o |
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o |
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
Title
of each class
|
Name
of each exchange on which registered
|
|
Ordinary
Shares, NIS 0.05 par value per share
|
NASDAQ
Global Market
|
|
PART
I
|
1
|
||
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
|
1
|
|
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
1
|
|
ITEM
3.
|
KEY
INFORMATION
|
1
|
|
|
A. SELECTED
FINANCIAL DATA
|
1
|
|
|
B. CAPITALIZATION
AND INDEBTEDNESS
|
2
|
|
|
C. REASONS
FOR THE OFFER AND USE OF PROCEEDS
|
2
|
|
|
D. RISK
FACTORS
|
3
|
|
ITEM
4.
|
INFORMATION
ON THE COMPANY
|
14
|
|
A. HISTORY
AND DEVELOPMENT OF THE COMPANY
|
14
|
||
B. BUSINESS
OVERVIEW
|
14
|
||
C. ORGANIZATIONAL
STRUCTURE
|
27
|
||
D. PROPERTY,
PLANTS AND EQUIPMENT
|
28
|
||
ITEM
4A.
|
UNRESOLVED
STAFF COMMENTS
|
28
|
|
ITEM
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
28
|
|
A. OPERATING
RESULTS
|
32
|
||
B. LIQUIDITY
AND CAPITAL RESOURCES
|
35
|
||
C. RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
|
40
|
||
D. TREND
INFORMATION
|
40
|
||
E. OFF-BALANCE
SHEET ARRANGEMENTS
|
41
|
||
F. TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
41
|
||
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
42
|
|
A. DIRECTORS
AND SENIOR MANAGEMENT
|
42
|
||
B. COMPENSATION
|
44
|
||
C. BOARD
PRACTICES
|
45
|
||
D. EMPLOYEES
|
47
|
||
E. SHARE
OWNERSHIP
|
48
|
||
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
48
|
|
A. MAJOR
SHAREHOLDERS
|
48
|
||
B. RELATED
PARTY TRANSACTIONS
|
49
|
||
C. INTERESTS
OF EXPERTS AND COUNSEL
|
51
|
ITEM
8.
|
FINANCIAL
INFORMATION
|
51
|
|
A. CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
|
51
|
||
B. SIGNIFICANT
CHANGES
|
52
|
||
ITEM
9.
|
THE
OFFER AND LISTING
|
52
|
|
A. OFFER
AND LISTING DETAILS
|
52
|
||
B. PLAN
OF DISTRIBUTION
|
53
|
||
C. MARKETS
|
53
|
||
D. SELLING
SHAREHOLDERS
|
53
|
||
E. DILUTION
|
53
|
||
F. EXPENSES
OF THE ISSUE
|
54
|
||
ITEM
10.
|
ADDITIONAL
INFORMATION
|
54
|
|
A. SHARE
CAPITAL
|
54
|
||
B. MEMORANDUM
AND ARTICLES OF ASSOCIATION
|
54
|
||
C. MATERIAL
CONTRACTS
|
59
|
||
D. EXCHANGE
CONTROLS
|
60
|
||
E. TAXATION
|
60
|
||
F. DIVIDENDS
AND PAYING AGENTS
|
71
|
||
G. STATEMENT
BY EXPERTS
|
71
|
||
H. DOCUMENTS
ON DISPLAY
|
72
|
||
I. SUBSIDIARY
INFORMATION
|
72
|
||
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
72
|
|
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
72
|
|
PART
II
|
73
|
||
ITEM
13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
73
|
|
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
73
|
|
ITEM
15.
|
CONTROLS
AND PROCEDURES
|
73
|
|
ITEM
16.
|
[RESERVED]
|
74
|
|
ITEM
16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
74
|
|
ITEM
16B.
|
CODE
OF ETHICS
|
74
|
|
ITEM
16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
74
|
ITEM
16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
|
75
|
|
ITEM
16E.
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS.
|
75
|
|
PART
III
|
75
|
||
ITEM
17.
|
FINANCIAL
STATEMENTS
|
75
|
|
ITEM
18.
|
FINANCIAL
STATEMENTS
|
75
|
|
ITEM
19.
|
EXHIBITS
|
76
|
|
SIGNATURE
|
78
|
Year
Ended December 31,
|
||||||||||||||||
(in
thousands of U.S. dollars - except weighted average number of ordinary
shares, and basic and diluted income (loss) per ordinary
share)
|
||||||||||||||||
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Revenues
|
||||||||||||||||
Products
|
$
|
14,028
|
$
|
10,228
|
$
|
13,956
|
$
|
20,514
|
$
|
20,641
|
||||||
Services
|
563
|
975
|
2,099
|
1,826
|
2,900
|
|||||||||||
14,591
|
11,203
|
16,055
|
22,340
|
23,541
|
||||||||||||
Cost
of revenues
|
||||||||||||||||
Products
|
5,019
|
4,854
|
5,045
|
7,290
|
7,213
|
|||||||||||
Services
|
28
|
40
|
82
|
108
|
183
|
|||||||||||
5,047
|
4,894
|
5,127
|
7,398
|
7,396
|
||||||||||||
Gross
profit
|
9,544
|
6,309
|
10,928
|
14,942
|
16,145
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
6,481
|
5,593
|
5,232
|
5,815
|
6,826
|
|||||||||||
Less
- royalty - bearing participation
|
2,328
|
1,997
|
1,722
|
1,735
|
1,904
|
|||||||||||
Research
and development, net
|
4,153
|
3,596
|
3,510
|
4,080
|
4,922
|
|||||||||||
Sales
and marketing
|
8,306
|
7,411
|
6,983
|
7,881
|
9,196
|
|||||||||||
General
and administrative
|
2,018
|
1,620
|
2,191
|
1,689
|
2,553
|
|||||||||||
Total
operating expenses
|
14,477
|
12,627
|
12,684
|
13,650
|
16,671
|
|||||||||||
Operating
income (loss)
|
(4,933
|
)
|
(6,318
|
)
|
(1,756
|
)
|
1,292
|
(526
|
)
|
|||||||
Financing
income, net
|
217
|
93
|
78
|
235
|
472
|
|||||||||||
Net
income (loss) for the year
|
(4,716
|
)
|
(6,225
|
)
|
(1,678
|
)
|
1,527
|
(54
|
)
|
|||||||
Basic
net income (loss) per ordinary share
|
$
|
(0.45
|
)
|
$
|
(0.59
|
)
|
$
|
(0.12
|
)
|
$
|
0.10
|
$
|
(0.00
|
)
|
||
Weighted
average number of ordinary shares used to compute basic net income
(loss)
per ordinary share
|
10,492,050
|
10,493,184
|
13,453,509
|
14,696,090
|
15,894,036
|
|||||||||||
Diluted
net income (loss) per ordinary share
|
$
|
(0.45
|
)
|
$
|
(0.59
|
)
|
$
|
(0.12
|
)
|
$
|
0.10
|
$
|
(0.00
|
)
|
||
Weighted
average number of ordinary shares used to compute diluted net income
(loss) per ordinary share
|
10,492,050
|
10,493,184
|
13,453,509
|
15,561,585
|
15,894,036
|
|||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Working
capital
|
$
|
10,707
|
$
|
5,702
|
$
|
10,051
|
$
|
12,987
|
$
|
15,783
|
||||||
Total
assets
|
$
|
19,429
|
$
|
14,403
|
$
|
20,129
|
$
|
23,790
|
$
|
27,753
|
||||||
Shareholders’
equity
|
$
|
12,344
|
$
|
6,246
|
$
|
10,024
|
$
|
12,485
|
$
|
15,373
|
·
|
the
variation in size and timing of individual purchases by our customers;
|
·
|
absence
of long-term customer purchase contracts;
|
·
|
seasonal
factors that may affect capital spending by customers, such as the
varying
fiscal year-ends of customers and the reduction in business during
the
summer months, particularly in Europe;
|
·
|
the
relatively long sale cycles for our products;
|
·
|
competitive
conditions in our markets;
|
·
|
the
timing of the introduction and market acceptance of new products
or
product enhancements by us and by our customers, competitors and
suppliers;
|
·
|
changes
in the level of operating expenses relative to revenues;
|
·
|
product
quality problems;
|
·
|
supply
interruptions;
|
·
|
changes
in global or regional economic conditions or in the telecommunications
industry;
|
·
|
delays
in purchasing decisions or customer orders due to customer consolidation;
|
·
|
changes
in the mix of products sold; and
|
·
|
size
and timing of approval of grants from the Government of
Israel.
|
·
|
Our
revenues in any period generally have been, and may continue to be,
derived from a relatively small number of orders with relatively
high
average revenues per order. Therefore, the loss of any order or a
delay in
closing a transaction could have a more significant impact on our
quarterly revenues and results of operations than on those of companies
with relatively high volumes of sales or low revenues per order.
Our
products generally are shipped within 15 to 30 days after orders
are
received. As a result, we generally do not have a significant backlog
of
orders, and revenues in any quarter are substantially dependent on
orders
booked, shipped and installed in that quarter.
|
·
|
Except
for our cost of revenues, most of our costs, including personnel
and
facilities costs, are relatively fixed at levels based on anticipated
revenue. As a result, a decline in revenue from even a limited number
of
orders could result in our failure to achieve expected revenue in
any
quarter and unanticipated variations in the timing of realization
of
revenue could cause significant variations in our quarterly operating
results and could result in losses.
|
·
|
If
our revenues in any quarter remain level or decline in comparison
to any
prior quarter, our financial results could be materially adversely
affected. In addition, if we do not reduce our expenses in a timely
manner
in response to level or declining revenues, our financial results
for that
quarter could be materially adversely affected.
|
·
|
Due
to the factors described above, as well as other unanticipated factors,
in
future quarters our results of operations could fail to meet the
expectations of public market analysts or investors. If this occurs,
the
price of our ordinary shares may fall.
|
·
|
Delays
in delivery or shortages in components could interrupt and delay
manufacturing and result in cancellations of orders for our
products.
|
·
|
Suppliers
could increase component prices significantly and with immediate
effect.
|
·
|
We
may not be able to locate alternative sources for product
components.
|
·
|
Suppliers
could discontinue the manufacture or supply of components used in
our
products. This may require us to modify our products, which may cause
delays in product shipments, increased manufacturing costs and increased
product prices.
|
·
|
We
may be required to hold more inventory than would be immediately
required
in order to avoid problems from shortages or discontinuance.
|
·
|
We
have experienced delays and shortages in the supply of components
on more
than one occasion in the past. This resulted in delays in our delivering
products to our customers.
|
·
|
national
standardization and certification requirements and changes in tax
law and
regulatory requirements;
|
·
|
longer
sales cycles, especially upon entry into a new geographic
market;
|
·
|
export
license requirements;
|
·
|
trade
restrictions;
|
·
|
changes
in tariffs;
|
·
|
currency
fluctuations;
|
·
|
economic
or political instability;
|
·
|
greater
difficulty in safeguarding intellectual property;
and
|
·
|
difficulty
in managing overseas subsidiaries, branches or international
operations.
|
·
|
market
conditions or trends in our
industry;
|
·
|
political,
economic and other developments in the State of Israel and
worldwide;
|
·
|
actual
or anticipated variations in our quarterly operating results or those
of
our competitors;
|
·
|
announcements
by us or our competitors of technological innovations or new and
enhanced
products;
|
·
|
changes
in the market valuations of our
competitors;
|
·
|
announcements
by us or our competitors of significant
acquisitions;
|
·
|
entry
into strategic partnerships or joint ventures by us or our competitors;
and
|
·
|
additions
or departures of key personnel.
|
|
|
|
3G
|
|
A
third-generation digital cellular telecommunication.
|
Asynchronous
Transfer Mode
(ATM)
|
|
A
cell-based network technology protocol that supports simultaneous
transmission of data, voice and video typically at T1/E1 or higher
speeds.
|
Code
Division Multiple Access
(CDMA)
|
|
A
digital wireless technology that uses a modulation technique in which
many
channels are independently coded for transmission over a single wideband
channel.
|
CDMA2000
1X (EV-DO)
|
|
A
third-generation digital high-speed wireless technology for packet-based
transmission of text, digitized voice, video, and multimedia that
is the
successor to CDMA.
|
Time
Division Synchronous Code Division Multiple Access
(TD-SCDMA)
|
A
3G mobile telecommunications standard, being pursued in the People's
Republic of China by the Chinese Academy of Telecommunications Technology
(CATT).
|
|
Global
System for Mobile
Communications
(GSM)
|
A
digital wireless technology that is widely deployed in Europe and,
increasingly, in other parts of the world.
|
|
General
Packet Radio Service
(GPRS)
|
|
A
packet-based digital intermediate speed wireless technology based
on GSM.
(2.5 generation)
|
Universal
Mobile Telecommunications Service (UMTS)
|
|
A
third-generation digital high-speed wireless technology for packet-based
transmission of text, digitized voice, video, and multimedia that
is the
successor to GSM.
|
Voice
Over IP (VoIP)
|
A
telephone service that uses the Internet as a global telephone
network.
|
|
IP
Multimedia Subsystem
(IMS)
|
|
An
internationally recognized standard defining a generic architecture
for
offering Voice over IP and multimedia services to multiple-access
technologies.
|
Triple
Play
|
A
marketing term for the provisioning of the three services: high-speed
Internet, television (Video on Demand or regular broadcasts) and
telephone
service over a single broadband connection.
|
|
Internet
Protocol TV (IPTV)
|
Transmitting
video in IP packets. Also called “TV over IP,” IPTV uses streaming video
techniques to deliver scheduled TV programs or video on demand
(VOD).
|
|
Protocol
|
A
specific set of rules, procedures or conventions governing the format,
means and timing of transmissions between two devices.
|
|
Session
|
|
A
lasting connection between a user (or user agent) and a peer, typically
a
server, usually involving the exchange of many packets between the
user's
computer and the server. A session is typically implemented as a
layer in
a network protocol.
|
·
|
reduced
quality degradation, reduced outages, improved network utilization
and
longer customer hold times;
|
·
|
ability
to employ fewer and less experienced maintenance staff due to the
utilization of a single test system environment, controlled by a
central
console, ensuring ease of use and reduced learning curves;
and
|
·
|
decreased
support costs through centralized management, portable high-end solutions
for in-depth troubleshooting, ability to offer premium SLAs (service
level
agreements) and LOE (level of experience) parameters based on measurable
parameters and all-inclusive, probe-based
solution.
|
·
|
Fault
detection - to detect when there is a
problem.
|
·
|
Performance
- to analyze the behavior of network components and customer network
usage
in order to understand trends, performance and optimization (to help
identify faults before the customer
complains).
|
·
|
Troubleshooting
- to drill down to resolve specific issues. and
|
·
|
Pre-Mediation
- to provide call detail records or CDR information to third-party
operations support systems (OSS) or other
solutions.
|
·
|
Capitalizing
on the growth in the Cellular network and the move of wireline networks
to
IP technology markets and their associated monitoring
needs;
|
·
|
Leveraging
and expanding our top-tier customer base and distribution channels
to gain
access to the service providers who are offering these new
technologies;
|
·
|
Broadening
our penetration of major service providers and
vendors;
|
·
|
Extending
our sales capabilities and distribution
channels;
|
·
|
Repeating
sales to our existing customers;
|
·
|
Leveraging
our experience and knowledge in the area of converged networks and
technology platforms to produce comprehensive testing and analysis
solutions for triple-play networks;
|
·
|
Maintaining
technological leadership while addressing the needs of emerging technology
markets;
|
·
|
Partnering
with companies that offer complementary solutions and applications;
and
|
·
|
Carrying
out synergistic acquisitions of companies in tangent markets to broaden
our solution portfolio and our sales and marketing
reach.
|
·
|
The
Omni-Q is a unique, comprehensive, next-generation network monitoring
and
services solution. The Omni-Q solution consists of a powerful and
user-friendly central management server and a broad range of intrusive
and
non-intrusive probes covering various networks and services, including
VoIP, UMTS, CDMA and data. These probes are based on the R70 probe
and
Performer family platforms, enabling the Omni-Q to deliver full visibility
at the session and application level (and not only at the single
packet or
message level), with full 7-layer analysis. The R70 probe platform
is an
embedded Linux platform, based on our GearSet technology. The GearSet
is a
technology extension of our successful GEAR chip technology, allowing
a
full session tracing and analysis in a chip set and permitting wirespeed
analysis of network services.
|
·
|
In
addition, the Omni-Q benefits global telecommunications carriers,
by
providing end-to-end voice quality monitoring and management. The
Omni-Q
is designed to enable service providers and vendors to successfully
face
tremendous challenges in the coming years,
including:
|
·
|
deployment
of next-generation networks such as UMTS, CDMA2000 and triple-play;
|
·
|
integration
of new architectures such as high-speed downlink packet access (HSDPA),
high-speed uplink packet access (HSUPA), long term evolution (LTE),
IMS,
UMTS Release 6 and CDMA Rev’ A or evolution data voice (EVDV);
|
·
|
successful
delivery of advanced services such as VoIP, IPTV and video conferencing;
and
|
·
|
proactive
management of call quality on existing and next-generation service
providers’ production networks, along with maintenance of
high-availability, high-quality voice services over packet telephony.
|
·
|
Telecommunications
Service Providers (Cellular and Wireline) use the
Omni-Q in
four main areas:
|
·
|
Fault
detection - to detect when and where there is a
problem.
|
·
|
Performance
- to analyze the behavior of network components and customer network
usage
in order to understand trends, performance and optimization (i.e.,
to help
identify faults before the customer
complains).
|
·
|
Troubleshooting
- to drill down to resolve specific
issues.
|
·
|
Pre-Mediation
- to provide call detail records or CDR information to third-party
operations support systems (OSS) or other
solutions.
|
·
|
The
Omni-Q is comprised of the following components:
|
·
|
The
Omni-Q’s central management module is designed to take advantage of the
unique capabilities and feature set of our platform by consolidating
the
monitoring and analysis information into a comprehensive, integrated
view
that enables visibility, fault detection, performance and troubleshooting.
|
·
|
The
Omni-Q Wireline monitoring solution gives service providers, incumbent
local exchange carriers (ILECs) and cable/multi-system operators(MSOs)
complete visibility into the voice, video or TV service running over
the
network, enabling early-stage fault detection, pre-emptive maintenance
and
optimization, and drill-down troubleshooting that leads to quick
and easy
fault resolution.
|
·
|
The
Omni-Q UMTS/CDMA2000 Network Monitoring gives cellular service providers
complete visibility into their networks, enabling long-term real-time
traffic analysis, fault detection, troubleshooting and data collection.
It
monitors and analyzes the performance of Radio Access, Core Signaling
and
Core IP components. It provides extensive and flexible Key Performance
Indicators (KPIs) and Key Quality Indicators (KQIs) analyses with
real-time alarms that allow operators to detect faults before their
customers experience problems.
|
·
|
Single
Platform - Our single-platform technology enables all functions to
be
performed on one platform, as opposed to the multi-system architecture
of
its competitors;
|
·
|
Scalable
- Our systems are fully scalable, can migrate quickly to new applications,
and can be easily integrated with third-party applications;
and
|
·
|
Distributed
system - Our solution is based on a GPS synchronization technology,
IP
connectivity and management console/server
architecture.
|
·
|
Post-deployment/quality
management solutions and troubleshooting for convergence service
providers, and
|
·
|
Pre-deployment,
predictive test systems for convergence vendors.
|
·
|
The
Voice-over-IP Performer is designed to support pre-deployment testing
of
current and emerging convergence technologies. The Voice-over-Data
Performer is the first performance testing solution that we launched.
|
·
|
SIPSim
- The SIPSim is a SIP services load generator that focuses on high-stress
load testing of any SIP application. The SIPSim provides high industry
performance while retaining the flexibility needed to emulate all
types of
services. By emulating up to hundreds of thousands of users over
the
SIPSim’s Triple Mcapability (multi-IP, multi-MAC and multi-VLAN), any
service can be emulated over any type of network configuration. The
SIPSim
is capable of stress-testing different SIP services and network elements,
including softswitch, SBC and IMS networks. Using the SipStudio,
the user
can build scripts to customize the SipSim to simulate almost any
call
flow. This is especially important in the IMS environment, where
network
topology is complex and each new service introduces a new flow;
|
·
|
H.323Sim
- a voice-over-IP generator that generates over 2000 calls simultaneously,
at the rate of over 100,000 calls per hour, emulating the functionality
of
an H.323 terminal;
|
·
|
MediaPro
- A real-time hardware-based, multi-protocol, multi-technology VoIP
and
Video analyzer, capable of analyzing a wide variety of VoIP signaling
protocols and media CODECs; and
|
·
|
QPro
- The QPro is a multi-technology call quality analyzer that enables
users
to test many call quality parameters over a variety of
interfaces.
|
·
|
Part
of our legacy product line is the PrismLite and PNNI simulation.
The
PrismLite addresses the needs of field service engineers and quality
assurance and research and development labs, both of equipment developers
and service providers who may need to test the operation of equipment
using multiple technologies simultaneously. The PrismLite is convenient
for transporting to on-site locations for the testing of internetworking
problems.
Starting in the first quarter of 2003, sales of the Prism series
products
for ATM and frame relay declined dramatically as our customers’
transitioned to our new Performer product line.
The PNNI simulation product, a software application used to test
ATM
switches running the Private Network to Network Interface (PNNI)
protocol.
This application enables the user to graphically design PNNI networks
and
simulate the existence of a multi-tiered network in its interaction
with
the ATM switch.
|
Year
ended December 31,
|
||||||||||
2004
|
|
2005
|
|
2006
|
||||||
(in
thousands of U.S. dollars)
|
||||||||||
The
Omni Q Family
|
$
|
200
|
$
|
3,940
|
$
|
15,765
|
||||
The
Performer Family and others
|
$
|
15,855
|
$
|
18,400
|
$
|
7,776
|
||||
Total
|
$
|
16,055
|
$
|
22,340
|
$
|
23,541
|
||||
Year
ended December 31,
|
Year
ended December 31,
|
||||||||||||||||||
(in
millions of U.S. dollars)
|
(in
percentage)
|
||||||||||||||||||
2004
|
|
2005
|
|
2006
|
|
2004
|
|
2005
|
|
2006
|
|||||||||
North
America
|
4.5
|
8.8
|
7.6
|
27.7
|
%
|
39.5
|
%
|
32.3
|
%
|
||||||||||
Europe
|
8.5
|
8.6
|
9.4
|
53.1
|
38.5
|
40.0
|
|||||||||||||
Asia
Pacific
|
2.3
|
3.3
|
2.6
|
14.3
|
14.8
|
11.1
|
|||||||||||||
South
America
|
0.2
|
0.7
|
2.6
|
1.2
|
3.2
|
11.1
|
|||||||||||||
Others
|
0.6
|
0.9
|
1.3
|
3.7
|
4.0
|
5.5
|
|||||||||||||
Total
revenues
|
16.1
|
22.3
|
23.5
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
·
|
name
recognition;
|
·
|
product
performance;
|
·
|
product
fit to customer workflow and
procedures;
|
·
|
support
of the required interfaces and
protocols;
|
·
|
support
of the right services;
|
·
|
quality
of the software and the hardware;
|
·
|
technical
features;
|
·
|
multitechnology
support;
|
·
|
price;
|
·
|
customer
service and support;
|
·
|
ease
of use; and
|
·
|
ability
to integrate with other information
systems.
|
Name
of Subsidiary
|
Jurisdiction
of Incorporation
|
|
RADCOM
Equipment,
Inc.
|
United
States
|
|
RADCOM
Investments (1996) Ltd.
|
Israel
|
|
RADCOM
(UK) Ltd.
|
United
Kingdom
|
|
RADCOM
|
Subcontractor | |
Planning
|
Purchase component parts | |
Integration
|
Assembly | |
Testing |
Year
Ended December 31,
|
||||||||||
2004
|
2005
|
2006
|
||||||||
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of sales
|
31.9
|
33.1
|
31.4
|
|||||||
Gross
profit
|
68.1
|
66.9
|
68.6
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development
|
32.6
|
26.0
|
29.0
|
|||||||
Less
royalty bearing participation
|
10.7
|
7.8
|
8.1
|
|||||||
Research
and development, net
|
21.9
|
18.2
|
20.9
|
|||||||
Sales
and marketing
|
43.5
|
35.3
|
39.1
|
|||||||
General
and administrative
|
13.6
|
7.6
|
10.8
|
|||||||
Total
operating expenses
|
79.0
|
61.1
|
70.8
|
|||||||
Operating
income (loss)
|
(10.9
|
)
|
5.8
|
(2.2
|
)
|
|||||
Financial
income, net
|
0.5
|
1.0
|
2.0
|
|||||||
Net
income (loss)
|
(10.4
|
)
|
6.8
|
(0.2
|
)
|
Revenues
|
||||||||||||||||
Year
Ended December 31,
|
%
Change
|
%
Change
|
||||||||||||||
(in
millions of U.S. dollars)
|
2005
vs.
|
2006
vs.
|
||||||||||||||
2004
|
2005
|
2006
|
2004
|
2005
|
||||||||||||
The
Omni Q Family
|
0.2
|
3.9
|
15.7
|
1,850
|
303
|
|||||||||||
The
Performer Family and others
|
15.9
|
18.4
|
7.8
|
16
|
(58
|
)
|
||||||||||
Total
revenues
|
16.1
|
22.3
|
23.5
|
39
|
5
|
Year
Ended December 31,
|
Year
Ended December 31,
|
||||||||||||||||||
(in
millions of U.S. dollars)
|
(as
percentage)
|
||||||||||||||||||
2004
|
|
2005
|
|
2006
|
|
2004
|
|
2005
|
|
2006
|
|||||||||
North
America
|
4.5
|
8.8
|
7.6
|
27.7
|
%
|
39.5
|
%
|
32.3
|
%
|
||||||||||
Europe
|
8.5
|
8.6
|
9.4
|
53.1
|
38.5
|
40.0
|
|||||||||||||
Asia
Pacific
|
2.3
|
3.3
|
2.6
|
14.3
|
14.8
|
11.1
|
|||||||||||||
South
America
|
0.2
|
0.7
|
2.6
|
1.2
|
3.2
|
11.1
|
|||||||||||||
Others
|
0.6
|
0.9
|
1.3
|
3.7
|
4.0
|
5.5
|
|||||||||||||
Total
revenues
|
16.1
|
22.3
|
23.5
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Year
ended December 31,
|
||||||||||
(in
millions of U.S. dollars)
|
||||||||||
2004
|
|
2005
|
|
2006
|
||||||
Cost
of sales
|
5.1
|
7.4
|
7.4
|
|||||||
Gross
profit
|
10.9
|
14.9
|
16.1
|
Operating
Costs and Expenses
|
Year
ended December 31,
|
%
Change
|
%
Change
|
||||||||||||||
(in
millions of U.S. dollars)
|
2005
vs.
|
2006
vs.
|
||||||||||||||
2004
|
2005
|
2006
|
2004
|
2005
|
||||||||||||
Research
and Development
|
5.2
|
5.8
|
6.8
|
11.5
|
17.2
|
|||||||||||
Less
Royalty-bearing Participation
|
1.7
|
1.7
|
1.9
|
-
|
11.8
|
|||||||||||
Research
and Development, net
|
3.5
|
4.1
|
4.9
|
17.1
|
19.5
|
|||||||||||
Sales
and Marketing
|
7.0
|
7.9
|
9.2
|
12.9
|
16.5
|
|||||||||||
General
and Administrative
|
2.2
|
1.7
|
2.6
|
(22.7
|
)
|
52.9
|
||||||||||
Total
Operating Expenses
|
12.7
|
13.7
|
16.7
|
7.9
|
21.9
|
B.
|
LIQUIDITY
AND CAPITAL RESOURCES
|
Payments
due by period
|
||||||||||||||||
Contractual
Obligations
|
Total
|
Less
than
1
year
|
2-3
years
|
4-5
years
|
More
than
5
years
|
|||||||||||
(in
thousands of U.S. dollars)
|
||||||||||||||||
Property
Leases
|
$
|
1,603
|
$
|
693
|
$
|
810
|
$
|
100
|
--
|
|||||||
Open
purchase orders
|
1,350
|
1,350
|
--
|
--
|
--
|
|||||||||||
Operating
Leases
|
1,227
|
564
|
598
|
65
|
--
|
|||||||||||
Total
|
$
|
4,180
|
$
|
2,607
|
$
|
1,995
|
$
|
277
|
--
|
Name
|
Age
|
Position
|
||
Zohar
Zisapel
|
58
|
Chairman
of the Board of Directors
|
||
David
Ripstein
|
40
|
President,
Chief Executive Officer
|
||
Jonathan
Burgin
|
46
|
Chief
Financial Officer
|
||
Shahaf
Kieselstein
|
35
|
Vice
President Research and Development
|
||
Hanan
Klainer
|
46
|
Vice
President Sales and Marketing
|
||
Doron
Milchtaich
|
40
|
Chief
Technology Officer
|
||
Miki
Shilinger
|
52
|
Vice
President Operations
|
||
Uzi
Yahav
|
52
|
Vice
President Business Development
|
||
Avi
Zamir
|
50
|
President
of RADCOM
Equipment
|
||
Rony
Ross (1) (2)(3)(4)
|
57
|
Director
|
||
Zohar
Gilon (2)(4)
|
59
|
Director
|
||
Dan
Barnea (1) (2)(4)
|
62
|
Director
|
·
|
an
employment relationship;
|
·
|
a
business or professional relationship maintained on a regular
basis;
|
·
|
control;
and
|
·
|
service
as an office holder (defined in the Israeli Companies Law as a
(i) director, (ii) general manager, (iii) chief business
manager, (iv) deputy general manager, (v) vice general manager, (vi)
executive vice president, (vii) vice president, (viii) another manager
directly subordinate to the general manager and (ix) any other person
assuming the responsibilities of any of the forgoing positions without
regard to such person’s title), excluding service as a director who was
appointed to serve as an office holder during the three-month period
in
which the company first offers its shares to the
public.
|
·
|
a
majority of the shares voted at the meeting, including at least one
third
of the shares of non-controlling shareholders, vote in favor of the
election; or
|
·
|
the
total number of shares voted against the election of the external
director
does not exceed one percent of the aggregate number of voting shares
of
the company.
|
·
|
the
chairman of the board of directors;
|
·
|
any
controlling shareholder or any relative of a controlling shareholder;
and
|
·
|
any
director employed by the company or providing services to the company
on a
regular basis.
|
Name
|
Number
of Ordinary Shares Beneficially Owned(1)
|
Percentage
of Outstanding Ordinary Shares Beneficially Owned(2)
(3)
|
|||||
Zohar
Zisapel(4)
|
3,626,342
|
22.1
|
%
|
||||
All
directors and executive officers as a group (12 persons)(1)
(2) (5)
|
4,229,042
|
24.9
|
%
|
(1)
|
Pursuant
to applicable community property laws, each person named in the table
has
sole voting and investment power with respect to all ordinary shares
listed as owned by such person. Shares beneficially owned include
shares
that may be acquired pursuant to options to purchase ordinary shares
that
are exercisable within 60 days of June 15, 2007.
|
(2)
|
For
determining the percentage owned by each person or group, ordinary
shares
for each person or group include ordinary shares that may be acquired
by
such person or group pursuant to options to purchase ordinary shares
that
are exercisable within 60 days of June 15, 2007.
|
(3)
|
The
number of outstanding ordinary shares does not include shares that
were
repurchased by us.
|
(4)
|
Includes
beneficial ownership of ordinary shares held by RAD Data Communications
Ltd and Klil and Michael Ltd, Israeli companies and 80,000 ordinary
shares
issuable upon exercise of options exercisable within 60 days of June
15,
2007.
|
(5)
|
Each
of the directors and executive officers not separately identified
in the
above table beneficially own less than 1% of our outstanding ordinary
shares (including options held by each such party, and which are
vested or
shall become vested within 60 days of June 15, 2007) and have therefore
not been separately disclosed. The amount of shares includes 621,500
ordinary shares issuable upon exercise of options exercisable within
60
days of June 15, 2007.
|
A.
|
MAJOR
SHAREHOLDERS
|
Name
|
Number
of Ordinary
Shares
Beneficially Owned(1)
|
Percentage
of
Outstanding
Ordinary
Shares(2)
|
|||||
Zohar
Zisapel(3)
(4)(7)
|
3,626,342
|
22.1
|
%
|
||||
Yehuda
Zisapel(3)
(5)
|
2,027,161
|
12.4
|
%
|
||||
RAD
Data Communications Ltd (6).
|
177,841
|
1.1
|
%
|
(1)
|
Except
as otherwise noted and pursuant to applicable community property
laws,
each person named in the table has sole voting and investment power
with
respect to all ordinary shares listed as owned by such person. Shares
beneficially owned include shares that may be acquired pursuant to
options
that are exercisable within 60 days of June 15, 2007.
|
(2)
|
The
percentage of outstanding ordinary shares is based on 16,355,238
ordinary
shares outstanding as of June 15, 2007. For determining the percentage
owned by each person, ordinary shares for each person includes ordinary
shares that may be acquired by such person pursuant to options to
purchase
ordinary shares that are exercisable within 60 days of June 15, 2007.
The
number of outstanding ordinary shares does not include shares that
were
repurchased by us.
|
(3)
|
Includes
beneficial ownership of Messrs. Zohar Zisapel and Yehuda Zisapel of
ordinary shares held by RAD Data Communications Ltd., an Israeli
company.
|
(4)
|
Includes
177,841 ordinary shares owned of record by RAD Data Communications,
54,500
ordinary shares owned of record by Klil and Michael Ltd., an Israeli
company and 80,000 ordinary shares issuable upon exercise of options
exercisable within 60 days of June 15, 2007. Zohar Zisapel is a principal
shareholder and director of each of RAD Data Communications Ltd.
and Klil
and Michael Ltd. and, as such, Mr. Zisapel may be deemed to have
voting and dispositive power over the ordinary shares held by RAD
Data
Communications and Klil and Michael Ltd. Mr. Zisapel disclaims
beneficial ownership of these ordinary shares except to the extent
of his
pecuniary interest therein.
|
(5)
|
Includes
177,841 ordinary shares owned of record by RAD Data Communications
and
910,360 ordinary shares owned of record by Retem Local Networks Ltd.,
an
Israeli company. Yehuda Zisapel is a principal shareholder and director
of
each of RAD Data Communications and Retem Local Networks and, as
such,
Mr. Zisapel may be deemed to have voting and dispositive power over
the ordinary shares held by RAD Data Communications and Retem Local
Networks. Mr. Zisapel disclaims beneficial ownership of these
ordinary shares except to the extent of his pecuniary interest
therein.
|
(6)
|
Messrs.
Zohar and Yehudah Zisapel have shared voting and dispositive
power with respect to the shares held by Rad Data Communications
Ltd. The
shares held by Rad Data Communications Ltd. are reflected under Zohar
Zisapel’s and Yehuda Zisapel’s names in the table.
|
(7)
|
Includes
263,000 shares purchased by Mr. Zohar Zisapel in market transactions
during May 2007.
|
High
|
Low
|
||||||
2002
|
$
|
2.67
|
$
|
0.35
|
|||
2003
|
$
|
2.19
|
$
|
0.64
|
|||
2004
|
$
|
2.78
|
$
|
1.00
|
|||
2005
|
$
|
3.59
|
$
|
1.35
|
|||
2006
|
$
|
5.05
|
$
|
1.74
|
2005
|
|||||||
First
Quarter
|
$
|
3.30
|
$
|
2.22
|
|||
Second
Quarter
|
$
|
2.66
|
$
|
1.45
|
|||
Third
Quarter
|
$
|
2.78
|
$
|
1.35
|
|||
Fourth
Quarter
|
$
|
3.59
|
$
|
1.76
|
2006
|
|||||||
First
Quarter
|
$
|
5.05
|
$
|
3.16
|
|||
Second
Quarter
|
$
|
2.99
|
$
|
2.00
|
|||
Third
Quarter
|
$
|
3.18
|
$
|
1.74
|
|||
Fourth
Quarter
|
$
|
3.26
|
$
|
2.36
|
2007
|
|||||||
First
Quarter
|
$
|
3.18
|
$
|
2.60
|
Most
recent six months
|
|||||||
December
2006
|
$
|
2.70
|
$
|
2.52
|
|||
January
2007
|
$
|
3.02
|
$
|
2.60
|
|||
February
2007
|
$
|
3.18
|
$
|
2.90
|
|||
March
2007
|
$
|
2.95
|
$
|
2.65
|
|||
April
2007
|
$
|
2.82
|
$
|
1.44
|
|||
May
2007
|
$
|
1.47
|
$
|
1.33
|
|||
June
2007 (through June 25)
|
$
|
1.50
|
$
|
1.38
|
2006
|
|||||||
High
|
|
Low
|
|||||
2006
|
NIS
24.04
|
NIS
7.87
|
|||||
First
Quarter (February 20, 2006 through March 31, 2006)
|
NIS
24.04
|
NIS
19.08
|
|||||
Second
Quarter
|
NIS
20.33
|
NIS
9.48
|
|||||
Third
Quarter
|
NIS
13.01
|
NIS
7.87
|
|||||
Fourth
Quarter
|
NIS
13.75
|
NIS
10.50
|
|||||
2007
|
|||||||
First
Quarter
|
NIS
13.36
|
NIS
10.62
|
Most
recent six months
|
|||||||
December
2006
|
NIS
12.09
|
NIS
10.50
|
|||||
January
2007
|
NIS
12.78
|
NIS
10.62
|
|||||
February
2007
|
NIS
13.36
|
NIS
12.40
|
|||||
March
2007
|
NIS
12.95
|
NIS
11.29
|
|||||
April
2007
|
NIS
11.95
|
NIS
6.02
|
|||||
May
2007
|
NIS
5.99
|
NIS
5.44
|
|||||
June
2007 (through June 25)
|
NIS
6.13
|
NIS
5.83
|
·
|
information
regarding the advisability of a given action submitted for his or
her
approval or performed by him or her by virtue of his position;
and
|
·
|
all
other important information pertaining to such
actions.
|
·
|
refrain
from any conflict of interest between the performance of his or her
duties
for the company and the performance of his or her other duties or
personal
affairs;
|
·
|
refrain
from any activity that is competitive with the
company;
|
·
|
refrain
from exploiting any business opportunity of the company to receive
a
personal gain for himself or herself, or for others;
and
|
·
|
disclose
to the company any information or documents relating to the company’s
affairs which the office holder has received due to his or her position
as
an office holder.
|
·
|
not
in the ordinary course of business;
|
·
|
not
on market terms; or
|
·
|
is
likely to have a material impact of the company’s profitability, assets or
liabilities.
|
·
|
at
least one-third of the shares of shareholders who have no personal
interest in the transaction and are present and voting, in person,
by
proxy or by written ballot, at the meeting, vote in favor of the
transaction; or
|
·
|
the
shareholders who have no personal interest in the transaction who
vote
against the transaction do not represent more than one percent of
the
voting power of the company.
|
·
|
a
breach of an office holder’s duty of care to us or to another
person;
|
·
|
a
breach of an office holder’s duty of loyalty to us, provided that the
office holder acted in good faith and had reasonable cause to assume
that
his or her act would not prejudice our interests;
or
|
·
|
a
financial liability imposed upon an office holder in favor of another
person concerning an act performed by an office holder in his or
her
capacity as an office holder.
|
·
|
Our
articles of association provide that we may indemnify an office holder
with respect to an act performed in his capacity as an office holder
against:
|
·
|
a
financial liability imposed on him or her in favor of another person
by
any judgment, including a settlement or an arbitration award approved
by a
court; such indemnification may be approved (i) after the liability
has
been incurred or (ii) in advance, provided that our undertaking to
indemnify is limited to events that our Board of Directors believes
are
foreseeable in light of our actual operations at the time of providing
the
undertaking and to a sum or criterion that our Board of Directors
determines to be reasonable under the circumstances ;
|
·
|
reasonable
litigation expenses, including attorney’s fees, expended by the office
holder as a result of an investigation or proceeding instituted against
him or her by a competent authority, provided that such investigation
or
proceeding concluded without the filing of an indictment against
him or
her and either (i) concluded without the imposition of any financial
liability in lieu of criminal proceedings or (ii) concluded with
the
imposition of a financial liability in lieu of criminal proceedings
but
relates to a criminal offense that does not require proof of criminal
intent; and
|
·
|
reasonable
litigation expenses, including attorney’s fees, expended by the office
holder or charged to him or her by a court, in proceedings we institute
against him or her or instituted on our behalf or by another person,
a
criminal indictment from which he was acquitted, or a criminal indictment
in which he was convicted for a criminal offense that does not require
proof of criminal intent.
|
·
|
a
breach by the office holder of his or her duty of loyalty, unless,
with
respect to insurance coverage or indemnification, the office holder
acted
in good faith and had a reasonable basis to believe that such act
would
not prejudice the company;
|
·
|
a
breach by the office holder of his or her duty of care if the breach
was
committed intentionally or
recklessly;
|
·
|
any
act or omission committed with the intent to unlawfully yield a personal
profit; or
|
·
|
any
fine imposed on the office holder.
|
·
|
deductions
over an eight-year period for purchases of know-how and
patents;
|
·
|
deductions
over a three-year period of expenses involved with the issuance and
listing of shares on a stock
exchange;
|
·
|
the
right to elect, under specified conditions, to file a consolidated
tax
return with other related Israeli Industrial Companies;
and
|
·
|
accelerated
depreciation rates on equipment and
buildings.
|
·
|
When
the value of a company’s equity, as calculated under the Inflationary
Adjustments Law, exceeds the depreciated cost of Fixed Assets (as
defined
in the Inflationary Adjustments Law), a deduction from taxable income
is
permitted equal to the product of the excess multiplied by the applicable
annual rate of inflation. The maximum deduction permitted in any
single
tax year is 70% of taxable income, with the unused portion permitted
to be
carried forward, linked to the increase in the consumer price
index.
|
·
|
If
the depreciated cost of Fixed Assets exceeds a company’s equity, then the
product of such excess multiplied by the applicable annual rate of
inflation is added to taxable
income.
|
·
|
Subject
to certain limitations, depreciation deductions on Fixed Assets and
losses
carried forward are adjusted for inflation based on the increase
in the
consumer price index.
|
·
|
Similar
to the currently available alternative route, exemption from corporate
tax
on undistributed income for a period of two to ten years is available,
depending on the geographic location of the Benefited Enterprise
within
Israel, and a reduced corporate tax rate of 10 to 25% for the remainder
of
the benefits period, depending on the level of foreign investment
in each
year. Benefits may be granted for a term of from seven to ten years,
depending on the level of foreign investment in the company. If the
company pays a dividend out of income derived from the Benefited
Enterprise during the tax exemption period, such income will be subject
to
corporate tax at the applicable rate (10%-25%). The company is required
to
withhold tax at the source at a rate of 15% from any dividends distributed
from income derived from the Benefited Enterprise;
and
|
·
|
A
special tax route enabling companies owning facilities in certain
geographical locations in Israel to pay corporate tax at the rate
of 11.5%
on income of the Benefited Enterprise. The benefits period is ten
years.
Upon payment of dividends, the company is required to withhold tax
at
source at a rate of 15% for Israeli residents and at a rate of 4%
for
foreign residents.
|
· |
an
individual who is a citizen or resident of the United States
for U.S. federal income tax purposes;
|
·
|
a
corporation or
partnership (or
other entity taxable as a corporation
or
partnership
for U.S. federal income tax purposes) created or organized in the
United
States or under the laws of the United States or any political subdivision
thereof in the District of
Columbia;
|
·
|
an
estate, the income of which is subject to United States federal income
tax
regardless of its source; or
|
·
|
a
trust (i) if, in general, a court within the United States is able
to
exercise primary supervision over its administration and one or more
U.S.
persons have the authority to control all of its substantial decisions,
or
(ii) that has in effect a valid election under applicable U.S. Treasury
regulations to be treated as a U.S.
person.
|
·
|
are
broker-dealers or insurance companies;
|
·
|
have
elected mark-to-market accounting;
|
·
|
are
tax-exempt organizations or retirement plans;
|
·
|
are
financial institutions or “financial services entities”;
|
·
|
hold
our
ordinary
shares as part of a straddle, “hedge” or “conversion transaction” with
other investments;
|
·
|
acquired
our ordinary
shares upon the exercise of employee stock options or otherwise
as
compensation;
|
·
|
are,
or hold their shares through, partnerships or other pass-through
entities;
|
·
|
own
directly, indirectly or by attribution at least 10% of our voting
power;
|
·
|
have
a functional currency that is not the U.S.
dollar;
|
·
|
are
grantor trusts;
|
·
|
are
certain former citizens or long-term residents of the United States;
or
|
·
|
are
real estate investment trusts or regulated investment companies.
|
·
|
such
item is effectively connected with the conduct by the Non-U.S. Holder
of a
trade or business in the United States and, in the case of a resident
of a
country which has a treaty with the United States, such item is
attributable to a permanent establishment or, in the case of an
individual, a fixed place of business, in the United States;
or
|
·
|
the
Non-U.S. Holder is an individual who holds the ordinary shares as
a
capital asset and is present in the United States for 183 days or
more in
the taxable year of the disposition and certain other conditions
are met
does not qualify for an exemption;
or
|
·
|
the
Non-U.S. Holder is subject to tax pursuant to the provisions of United
States tax law applicable to U.S.
expatriates.
|
ITEM 11. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 12. |
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY
SECURITIES
|
ITEM 13. |
DEFAULTS,
DIVIDEND ARREARAGES AND
DELINQUENCIES
|
ITEM 14. |
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
ITEM 15. |
CONTROLS
AND PROCEDURES
|
ITEM 16. |
RESERVED
|
ITEM 16A. |
AUDIT
COMMITTEE FINANCIAL EXPERT
|
ITEM 16B. |
CODE
OF ETHICS
|
ITEM 16C. |
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Year
Ended
December
31,
|
|
||||||
|
|
2006
|
|
2005
|
|||
Audit
Fees
|
$
|
110,000
|
$
|
65,000
|
|||
Audit-Related
Fees
|
-
|
-
|
|||||
Tax
Fees
|
-
|
$
|
5,000
|
||||
All
Other Fees
|
-
|
-
|
|||||
Total
|
$
|
110,000
|
$
|
70,000
|
ITEM 16D. |
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
|
ITEM 16E. |
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
ITEM 17. |
FINANCIAL
STATEMENTS
|
ITEM 18. |
FINANCIAL
STATEMENTS
|
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Balance Sheets at December 31, 2006 and 2005
|
F-3
|
|||
Consolidated
Statements of Operations for the Years Ended December 31, 2006, 2005
and
2004
|
F-5
|
|||
Consolidated
Statements of Changes in Shareholders’ Equity for the Years Ended December
31, 2006, 2005 and 2004
|
F-6
|
|||
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006, 2005
and
2004
|
F-7
|
|||
Notes
to Consolidated Financial Statements
|
F-9
|
Exhibit
No.
|
Description
|
|
1.1
|
Memorandum
of Association(1)
|
|
1.2
|
Articles
of Association, as amended(2)
|
|
2.1
|
Form
of ordinary share certificate(1)
|
|
4.1
|
2000
Share Option Plan(2)
|
|
4.2
|
1998
Employee Bonus Plan(3)
|
|
4.3
|
1998
Share Option Plan(4)
|
|
4.4
|
International
Employee Stock Option Plan(5)
|
|
4.5
|
Directors
Share Incentive Plan (1997)(6)
|
|
4.6
|
Key
Employee Share Incentive Plan (1996)(7)
|
|
4.7
|
2001
Share Option Plan(8)
|
|
4.8
|
2003
Share Option Plan(9)
|
|
4.9
|
Lease
Agreement, dated November 15, 2000, among Vitalgo Textile Industries
Ltd., Zisapel Properties (1992) Ltd., Klil and Michael Properties
(1992)
Ltd. and RADCOM Ltd. (English summary accompanied by Hebrew
original)(10)
|
|
4.10
|
Lease
Agreement, dated March 1, 2001, among Zisapel Properties (1992) Ltd.,
Klil and Michael Properties (1992) Ltd. and RADCOM Ltd. (English
summary
accompanied by Hebrew original)(10)
|
|
4.11
|
Lease
Agreement, dated August 12, 1998, between RAD Communications Ltd. and
RADCOM Ltd. (English summary accompanied by Hebrew original)(10)
|
|
4.12
|
Lease
Agreement, dated December 1, 2000, among Zohar Zisapel Properties,
Inc., Yehuda Zisapel Properties, Inc. and RADCOM Equipment,
Inc.(10)
|
|
4.13
|
Lease
Agreement, dated January 22, 2002, between Regus Business Centre
and
RADCOM Ltd.(11)
|
|
4.14
|
Registration
Rights Agreement by and among (i) RADCOM Ltd. and (ii) Yehuda
Zisapel, Zohar Zisapel, Moty Ben-Arie and Zohar Gilon(1)
|
|
4.15
|
Registration
Rights Agreement by and among (i) RADCOM Ltd. and (ii) Walden
Israel Fund L.P., Gadish Provident Fund Ltd., Tagmulim Central Provident
Fund, Keren Or Provident Fund, Katzir Provident Compensation Fund
Ltd.,
Keren Hishtalmut Le’akademaim Ltd., Dovrat Shrem Yozma Polaris Fund L.P.,
Dovrat Shrem Skies ‘92 Fund Ltd., Dovrat Shrem Rainbow Fund Ltd., Dovrat
Shrem & Co. S.A. and Yaad Consulting & Management Services (1995)
Ltd.(1)
|
|
4.16
|
Software
License Agreement, dated as of January 13, 1999, between RADVision,
Ltd. and RADCOM Ltd., and Supplement No. 1 thereto, dated as of
January 24, 2001(10)
|
|
4.17
|
Share
and Warrant Purchase Agreement, dated as of March 17, 2004, by and
between
RADCOM Ltd. and the purchasers listed therein(12)
|
Exhibit
No.
|
Description
|
|
4.18
|
Form
of Warrant(12)
|
|
8.1
|
List
of Subsidiaries
|
|
11.1
|
Code
of Ethics(12)
|
|
12.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
12.2
|
Certification
of the
Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
13.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
13.2
|
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
14.1
|
Consent
of KPMG Somekh Chaikin, a member firm of KPMG International, dated
June
27, 2007
|
(1) |
Incorporated
herein by reference to the Registration Statement on Form F-1 of
RADCOM
Ltd. (File No. 333-05022), filed with the SEC on June 12,
1996.
|
(2) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13244), filed with the SEC on March 7,
2001.
|
(3) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13246), filed with the SEC on March 7,
2001.
|
(4) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13248) filed with the SEC on March 7,
2001.
|
(5) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13250), filed with the SEC on March 7,
2001.
|
(6) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13254), filed with the SEC on March 7,
2001.
|
(7) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-13252), filed with the SEC on March 7,
2001.
|
(8) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-14236), filed with the SEC on December 28,
2001.
|
(9) |
Incorporated
herein by reference to the Registration Statement on Form S-8 of
RADCOM
Ltd. (File No. 333-111931), filed with the SEC on January 15,
2004.
|
(10) |
Incorporated
herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal
year
ended December 31, 2000, filed with the SEC on June 29,
2001.
|
(11) |
Incorporated
herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal
year
ended December 31, 2001, filed with the SEC on March 27,
2002.
|
(12) |
Incorporated
herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal
year
ended December 31, 2003,
filed with the SEC on May 6, 2004.
|
RADCOM
LTD.
|
||
|
|
|
By: /s/ David Ripstein | ||
Name:
David Ripstein
Title:
Chief Executive Officer
Date:
June 27, 2007
|
Table
of Contents
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Financial Statements:
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2006,
2005 and
2004
|
F-5
|
Consolidated
Statements of Shareholders' Equity and Comprehensive Income (Loss)
for the
years ended December 31, 2006, 2005 and 2004
|
F-6
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006,
2005 and
2004
|
F-7
|
Notes
to the Consolidated Financial Statements as of December 31,
2006
|
F-9
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents (Note 8A1)
|
2,007
|
10,520
|
|||||
Short-term
deposits (Note 8A2)
|
8,060
|
-
|
|||||
Trade
receivables, net (Note 8A3)
|
10,591
|
7,856
|
|||||
Inventories
(Note 8A4)
|
2,675
|
1,938
|
|||||
Other
current assets (Note 8A5)
|
825
|
380
|
|||||
Total
current assets
|
24,158
|
20,694
|
|||||
Assets
held for severance benefits (Note 4)
|
2,187
|
1,863
|
|||||
Property
and equipment, net (Note 3)
|
1,408
|
1,233
|
|||||
Total
Assets
|
27,753
|
23,790
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Liabilities
and Shareholders' Equity
|
|||||||
Current
Liabilities
|
|||||||
Trade
payables
|
2,551
|
2,148
|
|||||
Current
deferred revenue
|
1,534
|
1,545
|
|||||
Other
payables and accrued expenses (Note 8A6)
|
4,290
|
4,014
|
|||||
Total
current liabilities
|
8,375
|
7,707
|
|||||
Long-Term
Liabilities
|
|||||||
Long-term
deferred revenue
|
1,109
|
1,161
|
|||||
Liability
for employees severance pay benefits (Note 4)
|
2,896
|
2,437
|
|||||
Total
long-term liabilities
|
4,005
|
3,598
|
|||||
Total
liabilities
|
12,380
|
11,305
|
|||||
Commitments
and contingencies (Note 5)
|
|||||||
Shareholders'
Equity (Note 6)
|
|||||||
Share
capital *
|
120
|
107
|
|||||
Additional
paid-in capital
|
47,542
|
44,613
|
|||||
Accumulated
deficit
|
(32,289
|
)
|
(32,235
|
)
|
|||
Total
shareholders' equity
|
15,373
|
12,485
|
|||||
Total
Liabilities and Shareholders' Equity
|
27,753
|
23,790
|
Zohar
Zisapel
|
David
Ripstein
|
Jonathan
Burgin
|
||
Chairman
of the Board of Directors
|
Chief
Executive Officer
|
Chief
Financial Officer
|
*
|
39,990,680
Ordinary Shares of NIS 0.05 par value ("Ordinary Shares") authorized
as of
December 31, 2006 and 2005; 9,320 Deferred Shares of NIS 0.05 par
value
authorized as of December 31, 2005; 16,232,277 and 14,958,477 Ordinary
Shares issued and outstanding as of December 31, 2006 and 2005,
respectively and 9,320 Deferred Shares issued and outstanding as
of
December 31, 2005.
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Except
per share amounts
|
||||||||||
Revenues
(Note 8B1):
|
||||||||||
Products
|
20,641
|
20,514
|
13,956
|
|||||||
Services
|
2,900
|
1,826
|
2,099
|
|||||||
23,541
|
22,340
|
16,055
|
||||||||
Cost
of revenues:
|
||||||||||
Products
|
7,213
|
7,290
|
5,045
|
|||||||
Services
|
183
|
108
|
82
|
|||||||
7,396
|
7,398
|
5,127
|
||||||||
Gross
profit
|
16,145
|
14,942
|
10,928
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development
|
6,826
|
5,815
|
5,232
|
|||||||
Less
- royalty-bearing participation (Note 5A1)
|
1,904
|
1,735
|
1,722
|
|||||||
Research
and development, net
|
4,922
|
4,080
|
3,510
|
|||||||
Sales
and marketing
|
9,196
|
7,881
|
6,983
|
|||||||
General
and administrative
|
2,553
|
1,689
|
2,191
|
|||||||
Total
operating expenses
|
16,671
|
13,650
|
12,684
|
|||||||
Operating
income (loss)
|
(526
|
)
|
1,292
|
(1,756
|
)
|
|||||
Financing
income, net (Note 8B2):
|
||||||||||
Financing
income
|
497
|
270
|
118
|
|||||||
Financing
expenses
|
(25
|
)
|
(35
|
)
|
(40
|
)
|
||||
Financing
income, net
|
472
|
235
|
78
|
|||||||
Income
(loss) before taxes on income
|
(54
|
)
|
1,527
|
(1,678
|
)
|
|||||
Taxes
on income (Note 7)
|
-
|
-
|
-
|
|||||||
Net
income (loss) for the year
|
(54
|
)
|
1,527
|
(1,678
|
)
|
|||||
Income
(loss) per share :
|
||||||||||
Basic
net income (loss) per Ordinary Share (US$)
|
(0.00
|
)
|
0.10
|
(0.12
|
)
|
|||||
Diluted
net income (loss) per Ordinary Share (US$)
|
(0.00
|
)
|
0.10
|
(0.12
|
)
|
|||||
Weighted
average number of Ordinary Shares used to
|
||||||||||
compute
basic net income (loss) per Ordinary Share
|
15,894,036
|
14,696,090
|
13,453,509
|
|||||||
Weighted
average number of Ordinary Shares used to
|
||||||||||
compute
diluted net income (loss) per Ordinary Share
|
15,894,036
|
15,561,585
|
13,453,509
|
|
|
|
|
Accumulated
|
|
|
|
|
|
||||||||||
|
|
Share
capital
|
|
Additional
|
|
other
|
|
|
|
Total
|
|
||||||||
|
|
Number
of
|
|
|
|
paid-in
|
|
comprehensive
|
|
Accumulated
|
|
Shareholders'
|
|
||||||
|
|
shares
|
|
Amount
|
|
capital
|
|
loss
|
|
deficit
|
|
equity
|
|
||||||
|
|
|
|
US$
(thousands)
|
|
US$
(thousands)
|
|
US$
(thousands)
|
|
US$
(thousands)
|
|
US$
(thousands)
|
|
||||||
Balance
as of
|
|||||||||||||||||||
January
1, 2004
|
10,506,876
|
57
|
38,273
|
-
|
(32,084
|
)
|
6,246
|
||||||||||||
Changes
during 2004:
|
|||||||||||||||||||
Net
loss for the year
|
-
|
-
|
-
|
-
|
(1,678
|
)
|
(1,678
|
)
|
|||||||||||
Net
unrealized loss on
|
|||||||||||||||||||
available
for sale securities
|
-
|
-
|
-
|
(13
|
)
|
-
|
(13
|
)
|
|||||||||||
Comprehensive
loss
|
(1,691
|
)
|
|||||||||||||||||
Issuance
of Ordinary
|
|||||||||||||||||||
Shares
and detachable
|
|||||||||||||||||||
warrants,
net of issuance
|
|||||||||||||||||||
expenses
of US$ 189
|
|||||||||||||||||||
thousand
|
3,851,540
|
42
|
5,269
|
-
|
-
|
5,311
|
|||||||||||||
Employees'
stock
|
|||||||||||||||||||
option
compensation
|
-
|
-
|
94
|
-
|
-
|
94
|
|||||||||||||
Exercise
of options
|
79,932
|
2
|
62
|
-
|
-
|
64
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2004
|
14,438,348
|
101
|
43,698
|
(13
|
)
|
(33,762
|
)
|
10,024
|
|||||||||||
Changes
during 2005:
|
|||||||||||||||||||
Net
income for the year
|
-
|
-
|
-
|
-
|
1,527
|
1,527
|
|||||||||||||
Reclassification
|
|||||||||||||||||||
adjustment
for loss
|
|||||||||||||||||||
on
available for sale
|
|||||||||||||||||||
included
in net income
|
-
|
-
|
-
|
13
|
-
|
13
|
|||||||||||||
Comprehensive
income
|
1,540
|
||||||||||||||||||
Employees'
stock
|
|||||||||||||||||||
option
compensation
|
-
|
-
|
12
|
-
|
-
|
12
|
|||||||||||||
Exercise
of options
|
191,873
|
2
|
182
|
-
|
-
|
184
|
|||||||||||||
Exercise
of warrants, net
|
|||||||||||||||||||
of
issuance expenses of
|
|||||||||||||||||||
US$
14 thousand
|
328,256
|
4
|
721
|
-
|
-
|
725
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2005
|
14,958,477
|
107
|
44,613
|
-
|
(32,235
|
)
|
12,485
|
||||||||||||
Changes
during 2006:
|
|||||||||||||||||||
Net
loss and comprehensive loss for the year
|
-
|
-
|
-
|
-
|
(54
|
)
|
(54
|
)
|
|||||||||||
Employees'
stock
|
|||||||||||||||||||
option
compensation
|
-
|
-
|
558
|
-
|
-
|
558
|
|||||||||||||
Exercise
of options
|
647,923
|
7
|
967
|
-
|
-
|
974
|
|||||||||||||
Exercise
of warrants
|
625,877
|
6
|
1,404
|
-
|
-
|
1,410
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2006
|
16,232,277
|
120
|
47,542
|
-
|
(32,289
|
)
|
15,373
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
income (loss) for the year
|
(54
|
)
|
1,527
|
(1,678
|
)
|
|||||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||||
provided
by (used in) operating activities:
|
||||||||||
Depreciation
|
603
|
579
|
797
|
|||||||
Decrease
(increase) in value and accrued interest from
|
||||||||||
marketable
securities
|
-
|
5
|
(5
|
)
|
||||||
Accrued
interest on short-term bank deposits
|
(73
|
)
|
-
|
-
|
||||||
Loss
from sale of property and equipment
|
7
|
-
|
9
|
|||||||
Employees'
stock option compensation
|
558
|
12
|
94
|
|||||||
Increase
(decrease) in severance pay, net
|
135
|
(44
|
)
|
(89
|
)
|
|||||
Increase
in trade receivables, net
|
(2,735
|
)
|
(2,515
|
)
|
(1,572
|
)
|
||||
Increase
(decrease) in deferred revenue
|
(63
|
)
|
1,234
|
414
|
||||||
Decrease
(increase) in other current assets
|
(445
|
)
|
500
|
(534
|
)
|
|||||
Decrease
(increase) in inventories
|
(1,180
|
)
|
143
|
(892
|
)
|
|||||
Increase
in trade payables
|
380
|
138
|
864
|
|||||||
Increase
(decrease) in other payables and
|
||||||||||
accrued
expenses
|
276
|
(190
|
)
|
413
|
||||||
Net
cash provided by (used in) operating activities
|
(2,591
|
)
|
1,389
|
(2,179
|
)
|
|||||
Cash
flows from investing activities:
|
||||||||||
Proceeds
from sale of marketable securities
|
-
|
2,000
|
1,000
|
|||||||
Investment
in marketable securities
|
-
|
-
|
(3,000
|
)
|
||||||
Investment
in short-term deposits
|
(7,987
|
)
|
-
|
-
|
||||||
Proceeds
from sale of property and equipment
|
8
|
-
|
40
|
|||||||
Purchase
of property and equipment
|
(327
|
)
|
(336
|
)
|
(292
|
)
|
||||
Net
cash provided by (used in) investing activities
|
(8,306
|
)
|
1,664
|
(2,252
|
)
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Cash
flows from financing activities:
|
||||||||||
Issuance
of ordinary shares and detachable warrants
|
||||||||||
net
of issuance expenses
|
-
|
-
|
5,311
|
|||||||
Exercise
of warrants
|
1,410
|
725
|
-
|
|||||||
Exercise
of options
|
974
|
184
|
64
|
|||||||
Net
cash provided by financing activities
|
2,384
|
909
|
5,375
|
|||||||
Increase
(decrease) in cash and cash equivalents
|
(8,513
|
)
|
3,962
|
944
|
||||||
Cash
and cash equivalents at beginning of year
|
10,520
|
6,558
|
5,614
|
|||||||
Cash
and cash equivalents at end of year
|
2,007
|
10,520
|
6,558
|
A. |
Certain
definitions
|
B. |
Financial
statements in US dollars (“dollar” or
"dollars")
|
C. |
Estimates
and assumptions
|
D. |
Principles
of consolidation
|
E. |
Cash
and cash equivalents
|
F. |
Marketable
securities
|
G. |
Trade
receivables, net
|
H. |
Inventories
|
I. |
Assets
held for severance
benefits
|
J. |
Property
and equipment
|
%
|
||||
Demonstration
and rental equipment
|
33
|
|||
Research
and development equipment
|
25
- 50
|
|||
Motor
vehicles
|
15
|
|||
Manufacturing
equipment
|
15
- 33
|
|||
Office
furniture and equipment
|
7
- 33
|
|||
Leasehold
improvements
|
*
|
* |
At
the shorter of the lease period or useful life of the leasehold
improvement.
|
K. |
Impairment
of long-lived assets
|
L. |
Revenue
recognition
|
1. |
Revenue
from product sales is recognized in accordance with Statement
of Position
("SOP") 97-2,
"Software Revenue Recognition", when the following criteria
are met: (1)
persuasive evidence of an arrangement exists, (2) delivery
has occurred,
(3) the vendor's fee is fixed or determinable and (4) collectibility
is
probable.
|
2.
|
After
the Warranty period initially provided with the Company's products,
the
Company may sell extended warranty contracts, which includes bug
fixing
and a hardware warranty. In such cases, revenues attributable to
the
extended warranty are deferred at the time of the initial sale
and
recognized ratably over the extended contract warranty
period.
|
3.
|
Most
of the Company's revenues are generated from sales to independent
distributors. The Company has a standard contract with its distributors.
Based on this agreement, sales to distributors are final and distributors
have no rights of return or price protection. The Company is not
a party
to the agreements between distributors and their customers.
|
4.
|
The
Company also generates sales through independent representatives.
These
representatives do not hold any of the Company's inventories, and
they do
not buy products from the Company. The Company invoices the end-user
customers directly, collects payment directly and then pays commissions
to
the representative for the sales in its territory. The Company
reports
sales through independent representatives on a gross basis, based
on the
indicators of the Emerging Issues Task Force (“EITF”) No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent”.
|
M. |
Research
and development costs
|
1.
|
Research
and development costs are expensed as incurred.
|
2.
|
The
Company applies the provisions of SFAS No. 86, "Accounting for
Costs of
Computer Software to be Sold, Leased or Otherwise Marketed". Expenditures
incurred during the period between attaining technological feasibility
and
general release of the associated product are deferred and amortized
over
the estimated product life, however the expenditures incurred to
date have
been immaterial and accordingly, such costs have been expensed
in the
period incurred.
|
N. |
Government
grants
|
O. |
Allowance
for product warranty
|
US$
|
|
|||
|
|
(in
thousands)
|
||
Balance
at January 1, 2005
|
172
|
|||
Accrual
for warranties issued during the year
|
260
|
|||
Reduction
for payments and costs to satisfy claims
|
(203
|
)
|
||
Balance
at December 31, 2005
|
229
|
|||
Accrual
for warranties issued during the year
|
422
|
|||
Reduction
for payments and costs to satisfy claims
|
(296
|
)
|
||
Balance
at December 31, 2006
|
355
|
P. |
Share-based
compensation
|
P. |
Share-based
compensation (cont’d)
|
Year
ended
|
||||
December
31
|
||||
2006
|
||||
US$
(in thousands)
|
||||
except
per share
|
||||
amounts
|
||||
Income
before income taxes
|
558
|
|||
Net
income
|
558
|
|||
Income
per common share - basic (US$)
|
0.04
|
|||
Income
per common share - diluted (US$)
|
0.04
|
P. |
Share-based
compensation (cont’d)
|
Year
ended
|
|
Year
ended
|
|
||||
|
|
December
31
|
|
December
31
|
|
||
|
|
2005
|
|
2004
|
|
||
|
|
US$
(in thousands)
|
|
US$
(in thousands)
|
|
||
|
|
Except
per share amounts
|
|||||
Net
income (loss) as reported
|
1,527
|
(1,678
|
)
|
||||
Add:
compensation expenses according to APB 25
|
|||||||
included
in the reported net income (loss)
|
12
|
94
|
|||||
Deduct:
compensation expenses according to SFAS No. 123
|
(669
|
)
|
(561
|
)
|
|||
Net
income (loss) - pro forma
|
870
|
(2,145
|
)
|
||||
Basic
net income (loss) per ordinary share as reported (US$)
|
0.10
|
(0.12
|
)
|
||||
Pro
forma basic net income (loss) per ordinary share (US$)
|
0.06
|
(0.16
|
)
|
||||
Diluted
net income (loss) per ordinary share as reported (US$)
|
0.10
|
(0.12
|
)
|
||||
Pro
forma diluted net income (loss) per ordinary share (US$)
|
0.06
|
(0.16
|
)
|
Q. |
Deferred
income taxes
|
R. |
Income
(loss) per share
|
R. |
Income
(loss) per share (cont’d)
|
S. |
Treasury
shares
|
T. |
Reclassification
|
A. |
Composition
of assets, grouped by major classification, is as
follows:
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Cost
|
|||||||
Demonstration
and rental equipment
|
2,039
|
2,192
|
|||||
Research
and development equipment
|
3,288
|
4,792
|
|||||
Motor
vehicles
|
26
|
2
|
|||||
Manufacturing
equipment
|
1,310
|
1,325
|
|||||
Office
furniture and equipment
|
1,081
|
1,239
|
|||||
Leasehold
improvements
|
654
|
411
|
|||||
8,398
|
9,961
|
||||||
Accumulated
depreciation
|
|||||||
Demonstration
and rental equipment
|
1,828
|
1,961
|
|||||
Research
and development equipment
|
2,921
|
4,287
|
|||||
Motor
vehicles
|
6
|
2
|
|||||
Manufacturing
equipment
|
1,055
|
1,073
|
|||||
Office
furniture and equipment
|
953
|
1,098
|
|||||
Leasehold
improvements
|
227
|
307
|
|||||
6,990
|
8,728
|
||||||
1,408
|
1,233
|
B.
|
Depreciation
expenses amounted to US$ 603 thousand, US$ 579 thousand and US$
797
thousand for the years ended December 31, 2006, 2005 and 2004,
respectively.
|
A. |
Royalty
commitments
|
1.
|
The
Company received research and development grants from the OCS.
In
consideration for the research and development grants received
from the
OCS, the Company has undertaken to pay royalties as a percentage
on
revenues from products developed from research and development
projects
financed. Royalty rates were 3.5% in 2004 and subsequent years.
If the
Company will not generate sales of products developed with funds
provided
by the OCS, the Company is not obligated to pay royalties or repay
the
grants.
|
A. |
Royalty
commitments (cont’d)
|
2.
|
According
to the Company's agreements with the Israel - US Bi-National Industrial
Research and Development Foundation ("BIRD-F"), the Company is
required to
pay royalties at a rate of 5% of sales of products developed with
funds
provided by the BIRD-F, up to an amount equal to 150% of BIRD-F's
grant
(linked to the United States Consumer Price Index) relating to
such
products. The last fund from the BIRD-F was received in 1996. In
the event
the Company does not generate sales of products developed with
funds
provided by BIRD-F, the Company is not obligated to pay royalties
or repay
the grants.
|
B. |
Operating
leases
|
1.
|
Premises
occupied by the Company and the US Subsidiary are rented under
various
rental agreements with related parties (see Note
9).
|
Year
ended December 31
|
US$
(in thousands)
|
|||
2007
|
693
|
|||
2008
|
687
|
|||
2009
|
123
|
|||
2010
|
96
|
|||
2011
|
4
|
B. |
Operating
leases (cont’d)
|
2.
|
The
Company leases motor vehicles under operating leases. The leases
typically
run for an initial period of three years with an option to renew
the
leases after that date.
|
Year
ended December 31
|
US$
(in thousands)
|
|||
2007
|
564
|
|||
2008
|
424
|
|||
2009
|
174
|
|||
2010
|
65
|
C. |
Legal
proceedings
|
1.
|
In
November 2005, the Company was served with a claim by Qualitest
Ltd.
(“Qualitest”), an Israeli company that was formerly a nonexclusive
distributor for the Company's products in Israel, for the total
sum of
approximately US$ 623 thousand. Qualitest claims that the Company
breached
an exclusive distribution agreement. In December 2005, the Company
filed a
statement of defense against the claim asserting that an exclusive
distribution agreement was never signed between the parties, and
included
a counterclaim in the amount of approximately US$ 131 thousand
for unpaid
invoices. The claims have been brought before an arbitrator. In
June 2006,
Qualitest paid the Company US$ 69 thousand in accordance with a
partial
verdict of the arbitrator. In June 2007, Qualitest paid the Company
$18
thousand and by that and the partial verdict, settled the Company’s
conterclaim. The file now continues only regarding Qualitest’s claim
against the Company. The summations were alraedy filed by both
parties. It is not possible to estimate the amount of the lawsuit or
the chances of success for this
lawsuit.
|
2.
|
In
June 2005, the Company received correspondence claiming that the
technology it currently uses in the assembly of one of its products
infringes upon certain patents owned by another corporation. The
Company
and its legal counsel are of the opinion that the claim is without
merit
and that product does not infringe upon any patent. In addition,
even if
the claims were found to have merit, the Company is of the opinion
that it
can continue to assemble its product using alternative technologies.
The
Company cannot estimate at this stage if a lawsuit will be instituted,
and
if so, the ultimate outcome. In the event of a lawsuit, the Company
plans
to defend itself vigorously. The parties are still corresponding
in an
effort to solve this matter
amicably.
|
3.
|
On
January 13, 2004, the Company was served with a complaint in the
United
States District Court of New Jersey, by Acterna LLC ("Acterna"),
alleging
that certain of the Company's products infringed one or more claims
of a
patent allegedly owned by Acterna. In December 2004, although the
Company
has not and does not acknowledge infringing such patent, the Company
decided to reach a settlement with Acterna in order to save management’s
time and litigation costs. In connection with the settlement agreement,
the Company paid an undisclosed sum, as well as legal expenses,
and
Acterna granted the Company a worldwide license to the patent and
the
Company acknowledged the patent's validity. This amount paid has
been
immediately recorded as an expense since the Company did not purchase
any
intangible assets and the aforesaid amount represents legal expenses.
The
total expenses for
this legal proceeding were US$ 697 thousand and were recorded in
the year
ended December 31, 2004.
|
D. |
Bank
guarantee
|
A. |
Share
capital
|
1. |
The
Company’s share capital is comprised of the
following:
|
December
31, 2006
|
||||||||||
Authorized
|
|
Issued
|
|
Outstanding
|
||||||
Number
of shares
|
||||||||||
Ordinary
Shares of NIS 0.05 par value (i)
|
39,990,680
|
*16,232,277
|
*16,232,277
|
|||||||
Deferred
Shares of NIS 0.05 par value (ii)
|
-
|
-
|
-
|
December
31, 2005
|
||||||||||
Authorized
|
|
Issued
|
|
Outstanding
|
||||||
Number
of shares
|
||||||||||
Ordinary
Shares of NIS 0.05 par value (i)
|
39,990,680
|
*14,958,477
|
*14,958,477
|
|||||||
Deferred
Shares of NIS 0.05 par value (ii)
|
9,320
|
9,320
|
9,320
|
*
|
This
number does not include 20,757 Ordinary Shares, which are held
by a
subsidiary, and 123,372 Ordinary Shares which are held by the Company
(see
i (b) below).
|
(i)
|
(a)
|
Ordinary
Shares confer all rights to their holders, e.g. voting, equity
and receipt
of dividend.
|
(b)
|
In
March and April 2001, the Company purchased 123,372 shares of the
Company's Ordinary Shares in the over-the-counter market. This
purchase
was approved by the Tel Aviv-Jaffa District
Court.
|
(ii)
|
Deferred
Shares confer only the right to their par value upon liquidation
of the
Company. The Deferred Shares were Ordinary Shares that were deferred
in
1996 and 1997 after being bought from employees by a wholly-owned
subsidiary of the Company. The Deferred Shares are treated as treasury
stock. The Deferred Shares were non-voting and non-participatory.
During
2006, these Deferred Shares were
cancelled.
|
2.
|
On
March 29, 2004, the Company closed a private placement transaction
(the
"PIPE"). Under the PIPE investment, the Company issued 3,851,540
of the
Company's Ordinary Shares at an aggregate purchase price of US$
5,500
thousand or US$ 1.428 per Ordinary Share. The Company also issued
to the
investors warrants to purchase up to 962,887 Ordinary Shares at
an
exercise price of US$ 2.253 per share. The warrants were exercisable
for
two years from the closing of the PIPE. 954,133 of the warrants
were
exercised during 2005 and 2006 and the remaining 8,754 warrants
expired
during 2006.
|
B. |
Share
option plans
|
1. |
The
Company has granted options under option plans as
follows:
|
a. |
The
Directors’ Share Option Plan
|
b. |
The
Radcom Ltd. 1998 Share Option Plan (the “Radcom 3(9)
Plan”)
|
c. |
The
Radcom Ltd. 1998 Employees Bonus Plan (the "Radcom Bonus
Plan")
|
d. |
The
Radcom Ltd. International Employee Stock Option Plan (the "International
Plan")
|
e. |
The
2000 Share Option Plan
|
B. |
Share
option plans (cont’d)
|
1. |
The
Company has granted options under option plans as follows:
(cont’d)
|
f. |
The
2001 Share Option Plan
|
g.
|
The
2003 Share Option Plan
|
2.
|
Generally,
grants in 2006, 2005 and 2004 were at exercise prices that reflect
the
market value of the Ordinary Shares at the date of
grant.
|
3. |
Repricing
of options
|
B. |
Share
option plans (cont’d)
|
4.
|
Following
is the stock option data as of December 31, 2006 and 2005 under
the
Directors'
Share Option Plan, the Radcom 3(9) Plan, the Radcom Bonus Plan,
the
International Plan, the 2000 Share Option Plan, the 2001 Share
Option Plan
and the 2003 Share Option Plan:
|
|
|
December
31, 2006
|
|
|||||||||||||
|
|
Vested
|
|
Unvested
|
|
Exercise
price
|
|
Vesting
period
|
|
Expiration
(from
resolution
date)
|
|
|||||
|
|
No.
of options
|
|
US$
|
|
Years
|
|
Years
|
|
|||||||
Radcom
3(9) Plan
|
|
|
532,800
|
|
|
-
|
|
|
2.3125-5.75
|
|
|
3-6
|
|
|
10
|
|
International
Plan
|
|
|
159,389
|
|
|
188,527
|
|
|
0.00-2.97
|
|
|
3-4
|
|
|
10
|
|
2000
Share Option Plan
|
|
|
267,612
|
|
|
-
|
|
|
0.00-6.125
|
|
|
3
|
|
|
10
|
|
2001
Share Option Plan
|
|
|
274,250
|
|
|
-
|
|
|
1.449-1.84
|
|
|
3-4
|
|
|
10
|
|
2003
Share Option Plan
|
|
|
544,590
|
|
|
702,593
|
|
|
1.03-4.57
|
|
|
3-4
|
|
|
10
|
|
|
|
|
1,778,641
|
|
|
891,120
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|||||||||||||
|
|
Vested
|
|
Unvested
|
|
Exercise
price
|
|
Vesting
period
|
|
Expiration
(from
resolution
date)
|
|
|||||
|
|
No.
of options
|
|
US$
|
|
Years
|
|
Years
|
|
|||||||
Directors'
Share Option Plan
|
|
|
135,000
|
|
|
-
|
|
|
1.84
|
|
|
3
|
|
|
5
|
|
Radcom
Bonus Plan
|
|
|
11,334
|
|
|
-
|
|
|
11.375-13.375
|
|
|
3
|
|
|
6
|
|
Radcom
3(9) Plan
|
|
|
532,800
|
|
|
-
|
|
|
2.3125-5.75
|
|
|
3-6
|
|
|
10
|
|
International
Plan
|
|
|
177,290
|
|
|
186,500
|
|
|
0.00-3.875
|
|
|
1-4
|
|
|
10
|
|
2000
Share Option Plan
|
|
|
402,583
|
|
|
-
|
|
|
0.00-6.125
|
|
|
3-4
|
|
|
10
|
|
2001
Share Option Plan
|
|
|
414,000
|
|
|
90,000
|
|
|
0.51-1.84
|
|
|
3-4
|
|
|
10
|
|
2003
Share Option Plan
|
|
|
341,328
|
|
|
821,219
|
|
|
1.03-2.63
|
|
|
3-4
|
|
|
10
|
|
|
|
|
2,014,335
|
|
|
1,097,719
|
|
|
|
|
|
|
|
|
|
|
B. |
Share
option plans (cont'd)
|
5.
|
Stock
options under the Directors Share Option Plan, the Radcom 3(9)
Plan, the
Radcom Bonus Plan, the International Plan, the 2000 Share Option
Plan, the
2001 Share Option Plan and the 2003 Share Option Plan are as follows
for
the periods indicated:
|
Number
of
options
|
Weighted
average
exercise
price
|
||||||
US$
|
|||||||
Options
outstanding as at January 1, 2004
|
3,005,366
|
2.443
|
|||||
Granted
|
645,860
|
2.044
|
|||||
Exercised
|
(79,932
|
)
|
0.783
|
||||
Expired
|
(278,972
|
)
|
4.647
|
||||
Forfeited
|
(41,525
|
)
|
1.060
|
||||
Options
outstanding as at December 31, 2004
|
3,250,797
|
2.233
|
|||||
Granted
|
404,000
|
2.268
|
|||||
Exercised
|
(191,873
|
)
|
0.958
|
||||
Expired
|
(253,675
|
)
|
3.031
|
||||
Forfeited
|
(97,195
|
)
|
1.771
|
||||
Options
outstanding as at December 31, 2005
|
3,112,054
|
2.266
|
|||||
Granted
|
318,197
|
2.698
|
|||||
Exercised
|
(647,923
|
)
|
1.503
|
||||
Expired
|
(16,934
|
)
|
8.942
|
||||
Forfeited
|
(95,633
|
)
|
2.104
|
||||
Options
outstanding as at December 31, 2006
|
2,669,761
|
2.466
|
(1)
|
At
December 31, 2006, 2005 and 2004, the number of options exercisable
was
1,778,641, 2,014,335 and 1,931,739 respectively, and the total
number of
authorized options was 3,152,327, 3,152,327 and 4,207,800,
respectively.
|
(2)
|
The
aggregate intrinsic value of options exercised during 2006, 2005
and 2004
was approximately US$ 1,631 thousand, US$ 337 thousand and US$
112
thousand, respectively.
|
B. |
Share
option plans (cont'd)
|
5.
|
Stock
options under the Directors Share Option Plan, the Radcom 3(9)
Plan, the
Radcom Bonus Plan, the International Plan, the 2000 Share Option
Plan, the
2001 Share Option Plan and the 2003 Share Option Plan are as follows
for
the periods indicated: (cont’d)
|
Options
outstanding at December 31, 2006
|
Options
exercisable at December 31, 2006
|
||||||||||||||||||
Exercise
price
(US$
per share)
|
Number
outstanding
|
Weighted
average Exercise price (in US$)
|
Weighted
average Remaining Contractual life
(in
years)
|
Number
outstanding
|
Weighted
average
Exercise
price
(in
US$)
|
Weighted
average
Remaining
Contractual
life
(in
years)
|
|||||||||||||
0.00
|
114,476
|
-
|
3.555
|
114,476
|
-
|
3.555
|
|||||||||||||
1.03
- 1.95
|
1,051,907
|
1.573
|
6.158
|
757,389
|
1.449
|
5.263
|
|||||||||||||
2.12
- 3.00
|
1,040,878
|
2.367
|
6.569
|
491,776
|
2.340
|
5.048
|
|||||||||||||
3.063
- 3.9375
|
70,000
|
3.438
|
2.527
|
70,000
|
3.438
|
2.527
|
|||||||||||||
4.18
- 6.125
|
392,500
|
5.669
|
1.085
|
345,000
|
5.837
|
2.104
|
|||||||||||||
2,669,761
|
1,778,641
|
6.
|
The
weighted average fair values of options (including non-employees)
granted
during the years ended December 31, 2004, 2005 and 2006
were:
|
For
exercise price on the grant date that:
|
|||||||||||||||||||
Equals
market price of the underlying share
|
Less than
market price of the underlying share
|
||||||||||||||||||
Year
ended December 31
|
Year
ended December 31
|
||||||||||||||||||
2004
|
2005
|
2006
|
2004
|
2005
|
2006
|
||||||||||||||
Weighted
average
|
|||||||||||||||||||
exercise
prices
|
2.082
|
2.268
|
2.698
|
1.270
|
-
|
-
|
|||||||||||||
Weighted
average
|
|||||||||||||||||||
fair
values on
|
|||||||||||||||||||
grant
date
|
1.495
|
1.350
|
1.915
|
1.177
|
-
|
-
|
7.
|
The
following table summarizes the departmental allocation of the Company’s
share-based compensation charge:
|
Year
ended December 31,
|
||||||||||
(*)
2006
|
(**)
2005
|
(**)
2004
|
||||||||
US$
( (in thousands)
|
||||||||||
Cost
of sales
|
14
|
-
|
2
|
|||||||
Research
and development
|
113
|
-
|
43
|
|||||||
Selling
and marketing
|
193
|
-
|
34
|
|||||||
General
and administrative
|
238
|
12
|
15
|
|||||||
558
|
12
|
94
|
C. |
Share-based
compensation
|
1. |
The
current price of the stock on the grant date is the fair market
value of
such date;
|
2. |
The
dividend yield is zero percent for all relevant
years;
|
3.
|
Risk
free interest rates are as follows:
|
%
|
||||
Year
ended December 31, 2004
|
2.0
- 3.8
|
|||
Year
ended December 31, 2005
|
3.8
- 4.2
|
|||
Year
ended December 31, 2006
|
4.5
- 5.0
|
4.
|
Each
option granted has an expected life of 2 - 10 years (as of the
date of
grant); and
|
5.
|
Expected
annual volatility is 74% - 100%, 89% - 100% and 87% - 104% for
the years
ended December 31, 2006, 2005 and 2004,
respectively.
|
A. |
Israel
Tax Reform
|
1.
|
During
2003, tax reform legislation was enacted with effect from January
1, 2003,
which significantly changed the taxation basis of corporate and
individual
taxpayers from a territorial basis to a worldwide basis. From such
date,
an Israeli resident taxpayer will be taxed on income produced and
derived
both in and out of Israel.
|
2.
|
On
July 25, 2005, the Israeli Parliament passed the Law for the Amendment
of
the Income Tax Ordinance (No. 147 and Temporary Order) - 2005 (“Amendment
147”). Amendment 147 provides for a gradual reduction in the company
tax
rate in the following manner: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%,
in 2009 - 26% and from 2010 onward the tax rate will be 25%. Furthermore,
beginning in 2010, upon Israel’s reduction of the company tax rate to 25%,
real capital gains will be subject to a tax of 25%.
|
B.
|
Tax
benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959
|
1. |
Programs
|
2. |
Accelerated
depreciation
|
B.
|
Tax
benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959 (cont’d)
|
3. |
Changes
to the Law
|
·
|
Companies
that meet the criteria of the Alternate Path of tax benefits will
receive
those benefits without prior approval. In addition, there will
be no
requirement to file reports with the Investment Center. Audit will
take
place via the Income Tax Authorities as part of the tax audits.
Request
for pre-ruling is possible.
|
·
|
Tax
benefits of the Alternate Path include lower tax rates or no tax
depending
on the area and the path chosen, lower tax rates on dividends and
accelerated depreciation.
|
·
|
In
order to receive benefits in the Grant Path or the Alternate Path,
the
industrial enterprise must contribute to the economic independence
of the
country’s economy in one of the following
ways:
|
1.
|
Its
primary activity is in the Biotechnology or Nanotechnology fields
and,
pre-approval is received from the head of research and development
at the
OCS;
|
2.
|
Its
revenue from a specific country is not greater than 75% of its
total
revenues that year; or
|
3.
|
25%
or more of its revenues is derived from a specific market of at
least 12
million residents.
|
·
|
Upon
the establishment of an enterprise, an investment of at least NIS
300
thousand in production machinery and equipment within three years
is
required.
|
·
|
For
an expansion, a company is required to invest within three years
in the
higher of (i) NIS 300 thousand in production machinery and equipment
and
(ii) a certain percentage of its existing production machinery
and
equipment.
|
B.
|
Tax
benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959 (cont’d)
|
4.
|
Conditions
for entitlement to the
benefits
|
C.
|
Measurement
of results for tax purposes under the Israeli Inflationary Adjustments
Law, 1985 (the "Inflationary Adjustments
Law")
|
D. |
Tax
assessments
|
E. |
Carryforward
tax loss
|
F. |
US
Subsidiary
|
1. |
The
US subsidiary is taxed under United States federal and state tax
rules.
|
2.
|
The
US subsidiary's carryforward tax losses amounted to approximately
US$
11,246 thousand as of December 31, 2006 (2005 - US$ 10,908 thousand)
for
federal and state tax purposes. Such losses are available to offset
any
future US taxable income of the US subsidiary and will expire in
the years
2008 - 2026 for federal tax purpose and in the years 2008 - 2013
for state
tax purpose.
|
3.
|
The
US subsidiary has not received final tax assessments since incorporation.
In accordance with the tax rates, tax returns submitted up to and
including the 2002 tax year can be regarded as
final.
|
G. |
UK
Subsidiary
|
H. |
Deferred
taxes
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Tax
asset in respect of:
|
|||||||
Carryforward
losses
|
9,467
|
9,320
|
|||||
Allowance
for doubtful accounts
|
160
|
13
|
|||||
Severance
pay
|
178
|
172
|
|||||
Vacation
pay
|
293
|
229
|
|||||
Research
and development
|
616
|
628
|
|||||
Employees’
stock option compensation
|
18
|
49
|
|||||
Other
|
60
|
52
|
|||||
10,792
|
10,463
|
||||||
Less:
valuation allowance
|
(10,792
|
)
|
(10,463
|
)
|
|||
|
-
|
-
|
|
I. |
Reconciliation
of the theoretical tax expense and the actual tax
expense
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Israel
|
285
|
1,133
|
(554
|
)
|
||||||
Other
|
(339
|
)
|
394
|
(1,124
|
)
|
|||||
Net
income (loss) before taxes
|
(54
|
)
|
1,527
|
(1,678
|
)
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Income
(loss) before taxes, as reported in the
|
||||||||||
statements
of operations
|
(54
|
)
|
1,527
|
(1,678
|
)
|
|||||
Statutory
tax on the above amount (according to
|
||||||||||
tax
rate of 31% in 2006, 34% in 2005 and 35%
|
||||||||||
in
2004)
|
(17
|
)
|
519
|
(587
|
)
|
|||||
Tax
effect on non-Israeli subsidiaries
|
(40
|
)
|
1
|
(48
|
)
|
|||||
Increase
(decrease) in income taxes resulting
from:
|
||||||||||
Non-deductible
share-based compensation expenses
|
173
|
4
|
4
|
|||||||
Other
non-deductible operating expenses
|
83
|
45
|
48
|
|||||||
Losses
and timing differences, net in respect of
|
||||||||||
which
no deferred taxes were recorded
|
441
|
(18
|
)
|
717
|
||||||
Utilization
of tax losses in respect of which
|
||||||||||
deferred
tax assets were not recorded in prior years
|
(139
|
)
|
(861
|
)
|
-
|
|||||
Differences
in taxes arising from differences
|
||||||||||
between
Israeli currency income and dollar
|
||||||||||
income,
net *
|
(501
|
)
|
310
|
(134
|
)
|
|||||
Taxes
on income
|
-
|
-
|
-
|
A. |
Balance
Sheet
|
1. |
Cash
and cash equivalents
|
2. |
Short-term
bank deposits
|
3. |
Trade
receivables, net
|
US$
(in
thousands)
|
||||
Balance
at December 31, 2004
|
121
|
|||
Additions
during 2005
|
49
|
|||
Deductions
during 2005
|
(37
|
)
|
||
Balance
at December 31, 2005
|
133
|
|||
Additions
during 2006
|
585
|
|||
Deductions
during 2006
|
(28
|
)
|
||
Balance
at December 31, 2006
|
690
|
4. |
Inventories
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in
thousands)
|
US$
(in
thousands)
|
||||||
Raw
materials
|
678
|
853
|
|||||
Work
in process
|
856
|
533
|
|||||
Finished
products
|
1,141
|
552
|
|||||
2,675
|
1,938
|
A. |
Balance
Sheet (cont'd)
|
5. |
Other
current assets
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Value
Added Tax authorities
|
358
|
113
|
|||||
Government
of Israel - OCS receivable
|
54
|
-
|
|||||
Prepaid
expenses
|
343
|
116
|
|||||
Others
|
70
|
151
|
|||||
825
|
380
|
6. |
Other
payables and accrued
expenses
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Employees
and employee institutions
|
2,356
|
1,904
|
|||||
Royalties
- OCS payable
|
558
|
555
|
|||||
Commissions
payable
|
308
|
230
|
|||||
Other
royalties payables
|
55
|
211
|
|||||
Allowance
for product warranty
|
355
|
229
|
|||||
Advances
from customers
|
-
|
53
|
|||||
Government
of Israel tax authorities
|
128
|
99
|
|||||
Others
|
530
|
733
|
|||||
4,290
|
4,014
|
7. |
Monetary
balances in non-dollar
currencies
|
December
31, 2006
|
||||||||||
Israeli
currency
|
||||||||||
Not
linked
to
the dollar
|
Linked
to
the
dollar
|
Other
non-dollar
currency
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Current
assets
|
1,228
|
-
|
2
|
|||||||
Current
liabilities
|
2,667
|
558
|
9
|
December
31, 2005
|
||||||||||
Israeli
currency
|
||||||||||
Not
linked
to
the dollar
|
Linked
to
the
dollar
|
Other
non-dollar
currency
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Current
assets
|
533
|
-
|
120
|
|||||||
Current
liabilities
|
2,366
|
568
|
27
|
8. |
Fair
value of financial
instruments
|
B. |
Statement
of Operations
|
1. |
Sales
|
(a) |
Sales
- classified by geographical
destination:
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
North
America
|
7,611
|
8,793
|
4,452
|
|||||||
Europe
|
9,443
|
8,641
|
8,536
|
|||||||
Far
East
|
2,590
|
3,313
|
2,295
|
|||||||
South
America
|
2,622
|
712
|
167
|
|||||||
Other
|
1,275
|
881
|
605
|
|||||||
23,541
|
22,340
|
16,055
|
(b) |
Principal
customers
|
B. |
Statement
of Operations (cont'd)
|
2. |
Financing
income, net
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Financing
income:
|
||||||||||
Interest
from banks
|
497
|
270
|
118
|
|||||||
497
|
270
|
118
|
||||||||
Financing
expenses:
|
||||||||||
Interest
and bank charges on short- term
|
||||||||||
bank
credit
|
19
|
15
|
22
|
|||||||
Exchange
translation loss, net
|
6
|
20
|
18
|
|||||||
25
|
35
|
40
|
||||||||
Financing
income, net
|
472
|
235
|
78
|
1.
|
Certain
premises occupied by the Company and the US subsidiary are rented
from
related parties (see Note 5B).
|
2.
|
Certain
entities within the RAD-BYNET Group provide the Company with
administrative services. Such amounts expensed by the Company are
disclosed in Note 9(B) below as "Cost of sales, sales and marketing,
general and administrative expenses". Additionally, certain entities
within the RAD-BYNET Group perform research and development on
behalf of
the Company. Such amounts expensed by the Company are disclosed
in Note
9(B) below as "Research and development,
gross".
|
3.
|
The
Company purchases from certain entities within the RAD-BYNET Group
software packages included in the Company's products and is thus
incorporated into its product line.
|
4.
|
The
Company is party to a distribution agreement with Bynet Electronics
Ltd.
("BYNET"), a related party, giving Bynet the exclusive right to
distribute
the Company's products in Israel and in certain parts of the West
Bank and
Gaza Strip.
|
A. |
Balances
with related parties
|
December
31
|
|||||||
2006
|
2005
|
||||||
US$
(in thousands)
|
US$
(in thousands)
|
||||||
Receivables:
|
|||||||
Trade
|
262
|
602
|
|||||
Other
current assets
|
33
|
4
|
|||||
Accounts
payable:
|
|||||||
Trade
|
205
|
25
|
|||||
Other
payables and accrued expenses
|
6
|
-
|
B. |
Expenses
to or income from related
parties
|
Year
ended December 31
|
||||||||||
2006
|
2005
|
2004
|
||||||||
US$
(in thousands)
|
US$
(in thousands)
|
US$
(in thousands)
|
||||||||
Income:
|
||||||||||
Sales
|
335
|
773
|
345
|
|||||||
Expenses:
|
||||||||||
Cost
of sales
|
98
|
108
|
162
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development, gross
|
196
|
201
|
260
|
|||||||
Sales
and marketing*
|
192
|
226
|
236
|
|||||||
General
and administrative
|
90
|
91
|
127
|
*
|
Sales
and marketing includes US$ 5 thousand rental revenue from a sublease
agreement with an affiliate of the Company's principal
shareholders.
|
C.
|
Acquisition
of fixed assets from related parties amounted to US$ 6 thousand,
US$ 23
thousand and US$ 9 thousand in the years ended December 31, 2006,
2005 and
2004, respectively.
|
A. |
Concentration
of credit risk
|
B. |
Concentrations
of business risk
|
1.
|
In
June 2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertain Tax Positions - an interpretation of FASB Statement No.
109”
(“FIN 48”), FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109. It prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement
of a tax
position taken or expected to be taken in a tax return. FIN 48
also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition.
FIN
48 is effective for fiscal years beginning after December 15, 2006.
The
Company is currently evaluating the effect that the application
of FIN 48
will have on its results of operations and financial
condition.
|
2.
|
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,
(“SFAS No. 157”). SFAS No. 157 defines fair value (replacing all prior
definitions) and creates a framework to measure fair value, but
does not
create any new fair value measurements. SFAS No. 157 is effective
in the
first quarter of fiscal years beginning after November 15, 2007.
The
Company is evaluating how SFAS No. 157 may affect its consolidated
financial statements.
|
3.
|
In
February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities (“SFAS
No. 159”). SFAS No. 159 permits all entities the option to
measure most financial instruments and certain other items at fair
value
at specified election dates and to report related unrealized gains
and
losses in earnings. The fair value option will generally be applied
on an
instrument-by-instrument basis and is generally an irrevocable
election.
SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.
|