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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 000-29871
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RADVISION LTD.
(Exact name of registrant as specified in its charter)
Israel N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Raoul Wallenberg Street
Tel Aviv 69719, Israel
(Address of principal executive offices)
011-972-3-645-5220
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Ordinary Shares, NIS 0.1 par value
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ] (Not applicable. See Preliminary Notes on page
1.)
As of March 11, 2002, 18,071,559 Ordinary Shares of RADVISION Ltd. were
outstanding. The aggregate market value of the Ordinary Shares held by
non-affiliates was approximately $73.1 million.
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DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
PART I........................................................................1
Item 1. Business.......................................................1
Item 2. Properties....................................................29
Item 3. Legal Proceedings.............................................30
Item 4. Submission of Matters to a Vote of Security Holders...........30
PART II......................................................................31
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...........................................31
Item 6. Selected Financial Data.......................................31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................32
Item 7A. Qualitative and Qualitative Disclosures About Market Risk.....44
Item 8. Financial Statement and Supplementary Data....................45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...........................45
PART III.....................................................................46
Item 10. Directors and Executive Officers of the Registrant............46
Item 11. Executive Compensation........................................54
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................58
PART IV......................................................................64
Item 13. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................64
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Preliminary Notes: RADVISION Ltd. is incorporated in Israel and is a
"foreign private issuer" as defined in Rule 3b-4 under the Securities Exchange
Act of 1934 (the "1934 Act") and in Rule 405 under the Securities Act of 1933.
As a result, it is eligible to file this annual report pursuant to Section 13 of
the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports
on Form 6-K (in lieu of Forms 10-Q and 8-K). However, RADVISION Ltd. elected to
file its annual and interim reports on Forms 10-K, 10-Q and 8-K.
Pursuant to Rule 3a12-3 under the 1934 Act regarding foreign private
issuers, the proxy solicitations of RADVISION Ltd. are not subject to the
disclosure and procedural requirements of Regulation 14A under the 1934 Act, and
transactions in its equity securities by its officers and directors are exempt
from Section 16 of the 1934 Act.
This Annual Report on Form 10-K contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
within the Private Securities Litigation Reform Act of 1995, as amended. Such
forward-looking statements reflect our current view with respect to future
events and financial results. Forward-looking statements usually include the
verbs, "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"projects," "understands" and other verbs suggesting uncertainty. We remind
readers that forward-looking statements are merely predictions and therefore
inherently subject to uncertainties and other factors and involve known and
unknown risks that could cause the actual results, performance, levels of
activity, or our achievements, or industry results, to be materially different
from any future results, performance, levels of activity, or our achievements
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
We have attempted to identify additional significant uncertainties and
other factors affecting forward-looking statements in the Risk Factors section
which appears in Item 1 - Business.
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PART I
Item 1. Business
General
We are a leading designer, developer and supplier of products and
technology that enable real-time voice, video and data communications over
packet networks, including the Internet and other networks based on the Internet
protocol or IP. Our products and technology are used by our customers to develop
systems that enable enterprises and service providers to use next generation
packet networks for real-time IP communications. We have approximately 400
customers worldwide including Cisco, NTT, Philips, Panasonic, Samsung, Shanghai
Bell, Siemens, Sony and Tandberg.
In the beginning of 2001, we created two separate business units
corresponding to our two product lines to enable our product development and
product marketing teams to respond quickly to evolving market needs with new
product introductions. The "Networking" business unit, or NBU, focuses on
networking products, and it is responsible for developing networking products
for IP-centric voice, video and data conferencing services. Enterprises and
service providers of all sizes use our family of innovative, scalable and market
proven IP-centric networking solutions for migrating from traditional telephony
to converged networks. The "Technology" business unit, or TBU, focuses on
creating developer toolkits for the underlying IP communication protocols and
testing tools needed for real-time voice and video over IP, or V2oIP(TM).
Industry giants and emerging technology companies use our family of IP
communication protocol toolkits to reduce their time to market for developing
interoperable, standards-compliant V2oIP products, applications and services.
Today you may find RADVISION protocols implemented in a wide range of
environments from chipsets to simple user devices like IP phones and video
systems through carrier class network devices like gateways, switches and soft
switches.
Business Overview
Growth in Communications
In recent years communications networks have experienced dramatic
growth in traffic. After a decline in growth in 2000 and 2001, we expect this
growth to resume due to a number of factors, including:
o an increasing need for enterprises to expand their networks to
enable them to send, access and receive information quickly,
economically and globally;
o an increasing use of the Internet and other packet networks for
communicating and engaging in commercial transactions;
o an increase in available bandwidth at declining prices; and
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o the introduction of new voice, video and data communications
services and applications.
Limitations of Traditional Networks
Traditionally, circuit-switched networks have been the principal medium
for the transmission of communications. Circuit-switched technology dedicates a
circuit with a fixed amount of bandwidth for the duration of the connection,
regardless of a user's actual bandwidth usage. The recent growth in data
communications traffic, particularly the growth in the number of Internet users,
has placed significant strains on the capacity of traditional circuit-switched
networks. Circuit-switched networks were initially deployed to handle only voice
communications. These networks were not designed to handle data efficiently and
cannot scale cost-effectively to accommodate the growth in data traffic.
Moreover, circuit-switched networks were built based on proprietary, complex
technologies, which have historically limited the entrance of new competitors
and hindered the development and introduction of new services.
Advantages of Packet-based Networks
While circuit-switched networks were principally designed to handle
analog voice traffic, packet-based networks were principally designed for
transmitting digital information. Packet-based networks, including IP networks,
transmit voice, video and data information in the form of small digital packages
called packets. Voice, video and data packets are sent over a single network
simultaneously and reassembled at the destination. Packet switching enables more
efficient utilization of available network bandwidth than circuit-switching,
allowing more calls to travel through a packet network at the same time.
Moreover, packet networks allow for the cost-efficient expansion of capacity as
communications traffic increases. In addition, packet networks are built using
open standards, like IP, which promote competition by allowing different vendors
to build products and applications that can interoperate with one another. By
using packet technologies based on open standards, new services can be deployed
rapidly and economically.
The Need for Industry Standards for Real-time IP Communications
Originally, enterprises and communications service providers deployed
packet networks primarily for handling data traffic and not for real-time IP
communications. Technical barriers initially hampered the use of packet networks
for real-time communications. For example, packet networks were not designed to
guarantee the sequential delivery of packets and packets could be lost. In
addition, the time of delivery of packets was dependent upon the amount of
packet traffic being transmitted over the network. For real-time communications,
it is critical that the packets associated with a specific voice or video
communication be transmitted in the correct sequence and in a timely manner.
Early attempts at real-time IP communications solved these technical problems by
using proprietary solutions developed by individual vendors. However,
proprietary solutions from different vendors meant that different vendor
products could not inter-operate with one another.
To enable the global deployment of real-time IP communications
networks, industry standards and protocols were developed to promote
interoperability of real-time communications over packet networks.
H.323 is currently the most widely deployed protocol for real-time IP
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communications. H.323 was developed by a team of computing, telephony and
networking experts under the auspices of the International Telecommunications
Union, or ITU-T, a United Nations organization, with the goal of specifying a
universal real-time standard that would ensure interoperability of rich-media
communications on packet-based networks. H.323 provides the technical framework
for developing standards-compliant products and systems for real-time voice and
video communication over packet networks. All components of an H.323 compliant
network, including terminals, gateways, gatekeepers and conferencing bridges,
use the H.323 protocol to communicate.
Our leadership position stems from the pioneering work we began in
1993. We were the first to develop and demonstrate commercially viable
technology for establishing real-time voice, video, and data on IP networks. We
are helping to develop the industry standards that are driving the emergence and
growth of the use of packet networks for real-time communications. RADVISION was
an original member of the ITU (International Telecommunications Union) team that
defined the H.323 standard and we continue to work closely with the ITU, the
IETF, IMTC, and other industry consortia to define a broad spectrum of IP
telephony protocols for voice and video communication including, Session
Initiation Protocol (SIP), Media Gateway Control Protocol (MGCP) and
MEGACO/H.248.
Our protocol toolkits provide the underpinning technology required for
the rapid development of next generation products and applications for real-time
V2oIP. Industry giants and emerging technology companies use our family of IP
communication protocol toolkits to reduce their time to market for developing
interoperable, standards-compliant V2oIP products, applications and services.
Today you will find RADVISION protocols implemented in a wide range of
environments from chipsets to simple user devices like IP phones and video
systems through carrier class network devices like gateways, switches and
softswitches.
Growth in Real-time Voice and Video IP Communications
Due to the inherent benefits of packet networks and the advent of new
technologies and standards that have enabled real-time communications over these
networks, the use of packet networks for real-time voice, video and data
communications is expected to grow dramatically. This anticipated growth in
real-time IP communications is expected to be driven primarily by enterprises
and communications service providers migrating to packet networks. As
enterprises move from centralized organizations to distributed networks of
employees, customers, suppliers and business partners, they require more
effective communications capabilities to support their operations and remain
competitive in a global and rapidly changing market. Packet networks are well
suited for enterprises because they provide enterprises with the following
advantages:
o cost-effective increases in capacity to meet increasing
communications traffic demands;
o support for new communications applications, like video
conferencing and data collaboration, for improved workforce
productivity;
o interoperability with different network configurations of their
customers, suppliers and partners; and
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o costsavings associated with simplified network management
resulting from creating a single network that handles all
communications, rather than having to maintain separate telephone
and computer networks.
Communications service providers have also begun to deploy packet
networks in an effort to compete more effectively in a deregulated market.
Global deregulation and rapid technological advances have resulted in the
emergence of many new communications service providers, increased competition
among traditional telecommunications carriers, lower prices, innovative new
product and service offerings and accelerated customer turnover. To remain
competitive, communications service providers must be able to develop and
introduce new services to differentiate themselves in the market and attract and
maintain customers. Packet networks are well suited to accomplish these
objectives because they enable the rapid deployment of new and differentiated
solutions. In addition, packet-based technology allows new competitors to enter
the market quickly without substantial investment in infrastructure.
Key Attributes of Real-time Voice and Video IP Communications Solutions
To migrate their voice and video communications to packet networks,
enterprises and communications service providers require a real-time IP
communications solution that provides:
o reliable real-time voice, video and data communications
functionality;
o interoperability with the existing circuit-switched networks as
well as with other IP equipment and systems;
o applications, features and functionality comparable to those
available over traditional telephone networks, including call
transfer, conferencing and caller identification;
o scalability to permit cost-effective increases in capacity to
meet demand;
o standards compliance, so that products from different vendors can
work together in one network; and
o flexibility to adapt to rapidly changing network environments in
response to the evolving needs of enterprises and to accommodate
a mobile business environment.
Our Solution
We provide standards-based IP-centric networking products for real-time
voice, video and data communications over packet networks for enterprises and
service providers. We also provide enabling technology in the form of software
toolkits for key IP communications protocols that are needed to develop
standards-based IP-centric products and services for real time voice and video
communication. Our networking products and software toolkits offer the following
benefits:
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Real-time Voice, Video and Data Communications Functionality. We are
one of the few companies that offer IP communications products which support
both voice-only, as well as combined voice, video and data communications. We
believe that this dual functionality is attractive to enterprises and service
providers that seek a flexible IP communications solution, which can provide
enhanced multimedia functionality in addition to IP telephony capabilities. We
believe our products enable developers of IP communications solutions to offer
features and functions generally unavailable in competitive solutions.
Market Leading Technology for Standards Based Real-time IP
Communications. We were one of the original five members of the ITU-T committee
responsible for defining the H.323 standard, which has been adopted worldwide
for real-time packet-based communications. We believe our technology is
recognized as the market-leading implementation of the H.323 industry standard
for real-time voice, video and data communications over packet networks. We also
believe that our technology is recognized as one of the market-leading
implementations of the Session Initiation Protocol, or SIP, and other protocols
such as MGCP and MEGACO/ H.248. We have been actively involved in the
development of protocols for real-time communications since the inception of the
industry in 1994 and believe that we were the first-to-market with enabling
products and technology for voice, video and data communications over IP
networks. We continue to be actively involved in the specification of evolving
IP communications protocols and offer a complete suite of IP communications
software toolkits to developers of IP-centric products, applications and
services. We believe that our technology has become the technology of choice
among developers of standards-compliant IP communications systems. Because we
were first to market and have achieved broad market penetration, our customers
benefit from our ability to develop and provide them market-tested, proven
products and technology. Using our products and technology, our customers can
develop unique capabilities with increased functionality that will differentiate
their IP communications solutions in the market. We believe that the accumulated
knowledge that we have gained participating in the development of industry
standards provides us with a competitive advantage and positions us to be among
the first to market products and technology based on the latest technological
advances.
Interoperability. We provide our customers with products and technology
that are interoperable across a broad range of IP communications systems. Our
products and technology have been integrated into IP communications systems
developed by hundreds of communications equipment providers. Because our
products and technology are broadly deployed across various segments of the IP
communications industry, we believe that the interoperability of our products
and technology with products from different vendors is virtually assured. We
believe that our long-standing involvement in the definition of standards and
accumulated experience with product development across our broad customer base
provides us with a competitive advantage in addressing interoperability needs.
We continue to participate actively in defining industry standards by working
closely with industry consortia on a broad spectrum of IP communications
protocols to ensure continued interoperability of our products and technology
across multiple protocols.
Improved Time to Market. Our customers rely on our accumulated
expertise with IP communications standards and core technology to significantly
reduce their development cycle and improve time to market. Communications
equipment providers seeking to market
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standards-compliant systems for real-time voice and video communications over
packet networks require standards-compliant building blocks to develop their
products. Implementing standards as deployable products and technology is a
complex task that requires significant technical knowledge and expertise as well
as substantial investments of time and resources. Our products and technology
enable our customers to shorten their own development time by integrating our
proven enabling products and technology into their solutions. Rather than
dedicate in-house resources to implementing industry standards, these developers
can use our products and technology and focus their core competencies on
building enhanced systems, products and applications.
Broad Range of Product Environments. Our products and technology
provide our customers with flexibility to design individual products and
applications or complete systems. Our customers can build a complete network
solution for real-time IP communications using our full suite of products or
integrate RADVISION products with their own products or other vendor products
into their real-time IP communications solution. Similarly, our technology has
been designed to enable the development of a broad range of products and
applications, from those that can service single users, including hand held
devices and residential IP phones, to multi-user products, like highly complex,
powerful carrier class gateways. Taken together, our products and technology
provide all of the key network components necessary to build a real-time IP
communications solutions.
Distributed Architecture. We designed our products based on a
distributed architecture. With a distributed architecture, the core functions
needed for real-time IP communications are dispersed throughout the network at
the site of each gateway, IP conferencing bridge and gatekeeper, rather than
aggregated at a single centralized location. This distributed approach offers
several advantages compared to a traditional centralized architecture. The
distributed architecture of our products enables better utilization of network
bandwidth, because communications need not be routed through a centralized
location but rather can be routed over the shortest path to minimize bandwidth
usage. Similarly, our distributed architecture is a scalable solution, allowing
a network manager to add network resources at distributed locations
incrementally as the network grows. Our distributed architecture also provides
redundancy and increased fault tolerance and reliability because, unlike a
centralized architecture, failure at one location will not compromise the entire
network.
Our Strategy
Our goal is to be the leading provider of innovative products and
technology that enable real-time multimedia collaboration (voice, video and
data) communications over packet networks. The combination of offering
IP-centric networking products and software toolkits uniquely positions us in
the center of the IP communication revolution. Both of our product lines are
essential for building IP networks that support real time voice and video
communication. Key elements of our strategy include the following:
o Maintain and Extend our Technology Leadership. We believe that we
have established ourselves as a technology leader in providing
core-enabling technology for a broad range of IP communications
products and services. We have accumulated extensive knowledge
and expertise as designers and
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developers of commercial products and technology for real-time
packet-based communications. We place considerable emphasis on
research and development to expand the capabilities of our
existing products, to develop new products and to improve our
existing technology and capabilities. We believe that our future
success will depend upon our ability to maintain our
technological leadership, to enhance our existing products and to
introduce on a timely basis new commercially viable products
addressing the needs of our customers. We intend to continue to
devote a significant portion of our personnel and financial
resources to research and development.
o Strengthen and expand our relationships with OEM customers. We
have established and continue to maintain collaborative working
relationships with many OEMs in the IP communications market,
including Cisco, Samsung, Siemens, Sony and Tandberg. We work
closely with our OEM customers to integrate our products and core
technology into their solutions. Our core technology and our
system design expertise enable us to assist these customers in
the development of complete solutions that contain enhanced
features and functionality compared to competitive alternatives.
We have generally established long-term relationships with our
OEM customers by starting with a few products and subsequently
expanding these relationships by increasing the number and range
of products sold to these customers. We intend to expand the
depth and breadth of our existing OEM relationships while
initiating similar new relationships with leading OEMs focused on
the IP communications market.
o Continue to offer new and enhanced products and features. We
believe we have consistently been either first, or among the
first, to market products that support real-time voice, video and
data communications over packet networks. We were the first to
market with IP gateways that provide combined voice, video and
data functionality, and first to market with software development
kits for the development of H.323-compliant IP communications
products and applications. We intend to utilize our technological
expertise as a basis for market leadership by continuing to be
first-to-market with new and enhanced products and features that
address the increasingly sophisticated needs of our customers and
the evolving markets they serve. In addition, we believe that our
participation in the drafting of industry standards gives us the
ability to quickly identify emerging trends to develop new
products and technologies that are at the forefront of
technological evolution in the IP communications industry.
In 2001, our TBU expanded its product offering to include a
complete suite of key IP communications protocol toolkits for
voice and video over IP. RADVISION toolkits now include SIP,
MGCP, MEGACO, H.323 and ProLab Test Manager for network
simulation and testing. The introduction of SIP, MGCP, MEGACO and
ProLab moves us closer to achieving our goal of becoming the
premier, one-stop-shop for all voice and video
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technologies and reinforces RADVISION's leadership position as
the V2oIP technology experts.
We will continue to introduce new or enhanced products in 2002.
We plan to introduce upgrades to our software toolkits that
include added functionality defined by new versions of the
standards that are ratified by the various international
standards bodies responsible for the different IP communications
protocols. In 2001, we demonstrated prototype software for
H.323-SIP and H.323-MGCP interworking. For our networking
products we plan to upgrade our viaIP product family. We will be
introducing new plug-in boards for viaIP platform.
o Expand the distribution channels for our products. We intend to
continue to focus our sales and marketing efforts on expanding
our distribution channels, including broadening the number of
channel partners that distribute our products as well as
strengthening our existing relationships. Channel partners
provide us feedback from their customers, the end-users of our
products, which gives us valuable insight into evolving industry
trends and customer requirements. OEMs, resellers and systems
integrators are all important channel partners for our products.
They provide us with increased market presence through their
distributor relationships and existing customer base. In
addition, endorsements by key channel partners strengthen our
brand name awareness.
o Continue our active involvement in shaping industry standards for
IP communications. We actively participate in and contribute to
the formulation of standards for IP communications. We intend to
continue our active involvement in the organizations that define
the standards for real-time communications over next generation
packet networks. Our knowledge and expertise gained in
participating in the development of these industry standards
enable us to be among the first to market our Products and
Technology products based on new standards adopted. We are
continually improving, enhancing and expanding our core
competency in real time IP communications protocols including
H.323, SIP, MGCP and MEGACO. Because of our involvement in
defining these IP communications standards, we believe we are
well-positioned to quickly develop enhanced functionality and new
products based on multiple protocols.
Our Products and Technology
RADVISION networking and technology products provide the core building
blocks needed for standards-based real-time voice, video and data communications
over packet networks. Our customers can deploy our products as a complete
network solution for IP communications, integrate our products into their own IP
communications systems or use our technology to build their own
standards-compliant IP communications products, systems and applications for
enterprises and service providers.
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The networking products developed by our Networking Business Unit
consist of:
o RADVISION Gateways, which interface between traditional
circuit-switched networks and IP networks;
o RADVISION or Enhanced Communication Server (ECS), or gatekeepers
applications, which control, manage and monitor real-time voice,
video and data traffic over packet networks;
o RADVISION Multipoint Conferencing Units (MCU), or IP conferencing
bridges, which enable voice or multimedia conferencing over
packet networks among three or more participants;
o RADVISION Video Processing Server (VPS), which supports
continuous presence, rate matching and improved media processing
for multipoint conferences.
o RADVISION Reservation and Scheduling Server (RSS), which is a
central web interface for conference and resource management and
o RADVISION Data Collaboration Server (DCS), for real-time data
sharing and collaboration.
Our technology business unit offers a complete suite of key IP
communications protocol tool kits for building interoperable,
standards-compliant products, systems and applications for real-time voice and
video communication over packet networks. RADVISION tool kits now include SIP,
MGCP, MEGACO, H.323 and ProLab Test Manager.
NBU Networking Products
RADVISION Gateways and Conferencing Bridges
To achieve the successful deployment of IP communications systems by
enterprises and service providers, users who are connected to packet networks
must be able to communicate with users who are connected to circuit-switched
telephone networks. RADVISION gateways provide an interface between traditional
circuit-switched telephone networks and the new packet-based networks. A gateway
converts voice, video and data signals received from a circuit-switched network
into packets, that it then transmits in real-time over a packet-based network.
When the direction of the communication is reversed, the gateway converts the
packets back into circuit-switched signals.
Our IP-centric networking solutions include V2oIP multimedia gateways,
which support real-time voice, video and data communications. Our standalone
OnLAN gateways were designed for small to medium sized networks. Our plug-in
viaIP gateway boards for our new viaIP chassis-based platform were designed for
large scale networks.
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Conferencing Bridges, sometimes called MCUs, are networking products
that connect multiple callers into a single conference that allows them to talk
to each other. Our conferencing bridges support voice, video and data, allowing
the callers to see each other and also share data.
RADVISION V2oIP Multimedia Gateways
Our OnLAN RADVISION multimedia gateways can support up to 16 voice
calls or 8 multimedia calls simultaneously in a 1.75" by 19" (1U) system. Our
viaIP gateway boards, which we began selling during the first quarter of 2001,
can support up to 60 voice calls or 30 multimedia calls simultaneously. A single
3.5 " by 19" (2U) viaIP chassis can be configured for high capacity with 4
gateway boards, which can support 240 voice calls or 120 multimedia calls
simultaneously. We sell these gateways principally to systems integrators and
OEMs who offer IP communications solutions to enterprises for next generation
networks. These gateways provide the following benefits:
o Real-time voice, video and data communications. Our multimedia
gateways support real-time voice and video calls, data
collaboration as well as voice-only calls.
o Interoperability. Our multimedia gateways are H.323 compliant and
are designed to be fully interoperable with other IP network
components.
o Advanced call functionality. Our multimedia gateways can support
advanced PBX-like functions including call transfer and call
forwarding.
RADVISION Enhanced Communication Server (ECS) or Gatekeepers
Gatekeepers perform the essential network function of controlling and
managing real-time voice, video and data communications on a packet-based
network. Gatekeepers define and control how traffic is routed over a
packet-based network by identifying the IP destination address and routing the
traffic to that destination. Gatekeepers also enable the provisioning of
advanced PBX-like functions, including call forwarding, multi-point conferencing
and call transfer. Network managers use gatekeepers to configure, monitor and
manage the voice and video call activity on a packet network to ensure optimal
implementation of the network. Gatekeepers log and track call activity and
maintain details of network activity which permit the network manager to monitor
IP communications activity on the network, including number of calls, number of
users and bandwidth usage.
We provide a free embedded gatekeeper in our OnLAN gateways that
provide basic gatekeeper functionality. For our viaIP multi-function
chassis-based system, we sell an Enhanced Communication Server, or ECS,
application that provides advanced gatekeeper functionality. The ECS application
is a Microsoft Windows NT-based application that was designed to run as an
embedded viaIP application on a Windows NT-based "application server" card. We
also sell versions of our Windows NT-based gatekeeper application as a
standalone application that can be installed on any computer that supports the
Microsoft Windows NT operating system. We sell this off-the-shelf application to
systems integrators as a complementary product to both our OnLAN and viaIP
product families. These customers
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combine RADVISION gatekeeper application software with other IP network
components to build complete IP communications solutions.
We also sell gatekeeper technology in the form of software development
kits that enable our OEM customers to build and customize their own gatekeeper
applications. Our gatekeeper software development kit offers the software
developer full control over a wide range of gatekeeper functions and the
flexibility to customize and further differentiate the gatekeeper to respond to
the needs of their particular market. By using RADVISION software development
kits, our customers can build upon our proven technology and bring their
gatekeeper products to market quickly.
RADVISION Multipoint Conferencing Units (MCU) or IP Conferencing Bridges
While communications between two parties involves point-to-point
connections, conferencing between multiple parties involves multipoint
communications among three or more participants. In traditional circuit-switched
networks, conferencing bridges connect callers to each other through a central
bridge that conducts the conference call. As enterprises migrate to packet
networks, IP conferencing bridges are needed to conduct conference calls over
these next generation networks. We were one of the first and remain one of a few
companies to offer IP conferencing bridges for rich-media multipoint
communications.
Traditionally, voice or video conferencing requires the conference to
be arranged in advance by a network administrator and remain attended by an
operator for the duration of the conference. RADVISION's MCUs allow voice or
video conferencing among multiple participants over IP networks without any
advance arrangements or the assistance of an operator. Participants simply dial
a number and the conferencing bridge automatically arranges the conference call.
Additional participants can join the conference while it is in progress or by
being added to the conference by any party already participating in the
conference. Traditional conferencing bridges were primarily built as large
complex carrier class bridges that were not appropriate for installation within
an enterprise, requiring enterprises to contract with external service providers
to conduct conference calls. The RADVISION standalone OnLAN MCU can support up
to 15 simultaneous voice and video calls or 24 voice-only calls. The
multi-service viaIP platform supports 3 different capacity MCU boards ranging
from 45 voice calls or 30 multimedia calls, to 150 voice calls or 100 multimedia
calls. A single 2U, 19" viaIP chassis can be configured for high capacity with 4
MCU boards, which can support 600 voice calls or 400 multimedia calls
simultaneously. Like our gateways, our conferencing bridges include an embedded
gatekeeper. Our distributed conferencing architecture provides a highly scalable
solution that enables multiple conferencing bridges to be linked together to
provide a solution for very large conferences, allowing for multiple conference
panels with many remote viewers.
RADVISION Video Processing Server (VPS)
The viaIP VPS is a complimentary product to the viaIP MCU. The VPS
performs rate matching, enabling each endpoint in a videoconference to
participate according to individual video bandwidth capabilities without
affecting the connection of other participants. The VPS also allows endpoints
that are not capable of working in an asymmetrical mode to receive a symmetric
media stream, allowing ISDN calls (passing via the Gateway) to receive a
continuous
11
presence video mode. The VPS will be provided as a server application, installed
on a dedicated viaIP as NT board.
RADVISION Reservation and Scheduling Server (RSS)
The RSS is a highly sophisticated reservation and scheduling system for
centralized scheduling of conference rooms and resources. The new RSS provides
an intuitive web-based scheduling interface as well as providing users with the
option to schedule conferences directly from Microsoft Outlook. RSS centrally
manages an organization's conferencing, collaboration and meeting resources,
including multiple time zone scheduling, attendee invitation, recurring events,
reporting capabilities and network resources.
RADVISION Data Collaboration Server (DCS)
The DCS is an easy-to-use data collaboration and application sharing
solution that provides unmatched conference capabilities. The RADVISION DCS, is
a dynamic and scalable solution for data collaboration and greatly enhances
conference capabilities by enabling application sharing based on the T.120
standard. With the RADVISION DCS, any conference can become a real working
session by enabling the conference participants to collaborate and share
applications. The DCS is applicable for both audio and/or video communications
using RADVISION's state-of-the-art MCU. The DCS allows you to view diagrams,
graphic presentations and slide lectures simultaneously with other
videoconferencing participants. It is also possible to conduct text chats,
whiteboard exchanges or rapid file transfers during a multipoint videoconference
of three or more participants. The DCS places particular emphasis on
scalability, reliability and performance.
TBU Technology Products
As a driving force behind evolving technologies for real-time IP
communications, RADVISION is in a unique position to deliver one of the most
complete sets of V2oIP enabling technology. We sell the core enabling technology
for real-time IP communications in the form of software development kits.
Communications equipment providers and developers seeking to market industry
standard compliant IP telephony and multimedia products, systems and
applications need core IP communication protocol software to develop their
IP-centric solutions. Rather than dedicate in-house resources to developing this
core technology, these providers seek to build upon our proven enabling
technologies. RADVISION toolkits enables our customers to focus on their core
competencies and dramatically reduces the time to market of industry standard
compliant IP communications products, systems and applications.
RADVISION SIP Development Toolkit
SIP is a relatively new signaling protocol for initiating, managing and
terminating voice and video sessions across packet networks. The SIP was
designed, from conception, for building high performance, compact SIP user
agents. This optimized design offers superior functionality to other "reduced
function" implementations that are derived by simply eliminating features from
other fuller implementations. This "nuclear SIP toolkit" is ideal for developing
products that require full user/agent functionality, but are limited in
resources, particularly memory, such as wireless IP phones and PDAs, web clients
and video terminals. The SIP Toolkit is designed to
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provide high scalability and extensibility for both small and large-scale
projects. It is ideal for implementing all types of feature rich SIP entities
such as application servers, softswitches, IP-PBXs, gateways and conferencing
bridges.
RADVISION H.323 Development Toolkit
H.323 is currently the most widely deployed standard for real-time IP
communications. All components of an H.323-compliant network, including
terminals, gateways, gatekeepers and conferencing bridges, use the H.323
protocol to communicate. Our RADVISION H.323 software development kits provide
developers with the core software building blocks needed to develop
H.323-compliant products, systems and applications. Our RADVISION H.323 software
development kit is an integrated set of software programs which execute the
H.323 protocol and perform the functions necessary to establish and maintain
real-time voice, video and data communications over packet-based networks. Our
RADVISION H.323 software development kits can be used to develop a broad
spectrum of products, including gateways, gatekeepers, conferencing bridges, IP
telephones and other H.323-compliant products.
RADVISION MGCP Development Toolkit
Media gateway control protocol, commonly referred to as MGCP, provides
functions that complement H.323 and has been developed for large packet networks
operated by telecommunications carriers and service providers that require
gateways that can support a practically unlimited number of calls. MGCP is the
protocol by which a centralized gateway controller communicates with and
controls the numerous gateways throughout a packet network and manages the
network traffic through those gateways. MGCP has been adopted by large
telecommunications companies and Internet service providers as well as by cable
television companies building IP communications solutions over their networks.
Our RADVISION MGCP software development kit is used to build MGCP compliant
media gateways controllers and media gateways
RADVISION MEGACO Development Toolkit
MEGACO/H.248 is the official industry standard media gateway control
protocol for large scale IP-centric communication networks. Like MGCP, it is an
internal protocol used between "intelligent" centralized gateway controllers and
numerous "dumb" media gateways that handle voice and video media streams. The
standard is the result of unique collaborative effort between the IETF and ITU
standards organizations. Derived from MGCP, MEGACO/H.248 offers several key
enhancements including support for multimedia and conferencing calls, improved
handling of protocol messages and a formal process for creating extensions to
support advanced functionality. RADVISION's MEGACO/H.248 Toolkit includes a
unique Media Device Manager to greatly simplify application development and
reduce development time by eliminated the need for developers to write code for
interpreting MEGACO/H.248 messages.
RADVISION ProLab H.323 Test Manager
RADVISION's ProLab is designed for debugging and simulating numerous
testing scenarios. Based on RADVISION's award-winning H.323 Protocol Toolkit,
this powerful testing tool simulates a full VoIP network with a professional
quality assurance laboratory, enabling
13
developers or QA specialists to test H.323 version compliance, H.323 version
upgrade compliance, stress and load. The ProLab(TM) H.323 Test Manager is a
highly scalable tool designed to be aware of any changes to the H.323 standard.
It provides the:
o capability to run the same tests on the application each time the
underlying protocol version is upgraded;
o flexibility to mix and match scenarios to develop a broad range
of testing possibilities; and
o ability to define numerous scripts and scale up the test scenario
by linking them as the test plan progresses.
Products and Technology Under Development
We intend to capitalize upon our technological leadership in real-time
IP communications to develop new products and technology that meet the evolving
needs of the IP communications market. Our future product and technology
offerings are expected to include platforms and tools needed for creating
value-added IP-centric enhanced services.
Customers
We sell our products to OEMs, systems integrators and value added
resellers, or VARs. Our OEM customers purchase our products to integrate with
products that they developed in-house to build complete IP communications
solutions. Our systems integrator customers either purchase our full suite of
products or integrate our individual products with products of other
manufacturers to build complete IP communications solutions. Our VAR customers
purchase our products to resell to end-users as separate units, or as part of a
family of related product offerings, either under our RADVISION label or under
their private label.
We sell our technology in the form of software development kits to
developers of IP communications products, systems and applications for
developing their own IP communications solutions based on our core enabling
technology.
The following is a representative list of our customers who purchased
more than $250,000 of our products or technology during the year 2001:
Networking Products
-------------------
ADL Philips
Atlantis PictureTel Corp.
Belgacom Polycom, Inc.
Cisco Systems SKC
Control Tech Sony
First Virtual Tandberg
H.S Digital Wafer
MVC Mobile Video Wire One
NTT - ME Corp Zhizhen
14
Technology Products
-------------------
Alcatel Nortel
Ascom NTT - ME Corp
CCL-ITRI Panasonic
Cintech Samsung
Cisco Systems Siemens
E-soft Spirent
IMAG Industries Teleware
Intel
LG
Sales and Marketing
Sales organization. We market and sell our products through multiple
channels in North America, Europe, the Far East and Israel. Our networking
products are sold to end-users principally through indirect channels by OEMs,
system integrators and value added resellers. We market and sell our technology
products, primarily in the form of software development kits, directly to
developers of IP communications products and applications. In Taiwan, Korea and
Japan, we sell our software development kits indirectly through local sales
representatives.
We currently have sales offices in the United States in New Jersey,
California, Maryland and Texas. We also have sales offices in Tel Aviv, Israel,
Hong Kong, China and in the United Kingdom. The geographic breakdown of our
total sales for the year ended December 31, 2001 was: 63.3% in North America,
21.7% in Europe and the Middle East and 15.0% in Asia Pacific.
We have dedicated sales teams to support our large strategic accounts
as well as to identify potential strategic customers who would deploy our
products on large scales and generate significant revenues for us.
Marketing organization. Our marketing organization develops strategies
and implements programs to support the sale of our products and technology and
to sustain and enhance our market position as an industry leader. Our current
marketing efforts include various sales and channel support programs designed to
drive sales, and marketing communication programs designed to increase industry
visibility, including press/analyst tours, trade shows and events, speaking
engagements and ongoing interaction with analysts and the media as well as
targeted marketing programs. Additional programs include technical seminars
where customers and other industry participants are educated in real-time IP
communications technology and the benefits of our products and technology. We
also view our web site as an important marketing tool for lead generation,
customer relations and to support our market position as the V2oIP experts
through quality content including providing information related to issues
relevant to the IP communications industry, as well as important product and
market trends.
To reinforce and further strengthen our market position as a technology
leader in the field of real-time IP communications, we actively participate in
key industry consortia and standards bodies. We are also active in defining and
reviewing evolving IP communications standards that are being developed by
international standards bodies including:
o the ITU-T, which has published the H.323 and MEGACO standards;
15
o the Internet Engineering Task Force, or IETF, which has published
the SIP and MEGACO standards;
o CableLabs, an organization of cable operators, which is currently
working on defining the MGCP standard; and
o IMTC, a global organization to promote interoperable multimedia
communications solutions based on international standards.
We regularly participate in IMTC-sponsored InterOP events, a
vendor-neutral forum where IMTC members test the interoperability of their
products.
Customer Care and Support
Our ability to provide our customers with responsive and qualified
customer care and support services globally is essential to attract and retain
customers, build brand loyalty and maintain our leadership position in the
market. We believe our customer care and support organizational structure
enables us to provide superior technical support and customer service on a cost-
and time-efficient basis.
We provide global customer care and support for our products and
technology. Our customer care and technical support teams are located in Tel
Aviv, Israel, Mahwah, New Jersey, Sunnyvale, California, Hong Kong and China. We
assist our customers with the initial installation, set-up and training. In
addition, our technical support team trains and certifies our customers to
provide local support in each of the geographical areas in which our products
are sold. We also provide customers the option of obtaining, for a fee, 24 hours
a day, 7 days a week help-desk support.
In addition, customers who purchase our software development kits
generally request that we provide them with ongoing engineering and technical
support services to integrate our technology into their products, although these
services are not essential for the use of our software development kits. Our
standard software development kit contract provides for one year of support
services, renewable annually at the customer's option. Customers who have
contracted for support services receive all relevant software updates and
enhancements as well as access to our customer care and technical support teams.
Intellectual Property
We rely on copyright, trademark and trade secret laws, confidentiality
agreements and other contractual arrangements with our customers, third-party
distributors, employees and others to protect our intellectual property.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products and technology or obtain and
use information that we regard as proprietary. Policing unauthorized use of our
products and technology is difficult. In addition, the laws of some foreign
countries in which we currently or may in the future sell products do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may
16
independently develop similar technology, duplicate our products or design
around our intellectual property.
We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. For example, we license T.120 data
collaboration software from Data Connection Limited and voice compression
technology from Siemens. If we are unable to continue to license any of this
software on commercially reasonable terms, we will face delays in releases of
our products or will be required to reduce the functionality of our products
until equivalent technology can be identified, licensed or developed, and
integrated into our current products.
Research and Development
We place considerable emphasis on research and development to expand
the capabilities of our existing products and technology, to develop new
products and to improve our existing technologies and capabilities. We believe
that our future success will depend upon our ability to maintain our
technological leadership, to enhance our existing products and technology and to
introduce on a timely basis new commercially viable products and technology
addressing the needs of our customers. Our gross investment in research and
development for the three years ended December 31, 1999, 2000 and 2001 was $7.7
million, $14.3 million and $17.9 million, respectively. We intend to continue to
devote a significant portion of our personnel and financial resources to
research and development. As part of our product development process, we seek to
maintain close relationships with our customers to identify market needs and to
define appropriate product specifications.
As of December 31, 2001, our research and development staff consisted
of approximately 120 employees. Our research and development activities are
conducted at our facilities in Tel Aviv, Israel and in our office in Mahwah, New
Jersey. To introduce new, high quality products, we deploy procedures for the
design, development and quality assurance of our new product developments. Our
team is divided according to our existing product lines. Each product line team
is headed by a team leader and includes software or hardware engineers and
quality control technicians.
Competition
We compete in a new, rapidly evolving and highly competitive and
fragmented market. We expect competition to intensify in the future. We believe
that the main competitive factors in our market are time to market, product
quality, features, cost, technological performance, scalability, compliance with
industry standards and customer relationships.
The principal competitors in the market for our products and software
development kits currently include:
Products Software development kits
- --------------------------------------- -------------------------------------
o Ezenia!, formerly known o DynamicSoft Inc.
as Video-Server
17
o CUseeMe Networks Inc. o Trillium Digital Systems,
(formerly known as White acquired by Intel Corp.
Pine Software Inc., merged
with First Virtual
Communications) o Hughes Software Systems
o Polycom Networks, a
division of Polycom o In-house developers
Inc., formerly known employed by manufacturers
as Accord Networks of telecommunications
equipment and systems
Additional competitors may enter any of our markets at any time.
Both Vovida Networks (now part of Cisco Systems), Inc. and OpenH323
offer H.323 source code for free. In addition, Vovida offers MGCP and SIP source
code for free. If our customers choose to use the free source code offered by
these organizations instead of purchasing our technology, our revenues from the
sale of our software development kits will decline.
Manufacturing
Our manufacturing operations consist of materials planning and
procurement, out-sourcing of sub-assemblies, final assembly, product assurance
testing, quality control and packaging and shipping. We assemble and test our
products at our facilities in Tel Aviv, Israel. We test our products both during
and after the assembly process using internally developed product assurance
testing procedures. We have a flexible assembly process that enables us to
configure our products at the final assembly stage for customers who require
that our products be modified to bear their private label. This flexibility is
designed to reduce our assembly cycle time and reduce our need to maintain a
large inventory of finished goods. We use an enterprise resource planning, or
ERP, system that we purchased from BAAN Systems that we modified to our specific
needs. This system allows us to use just in time procurement and manufacturing
procedures. We believe that the efficiency of our assembly process to date is
largely due to our product architecture and our commitment to assembly process
design. We manufacture our software development kits on CD-ROMs and package and
ship them accompanied by relevant documentation.
As part of our commitment to quality, we have been certified as an ISO
9002 supplier. The ISO 9002 standard defines the procedures required for the
manufacture of products with predictable and stable performance and quality. We
are continuously trying to improve our quality based on the guidelines dictated
by the ISO 9002 standard.
Employees
As of January 31, 2002, we had 243 employees worldwide, of whom 121
were employed in research and development, 84 in sales and marketing, 24 in
management and administration and 14 in operations. We have standard employment
agreements with all of our employees
18
located in Israel. Of our employees, 175 are based in Israel, 54 are based in
the United States, 12 are based in Hong Kong and China and 2 are based
in the United Kingdom.
Our relationships with our employees in Israel are governed by Israeli
labor legislation and regulations, extension orders of the Israeli Ministry of
Labor and Welfare and personal employment agreements.
Israeli labor laws and regulations are applicable to all of our
employees. The laws concern various matters, including severance pay rights at
termination, retirement or death, length of work day and work week, minimum
wage, overtime payments and insurance for work-related accidents. We currently
fund our ongoing legal severance pay obligations by paying monthly premiums for
our employees' insurance policies.
In addition, Israeli law requires Israeli employees and employers to
pay specified sums to the National Insurance Institute, which is similar to the
United States Social Security Administration. Since January 1, 1995, such
amounts also include payments for national health insurance. The payments to the
National Insurance Institute are approximately 14.5% of wages, up to a specified
amount, of which the employee contributes approximately 66.0% and the employer
contributes approximately 34.0%. The majority of our permanent employees are
covered by life and pension insurance policies providing customary benefits to
employees, including retirement and severance benefits. We contribute 13.3% to
15.8%, depending on the employee, of base wages to such plans and the employee
contributes 5.0%.
RADVISION and its employees are not parties to any collective
bargaining agreements. However, certain provisions of the collective bargaining
agreements between the Histadrut, the General Federation of Labor in Israel, and
the Coordination Bureau of Economic Organizations, including the Manufacturers'
Association of Israel, are applicable to our employees by "extension orders" of
the Israeli Ministry of Labor and Welfare. These provisions principally concern
periodic cost of living adjustments, procedures for dismissing employees, travel
allowances, recuperation pay and other conditions of employment.
At the start of their employment, our employees in North America
generally sign offer letters specifying basic terms and conditions of employment
as well as non-disclosure agreements. At the start of their employment, our
employees in Israel generally sign written employment agreements that include
confidentiality and non-compete provisions.
RISK FACTORS
Investing in our ordinary shares involves a high degree of risk and
uncertainty. You should carefully consider the risks and uncertainties described
below before investing in our ordinary shares. If any of the following risks
actually occurs, our business, prospects, financial condition and results of
operations could be harmed. In that case, the value of our ordinary shares could
decline, and you could lose all or part of your investment.
19
Risks Relating to Our Business
We have a history of losses and we cannot assure you that we will operate
profitably in the future.
We incurred significant losses in every fiscal year from our inception
until 1999, and we incurred operating losses in 2000 and 2001. We may continue
to incur losses in the future. As of December 31, 2001, our accumulated deficit
was $10.6 million. We cannot assure you that we will operate profitably in the
future.
Our quarterly financial performance is likely to vary significantly in the
future. Our revenues and operating results in any quarter may not be indicative
of our future performance and it may be difficult for investors to evaluate our
prospects.
Our quarterly revenues and operating results have varied significantly
in the past and are likely to continue to vary significantly in the future.
Fluctuations in our quarterly financial performance may result from the fact
that we may receive a small number of relatively large orders in any given
quarter. Because these orders generate disproportionately large revenues, our
revenues and the rate of growth of our revenues for that quarter may reach
levels that may not be sustained in subsequent quarters. In addition, some of
our products have lengthy sales cycles. For example, it typically takes from
three to twelve months after we first begin discussions with a prospective
customer before we receive an order from that customer. We also have a limited
order backlog, which makes revenues in any quarter substantially dependent upon
orders we deliver in that quarter. Because of these factors, our revenues and
operating results in any quarter may not meet market expectations or be
indicative of future performance and it may be difficult for investors to
evaluate our prospects.
Unless our revenues grow in excess of our increasing expenses, we will not be
profitable.
We expect that our operating expenses will increase significantly in the
future, both to finance the planned expansion of our sales and marketing and
research and development activities and to fund the anticipated growth in our
revenues. However, our revenues may not grow apace or even continue at their
current level. If our revenues do not increase as anticipated or if expenses
increase at a greater pace than our revenues, we will not be profitable. Even if
we achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
If the use of packet-based networks as a medium for real-time voice, video and
data communications does not continue to grow, the demand for our products and
technology will slow and our revenues will decline.
Our future success depends on the growth in the use of packet-based
networks, including the Internet and other IP networks, as a medium for
real-time voice, video and data communications. If the use of packet-based
networks does not expand, the demand for our products and technology will slow
and our revenues will decline. Market acceptance of packet-based networks as a
viable alternative to circuit-switched networks for the transmission of
real-time voice and video communications is not proven and may be inhibited by
concerns about quality of service and potentially inadequate development of the
necessary infrastructure.
20
We must develop new products and technology and enhancements to existing
products and technology to remain competitive. If we fail to do so, we may lose
market share to our competitors and our revenues may decline.
The market for our products and technology is characterized by rapid
technological change, new and improved product introductions, changes in
customer requirements and evolving industry standards. Our future success will
depend to a substantial extent on our ability to:
o timely identify new market trends; and
o develop, introduce and support new and enhanced products and
technology on a successful and timely basis.
If we fail to develop and deploy new products and technology or product
and technology enhancements on a successful and timely basis, we may lose market
share to our competitors and our revenues may decline.
We are currently developing new products and technology and
enhancements to our existing products and technology. We may not be successful
in developing or introducing these or any other new products or technology to
the market.
We have invested, and will continue to invest, in products and technology which
comply with those industry standards which we believe have been, or will be,
broadly adopted. If one or more alternative standards were to gain greater
acceptance than the standards which we believe have or will be broadly adopted,
sales of our products and technology might suffer.
Currently, we offer networking products that comply with the H.323
industry standard for real-time voice, video and data communications over packet
networks. During 2000, we expanded our enabling technology product family to
include additional key IP protocols. Our current suite of IP communication
protocol toolkits include H.323, SIP, MGCP and MEGACO. We believe that IP
networks will be designed with components built around each of these protocols.
If these expectations ultimately prove to be incorrect, our investments may be
of little or no value.
We rely on a small number of marketing partners who distribute our products
either under our name or as private label products for a significant portion of
our business.
We rely in great measure on OEMs, systems integrators and value added
resellers, or VARs, to sell our products. Our OEM customers purchase our
products to integrate with products that they developed in-house to build
complete IP communications solutions. Our systems integrator customers either
purchase our full suite of products or integrate our individual products of
other manufacturers to build complete IP communications solutions. Our VAR
customers purchase our products to resell to end-users as separate units, or as
part of a family of related product offerings, either under our RADVISION label
or under their private label. If we are unable to maintain these marketing
partners or obtain new marketing partners, our future revenues and profitability
will be affected and we may lose market share.
21
Competition in the markets for our products and technology is intense. We may
not be able to compete effectively in these markets and we may lose market share
to our competitors.
The markets for our products and technology are highly competitive and
we expect competition to intensify in the future. We may not be able to compete
effectively in these markets and we may lose market share to our competitors.
The principal competitors in the market for our products currently include
Polycom Inc., which acquired Accord Networks Inc., First Virtual Communications,
which merged with CUseeMe Networks Inc. (formerly known as White Pine Software
Inc.), Ezenia (formerly known as Video-Server), and the in-house developers
employed by manufacturers of telecommunications equipment and systems. Our
principal competitors in the market for our technology which is primarily sold
in the form of software development kits, currently include DynamicSoft,
Trillium Digital Systems (acquired by Intel in Q42000) and Hughes Software
Systems. Additional competitors may enter each of our markets at any time.
Moreover, our customers may seek to develop internally the products that we
currently sell to them and compete with us.
Our software development kit revenues will decrease if our customers choose to
use source code which is available for free.
Both Vovida Networks, Inc. (now part of Cisco Systems Inc.) and
OpenH323 offer H.323 source code for free. In addition, Vovida offers MGCP and
SIP source code for free. If our customers choose to use the free source code
offered by these organizations instead of purchasing our technology, our
revenues from the sale of our software development kits will decline. Other
companies, including Microsoft, may offer similar development kits as part of
their product offerings.
Most of our competitors have greater resources than we do. This may limit our
ability to compete effectively with them and discourage customers from
purchasing our products and technology.
Most of our competitors have greater financial, personnel and other
resources than we do, which may limit our ability to compete effectively with
them. These competitors may be able to respond more quickly to new or emerging
technologies or changes in customer requirements. These competitors may also:
o benefit from greater economies of scale;
o offer more aggressive pricing; or
o devote greater resources to the promotion of their products.
Any of these advantages may discourage customers from purchasing our
products and technology. If we are unable to compete successfully against our
existing or potential competitors, our revenues and margins will decline.
22
Our agreements with our customers generally do not have minimum purchase
requirements. If our customers decrease or cease purchasing our products and
technology, our revenues will decline.
Our agreements with our customers generally do not have minimum
purchase requirements nor do they require our customers to purchase any products
from us. If any or all of our customers cease to purchase or reduce their
purchases of our products and technology at any time, our revenues will decline.
We cannot assure you that our customers will not choose to independently develop
for themselves, or purchase from others, products and technology similar to our
products and technology. Moreover, if our customers do not successfully market
and sell the systems and products into which they incorporate our products and
technology, the demand of these customers for our products and technology will
decline. Our customers' sales of systems and products containing our products
and technology may be adversely affected by circumstances over which we have no
control and over which our customers may have little, if any, control.
We are dependent upon a limited number of suppliers of key components. If these
suppliers delay or discontinue manufacture of these components, we may
experience delays in shipments, increased costs and cancellation of orders for
our products.
We currently obtain key components used in the manufacture of our
products from a single supplier or from a limited number of suppliers. We do not
have long-term supply contracts with our suppliers. Any delays in delivery of or
shortages in these components could interrupt and delay manufacturing of our
products and result in the cancellation of orders for our products. In addition,
these suppliers could discontinue the manufacture or supply of these components
at any time. We may not be able to identify and integrate alternative sources of
supply in a timely fashion or at all. Any transition to alternate suppliers may
result in delays in shipment and increased expenses and may limit our ability to
deliver products to our customers. Furthermore, if we are unable to identify an
alternative source of supply, we would have to modify our products to use a
substitute component, which may cause delays in shipments, increased design and
manufacturing costs and increased prices for our products.
We intend to manufacture and maintain an inventory of customized products for
some customers who will have no obligation to purchase these products. If these
customers fail to purchase these products, our financial results may be harmed.
To satisfy the timing requirements of some of our larger customers, we
intend to manufacture and maintain an inventory of some of our products that we
will customize to the specifications of these customers. The size of this
inventory will be based upon the purchasing history and forecasts of these
customers, which we currently estimate to be approximately two months of sales
to these customers. These customers will have no obligation to purchase the
inventoried products at any time. If the customers for whom the inventoried
products are manufactured do not purchase them, we may be required to modify the
products for sale to others and we may be unable to find other purchasers. In
either case, the value of the products may be materially diminished which may
have a negative impact on our financial results.
23
Undetected errors may increase our costs and impair the market acceptance of our
products and technology.
Our products and technology have occasionally contained, and may in the
future contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify the cause of
the problem. Regardless of the source of these errors, we must divert the
attention of our engineering personnel from our research and development efforts
to address the errors. We cannot assure you that we will not incur warranty or
repair costs, be subject to liability claims for damages related to product
errors or experience delays as a result of these errors in the future. Any
insurance policies that we may have, may not provide sufficient protection
should a claim be asserted. Moreover, the occurrence of errors, whether caused
by our products or technology or the products of another vendor, may result in
significant customer relations problems and injury to our reputation and may
impair the market acceptance of our products and technology.
We rely on third party technology licenses. If we are unable to continue to
license this technology on reasonable terms, we may face delays in releases of
our products and may be required to reduce the functionality of our products
derived from this technology.
We rely on technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. For example, we license T.120 data
collaboration software from Data Connection Limited and voice compression
technology from Siemens. If we are unable to continue to license any of this
software on commercially reasonable terms, we will face delays in releases of
our products or will be required to reduce the functionality of our products
until equivalent technology can be identified, licensed or developed, and
integrated into our current products.
Third parties may infringe upon or misappropriate our intellectual property,
which could impair our ability to compete effectively and negatively affect our
profitability.
Our success depends upon the protection of our technology, trade
secrets and trademarks. Our profitability could suffer if third parties infringe
upon our intellectual property rights or misappropriate our technology and other
assets. To protect our rights to our intellectual property, we rely on a
combination of trade secret protection, trademark law, confidentiality
agreements and other contractual arrangements. The protective steps we have
taken may be inadequate to deter infringement or misappropriation. We may be
unable to detect the unauthorized use of our intellectual property or take
appropriate steps to enforce our intellectual property rights. Policing
unauthorized use of our products and technology is difficult. In addition, the
laws of some foreign countries in which we currently or may in the future sell
our products do not protect our proprietary rights to as great an extent as do
the laws of the United States. Failure to adequately protect or to promptly
detect unauthorized use of our intellectual property could devalue our
proprietary content and impair our ability to compete effectively. Further,
defending our intellectual property rights could result in the expenditure of
significant financial and managerial resources, whether or not the defense is
successful.
24
Our products may infringe on the intellectual property rights of others, which
could increase our costs and negatively affect our profitability.
Third parties may assert against us infringement claims or claims that
we have infringed a patent, copyright, trademark or other proprietary right
belonging to them. For example, in 1998, Lucent alleged that some products
manufactured by us infringed specified Lucent patents. See "Item 3. Legal
Proceedings." Any infringement claim, even if not meritorious, could result in
the expenditure of significant financial and managerial resources and could
negatively affect our profitability.
We are dependent on our senior management. Any loss of the services of our
senior management could negatively affect our business.
Our future success depends to a large extent on the continued services
of our senior management and key personnel. We do not carry key-man life
insurance for any of our senior management. Any loss of the services of members
of our senior management or other key personnel could negatively affect our
business.
Our failure to retain and attract personnel could harm our business, operations
and product development efforts.
Our products require sophisticated research and development, marketing
and sales, and technical customer support. Our success depends on our ability to
attract, train and retain qualified research and development, marketing and
sales and technical customer support personnel. We intend to increase
substantially the number of our employees who perform these functions.
Competition for personnel in all of these areas is intense and we may not be
able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel
we require is very competitive, due to the limited number of people available
with the necessary technical skills and understanding of our products and
technology. If we fail to attract and retain qualified personnel, our business,
operations and product development efforts would suffer.
Our non-competition agreements with our employees may not be enforceable. If any
of these employees leaves us and joins a competitor, our competitor could
benefit from the expertise our former employee gained while working for us.
We currently have non-competition agreements with our key employees in
Israel. These agreements prohibit those employees, if they cease to work for us,
from directly competing with us or working for our competitors. Under current
U.S. and Israeli law, we may not be able to enforce these non-competition
agreements. If we are unable to enforce any of these agreements, our competitors
that employ our former employees could benefit from the expertise our former
employees gained while working for us. In addition, we do not have
non-competition agreements with our employees outside of Israel.
25
Government regulation could delay or prevent product offerings, resulting in
decreased revenues.
Our products are designed to operate with local telephone systems
throughout the world and therefore must comply with the regulations of the
Federal Communications Commission and other regulations affecting the
transmission of voice, video and data over telecommunications and other media.
Each time we introduce a new product, we are required to obtain regulatory
approval in the countries in which it is offered. In addition, we must
periodically obtain renewals of the regulatory approvals for the use of our
products in countries where we have already obtained approval. We cannot assure
you that regulatory approval for our current products will be renewed or that
regulatory approval for future products will be obtained. If we do not obtain
the necessary approvals and renewals, we may be required to delay the sales of
our products in those countries until approval for use is granted or renewed.
This could result in decreased revenues.
Risks Relating to Our Location in Israel
Conditions in Israel affect our operations and may limit our ability to produce
and sell our products, which could decrease our revenues.
We are incorporated under the laws of Israel, and most of our offices
and our production facilities are located in, the State of Israel. We are
directly affected by the political, economic and military conditions affecting
Israel. Any major hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could have
a material adverse effect on our business, financial condition and results of
operations. Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. While Israel has entered into peace agreements with both Egypt
and Jordan and several other countries have announced their intentions to
establish trade and other relations with Israel, Israel has not entered into any
peace arrangement with Syria or Lebanon. Moreover, while Israel had conducted
peace negotiations with the Palestinian Authority the increase in violence
primarily in the West Bank and Gaza Strip since October 2000 has caused a
significant deterioration in the relationship between Israel and the Palestinian
Authority and a cessation of peace talks. Efforts to resolve the problem have
failed to result in an agreeable solution. Continued hostilities between the
Palestinian community and Israel and any failure to settle the conflict may have
a material adverse effect on our business and us. Further deterioration of
hostilities into a full scale conflict might require more widespread military
reserve service by some of our employees, which may have a material adverse
effect on our business.
Because all of our revenues are generated in U.S. dollars or are linked to the
U.S. dollar while a portion of our expenses are incurred in new Israeli shekels,
our results of operations would be adversely affected if inflation in Israel
is not offset on a timely basis by a devaluation of the new Israeli shekel
against the U.S. dollar.
All of our revenues are in dollars or are linked to the dollar, while a
portion of our expenses, principally salaries and the related personnel
expenses, are in new Israeli shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate
26
of devaluation of the NIS in relation to the dollar or that the timing of this
devaluation lags behind inflation in Israel. This would have the effect of
increasing the dollar cost of our operations. In 1997 and 1998, the rate of
devaluation of the NIS against the dollar exceeded the rate of inflation, a
reversal from prior years. However, in 1999 and 2000 while the rate of inflation
was low, there was a devaluation of the dollar against the NIS. In the year 2001
the rate of devaluation of the NIS against the dollar exceeded the rate of
inflation. We cannot predict any future trends in the rate of inflation in
Israel or the rate of devaluation of the NIS against the dollar. If the dollar
cost of our operations in Israel increases, our dollar-measured results of
operations will be adversely affected.
The tax benefits that we currently receive from our approved enterprise programs
require us to satisfy specified conditions. If we fail to satisfy these
conditions, we may be required to pay additional taxes and would likely be
denied these benefits in the future.
The Investment Center of the Israeli Ministry of Industry and Trade has
granted approved enterprise status to several investment programs at our
manufacturing facility. The portion of our income derived from these approved
enterprise programs commencing when we begin to generate net income from these
programs will be exempt from tax for a period of two years and will be subject
to a reduced tax rate for an additional five to eight years, depending on the
percentage of our share capital held by non-Israelis. The benefits available to
an approved enterprise program are dependent upon the fulfillment of conditions
stipulated in applicable law and in the certificate of approval. If we fail to
comply with these conditions, in whole or in part, we may be required to pay
additional taxes during the period in which we would have benefited from the tax
exemption or reduced tax rates and would likely be denied these benefits in the
future.
It may be difficult to enforce a U.S. judgment against us and most of our
officers and directors or to assert U.S. securities laws claims in Israel or
serve process on most of our officers and directors.
We are incorporated in Israel. Many of our executive officers and
directors are nonresidents of the United States, and a substantial portion of
our assets and the assets of these persons are located outside the United
States. Therefore, it may be difficult for an investor, or any other person or
entity, to enforce a U.S. court judgment based upon the civil liability
provisions of the U.S. federal securities laws in an Israeli court against us or
any of those persons or to effect service of process upon these persons in the
United States. Additionally, it may be difficult for an investor, or any other
person or entity, to enforce civil liabilities under U.S. federal securities
laws in original actions instituted in Israel.
Risks Relating to Our Ordinary Shares
Holders of our ordinary shares who are United States residents face income tax
risks.
There is a substantial risk that we will be classified as a passive
foreign investment company, or PFIC. Our treatment as a PFIC could result in a
reduction in the after-tax return to the holders of our ordinary shares and
would likely cause a reduction in the value of such shares. For U.S. Federal
income tax purposes, we will be classified as a PFIC for any taxable year in
27
which either (i) 75% or more of our gross income is passive income, or (ii) at
least 50% of the average value of all of our assets for the taxable year produce
or are held for the production of passive income. For this purpose, passive
income includes dividends, interest, royalties, rents, annuities and the excess
of gains over losses from the disposition of assets which produce passive
income. If we were determined to be a PFIC for U.S. federal income tax purposes,
highly complex rules would apply to U.S. Holders owning ordinary shares.
Accordingly, you are urged to consult your tax advisors regarding the
application of such rules.
As a result of our substantial cash position and the decline in the
value of our stock, there is a substantial risk that we will be classified as a
PFIC under the asset test described in the preceding paragraph. However, based
on a independent third party opinion, we believe that we were not deemed to be
classified as a PFIC for the year 2001. We have, however, no assurance that the
U.S. Internal Revenue Services will accept this determination and there can be
no assurance that we will not be classified as a PFIC in the future.
United States residents should carefully read "Item 10E. Additional
Information - Taxation, United States Federal Income Tax Consequences" for a
more complete discussion of the U.S. federal income tax risks related to owning
and disposing of our ordinary shares.
Our share price has been volatile in the past and may decline in the future.
Our ordinary shares have experienced significant market price and
volume fluctuations in the past and may experience significant market price and
volume fluctuations in the future in response to factors such as the following,
some of which are beyond our control:
o quarterly variations in our operating results;
o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and
investors;
o announcements of technological innovations or new products by us
or our competitors;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o changes in the status of our intellectual property rights;
o announcements by third parties of significant claims or
proceedings against us;
o additions or departures of key personnel;
o future sales of our ordinary shares; and
28
o stock market price and volume fluctuations.
Domestic and international stock markets often experience extreme price
and volume fluctuations. Market fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations or political events or hostilities in or surrounding Israel, could
adversely affect the market price of our ordinary shares.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
Anti-takeover provisions could negatively impact our shareholders.
The new Israeli Companies Law provides that an acquisition of shares in
a public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Israeli Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% shareholder of the company. There
is an exception to this provision, if someone else is already a majority
shareholder of the company. Regulations under the Companies Law provide that the
Companies Law's tender offer rules do not apply to a company whose shares are
publicly traded outside of Israel, if pursuant to the applicable foreign
securities laws and stock exchange rules there is a restriction on the
acquisition of any level of control of the company, or if the acquisition of any
level of control of the company requires the purchaser to make a tender offer to
the public shareholders.
Finally, Israeli tax law treats certain acquisitions, particularly
stock-for-stock swaps between an Israeli company and a foreign company, less
favorably than United States tax law. Israeli tax law may, for instance, subject
a shareholder who exchanges his company shares for shares in a foreign
corporation to immediate taxation.
Item 2. Properties
Our headquarters and principal administrative, finance, sales and
marketing and promotion operations are located in approximately 60,079 square
feet of leased office space in Tel Aviv, Israel at an approximate rental cost of
$ 1,178,000 in 2001. The lease for our principal offices expires in June 2005.
In the United States, we lease approximately 10,000 square feet from a related
party in Mahwah, New Jersey expiring in May 2002 and approximately 1,232 square
feet in Sunnyvale, California expiring in December 2002. We also lease
approximately 1,246 square feet in Hong Kong expiring in June 2002,
approximately 872 square feet in China expiring in April 2003 and approximately
500 square feet in the United Kingdom expiring in February 2003.
The aggregate annual rent for our sales and service offices in the
United States, Hong Kong, China and the United Kingdom was approximately
$246,000 in 2001.
29
Item 3. Legal Proceedings
In January 2001, we entered into an agreement with Zohar Zisapel
Properties Inc. and Yehuda Zisapel Properties Inc. (entities that are wholly
owned by Zohar Zisapel, our Chairman of the Board and a principal shareholder,
and Yehuda Zisapel, a principal shareholder and our former Chairman,
respectively) to lease approximately 24,000 feet square of office space in
Paramus, New Jersey for a period of 5 years, which space we subsequently
surrendered. The parties disagree as to the extent of damages caused by this
action, if any. We cannot predict the final outcome of this dispute.
Other than the above, we are not involved in any legal proceedings that
are material to our business or financial condition.
In 1998, Lucent sent correspondence to our affiliate, RAD Data
Communications Ltd., alleging that some products manufactured by RAD and some of
its affiliates, including us, infringe upon specified Lucent patents and
offering to license these patents to RAD and its affiliates. In subsequent
correspondence, RAD requested that Lucent specifically substantiate each
allegation of infringement before RAD or any of its affiliates considers
entering into any licensing arrangements. RAD has recently received further
correspondence from Lucent in which Lucent has reiterated its claims. RAD does
not believe Lucent has substantiated its claims and has communicated this belief
to Lucent. RAD advises us that the alleged infringement claims are unresolved.
The elements of our products that Lucent has alleged infringe upon its
patents are contained within components which we obtain from a third party
manufacturer. We believe that the third party manufacturer has a license to use
these patents and that we may be entitled to the benefits of this license.
In addition, based on Lucent's fee and royalty schedule for licensing
the relevant patents, we believe that any licensing fee and royalty payments
that we may be required to pay for the right to use Lucent's patents would not
have a material impact on our earnings. As a result, we do not believe that
Lucent's allegations will have a material adverse effect upon us, our business,
financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of securities holders during the
fourth quarter of the fiscal year ended December 31, 2001.
30
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our ordinary shares are traded on the Nasdaq National Market under the
symbol RVSN. The following table sets forth, for the periods indicated, the high
and low sale prices of our ordinary shares as reported by the Nasdaq National
Market since our initial public offering on March 14, 2000:
2000 High Low
- ---- ------- -------
First Quarter (from March 14, 2000)............. $65 $40-1/2
Second Quarter ................................. 52-3/4 16-1/8
Third Quarter .................................. 40-1/2 24-5/8
Fourth Quarter.................................. 29-1/2 11-5/16
2001
- ----
First Quarter................................... $16.25 $6.16
Second Quarter.................................. 8.34 5.02
Third Quarter................................... 5.84 4.70
Fourth Quarter.................................. 8.85 4.85
As of March 11, 2002 we had approximately 3,455 beneficial shareholders
including 52 holders of record.
We have never paid dividends on our ordinary shares since our inception
and we do not anticipate paying any dividends in the foreseeable future. If we
were able to distribute cash dividends out of income that had been exempt from
tax because of our investment program's Approved Enterprise status (for
description of such status please refer to the section entitled "Effective
Corporate Tax Rate" in "Item 7. Management's Division and Analysis of Financial
Conditions and Results of Operations") such income would become subject to
Israeli corporate tax.
If we were to declare dividends in the future, we would declare those
dividends in NIS but pay those dividends to our non-Israeli shareholders in U.S.
dollars. Because exchange rates between NIS and the dollar fluctuate
continuously, a U.S. shareholder would be subject to currency fluctuation
between the date when the dividends were declared and the date the dividends
were paid.
Item 6. Selected Financial Data
The following selected consolidated financial data for and as of the
five years ended December 31, 2001, are derived from our audited consolidated
financial statements which have been prepared in accordance with U.S. GAAP. Our
consolidated financial statements were examined by Luboshitz Kasierer, Arthur
Andersen, independent auditors whose report with respect to the three years
ended December 31, 2001 and as of December 31, 2001 and 2000 appears in this
Annual Report.
31
Year ended December 31,
1997 1998 1999 2000 2001
--------- -------- ------- ------- -------
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
Revenues................................ $ 4,899 $ 8,894 $17,550 $45,911 $46,227
Cost of revenues........................ 1,211 1,412 2,853 11,446 10,362
-------- ------- ------- ------- -------
Gross profit............................ 3,689 7,482 14,697 34,465 35,865
-------- ------- ------- ------- -------
Operating expenses:
Research and development................ 2,763 4,379 7,667 14,263 17,933
Less participation by the Chief
Scientist............................ 890 1,140 1,097 353 -
-------- ------- ------- ------- -------
Research and development, net........... 1,873 3,239 6,570 13,910 17,933
Marketing and selling, net.............. 2,384 4,425 9,502 17,358 16,735
General and administrative.............. 494 670 1,426 3,458 4,438
Restructuring costs..................... - - - - 3,023
Royalties to Chief Scientist............ - - - 3,666 -
-------- ------- ------- ------- -------
Total operating expenses................ 4,751 8,334 17,498 38,392 42,129
-------- ------- ------- ------- -------
Operating loss.......................... (1,062) (852) (2,801) (3,927) (6,264)
Financial income, net................... 6 23 105 4,176 4,652
-------- ------- ------- ------- -------
Net income (loss)....................... $ (1,056) $ (829) $(2,696) $ 249 $(1,612)
======== ======= ======= ======= =======
Net earnings (loss) per ordinary share.. $ (0.10) $ (0.08) $ (0.26) $ 0.014 $ (0.09)
Weighted average number of ordinary
shares............................... 10,234 10,492 10,538 17,174 18,943
Diluted earnings (loss) per
ordinary share ...................... $ (0.10) $ (0.08) $ (0.26) $ 0.013 $(0.09)
Weighted average number of ordinary
shares............................... 10,234 10,492 10,538 19,873 18,943
December 31,
-----------------------------------------------------------------
1997 1998 1999 2000 2001
------ ------- ------- -------- --------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents............... $ 435 $3,305 $ 2,605 $ 41,617 $ 6,717
Working capital......................... 873 4,318 814 73,660 53,377
Total assets............................ 3,704 9,371 13,261 116,351 99,767
Total bank debt, less current maturities 106 130 67 19 -
Shareholders' equity.................... 1,363 5,450 3,481 94,345 83,549
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
The following discussion of our operating results of operations should
be read together with our consolidated financial statements and the related
notes, which appear elsewhere in this annual report. The following discussion
contains forward-looking statements that reflect our current plans, estimates
and beliefs and involve risks and uncertainties. Our actual results may differ
materially from those discussed in the forward-looking statements. Factors that
could
32
cause or contribute to such differences include those discussed below and
elsewhere in this annual report.
All of our revenues are generated in U.S. dollars or are linked to the
dollar and a majority of our expenses are incurred in dollars. Consequently, we
use the dollar as our functional currency. Transactions and balances in other
currencies are converted into dollars according to the principles in Financial
Accounting Standards Board Statement No. 52. Gains and losses arising from
conversion are recorded as interest income or expense, as applicable.
Overview
We are a leading designer, developer and supplier of products and
technology that enable real-time voice, video and data communications over
packet networks, including the Internet and other IP networks.
We were incorporated in January 1992, commenced operations in October
1992 and commenced sales of our products in the fourth quarter of 1994. Before
that time, our operations consisted primarily of research and development and
recruiting personnel. In 1995, we established a wholly owned subsidiary in the
United States, RADVISION Inc., which conducts our sales and marketing activities
in North America. We currently have sales offices in the United States, Hong
Kong, China, United Kingdom and Israel.
Revenues
We generate revenues from sales of our networking products that are
primarily sold in the form of stand-alone products, and our technology products
that are primarily sold in the form of software development kits, as well as
related maintenance and support services. We generally recognize revenues from
the sale of our products upon shipment and when collection is probable. Revenues
generated from maintenance and support services are deferred and recognized
ratably over the period of the term of service. We price our networking products
on a per unit basis, and grant discounts based upon unit volumes. We price our
software development kits on the basis of a fixed-fee plus royalties from
products developed using the software development kits. We sell our products and
technology through direct sales and various indirect distribution channels in
North America, Europe, the Asian/Pacific region and Israel. For the year ended
December 31, 2001, approximately 63% of our revenues were generated in the
United States.
Significant Costs and Expenses
Cost of Revenues Our cost of revenues consists of component and
material costs, direct labor costs, subcontractor fees, overhead related to
manufacturing and depreciation of manufacturing equipment. Our gross margin is
affected by the selling prices for our products as well as the proportion of our
revenues generated from the sale of our technology products as compared to our
networking products. Our revenues from the sale of our technology products have
higher gross margins than our revenues from the sale of our networking products
and we offer greater discounts to our high volume OEM customers. As the relative
proportion of our revenues from our networking products increases as a
percentage of our total revenues and we generate a higher percentage of our
revenues from sales to our high volume OEM customers, our gross margins will
decline.
33
Research and development expenses, net. Our research and development
expenses consist primarily of compensation and related costs for research and
development personnel, expenses for testing facilities and depreciation of
equipment.
Research and development costs, net are charged to operations as
incurred. Software development costs are considered for capitalization when
technological feasibility is established according to SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Costs incurred after achievement of technological feasibility in the process of
software production have not been material. Therefore, we have not capitalized
any of our research and development expenses and do not anticipate that our
development process will differ materially in the future.
Historically our research and development expenses were presented net
of payments received from the Office of the Chief Scientist of Israeli Ministry
of Industry and Trade, or the Chief Scientist. In 2000 we voluntarily repaid
$3,666,000 in future royalty payments to the Chief Scientist and discontinued
our relationship with the Chief Scientist in order to reduce certain
restrictions on our business and to avoid paying increased interest rates in the
future on royalty payments. We do not currently intend to apply for grants from
the Chief Scientist in the future. However, we expect to continue to make
substantial investments in research and development.
Marketing and selling expenses, net. Our marketing and selling expenses
consist primarily of compensation and related costs for sales personnel,
marketing personnel, sales commissions, marketing programs, public relations,
promotional materials, travel expenses, trade show exhibit expenses and
royalties paid to the Government of Israel. Marketing and selling expenses until
December 31, 1999 are presented net of marketing grants received from the
Government of Israel. We do not intend to apply for any grants from the
Government of Israel in the future.
General and administrative expenses. Our general and administrative
expenses consist primarily of salaries and related expenses for executive,
accounting and human resources personnel, professional fees, provisions for
doubtful accounts and other general corporate expenses.
Operating expenses also include amortization of stock-based
compensation, which is allocated among research and development expenses,
marketing and selling expenses and general and administrative expenses based on
the division in which the recipient of the option grant is employed.
Amortization of stock-based compensation results from the granting of options to
employees with exercise prices per share determined t