121 regarding recognition of impairment loss
for long-lived assets to be held and used (based on undiscounted
cash flows) and resolves certain implementation issues. Also, the
accounting model used in SFAS 121 for long-lived assets to be
disposed of by sale (lower of carrying amount or fair value less
cost to sell) is broadened by SFAS 144 to include discontinued
operations and supersedes APB Opinion No. 30. Therefore,
discontinued operations will no longer be measured on a net
realizable value basis and future operating losses will no longer
be recognized before they occur. SFAS 144 also broadens the
presentation of discontinued operations to include a component of
an entity (rather than a segment of a business). The provisions
of SFAS 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim
periods within those years. The Company believes that the
adoption of SFAS 144 will not have an effect on its financial
statements.
Note 3 - Cash and Cash Equivalents
December 31,
------------------
2000 2001
------- ------
Cash in banks, primarily in U.S. dollars $ 5,004 $1,835
Bank deposits in U.S. dollars, bearing
annual interest rate of approximately 2.0% 36,151 $4,882
Bank deposits in NIS 462 -
------- ------
$41,617 $6,717
======= ======
The interest rates are as of December 31, 2001.
F-13
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 4 - Short-Term and Long-Term Investments
December 31,
---------------------
2000 2001
------- -------
Bank deposits in U.S. dollars bearing $12,208 $28,396
annual interest rate of approximately 3.4%
Marketable debentures, bearing annual
interest of approximately 5.8% 27,342 24,389
------ ------
$39,550 $52,785
======= =======
Marketable debentures in the amount of $24,304 that mature later than
December 31, 2002, bearing annual interest of 4.7%, as well as a bank
deposit in the amount of $2,022 bearing annual interest of 3.9%, are
presented as long-term investments.
The interest rates are as of December 31, 2001.
Note 5 - Trade Receivables, Net
Trade receivables are presented net of allowance for doubtful accounts
in the amount of $577 and $1,126 as of December 31, 2000 and 2001,
respectively. 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.
Note 6 - Inventories
December 31,
-------------------
2000 2001
------ ------
Materials and components $2,377 $ 991
Work-in-process 610 391
Finished products 1,969 502
----- -----
$4,956 $1,884
====== ======
F-14
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 7 - Property and Equipment, net
December 31,
------------------
2000 2001
------ -------
COST
Research and development equipment $2,695 $3,250
Motor vehicles 1,090 1,001
Manufacturing equipment 280 401
Office furniture, equipment and
leasehold improvements 4,288 5,268
----- -----
$8,353 $9,920
------ ------
ACCUMULATED DEPRECIATION
Research and development equipment $1,232 $2,024
Motor vehicles 242 371
Manufacturing equipment 169 190
Office furniture, equipment and
leasehold improvements 1,510 2,817
----- -----
3,153 5,402
----- -----
NET BOOK VALUE $5,200 $4,518
====== ======
For the years ended December 31, 1999, 2000 and 2001, depreciation
expense was $718, $1,843 and $2,407, respectively.
The Company's property and equipment are primarily located in Israel.
F-15
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 8 - Other Payables and Accrued Expenses
December 31,
---------------------
2000 2001
------- -------
Deferred income $10,298 $ 3,491
Employees and employee institutions (*) 2,345 2,369
Accrued royalties 411 670
Tax withholding payable 310 284
Accrued expenses 3,413 6,748
----- -----
$16,777 $13,562
======= =======
(*) Employees and employee institutions include salaries, bonuses and
employee institutions payable. The employee institutions include
amounts deducted from employees payroll for December 2000 and
2001, respectively for educational funds and insurance policies
funds. For the years ended December 31, 1999, 2000 and 2001
educational funds expenses were $233, $547 and $703 and insurance
policies funds expenses were $410, $375 and $469.
Note 9 - Long-term Bank Loans
December 31,
------------
2000 2001
---- ----
Loans linked to the U.S. dollar $65 $19
Less - current maturities 46 19
-- --
$19 $ -
=== ===
The loans bear an annual interest rate of LIBOR plus 1%.
As of December 31, 2001, the company had an unused line of credit in
the amount of $2,500.
F-16
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
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, 1999, 2000 and 2001 amounted to $365, $606 and $840, respectively.
Note 11 - Commitments and Contingencies
A. In connection with its marketing activities, the Company received
in prior years participation payments from the Government of
Israel - Fund for the Encouragement of Marketing Activities in
the total amount of approximately $686. 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 $15 as of December 31, 2001.
B. 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. 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 BIRDF participations
received or accrued, net of royalties paid or accrued, totaled
approximately $276 as of December 31, 2001.
F-17
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars
Note 11 - Commitments and Contingencies (Cont.)
C. The Company and its subsidiaries operate from leased premises in
Israel, United States, China, United Kingdom and Hong Kong. Lease
agreements expire in May 2002 through June 2005 (some with
renewal options). Annual minimum future rental payments due under
the above agreements, at the exchange rate in effect on December
31, 2001, are approximately as follows:
2002 $1,544
2003 1,366
2004 1,356
2005 678
-----
$4,944
======
For the years ended December 31, 1999, 2000 and 2001, rental
expense was $528, $1,015 and $1,424, respectively.
D. The Company is committed to pay royalties to two 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 royalties to one of the third parties 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:
2002 $25
2003 25
2004 25
--
$75
===
The rates of royalties to the other third party are comprised of:
(i) royalties based on a fixed amount per certain product sold
by the Company in the range of $20.00 to $48.00 per unit
sold, and;
(ii) a minimum royalty payment in the amount of $85 to be paid
until the earlier of May, 2005, or the completion of an
aggregate sales volume of 600 units of another product.
F-18
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars, except share and per share data
Note 11 - Commitments and Contingencies (Cont.)
E. 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.
F. In January 2001, the Company entered into an agreement with
related parties, to lease approximately 24,000 square feet of
office space in Paramus, New Jersey for a period of 5 years,
which space the Company subsequently surrendered. The parties
have a dispute in respect to damages caused by this action, if
any. The Company cannot predict the final outcome of this
dispute.
Note 12 - Shareholders' Equity
The Ordinary shares of the Company are traded on the NASDAQ National
Market. The Ordinary shares confer upon their holders the right to
receive notice to participate and vote in general meetings of the
Company, and the right to receive dividends, if declared.
A. In January 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. All references to
per share amounts and the number of shares in these financial
statements have been restated to reflect the abovementioned
changes.
F-19
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars, except share and per share data
Note 12 - Shareholders' Equity (Cont.)
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. In March 2000, the Company issued 4,370,000 ordinary shares in an
initial public offering for $87 million, or $20 per share.
E. In February 2001, the Company announced that its Board of
Directors authorized the repurchase of up to 10% of its
outstanding ordinary shares in the open market, from time to
time, at prevailing market prices. No time limit was given with
respect to the duration of the share repurchase program. As of
December 31, 2001, the Company had repurchased 1,585,446 ordinary
shares at a cost of $9,903.
F. 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 5,284,945 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 the options under the plan is at varying prices ranging
from $0.95 to $28. The incentive plan provides for the grant of
options equal in the amount of up to 4% of the Company's share
capital on a diluted basis.
F-20
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars, except share and per share data
Note 12 - Shareholders' Equity (Cont.)
F. (Cont.)
Transactions related to the share incentive plan during the years
ended December 31, 1999, 2000 and 2001 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:
Number of Weighted Weighted
options average average fair
exercise value of
price per options
share granted
--------- --------- ------------
Outstanding as of January 1, 1999 1,430,580 $1.28
Options granted 1,421,296 1.18 $1.14
Options forfeited (184,625) 1.18
-------- ----
Outstanding as of December 31, 1999 2,667,251 $1.23
========= =====
Options exercisable at
December 31, 1999 542,903 $1.31
========= =====
Options outstanding as of
January 1, 2000 2,667,251 $1.23
Options granted 1,390,795 6.68 $7.72
Options exercised (599,138) 1.46
Options forfeited (230,252) 7.30
-------- ----
Outstanding as of December 31, 2000 3,228,656 $7.48
========= =====
Options exercisable at
December 31, 2000 749,225 $1.69
========= =====
Options outstanding as of
January 1, 2001 3,228,656 $7.48
Options granted 2,284,095 5.65 $3.29
Options exercised (744,706) 1.31
Options forfeited (882,173) 8.74
-------- ----
Outstanding as of December 31, 2001 3,885,872 $7.29
========= =====
Options exercisable at
December 31, 2001 698,842 $8.01
========= =====
F-21
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars, except share and per share data
Note 12 - Shareholders' Equity (Cont.)
F. (Cont.)
A summary of the options outstanding and exercisable at December
31, 2001 is as follows:
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
2001 contractual prices 2001 prices
life
- ------------- -------------- ----------- ---------- -------------- -----------
$ 0.95-1.74 890,259 2.19 $ 1.25 334,351 $ 1.24
4.70-7.62 2,064,470 9.38 5.61 40,000 6.57
10.20-12.94 454,418 8.26 11.92 204,810 11.71
$17.00-28.00 476,725 8.50 $21.06 119,681 $21.06
--------- -------
3,885,872 698,842
========= =======
A summary of the options granted whose exercise prices differ
from the market price of the date of the stock on the date of
grant as follows:
For the years ended December 31,
-------------------------------------------------------------------------
1999 2000 2001
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
--------- -------- --------- -------- ---------- ---------
Weighted average exercise
prices less than fair value
at date of grant 1,421,296 $1.18 121,114 $10.20 - $ -
Weighted average exercise
prices equal to fair value
at date of grant - $ - 1,269,681 $17.52 2,284,095 $5.65
F-22
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. dollars, except share and per share data
Note 12 - Shareholders' Equity (Cont.)
F. (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 $1,466, $218 and $0 for options
granted in the years ended December 31, 1999, 2000 and 2001, 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
31,1999, 2000 and 2001 amounted to $477 and $597 and $328,
respectively.
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,
--------------------------------
1999 2000 2001
-------- -------- --------
Net income (loss):
As reported $(2,696) $ 249 $(1,612)
Pro forma (2,750) (3,197) (7,971)
Net earnings (loss)
per share:
Basic (0.26) 0.014 (0.09)
Diluted (0.26) 0.013 (0.09)
Pro forma
Basic (0.26) (0.19) (0.42)
Diluted $ (0.26) $ (0.19) $ (0.42)
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 no expected dividends and with the
following weighted-average assumptions used for grants in 1999,
2000 and 2001:
1999 2000 2001
---- ---- ----
Expected life of
the option (years) 2.84 2.5 2.63
Volatility 0% 80% 98%
Risk free interest rate 5% 5% 2.5%
F-23
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 13 - Segment Reporting and Geographical Information
A. Beginning in the year 2001, the Company operates under two
reportable segments based on its revised internal organization
structure, management of operations and performance evaluation.
These segments are: The Technology Business Unit (TBU) and the
Networking Business Unit (NBU). Discrete segment financial
information was not available or reviewed by senior management
during the years` 2000 and 1999. Therefore corresponding
information for prior years is not available.
The Technology Business Unit is responsible for the development
of enabling technologies for real-time voice and video over IP.
The Networking Business Unit is responsible for developing
networking products for IP-centric voice, video and data
conferencing services. There are no significant transactions
between the TBU and the NBU.
The Company evaluates segment performance based on revenues and
operating income (loss) of each segment. As such, there are no
separately identifiable segment assets nor are there any
separately identifiable statements of operations data below
operating loss.
Business segment revenues are as follows:
For the year
ended
December 31,
2001
------------
Technology Business Unit $16,545
Networking Business Unit 29,682
------
Total revenues $46,227
=======
Business segment operating loss is as follows:
For the year
ended
December 31,
2001
------------
Technology Business Unit $(3,122)
Networking Business Unit (3,142)
------
Total operating loss $(6,264)
=======
F-24
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 13 - Segment Reporting and Geographical Information (Cont.)
B. The Company's sales by geographic area are as follows:
For the year ended December 31,
-------------------------------
1999 2000 2001
------- ------- ---------
North America, principally
the United States $ 9,531 $28,830 $29,245
Europe 4,046 7,328 8,096
Far East 2,663 5,287 6,940
Israel 1,310 4,466 1,946
----- ----- -----
$17,550 $45,911 $46,227
======= ======= =======
For the year ended December 31, 1999, no single customer
represented more than 10% of sales. For the years ended
December 31, 2000 and 2001, one customer accounted for
approximately 22% and 35%, respectively, of sales for that
period.
Note 14 - Marketing and Selling Expenses, Net
For the year ended December 31,
-------------------------------
1999 2000 2001
------- ------- ---------
Marketing and selling expenses $9,700 $17,492 $16,735
Participation by the Government of Israel 198 134 -
----- ----- -----
Marketing and selling expenses, net $9,502 $17,358 $16,735
====== ======= =======
Marketing and selling expenses include:
Royalties to the Government of Israel $ 896 $ 750 $ 80
====== ======= =======
Note 15 - Restructuring Costs
In the second quarter of 2001, the Company recorded a charge of
approximately $3.0 million primarily relating to severance costs
associated with a 13% workforce reduction as part of its plan to
reduce operating expenses. As of December 31, 2001, the remaining
reserve balance of approximately $1.8 million is included with other
payables and accrued expenses on the balance sheet.
F-25
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 16 - Concentration of Credit Risk
As of December 31, 2000, current balances of two customers accounted
for 22% and 20% of the Company's trade receivables, or approximately
$3,000 in total. As of December 31, 2001, current balances of two
customers accounted for 15% and 11% of the Company's trade
receivables, or approximately $1,300 in total. The Company does not
generally require collateral to support credit sales. Allowances are
maintained for potential credit losses.
Note 17 - Related Party Balances and Transactions
A. Balances with Related Parties
December 31,
------------------
2000 2001
---- ----
Receivables $ 73 $ 2
Trade payables $197 $148
B. Transactions with Related Parties
For the year ended
December 31,
---------------------------
1999 2000 2001
---- ------ -----
Revenues (1) $167 $ 251 $108
Cost of revenues (3) 385 842 188
Research and development
expenses (2) 363 622 184
Marketing, selling, general
and administrative expenses (2) 344 1,210 116
Purchase of property and
equipment (4) $284 $ 722 $263
F-26
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 17 - Related Party Balances and Transactions (Cont.)
B. Transactions with Related Parties (Cont.)
(1) Includes revenues from the Company's products and
maintenance sold to affiliated companies.
(2) Includes administrative services provided to the Company by
affiliated companies which the Company reimburses for the
costs incurred in providing these services.
(3) Includes the purchase of components from affiliated
companies.
(4) Includes property and equipment that were purchased from
affiliated companies.
C. Dispute with related parties - see note 11F.
Note 18 - Taxes on Income
A. The Company's investment program totaling $122 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. 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 and the tax
rates may be reduced to 10%.
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, this income will be taxable at the regular corporate
tax rate, which is currently 36%.
F-27
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 18 - Taxes on Income (Cont.)
A. (Cont.)
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, 2001, the Company's net operating loss
carryforwards for tax purposes amounted to approximately $22.7
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 tax asset has been
included in these financial statements. Deferred taxes in respect
of other temporary differences are immaterial.
F-28
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 18 - Taxes on Income (Cont.)
F. The U.S. subsidiary's carryforward tax losses through December
31, 2001 amounted to approximately $9.0 million. These losses are
available to offset any future U.S. taxable income of the U.S.
subsidiary and will expire in the years 2010 - 2014. In light of
the Subsidiary's recent history of operating losses, the Company
has recorded a valuation allowance for all its deferred tax
assets.
G. The components of the Company's total income (loss) before
provision for income taxes are as follows:
December 31,
-------------------------------
1999 2000 2001
-------- ---- --------
Israel $(1,327) $ 72 $ (965)
Foreign (1,369) 177 (647)
------ --- ----
$(2,696) $249 $(1,612)
======= ==== =======
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,
-------------------------------
1999 2000 2001
-------- ----- ---------
Theoretical tax expense
(benefit) computed at the
statutory rate (36%) $(970) $ 90 $(580)
Loss and other items for
which deferred taxes were
not provided, net 936 (182) 418
Non-deductible expenses 34 92 162
----- ----- -----
Income tax benefit $ - $ - $ -
===== ===== =====
H. The Company has been assessed for tax purposes through the year
1996.
F-29
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars, except share and per share data
Note 18 - Taxes on Income (Cont.)
I. For U.S. Federal income tax purposes, the Company will be
classified as a passive foreign investment company ("PFIC") for
any taxable year in which either (i) 75% or more of the Company's
gross income is passive income, or (ii) at least 50% of the
average value of all of the assets for the taxable year produce
or are held for the production of passive income. As of December
31, 2001 the Company believes, based on an independent expert's
opinion, that it is not a PFIC for United States tax purposes.
However, there is no certainty that the United States tax
authorities will accept the Company's standpoint in this regard.
Note 19 - Quarterly information
The Company's quarterly consolidated financial position and
statements of operations as of and for each of the quarterly
periods in the years ended December 31, 2000, and 2001 are as
follows:
For the three months ended
------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000 2001 2001 2001 2001
----------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
Revenues $ 7,827 $ 10,201 $ 12,707 $ 15,176 $ 14,895 $ 10,430 $ 10,208 $ 10,694
Cost of revenues (1,944) (2,579) (3,101) (3,822) (3,725) (2,240) (2,099) (2,298)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit 5,883 7,622 9,606 11,354 11,170 8,190 8,109 8,396
Operating expenses
Research and development
expenses 2,529 3,332 3,749 4,653 4,757 4,563 4,319 4,294
Less - participation by the
Chief Scientist 236 365 (248) - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Research and development
expenses, net 2,293 2,967 3,997 4,653 4,757 4,563 4,319 4,294
Marketing and selling
expenses, net 3,611 4,523 4,470 4,754 4,840 4,365 3,690 3,840
General and administrative
expenses 615 670 780 1,393 1,169 1,308 1,057 904
Restructuring costs - - - - - 3,023 - -
Repayment of future royalties
to the Chief Scientist of the
Government of Israel - - - 3,666 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 6,519 8,160 9,247 14,466 10,766 13,259 9,066 9,038
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (636) (538) 359 (3,112) 404 (5,069) (957) (642)
Financial income, net 115 1,279 1,292 1,490 1,404 1,264 1,118 866
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ (521) $ 741 $ 1,651 $ (1,622) $ 1,808 $ (3,805) $ 161 $ 224
========== ========== ========== ========== ========== ========== ========== ==========
Basic earnings (loss)
Per ordinary share $ (0.04) $ 0.04 $ 0.09 $ (0.09) $ 0.09 $ (0.2) $ 0.01 $ 0.01
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average number
of ordinary shares
outstanding 14,626,504 18,598,596 18,661,155 19,020,592 19,196,316 19,199,771 18,995,041 18,431,559
========== ========== ========== ========== ========== ========== ========== ==========
Diluted earnings (loss) per
ordinary share $ (0.04) $ 0.03 $ 0.08 $ (0.09) $ 0.09 $ (0.2) $ 0.01 $ 0.01
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average number of
shares 14,626,504 21,705,623 21,835,771 19,020,592 20,750,146 19,199,771 20,226,819 19,601,742
========== ========== ========== ========== ========== ========== ========== ==========
F-30
RADVISION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In thousands of U.S. dollars
Note 19 - Quarterly information (Cont.)
31.3.2000 30.6.2000 30.9.2000 31.12.2000 31.3.2001 30.6.2001 30.9.2001 31.12.2001
--------- --------- --------- ---------- --------- --------- --------- ----------
Current assets
Cash and cash equivalents $ 64,245 $ 25,754 $ 35,278 $ 41,617 $ 39,269 $ 42,368 $ 31,181 $ 6,717
Short-term investments 21,000 26,218 32,164 39,550 44,132 22,967 21,546 52,785
Trade receivables, net 3,700 5,731 5,982 7,025 7,294 5,332 5,403 5,078
Other receivables and
prepaid expenses 1,620 2,021 1,279 1,051 1,128 876 1,122 1,259
Inventories 4,071 4,766 4,997 4,956 3,352 2,003 1,672 1,884
-------- -------- -------- -------- -------- -------- -------- --------
Total current assets 94,636 64,490 79,700 94,199 95,175 73,546 60,924 67,723
-------- -------- -------- -------- -------- -------- -------- --------
Long-term investments 7,096 43,278 29,660 15,897 10,310 26,490 35,831 26,326
-------- -------- -------- -------- -------- -------- -------- --------
Property and equipment, net 3,288 3,625 4,557 5,200 5,284 5,399 4,794 4,518
-------- -------- -------- -------- -------- -------- -------- --------
Deposit with insurance companies 554 654 834 1,055 1,082 1,239 1,244 1,200
-------- -------- -------- -------- -------- -------- -------- --------
Total assets 105,574 112,047 114,751 116,351 111,851 106,674 102,793 99,767
======== ======== ======== ======== ======== ======== ======== ========
Current liabilities
Current maturities of long-term
bank loans 63 63 55 46 38 38 26 19
Trade payables 2,432 1,073 989 3,716 2,012 1,531 1,574 765
Other payables and accrued
expenses 9,847 16,456 16,873 16,777 12,344 13,529 12,773 13,562
-------- -------- -------- -------- -------- -------- -------- --------
Total current liabilities 12,342 17,592 17,917 20,539 14,394 15,098 14,373 14,346
-------- -------- -------- -------- -------- -------- -------- --------
Long-term liabilities
Bank loans, net of current
maturities 52 33 25 19 13 - - -
Accrued severance pay 900 1,149 1,279 1,448 1,649 1,877 1,845 1,872
-------- -------- -------- -------- -------- -------- -------- --------
952 1,182 1,304 1,467 1,662 1,877 1,845 1,872
-------- -------- -------- -------- -------- -------- -------- --------
Total liabilities 13,294 18,774 19,221 22,006 16,056 16,975 16,218 16,218
-------- -------- -------- -------- -------- -------- -------- --------
Shareholders' equity
Ordinary shares of NIS 0.1 par value 147 147 154 165 167 176 174 182
Additional paid-in capital 103,036 103,151 103,576 103,849 103,402 103,688 103,832 104,209
Deferred compensation (1,106) (967) (795) (641) (554) (463) (381) (299)
Accumulated deficit (9,797) (9,058) (7,405) (9,028) (7,220) (11,025) (10,864) (10,640)
Less cost of treasury stock - - - - - (2,677) (6,186) (9,903)
-------- -------- -------- -------- -------- -------- -------- --------
Total shareholders' equity 92,280 93,273 95,530 94,345 95,795 89,699 86,575 83,549
-------- -------- -------- -------- -------- -------- -------- --------
Total $105,574 $112,047 $114,751 $116,351 $111,851 $106,674 $102,793 $ 99,767
======== ======== ======== ======== ======== ======== ======== ========
F-31
RADVISION LTD.
Exhibit Index
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 Form of 2000 Employee Stock Option Plan
*10.2 Key Employee Share Incentive Plan, as amended
*10.3 Consultant Option Plan, as amended
*10.4 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.
11 Statements re computation of Per Share Earnings.
21 Subsidiaries of RADVISION Ltd.
23 Consent of Luboshitz Kasierer, 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.
** Incorporated by reference to our Annual Report on Form 20-F for the
fiscal year ended December 31, 2000, filed with the Securities and
Exchange Commission.