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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2003
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____to ___
Commission file number: 000-29871
RADVISION LTD.
--------------
(Exact Name of Registrant as Specified in Its Charter)
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)
972-3-645-5220
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 [ ]
As of April 30, 2003 the Registrant had 20,152,045 Ordinary Shares, par value
NIS 0.1 per share, outstanding.
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 quarterly report on Form 6-K (in lieu
of Form 10-Q) and to file its annual reports on Form 20-F (in lieu of Form
10-K). However, RADVision Ltd. elects to file its interim reports on Forms 10-Q
and 8-K and to file its annual reports on Form 10-K.
Pursuant to Rule 3a12-3 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.
RADVISION LTD.
INDEX
Page
- --------------------------------------------------------------------------------
Part I - Financial Information:
Item 1. Condensed Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002........................................4
Condensed Consolidated Statements of Operations -
for the Three Months ended March 31, 2003 and 2002...........5
Condensed Consolidated Statements of Cash Flows -
for the Three Months ended March 31, 2003 and 2002...........6
Notes to Condensed Consolidated Financial Statements............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............11
Item 3. Quantitative and Qualitative Disclosure About Market Risk......17
Item 4. Controls and Procedures........................................18
Part II - Other Information:
Item 1. Legal Proceedings..............................................19
Item 2. Changes in Securities and Use of Proceeds......................19
Item 3. Defaults Upon Senior Securities................................20
Item 4. Submission of Matters to a Vote of Security Holders............20
Item 5. Other Information..............................................20
Item 6. Exhibits and Reports on Form 8-K...............................20
Signatures.....................................................21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
March 31, December
2003 31, 2002
------------- -------------
Unaudited Audited
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,758 $ 13,825
Short-term bank deposits 22,059 14,879
Short-term marketable securities 16,172 14,712
Trade receivables (net of allowance for doubtful
accounts of $1,593 and $1,620 as of March 31, 2003
and December 31, 2002, respectively) 5,317 9,505
Other receivables and prepaid expenses 2,938 2,836
Inventories 540 996
--- ---
Total current assets 75,784 56,753
------ ------
LONG-TERM ASSETS:
Long-term bank deposits 1,300 11,013
Long-term marketable securities 22,145 33,929
Severance pay fund 1,757 1,641
----- -----
Total long-term assets 25,202 46,583
------ ------
PROPERTY AND EQUIPMENT, NET 3,171 3,335
----- -----
Total assets $ 104,157 $ 106,671
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 897 $ 3,347
Deferred revenues 3,188 2,863
Other payables and accrued expenses 11,384 12,385
------ ------
Total current liabilities 15,469 18,595
------ ------
ACCRUED SEVERANCE PAY 3,215 3,061
----- -----
Total liabilities 18,684 21,656
------ ------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.1 par value:
Authorized - 25,000,000 shares as of March 31, 2003
and December 31, 2002; Issued - 20,152,045 shares as
of March 31, 2003 and December 31, 2002;
Outstanding - 18,422,755 shares as
of March 31, 2003 and 18,285,930 shares as of
December 31, 2002 187 187
Additional paid-in capital 104,601 104,586
Deferred stock compensation - (117)
Treasury stock, at cost (1,729,290 and 1,866,115 Ordinary shares
of NIS 0.1 par value as of March 31, 2003 and December 31,
2002, respectively) (10,895) (11,757)
Accumulated deficit (8,420) (7,884)
------ ------
Total shareholders' equity 85,473 85,015
------ ------
Total liabilities and shareholders' equity $ 104,157 $ 106,671
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
4
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
U.S. dollars in thousands, except per share data
Three months ended
March 31,
--------------------------------
2003 2002
--------------- ---------------
Unaudited
--------------------------------
Revenues $ 11,053 $ 11,558
Cost of revenues 2,360 2,559
--------------- ---------------
Gross profit 8,693 8,999
--------------- ---------------
Operating costs and expenses:
Research and development, net 3,564 4,041
Marketing and selling 4,732 4,469
General and administrative 948 969
--------------- ---------------
Total operating costs and expenses 9,244 9,479
-----
--------------- ---------------
Operating loss 551 480
Financial income, net 566 752
--------------- ---------------
Net income $ 15 $ 272
=============== ===============
Basic net earnings per Ordinary share $ - $ 0.01
=============== ===============
Diluted earnings per Ordinary share $ - $ 0.01
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
5
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. dollars in thousands
Three months ended
March 31,
-------------------------------
2003 2002
-------------- --------------
Unaudited
-------------------------------
Cash flows from operating activities:
-------------------------------------
Net income $ 15 $ 272
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 612 685
Accrued interest and amortization of premium on held-to-maturity
marketable securities 453 -
Severance pay, net 38 (104)
Amortization of deferred stock-based compensation 117 45
Decrease (increase) in trade receivables, net 4,188 (55)
Decrease (increase) in other receivables and prepaid expenses 67 (613)
Decrease in inventories 456 716
Decrease in trade payables (2,450) (687)
Increase in deferred revenues 325 -
Increase (decrease) in other payables and accrued expenses (1,001) 899
-------------- --------------
Net cash provided by operating activities 2,820 1,158
-------------- --------------
Cash flows from investing activities:
-------------------------------------
Decrease in short-term investments - 17,742
Increase in long-term investments - (17,159)
Proceeds from redemption of held-to-maturity marketable securities 14,586 -
Purchase of held-to-maturity marketable securities (4,715) -
Proceeds from withdrawal of bank deposits 2,533 -
Purchase of property and equipment (448) (297)
Proceeds from sale of property and equipment - -
-------------- --------------
Net cash provided by investing activities 11,956 286
-------------- --------------
Cash flows from financing activities:
-------------------------------------
Issuance of share capital - 5
Purchase of Treasury stock - (1,854)
Issuance of Common stock and Treasury stock for cash upon exercise
of options 142 -
Exercise of options by employees 15 -
Repayment of long-term loans - (7)
-------------- --------------
Net cash provided by (used in) financing activities 157 (1,856)
-------------- --------------
Increase (decrease) in cash and cash equivalents 14,933 (412)
Cash and cash equivalents at the beginning of the period 13,825 6,717
-------------- --------------
Cash and cash equivalents at the end of the period $ 28,758 $ 6,305
============== ==============
Non-cash transactions
---------------------
Issuance of Common stock upon sale of Treasury stock $ 169 $ -
============== ==============
Loss on issuance of Common stock upon sale of Treasury stock $ 551 $ -
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
6
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 Company's products and technology are used by its customers to
develop systems that enable enterprises and service providers to use
packet networks for real-time IP ("Internet Protocol")
communications.
Commencing in 2001, the Company operates under two reportable
segments, based on its restructured internal organization,
management of operations and performance evaluation. These segments
are: 1) the "networking" business unit or NBU, which focuses on a
networking product and is responsible for developing networking
products for IP-centric voice, video and data conferencing services;
and 2) the "technology" business unit or TBU, which focuses on
creating developer toolkits for the underlying IP communication
protocols and testing tools needed for real-time voice and video
over IP.
The Company has four wholly-owned subsidiaries: Radvision Inc., in
the United States, Radvision B.V., in the Netherlands, Radvision HK
in Hong Kong, and Radvision U.K. in the United Kingdom. The
subsidiaries are primarily engaged in the sale and marketing of the
Company's products and technology.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2002 are applied
consistently in these financial statements.
a. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. For further information, refer to the consolidated financial
statements as of December 31, 2002.
c. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"("APB
No. 25") and FASB No. Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No.
44") in accounting for its employee stock option plans. Under
APB No. 25, when the exercise price of the Company's stock
options is less than the market price of the underlying shares
on the date of grant, compensation expense is recognized.
7
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
- --------------------------------------------------------------------------------
Under Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation ("SFAS No. 123"), pro
forma information regarding net income and net earnings per
share is required, and has been determined as if the Company
had accounted for its employee stock options under the fair
value method of SFAS No. 123. The fair value for these options
is amortized over their vesting period and estimated at the
date of grant using a Black - Scholes Option Valuation Model
with the following weighted-average assumptions for the three
months ended March 31, 2003 and 2002:
Three months ended
March 31,
----------------------------
2003 2002
------------ -------------
Unaudited
----------------------------
Risk free interest 2% 1.5%
Dividend yields 0% 0%
Volatility 0.44 0.512
Expected life 4 4
Pro forma information under SFAS No. 123:
Net income as reported $ 15 $ 272
=========== ============
Add: stock based compensation
expense determined under APB 25 $ 22 $ 48
=========== ============
Deduct: stock-based compensation expense
determined under fair value method for all awards $ 867 $ 1,298
=========== ============
Pro forma net loss $ (830) $ (978)
=========== ============
Basic and diluted earnings per share, as reported $ - $ 0.01
=========== ============
Pro forma basic and diluted net loss per share $ (0.04) $ (0.05)
=========== ============
NOTE 3:- UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 2003 are not necessarily indicative of the results of
operations that may be expected for the year ended December 31,
2003.
8
NOTE 4:- INVENTORIES
- --------------------------------------------------------------------------------
March 31, December 31,
2003 2002
--------------- --------------
Unaudited Audited
--------------- --------------
Raw materials, parts and supplies $ 162 $ 194
Work in progress 286 720
Finished products 92 82
--------------- --------------
$ 540 $ 996
=============== ==============
NOTE 5:- OTHER PAYABLES AND ACCRUED EXPENSES
- --------------------------------------------------------------------------------
Employees and employee accruals $ 1,686 $ 1,617
Accrued expenses 9,698 10,768
--------------- --------------
$ 11,384 $ 12,385
=============== ==============
NOTE 6:- SEGMENTS AND CUSTOMER INFORMATION
- --------------------------------------------------------------------------------
Three months ended
March 31,
-----------------------------
2003 2002
------------- -------------
Unaudited
-----------------------------
Revenues:
Product sales $ 7,686 $ 8,340
Software sales 3,367 3,218
------------- -------------
Total revenues $ 11,053 $ 11,558
----- ============= =============
Cost of revenues:
Product sales $ 2,353 $ 2,527
Software sales 7 32
------------- -------------
Total cost of revenues $ 2,360 $ 2,559
----- ============= =============
9
NOTE 7:- EARNINGS PER SHARE
- --------------------------------------------------------------------------------
The following table sets forth the calculation of basic and
diluted earnings per share:
Three months ended
March 31,
-----------------------------
2003 2002
------------- -------------
Unaudited
-----------------------------
Numerator:
Net income $ 15 $ 272
============= =============
Diluted earnings per share - income $ 15 $ 272
============= =============
Number of shares:
Denominator:
Denominator for basic earnings per share -
weighted average of Ordinary shares 18,331,538 18,168,617
Effect of dilutive securities:
Employee stock options and unvested
restricted shares 993,035 1,232,332
------------- -------------
19,324,573 19,400,949
============= =============
NOTE 8:- SIGNIFICANT EVENTS
- --------------------------------------------------------------------------------
During the first quarter of 2003, certain of the Company's employees
exercised their options to purchase the Company's shares, which were
included as Treasury stock. As a result of this transaction, the
Company has recorded a loss in the amount of approximately $ 551 as
an addition to accumulated deficit.
- - - - - - - - - - - -
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected our financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements. The discussion and analysis which follows may contain
trend analysis and other forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 which reflect our current
views with respect to future events and financial results. These include
statements regarding our earnings, projected growth and forecasts, and similar
matters that are not historical facts. We remind shareholders that
forward-looking statements are merely predictions and therefore are inherently
subject to uncertainties and other factors that could cause the future results
to differ materially from those described in the forward-looking statements.
These uncertainties and other factors include, but are not limited to, the
uncertainties and factors included in the "Risk Factors" contained in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2002.
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. In 2000, we established a wholly owned subsidiary in the Hong
Kong, RADVision HK Ltd, which conducts our marketing activities in Asia Pacific.
In 2001, we established a wholly owned subsidiary in the United Kingdom,
RADVision (UK) Ltd, which conducts our marketing activities in England.
Critical Accounting Policies
We have identified the following policies as critical to the
understanding of our financial statements. The preparation of our financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of sales and expenses during the reporting periods. Areas where significant
judgments are made include, but are not limited to, inventory valuation and
revenue recognition. Actual results could differ materially from these
estimates. Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
Revenues and Revenue Recognition. 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 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
11
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 and the Middle East and the Asian
Pacific region.
Revenues from sales of products and technology are recognized in
accordance with Statement of Position (SOP) 97-2, as amended by SOP 98-9, 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.
Revenues from products sales are recognized in accordance with Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
No. 101") when the following criteria are met: persuasive evidence of an
arrangement exists, delivery of the product has occurred, the fee is fixed or
determinable and collectibility is probable. We have no obligation to customers
after the date on which products are delivered. Revenues from maintenance and
updates are recognized over the term of agreement.
All of our revenues are generated in U.S. dollars or are linked to the
dollar and a majority of our expenses are incurred in U.S. dollars.
Consequently, we use the dollar as our functional currency. Transactions and
balances in other currencies are remeasured into dollars according to the
principles in Financial Accounting Standards Board Statement No. 52. Gains and
losses arising from remeasurment are reflected in our statements of operations
as financial income or expenses as appropriate.
Inventories. Inventories are stated at the lower of cost or market. Cost
is determined by the moving average method, inventories write-offs and
write-down provisions are provided to cover risks arising from slow-moving items
or technological obsolescence.
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
12
have higher gross margins than our revenues from the sale of our networking
products and we offer greater discounts to our high volume OEM customers. As the
relative proportion of our revenues from our networking products increases as a
percentage of our total revenues and we generate a higher percentage of our
revenues from sales to our high volume OEM customers, our gross margins will
decline.
Research and development expense. 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.
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. 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.
Other operating 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 remeasurment of monetary balance sheet items denominated in non-dollar
currencies into dollars and interest expense incurred on outstanding debt.
Taxes. Israeli companies are generally subject to income tax at the
corporate tax rate of 36%. However, several of our investment programs at our
manufacturing facility in Tel Aviv have been granted approved enterprise status
and, therefore, we are eligible for 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.
13
Results of Operations
The following table presents, as a percentage of total revenues,
condensed statements of operations data for the periods indicated:
Three months
ended March 31,
---------------
2003 2002
---- ----
% %
Revenues
Networking products................................. 70.0 72.1
Technology products................................. 30.0 27.9
Total revenues...................................... 100.0 100.0
Cost of revenues
Networking products................................. 21.3 21.8
Technology products................................. 0.1 0.3
Total cost of revenues.............................. 21.4 22.1
Gross profit........................................... 78.6 77.9
Operating expenses
Research and development............................ 32.2 35.0
Marketing and selling............................... 42.8 38.7
General and administrative.......................... 8.6 8.4
Total operating expenses............................... 83.6 82.1
Operating income loss.................................. (5.0) (4.2)
Financial income....................................... 5.1 6.5
Net income............................................. 0.1 2.3
Three Months Ended March 31, 2003 Compared with Three Months
Ended March 31, 2002
- --------------------------------------------------------------------------------
Revenues. Our revenues decreased from $11.6 million for the three months
ended March 31, 2002 to $11.1 million for the three months ended March 31, 2003,
a decrease of approximately $500,000, or 4.3 %. This decrease was due to a
$654,000 decrease in sales of our networking products, which was offset in part
by a $149,000 increase in sales of our technology products. The decrease in
networking product sales was principally attributable to lower than expected
sales in the United States.
Revenues from networking products decreased from $8.3 million for the
three months ended March 31, 2002 to $7.7 million for the three months ended
March 31, 2003, a decrease of $654,000 or 7.8 %. Revenues from sales of our
ViaIP and OnLan product lines decreased from $5.8 million and $2.5 million in
the three months ended March 31, 2002 to $5.3 million and $1.1 million,
respectively, in the three months ended March 31, 2003. This decline was offset
in great measure by $1.3 million of other product sales.
Revenues from technology products increased from $3.2 million for the
three months ended March 31, 2002 to $3.4 million for the three months ended
March 31, 2003. Revenues from licenses and royalties increased from $1.3 million
and $361,000 in the three months ended March 31, 2002 to $1.3 million and
$563,000, respectively, in the three months ended March 31, 2003. Maintenance
revenues declined from $1.6 million in the three months ended March 31, 2002
period to $1.3 million in the three months ended March 31, 2003, which decline
was offset
14
in part by the initiation of our offering professional services with respect to
research and development, which activity accounted for $231,000 in revenues in
the three months ended March 31,2003.
Revenues from sales to customers in the United States decreased from
$7.3 million, or 62.9% of revenues, for the three months ended March 31, 2002 to
$4.4 million, or 39.6% of revenues, for the three months ended March 31, 2003, a
decrease of $2.9 million, or 39.7 %.
Revenues from sales to customers in Europe and the Middle East increased
from $2.2 million for the three month period ended March 31, 2002, or 19.8% of
revenues, to $3.7 million, or 33.3% of revenues, for the three months ended
March 31, 2003. Revenues from sales to customers in the Asian Pacific region
increased from $2.0 million, or 17.2% of revenues, for the three months ended
March 31, 2002 to $3.0 million, or 27.0% of revenues, for the three months ended
March 31, 2003, an increase of $1.0 million or 50%.
Cost of Revenues. Cost of revenues decreased from $2.6 million for the
three month period ended March 31, 2002 to $2.4 million for the three months
ended March 31, 2003, a decrease of $199,000, or 7.7%. Gross profit as a
percentage of revenues increased slightly from 77.9% for the three months ended
March 31, 2002 to 78.6% for the three months ended March 31, 2003, due to the
increased proportion of technology product sales that have higher profit
margins.
Research and Development. Research and development expenses decreased
from $4.0 million for the three months ended March 31, 2002 to $3.6 million for
the three months ended March 31, 2003, a decrease of $477,000 or 11.8%. This
decrease was primarily attributable to a decrease in overhead and travel
expenses.
Marketing and Selling. Marketing and selling expenses increased from
$4.5 million for the three months ended March 31, 2002 to $4.7 million for the
three months ended March 31, 2003, an increase of $263,000 or 5.9%. Marketing
and selling expenses as a percentage of revenues increased from 38.7% for the
three months ended March 31, 2002 to 42.8% for the three months ended March 31,
2003.
General and Administrative. General and administrative expenses
decreased from $969,000 for the three months ended March 31, 2002 to $948,000
for the three months ended March 31, 2003, a decrease of $21,000 or 2.2%. This
decrease was primarily attributable to a decrease in personnel expenses. General
and administrative expenses as a percentage of revenues was 8.4% for the three
months ended March 31, 2002 and 8.6% for the three months ended March 31, 2003.
Operating Loss. We incurred an operating loss of $480,000 for the three
months ended March 31, 2002 compared to an operating loss of $551,000 for the
three months ended March 31, 2003. The increase in our operating loss was
primarily due to the decrease in revenues.
Financial Income. We had financial income of $752,000 for the three
months ended March 31, 2002 compared to $566,000 for the three months ended
March 31, 2003. This income was principally derived from the investment of the
proceeds of our March 2000 initial public
15
offering and private placement. Our financial income declined principally
as a result of lower prevailing interest rates.
Net Income. As a result of the foregoing our net income for the three
months ended March 31, 2003 declined to $15,000 compared with net income of
$272,000 for the three months ended March 31, 2002.
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. We received net proceeds of $89.2
million from the public offering and private placement. As of March 31, 2003, we
had approximately $28.8 million in cash and cash equivalents, $22.2 million in
short term investments and our working capital was approximately $60.3 million.
Taking into account long-term liquid investments, we had $90.4 million in cash
and liquid investments as of March 31, 2003.
Net cash generated from operating activities was approximately $2.3
million for the three months ended March 31, 2003. This amount was primarily
attributable to a $4.2 million decrease in trade receivables, , depreciation
expenses of $612,000 and a $456,000 decrease in inventories. These increases in
cash generated by our operating activities were offset in part by a $2.5 million
decrease in trade payables and a $1.0 million decrease in other payables and
accrued expenses.
The decrease in inventories for the three months ended March 31, 2003
was primarily due to our efforts to manage our inventory to correspond with our
revenues and our efforts to utilize subcontractors. The $4.2 million decrease in
accounts receivable at March 31, 2003 compared to year end was primarily the
result of the payments we received under the FastWeb contract.
Net cash provided by investing activities was approximately $12.0
million for the three months ended March 31, 2003. During the three months ended
March 31, 2003, $448,000 of cash used in investing activities was for purchases
of property and equipment.
Net cash received from financing activities was $157,000 for the three
months ended March 31, 2003.
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. We
anticipate that our cash resources will be used primarily to fund our operating
activities, as well as for capital expenditures. We do not believe that our
capital expenditures and lease commitments will increase for the foreseeable
future due to the anticipated slowdown in the growth of our operations,
infrastructure and personnel. Nevertheless, we may establish additional
operations as we expand globally.
16
On February 28, 2001, we announced that our board of directors had
authorized the repurchase of up to 10% of our outstanding shares in open market
transactions from time to time at prevailing market prices. We completed the
share repurchase program in the first fiscal quarter of 2002, having purchased
1,866,115 ordinary shares at a total cost of $11.8 million, or an average price
of $6.30 per share. At the beginning of 2003, we began to reissue the
repurchased shares upon exercise of employee stock options.
On August 28, 2002, we announced that our board of directors had
authorized the repurchase of up to $10 million or 2 million of our ordinary
shares in the open market from time to time at prevailing market prices. As of
March 31, 2003, we had not initiated this repurchase program. During April 2003,
we started to repurchase our ordinary shares based on the instruction of our
board of directors.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Foreign Exchange
Our international business is subject to risks typical of an
international business, including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors.
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.
Interest Rates
We invest our cash in a variety of financial instruments, including time
deposits, cash deposits, U.S. federal agency securities and corporate bonds with
an average credit rating of A2. Despite the high quality of our investments,
fixed rate securities may have their fair market value adversely impacted due to
a rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates, or we may suffer losses in principal if forced to sell securities that
have seen a decline in market value due to changes in interest rates.
We account for our investment instruments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS No. 115"). All of the cash equivalents and
short-term investments are treated as available-for-sale under SFAS No. 115.
The weighted-average interest rate on investment securities held at
March 31, 2003 was approximately 3.02% as compared to 3.25% at December 31,
2002. The fair market value of cash equivalents and liquid investments held at
March 31, 2003 was $90.4 million.
17
Item 4. Controls and Procedures
-----------------------
Within the 90-day period prior to the filing of this report, the Company
carried out an evaluation of the effectiveness of the Company's disclosure
controls and procedures (as defined by Rule 13a-14(c) of the Securities Exchange
Act of 1934) under the supervision and with the participation of the Company's
chief executive officer and chief financial officer. Based on and as of the date
of such evaluation, the aforementioned officers have concluded that the
Company's disclosure controls and procedures were effective.
The Company also maintains a system of internal accounting controls that
is designed to provide assurance that its assets are safeguarded and that
transactions are executed in accordance with management's authorization and
properly recorded. This system is continually reviewed and is augmented by
written policies and procedures, the careful selection and training of qualified
personnel and an internal audit program to monitor its effectiveness. During the
quarter ended March 31, 2003, there were no significant changes to this system
of internal controls or in other factors that could significantly affect those
controls.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
We are not involved in any legal proceedings that are material to our
business or financial condition.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Use of Proceeds. The following information required by Item 701(f) of
Regulation S-K relates to our initial public offering of ordinary shares of our
company on March 14, 2000. The following table sets forth, with respect to the
ordinary shares registered, the amount of securities registered, the aggregate
offering price of amount registered, the amount sold and the aggregate offering
price of the amount sold, for both the account of our company and the account of
any selling security holder.
For the account of
For the account the selling
of the company shareholder
-------------- -----------
Number of ordinary shares registered .. 4,370,000 N/A
Aggregate offering price of shares
registered ......................... $87,400,000 N/A
Number of ordinary shares sold ........ 4,370,000 N/A
Aggregate offering price of shares sold $87,400,000 N/A
The following table sets forth the expenses incurred by us in connection
with our public offering during the period commencing the effective date of the
Registration Statement and ending March 31, 2003. None of such expenses were
paid directly or indirectly to directors, officers, persons owning 10% or more
of any class of equity securities of our company or to our affiliates.
Direct or indirect payments to
persons other than affiliated
persons
-------
Underwriting discounts and commissions ...... $6,118,000
Finders' fees ............................... 550,000
Expenses paid to or for underwriters......... 41,290
Other expenses .............................. 2,241,113
---------
Total expenses .............................. $8,950,403
=========
The net public offering proceeds to us, after deducting the total
expenses (set forth in the table above), were $78,449,597.
The following table sets forth the amount of net public offering
proceeds used by us for the purposes listed below. None of such payments were
paid directly or indirectly to directors, officers, persons owning 10% or more
of any class of our equity securities or to our affiliates.
19
Direct or indirect payments
to persons other than to
Purpose affiliated persons
- ------------------------------------------------ ---------------------------
Acquisition of other companies and
business(es) .............................. N/A
Construction of plant, building and facilities N/A
Purchase and installation of machinery
and equipment ............................ N/A
Purchase of real estate .................... N/A
Repayment of indebtedness .................. N/A
Working capital ............................ $78,450,000
Temporary investments ...................... N/A
Other purposes ............................. N/A
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
99.1 Certification by Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.4 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K filed during the last quarter of the period covered by
this report:
An 8-K bearing the cover date of January 29, 2003 with respect to a
press release regarding the Registrant's earning for the three months and year
ended December 31, 2002 was filed on January 29, 2003.
20
SIGNATURES
Pursuant to the requirements 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.
RADVISION LTD.
(Registrant)
/s/ Gad Tamari
--------------
Gad Tamari
Chief Executive Officer
/s/ David Seligman
------------------
David Seligman
Chief Financial Officer
Date: May 12, 2003
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