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 0.20 par
value
per share
|
NASDAQ
Capital Market
|
PART
I
|
1
|
|||
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
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
|
15
|
||
A.
|
HISTORY
AND DEVELOPMENT OF THE COMPANY
|
15
|
||
B.
|
BUSINESS
OVERVIEW
|
15
|
||
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
|
36
|
||
C.
|
RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
|
43
|
||
D.
|
TREND
INFORMATION
|
43
|
||
E.
|
OFF-BALANCE
SHEET ARRANGEMENTS
|
44
|
||
F.
|
TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
44
|
||
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
45
|
||
A.
|
DIRECTORS
AND SENIOR MANAGEMENT
|
45
|
||
B.
|
COMPENSATION
|
47
|
||
C.
|
BOARD
PRACTICES
|
48
|
||
D.
|
EMPLOYEES
|
51
|
||
E.
|
SHARE
OWNERSHIP
|
51
|
||
ITEM
7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
52
|
||
A.
|
MAJOR
SHAREHOLDERS
|
52
|
||
B.
|
RELATED
PARTY TRANSACTIONS
|
53
|
C.
|
INTERESTS
OF EXPERTS AND COUNSEL
|
54
|
||
ITEM
8.
|
FINANCIAL
INFORMATION
|
54
|
||
A.
|
CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
|
54
|
||
B.
|
SIGNIFICANT
CHANGES
|
55
|
||
ITEM
9.
|
THE
OFFER AND LISTING
|
56
|
||
A.
|
OFFER
AND LISTING DETAILS
|
56
|
||
B.
|
PLAN
OF DISTRIBUTION
|
57
|
||
C.
|
MARKETS
|
57
|
||
D.
|
SELLING
SHAREHOLDERS
|
58
|
||
E.
|
DILUTION
|
58
|
||
F.
|
EXPENSES
OF THE ISSUE
|
58
|
||
ITEM
10.
|
ADDITIONAL
INFORMATION
|
58
|
||
A.
|
SHARE
CAPITAL
|
58
|
||
B.
|
MEMORANDUM
AND ARTICLES OF ASSOCIATION
|
58
|
||
C.
|
MATERIAL
CONTRACTS
|
64
|
||
D.
|
EXCHANGE
CONTROLS
|
64
|
||
E.
|
TAXATION
|
64
|
||
F.
|
DIVIDENDS
AND PAYING AGENTS
|
76
|
||
G.
|
STATEMENT
BY EXPERTS
|
76
|
||
H.
|
DOCUMENTS
ON DISPLAY
|
76
|
||
I.
|
SUBSIDIARY
INFORMATION
|
77
|
||
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
77
|
||
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
77
|
||
PART
II
|
77
|
|||
ITEM
13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
77
|
||
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
77
|
||
ITEM
15T.
|
CONTROLS
AND PROCEDURES
|
78
|
||
ITEM
16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
80
|
||
ITEM
16B.
|
CODE
OF ETHICS
|
80
|
||
ITEM
16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
80
|
ITEM
16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
81
|
|
ITEM
16E.
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
81
|
|
PART
III
|
81
|
||
ITEM
17.
|
FINANCIAL
STATEMENTS
|
81
|
|
ITEM
18.
|
FINANCIAL
STATEMENTS
|
81
|
|
ITEM
19.
|
82
|
||
SIGNATURES
|
85 |
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)
|
||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||
Statement
of Operations Data:
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Products
|
$
|
10,228
|
$
|
13,956
|
$
|
20,514
|
$
|
20,641
|
$
|
10,158
|
||||||
Services
|
975
|
2,099
|
1,826
|
2,900
|
3339
|
|||||||||||
11,203
|
16,055
|
22,340
|
23,541
|
13,497
|
||||||||||||
Cost
of revenues:
|
||||||||||||||||
Products
|
4,854
|
5,045
|
7,290
|
7,213
|
4,927
|
|||||||||||
Services
|
40
|
82
|
108
|
183
|
466
|
|||||||||||
4,894
|
5,127
|
7,398
|
7,396
|
5,393
|
||||||||||||
Gross
profit
|
6,309
|
10,928
|
14,942
|
16,145
|
8,104
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
5,593
|
5,232
|
5,815
|
6,826
|
7,378
|
|||||||||||
Less
- royalty-bearing participation
|
1,997
|
1,722
|
1,735
|
1,904
|
2,096
|
|||||||||||
Research
and development, net
|
3,596
|
3,510
|
4,080
|
4,922
|
5,282
|
|||||||||||
Sales
and marketing
|
7,411
|
6,983
|
7,881
|
9,196
|
9,279
|
|||||||||||
General
and administrative
|
1,620
|
2,191
|
1,689
|
2,553
|
2,391
|
|||||||||||
Total
operating expenses
|
12,627
|
12,684
|
13,650
|
16,671
|
16,952
|
|||||||||||
Operating
(loss) income
|
(6,318
|
)
|
(1,756
|
)
|
1,292
|
(526
|
)
|
(8,848
|
)
|
|||||||
Financing
income, net
|
93
|
78
|
235
|
472
|
265
|
|||||||||||
Net
(loss) income
|
(6,225
|
)
|
(1,678
|
)
|
1,527
|
(54
|
)
|
(8,583
|
)
|
|||||||
Basic
net income (loss) per ordinary share
|
$
|
(2.37
|
)
|
$
|
(0.50
|
)
|
$
|
0.42
|
$
|
(0.01
|
)
|
$
|
(2.10
|
)
|
||
Weighted
average number of ordinary shares used to compute basic net income
(loss)
per ordinary share
|
2,623,296
|
3,363,377
|
3,674,023
|
3,973,509
|
4,084,789
|
|||||||||||
Diluted
net income (loss) per ordinary share
|
$
|
(2.37
|
)
|
$
|
(0.50
|
)
|
$
|
0.39
|
$
|
(0.01
|
)
|
$
|
(2.10
|
)
|
||
Weighted
average number of ordinary shares used to compute diluted net income
(loss) per ordinary share
|
2,623,296
|
3,363,377
|
3,890,396
|
3,973,509
|
4,084,789
|
|||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Working
capital
|
$
|
5,702
|
$
|
10,051
|
$
|
12,987
|
$
|
15,783
|
$
|
7,303
|
||||||
Total
assets
|
$
|
14,403
|
$
|
20,129
|
$
|
23,790
|
$
|
27,753
|
$
|
18,896
|
||||||
Shareholders’
equity
|
$
|
6,246
|
$
|
10,024
|
$
|
12,485
|
$
|
15,373
|
$
|
7,578
|
||||||
Share
capital
|
$
|
57
|
$
|
101
|
$
|
107
|
$
|
120
|
$
|
122
|
B. |
CAPITALIZATION
AND INDEBTEDNESS
|
C. |
REASONS
FOR THE OFFER AND USE OF
PROCEEDS
|
·
|
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
3.5G
|
|
A
third-generation digital cellular telecommunication.
3.5
generation digital cellular networks.
|
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 probe base service
assurance solution for network and service monitoring. 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
significant challenges in the coming years,
including:
|
o
|
deployment
of next-generation networks such as UMTS, CDMA2000 and triple-play;
|
o
|
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);
|
o
|
successful
delivery of advanced services such as VoIP, IPTV and video conferencing;
and
|
o
|
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:
|
o
|
Performance
monitoring – 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).
|
o
|
Fault
detection – to detect when and where there is a
problem.
|
o
|
Troubleshooting
– to drill down to resolve specific
issues.
|
o
|
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:
|
o
|
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.
|
o
|
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.
|
o
|
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 M capability (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;
|
·
|
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.
|
Year
ended December 31,
|
||||||||||
2005
|
2006
|
2007
|
||||||||
(in
thousands of U.S. dollars)
|
||||||||||
The
Omni-Q family
|
$
|
3,940
|
$
|
15,765
|
$
|
9,537
|
||||
The
Performer family and others
|
$
|
18,400
|
$
|
7,776
|
$
|
3,960
|
||||
Total
|
$
|
22,340
|
$
|
23,541
|
$
|
13,497
|
Year
ended December 31,
|
Year
ended December 31,
|
||||||||||||||||||
(in
millions of U.S. dollars)
|
(in
percentages)
|
||||||||||||||||||
2005
|
|
2006
|
|
2007
|
|
2005
|
|
2006
|
|
2007
|
|
||||||||
North
America
|
8.8
|
7.6
|
4.3
|
39.5
|
%
|
32.3
|
%
|
31.8
|
%
|
||||||||||
Europe
|
8.6
|
9.4
|
5.7
|
38.5
|
40.0
|
42.2
|
|||||||||||||
Far
East
|
3.3
|
2.6
|
1.6
|
14.8
|
11.1
|
11.9
|
|||||||||||||
South
America
|
0.7
|
2.6
|
1.2
|
3.2
|
11.1
|
8.9
|
|||||||||||||
Others
|
0.9
|
1.3
|
0.7
|
4.0
|
5.5
|
5.2
|
|||||||||||||
Total
revenues
|
22.3
|
23.5
|
13.5
|
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
|
Subcontractor
|
||
Planning
|
Purchase
component parts
|
|
Assembly
|
||
Testing
|
Year
Ended December 31,
|
||||||||||
2005
|
2006
|
2007
|
||||||||
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of sales
|
33.1
|
31.4
|
40.0
|
|||||||
Gross
profit
|
66.9
|
68.6
|
60.0
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development
|
26.0
|
29.0
|
54.7
|
|||||||
Less
royalty-bearing participation
|
7.8
|
8.1
|
15.5
|
|||||||
Research
and development, net
|
18.2
|
20.9
|
39.2
|
|||||||
Sales
and marketing
|
35.3
|
39.1
|
68.7
|
|||||||
General
and administrative
|
7.6
|
10.8
|
17.7
|
|||||||
Total
operating expenses
|
61.1
|
70.8
|
125.6
|
|||||||
Operating
income (loss)
|
5.8
|
(2.2
|
)
|
(65.6
|
)
|
|||||
Financial
income, net
|
1.0
|
2.0
|
2.0
|
|||||||
Net
income (loss)
|
6.8
|
(0.2
|
)
|
(63.6
|
)
|
Revenues
|
||||||||||||||||
Year
Ended December 31,
|
%
Change
|
%
Change
|
||||||||||||||
(in
millions of U.S. dollars)
|
2006
vs.
|
2007
vs.
|
||||||||||||||
2005
|
2006
|
2007
|
2005
|
2006
|
||||||||||||
The
Omni-Q family
|
3.9
|
15.7
|
9.5
|
303
|
(39
|
)
|
||||||||||
The
Performer family and others
|
18.4
|
7.8
|
4.0
|
(58
|
)
|
(49
|
)
|
|||||||||
Total
revenues
|
22.3
|
23.5
|
13.5
|
5
|
(43
|
)
|
Year
Ended December 31,
|
|
Year Ended December 31,
|
|
||||||||||||||||
|
|
(in millions
of U.S. dollars)
|
|
(as
percentages)
|
|
||||||||||||||
|
|
2005
|
|
2006
|
|
2007
|
|
2005
|
|
2006
|
|
2007
|
|
||||||
North
America
|
8.8
|
7.6
|
4.3
|
39.5
|
%
|
32.3
|
%
|
31.8
|
%
|
||||||||||
Europe
|
8.6
|
9.4
|
5.7
|
38.5
|
40.0
|
42.2
|
|||||||||||||
Far
East
|
3.3
|
2.6
|
1.6
|
14.8
|
11.1
|
11.9
|
|||||||||||||
South
America
|
0.7
|
2.6
|
1.2
|
3.2
|
11.1
|
8.9
|
|||||||||||||
Others
|
0.9
|
1.3
|
0.7
|
4.0
|
5.5
|
5.2
|
|||||||||||||
Total
revenues
|
22.3
|
23.5
|
13.5
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Year
ended December 31,
|
|
|||||||||
|
|
(in
millions of U.S. dollars)
|
|
|||||||
|
|
2005
|
|
2006
|
|
2007
|
|
|||
Cost
of sales
|
7.4
|
7.4
|
5.4
|
|||||||
Gross
profit
|
14.9
|
16.1
|
8.1
|
|
|
Year
ended December 31,
|
|
%
Change
|
|
%
Change
|
|
|||||||||
|
|
(in
millions of U.S. dollars)
|
|
2006
vs.
|
|
2007
vs.
|
|
|||||||||
|
|
2005
|
|
2006
|
|
2007
|
|
2005
|
|
2006
|
|
|||||
Research
and development
|
5.8
|
6.8
|
7.4
|
17.2
|
8.8
|
|||||||||||
Less
royalty-bearing participation
|
1.7
|
1.9
|
2.1
|
11.8
|
10.5
|
|||||||||||
Research
and development, net
|
4.1
|
4.9
|
5.3
|
19.5
|
8.2
|
|||||||||||
Sales
and marketing
|
7.9
|
9.2
|
9.3
|
16.5
|
1.1
|
|||||||||||
General
and administrative
|
1.7
|
2.6
|
2.4
|
52.9
|
(7.7
|
)
|
||||||||||
Total
operating expenses
|
13.7
|
16.7
|
17.0
|
21.9
|
1.8
|
Payments
due by period
|
||||||||||||||||
Contractual Obligations
|
Total
|
Less than
1 year
|
1-3
years
|
3-5
years
|
More than
5 years
|
|||||||||||
(in
thousands of U.S. dollars)
|
||||||||||||||||
Property
Leases
|
$
|
932
|
$
|
699
|
$
|
229
|
$
|
4
|
—
|
|||||||
Open
Purchase Orders
|
650
|
650
|
—
|
—
|
—
|
|||||||||||
Operating
Leases
|
784
|
444
|
326
|
14
|
—
|
|||||||||||
Total
|
$
|
2,366
|
$
|
1,793
|
$
|
555
|
$
|
18
|
—
|
Name
|
Age
|
Position
|
||
Zohar
Zisapel(5)(6)
|
59
|
Chairman
of the Board of Directors
|
||
David
Ripstein
|
41
|
President,
Chief Executive Officer
|
||
Jonathan
Burgin
|
47
|
Chief
Financial Officer
|
||
Shahaf
Kieselstein
|
36
|
Vice
President, Research and Development
|
||
Eyal
Harari
|
31
|
Vice
President, Products and Marketing
|
||
Dana
Shahar-Gara
|
34
|
Vice
President, Human Resources
|
||
Miki
Shilinger
|
53
|
Vice
President, Operations
|
||
Uzi
Yahav
|
53
|
Vice
President, Business Development
|
||
Avi
Zamir
|
51
|
President,
RADCOM
Equipment
|
||
Uri
Har (1)(2)(3)(4)(5)
|
71
|
Director
|
||
Zohar
Gilon (2)(4)(6)
|
60
|
Director
|
||
Irit
Hillel (1)(2)(4)(5)(6)
|
44
|
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)
|
1,993,447
|
33.3
|
%
|
||||
All
directors and executive officers as a group, except Zohar Zisapel
(11
persons)(1)
(2) (5)
|
166,107
|
2.9
|
%
|
(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 May 31, 2008.
|
(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 May 31, 2008.
|
(3)
|
The
number of outstanding ordinary shares does not include 30,843 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 239,844 ordinary
shares issuable upon exercise of options and warrants exercisable
within
60 days of May 31, 2008. This information is based on Mr. Zisapel’s
Schedule 13G/A, filed with the SEC on February 12, 2008.
|
(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 or warrants held by each such party, and
which
are vested or shall become vested within 60 days of May 31, 2008)
and have
therefore not been separately disclosed. The amount of shares includes
139,076 ordinary shares issuable upon exercise of options and warrants
exercisable within 60 days of May 31, 2008.
|
(6)
|
On
May 6, 2008, our shareholders approved a one-to-four reverse share
split,
which we effected in June 2008.
|
A.
|
MAJOR
SHAREHOLDERS
|
Name
|
Number of Ordinary
Shares(1)
|
Percentage of
Outstanding Ordinary
Shares(2)
|
|||||
Zohar Zisapel(3)(4)
|
1,770,961
|
33.3
|
%
|
||||
Yehuda
Zisapel(3)(5)
|
506,790
|
10.0
|
%
|
||||
RAD
Data Communications Ltd.(6)
|
44,460
|
0.9
|
%
|
(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 May 31, 2008.
|
(2)
|
The
percentage of outstanding ordinary shares is based on 5,075,910 ordinary
shares outstanding as of May 31, 2008. 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 May 31, 2008.
The
number of outstanding ordinary shares does not include 30,843 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
44,460 ordinary shares owned of record by RAD Data Communications,
13,625
ordinary shares owned of record by Klil and Michael Ltd., an Israeli
company and 239,844 ordinary shares issuable upon exercise of options
and
warrants exercisable within 60 days of May 31, 2008. 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. This information is based on Mr. Zohar
Zisapel’s Schedule 13G/A, filed with the SEC on February 12, 2008.
|
(5)
|
Includes
44,460 ordinary shares owned of record by RAD Data Communications
and
227,590 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.
This information is based on Mr. Yahuda Zisapel’s Schedule 13G/A, filed
with the SEC on February 14, 2007.
|
(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.
|
High
|
Low
|
||||||
2003
|
$
|
8.76
|
$
|
2.56
|
|||
2004
|
$
|
11.12
|
$
|
4.00
|
|||
2005
|
$
|
14.36
|
$
|
5.40
|
|||
2006
|
$
|
20.20
|
$
|
6.96
|
|||
2007
|
$
|
12.72
|
$
|
2.80
|
|||
2006
|
|||||||
First
Quarter
|
$
|
20.20
|
$
|
12.64
|
|||
Second
Quarter
|
$
|
11.96
|
$
|
8.00
|
|||
Third
Quarter
|
$
|
12.72
|
$
|
6.96
|
|||
Fourth
Quarter
|
$
|
13.04
|
$
|
9.44
|
|||
2007
|
|||||||
First
Quarter
|
$
|
12.72
|
$
|
10.40
|
|||
Second
Quarter
|
$
|
11.28
|
$
|
5.32
|
|||
Third
Quarter
|
$
|
5.60
|
$
|
2.80
|
|||
Fourth
Quarter
|
$
|
4.20
|
$
|
2.88
|
|||
2008
|
|||||||
First
Quarter
|
$
|
3.40
|
$
|
1.80
|
|||
Most
recent six months
|
|||||||
December
2007
|
$
|
3.44
|
$
|
2.88
|
|||
January
2008
|
$
|
3.04
|
$
|
2.72
|
|||
February
2008
|
$
|
3.40
|
$
|
2.76
|
|||
March
2008
|
$
|
2.80
|
$
|
1.80
|
|||
April
2008
|
$
|
2.64
|
$
|
2.20
|
|||
May
2008
|
$
|
2.72
|
$
|
2.24
|
|||
June
2008 (through June 24)
|
$
|
2.80
|
$
|
2.06
|
High
|
|
Low
|
|||||
2006
|
|||||||
2006
(February 20, 2006 through December 31, 2006)
|
NIS
96.16
|
NIS
31.48
|
|||||
First
Quarter (February 20, 2006 through March 31, 2006)
|
NIS
96.16
|
NIS
76.32
|
|||||
Second
Quarter
|
NIS
81.32
|
NIS
37.92
|
|||||
Third
Quarter
|
NIS
52.04
|
NIS
31.48
|
|||||
Fourth
Quarter
|
NIS
55.00
|
NIS
42.00
|
|||||
2007
|
|||||||
First
Quarter
|
NIS
53.44
|
NIS
42.48
|
|||||
Second
Quarter
|
NIS
47.80
|
NIS
21.70
|
|||||
Third
Quarter
|
NIS
23.80
|
NIS
12.08
|
|||||
Fourth
Quarter
|
NIS
16.36
|
NIS
11.12
|
|||||
2008
|
|||||||
First
Quarter
|
NIS
12.24
|
NIS
6.76
|
|||||
Most
recent six months
|
|||||||
December
2007
|
NIS
13.20
|
NIS
11.12
|
|||||
January
2008
|
NIS
11.24
|
NIS
9.88
|
|||||
February
2008
|
NIS
12.24
|
NIS
10.20
|
|||||
March
2008
|
NIS
11.00
|
NIS
6.76
|
|||||
April
2008
|
NIS
9.20
|
NIS
7.60
|
|||||
May
2008
|
NIS
10.00
|
NIS
7.88
|
|||||
June
2008 (through June 24)
|
NIS
8.80
|
NIS
7.74
|
·
|
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 (zone A) 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
other entity taxable as a corporation 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 or the District of
Columbia;
|
• |
an
estate, the income of which is subject to U.S. 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;
|
• |
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.
|
Year Ended December 31,
|
|||||||
2007
|
2006
|
||||||
Audit
Fees
|
$
|
120,000
|
$
|
110,000
|
|||
Audit-Related
Fees
|
-
|
-
|
|||||
Tax
Fees
|
$
|
5,000
-
|
-
|
||||
All
Other Fees
|
-
|
-
|
|||||
Total
|
$
|
125,000
|
$
|
110,000
|
Index
to the Consolidated Financial Statements
|
Page
|
|||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Balance Sheets at December 31, 2007 and 2006
|
F-3
|
|||
Consolidated
Statements of Operations for the Years Ended December 31, 2007, 2006
and
2005
|
F-5
|
|||
Consolidated
Statements of Changes in Shareholders’ Equity for the Years Ended December
31, 2007, 2006 and 2005
|
F-6
|
|||
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007, 2006
and
2005
|
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(13)
|
|
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
|
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)
|
|
4.15
|
Share
and Warrant Purchase Agreement, dated as of March 17, 2004, by and
between
RADCOM Ltd. and the purchasers listed therein(12)
|
|
4.16
|
Form
of Warrant(12)
|
|
4.17
|
Share
and Warrant Purchase Agreement, dated as of December 19, 2007, by
and
between RADCOM Ltd. and the purchasers listed therein(13)
|
|
4.18
|
Form
of Warrant - Share and Warrant Purchase Agreement dated December
19,
2007(13)
|
|
4.19
|
Loan
Agreement, dated as of April 1, 2008, by and between RADCOM Ltd.,
Plenus
Management (2004) and the other parties thereto(13)
|
Exhibit
No.
|
Description
|
|
4.20
|
Fixed
Charge Agreement, dated as of April 1, 2008, by and between RADCOM
Ltd.,
Plenus Management (2004) and the other parties thereto(13)
|
|
4.21
|
Floating
Charge Agreement, dated as of April 1, 2008, by and between RADCOM
Ltd.,
Plenus Management (2004) and the other parties thereto(13)
|
|
4.22
|
Security
Agreement, dated as of April 1, 2008, by and between RADCOM Equipment
Inc., Plenus Management (2004) and the other parties thereto(13)
|
|
4.23
|
Form
of Warrant - Loan Agreement, dated as of April 1, 2008(13)
|
|
8.1
|
List
of Subsidiaries(13)
|
|
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(13)
|
|
12.2
|
Certification
of the
Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002(13)
|
|
13.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(13)
|
|
13.2
|
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(13)
|
|
14.1
|
Consent
of KPMG Somekh Chaikin, a member firm of KPMG International, dated
June
27, 2007(13)
|
(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.
|
(13) |
Filed
herewith.
|
RADCOM
LTD.
|
|
By:
|
/s/
David Ripstein
|
Name:
David Ripstein
|
|
Title:
Chief Executive Officer
|
|
Date:
June 30, 2008
|
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Financial Statements:
|
||||
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-3
|
|||
Consolidated
Statements of Operations for the years ended
|
||||
December
31, 2007, 2006 and 2005
|
F-5
|
|||
Consolidated
Statements of Shareholders' Equity and Comprehensive Income
(Loss)
|
||||
for
the years ended December 31, 2007, 2006 and 2005
|
F-6
|
|||
Consolidated
Statements of Cash Flows for the years ended
|
||||
December
31, 2007, 2006 and 2005
|
F-7
|
|||
Notes
to the Consolidated Financial Statements
|
F-9
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents (Note 8A1)
|
3,763
|
2,007
|
|||||
Short-term
deposits (Note 8A2)
|
-
|
8,060
|
|||||
Trade
receivables, net (Note 8A3)
|
6,589
|
10,461
|
|||||
Inventories
(Note 8A4)
|
3,454
|
2,675
|
|||||
Other
current assets (Note 8A5)
|
1,150
|
955
|
|||||
Total
current assets
|
14,956
|
24,158
|
|||||
Assets
held for severance benefits (Note 4)
|
2,480
|
2,187
|
|||||
Property
and equipment, net (Note 3)
|
1,460
|
1,408
|
|||||
Total
Assets
|
18,896
|
27,753
|
December
31
|
|||||||
2007
|
|
2006
|
|||||
US$
thousands
|
|
US$
thousands
|
|||||
Liabilities
and Shareholders' Equity
|
|||||||
Current
Liabilities
|
|||||||
Trade
payables
|
1,392
|
2,551
|
|||||
Current
deferred revenue
|
1,593
|
1,534
|
|||||
Other
payables and accrued expenses (Note 8A6)
|
4,668
|
4,290
|
|||||
Total
current liabilities
|
7,653
|
8,375
|
|||||
Long-Term
Liabilities
|
|||||||
Long-term
deferred revenue
|
425
|
1,109
|
|||||
Liability
for employees severance pay benefits (Note 4)
|
3,240
|
2,896
|
|||||
Total
long-term liabilities
|
3,665
|
4,005
|
|||||
Total
liabilities
|
11,318
|
12,380
|
|||||
Commitments
and contingencies (Note 5)
|
|||||||
Shareholders'
Equity (Note 6)
|
|||||||
Share
capital *
|
122
|
120
|
|||||
Additional
paid-in capital
|
48,328
|
47,542
|
|||||
Accumulated
deficit
|
(40,872
|
)
|
(32,289
|
)
|
|||
Total
shareholders' equity
|
7,578
|
15,373
|
|||||
Total
Liabilities and Shareholders' Equity
|
18,896
|
27,753
|
Zohar
Zisapel
|
David
Ripstein
|
Jonathan
Burgin
|
||
Chairman
of the Board of Directors
|
Chief
Executive Officer
|
Chief
Financial Officer
|
*
|
9,997,670
Ordinary Shares of NIS 0.20 par value ("Ordinary Shares") authorized
as of
December 31, 2007 and 2006, respectively; 4,091,222 and 4,058,069
Ordinary
Shares issued and outstanding as of December 31, 2007 and 2006,
respectively.
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
|
US$
thousands
|
US$
thousands
|
|||||||
Except
per share amounts
|
||||||||||
Revenues
(Note 8B1):
|
||||||||||
Products
|
10,158
|
20,641
|
20,514
|
|||||||
Services
|
3,339
|
2,900
|
1,826
|
|||||||
13,497
|
23,541
|
22,340
|
||||||||
Cost
of revenues:
|
||||||||||
Products
|
4,927
|
7,213
|
7,290
|
|||||||
Services
|
466
|
183
|
108
|
|||||||
5,393
|
7,396
|
7,398
|
||||||||
Gross
profit
|
8,104
|
16,145
|
14,942
|
|||||||
Operating
expenses:
|
||||||||||
Research
and development
|
7,378
|
6,826
|
5,815
|
|||||||
Less
- royalty-bearing participation (Note 5A1)
|
2,096
|
1,904
|
1,735
|
|||||||
Research
and development, net
|
5,282
|
4,922
|
4,080
|
|||||||
Sales
and marketing
|
9,279
|
9,196
|
7,881
|
|||||||
General
and administrative
|
2,391
|
2,553
|
1,689
|
|||||||
Total
operating expenses
|
16,952
|
16,671
|
13,650
|
|||||||
Operating
income (loss)
|
(8,848
|
)
|
(526
|
)
|
1,292
|
|||||
Financing
income, net (Note 8B2):
|
||||||||||
Financing
income
|
280
|
497
|
270
|
|||||||
Financing
expenses
|
(15
|
)
|
(25
|
)
|
(35
|
)
|
||||
Financing
income, net
|
265
|
472
|
235
|
|||||||
Income
(loss) before taxes on income
|
(8,583
|
)
|
(54
|
)
|
1,527
|
|||||
Taxes
on income (Note 7)
|
-
|
-
|
-
|
|||||||
Net
income (loss) for the year
|
(8,583
|
)
|
(54
|
)
|
1,527
|
Income
(loss) per share :
|
||||||||||
Basic
net income (loss) per Ordinary Share (US$)
|
(2.10
|
)
|
(0.01
|
)
|
0.42
|
|||||
Diluted
net income (loss) per Ordinary Share (US$)
|
(2.10
|
)
|
(0.01
|
)
|
0.39
|
|||||
Weighted
average number of Ordinary Shares used to
|
||||||||||
compute
basic net income (loss) per Ordinary Share
|
4,084,789
|
3,973,509
|
3,674,023
|
|||||||
Weighted
average number of Ordinary Shares used to
|
||||||||||
compute
diluted net income (loss) per Ordinary Share
|
4,084,789
|
3,973,509
|
3,890,396
|
Share
capital
|
|
Accumulated
|
|||||||||||||||||
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, 2005
|
3,609,587
|
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
|
47,968
|
2
|
182
|
-
|
-
|
184
|
|||||||||||||
Exercise
of warrants, net
|
|||||||||||||||||||
of
issuance expenses of
|
|||||||||||||||||||
US$14
thousand
|
82,064
|
4
|
721
|
-
|
-
|
725
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2005
|
3,739,619
|
107
|
44,613
|
-
|
(32,235
|
)
|
12,485
|
||||||||||||
Changes
during 2006:
|
|||||||||||||||||||
Net
loss and comprehensive
|
|||||||||||||||||||
loss
for the year
|
-
|
-
|
-
|
-
|
(54
|
)
|
(54
|
)
|
|||||||||||
Employees'
stock
|
|||||||||||||||||||
option
compensation
|
-
|
-
|
558
|
-
|
-
|
558
|
|||||||||||||
Exercise
of options
|
161,981
|
7
|
967
|
-
|
-
|
974
|
|||||||||||||
Exercise
of warrants
|
156,469
|
6
|
1,404
|
-
|
-
|
1,410
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2006
|
4,058,069
|
120
|
47,542
|
-
|
(32,289
|
)
|
15,373
|
||||||||||||
Changes
during 2007:
|
|||||||||||||||||||
Net
loss and comprehensive
|
|||||||||||||||||||
loss
for the year
|
-
|
-
|
-
|
-
|
(8,583
|
)
|
(8,583
|
)
|
|||||||||||
Employees'
stock
|
|||||||||||||||||||
option
compensation
|
-
|
-
|
564
|
-
|
-
|
564
|
|||||||||||||
Exercise
of options
|
33,153
|
2
|
222
|
-
|
-
|
224
|
|||||||||||||
Balance
as of
|
|||||||||||||||||||
December
31, 2007
|
4,091,222
|
122
|
48,328
|
-
|
(40,872
|
)
|
7,578
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
|
2005
|
|
||||||
|
US$
thousands
|
US$
thousands
|
US$
thousands
|
|||||||
Cash
flows from operating activities:
|
||||||||||
Net
income (loss) for the year
|
(8,583
|
)
|
(54
|
)
|
1,527
|
|||||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||||
provided
by (used in) operating activities:
|
||||||||||
Depreciation
|
687
|
603
|
579
|
|||||||
Increase
in value and accrued interest from
|
||||||||||
marketable
securities
|
-
|
-
|
5
|
|||||||
Decrease
(increase) of accrued interest on short-term
|
||||||||||
bank
deposits
|
73
|
(73
|
)
|
-
|
||||||
Loss
from sale of property and equipment
|
-
|
7
|
-
|
|||||||
Employees'
stock option compensation
|
564
|
558
|
12
|
|||||||
Increase
(decrease) in severance pay, net
|
51
|
135
|
(44
|
)
|
||||||
Decrease
(increase) in trade receivables, net
|
3,872
|
(2,605
|
)
|
(2,515
|
)
|
|||||
Increase
(decrease) in deferred revenue
|
(625
|
)
|
(63
|
)
|
1,234
|
|||||
Decrease
(increase) in other current assets
|
(195
|
)
|
(575
|
)
|
500
|
|||||
Decrease
(increase) in inventories
|
(1,141
|
)
|
(1,180
|
)
|
143
|
|||||
Increase
(decrease) in trade payables
|
(1,099
|
)
|
380
|
138
|
||||||
Increase
(decrease) in other payables and
|
||||||||||
accrued
expenses
|
378
|
276
|
(190
|
)
|
||||||
Net
cash provided by (used in) operating activities
|
(6,018
|
)
|
(2,591
|
)
|
1,389
|
|||||
Cash
flows from investing activities:
|
||||||||||
Proceeds
from sale of marketable securities
|
-
|
-
|
2,000
|
|||||||
Investment
in short-term deposits
|
(2,515
|
)
|
(7,987
|
)
|
-
|
|||||
Proceeds
from short-term deposits
|
10,502
|
-
|
-
|
|||||||
Proceeds
from sale of property and equipment
|
-
|
8
|
-
|
|||||||
Purchase
of property and equipment
|
(437
|
)
|
(327
|
)
|
(336
|
)
|
||||
Net
cash provided by (used in) investing activities
|
7,550
|
(8,306
|
)
|
1,664
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
|
US$
thousands
|
US$
thousands
|
|||||||
Cash
flows from financing activities:
|
||||||||||
Exercise
of warrants
|
-
|
1,410
|
725
|
|||||||
Exercise
of options
|
224
|
974
|
184
|
|||||||
Net
cash provided by financing activities
|
224
|
2,384
|
909
|
|||||||
Increase
(decrease) in cash and cash equivalents
|
1,756
|
(8,513
|
)
|
3,962
|
||||||
Cash
and cash equivalents at beginning of year
|
2,007
|
10,520
|
6,558
|
|||||||
Cash
and cash equivalents at end of year
|
3,763
|
2,007
|
10,520
|
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
|
*
|
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. Amounts
received from customers prior to product shipments are classified
as
advances from customers. With its products, the Company provides
a
one-year warranty, which includes bug fixing and a hardware warranty
("the
Warranty"). The Company records an appropriate provision for Warranty
in
accordance with SFAS No. 5, "Accounting for Contingencies".
|
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, 2006
|
229
|
|||
Accrual
for warranties issued during the year
|
422
|
|||
Reduction
for payments and costs to satisfy claims
|
(296
|
)
|
||
|
||||
Balance
at December 31, 2006
|
355
|
|||
Accrual
for warranties issued during the year
|
193
|
|||
Reduction
for payments and costs to satisfy claims
|
(328
|
)
|
||
|
||||
Balance
at December 31, 2007
|
220
|
P. |
Share-based
compensation
|
P. |
Share-based
compensation (cont’d)
|
Year
ended
|
||||
December
31
|
||||
2005
|
||||
US$
thousands
|
||||
Except
per
|
||||
share
amounts
|
||||
Net
income as reported
|
1,527
|
|||
Add:
compensation expenses according to APB 25
|
||||
included
in the reported net income
|
12
|
|||
Deduct:
compensation expenses according to SFAS No. 123
|
(669
|
)
|
||
|
||||
Net
income - pro forma
|
870
|
|||
Basic
net income per ordinary share as reported (US$)
|
0.42
|
|||
|
||||
Pro
forma basic net income per ordinary share (US$)
|
0.24
|
|||
|
||||
Diluted
net income per ordinary share as reported (US$)
|
0.39
|
|||
|
||||
Pro
forma diluted net income per ordinary share (US$)
|
0.22
|
Q. |
Deferred
income taxes
|
R. |
Income
(loss) per share
|
S. |
Treasury
shares
|
T. |
Reclassification
|
A.
|
Composition
of assets, grouped by major classification, is as
follows:
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Cost
|
|||||||
Demonstration
and rental equipment
|
2,067
|
2,039
|
|||||
Research
and development equipment
|
3,697
|
3,604
|
|||||
Motor
vehicles
|
3
|
3
|
|||||
Manufacturing
equipment
|
1,438
|
1,310
|
|||||
Office
furniture and equipment
|
1,051
|
1,104
|
|||||
Leasehold
improvements
|
384
|
338
|
|||||
|
8,640
|
8,398
|
|||||
Accumulated
depreciation
|
|||||||
Demonstration
and rental equipment
|
1,889
|
1,828
|
|||||
Research
and development equipment
|
2,970
|
2,921
|
|||||
Motor
vehicles
|
3
|
2
|
|||||
Manufacturing
equipment
|
1,151
|
1,055
|
|||||
Office
furniture and equipment
|
910
|
957
|
|||||
Leasehold
improvements
|
257
|
227
|
|||||
|
7,180
|
6,990
|
|||||
1,460
|
1,408
|
B.
|
Depreciation
expenses amounted to US$687 thousand, US$603 thousand and US$579
thousand
for the years ended December 31, 2007, 2006 and 2005,
respectively.
|
A. |
Royalty
commitments
|
1.
|
The
Company received research and development grants from the OCS.
In
consideration for the research and development grants received
from the
OCS, the Company has undertaken to pay royalties as a percentage
on
revenues from products developed from research and development
projects
financed. Royalty rates were 3.5% in 2004 and subsequent years.
If the
Company will not generate sales of products developed with funds
provided
by the OCS, the Company is not obligated to pay royalties or repay
the
grants.
|
2.
|
According
to the Company's agreements with the Israel - US Bi-National Industrial
Research and Development Foundation ("BIRD-F"), the Company is
required to
pay royalties at a rate of 5% of sales of products developed with
funds
provided by the BIRD-F, up to an amount equal to 150% of BIRD-F's
grant
(linked to the United States Consumer Price Index) relating to
such
products. The last fund from the BIRD-F was received in 1996. In
the event
the Company does not generate sales of products developed with
funds
provided by BIRD-F, the Company is not obligated to pay royalties
or repay
the grants.
|
B. |
Operating
leases
|
1.
|
Premises
occupied by the Company and the US Subsidiary are rented under
various
rental agreements with related parties (see Note
9).
|
Year
ended December 31
|
US$
thousands
|
|||
2008
|
699
|
|||
2009
|
133
|
|||
2010
|
96
|
|||
2011
|
4
|
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$
thousands
|
|||
2008
|
444
|
|||
2009
|
221
|
|||
2010
|
105
|
|||
2011
|
14
|
C. |
Legal
proceedings
|
D. |
Bank
guarantee
|
A. |
Share
capital
|
1. |
The
Company’s share capital is comprised of the
following:
|
December
31, 2007
|
||||||||||
Authorized
|
Issued
|
Outstanding
|
||||||||
Number
of shares
|
||||||||||
Ordinary
Shares of NIS 0.20 par value (i)
|
9,997,670
|
*
4,091,222
|
*
4,091,222
|
A. |
Share
capital (cont’d)
|
1. |
The
Company’s share capital is comprised of the
following:
|
December
31, 2006
|
||||||||||
Authorized
|
Issued
|
Outstanding
|
||||||||
Number
of shares
|
||||||||||
Ordinary
Shares of NIS 0.20 par value (i)
|
9,997,670
|
*
4,058,069
|
*
4,058,069
|
*
|
This
number does not include 5,189 Ordinary Shares, which are held by
a
subsidiary, and 30,843 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 30,843 shares of the
Company's
Ordinary Shares in the over-the-counter market. This purchase was
approved
by the Tel Aviv-Jaffa District
Court.
|
2.
|
On
March 29, 2004, the Company closed a private placement transaction
(the
"PIPE"). Under the PIPE investment, the Company issued 962,885
of the
Company's Ordinary Shares at an aggregate purchase price of US$5,500
thousand or US$5.712 per Ordinary Share. The Company also issued
to the
investors warrants to purchase up to 240,722 Ordinary Shares at
an
exercise price of US$9.012 per share. The warrants were exercisable
for
two years from the closing of the PIPE. 238,533 of the warrants
were
exercised during 2005 and 2006 and the remaining 2,189 warrants
expired
during 2006.
|
B. |
Share
option plans
|
1. |
The
Company has granted options under option plans as
follows:
|
a. |
The
Radcom Ltd. 1998 Share Option Plan (the “Radcom 3(9)
Plan”)
|
B. |
Share
option plans (cont'd)
|
1. |
The
Company has granted options under option plans as follows:
(cont'd)
|
b.
|
The
Radcom Ltd. 1998 Employees Bonus Plan (the "Radcom Bonus
Plan")
|
c.
|
The
Radcom Ltd. International Employee Stock Option Plan (the "International
Plan")
|
d. |
The
2000 Share Option Plan
|
e. |
The
2001 Share Option Plan
|
B. |
Share
option plans (cont'd)
|
1. |
The
Company has granted options under option plans as follows:
(cont'd)
|
f.
|
The
2003 Share Option Plan
|
2.
|
Generally,
grants in 2007, 2006 and 2005 were at exercise prices that reflect
the
market value of the Ordinary Shares at the date of
grant.
|
3.
|
Following
is the stock option data as of December 31, 2007 and 2006, the
Radcom 3(9)
Plan, the International Plan, the 2000 Share Option Plan, the 2001
Share
Option Plan and the 2003 Share Option
Plan:
|
December
31, 2007
|
||||||||||||||||
Expiration
(from
|
||||||||||||||||
Vested
|
Unvested
|
Exercise
price
|
Vesting
period
|
resolution
date)
|
||||||||||||
No.
of options
|
US$
|
Years
|
Years
|
|||||||||||||
Radcom
|
||||||||||||||||
3(9)
Plan
|
86,250
|
-
|
9.5
- 23
|
3
- 6
|
10
|
|||||||||||
International
|
||||||||||||||||
Plan
|
55,809
|
39,013
|
0.00
- 11.88
|
3
- 4
|
7
- 10
|
|||||||||||
2000
Share
|
||||||||||||||||
Option
Plan
|
55,784
|
-
|
0.00
- 24.5
|
3
|
10
|
|||||||||||
2001
Share
|
||||||||||||||||
Option
Plan
|
47,937
|
-
|
5.796
- 7.36
|
3
- 4
|
10
|
|||||||||||
2003
Share
|
||||||||||||||||
Option
Plan
|
190,922
|
298,174
|
3.96
- 18.28
|
2
- 4
|
7
- 10
|
|||||||||||
436,702
|
337,187
|
December
31, 2006
|
||||||||||||||||
Expiration
(from
|
||||||||||||||||
Vested
|
Unvested
|
Exercise
price
|
Vesting
period
|
resolution
date)
|
||||||||||||
No.
of options
|
US$
|
Years
|
Years
|
|||||||||||||
Radcom
|
||||||||||||||||
3(9)
Plan
|
133,200
|
-
|
9.5
- 23
|
3-6
|
10
|
|||||||||||
International
|
||||||||||||||||
Plan
|
39,851
|
47,129
|
0.00
- 11.88
|
3-4
|
10
|
|||||||||||
2000
Share
|
||||||||||||||||
Option
Plan
|
66,909
|
-
|
0.00
- 24.5
|
3
|
10
|
|||||||||||
2001
Share
|
||||||||||||||||
Option
Plan
|
68,562
|
-
|
5.796
- 7.36
|
3-4
|
10
|
|||||||||||
2003
Share
|
||||||||||||||||
Option
Plan
|
136,169
|
175,635
|
4.12
- 18.28
|
3-4
|
10
|
|||||||||||
444,691
|
222,764
|
B. |
Share
option plans (cont'd)
|
4.
|
Stock
options under the Radcom 3(9) 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:
|
Weighted
|
|||||||
average
|
|||||||
Number
of
|
exercise
|
||||||
options
|
price
|
||||||
|
US$
|
||||||
Options
outstanding as at January 1, 2005
|
812,715
|
8.934
|
|||||
|
|||||||
Granted
|
101,000
|
9.072
|
|||||
Exercised
|
(47,968
|
)
|
3.832
|
||||
Expired
|
(63,419
|
)
|
12.124
|
||||
Forfeited
|
(24,299
|
)
|
7.084
|
||||
|
|||||||
Options
outstanding as at December 31, 2005
|
778,029
|
9.064
|
|||||
|
|||||||
Granted
|
79,549
|
10.792
|
|||||
Exercised
|
(161,981
|
)
|
6.012
|
||||
Expired
|
(4,234
|
)
|
35.768
|
||||
Forfeited
|
(23,908
|
)
|
8.416
|
||||
|
|||||||
Options
outstanding as at December 31, 2006
|
667,455
|
9.864
|
|||||
|
|||||||
Granted
|
248,515
|
5.50
|
|||||
Exercised
|
(33,153
|
)
|
6.736
|
||||
Expired
|
(58,606
|
)
|
16.952
|
||||
Forfeited
|
(50,322
|
)
|
8.22
|
||||
|
|||||||
Options
outstanding as at December 31, 2007
|
773,889
|
8.169
|
Weighted
|
Weighted
|
||||||||||||
average
|
average
|
Aggregate
|
|||||||||||
Number
of
|
exercise
|
remaining
|
intrinsic
|
||||||||||
options
|
price
|
contractual
life
|
value
|
||||||||||
US$
|
In
years
|
US$
thousands
|
|||||||||||
|
|||||||||||||
Vested
and expected to vest
|
|||||||||||||
at
December 31, 2007
|
700,040
|
8.284
|
5.576
|
70.4
|
(1)
|
At
December 31, 2007, 2006 and 2005, the number of options exercisable
was
436,702, 444,691 and 503,584 respectively, and the total number
of
authorized options was 897,930, 788,081 and 953,396,
respectively.
|
(2)
|
The
aggregate intrinsic value of options exercised during 2007, 2006
and 2005
was approximately US$147 thousand, US$1,631 thousand and US$337
thousand,
respectively.
|
B. |
Share
option plans (cont'd)
|
5.
|
Stock
options under the Radcom 3(9) Plan, the Radcom Bonus Plan, the
International Plan, the 2000 Share Option Plan, the 2001 Share
Option Plan
and the 2003 Share Option Plan are as follows for the periods indicated:
(cont’d)
|
Options
outstanding at December 31, 2007
|
Options
exercisable at December 31, 2007
|
||||||||||||||||||
Weighted
|
Weighted
|
||||||||||||||||||
average
|
average
|
||||||||||||||||||
Weighted
|
Remaining
|
Weighted
|
Remaining
|
||||||||||||||||
Exercise
price
|
Number
|
average
|
Contractual
|
Number
|
average
|
Contractual
|
|||||||||||||
(US$
per share)
|
outstanding
|
Exercise
Price
|
life
|
outstanding
|
Exercise
price
|
life
|
|||||||||||||
(in
US$)
|
(in
years)
|
(in
US$)
|
(in
years)
|
||||||||||||||||
0.00
|
24,497
|
-
|
2.422
|
24,497
|
-
|
2.422
|
|||||||||||||
3.96
- 7.8
|
448,593
|
5.718
|
6.138
|
191,766
|
5.955
|
4.447
|
|||||||||||||
8.48
- 12.00
|
219,392
|
9.436
|
5.611
|
146,436
|
9.154
|
4.964
|
|||||||||||||
12.252
- 15.75
|
17,500
|
13.751
|
1.527
|
17,500
|
13.752
|
1.527
|
|||||||||||||
16.72
- 24.5
|
63,907
|
22.628
|
2.841
|
56,503
|
23.275
|
2.149
|
|||||||||||||
773,889
|
436,702
|
6.
|
The
weighted average fair values of options granted during the years
ended
December 31, 2007, 2006 and 2005
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
|
||||||||||||||||||
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
||||||||||||||
Weighted
average
|
|||||||||||||||||||
exercise
prices
|
5.508
|
10.792
|
9.072
|
-
|
-
|
-
|
|||||||||||||
Weighted
average
|
|||||||||||||||||||
fair
values on
|
|||||||||||||||||||
grant
date
|
3.596
|
7.66
|
5.4
|
-
|
-
|
-
|
7.
|
The
following table summarizes the departmental allocation of the Company’s
share-based compensation charge:
|
Year
ended December 31,
|
||||||||||
(*)
2007
|
(*)
2006
|
(**)
2005
|
||||||||
US$
( (in thousands)
|
||||||||||
Cost
of sales
|
18
|
14
|
-
|
|||||||
Research
and development
|
123
|
113
|
-
|
|||||||
Selling
and marketing
|
203
|
193
|
-
|
|||||||
General
and administrative
|
220
|
238
|
12
|
|||||||
|
||||||||||
564
|
558
|
12
|
(*) |
Calculated
in accordance with SFAS No. 123R.
|
(**) |
Calculated
in accordance with APB25.
|
C. |
Share-based
compensation
|
1. |
The
current price of the stock on the grant date is the 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, 2005
|
3.8
- 4.2
|
|||
Year
ended December 31, 2006
|
4.5
- 5.0
|
|||
Year
ended December 31, 2007
|
3.9
- 4.9
|
4.
|
Each
option granted has an expected life of 4 - 5.5 years (as of the
date of
grant); and
|
5.
|
Expected
annual volatility is 73% - 85%, 74% - 100% and 89% - 100% for the
years
ended December 31, 2007, 2006 and 2005, respectively. This is a
measure of
the amount by which a price has fluctuated or is expected to fluctuate.
Actual historical changes in the market value of the Company’s stock were
used to calculate the volatility assumption, as management believes
that
this is the best indicator of future
volatility.
|
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 Israel’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 foreign 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. |
Tax
loss carryforwards
|
F. |
US
Subsidiary
|
1. |
The
US subsidiary is taxed under United States federal and state tax
rules.
|
2.
|
The
US subsidiary's tax loss carryforwards amounted to approximately
US$11,177
thousand as of December 31, 2007 for federal and state tax purposes.
Such
losses are available to offset any future US taxable income of
the US
subsidiary and will expire in the years 2008 - 2026 for federal
tax
purpose and in the years 2008 - 2013 for state tax
purpose.
|
3.
|
The
US subsidiary has not received final tax assessments since incorporation.
In accordance with the tax laws, tax returns submitted up to and
including
the 2003 tax year can be regarded as
final.
|
G. |
UK
Subsidiary
|
H. |
Deferred
taxes
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Deferred
tax assets:
|
|||||||
Tax
loss carryforwards
|
12,988
|
9,467
|
|||||
Allowance
for doubtful accounts
|
143
|
160
|
|||||
Severance
pay
|
190
|
178
|
|||||
Vacation
pay
|
317
|
293
|
|||||
Research
and development
|
615
|
616
|
|||||
Employees’
stock option compensation
|
13
|
18
|
|||||
Other
|
6
|
60
|
|||||
|
14,272
|
10,792
|
|||||
Less:
valuation allowance
|
(14,272
|
)
|
(10,792
|
)
|
|||
|
|||||||
Net
deferred tax assets
|
-
|
-
|
H. |
Deferred
taxes (cont’d)
|
I. |
Reconciliation
of the theoretical tax expense and the actual tax
expense
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
|
2005
|
|||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
Israel
|
(8,694
|
)
|
285
|
1,133
|
||||||
Non
Israel
|
111
|
(339
|
)
|
394
|
||||||
|
||||||||||
Income
(loss) before taxes on income
|
(8,583
|
)
|
(54
|
)
|
1,527
|
I. |
Reconciliation
of the theoretical tax expense and the actual tax expense
(cont’d)
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
Income
(loss) before taxes, as reported in the
|
||||||||||
statements
of operations
|
(8,583
|
)
|
(54
|
)
|
1,527
|
|||||
|
||||||||||
Theoretical
tax expense
|
(2,489
|
)
|
(17
|
)
|
519
|
|||||
|
||||||||||
Tax
effect on non-Israeli subsidiaries
|
(99
|
)
|
(40
|
)
|
1
|
|||||
|
||||||||||
Increase
(decrease) in income taxes
|
||||||||||
resulting
from:
|
||||||||||
Non-deductible
share-based compensation expenses
|
173
|
173
|
4
|
|||||||
Other
non-deductible operating expenses
|
73
|
83
|
45
|
|||||||
|
||||||||||
Losses
and timing differences, net in respect of
|
||||||||||
which
no deferred taxes were recorded
|
2,966
|
441
|
(18
|
)
|
||||||
Utilization
of tax losses in respect of which
|
||||||||||
deferred
tax assets were not recorded in prior years
|
(31
|
)
|
(139
|
)
|
(861
|
)
|
||||
Differences
in taxes arising from differences
|
||||||||||
between
Israeli currency income and dollar
|
||||||||||
income,
net *
|
(593
|
)
|
(501
|
)
|
310
|
|||||
Taxes
on income
|
-
|
-
|
-
|
* |
Resulting
from the differences between the changes in the Israeli CPI (the
basis for
computation of taxable income of the Company) and the exchange
rate of
Israeli currency relative to the
dollar.
|
J. |
Accounting
for uncertainty in income taxes
|
A. |
Balance
Sheet
|
1. |
Cash
and cash equivalents
|
2. |
Short-term
bank deposits
|
A. |
Balance
Sheet (cont'd)
|
3. |
Trade
receivables, net
|
US$
|
||||
(in
thousands)
|
||||
Balance
at December 31, 2005
|
133
|
|||
Additions
during 2006
|
585
|
|||
Deductions
during 2006
|
(28
|
)
|
||
|
||||
Balance
at December 31, 2006
|
690
|
|||
Additions
during 2007
|
2
|
|||
Deductions
during 2007
|
(4
|
)
|
||
|
||||
Balance
at December 31, 2007
|
688
|
4. |
Inventories
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Raw
materials
|
859
|
678
|
|||||
Work
in process
|
761
|
856
|
|||||
Finished
products
|
1,834
|
1,141
|
|||||
|
|||||||
3,454
|
2,675
|
5. |
Other
current assets
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Value
Added Tax authorities
|
93
|
358
|
|||||
Government
of Israel - OCS receivable
|
268
|
54
|
|||||
Prepaid
expenses
|
373
|
343
|
|||||
Subcontractors
|
125
|
-
|
|||||
Others
|
291
|
200
|
|||||
1,150
|
955
|
A. |
Balance
Sheet (cont'd)
|
6. |
Other
payables and accrued
expenses
|
December
31
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Employees
and employee institutions
|
2,425
|
2,356
|
|||||
Royalties
- OCS payable
|
338
|
558
|
|||||
Commissions
payable
|
276
|
308
|
|||||
Other
royalties payables
|
41
|
55
|
|||||
Allowance
for product warranty
|
220
|
355
|
|||||
Advances
from customers
|
279
|
18
|
|||||
Government
of Israel tax authorities
|
50
|
128
|
|||||
Others
|
1,039
|
512
|
|||||
|
4,668
|
4,290
|
7. |
Monetary
balances in non-dollar
currencies
|
December
31, 2007
|
||||||||||
Israeli
currency
|
Other
|
|||||||||
Not
linked
|
Linked
to the
|
non-dollar
|
||||||||
to
the dollar
|
dollar
|
currency
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
|
||||||||||
Current
assets
|
520
|
-
|
2,228
|
|||||||
Current
liabilities
|
2,568
|
350
|
10
|
December
31, 2006
|
||||||||||
Israeli
currency
|
Other
|
|||||||||
Not
linked
|
Linked
to the
|
non-dollar
|
||||||||
to
the dollar
|
dollar
|
currency
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
Current
assets
|
1,228
|
-
|
2
|
|||||||
Current
liabilities
|
2,677
|
558
|
9
|
8. |
Fair
value of financial
instruments
|
B. |
Statement
of operations
|
1. |
Sales
|
(a) |
Sales
- classified by geographical
destination:
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
North
America
|
4,315
|
7,611
|
8,793
|
|||||||
Europe
|
5,685
|
9,443
|
8,641
|
|||||||
Far
East
|
1,541
|
2,590
|
3,313
|
|||||||
South
America
|
1,248
|
2,622
|
712
|
|||||||
Other
|
708
|
1,275
|
881
|
|||||||
13,497
|
23,541
|
22,340
|
(b) |
Principal
customers
|
2. |
Financing
income, net
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
Financing
income:
|
||||||||||
Interest
from banks
|
280
|
497
|
270
|
|||||||
|
||||||||||
|
280
|
497
|
270
|
|||||||
Financing
expenses:
|
||||||||||
Interest
and bank charges on short- term
|
||||||||||
bank
credit
|
15
|
19
|
15
|
|||||||
Exchange
translation loss, net
|
-
|
6
|
20
|
|||||||
|
||||||||||
|
15
|
25
|
35
|
|||||||
|
||||||||||
Financing
income, net
|
265
|
472
|
235
|
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
|
|||||||
2007
|
2006
|
||||||
US$
thousands
|
US$
thousands
|
||||||
Receivables:
|
|||||||
Trade
|
289
|
294
|
|||||
Other
current assets
|
235
|
163
|
Accounts
payable:
|
|||||||
Trade
|
119
|
236
|
|||||
Other
payables and accrued expenses
|
6
|
6
|
B. |
Expenses
to or income from related
parties
|
Year
ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
US$
thousands
|
US$
thousands
|
US$
thousands
|
||||||||
|
||||||||||
Income:
|
||||||||||
Sales
|
407
|
335
|
773
|
|||||||
|
||||||||||
Expenses:
|
||||||||||
Cost
of sales
|
104
|
98
|
108
|
|||||||
|
||||||||||
Operating
expenses:
|
||||||||||
Research
and development, gross
|
222
|
196
|
201
|
|||||||
Sales
and marketing*
|
196
|
192
|
226
|
|||||||
General
and administrative
|
88
|
90
|
91
|
*
|
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$24 thousand,
US$6
thousand and US$23 thousand in the years ended December 31, 2007,
2006 and
2005, respectively.
|
A. |
Concentration
of credit risk
|
B. |
Concentrations
of business risk
|
B. |
Concentrations
of business risk (cont’d)
|
1.
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, Fair Value Measurement. SFAS No. 157 defines fair
value,
establishes a framework for the measurement of fair value, and
enhances
disclosures about fair value measurements. The Statement does not
require
any new fair value measures. The SFAS is effective for fair value
measures
already required or permitted by other standards for fiscal years
beginning after November 15, 2007. The Company is required to adopt
SFAS
No. 157 beginning on January 1, 2008. SFAS No. 157 is required
to be
applied prospectively, except for certain financial instruments.
Any
transition adjustment will be recognized as an adjustment to opening
retained earnings in the year of adoption. In February 2008, the
FASB
issued SFAS No. 157-2, which grants a one-year deferral of SFAS
No. 157’s
fair-value measurement requirements for nonfinancial assets and
liabilities, except for items that are recognized or disclosed
at fair
value in the financial statements on a recurring basis. The Company
is
currently evaluating the impact of adopting SFAS No. 157 on its
results of
operations and financial position.
|
2.
|
In
February 2007, the FASB issued “SFAS No. 159”, The Fair Value Option
for Financial Assets and Financial Liabilities—including an amendment of
FASB Statement No. 115, which permits entities to irrevocably choose
to measure many financial assets and liabilities at fair value
that are
not currently required to be measured at fair value. If the fair
value
option is elected, changes in fair value would be recorded in results
of
operations at each subsequent reporting date. The Statement allows
entities to achieve an offset accounting effect for certain changes
in
fair value of certain related assets and liabilities without having
to
apply complex hedge accounting provisions. This Statement is effective
as
of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the effect, if
any, that the adoption of SFAS No. 159 will have on its future
consolidated results of operations and financial condition.
|
3.
|
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations
(Statement 141R) and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements- an amendment to ARB No. 51 (Statement
160). Statements 141R and 160 require most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in
a business
combination to be recorded at “full fair value” and require noncontrolling
interests (previously referred to as minority interests) to be
reported as
a component of equity, which changes the accounting for transactions
with
noncontrolling interest holders. Both Statements are effective
for periods
beginning on or after December 15, 2008, and earlier adoption is
prohibited. Statement 141R will be applied to business combinations
occurring after the effective date. Statement 160 will be applied
prospectively to all noncontrolling interests, including any that
arose
before the effective date. The Company is currently evaluating
the effect,
if any, of the adoption of SFAS No. 141R and SFAS 160 on its future
consolidated results of operations and financial condition.
|
In
December 2007, the FASB issued FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements - an amendment to
ARB No.
51 (“SFAS 160”). SFAS 160 requires noncontrolling interests (previously
referred to as minority interests) to be reported as a component
of
equity, which changes the accounting for transactions with noncontrolling
interest holders. SFAS 160 is effective for periods beginning on
or after
December 15, 2008, and earlier adoption is prohibited. SFAS 160
will be
applied prospectively to all non-controlling interests, including
any that
arose before the effective date.
|
5.
|
In
March 2008, the FASB issued FASB Statement No. 161, Disclosures
about
Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 is
intended to improve financial reporting about derivative instruments
and
hedging activities by requiring enhanced disclosures to enable
investors
to better understand the effects of the derivative instruments
on an
entity’s financial position, financial performance, and cash flows. It
is
effective for financial statements issued for fiscal years and
interim
periods beginning on or after November 15, 2008, with early adoption
encouraged.
|
6.
|
In
December 2007 the SEC staff issued Staff Accounting Bulletin No. 110
(“SAB 110”), which, effective January 1, 2008, amends and replaces
SAB 107, Share-Based Payment. SAB 110 expresses the views of the
SEC staff
regarding the use of a “simplified” method in developing the expected life
assumption in accordance with FASB Statement No. 123(R), Share-Based
Payment. The use of the “simplified” method, was scheduled to expire on
December 31, 2007. SAB 110 extends the use of the “simplified” method
in certain situations. The SEC staff does not expect the “simplified”
method to be used when sufficient information regarding exercise
behavior,
such as historical exercise data or exercise information from external
sources, becomes available. The Company currently uses simplified
estimates and expects to continue using such method until historical
exercise data will provide useful information to develop expected
life
assumption.
|
7.
|
On
May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1,
"Accounting
for Convertible Debt Instruments That May Be Settled in Cash Upon
Conversion (Including Partial Cash Settlement)." FSP APB 14-1 requires
issuers of convertible debt that may be settled wholly or partly
in cash
when converted to account for the debt and equity components separately.
FSP APB 14-1 is effective for fiscal years beginning after December
15,
2008 and must be applied retrospectively to all periods
presented.
|
1.
|
On
December 19, 2007, the Company signed a definitive agreement
with
investors regarding a private placement transaction (the “PIPE”), at an
aggregate investment amount of $2.5 million. The agreement
was subject to,
among other conditions, the approval of the Company’s meeting of
shareholders which approved the PIPE at their meeting held
on January 30,
2008. On February 3, 2008, the Company closed the private placement
transaction. According to the terms of the agreement, the Company
issued
976,563 ordinary shares to the investors at a purchase price
per ordinary
share of $2.56 representing the average closing market price
of the
Company’s shares on the ten trading days prior to the shareholders
meeting
minus a discount of 10%. Each investor was also granted warrants
to
purchase one ordinary share for every three ordinary shares
purchased by
each investor in the PIPE for an exercise price of
$3.20.
|
2.
|
In
April 2008, the Company closed a US$2.5 million venture loan from
Plenus,
a leading Israeli venture-lending firm. The loan is for a period
of three
years, and bears interest at the rate of 10% per annum. In addition,
the
Company granted Plenus a warrant to purchase ordinary shares of
the
Company for a total amount of US$450 thousand with an exercise
price of
US$2.56 per share. The warrant is exercisable for a period of five
years.
The Company also granted Plenus registration rights in respect
of the
shares underlying the warrant. As part of the loan agreement, the
Company
granted Plenus a fixed charge over its’ intellectual property assets and a
floating charge over its’ assets and the US subsidiary granted Plenus a
security interest over its assets, and provided Plenus with guaranties
with respect to the loan. The loan also includes financial covenants
which
relate to the level of revenues, operating income and cash balances
of the
Company.
|
3.
|
In
May 2008, the Company’s shareholders approved a one-to-four reverse share
split. The purpose of the reverse share split was to enable the
Company to
continue to comply with the minimum $1.00 bid price of the Nasdaq
Capital
Market. The reverse share split became effective in June 2008.
Immediately
after the reverse share split, the total number of ordinary shares
was
reduced from 20,303,638 to approximately 5,075,910. Figures for
all
periods have been restated in order to reflect the impact of such
reverse
share split.
|