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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 September 30, 2004
[ ] 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 Raul 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 November 5, 2004 the Registrant had 19,995,775 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. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30,
2004 and December 31, 2003 (audited)...............................4
Condensed Consolidated Statements of Operations -
for the Three and Nine Months ended September 30, 2004 and 2003....5
Condensed Consolidated Statements of Cash Flows -
for the Three and Nine Months ended September 30, 2004 and 2003....6
Notes to Condensed Consolidated Financial Statements...................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............22
Item 4. Controls and Procedures...............................................22
Part II - Other Information:
Item 1. Legal Proceedings.....................................................24
Item 2. Changes in Securities and Use of Proceeds.............................24
Item 3. Defaults Upon Senior Securities.......................................25
Item 4. Submission of Matters to a Vote of Security Holders...................25
Item 5. Other Information.....................................................25
Item 6. Exhibits and Reports on Form 8-K......................................25
Signatures............................................................26
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
September 30, December 31,
2004 2003
------------- ------------
Unaudited
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,892 $ 16,433
Short-term bank deposits 10,775 13,574
Short-term marketable securities 21,052 21,403
Trade receivables (net of allowance for doubtful accounts of
$ 1,276 and $ 1,704 at September 30, 2004 and December 31,
2003, respectively) 10,609 8,685
Other accounts receivable and prepaid expenses 3,296 2,704
Inventories 1,127 969
--------- ---------
Total current assets 67,751 63,768
- ----- --------- ---------
LONG-TERM ASSETS:
Long-term bank deposits 9,316 4,004
Long-term marketable securities 43,351 44,497
Severance pay fund 2,391 2,171
--------- ---------
Total long-term assets 55,058 50,672
- ----- --------- ---------
PROPERTY AND EQUIPMENT, NET 2,658 2,572
--------- ---------
OTHER ASSETS, NET 981 -
--------- ---------
Total assets $ 126,448 $ 117,012
- ----- ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 2,294 $ 1,270
Deferred revenues 7,691 6,047
Accrued expenses and other accounts payable 12,949 13,101
--------- ---------
Total current liabilities 22,934 20,418
- ----- --------- ---------
ACCRUED SEVERANCE PAY 3,454 3,353
--------- ---------
Total liabilities 26,388 23,771
- ----- --------- ---------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.1 par value:
Authorized - 25,000,000 shares at September
30, 2004 and December 31, 2003;
Issued - 20,152,045 shares at September 30,
2004 and December 31, 2003;
Outstanding - 19,909,851 shares at September 30,
2004 and 19,344,849 shares at
December 31, 2003 187 187
Additional paid-in capital 104,663 104,663
Treasury stock, at cost (242,194 and
807,196 Ordinary shares
of NIS 0.1 par value at September 30,
2004 and December 31, 2003, respectively) (1,517) (5,075)
Accumulated deficit (3,273) (6,534)
--------- ---------
Total shareholders' equity 100,060 93,241
- ----- --------- ---------
Total liabilities and shareholders' equity $ 126,448 $ 117,012
- ----- ========= =========
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
Nine months ended Three months ended
September 30, September 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------- ------------- ------------
Unaudited
--------------------------------------------------------
Revenues $ 46,674 $ 35,738 $ 16,708 $ 13,080
Cost of revenues 9,921 7,891 3,426 2,932
------------ ------------- ------------- ------------
Gross profit 36,753 27,847 13,282 10,148
------------ ------------- ------------- ------------
Operating costs and expenses:
Research and development 12,615 10,853 4,553 3,693
Marketing and selling 18,269 14,607 6,305 5,023
General and administrative 3,663 2,944 1,213 1,020
Restructuring income 1,061 - - -
In-process research and development
write-off 330 - 330 -
------------ ------------- ------------- ------------
Total operating costs and expenses 33,816 28,404 12,401 9,736
----- ------------ ------------- ------------- ------------
Operating income (loss) 2,937 (557) 881 412
Financial income, net 1,344 1,626 500 500
------------ ------------- ------------- ------------
Net income $ 4,281 $ 1,069 $ 1,381 $ 912
============ ============= ============= ============
Basic net earnings per Ordinary share $ 0.22 $ 0.06 $ 0.07 $ 0.05
============ ============= ============= ============
Diluted net earnings per Ordinary share $ 0.20 $ 0.05 $ 0.07 $ 0.05
============ ============= ============= ============
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
Nine months ended
September 30,
---------------------------
2004 2003
------------ -------------
Unaudited
---------------------------
Cash flows from operating activities:
-------------------------------------
Net income $ 4,281 $ 1,069
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,641 1,729
In process research and development write-off 330 -
Loss (gain) on sale of property and equipment (3) 2
Accrued interest and amortization of premium on held-to-maturity
marketable securities and bank deposits 1,236 (644)
Amortization of deferred stock-based compensation - 117
Decrease (increase) in trade receivables, net (1,924) 3,663
Decrease (increase) in other accounts receivable and prepaid
expenses (665) 379
Decrease (increase) in inventories (158) 39
Increase (decrease) in trade payables 1,024 (2,013)
Increase in deferred revenues 1,644 230
Decrease in severance pay, net (119) (17)
Increase (decrease) in accrued expenses and other accounts payable (152) 246
------------ -------------
Net cash provided by operating activities 7,135 4,800
------------ -------------
Cash flows from investing activities:
-------------------------------------
Proceeds from redemption of held-to-maturity marketable securities 28,415 39,521
Purchase of held-to-maturity marketable securities (27,885) (50,300)
Proceeds from withdrawal of bank deposits 17,120 13,659
Purchase of bank deposits (19,902) (4,690)
Purchase of property and equipment (1,728) (1,154)
Proceeds from sale of property and equipment 13 6
Purchase of other assets (1,320) -
------------ -------------
Net cash used in investing activities (5,287) (2,958)
------------ -------------
Cash flows from financing activities:
-------------------------------------
Issuance of Ordinary shares and treasury stock for cash upon
exercise of options 2,611 1,781
Exercise of options by employees - 15
------------ -------------
Net cash provided by financing activities 2,611 1,796
------------ -------------
Increase in cash and cash equivalents 4,459 3,638
Cash and cash equivalents at beginning of period 16,433 13,825
------------ -------------
Cash and cash equivalents at end of period $ 20,892 $ 17,463
============ =============
Supplemental disclosure of non-cash flow
from investing and financing activities:
----------------------------------------
Issuance of Ordinary shares upon sale of treasury stock $ (73) $ 55
============ =============
Loss on issuance of Ordinary shares upon sale of treasury stock $ 1,020 $ 1,679
============ =============
The accompanying notes are an integral part of the consolidated financial
statements.
6
NOTE 1:- GENERAL
a. 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 Internet Protocol ("IP")
communications.
The Company operates under two reportable segments: 1) the
"networking" business unit ("NBU"), which focuses on networking
solutions and products and is responsible for developing
networking products for IP-centric voice, video and data
conferencing services; and 2) the "technology" business unit
("TBU"), which focuses on creating developer toolkits for the
underlying IP communication protocols and testing tools needed
for real-time voice and video over IP.
The Company has five wholly-owned subsidiaries: Radvision Inc. in
the United States, Radvision B.V. in the Netherlands, Radvision
HK in Hong Kong, Radvision U.K. in the United Kingdom and
Radvision Communication Development (Beijing) Co. Ltd. in China.
Other than Radvision B.V., the subsidiaries are primarily engaged
in the sale, marketing and service of the Company's products and
technology.
b. Acquisition of assets of VisionNex Technologies Inc.:
----------------------------------------------------
In May 2004, the Company entered into an asset purchase agreement
with VisionNex Technologies Inc. ("VisionNex"), a company
established under the laws of China, pursuant to which Radvision
Ltd. acquired VisionNex's technologies, intangible assets and
intellectual property.
The assets purchased by the Company consisted of intellectual
property, know-how and key development assets, which were used by
VisionNex in the conduct of its business. The consideration for
the assets purchased from VisionNex amounted to $ 1,320, out of
which $ 330 was written off and recorded as in-process research
and development. In addition, the Company hired certain former
employees of VisionNex.
In July 2004, the Company incorporated a wholly-owned subsidiary
under the laws of China, Radvision Communication Development
(Beijing) Co. Ltd, for the purpose of opening a research and
development center in China.
7
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2003 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, 2003.
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.
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.
8
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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 nine months and three months ended September
30, 2004 and 2003:
Nine months ended Three months ended
September 30, September 30,
------------------------ ------------------------
2004 2003 2004 2003
----------- ---------- ----------- ----------
Unaudited
---------------------------------------------------
Risk free interest 3.38% 1% 3.38% 1%
Dividend yields 0% 0% 0% 0%
Volatility 0.424 0.776 0.424 0.776
Expected life (years) 4 4 4 4
Pro forma information under
SFAS No. 123:
Net income as reported $ 4,281 $ 1,069 $ 1,381 $ 912
Add - stock based
compensation expense
determined under APB 25 - 117 - -
Less - stock-based
compensation expense
determined under fair
value method for all awards 2,578 2,667 846 937
----------- ---------- ----------- ----------
Pro forma net income (loss) $ 1,703 $(1,481) $ 535 $ (25)
=========== ========== =========== ==========
Basic net earnings per
share, as reported $ 0.22 $ 0.06 $ 0.07 $ 0.05
=========== ========== =========== ==========
Diluted net earnings per
share, as reported $ 0.20 $ 0.05 $ 0.07 $ 0.05
=========== ========== =========== ==========
Pro forma basic net earnings
(loss) per share $ 0.09 $ (0.08) $ 0.03 $ (0.001)
=========== ========== =========== ==========
Pro forma diluted net
earnings (loss) per share $ 0.08 $ (0.08) $ 0.03 $(0.001)
=========== ========== =========== ==========
9
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
d. New Accounting Pronouncements:
In March 2004, the Financial Accounting Standards Board approved the
consensus reached on the Emerging Issues Task Force (EITF) Issue No.
03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" ("EITF 03-1"). The objective of
this Issue is to provide guidance for identifying impaired
investments. EITF 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired.
The accounting provisions of EITF 03-1 are effective for all reporting
periods beginning after June 15, 2004, while the disclosure
requirements are effective only for annual periods ending after June
15, 2004. The Company has evaluated the impact of the adoption of EITF
03-1 and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
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 nine months ended September
30, 2004, are not necessarily indicative of the results of operations
that may be expected for the year ending December 31, 2004.
NOTE 4:- INVENTORIES
September 30, December 31,
2004 2003
------------- ------------
Unaudited
-------------
Raw materials $ 412 $ 361
Work in progress 621 490
Finished products 94 118
------------- ------------
$ 1,127 $ 969
============= ============
NOTE 5:- ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
Employees and employee related accruals $ 2,626 $ 2,415
Accrued expenses 10,323 10,686
------------- ------------
$ 12,949 $ 13,101
============= ============
10
NOTE 6:- RESTRUCTURING INCOME
In January 2001, the Company entered into an agreement with related
parties to lease approximately 24,000 square feet of office space in
Paramus, New Jersey for a period of 5 years, which space the Company
subsequently surrendered. The parties had a dispute with respect to
the extent of damages caused by this action. In December 2003, the
parties proceeded to binding arbitration. The presiding arbitrator
issued his final ruling on February 12, 2004, stating the amount owed
by the Company was $ 400. The Company recorded $ 1,061 as
restructuring income, representing the surplus of its accruals in
former periods.
NOTE 7:- SIGNIFICANT EVENTS
a. During the nine months ended September 30, 2004, some of the
Company's employees exercised their options to purchase the
Company's shares. The shares issued upon exercise were reissued
from Treasury stock. As a result of these transactions, the
Company recorded a loss in the amount of approximately $ 1,020 as
an addition to accumulated deficit.
b. During the third quarter of 2004, the Company reached an
agreement with the Israeli Tax authorities in regards of the
final tax assessments for the years ended December 31, 1999,
2000, 2001 and 2002. According to the agreement, the Company's
carryforward tax losses was reduced by $ 15,082 and amounted to
approximately $ 11,000 as of December 31, 2003.
NOTE 8:- SEGMENTS AND CUSTOMER INFORMATION
Nine months ended Three months ended
September 30, September 30,
---------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------- ------------ ------------
Unaudited
---------------------------------------------------------
Revenues:
Product sales $ 32,838 $ 26,101 $ 11,374 $ 9,862
Software sales 13,836 9,637 5,334 3,218
------------- ------------- ------------ ------------
Total revenues $ 46,674 $ 35,738 $ 16,708 $ 13,080
============= ============= ============ ============
Cost of revenues:
Product sales $ 8,957 $ 7,528 $ 3,053 $ 2,745
Software sales 964 363 373 187
------------- ------------- ------------ ------------
Total cost of revenues $ 9,921 $ 7,891 $ 3,426 $ 2,932
============= ============= ============ ============
11
NOTE 9:- EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share:
Nine months ended Three months ended
September 30, September 30,
---------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------- ------------ ------------
Unaudited
---------------------------------------------------------
Numerator:
Net income $ 4,281 $ 1,069 $ 1,381 $ 912
============ ============= ============= ============
Number of shares:
Denominator:
Denominator for basic
earnings per share -
weighted average of
Ordinary shares 19,682,936 18,516,076 19,853,872 18,743,188
Effect of dilutive
securities:
Employee stock options and
unvested restricted shares 1,689,127 1,002,611 1,295,129 1,269,517
------------ ------------- ------------- ------------
21,372,063 19,518,687 21,149,001 20,012,705
============ ============= ============= ============
- - - - - - - - - - - -
12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
--------------------------------------------------
This information should be read in conjunction with the condensed consolidated
financial statements and notes included in Item 1 of Part I of this Quarterly
Report and the audited financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2003 contained in our 2003 Annual Report on Form 10-K.
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.
Overview
We are the industry's leading provider of high quality, scalable and easy-to-use
products and technologies for videoconferencing, video telephony, and the
development of converged voice, video and data over IP and 3G networks. We have
approximately 450 customers worldwide including Alcatel, Cisco, FastWeb,
NTT/DoCoMo, Philips, Panasonic, Samsung, Shanghai Bell, Siemens, Sony and
Tandberg. Hundreds of thousands of end-users around the world today communicate
over a wide variety of networks using products and solutions based on or built
around our multimedia communication platforms and software development
solutions.
In the beginning of 2001, we created two separate business units corresponding
to our two product lines to enable our product development and product marketing
teams to respond quickly to evolving market needs with new product
introductions.
Our Networking Business Unit, or NBU, offers one of the broadest and most
complete set of multimedia communication and videoconferencing network solutions
for IP, ISDN, SIP and 3G-based networks, supporting most end points in the
industry today. These products are sold primarily to resellers and OEMs who use
this infrastructure to develop and install advanced IP and ISDN-based
communication systems for enterprise customers. The NBU also provides service
providers, both 3G wireless and wireline, with integrated solutions that enable
the delivery of converged IP-based multimedia streaming and video telephony
applications to corporate customers as a managed service, residential broadband
customers, and 3G subscribers worldwide. The Company is in the process of
separating the NBU into two separate business units. The Enterprise Business
Unit will focus on the sale of multimedia communication and videoconferencing
network solutions for enterprise customers, including desktop applications. The
Service Providers Business Unit will provide products and solutions for service
providers, both 3G wireless and wireline, to allow these customers to provide
high scale, large capacity multimedia communication and video conferencing
within their chosen environment.
Our Technology Business Unit, or TBU, is a one-stop shop of voice and video over
IP and 3G Development toolkits. The TBU provides protocol development tools and
platforms, as well as
13
associated solutions such as testing platforms and IP phone toolkits that enable
equipment vendors and service providers to develop and deploy new IP and
3G-based converged networks, services, and technologies. Our TBU also provides
professional services to our customers, assisting them with integrating our
technology into their products. RADVISION's TBU solutions include developer
toolkits for SIP, MEGACO/H.248, MGCP, H.323, and 3G-324M. It also includes
RADVISION's ProLab(TM) Test Management Suite and IP phone toolkit. Today you may
find RADVISION toolkits implemented in a wide range of environments from
chipsets to simple user devices like IP phones, and from integrated video
systems through carrier class network devices like gateways, switches, soft
switches and 3G multimedia gateways.
Our Strategy
Our goal is to be the leading provider of innovative products and technologies
that enable real-time multimedia collaboration (voice, video and data)
communication over packet networks. We provide solutions at every level -
protocol developer toolkits, professional services, network infrastructure, and
even integrated solutions that compliment the communication solutions of other
vendors such as those from Cisco and Microsoft. We believe that the combination
of offering IP-centric networking products and software toolkits uniquely
positions us as a key enabling vendor in the evolution of IP communication. Both
of our product lines are essential for building IP networks that support real
time voice and video communication with full interoperability with legacy
ISDN/PSTN networks and technologies.
Results of Operations
The following table presents, as a percentage of total revenues,
condensed statements of operations data for the periods indicated:
Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----
Unaudited
----------------------------------
Revenues
Networking products.................... 68.1% 75.4% 70.4% 73.0%
Technology products.................... 31.9 24.6 29.6 27.0
Total revenues......................... 100.0 100.0 100.0 100.0
Cost of revenues
Networking products.................... 18.2 21.0 19.2 21.1
Technology products.................... 2.3 1.4 2.1 1.0
Total cost of revenues................. 20.5 22.4 21.3 22.1
Gross profit.............................. 79.5 77.6 78.7 77.9
Operating expenses
Research and development................ 27.2 28.2 27.0 30.4
Marketing and selling................... 37.7 38.4 39.1 40.9
General and administrative.............. 7.3 7.8 7.9 8.2
Restructuring income................... - - (2.3) -
In-process research and development
write-off........................... 2.0 - 0.7 -
Total operating expenses................. 74.2 74.4 72.4 79.5
Operating profit (loss)................... 5.3 3.2 6.3 (1.6)
Financial income, net..................... 3.0 3.8 2.9 4.6
Net income ............................... 8.3 7.0 9.2 3.0
14
Three Months Ended September 30, 2003 Compared with Three Months Ended September
30, 2004
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. In certain instances
customers elect a one-time royalty buy-out as opposed to the payment of a
royalty per product use. We sell our products and technology through direct
sales and various indirect distribution channels in North America, Europe, the
Middle East and the Far East.
Our revenues increased from $13.1 million for the three months ended September
30, 2003 to $16.7 million for the three months ended September 30, 2004, an
increase of $3.6 million, or 27.5%. This increase was due to a $1.5 million, or
15.1%, increase in sales of our networking products and an increase of $2.1
million, or 65.6%, in sales of our technology products.
Revenues from networking products increased from $9.9 million for the three
months ended September 30, 2003 to $11.4 million for the three months ended
September 30, 2004.
Revenues from technology products increased by $2.1 million, or 65.6%, from $3.2
million for three months ended September 30, 2003 to $5.3 million for the three
months ended September 30, 2004. Revenues from licenses and royalties totaled
$2.2 million and $1.0 million, respectively, in the three months ended September
30, 2004 compared to $1.3 million and $570,000, respectively, in the three
months ended September 30, 2003. Maintenance revenues increased from $1.1
million in the three months ended September 30, 2003 to $1.5 million in the
three months ended September 30, 2004.
Revenues from sales to customers in North America increased from $6.6 million,
or 50.4% of revenues, for the three months ended September 30, 2003 to $7.9
million, or 47.3% of revenues, for the three months ended September 30, 2004, an
increase of $1.3 million, or 19.7%. This increase in sales was primarily
attributable to increased market demand for our networking products in this
region and increased sales efforts.
Revenues from sales to customers in Europe and the Middle East increased from
$3.3 million, or 25.2% of revenues, for the three months ended September 30,
2003 to $4.9 million, or 29.3% of revenues, for the three months ended September
30, 2004, an increase of $1.6 million, or 48.5%. This increase in sales was
primarily attributable to increased market demand for our products in this
region and increased sales efforts.
Revenues from sales to customers in the Far East increased from $3.1 million, or
23.7% of revenues, for the three months ended September 30, 2003 to $3.8
million, or 22.8% of revenues, for the three months ended September 30, 2004, an
increase of $700,000, or 22.6%. This increase in sales was primarily
attributable to increased market demand for our products in this region and
increased sales efforts.
15
Cost of Revenues. Cost of revenues increased from $2.9 million for the three
months ended September 30, 2003 to $3.4 million for the three months ended
September 30, 2004. Gross profit as a percentage of revenues increased from
77.6% for the three months ended September 30, 2003 to 79.5% for the three
months ended September 30, 2004. This increase in gross profit was primarily
attributable to the increased portion of revenues from our technology products
(that have a higher margin) in our revenue mix.
Research and Development. Research and development expenses increased from $3.7
million for the three months ended September 30, 2003 to $4.6 million for the
three months ended September 30, 2004, an increase of $900,000, or 24.3%. This
increase was primarily attributable to an increase in the number of research and
development personnel whom we employed. Research and development expenses as a
percentage of revenues decreased from 28.2% for the three months ended September
30, 2003 to 27.2% for the three months ended September 30, 2004.
Marketing and Selling. Marketing and selling expenses increased from $5.0
million for the three months ended September 30, 2003 to $6.3 million for the
three months ended September 30, 2004, an increase of $1.3 million, or 26.0%.
This increase was primarily attributable to increased sales efforts in North
America and EMEA. Marketing and selling expenses as a percentage of revenues
decreased from 38.4% for the three months ended September 30, 2003 to 37.7% for
the three months ended September 30, 2004.
General and Administrative. General and administrative expenses increased from
$1.0 million for the three months ended September 30, 2003 to $1.2 million for
the three months ended September 30, 2004, an increase of $200,000, or 20.0%.
This increase was primarily attributable to an increase in personnel expenses.
General and administrative expenses as a percentage of revenues were 7.8% for
the three months ended September 30, 2003 and 7.3% for the three months ended
September 30, 2004.
Operating Income. We had operating income of $412,000 for the three months ended
September 30, 2003 compared to operating income of $881,000 for the three months
ended September 30, 2004.
Financial Income. Our financial income remained constant at approximately
$500,000 for the three months ended September 30, 2003 and 2004. This income was
principally derived from the investment of the proceeds of our March 2000
initial public offering and private placement.
Nine Months Ended September 30, 2004 Compared with Nine Months Ended September
30, 2003
Revenues. Revenues increased from $35.7 million for the nine months ended
September 30, 2003 to $46.7 million for the nine months ended September 30,
2004, an increase of $11.0 million, or 30.8%. This increase was due an increase
in sales of networking and technology products.
Revenues from networking products increased from $26.1 million for the nine
months ended September 30, 2003 to $32.8 million for the nine months ended
September 30, 2004. The increase in networking product sales was principally
attributable to better than forecast sales in
16
the U.S. and EMEA, offsetting lower than expected Asia Pacific sales due to a
slow start to the year in China.
Revenues from technology products increased from $9.6 million for the nine
months ended September 30, 2003 to $13.8 million for the nine months ended
September 30, 2004. Revenues from licenses and royalties were $3.7 million and
$1.9 million, respectively, for the nine months ended September 30, 2003 and
$6.0 million and $2.8 million, respectively, for the nine months ended September
30, 2004. Maintenance revenues remain constant at approximately $3.5 million for
the nine months ended September 30, 2003 and 2004.
Revenues from sales to customers in North America increased from $17.5 million,
or 49.0% of revenues, for the nine months ended September 30, 2003 to $23.2
million, or 49.7% of revenues, for the nine months ended September 30, 2004, an
increase of $5.7 million, or 32.6%. This increase in sales was primarily
attributable to increased market demand for our networking products in this
region.
Revenues from sales to customers in Europe and the Middle East increased from
$8.9 million, or 24.9% of revenues, for the nine months ended September 30, 2003
to $14.3 million, or 30.6% of revenues, for the nine months ended September 30,
2004, an increase of $5.4 million, or 60.7%. This increase in sales was
primarily attributable to increased sales efforts for our networking products in
this region.
Revenues from sales to customers in the Far East decreased from $9.3 million, or
26.0% of revenues, for the nine months ended September 30, 2003, to $8.6
million, or 18.4% of revenues, for the nine months ended September 30, 2004 a
decrease of $700,000, or 7.5%.
Cost of Revenues. Cost of revenues increased from $7.9 million for the nine
months ended September 30, 2003 to $9.9 million for the nine months ended
September 30, 2004, an increase of $2.0 million, or 25.3%. Gross profit as a
percentage of revenues increased slightly from 77.9% for the nine months ended
September 30, 2003 to 78.7% for the nine months ended September 30, 2004.
Research and Development. Research and development expenses increased from $10.9
million for the nine months ended September 30, 2003 to $12.6 million for the
nine months ended September 30, 2004, an increase of $1.7 million, or 15.6%.
This increase was primarily attributable to an increase in the number of
research and development personnel whom we employed. Research and development
expenses as a percentage of revenues decreased from 30.4% for the nine months
ended September 30, 2003 to 27.0% for the nine months ended September 30, 2004.
Marketing and Selling. Marketing and selling expenses increased from $14.6
million for the nine months ended September 30, 2003 to $18.3 million for the
nine months ended September 30, 2004, an increase of $3.7 million, or 25.3%.
This increase was primarily attributable to increased sales efforts in North
America and EMEA. Marketing and selling expenses as a percentage of revenues
decreased from 40.9% for the nine months ended September 30, 2003 to 39.1% for
the nine months ended September 30, 2004.
17
General and Administrative. General and administrative expenses increased from
$2.9 million for the nine months ended September 30, 2003 to $3.7 million for
the nine months ended September 30, 2004, an increase of $800,000, or 27.6%.
This increase was primarily attributable to an increase in personnel expenses.
General and administrative expenses as a percentage of revenues were 8.2% for
the nine months ended September 30, 2003 and 7.9% for the nine months ended
September 30, 2004.
Financial Income. Financial income decreased from $1.6 million for the nine
months ended September 30, 2003 to $1.3 million for the nine months ended
September 30, 2004 principally as a result of the decreased interest income we
derived from the investment of the proceeds of our March 2000 initial public
offering and private placement. Our interest income decreased due to lower
prevailing interest rates.
Liquidity and Capital Resources
We generated $7.1 million from operating activities for the nine months ended
September 30, 2004 compared to $4.8 million in the same period in 2003. This
amount was primarily attributable to higher net income of $4.3 million, a $1.6
million increase in deferred revenues, an increase of $1.0 million in trade
payables, and depreciation and amortization expenses of $1.6 million. These
increases in cash generated by our operating activities were offset in part by
an increase of $1.9 million in trade receivables and an increase in other
accounts receivables and prepaid expenses of approximately $700,000.
Net cash used in investing activities was approximately $5.3 million for the
nine months ended September 30, 2004. During the nine months ended September 30,
2004, $1.7 million of cash used in investing activities was for purchases of
property and equipment, and $1.3 million of cash was used in purchasing the
VisionNex activity.
Our financing activities generated $2.6 million for the nine months ended
September 30, 2004 compared to $1.8 million in the same period in 2003. This
amount was primarily attributable to proceeds from the exercise of employee
stock options.
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 plan to
pursue strategic initiatives and make operating investments in 2004 and 2005 as
we position our company to realize on what we perceive to be increasing market
opportunities in the coming years. We anticipate that our cash resources will be
used primarily to fund our operating activities, as well as for capital
expenditures. We may establish additional operations as we expand globally.
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.
18
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. During April 2003, we
started to repurchase our ordinary shares based on the instruction of our board
of directors. As of September 30, 2004, we had purchased 14,000 ordinary shares
at a total cost of $77,000, or an average price of $5.5 per share.
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In addition,
we have no unconsolidated special purpose financing or partnership entities that
are likely to create material contingent obligations.
Significant event
During the third quarter of 2004, the Company reached an agreement with the
Israeli Tax authorities in regards of the final tax assessments for the years
ended December 31, 1999, 2000, 2001 and 2002. According to the agreement, the
Company's carryforward tax losses was reduced by $ 15,082 and amounted to
approximately $ 11,000 as of December 31, 2003.
Fourth Quarter 2004 Guidance
o Fourth quarter net sales are expected to be approximately $17.5
million, an increase of approximately $800,000, or 4.8%, compared with
the third quarter 2004.
o Net income is expected to increase to approximately $1.8 million or
$0.08 per share, a 14.2% increase compared with third quarter 2004.
These projections are subject to substantial uncertainty that could cause our
future results to differ materially from the guidance we have provided.
Cautionary Statement Regarding Forward-Looking Information and Risk Factors
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as "anticipate,"
"expect," "intend," "plan," "believe," "seek," "outlook" and "estimate" as well
as similar words and phrases signify forward-looking statements. RADVision's
forward-looking statements are not guarantees of future results and conditions
and important factors, risks and uncertainties may cause our actual results to
differ materially from those expressed in our forward-looking statements. These
uncertainties and other factors include, but are not limited to, the following:
Risks Relating to Our Business
o Our history of losses prior to 2001 and the uncertainty of our ability
to continue to operate profitably in the future.
19
o Our quarterly financial performance is likely to vary significantly in
the future and our revenues and operating results in any quarter may
not be indicative of our future performance.
o If the use of packet-based networks as a medium for real-time voice,
video and data communication does not continue to grow, the demand for
our products and technology will slow and our revenues will decline.
o Our need to develop new products and technology and enhancements to
existing products and technology.
o Our investment, and continuing investment, in products and technology
that comply with those industry standards that we believe have been,
or will be, broadly adopted. If one or more alternative standards were
to gain greater acceptance than the standards that we believe have or
will be broadly adopted, sales of our products and technology might
suffer.
o Because competition in the markets for our products and technology is
intense, our ability to compete effectively in these markets may be
hampered and we may lose market share to our competitors.
o Major solutions providers who currently work with us may compete with
us in the future.
o Our software development kit revenues will decrease if our customers
choose to use source code that is available for free or is developed
in-house.
o 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.
o Our dependency 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.
o Our intent to manufacture and maintain an inventory of customized
products for some customers who have no obligation to purchase these
products may harm our financial results if these customers fail to
purchase these products.
o Undetected errors may increase our costs and impair the market
acceptance of our products and technology.
o If our ability to continue to license third party technology on
reasonable terms is impaired, we may face delays in releases of our
products and may be required to reduce the functionality of our
products derived from this technology.
o Third parties may infringe upon or misappropriate our intellectual
property, which could impair our ability to compete effectively and
negatively affect our profitability.
20
o Our products may infringe on the intellectual property rights of
others, which could increase our costs and negatively affect our
profitability.
o We are dependent on our senior management and any loss of their
services could negatively affect our business.
o Our failure to retain and attract personnel could harm our business,
operations and product development efforts.
o 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.
o Government regulations could delay or prevent product offerings,
resulting in decreased revenues, or could result in unanticipated
expenses to make our products regulatory compliant..
Risks Relating to Our Location in Israel
o Conditions in Israel affect our operations and may limit our ability
to produce and sell our products, which could decrease our revenues.
o The economic conditions in Israel have not been stable in recent
years.
o Some of our directors, officers and employees are obligated to perform
annual military reserve duty in Israel. We cannot assess the potential
impact of these obligations on our business.
o Because most of our revenues are generated in U.S. dollars or are
linked to the U.S. dollar while a portion of our expenses are incurred
in new Israeli shekels, our results of operations would be adversely
affected if inflation in Israel is not offset on a timely basis by a
devaluation of the new Israeli shekel against the U.S. dollar.
o 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.
o 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.
Risks Relating to Our Ordinary Shares
o Holders of our ordinary shares who are United States residents face
income tax risks. There is a risk that we will be classified as a
passive foreign investment company, or PFIC. Our treatment as a PFIC
could result in a reduction in the after-tax return to the holders of
our ordinary shares and would likely cause a reduction in the value of
such shares.
21
o Our share price has been volatile in the past and may decline in the
future.
o Anti-takeover provisions under Israeli tax law could negatively impact
our shareholders.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Interest Rate Risk
As of September 30, 2004, we had cash and cash equivalents and short-term
investments of $52.7 million. We invest our cash surplus in time deposits, cash
deposits, U.S. federal agency securities and corporate bonds with an average
credit rating of at least AA. These investments are not purchased for trading or
other speculative purposes. Due to the nature of these investments, we believe
that we do not have a material exposure to market risk.
Our exposure to market risks for changes in interest rates is limited since we
do not have any material indebtedness.
Foreign Currency Exchange Risk
We develop products in Israel and sell them in North America, Asia and Europe.
As a result our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets.
Our foreign currency exposure with respect to our sales is mitigated, and we
expect it will continue to be mitigated, through salaries, materials and support
operations, in which part of these costs are denominated in NIS.
During 2003, the NIS revalued approximately 7.6% against the dollar. Among the
factors contributing to the revaluation are the low interest rate for US$
investments compared to the higher interest rate for NIS investments. The
revaluation has resulted in deflation in Israel, which was approximately 1.9%
for the year 2003 compared to an annual inflation rate of 6.5% for 2002 and
inflation of 1.2% for the nine months ended September 30, 2004.
Since most of our sales are quoted in dollars, and a portion of our expenses are
incurred in NIS, our results may be adversely affected by a change in the rate
of inflation in Israel or if such change in the rate of inflation is not offset,
or is offset on a lagging basis, by a corresponding devaluation of the NIS
against the dollar and other foreign currencies.
We did not enter into any foreign exchange contracts in 2003 or the first nine
months of 2004.
Item 4. Controls and Procedures
-----------------------
Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we carried out an
evaluation of the effectiveness of the design and operation of our company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934. Based upon that evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report.
22
There have been no significant changes in our internal controls or other
factors, which could significantly affect internal controls subsequent to the
date we carried out the evaluation.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
23
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 September 30, 2004. 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.
24
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
31.1 Certification by Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 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.
32.2 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 quarter for which this report is
filed:
An 8-K bearing the cover date of July 28, 2004 with respect to a press release
regarding the Registrant's earnings for the three and six months ended June 30,
2004 was filed on July 28, 2004.
An 8-K bearing the cover date of September 7, 2004 announcing that the
Registrant had acquired the intellectual property and key developer assets of
VisionNex of China was filed on September 8, 2004.
25
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/Tsipi Kagan
--------------
Tsipi Kagan
Chief Financial Officer
Date: November 8, 2004
26