<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER: 0-31151
RADVIEW SOFTWARE LTD.
(Exact name of registrant as specified in its charter)
ISRAEL NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MA 01803
(Address of principal executive offices)
TELEPHONE NUMBER (781) 238-1111
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No __, and (2) has been
subject to such filing requirements for the past 90 days:
Yes No X.
--- ---
Although the registrant has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Act of 1934 during the period that
the registrant was required to file such reports, the registrant did not
become subject to such filing requirements until the registration of certain
of its ordinary
<PAGE>
shares pursuant to a registration statement on Form F-1 (the
"Registration Statement") which was declared effective by the Securities and
Exchange Commission on August 9, 2000.
As of August 30, 2000 there were 16,366,572 shares of the Registrant's
Ordinary Shares outstanding.
<PAGE>
RADVIEW SOFTWARE LTD. AND SUBSIDIARY
Form 10-Q INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999............................................................ 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2000 and 1999................................................. 4
Condensed Consolidated Statements of Cash Flows for the six months ended June
30, 2000 and 1999............................................................ 5
Notes to Condensed Consolidated Financial Statements......................... 6-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 12-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 19
Item 2. Changes in Securities and Use of Proceeds.................................... 19
Item 3. Defaults Upon Senior Securities.............................................. 20
Item 4. Submission of Matters to a Vote of Security Holders.......................... 20
Item 5. Other Information............................................................ 20
Item 6. Exhibits and Reports on Form 8-K............................................. 21
Signatures................................................................... 21
Exhibit Index................................................................ 22
</TABLE>
<PAGE>
RADVIEW SOFTWARE LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,851 $ 7,652
Short-term investments 2,273 513
Accounts receivable, net 1,948 1,281
Prepaid expenses 398 322
------------ ------------
Total current assets 7,470 9,768
Property and Equipment, net 1,523 783
Deposits and Other Assets 530 299
------------ ------------
Total assets $ 9,523 $ 10,850
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term loans $ 3,641 $ 17
Related party loan 248 115
Accounts payable 1,019 560
Accrued expenses 1,949 1,598
Deferred revenue 1,140 476
------------ ------------
Total current liabilities 7,997 2,766
Long-term Liabilities:
Long-term loans -- 3,562
Related party loan 1,111 1,332
Accrued severance 472 339
------------ ------------
Total long-term liabilities 1,583 5,233
------------ ------------
Total liabilities 9,580 7,999
------------ ------------
Shareholders' Equity:
Preferred stock, NIS 0.01 par value --
Authorized -- 8,500,000 shares;
Issued and outstanding -- 5,265,575 shares at June 30, 2000
and December 31, 1999, respectively 13 13
Ordinary shares
Authorized -- 11,000,000 shares;
Issued and outstanding -- 4,258,540 and 4,194,000 shares at
June 30, 2000 and December 31, 1999, respectively 14 12
Additional paid-in capital 23,808 16,269
Deferred compensation (7,748) (425)
Accumulated deficit (16,144) (13,018)
------------ ------------
Total shareholder's equity (deficit) (57) 2,851
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 9,523 $ 10,850
============ ============
</TABLE>
<PAGE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
RADVIEW SOFTWARE LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $ 2,325 $ 965 $ 4,257 $ 1,554
Service 376 56 710 95
------------ ------------ ------------ ------------
Total revenues 2,701 1,021 4,967 1,649
COST OF REVENUES:
Software licenses 135 63 288 101
Service 108 9 160 33
------------ ------------ ------------ ------------
Total cost of revenues 243 72 448 134
------------ ------------ ------------ ------------
Gross profit 2,458 949 4,519 1,515
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Sales and marketing (1) 2,076 819 3,503 1,292
Research and development (1) 1,318 441 2,095 827
General and administrative (1) 717 187 1,385 328
Stock-based compensation (1) 392 20 573 41
------------ ------------ ------------ ------------
Total operating expenses 4,503 1,467 7,556 2,488
------------ ------------ ------------ ------------
Operating loss (2,045) (518) (3,037) (973)
------------ ------------ ------------ ------------
Interest expense (34) (64) (75) (159)
Other income (expense) 3 (3) (14) (26)
------------ ------------ ------------ ------------
Net loss $ (2,076) $ (585) $ (3,126) $ (1,158)
============ ============ ============ ============
Net loss per ordinary share (Note 4(a)):
Basic and diluted net loss per share $ (0.49) $ (0.22) $ (0.74) $ (0.44)
============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted 4,215 2,655 4,204 2,627
============ ============ ============ ============
Pro forma net loss per ordinary share (Note 4(b)):
Basic and diluted net loss per share $ (0.17) $ (0.09) $ (0.26) $ (0.18)
============ ============ ============ ============
Weighted average ordinary shares
outstanding - basic and diluted 11,915 6,420 11,901 6,332
============ ============ ============ ============
------------------------
(1) The following summarizes the departmental allocation of the stock-based
compensation charge:
Sales and marketing $ 188 $ 9 $ 246 $ 12
Research and development 71 4 101 24
General and administrative 133 7 226 5
------------ ------------ ------------ ------------
Total stock-based compensation $ 392 $ 20 $ 573 $ 41
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
RADVIEW SOFTWARE LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,126) $ (1,158)
Adjustments to reconcile net loss to net cash used
in operating activities --
Depreciation and amortization 284 125
Amortization of deferred compensation 573 41
Interest accrued on long-term loans 139 190
Accrued severance pay 133 --
Changes in operating assets and liabilities--
Accounts receivable (667) (1,334)
Prepaid expenses (76) (149)
Accounts payable 168 38
Accrued expenses 222 636
Deferred revenue 664 (75)
------------ ------------
Net cash used in operating activities (1,686) (1,686)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of short-term investments (1,760) 316
Purchases of property and equipment (1,024) (144)
Decrease in other assets (231) -
------------ ------------
Net cash (used in) provided by investing activities (3,015) 172
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term bank loans 62 48
Long-term loans received 133 -
Repayment of long-term loans (221) -
Proceeds from issuance of stock 114 2,999
Other (188) --
------------ ------------
Net cash (used in) provided by financing activities (100) 3,047
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,801) 1,533
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,652 1,126
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,851 $ 2,659
============ ============
CASH PAID DURING THE PERIOD FOR INTEREST $ 519 $ 19
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
RADVIEW SOFTWARE LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) OPERATIONS
RadView Software Ltd. (the Company) is an Israeli corporation. The
Company develops, markets and supports software that enables
organizations to verify the scalability, efficiency and reliability of
Web applications, and facilitates their rapid development.
(2) INITIAL PUBLIC OFFERING
On August 14, 2000, the Company completed its initial public offering of
4,000,000 shares of its ordinary shares. At the offering price of $10.00
per share, the Company received $37.2 million from this offering, net of
underwriting discounts and commissions.
In connection with the offering all outstanding shares of preferred stock
were converted into 5,265,575 ordinary shares and 855,957 ordinary shares
were issued to certain shareholders pursuant to certain options and
warrants.
In September 2000, the Company repaid a loan from a related party
totaling $1,359,000, as contractually required, with proceeds from this
offering.
The Company also intends to use the net proceeds from this offering for
working capital and other general corporate purposes, which may include
product research and development, expansion of our operations and sale
and marketing capabilities, and acquisition of, or investment in
companies, technologies or assets that complement our business. Pending
application of the net proceeds as described above, the Company intends
to invest the net proceeds of the offering in short-term,
investment-grade, interest-bearing securities in U.S. dollar accounts.
(3) SIGNIFICANT ACCOUNTING POLICIES
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The
significant policies followed in the preparation of the financial
statements, applied on a consistent basis, are as follows:
(a) FINANCIAL STATEMENTS IN U.S. DOLLARS
The financial statements of the Company have been prepared in U.S.
dollars, as the currency of the primary economic environment in
which the operations of the Company are conducted is the U.S.
dollar. Substantially all of the Company's sales are in U.S.
dollars. Most purchases of materials and components and most
marketing costs are denominated in U.S. dollars. Therefore, the
functional currency of the Company is the U.S. dollar.
Transactions and balances denominated in dollars are presented at
their original amounts. Transactions and balances in other
currencies are translated into U.S. dollars in accordance with the
principles set forth in Financial Accounting Standards Board of
the United States (FASB) Statement of Accounting Standards (SFAS)
No. 52, FOREIGN CURRENCY TRANSLATION. Accordingly, items have been
translated as follows:
- Monetary Items -- At the exchange rate in effect on the
balance sheet date.
- Nonmonetary Items -- At historical exchange rates.
<PAGE>
- Revenue and Expense Items -- At the exchange rates in
effect as of the date of recognition of those items
(excluding depreciation and other items deriving from
nonmonetary items).
All exchange gains and losses from the above-mentioned translation
(which were immaterial for all periods presented) are reflected in
the statements of operations. The representative rate of exchange
as of December 31, 1999 and June 30, 2000 was U.S.$1.00 to 4.153
and 4.093 New Israeli Shekel (NIS), respectively.
<PAGE>
(b) INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 2000,
the consolidated statements of operations for the three and six
months ended June 30, 2000 and 1999 and the consolidated statement
of cash flows for the six months ended June 30, 2000 and 1999 are
unaudited but, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of results for these interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the
Company believes that the disclosures included are adequate to
make the information presented not misleading. The results of
operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the
entire fiscal year. These financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Company's registration statement on Form F-1
filed with the SEC on August 9, 2000.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary in the U.S. (RadView
Software, Inc.). All material intercompany balances and
transactions have been eliminated in consolidation.
(d) REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of
Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. In December
1998, the AICPA issued SOP 98-9, MODIFICATION OF SOP 97-2,
SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN
TRANSACTIONS. SOP 98-9 requires use of the residual method for
recognition of revenues when vendor-specific objective evidence
exists for undelivered elements but does not exist for delivered
elements of a software arrangement. If fair value for a delivered
element does not exist but the fair value does exist for all
undelivered elements, the Company defers the fair value of the
undelivered elements and recognizes the remaining value for the
delivered elements. The Company was required to comply with the
provisions of SOP 98-9 for transactions entered into beginning
January 1, 2000. The adoption of SOP 98-9 did not have a material
effect on the financial position or results of operations.
Revenues from software product licenses are recognized upon
delivery of the software provided there is persuasive evidence of
an agreement, the fee is fixed or determinable and collection of
the related receivable is probable. Revenues under multiple
element arrangements, which may include software, software
maintenance and training, are allocated to each element based on
their respective fair values, based on vendor-specific objective
evidence. This objective evidence represents the price of products
and services when sold separately. Revenue is recognized for
software licenses sold to resellers or distributors at the time of
shipment, provided that all revenue recognition criteria set forth
in SOP 97-2 are fulfilled.
Revenues from software maintenance agreements are recognized
ratably over the term of the maintenance period, which is
typically one year. Revenues from training arrangements are
recognized as the services are performed.
Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue. Deferred
revenue primarily represents deferred maintenance revenue.
<PAGE>
(d) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are highly liquid investments with original
maturities of less than 90 days. The Company accounts for
investments under SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, investments for
which the Company has the positive intent and ability to hold to
maturity, consisting of cash equivalents and short-term
investments, are reported at amortized cost, which approximates
fair market value. Short-term investments consisted of bank
deposits in U.S. dollars, bearing an annual interest rate of 6%.
(4) EARNINGS PER SHARE
(a) NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity
with SFAS No. 128, EARNINGS PER SHARE, for all periods presented.
Basic and diluted net loss per ordinary share was determined by
dividing net loss by the weighted average ordinary shares
outstanding during the period. Diluted net loss per ordinary share
is the same as basic net loss per ordinary share for all periods
presented, as the effects of the Company's potential additional
ordinary shares were antidilutive.
The following table summarizes the securities outstanding as of
each period end that were not included in the calculation of
diluted net loss per share as their inclusion would be
antidilutive.
<TABLE>
<CAPTION>
As of June 30,
------------------- -----------------
2000 1999
(in thousands)
<S> <C> <C>
Stock options to purchase ordinary shares.............. 5,326 3,339
Warrants to purchase ordinary shares................... 143 143
Convertible preferred stock............................ 5,266 1,314
</TABLE>
In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, EARNINGS PER SHARE IN AN INITIAL
PUBLIC OFFERING, the Company determined that there were no nominal
issuances of the Company's ordinary shares prior to the Company's
planned initial public offering.
<PAGE>
(b) PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed as described above
and also gives effect to the conversion of preferred stock that
was converted upon the completion of the Company's initial public
offering in August 2000, using the if-converted method, from the
original date of issuance.
<PAGE>
The following table reflects the reconciliation of the shares used
in the computation of pro forma net loss per share.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Pro forma basic and diluted:
Weighted average ordinary shares
outstanding used in computing net loss
per share................................ 4,215 2,655 4,204 2,627
Weighted average ordinary shares issuable
upon the conversion of preferred stock... 5,249 1,314 5,246 1,287
Weighted average ordinary shares
issuable upon the exercise of
outstanding warrant...................... 143 143 143 110
Weighted average ordinary shares issuable
upon exercise of outstanding options
held by certain shareholders............. 2,050 2,050 2,050 2,050
Weighted average ordinary shares to be
issued to certain Series A preferred
shareholders............................. 258 258 258 258
--------- --------- --------- --------
Weighted average ordinary shares
outstanding used in computing
pro forma basic and diluted net loss per
share.................................... 11,915 6,420 11,901 6,332
========= ========= =========== ========
</TABLE>
(5) STOCKHOLDERS' EQUITY
In March 2000, the Company granted the right to purchase 23,810 shares
of Series B at $2.10 per share to two individuals. The Company has
recorded stock-based compensation expense on these grants of
approximately $70,000, which represents the difference between the
deemed fair value of the Series B Preferred Shares and the purchase
price. The Company received $25,000 of proceeds in March 2000 and
$25,000 in May 2000 from the two individuals for the exercise of these
rights. The 23,810 shares of Series B Preferred Shares were issued in
June 2000.
In May 2000, the Company's Board of Directors authorized an additional
1,000,000 ordinary shares to be reserved for issuance under the Company's
stock option plans.
In June 2000, the Company's shareholders authorized an increase and
conversion of the authorized share capital resulting in a total number
of authorized ordinary shares of 25,000,000.
In June 2000 and July 2000, the Company issued 1,590,100 ordinary shares
upon the exercise of options to purchase ordinary shares issued under the
Share purchase agreement in connection with the Company's Series A
Preferred Shares financing in 1999.
In July 2000, a shareholder of the Company exercised an employee stock
option to purchase 391,100 ordinary shares at an exercise price of NIS
0.01 per share.
<PAGE>
In July and August 2000, the Company granted options to purchase a total
of 571,760 ordinary shares to certain employees and new directors of the
Company at an exercise price equal to the then current fair market value.
<PAGE>
(6) COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
effective January 1, 1998. SFAS No. 130 requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from nonowner sources. The Company's comprehensive loss
is equal to net loss for all periods presented.
(7) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. SFAS
No. 131 also establishes standards for related disclosures about products
and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating decision
maker, or decision-making group, in making decisions how to allocate
resources and assess performance.
The Company's chief operating decision makers, as defined under SFAS No.
131, are the Chief Executive Officer and the Chief Financial Officer. To
date, the Company has viewed its operations and has managed its business
as principally one operating segment.
The Company's revenues by geographic area are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
United States.......................... $ 2,266 $ 918 $ 4,311 $ 1,486
Europe................................. 229 87 412 110
Israel................................. 149 16 176 53
Other.................................. 57 - 68 -
--------- --------- --------- ---------
Total revenues.................... $ 2,701 $ 1,021 $ 4,967 $ 1,649
========= ========= ========= =========
</TABLE>
(8) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - AN INTERPRETATION OF
APB OPINION NO. 25. The interpretation clarifies the application of APB
Opinion No. 25 in certain situations, as defined. The interpretation is
effective July 1, 2000, but covers certain events occurring during the
period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period
after December 15, 1998, but before the effective date, the effects of
applying this interpretation would be recognized on a prospective basis
from the effective date. Accordingly, upon initial application of the
final interpretation, (a) no adjustments would be made to the financial
statements for periods before the effective date and (b) no expense would
be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. The Company expects
that the adoption of this interpretation will not have any effect on the
accompanying consolidated financial statements.
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION, in December 1999. The Company is
required to adopt this new accounting
<PAGE>
guidance through a cumulative charge to operations, in accordance with
Accounting Principles Board Opinion (APB) No. 20, ACCOUNTING CHANGES, no
later than the fourth quarter of fiscal 2000. The Company believes its
current revenue recognition policy complies with the SEC guidelines.
Accordingly the Company believes that the adoption of the guidance
provided in SAB No. 101 will not have a material impact on future
operating results.
In June 1998, the FASB released SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes the
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal quarters of fiscal years beginning after June 15, 2000. The
Company believes that the adoption of SFAS No. 133 will not have a
material impact on the Company's consolidated financial statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SECTIONS OF OUR REGISTRATION STATEMENT ON FORM F-1 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND DECLARED EFFECTIVE ON AUGUST 9, 2000, AS AMENDED, TITLED
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "RISK FACTORS." THE FOLLOWING DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
OVERVIEW
RadView Software Ltd. (the Company) develops, markets and supports software that
enables companies to assure the scalability, efficiency and reliability of web
applications. In 1997, the Company introduced its first web-testing product,
WebLoad, which was initially focused on assessing the scalability of web
applications. Since then, the Company has enhanced the functionality of WebLoad
to provide an integrated solution to assess the performance and accelerate the
deployment of web applications. In February 2000, the Company introduced WebLoad
Resource Manager, which is designed to facilitate the systematic verification of
web application quality throughout the application development lifecycle and to
accelerate the deployment of high performance web applications.
The Company's revenues were $2.7 million and $1.0 million for the three months
ended June 30, 2000 and 1999, respectively, and $5.0 million and $1.6 million
for the six months ended June 30, 2000 and 1999, respectively. The Company
primarily derives its revenues from the license of its WebLoad and WebLoad
Resource Manager solutions and, to a lesser extent, from related services
including customer support, maintenance and training.
The Company recognizes software license revenues upon delivery of its software
to customers, provided persuasive evidence of an agreement exists, the fee is
fixed or determinable and collection of the related receivable is probable. The
Company allocates software license revenues under arrangements where it sells
software and services together under one contract to each element based on their
relative fair values, with these fair values being determined using the price
charged when that element is sold separately. If fair value for a delivered
element does not exist but the fair value does exist for all undelivered
elements, the Company defers the fair value of the undelivered elements and
recognizes the remaining value for the delivered elements.
The Company generally recognizes software license revenues from resellers or
distributors at time of shipment, provided that all other revenue recognition
criteria set forth in governing statements of position on software revenue
recognition have been met. The Company recognizes services revenues from
software maintenance agreements ratably over the term of the maintenance period,
typically one year. The Company recognizes services revenues from training as
the services are performed. Amounts collected or billed prior to satisfying the
above revenue recognition criteria are reflected as deferred revenue. Deferred
revenue primarily represents deferred maintenance revenue.
The Company licenses its software primarily through our direct sales force and,
to a lesser extent, through indirect channels. To date, the Company has licensed
its software to customers in North America, Europe, and the Middle East.
Revenues derived from North America accounted for 84%, 90%, 87% and 90% of
total revenues for the three and six months ended
<PAGE>
June 30, 2000 and 1999, respectively. While the Company expects to continue to
derive the majority of its revenues from North America, it intends to derive an
increasing percentage of its revenues from Europe and the Pacific Rim.
Substantially all of the Company's sales are denominated in U.S. dollars.
The Company's net losses were $2.1 million and $585,000 for the three months
ended June 30, 2000 and 1999, respectively, and $3.1 million and $1.2 million
for the six months ended June 30, 2000 and 1999, respectively. These net losses
resulted primarily from the significant costs incurred in the development of the
Company's software, and in the expansion of its operations. The Company expects
to increase its operating expenses and incur additional net losses for the
foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses 86.1% 94.5% 85.7% 94.2%
Services 13.9% 5.5% 14.3% 5.8%
-------------- -------------- --------------- --------------
Total revenues 100.0% 100.0% 100.0% 100.0%
COST OF REVENUES:
Software licenses 5.0% 6.2% 5.8% 6.1%
Services 4.0% 0.9% 3.2% 2.0%
-------------- -------------- --------------- --------------
Total cost of revenues 9.0% 7.1% 9.0% 8.1%
-------------- -------------- --------------- --------------
Gross profit 91.0% 92.9% 91.0% 91.9%
OPERATING EXPENSES:
Sales and marketing 76.9% 80.2% 70.5% 78.4%
Research and development 48.8% 43.2% 42.2% 50.2%
General and administrative 26.5% 18.3% 27.9% 19.9%
Stock-based compensation 14.5% 2.0% 11.5% 2.5%
-------------- -------------- --------------- --------------
166.7% 143.7% 152.1% 151.0%
-------------- -------------- --------------- --------------
Operating loss (75.7%) (50.8%) (61.1%) (59.1%)
-------------- -------------- --------------- --------------
Interest expense, net (1.3%) (6.3%) (1.5%) (9.6%)
Other income (expense) 0.1% (0.3%) (0.3%) (1.5%)
-------------- -------------- --------------- --------------
Net loss (76.9%) (57.4%) (62.9%) (70.2%)
============== ============== =============== ==============
</TABLE>
<PAGE>
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES
TOTAL REVENUES. Total revenues increased 164.5%, from $1.0 million for the three
months ended June 30, 1999 to $2.7 million for the same three-month period in
2000. Total revenues increased 201.2%, from $1.6 million for the six months
ended June 30, 1999 to $5.0 million for the same six-month period in 2000.
SOFTWARE LICENSES. Software license revenues increased 140.9%, from $965,000 for
the three months ended June 30, 1999 to $2.3 million for the same three-month
period in 2000. Software license revenues increased 173.9%, from $1.6 million
for the six months ended June 30, 1999 to $4.3 million for the same six-month
period in 2000. The increases were due to increased market acceptance of WebLoad
and the introduction of our WebLoad Resource Manager product in February 2000,
which represented 37.8% and 27.4% of software license revenues for the three and
six months ended June 30, 2000, respectively. As a percentage of total revenues
WebLoad Resource Manager revenues were higher during the first quarter of 2000
due to orders received in late 1999 but not recognized as revenue until the
WebLoad Resource Manager product was released in February 2000.
SERVICES. Services revenues increased from $56,000 for the three months ended
June 30, 1999 to $376,000 for the same three-month period in 2000. Services
revenues increased from $95,000 for the six months ended June 30, 1999 to
$710,000 for the same six-month period in 2000. The increases were due to higher
maintenance and training revenues resulting from an increase in our customer
base.
COST OF REVENUES
SOFTWARE LICENSES. Cost of software licenses consists principally of direct
product costs, such as product media and packaging, as well as royalties due to
third parties. Cost of software licenses increased from $63,000, or 6.5% of
software license revenue, for the three months ended June 30, 1999 to $135,000,
or 5.8% of software license revenue, for the same three-month period in 2000.
Cost of software licenses increased from $101,000, or 6.5% of software license
revenue, for the six months ended June 30, 1999 to $288,000, or 6.7% of software
license revenue, for the same six-month period in 2000. The dollar increases
were due to product-related costs associated with increased licensing of our
software.
SERVICES. Cost of services consists principally of personnel-related costs
associated with customer support and training. Cost of services increased from
$9,000, or 16.1% of service revenue, for the three months ended June 30, 1999 to
$108,000, or 28.7% of service revenue, for the same three-month period in 2000.
Cost of services increased from $33,000, or 34.7% of software license revenue,
for the six months ended June 30, 1999 to $160,000, or 22.5% of software license
revenue, for the same six-month period in 2000. The dollar increases were due to
increased personnel costs to provide support and maintenance services.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist principally of
salaries and commissions earned by sales personnel, recruiting costs, trade show
costs, travel and other marketing communication costs, such as advertising and
product promotion. Sales and marketing expenses increased from $819,000, or
80.2% of total revenues, for the three months ended June 30, 1999 to $2.1
million , or 76.9% or total revenues, for the same three-month period in 2000.
Sales and marketing expenses increased from $1.3 million, or 78.4% of total
revenues, for the six months ended June 30, 1999 to $3.5 million, or 70.5% or
total revenues, for the same six-month period in 2000. The dollar increase for
all periods was due to the expansion of our sales force, additional hiring of
marketing personnel, higher commission expenses associated with our higher
sales, and higher occupancy and travel costs.
RESEARCH AND DEVELOPMENT. Research and development expenses consist principally
of personnel and related expenses required to develop and enhance our products.
Research and development expenses increased from $441,000, or 43.2% of total
revenues, for the three months ended June 30, 1999, to $1.3
<PAGE>
million, or 48.8% of total revenues, for the same three-month period in 2000.
Research and development expenses increased from $827,000, or 50.2% of total
revenues, for the six months ended June 30, 1999, to $2.1 million, or 42.2% of
total revenues, for the same six-month period in 2000. The dollar increases were
due to increases in software engineering personnel and related spending
associated with the establishment of a software development organization at our
headquarters in Massachusetts during late 1999 and early 2000. The percentage
decrease was due to our increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of finance, executive and administrative personnel and related
expenses and costs. General and administrative expenses increased from $187,000,
or 18.3% or total revenues, for the three months ended June 30, 1999 to
$717,000, or 26.5% of total revenues, for the same three-month period in 2000.
General and administrative expenses increased from $328,000, or 19.9% or total
revenues, for the six months ended June 30, 1999 to $1.4 million, or 27.9% of
total revenues, for the same six-month period in 2000. The dollar and percentage
increases were due to increases in finance and administrative personnel to
accommodate our growing U.S. operations. The increase is also due to the
addition of $50,000 to our allowance for doubtful accounts in the first quarter
of 2000 recorded to cover accounts receivable balances that are past due more
than 90 days.
STOCK-BASED COMPENSATION. Stock-based compensation expenses increased from
$20,000, or 2.0% of total revenues, for the three months ended June 30, 1999, to
$392,000, or 14.5% of total revenues, for the same three-month period in 2000.
Stock-based compensation expenses increased from $41,000, or 2.5% of total
revenues, for the six months ended June 30, 1999, to $573,000, or 11.5% of total
revenues, for the same six-month period in 2000. For grants to employees, these
non-cash expenses represent the difference between the exercise price and the
estimated fair value of our ordinary shares on the date that related options are
granted. For grants to non-employees, these non-cash expenses represent the
value of a particular grant as determined by the Black-Scholes valuation model.
All stock-based compensation is expensed over the vesting period. Deferred
compensation on the unvested options is deferred and included as a component of
shareholders' equity.
Deferred stock-based compensation totaled $7.7 million at June 30, 2000, and
will result in additional charges to operations through May 2004.
INTEREST EXPENSE, NET. Interest expense, net consists principally of interest
expense incurred in connection with our existing term debt, offset by interest
earnings. Interest expense, net decreased from $64,000 for the three months
ended June 30, 1999 to $34,000 for the same three-month period in 2000. Interest
expense, net decreased from $159,000 for the six months ended June 30, 1999 to
$75,000 for the same six-month period in 2000. The decreases were due to higher
interest earnings resulting from the investment of proceeds from our Series B
Preferred Share financing in December 1999.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists principally of
currency translation gains and losses. Other income (expense), net decreased
from ($3,000) for the three months ended June 30, 1999 to $3,000 for the same
three-month period in 2000. Other income (expense), net decreased from ($26,000)
for the six months ended June 30, 1999 to ($14,000) for the same six-month
period in 2000. The decreases were due to exchange rate fluctuations.
INCOME TAXES. The Company has estimated net operating loss carryforwards for
Israel tax purposes totaling approximately $8.3 million at June 30, 2000 to
reduce future Israeli income taxes, if any. These net operating losses may be
carried forward indefinitely and offset against future taxable income. The
Company expects that during the period in which these tax losses are utilized
its income would be substantially tax exempt. Therefore, the income tax rate
of the Company during the tax-exempt period will be zero and there will be no
tax benefit available from these losses and no deferred income taxes have
been included in the Company's financial statements.
The Company's U.S. subsidiary's tax losses through June 30, 2000 amounted to
approximately $3.4 million. These losses are available to offset any future U.S.
taxable income of the U.S. subsidiary and will
<PAGE>
expire between 2012 and 2020. The Company has recorded a full valuation
allowance against its deferred tax asset due to the uncertainty surrounding the
timing of the realization of these tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through the
sale of equity securities, demand and term debt borrowings and the sale of its
products and services. As of June 30, 2000, the Company has raised approximately
$14.9 million, net of offering costs, from the issuance of ordinary and
preferred shares. As of June 30, 2000, cash, cash equivalents and short-term
investments totaled $5.1 million.
On August 14, 2000, the Company completed its initial public offering of
4,000,000 ordinary shares. At the offering price of $10.00 per share, the
Company received $37.2 million from this offering, net of underwriting
discounts and commissions. Additionally, the Company has incurred or expects
to incur offering costs totaling $2.4 million that will be paid from the
proceeds of this offering.
The Company has term loans with Bank Hapoalim B.M., an Israeli bank, with an
aggregate principal balance of $3.6 million as of June 30, 2000, of which
$600,000 of principal matures in March 2001 and $3.0 million matures in June
2001. These loans bear interest at LIBOR plus 1.5%.
The Company also has a loan from Rad Data Communications Ltd., a related
party, of which the principal balance totaled $1.4 million as of June 30,
2000. This loan is required to be paid in full with proceeds from the initial
public offering. In September 2000, the Company repaid the loan from Rad Data
Communications, Ltd. This loan bears no stated interest but the outstanding
principal amount of this loan is adjusted annually based on changes in the
Israeli Consumer Price Index and must be repaid at an annual rate equal to
3.0% of all annual revenues over a base amount of $1.5 million.
Cash used in operating activities was $1.7 million and $1.7 million for the six
months ended June 30, 2000 and 1999, respectively. Cash used for the first six
months of 2000 was due to a net loss of $3.1 million and a $667,000 increase in
accounts receivable, offset in part by depreciation, other noncash charges, a
$390,000 increase in accounts payable and accrued liabilities and a $664,000
increase in deferred revenue. Cash used in first six months of 1999 was
primarily due to a net loss of $1.2 million and a $1.3 million increase in
accounts receivable, partially offset by depreciation, other noncash charges,
deferred interest payments on the Company's bank term debt, and a $674,000
increase in accounts payable and accrued liabilities.
Cash provided by (used in) investing activities was $(3.0 million) and $172,000
for the six months ended June 30, 2000 and 1999, respectively. Cash used in
investing activities for the first six months of 2000 was primarily for
purchases of property and equipment and short-term investments and an increase
in other assets. Cash provided by investing activities for the first six months
of 1999 resulted from the sale of short-term investments offset by purchase of
property and equipment.
Cash provided by (used in) financing activities was $(100,000) and $3.0 million
for the six months ended June 30, 2000 and 1999, respectively. Cash used in
financing activities for the first six months of 2000 consisted principally of
$26,000 for the repayment of principal on term notes and $188,000 in offering
costs related to the initial public offering offset by $114,000 in proceeds from
the exercise of stock options. Cash provided by financing activities for the
first six months of 1999 consisted primarily of proceeds from private sales of
preferred shares, and net borrowings under bank term financing facilities.
<PAGE>
The Company expects its operating expenses to continue to increase, particularly
sales and marketing and research and development expenses, for the foreseeable
future as it executes its business plan. As a result, these operating expenses,
as well as planned capital expenditures and repayment of existing term debt, are
expected to constitute a material use of the Company's cash resources. In
addition, the Company may utilize its cash resources to fund acquisitions or
investments in complementary businesses, technologies or product lines.
The Company believes that its existing cash and short-term investments, along
with the net proceeds from its initial public offering, will be sufficient to
meet its anticipated needs for working capital, term debt retirement and
capital expenditures for at least the next 12 months. Thereafter, the Company
may find it necessary to obtain additional equity or debt financing. In the
event additional financing is required, the Company may not be able to
complete financings on acceptable terms or at all.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Substantially all the Company's revenues are received, and a large portion of
its expenses are incurred, in U.S. dollars. In 1999, approximately 92.0% and
60.0% of the Company's revenues and expenses, respectively, were denominated in
U.S. dollars. A portion of the Company's expenses, mainly salary and personnel
costs related to its employees in Israel, is incurred in New Israeli Shekels
(NIS). The salaries of the Company's Israel-based employees are partially linked
to inflation in Israel. As a result, the U.S. dollar cost of the Company's
Israeli operations is influenced by inflation in Israel, but may be offset by a
devaluation of the NIS in relation to the U.S. dollar. Any increase in the rate
of inflation in Israel may have a negative effect on the Company's operating
results, unless such inflation is offset by a devaluation of the NIS in relation
to the U.S. dollar. In addition to the Company's operations in Israel, the
Company intends to expand our operations internationally. Accordingly, the
Company expects to incur additional expenses in non-U.S. dollar currencies.
Exchange rates between the NIS and the dollar fluctuate continuously, and
therefore exchange rate fluctuations and especially larger periodic devaluations
will have an impact on the Company's operating results and period-to-period
comparisons of our results. The effects of foreign currency translations are
reported in the Company's financial statements in current operating results.
The Company believes that neither inflation in Israel, nor exchange rate
fluctuations between the NIS and the U.S. dollar, historically has had a
material effect on its operations.
GOVERNMENT GRANTS
The Government of Israel, through the Office of the Chief Scientist, encourages
research and development projects that result in products for export. The
Company received grants of approximately $605,000 from the Office of the Chief
Scientist through December 31, 1996, which were
<PAGE>
used to fund a predecessor product. Since December 31, 1996, the Company has
neither applied for nor received any additional grants from the Office of the
Chief Scientist. Pursuant to the terms of these grants, the Company is obligated
to pay royalties of 3.0% to 5.0% of revenues derived from sales of products
funded with these grants, up to 100.0% to 150.0% of certain grant amounts
received. The terms of the grant also require that the know-how from the
research and development that is used to produce the product may not be
transferred to third parties without the approval of the research committee. The
Company's maximum potential royalty obligation to the Office of the Chief
Scientist in respect of grants received is approximately $670,000. As of June
30, 2000, $550,000 of this potential royalty obligation has been accrued, of
which $56,000 has been paid.
EFFECTIVE CORPORATE TAX RATE
Israeli companies are generally subject to tax at the rate of 36.0% of taxable
income. However, the Company has derived, and expects to continue to derive, a
substantial portion of its income under its Approved Enterprise capital
investment program. Subject to compliance with applicable requirements, this
income will be tax exempt for a period of two years and will be subject to a
reduced corporate tax rate of 25.0% in the following five years. If the Company
does not comply with the applicable requirements, the tax benefits may be
canceled. The Company believes that it complies with these conditions. If the
Company operates under more than one approval, or if its capital investments are
only partially approved, the Company's effective tax rate will be a weighted
combination of the various applicable tax rates. The Company may not be able to
obtain approval for additional Approved Enterprise programs. Since the Company
has incurred tax losses through June 30, 2000, it has not yet used the tax
benefits for which it is eligible.
MARKET RISK
The Company currently does not invest in, or hold for trading or other purposes,
any financial instruments subject to market risk. The Company currently pays
interest on its loan facilities based on the London interbank offered rate and
the Israeli Consumer Price Index, or the Israeli CPI. As a result, changes in
the general level of interest rates or the Israeli CPI directly affect the
amount of money payable by the Company under these facilities. However, the
Company does not expect its exposure to market risk from changes in interest
rates or the Israeli CPI to be material because: (i) the Company's outstanding
debt under these facilities has never exceeded $5.5 million, (ii) the debt
matures within 12 months, and (iii) the rate of exchange between the U.S.
dollar and the New Israeli Shekel has remained relatively stable.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, the Company has not engaged in derivative and hedging activities, and
accordingly it does not believe that the adoption of the SFAS No. 133 will have
a material impact on its financial reporting and related disclosures. The
Company will adopt SFAS No. 133 as required by SFAS No. 137, DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133, in fiscal year 2001.
On December 3, 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), REVENUE RECOGNITION IN
FINANCIAL STATEMENTS. SAB 101, as amended, summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
to revenue recognition. All registrants are expected to apply the accounting
and
<PAGE>
disclosure requirements that are described in SAB 101, which is effective
for periods beginning after December 15, 2000. The Company does not expect
that the adoption of the guidance required by SAB 101 will have a material
impact on its financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN
INTERPRETATION OF APB OPINION NO. 25. The interpretation clarifies the
application of APB Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period after
December 15, 1998, but before the effective date, the effects of applying this
interpretation would be recognized on a prospective basis from the effective
date. Accordingly, upon initial application of the final interpretation, (a) no
adjustments would be made to the financial statements for periods before the
effective date and (b) no expense would be recognized for any additional
compensation cost measured that is attributable to periods before the effective
date. The Company expects that the adoption of this interpretation would not
have any effect on the financial statements included elsewhere in this
Form 10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. Discussions containing forward-looking
statements may be found in the material set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" as well as in
this report generally. The Company generally uses words such as "believe,"
"may," "could," "will," "intend," "estimate," "expect," "anticipate," "plan,"
and similar expressions to identify forward-looking statements. You should not
place undue reliance on these forward-looking statements. The Company's actual
results could differ materially from those anticipated in the forward-looking
statements for many reasons, including the risks described in this report.
Although the Company believes the expectations reflected in the forward-looking
statements are reasonable, they related only to events as of the date on which
the statements are made, and the Company cannot assure you that our future
results, levels of activity, performance or achievements will meet these
expectation. Moreover, neither the Company nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. The Company does not intend to update any of the forward-looking
statements after the date of this report to conform these statements to actual
results or to changes in its expectations, except as required by law.
<PAGE>
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its
investing portfolio. The Company places its investments in instruments
that meet high credit quality standards such as money market funds,
government securities, and commercial paper. The Company limits the
amount of credit exposure to any one issuer. The Company does not expect
any material loss with respect to its investment portfolio.
The Company conducts business in various foreign currencies, primarily
in Europe and the Middle East. As a result, the Company is exposed to
the effect of foreign currency exchange rate fluctuations on the U.S.
dollar value of foreign currency-denominated revenues and expenses. The
Company does not use foreign exchange forward contracts to hedge its
foreign currency denominated receivables. Looking forward, there can be
no assurance that changes in foreign currency rates, relative to the U.S.
dollar, will not materially adversely affect the consolidated results of
the Company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings that are material
to its business or financial condition.
ITEM 2. CHANGES IN SECURITIES
(a) CHANGES IN INSTRUMENTS DEFINING THE RIGHTS OF SHAREHOLDERS
Upon the closing of the Company's initial public offering, all of
its outstanding Preferred Shares automatically converted into
5,265,575 ordinary shares.
Upon the completion of the Company's initial public offering, the
Company amended its Articles of Association to change its authorized
capital stock to 25,000,000 ordinary shares. Under the terms of the
Company's amended Articles of Association, by resolution of the
shareholders at a general meeting adopted by a majority of
shareholders entitled to vote, the Company may increase its registered
share capital by the creation of new shares with special rights as
adopted in the resolution.
Upon the closing of the Company's initial public offering, the
Company amended its Articles of Association. The Company's Articles
now provide that, subject to applicable law, notice of at least
twenty-one days must be given for any general meeting of shareholders
and any resolutions, including special resolutions, unless all
shareholders otherwise consent in writing. The amended Articles also
provide that an ordinary resolution shall be deemed adopted when
approved by a majority of votes of the shareholders entitled to vote
and who voted in a General Meeting in person or by proxy. A special
resolution shall be deemed adopted when approved by at least three
quarters of the votes of the shareholders entitled to vote and who
voted in a General Meeting in person or by proxy.
(b) NOT APPLICABLE
(c) SALES OF UNREGISTERED SECURITIES
In March 2000, the Company granted the right to purchase 23,810 shares
of Series B preferred stock at $2.10 per share to two individuals. The
Company has recorded stock-based compensation expense on these grants
of approximately $70,000, which represents the difference between the
deemed fair value of the Series B preferred stock and the purchase
price. The Company received $25,000 of proceeds in March 2000 and
$25,000 in May 2000 from the two individuals for the exercise of these
rights. The 23,810 shares of Series B preferred stock were issued in
June 2000.
In June and July 2000, the Company issued a total of 1,590,100 ordinary
shares upon the exercise of options to purchase ordinary shares issued
under the share purchase agreement in connection with the Company's
Series A preferred stock financing in 1999. Proceeds to the Company
upon the exercise of these options totaled approximately $4,000.
During the quarter ended June 30, 2000, the Company granted options
to purchase an aggregate of 851,300 ordinary shares to employees and
affiliates at an exercise price of $1.00 per share.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from the Securities Act of
1933 ("Securities Act") registration requirements set forth in Sections
3(b) and 4(2) of the Securities Act, and any regulations promulgated
thereunder, relating to sales by an issuer not involving any public
offering, or (ii) in the case of certain options to purchase shares of
common stock and shares of common stock issued upon the exercise of
such options, such offers and sales were made in reliance upon an
exemption from registration under Rule 701 promulgated under Section
3(b) of the Securities Act. No underwriters were involved in the
foregoing sales of securities.
(d) USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES
On August 9, 2000, in connection with our initial public offering, the
Securities and Exchange Commission declared a Registration Statement on
Form F-1 (No.333-41526) effective that registered 5,750,000 shares of
our common stock. The managing underwriters in the offering were
Donaldson Lufkin Jenrette, Wit SoundView, Piper Jaffrey, and DLJdirect.
On August 15, 2000, the Company sold 4,000,000 of such shares of our
common stock at an initial public offering price of $10.00 per share,
generating gross offering proceeds of $40 million. After deducting $2.8
million in underwriting discounts and approximately $2.4 million in
other related expenses, the net proceeds to the Company were
approximately $ 34.8 million.
<PAGE>
The Company expects to use a portion of the net proceeds to make a
payment of $1,359,000 representing principal and accrued interest to
the holder of its related party loan
The Company currently expects to use the remaining net proceeds
primarily for working capital and general corporate purposes, including
increased research and development expenditures, increased sales and
marketing expenditures, and capital expenditures made in the ordinary
course of business. In addition, the Company may use a portion of the
net proceeds to fund acquisitions or investments in complementary
businesses, technologies or products. Pending such uses, the Company
will invest the net proceeds in short-term, investment grade, and
interest bearing securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Prior to the consummation of the Company's initial public offering
on August 14, 2000, the shareholders took the following actions by an
extraordinary general meeting in accordance with the Companies Law of
Israel and the Articles of Association of the Company:
On June 27, 2000 stockholders representing approximately 100% of the
Company's outstanding shares entitled to vote acted to:
- increase the Company's registered share capital by NIS 55,000,
consisting of 5,500,000 ordinary shares, NIS 0.01 par value per
share;
- convert the Company's: (i) 1,163,000 unissued Series A Preferred
Shares into 1,163,000 ordinary shares; (ii) 2,071,425 unissued
Series B-1 Preferred Shares into 2,071,425 ordinary shares; and
effect the conversion of the outstanding (iii) 2,337,000 unissued
Series A Preferred Shares into 2,337,000 ordinary shares; (iv)
2,196,048 unissued Series B-1 Preferred Shares into 2,196,048
ordinary shares; and (v) 732,517 unissued Series B-2 Preferred
Shares into 732,517 ordinary shares; provided that the conversion
set forth in (i) through (v) herein are conditioned upon the closing
of the initial public offering on or prior to December 31, 2000 and
shall occur upon such closing;
- approve the acceptance of a secured promissory note as receipt for
payment of the aggregate price of stock options from certain
individuals in the event such individuals elected to finance such
exercise;
- approve the limited acceleration of the vesting of options to
purchase the Company's shares as granted to certain of the Company's
officers upon a Change of Control;
- approve the cancellation of the provision in Section 14 of the
Agreement dated January 14, 1993 between the Company and its
founders which imposes restrictions on the transfer of shares by the
parties to the Agreement;
- approve the issuance of 11,905 shares of Series B-1 Preferred
Shares to each of two individuals in exchange for $50,000;
- approve of the Company entering into certain agreements;
- amend the warrant granted to Sadot Research and Development Fund
Ltd., dated August 30, 1998, such that the Exercise Price defined
therein shall be $29.715 instead of $297.15;
- approve the Company entering into a Directors and Officers
insurance policy;
- ratify grants of options to certain directors and officers; and
- amend the Articles of Association.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) EXHIBIT INDEX
3.1 Memorandum of Association of Registrant (English translation)
(filed as Exhibit 3.1 to the Company's Registration Statement on
Form F-1, No. 333-41526, and incorporated herein by reference)
3.2 Form of Articles of Association of Registrant (filed as Exhibit
3.3 to the Company's Registration Statement on Form F-1, No.
333-41526, and incorporated herein by reference)
4.1 Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form F-1, No. 333-41526, and
incorporated herein by reference)
4.2 Investor Rights Agreement (filed as Exhibit 4.2 to the
Company's Registration Statement on Form F-1, No. 333-41526,
and incorporated herein by reference)
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed in the three-month period ended June
30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADVIEW SOFTWARE LTD.
(Registrant)
/s/ Edward Durkin
Edward Durkin
Chief Financial Officer
Dated: September 22, 2000