SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2004
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____to ___
Commission file number: 000-29871
RADVISION LTD.
--------------
(Exact Name of Registrant as Specified in Its Charter)
Israel N/A
------ ---
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
24 Raul Wallenberg Street, Tel Aviv 69719, Israel
-------------------------------------------------
(Address of Principal Executive Offices)
972-3-645-5220
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As August 5, 2004 the Registrant had 20,152,045 Ordinary Shares, par value NIS
0.1 per share, outstanding.
Preliminary Notes: RADVision Ltd. is incorporated in Israel and is a
"foreign private issuer" as defined in Rule 3b-4 under the Securities Exchange
Act of 1934 (the "1934 Act") and in Rule 405 under the Securities Act of 1933.
As a result, it is eligible to file this quarterly report on Form 6-K (in lieu
of Form 10-Q) and to file its annual reports on Form 20-F (in lieu of Form
10-K). However, RADVision Ltd. elects to file its interim reports on Forms 10-Q
and 8-K and to file its annual reports on Form 10-K.
Pursuant to Rule 3a12-3 regarding foreign private issuers, the proxy
solicitations of RADVision Ltd. are not subject to the disclosure and procedural
requirements of Regulation 14A under the 1934 Act, and transactions in its
equity securities by its officers and directors are exempt from Section 16 of
the 1934 Act.
RADVISION LTD.
INDEX
Page
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Part I - Financial Information:
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2003 (audited).......................................4
Condensed Consolidated Statements of Operations -
for the Three and Six Months ended June 30, 2004 and 2003.........5
Condensed Consolidated Statements of Cash Flows -
for the Three and Six Months ended June 30, 2004 and 2003.........6
Notes to Condensed Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................11
Item 3. Quantitative and Qualitative Disclosure About Market Risk...........19
Item 4. Controls and Procedures.............................................20
Part II - Other Information:
Item 1. Legal Proceedings...................................................21
Item 2. Changes in Securities and Use of Proceeds...........................21
Item 3. Defaults Upon Senior Securities.....................................22
Item 4. Submission of Matters to a Vote of Security Holders.................22
Item 5. Other Information...................................................23
Item 6. Exhibits and Reports on Form 8-K....................................24
Signatures..........................................................25
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
December 31,
June 30, 2004 2003
------------- -------------
Unaudited Audited
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,470 $ 16,433
Short-term bank deposits 5,986 13,574
Short-term marketable securities 16,696 21,403
Trade receivables (net of allowance for doubtful accounts of
$ 1,276 and $ 1,704 as of June 30, 2004 and December 31,
2003, respectively) 9,176 8,685
Other receivables and prepaid expenses 3,198 2,704
Inventories 967 969
--------- ---------
Total current assets 56,493 63,768
----- --------- ---------
LONG-TERM ASSETS:
Long-term bank deposits 13,384 4,004
Long-term marketable securities 48,296 44,497
Severance pay fund 2,252 2,171
--------- ---------
Total long-term assets 63,932 50,672
----- --------- ---------
PROPERTY AND EQUIPMENT, NET 2,691 2,572
--------- ---------
Total assets $ 123,116 $ 117,012
----- ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 1,422 $ 1,270
Deferred revenues 9,017 6,047
Accrued expenses and other accounts payable 11,217 13,101
--------- ---------
Total current liabilities 21,656 20,418
----- --------- ---------
ACCRUED SEVERANCE PAY 3,302 3,353
--------- ---------
Total liabilities 24,958 23,771
----- --------- ---------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.1 par value:
Authorized - 25,000,000 shares as of June 30, 2004
and December 31, 2003;
Issued - 20,152,045 shares as of June 30, 2004
and December 31, 2003;
Outstanding - 19,797,892 shares as of June 30, 2004
and 19,344,849 shares as of
December 31, 2003 187 187
Additional paid-in capital 104,663 104,663
Treasury stock, at cost (354,153 and 807,196 Ordinary shares
of NIS 0.1 par value as of June 30, 2004 and December 31,
2003, respectively) (2,221) (5,075)
Accumulated deficit (4,471) (6,534)
--------- ---------
Total shareholders' equity 98,158 93,241
----- --------- ---------
Total liabilities and shareholders' equity $ 123,116 $ 117,012
----- ========= =========
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of the consolidated financial
statements.
4
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
U.S. dollars in thousands, except per share data
Three months ended Six months ended
June 30, June 30,
----------------------------- ------------------------------
2004 2003 2004 2003
------------- ------------- -------------- --------------
Unaudited
-------------------------------------------------------------
Revenues $ 15,705 $ 11,605 $ 29,966 $ 22,658
Cost of revenues 3,398 2,598 6,495 4,959
------------- ------------- -------------- --------------
Gross profit 12,307 9,007 23,471 17,699
------------- ------------- -------------- --------------
Operating costs and expenses:
Research and development 4,282 3,596 8,062 7,160
Marketing and selling 6,127 4,853 11,964 9,584
General and administrative 1,210 976 2,450 1,924
Restructuring income - - (1,061) -
------------- ------------- -------------- --------------
Total operating costs and expenses 11,619 9,425 21,415 18,668
----- ------------- ------------- -------------- --------------
Operating income (loss) 688 (418) 2,056 (969)
Financial income, net 432 560 844 1,126
------------- ------------- -------------- --------------
Net income $ 1,120 $ 142 $ 2,900 $ 157
============= ============= ============== ==============
Basic net earnings per Ordinary
share $ 0.06 $ 0.01 $ 0.15 $ 0.01
============= ============= ============== ==============
Diluted net earnings per Ordinary
share $ 0.05 $ 0.01 $ 0.13 $ 0.01
============= ============= ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
5
RADVISION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands
Six months ended
June 30,
-----------------------
2004 2003
-------- --------
Unaudited
-----------------------
Cash flows from operating activities:
-------------------------------------
Net income $ 2,900 $ 157
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,114 1,187
Gain on sale of property and equipment (3) -
Accrued interest and amortization of premium on
held-to-maturity marketable securities and bank deposits 1,147 517
Amortization of deferred stock-based compensation - 117
Decrease (increase) in trade receivables, net (491) 4,649
Decrease (increase) in other receivables and prepaid expenses (581) 38
Decrease in inventories 2 183
Increase (decrease) in trade payables 152 (2,429)
Increase in deferred revenues 2,970 474
Increase (decrease) severance pay, net (132) 96
Decrease in accrued expenses and other accounts payable (1,884) (10)
-------- --------
Net cash provided by operating activities 5,194 4,979
-------- --------
Cash flows from investing activities:
-------------------------------------
Proceeds from redemption of held-to-maturity marketable
securities 21,430 28,481
Purchase of held-to-maturity marketable securities (21,356) (27,129)
Proceeds from withdrawal of bank deposits 17,044 7,578
Purchase of bank deposits (19,149) -
Purchase of property and equipment (1,243) (784)
Proceeds from sale of property and equipment 13 -
-------- --------
Net cash provided by (used in) investing activities (3,261) 8,146
-------- --------
Cash flows from financing activities:
-------------------------------------
Issuance of Ordinary shares and treasury stock for cash upon
exercise of options 2,104 787
Exercise of options by employees - 15
-------- --------
Net cash provided by financing activities 2,104 802
-------- --------
Increase in cash and cash equivalents 4,037 13,927
Cash and cash equivalents at beginning of period 16,433 13,825
-------- --------
Cash and cash equivalents at end of period $ 20,470 $ 27,752
======== ========
Supplemental disclosure of non-cash flow from
investing and financing activities:
-----------------------------------
Issuance of Ordinary shares upon sale of treasury stock $ (87) $ 15
======== ========
Loss on issuance of Ordinary shares upon sale of treasury stock $ 837 $ 1,153
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
6
NOTE 1:- GENERAL
Radvision Ltd. (the "Company"), an Israeli corporation, designs,
develops and supplies products and technology that enable real-time
voice, video and data communications over packet networks, including
the Internet and other networks based on the Internet protocol.
The Company's products and technology are used by its customers to
develop systems that enable enterprises and service providers to use
packet networks for real-time IP ("Internet Protocol") communications.
The Company operates under two reportable segments: 1) the
"networking" business unit ("NBU"), which focuses on networking
solutions and is responsible for developing networking products for
IP-centric voice, video and data conferencing services; and 2) the
"technology" business unit ("TBU"), which focuses on creating
developer toolkits for the underlying IP communication protocols and
testing tools needed for real-time voice and video over IP.
The Company has four wholly-owned subsidiaries: Radvision Inc., in the
United States, Radvision B.V., in the Netherlands, Radvision HK in
Hong Kong, and Radvision U.K. in the United Kingdom. Other than
Radvision B.V., the subsidiaries are primarily engaged in the sale,
marketing and service of the Company's products and technology.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2003 are applied
consistently in these financial statements.
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. For further information, refer to the consolidated financial
statements as of December 31, 2003.
c. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25") and FASB No. Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44")
in accounting for its employee stock option plans. Under APB No.
25, when the exercise price of the Company's stock options is
less than the market price of the underlying shares on the date
of grant, compensation expense is recognized.
7
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Under Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation ("SFAS No. 123"), pro
forma information regarding net income and net earnings per share
is required, and has been determined as if the Company had
accounted for its employee stock options under the fair value
method of SFAS No. 123. The fair value for these options is
amortized over their vesting period and estimated at the date of
grant using a Black-Scholes Option Valuation Model with the
following weighted-average assumptions for the six months and
three months ended June 30, 2004 and 2003:
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2004 2003 2004 2003
----------- ---------- ----------- ----------
Unaudited
---------------------------------------------------
Risk free interest 3.81% 2% 3.81% 2%
Dividend yields 0% 0% 0% 0%
Volatility 0.432 0.467 0.432 0.467
Expected life 4 4 4 4
Pro forma information under
SFAS No. 123:
Net income as reported $ 1,120 $ 142 $ 2,900 $ 157
=========== ========== =========== ==========
Add - stock based
compensation expense
determined under APB 25 $ - $ - $ - $ 117
=========== ========== =========== ==========
Deduct - stock-based
compensation expense
determined under fair
value method for all
awards $ 862 $ 863 $ 1,732 $ 1,117
=========== ========== =========== ==========
Pro forma net income (loss) $ 258 $ (721) $ 1,168 $ (1,456)
=========== ========== =========== ==========
Basic diluted earnings per
share, as reported $ 0.01 $ 0.01 $ 0.06 $ 0.01
=========== ========== =========== ==========
Pro forma basic and diluted
net earnings (loss) per
share $ 0.01 $ (0.04) $ 0.05 $ (0.08)
=========== ========== =========== ==========
In March 2004, the Financial Accounting Standards Board (FASB)
approved the consensus reached on the Emerging Issues Task Force
(EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The
objective of this Issue is to provide guidance for identifying
impaired investments. EITF 03-1 also provides new disclosure
requirements for investments that are deemed to be temporarily
impaired. The accounting provisions of EITF 03-1 are effective
for all reporting periods beginning after June 15, 2004, while
the disclosure requirements are effective only for annual periods
ending after June 15, 2004. The Company has evaluated the impact
of the adoption of EITF 03-1 and does not believe the impact will
be significant to the Company's overall results of operations or
financial position.
8
NOTE 3:- UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30,
2004, are not necessarily indicative of the results of operations that
may be expected for the year ended December 31, 2004
NOTE 4:- INVENTORIES
June 30, December 31,
2004 2003
------------- --------------
Unaudited Audited
------------- --------------
Raw materials $ 310 $ 361
Work in progress 505 490
Finished products 152 118
------------- --------------
$ 967 $ 969
============= ==============
NOTE 5:- ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
June 30, December 31,
2004 2003
------------- --------------
Unaudited Audited
------------- --------------
Employees and employee accruals $ 2,277 $ 2,415
Accrued expenses 8,940 10,686
------------- --------------
$11,217 $13,101
============= ==============
NOTE 6:- RESTRUCTURING INCOME
In January 2001, the Company entered into an agreement with related
parties, to lease approximately 24,000 square feet of office space in
Paramus, New Jersey for a period of 5 years, which space the Company
subsequently surrendered. The parties had a dispute with respect to
the extent of damages caused by this action. In December 2003, the
parties proceeded to binding arbitration. The presiding arbitrator
issued his final ruling on February 12, 2004, stating the amount owed
by the Company was $400. The Company recorded an amount of $1,061 as
restructuring income, representing the surplus of its accruals in
former periods.
NOTE 7:- SIGNIFICANT EVENTS
During the six months ended June 30, 2004, certain of the Company's
employees exercised their options to purchase the Company's shares.
The shares issued upon exercise were
9
included as Treasury stock. As a result of these transactions, the
Company has recorded a loss in the amount of approximately $ 837 as an
addition to accumulated deficit.
NOTE 8:- SEGMENTS AND CUSTOMER INFORMATION
Three months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2004 2003 2004 2003
--------------- ----------- ------------ ------------
Unaudited
---------------------------------------------------------
Revenues:
Product sales $ 11,298 $ 8,553 $ 21,464 $ 16,239
Software sales 4,407 3,052 8,502 6,419
-------------- ------------ ------------ ------------
Total revenues $ 15,705 $ 11,605 $ 29,966 $ 22,658
----- ============== ============ ============ ============
Cost of revenues:
Product sales $ 3,077 $ 2,429 $ 5,904 $ 4,783
Software sales 321 169 591 176
-------------- ------------ ------------ ------------
Total cost of revenues $ 3,398 $ 2,598 $ 6,495 $ 4,959
----- ============== ============ ============ ============
NOTE 9:- EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share:
Three months ended Six months ended
June 30, June 30,
------------------------------ -------------------------
2004 2003 2004 2003
---------------- ------------ ----------- -----------
Unaudited
---------------------------------------------------------
Numerator:
Net income $ 1,120 $ 142 $ 2,900 $ 157
============== ============== ============= =============
Number of shares:
Denominator:
Denominator for basic
earnings per share -
weighted average of
Ordinary shares 19,710,729 18,473,504 19,597,463 18,409,399
Effect of dilutive
securities:
Employee stock options
and unvested restricted
shares 1,689,675 745,278 1,886,131 645,894
-------------- -------------- ------------- -------------
21,400,404 19,218,782 21,483,594 19,055,293
============== ============== ============= =============
- - - - - - - - - - - -
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
This information should be read in conjunction with the condensed consolidated
financial statements and notes included in Item 1 of Part I of this Quarterly
Report and the audited financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2003 contained in our 2003 Annual Report on Form 10-K.
The discussion and analysis which follows may contain trend analysis and other
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 which reflect our current views with respect to future
events and financial results. These include statements regarding our earnings,
projected growth and forecasts, and similar matters that are not historical
facts.
We remind shareholders that forward-looking statements are merely predictions
and therefore are inherently subject to uncertainties and other factors that
could cause the future results to differ materially from those described in the
forward-looking statements.
Overview
We are the industry's leading provider of high quality, scalable and easy-to-use
products and technologies for videoconferencing, video telephony, and the
development of converged voice, video and data over IP and 3G networks. We have
approximately 450 customers worldwide including Alcatel, Cisco, FastWeb,
NTT/DoCoMo, Philips, Panasonic, Samsung, Shanghai Bell, Siemens, Sony and
Tandberg. Hundreds of thousands of end-users around the world today communicate
over a wide variety of networks using products and solutions based on or built
around our multimedia communication platforms and software development
solutions.
In the beginning of 2001, we created two separate business units corresponding
to our two product lines to enable our product development and product marketing
teams to respond quickly to evolving market needs with new product
introductions.
Our Networking Business Unit, or NBU, offers one of the broadest and most
complete set of multimedia communication and videoconferencing network solutions
for IP, ISDN, SIP and 3G-based networks, supporting most end points in the
industry today. These products are sold primarily to resellers and OEMs who use
this infrastructure to develop and install advanced IP and ISDN-based
communication systems for enterprise customers. The NBU also provides service
providers, both 3G wireless and wireline, with integrated solutions that enable
the delivery of converged IP-based multimedia streaming and video telephony
applications to corporate customers as a managed service, residential broadband
customers, and 3G subscribers worldwide.
Our Technology Business Unit, or TBU, is a one-stop shop of voice and video over
IP and 3G Development toolkits. The TBU provides protocol development tools and
platforms, as well as associated solutions such as testing platforms and IP
phone toolkits that enable equipment vendors and service providers to develop
and deploy new IP and 3G-based converged networks, services, and technologies.
Our TBU also provides professional services to our customers, assisting them
with integrating our technology into their products. RADVISION's TBU solutions
include developer toolkits for SIP, MEGACO/H.248, MGCP, H.323, and 3G-324M. It
11
also includes RADVISION's ProLab(TM) Test Management Suite and IP phone toolkit.
Today you may find RADVISION toolkits implemented in a wide range of
environments from chipsets to simple user devices like IP phones, and from
integrated video systems through carrier class network devices like gateways,
switches, soft switches and 3G multimedia gateways.
Our Strategy
Our goal is to be the leading provider of innovative products and technologies
that enable real-time multimedia collaboration (voice, video and data)
communication over packet networks. We provide solutions at every level -
protocol developer toolkits, professional services, network infrastructure, and
even integrated solutions that compliment the communication solutions of other
vendors such as those from Cisco and Microsoft. We believe that the combination
of offering IP-centric networking products and software toolkits uniquely
positions us as a key enabling vendor in the evolution of IP communication. Both
of our product lines are essential for building IP networks that support real
time voice and video communication with full interoperability with legacy
ISDN/PSTN networks and technologies.
Results of Operations
The following table presents, as a percentage of total revenues,
condensed statements of operations data for the periods indicated:
Three months Six months
ended June 30, ended June 30,
-------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
Unaudited
------------------------------------
Revenues
Networking products................. 71.9% 73.7% 71.6% 71.7%
Technology products................. 28.1 26.3 28.4 28.3
Total revenues...................... 100.0 100.0 100.0 100.0
Cost of revenues
Networking products................. 19.6 20.9 19.7 21.1
Technology products................. 2.0 1.5 2.0 0.8
Total cost of revenues.............. 21.6 22.4 21.7 21.9
Gross profit............................. 78.4 77.6 78.3 78.1
Operating expenses
Research and development............. 27.3 31.0 26.9 31.6
Marketing and selling................ 39.0 41.8 39.9 42.3
General and administrative........... 7.7 8.4 8.2 8.5
Restructuring income - - (3.5) -
Total operating expenses.............. 74.0 81.2 71.5 82.4
Operating profit (loss).................. 4.4 (3.6) 6.8 (4.3)
Financial income, net.................... 2.8 4.8 2.8 5.0
Net income (loss)........................ 7.2 1.2 9.6 0.7
Three Months Ended June 30, 2003 Compared with Three Months Ended June 30, 2004
Revenues. We generate revenues from sales of our networking products that are
primarily sold in the form of stand-alone products, and our technology products
that are primarily sold in the form of software development kits, as well as
related maintenance and support services. We generally recognize revenues from
the sale of our products upon shipment and when collection is
12
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 Middle East and the Far
East.
Our revenues increased from $11.6 million for the three months ended June 30,
2003 to $15.7 million for the three months ended June 30, 2004, an increase of
$4.1 million, or 35%. This increase was mainly due to a $2.7 million, or 32%,
increase in sales of our networking products and an increase of $1.3 million, or
44.4%, in sales of our technology products.
Revenues from networking products increased from $8.6 million for the three
months ended June 30, 2003 to $11.3 million for the three months ended June 30,
2004. Revenues from sales of our ViaIP(TM) product line increased from $8.2
million for the three month period ended June 30, 2003 to $10.6 million for the
three month period ended June 30, 2004.
Revenues from technology products increased by $1.3 million, or 44%, from $3.1
million for three months ended June 30, 2003 to $4.4 million for the three
months ended June 30, 2004. Revenues from licenses and royalties totaled $1.1
million and $731,000, respectively, in the three months ended June 30, 2003
compared to $1.8 million and $900,000, respectively, in the three months ended
June 30, 2004. Maintenance revenues remained constant at approximately $1.1
million in the three months ended June 30, 2003 and 2004.
Revenues from sales to customers in North America increased from $6.6 million,
or 56.5% of revenues, for the three months ended June 30, 2003, to $7.6 million,
or 48.6% of revenues, for the three months ended June 30, 2004, an increase of
$1.0 million, or 16.4%. This increase in sales was primarily attributable to
increased market demand for our networking products in this region.
Revenues from sales to customers in Europe and the Middle East increased from
$1.9 million, or 16.1% of revenues, for the three months ended June 30, 2003, to
$5.4 million, or 34.2% of revenues, for the three months ended June 30, 2004, an
increase of $3.5 million, or 188%. This increase in sales was primarily
attributable to increased sales efforts for our networking products in this
region.
Revenues from sales to customers in the Far East decreased from $3.2 million, or
27.4% of revenues, for the three months ended June 30, 2003, to $2.5 million, or
16.2% of revenues, for the three months ended June 30, 2004, a decrease of
$700,000, or 20%.
Cost of Revenues. Cost of revenues increased from $2.6 million for the three
months ended June 30, 2003 to $3.4 million for the three months ended June 30,
2004. Gross profit as a percentage of revenues increased slightly from 77.6% for
the three months ended June 30, 2003 to 78.4% for the three months ended June
30, 2004.
Research and Development. Research and development expenses increased from $3.6
million for the three months ended June 30, 2003 to $4.3 million for the three
months ended June 30, 2004, an increase of $700,000, or 19.4%. This increase was
primarily attributable to an increase
13
in the number of research and development personnel whom we employed. Research
and development expenses as a percentage of revenues decreased from 31.0% for
the three months ended June 30, 2003 to 27.3% for the three months ended June
30, 2004.
Marketing and Selling. Marketing and selling expenses increased from $4.9
million for the three months ended June 30, 2003 to $6.1 million for the three
months ended June 30, 2004, an increase of $1.2 million, or 24.5%. This increase
was primarily attributable to increased sales efforts in North America and EMEA.
Marketing and selling expenses as a percentage of revenues decreased from 41.8%
for the three months ended June 30, 2003 to 39.0% for the three months ended
June 30, 2004.
General and Administrative. General and administrative expenses increased from
$1.0 million for the three months ended June 30, 2003 to $1.2 million for the
three months ended June 30, 2004, an increase of $200,000, or 24.0%. This
increase was primarily attributable to an increase in personnel expenses.
General and administrative expenses as a percentage of revenues were 8.4% for
the three months ended June 30, 2003 and 7.7% for the three months ended June
30, 2004.
Operating Income (Loss). We had operating loss of $418,000 for the three months
ended June 30, 2003 compared to operating income of $688,000 for the three
months ended June 30, 2004.
Financial Income. We had financial income of $560,000 for the three months
ended June 30, 2003 as compared to $432,000 for the three months ended June 30,
2004. This income was principally derived from the investment of the proceeds of
our March 2000 initial public offering and private placement. Our interest
income decreased due to lower prevailing interest rates.
Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003
Revenues. Revenues increased from $22.7 million for the six months ended June
30, 2003 to $30.0 million for the six months ended June 30, 2004, an increase of
$7.3 million, or 32.3%. This increase was due an increase in sales of networking
and technology products.
Revenues from networking products increased from $16.2 million for the six
months ended June 30, 2003 to $21.5 million for the six months ended June 30,
2004. Revenues from sales of our ViaIP(TM) product line increased from $13.4
million in the six months ended June 30, 2003 to $20.5 million in the six months
ended June 30, 2004. The increase in networking product sales was principally
attributable to a better than forecast sales in the U.S. and EMEA, offsetting
lower than expected Asia Pacific sales due to a slow start to the year in China.
Revenues from technology products increased from $6.4 million for the six months
ended June 30, 2003 to $8.5 million for the six months ended June 30, 2004.
Revenues from licenses and royalties were $2.2 million and $1.3 million,
respectively, for the six months ended June 30, 2003 and $3.6 million and $1.8
million, respectively, for the six months ended June 30, 2004. Maintenance
revenues decreased from $2.4 million for the six months ended June 30, 2003 to
$2.1 million for the six months ended June 30, 2004, which decline was offset in
part by the initiation of our offering professional services with respect to
research and development, which activity accounted for $838,000 in revenues for
the six months ended June 30, 2004.
14
Revenues from sales to customers in North America increased from $10.9 million,
or 48% of revenues, for the six months ended June 30, 2003, to $15.4 million, or
51.4% of revenues, for the six months ended June 30, 2004, an increase of $4.5
million, or 41%. This increase in sales was primarily attributable to increased
market demand for our networking products in this region.
Revenues from sales to customers in Europe and the Middle East increased from
$5.5 million, or 24.4% of revenues, for the six months ended June 30, 2003, to
$9.3 million, or 31.1% of revenues, for the six months ended June 30, 2004, an
increase of $3.8 million, or 68.7%. This increase in sales was primarily
attributable to increased sales efforts for our networking products in this
region.
Revenues from sales to customers in the Far East decreased from $6.2 million, or
27.4% of revenues, for the six months ended June 30, 2003, to $4.9 million, or
16.2% of revenues, for the six months ended June 30, 2004 a decrease of $1.3
million, or 21.7%.
Cost of Revenues. Cost of revenues increased from $5.0 million for the six
months ended June 30, 2003 to $6.5 million for the six months ended June 30,
2004, an increase of $1.5 million, or 31.0%. Gross profit as a percentage of
revenues increased slightly from 78.1% for the six months ended June 30, 2003 to
78.3% for the six months ended June 30, 2004.
Research and Development. Research and development expenses increased from $7.2
million for the six months ended June 30, 2003 to $8.1 million for the six
months ended June 30, 2004, an increase of $900,000, or 12.6%. This increase was
primarily attributable to an increase in the number of research and development
personnel whom we employed. Research and development expenses as a percentage of
revenues decreased from 31.6% for the six months ended June 30, 2003 to 26.9%
for the six months ended June 30, 2004.
Marketing and Selling. Marketing and selling expenses increased from $9.6
million for the six months ended June 30, 2003 to $12.0 million for the six
months ended June 30, 2004, an increase of $2.4 million, or 24.8%. This increase
was primarily attributable to increased sales efforts in North America and EMEA.
Marketing and selling expenses as a percentage of revenues decreased from 42.3%
for the six months ended June 30, 2003 to 39.9% for the six months ended June
30, 2004.
General and Administrative. General and administrative expenses increased from
$1.9 million for the six months ended June 30, 2003 to $2.4 million for the six
months ended June 30, 2004, an increase of $500,000, or 27.3%. This increase was
primarily attributable to an increase in personnel expenses. General and
administrative expenses as a percentage of revenues were 8.5% for the six months
ended June 30, 2003 and 8.2% for the six months ended June 30, 2004.
Financial Income. Financial income decreased from $1.1 million for the six
months ended June 30, 2003 to $800,000 for the six months ended June 30, 2004
principally as a result of the decreased interest income we derived from the
investment of the proceeds of our March 2000 initial public offering and private
placement. Our interest income decreased due to lower prevailing interest rates.
15
Liquidity and Capital Resources
We generated $5.2 million from operating activities for the six months ended
June 30, 2004 compared to $5.0 million in the same period in 2003. This amount
was primarily attributable to higher net income of $2.9 million, a $3.0 million
increase in deferred revenues, an increase of $150,000 in trade payables, and
depreciation expenses of $1.1 million. These increases in cash generated by our
operating activities were offset in part by a $2.0 million decrease in other
payables and accrued expenses. Net cash used in investing activities was
approximately $3.3 million for the six months ended June 30, 2004. During the
six months ended June 30, 2004, $1.2 million of cash used in investing
activities was for purchases of property and equipment.
Our financing activities generated $2.1 million for the six months ended June
30, 2004 compared to $800,000 in the same period in 2003. This amount was
primarily attributable to proceeds from the exercise of employee stock options.
Our capital requirements are dependent on many factors, including market
acceptance of our products and the allocation of resources to our research and
development efforts, as well as our marketing and sales activities. We plan to
pursue strategic initiatives and make operating investments in 2004 as we
position our company to realize on what we perceive to be increasing market
opportunities in the coming years. We anticipate that our cash resources will be
used primarily to fund our operating activities, as well as for capital
expenditures. We may establish additional operations as we expand globally.
We plan to pursue strategic initiatives and make operating investments in 2004
as we position our company to realize what we perceive to be increasing market
opportunities in the coming years.
On February 28, 2001, we announced that our board of directors had authorized
the repurchase of up to 10% of our outstanding shares in open market
transactions from time to time at prevailing market prices. We completed the
share repurchase program in the first fiscal quarter of 2002, having purchased
1,866,115 ordinary shares at a total cost of $11.8 million, or an average price
of $6.30 per share. At the beginning of 2003, we began to reissue the
repurchased shares upon exercise of employee stock options.
On August 28, 2002, we announced that our board of directors had authorized the
repurchase of up to $10 million or 2 million of our ordinary shares in the open
market from time to time at prevailing market prices. During April 2003, we
started to repurchase our ordinary shares based on the instruction of our board
of directors. As of June 30, 2004, we had purchased 14,000 ordinary shares at a
total cost of $78,000, or an average price of $5.55 per share.
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In addition,
we have no unconsolidated special purpose financing or partnership entities that
are likely to create material contingent obligations.
16
Third Quarter 2004 Guidance
o Third quarter net sales are expected to be approximately
$16.7 million, an increase of approximately $3.6 million, or
27.5%, compared with the third quarter 2003.
o Net income is expected to increase to approximately
$1,250,000 or $0.06 per share, a 37.0% increase compared
with third quarter 2003.
These projections are subject to substantial uncertainty that could cause our
future results to differ materially from the guidance we have provided.
Cautionary Statement Regarding Forward-Looking Information and Risk Factors
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as "anticipate,"
"expect," "intend," "plan," "believe," "seek," "outlook" and "estimate" as well
as similar words and phrases signify forward-looking statements. RADVision's
forward-looking statements are not guarantees of future results and conditions
and important factors, risks and uncertainties may cause our actual results to
differ materially from those expressed in our forward-looking statements. These
uncertainties and other factors include, but are not limited to, the following:
Risks Relating to Our Business
o Our history of losses prior to 2001 and the uncertainty of our ability
to operate profitably in the future.
o Our quarterly financial performance is likely to vary significantly in
the future and our revenues and operating results in any quarter may
not be indicative of our future performance.
o If the use of packet-based networks as a medium for real-time voice,
video and data communication does not continue to grow, the demand for
our products and technology will slow and our revenues will decline.
o Our need to develop new products and technology and enhancements to
existing products and technology.
o Our investment, and continuing investment, in products and technology
that comply with those industry standards that we believe have been,
or will be, broadly adopted. If one or more alternative standards were
to gain greater acceptance than the standards that we believe have or
will be broadly adopted, sales of our products and technology might
suffer.
o Because competition in the markets for our products and technology is
intense, our ability to compete effectively in these markets may be
hampered and we may lose market share to our competitors.
17
o Major solutions providers who currently work with us may compete with
us in the future.
o Our software development kit revenues will decrease if our customers
choose to use source code that is available for free.
o Most of our competitors have greater resources than we do. This may
limit our ability to compete effectively with them and discourage
customers from purchasing our products and technology.
o Our dependency upon a limited number of suppliers of key components.
If these suppliers delay or discontinue manufacture of these
components, we may experience delays in shipments, increased costs and
cancellation of orders for our products.
o Our intent to manufacture and maintain an inventory of customized
products for some customers who have no obligation to purchase these
products may harm our financial results if these customers fail to
purchase these products.
o Undetected errors may increase our costs and impair the market
acceptance of our products and technology.
o If our ability to continue to license third party technology on
reasonable terms is impaired, we may face delays in releases of our
products and may be required to reduce the functionality of our
products derived from this technology.
o Third parties may infringe upon or misappropriate our intellectual
property, which could impair our ability to compete effectively and
negatively affect our profitability.
o Our products may infringe on the intellectual property rights of
others, which could increase our costs and negatively affect our
profitability.
o We are dependent on our senior management and any loss of their
services could negatively affect our business.
o Our failure to retain and attract personnel could harm our business,
operations and product development efforts.
o Our non-competition agreements with our employees may not be
enforceable. If any of these employees leaves us and joins a
competitor, our competitor could benefit from the expertise our former
employee gained while working for us.
o Government regulation could delay or prevent product offerings,
resulting in decreased revenues.
Risks Relating to Our Location in Israel
o Conditions in Israel affect our operations and may limit our ability
to produce and sell our products, which could decrease our revenues.
18
o The economic conditions in Israel have not been stable in recent
years.
o Some of our directors, officers and employees are obligated to perform
annual military reserve duty in Israel. We cannot assess the potential
impact of these obligations on our business.
o Because most of our revenues are generated in U.S. dollars or are
linked to the U.S. dollar while a portion of our expenses are incurred
in new Israeli shekels, our results of operations would be adversely
affected if inflation in Israel is not offset on a timely basis by a
devaluation of the new Israeli shekel against the U.S. dollar.
o The tax benefits that we currently receive from our approved
enterprise programs require us to satisfy specified conditions. If we
fail to satisfy these conditions, we may be required to pay additional
taxes and would likely be denied these benefits in the future.
o It may be difficult to enforce a U.S. judgment against us and most of
our officers and directors or to assert U.S. securities laws claims in
Israel or serve process on most of our officers and directors.
Risks Relating to Our Ordinary Shares
o Holders of our ordinary shares who are United States residents face
income tax risks.
o Our share price has been volatile in the past and may decline in the
future.
o Anti-takeover provisions under Israeli tax law could negatively impact
our shareholders.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Interest Rate Risk
As of June 30, 2004, we had cash and cash equivalents and short-term investments
of $43.2 million. We invest our cash surplus in time deposits, cash deposits,
U.S. federal agency securities and corporate bonds with an average credit rating
of A2. These investments are not purchased for trading or other speculative
purposes. Due to the nature of these investments, we believe that we do not have
a material exposure to market risk.
Our exposure to market risks for changes in interest rates is limited since we
do not have any material indebtedness.
Foreign Currency Exchange Risk
We develop products in Israel and sell them in North America, Asia and Europe.
As a result our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets.
Our foreign currency exposure with respect to our sales is mitigated, and we
expect it will continue to be mitigated, through salaries, materials and support
operations, in which part of these costs are denominated in NIS.
19
During 2003, the NIS revalued approximately 7.6% against the dollar. Among the
factors contributing to the revaluation are the low interest rate for US$
investments compared to the higher interest rate for NIS investments. The
revaluation has resulted in deflation in Israel, which was approximately 1.9%
for the year 2003 compared to an annual inflation rate of 6.5% for 2002 and
inflation of 1.4% for the six months ended June 30, 2004.
Since most of our sales are quoted in dollars, and a portion of our expenses are
incurred in NIS, our results may be adversely affected by a change in the rate
of inflation in Israel or if such change in the rate of inflation is not offset,
or is offset on a lagging basis, by a corresponding devaluation of the NIS
against the dollar and other foreign currencies.
We did not enter into any foreign exchange contracts in 2003 or the first six
months of 2004.
Item 4. Controls and Procedures
-----------------------
Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we carried out an
evaluation of the effectiveness of the design and operation of our company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934. Based upon that evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report.
There have been no significant changes in our internal controls or other
factors, which could significantly affect internal controls subsequent to the
date we carried out the evaluation.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
We are not involved in any legal proceedings that are material to our business
or financial condition.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Use of Proceeds. The following information required by Item 701(f) of Regulation
S-K relates to our initial public offering of ordinary shares of our company on
March 14, 2000. The following table sets forth, with respect to the ordinary
shares registered, the amount of securities registered, the aggregate offering
price of amount registered, the amount sold and the aggregate offering price of
the amount sold, for both the account of our company and the account of any
selling security holder.
For the account of
For the account the selling
of the company shareholder
-------------- -----------
Number of ordinary shares registered . 4,370,000 N/A
Aggregate offering price of
shares registered ................. $87,400,000 N/A
Number of ordinary shares sold ....... 4,370,000 N/A
Aggregate offering price of shares
sold .............................. $87,400,000 N/A
The following table sets forth the expenses incurred by us in connection with
our public offering during the period commencing the effective date of the
Registration Statement and ending June 30, 2004. None of such expenses were paid
directly or indirectly to directors, officers, persons owning 10% or more of any
class of equity securities of our company or to our affiliates.
Direct or indirect payments to
persons other than affiliated
persons
------------------------------
Underwriting discounts and commissions ... $6,118,000
Finders' fees ............................ 550,000
Expenses paid to or for underwriters...... 41,290
Other expenses ........................... 2,241,113
---------
Total expenses ........................... $8,950,403
=========
The net public offering proceeds to us, after deducting the total expenses (set
forth in the table above), were $78,449,597.
The following table sets forth the amount of net public offering proceeds used
by us for the purposes listed below. None of such payments were paid directly or
indirectly to directors, officers, persons owning 10% or more of any class of
our equity securities or to our affiliates.
21
Direct or indirect payments
to persons other than to
Purpose affiliated persons
------------------------------------------------ ---------------------------
Acquisition of other companies and
business(es) .............................. N/A
Construction of plant, building and facilities N/A
Purchase and installation of machinery
and equipment ............................ N/A
Purchase of real estate .................... N/A
Repayment of indebtedness .................. N/A
Working capital ............................ $78,450,000
Temporary investments ...................... N/A
Other purposes ............................. N/A
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
During the three month period ended June 30, 2004, we held our Annual
General Meeting of Shareholders. At the meeting, held on June 13,
2004, our shareholders voted:
1. In the absence of a director of our Company present and willing to
serve as the Chairman of the 2004 Annual Meeting in accordance with
the Company's Articles of Association, to appoint Mr. Arnold Taragin,
the Secretary of the Company, as the Chairman of the 2004 Annual
Meeting.
For Against Abstained
--- ------- ---------
14,365,806 4,462 1,368
2. To receive and consider the Directors' Annual Report to
Shareholders for the year ended December 31, 2003, and to receive
and consider our Company's consolidated financial statements for
the year ended December 31, 2003, and the auditors' report
thereon.
For Against Abstained
--- ------- ---------
14,366,266 2,662 2,708
3. To appoint Kost Forer Gabbay & Kasierer, a member of Ernst &
Young Global, as the independent auditors of the Company to
conduct the annual audit of our financial statements for the year
22
ending December 31, 2004, and to authorize our Audit Committee to fix
their compensation.
For Against Abstained
--- ------- ---------
14,204,606 1,712 65,318
4. To elect Zohar Zisapel, Gadi Tamari, Efraim Wachtel and Andreas
Mattes as directors of the Company to serve until the 2005 Annual
General Meeting of the Shareholders.
For Against Abstained
--- ------- ---------
Zohar Zisapel 14,204,637 167,199 -
Gadi Tamari 14,204,637 167,199 -
Efraim Wachtel 14,204,637 167,199 -
Andreas Mattes 14,204,637 167,199 -
5. To authorize remuneration for Yossi Atsmon, an External Director.
For Against Abstained
--- ------- ---------
13,424,979 930,130 16,527
6. To approve the grant of options to the CEO of our Company, who is
also a director of our Company.
For Against Abstained
--- ------- ---------
8,073,611 940,434 35,247
7. To approve an amendment to our Articles of Association providing
for the classification of the non-external directors of our Board
of Directors into three classes, each class consisting of
approximately one-third of the total number of non-external
directors and being elected every third year for a three year
term.
For Against Abstained
--- ------- ---------
7,993,593 1,025,487 30,022
Item 5. Other Information
-----------------
None
23
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
31.1 Certification by Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K filed during the last quarter of the period covered
by this report:
An 8-K bearing the cover date of April 21, 2004 with respect to a press release
regarding the Registrant's earning for the three months ended March 31, 2004 was
filed on April 29, 2004.
An 8-K bearing the cover date of May 19, 2004 with respect to the departure of
the Registrant's Chief Operating Officer was filed on May 20, 2004.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADVISION LTD.
(Registrant)
/s/Gad Tamari
-------------
Gad Tamari
Chief Executive Officer
/s/Tsipi Kagan
--------------
Tsipi Kagan
Chief Financial Officer
Date: August 9, 2004
25