zk1211307.htm

A. Major Shareholders

The following table sets forth certain information, as of the date of April 19, 2012, regarding the beneficial ownership by all shareholders known to us to own beneficially more than 5% of our ordinary shares.

Name	Number of ordinary shares beneficially owned (1)			Percentage of outstanding ordinary shares (2)
Zohar Zisapel		5,128,317	(3)		27.35	%
Yehuda Zisapel		1,341,950	(4)		7.19	%
Ross Margolies.		1,578,112	(5)		8.45	%
Renaissance Technologies LLC		924,949	(6)		4.96	%

______________

(1)

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this annual report are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, subject to community property laws where applicable and to voting agreements entered into by each of Zohar Zisapel and Yehuda Zisapel with Avaya under which they have generally agreed, among other things, to vote all of the ordinary shares beneficially owned by each of them in favor of the approval of the merger agreement between our company and Avaya, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. Please also see the Schedule 13D filed by Avaya, together with certain of its affiliates, with the SEC on March 15, 2012 (for further details about the merger agreement see Item 10C “Material Contracts”).

(2)	The percentages shown are based on 18,665,668 ordinary shares issued and outstanding (which exclude 3,850,555 ordinary shares held as treasury stock) as of April 19, 2012.

(3)

Includes (i) 3,424,151 ordinary shares owned of record by Mr. Zohar Zisapel; (ii) 85,000 ordinary shares issuable upon the exercise of currently exercisable options granted to Mr. Zohar Zisapel, of which options to purchase 45,000 ordinary shares have an exercise price of $19.59 per share and expire in July 2013 ,options to purchase 20,000 ordinary shares have an exercise price of $7.81 per share and expire in November 2016 and options to purchase 20,000 ordinary shares have an exercise price of $5.3 per share and expire in November 2017; (iii) 1,121,097 ordinary shares owned of record by Lomsha Ltd., an Israeli company controlled by Mr. Zohar Zisapel; (iv) 310,856 ordinary shares owned of record by Michael and Klil Holdings (93) Ltd., an Israeli company controlled by Mr. Zohar Zisapel; and (v) 187,213 ordinary shares owned of record by RAD Data, an Israeli company. Mr. Zohar Zisapel is a principal shareholder and Chairman of the Board of Directors of RAD Data. Mr. Zohar Zisapel and his brother, Mr. Yehuda Zisapel, have shared voting and dispositive power with respect to the shares held by RAD Data.

(4)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on January 21, 2009. Includes: (i) 751,901 ordinary shares owned of record by Mr. Yehuda Zisapel; (ii) 402,836 ordinary shares owned of record by RADbit Inc., a company wholly-owned by Bynet Data Communications Ltd. Mr. Yehuda Zisapel is the controlling shareholder and the chairman of the board of directors of Bynet Data Communications Ltd.; and (iii) 187,213 ordinary shares owned of record by RAD Data, an Israeli company. Mr. Yehuda Zisapel is a principal shareholder and a director of RAD Data. Mr. Yehuda Zisapel and his brother, Mr. Zohar Zisapel, have shared voting and dispositive power with respect to the shares held by RAD Data.

(5)

Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on February 14, 2012. The Schedule 13G/A states that of such shares, 1,567,000 ordinary shares are held by Stelliam Master Fund, L.P., a Cayman Islands exempted limited partnership, and Stelliam Master Long Fund, L.P., a Cayman Islands exempted limited partnership. Stelliam Investment Management LP serves as investment manager for such funds and Mr. Ross Margolies is the managing member of Stelliam Investment Management LP. Therefore, each of Stelliam Investment Management LP and Mr. Margolies may be deemed to be the beneficial owner of shares held for the account of such funds. In addition, the Schedule 13G/A states that Mr. Margolies holds directly 11,112 ordinary shares.

(6)	Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the SEC on February 13, 2012. The Schedule 13G/A was filed by Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation due to its majority ownership of Renaissance Technologies LLC.

Significant Changes in the Ownership of Major Shareholders

On September 28, 2010, Mr. Zohar Zisapel filed a Schedule 13D/A with the SEC reflecting beneficial ownership of 4,887,401, or 26.33%, of our ordinary shares. The Schedule 13D/A reflects an increase in Mr. Zohar Zisapel’s beneficial ownership of our ordinary as a result of the self-tender offer that we completed in September 2010. On August 22, 2011, Mr. Zohar Zisapel filed a Schedule 13D/A with the SEC reflecting beneficial ownership of 5,108,317, or 27.61%, of our ordinary shares. The Schedule 13D/A reflects an increase in Mr. Zohar Zisapel’s beneficial ownership of our ordinary as a result of open market purchases effected on the NASDAQ Global Select Market in the prior 60 days. On March 19, 2012, Mr. Zohar Zisapel filed a Schedule 13D/A with the SEC reflecting beneficial ownership of 5,128,317, or 27.7%, of our ordinary shares. The Schedule 13D/A reflects an increase in Mr. Zohar Zisapel’s beneficial ownership of our ordinary shares as a result of a grant of 20,000 additional options on November 2, 2011.

On February 10, 2009, Clough Capital filed with the SEC Amendment No. 2 to the Schedule 13G, on Schedule 13G/A, reflecting beneficial ownership of 1,232,973, or 6.09%, of our ordinary shares. The Schedule 13G/A reflects that the shares include shares beneficially owned by investment companies, pooled investment vehicles and other accounts for which Clough Capital serves as investment adviser. Such shares may be deemed beneficially owned by (a) Clough Capital Partners L.P., (b) Clough Capital Partners LLC, the general partner of Clough Capital Partners L.P., and (c) Messrs. Clough, Canty and Brock, the managing members of Clough Capital Partners LLC. Each such entity and person disclaims beneficial ownership of such shares except to the extent of its respective pecuniary interest therein. On February 10, 2010, Clough Capital filed with the SEC Amendment No. 3 to Schedule 13G, reflecting that it ceased to own any of our shares.

On February 13, 2009, Systematic Financial Management, L.P. reported in an amendment to its Schedule 13G that it had beneficial ownership of 1,124,890 of our ordinary shares and therefore it had ceased to be the beneficial owner of more than 5% of our outstanding shares.

On February 13, 2009, Renaissance Technologies LLC, or Renaissance, filed a Schedule 13G with the SEC reflecting beneficial ownership of 1,513,023, or 7.7%, of our ordinary shares. On February 12, 2010, Renaissance filed with the SEC Amendment No. 1 to the Schedule 13G, on Schedule 13G/A, reflecting beneficial ownership of 1,252,470, or 6.42%, of our ordinary shares. On February 11, 2011, Renaissance filed with the SEC Amendment No. 2 to the Schedule 13G, on Schedule 13G/A, reflecting beneficial ownership of 936,895, or 5.05%, of our ordinary shares. The Schedule 13G/A reflects that the shares are deemed beneficially owned by James H. Simons due to his controlling interest in Renaissance Technologies LLC. On February 13, 2012, Renaissance filed with the SEC Amendment No. 3 to the Schedule 13G, on Schedule 13G/A, reflecting beneficial ownership of 924,949, or 5.03%, of our ordinary shares. The Schedule 13G/A reflects that the shares are deemed beneficially owned by Renaissance Technologies Holdings Corporation due to its majority ownership of Renaissance Technologies LLC.

On April 19, 2010, Stelliam Investment Management LP., or Stelliam Management, and Mr. Ross Margolies filed a Schedule 13G with the SEC reflecting beneficial ownership of 993,500, or 5.09%, of our ordinary shares. On April 20, 2010, such reporting persons filed with the SEC Amendment No. 1 to the Schedule 13G, on Schedule 13G/A, reflecting that Mr. Margolies’ beneficial ownership had increased to 1,004,612, or 5.15%, of our ordinary shares, while Stelliam’s beneficial ownership had not changed. On February 10, 2011, such reporting persons filed with the SEC Amendment No. 2 to the Schedule 13G, on Schedule 13G/A, reflecting that Mr. Margolies’ beneficial ownership had increased to 1,711,112, or 9.22%, of our ordinary shares and Stelliam’s beneficial ownership had increased to 1,700,000, or 9.16%. The Schedule 13G/A states that the 1,700,000 ordinary shares are held for the account of Stelliam Master Fund, L.P., a Cayman Islands exempted limited partnership, and Stelliam Master Long Fund, L.P., a Cayman Islands exempted limited partnership. Stelliam Management serves as investment manager for such funds and Mr. Margolies is the managing member of Stelliam Management. Therefore each of Stelliam Management and Mr. Margolies may be deemed to be the beneficial owner of the ordinary shares held for the account of such funds. In addition, the Schedule 13G/A states that Mr. Margolies holds directly 11,112 ordinary shares. On February 14, 2012, such reporting persons filed with the SEC Amendment No. 3 to the Schedule 13G, on Schedule 13G/A, reflecting that Mr. Margolies’ beneficial ownership had decreased to 1,578,112, or 8.58%, of our ordinary shares and Stelliam’s beneficial ownership had decreased to 1,567,000, or 8.52%. The Schedule 13G/A states that the 1,567,000 ordinary shares are held for the account of Stelliam Master Fund, L.P., a Cayman Islands exempted limited partnership and Stelliam Master Long Fund, L.P., a Cayman Islands exempted limited partnership. Stelliam Management serves as investment manager for such funds and Mr. Margolies is the managing member of Stelliam Management. Therefore each of Stelliam Management and Mr. Margolies may be deemed to be the beneficial owner of the ordinary shares held for the account of such funds. In addition, the Schedule 13G/A states that Mr. Margolies directly holds 11,112 ordinary shares.

On March 14, 2012 we entered into a definitive merger agreement with Avaya, a global provider of business communications and collaboration systems and services. Pursuant to the merger agreement, Avaya will acquire our company and will hold 100% of our shares. For more information about our merger with Avaya see Item 10C “Material Contracts.”

Major Shareholders Voting Rights

The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares.

Record Holders

Based on a review of the information provided to us by our transfer agent, as of April 19, 2012, there were 22 holders of record of our ordinary shares, of which 9 record holders holding approximately 79.23% of our ordinary shares had registered addresses in the United States, including banks, brokers and nominees. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these ordinary shares were held of record by banks, brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 79.23% of our outstanding ordinary shares as of such date).

B. Related Party Transactions

The RAD-BYNET Group

Zohar Zisapel, the Chairman of our Board of Directors and a principal shareholder of our company, and Yehuda Zisapel, a principal shareholder of our company, who formerly was a director and the Chairman of our Board of Directors, are brothers. Individually or together they are directors and principal shareholders of several other companies, which, together with us and the other subsidiaries and affiliates, are known as the RAD-BYNET group (although this is not a legal entity). These corporations include, but are not limited to:

Ab-Net Ltd.

BYNET Data Communications Ltd.

BYNET Electronics Ltd.

BYNET SEMECH Outsourcing Ltd.

BYNET Systems Applications Ltd.

BYNET Software Systems Ltd.

Ceragon Networks Ltd.

Channelot Ltd.

Internet Binat Ltd.

Packetlight Networks Ltd.

RAD-BYNET Properties and Services (1981) Ltd.

RAD Data Communications Ltd.

RADWARE Ltd.

RADCOM Ltd.

RADIFLOW Ltd.

RADWIN Ltd.

SILICOM Ltd.

WISAIR Inc.

Yehuda and Zohar Zisapel (together or separately) also hold shares in other real estate, holdings, biotechnology and pharmaceutical private companies. The above list does not constitute a complete list of the investments of Messrs. Yehuda and Zohar Zisapel.

In addition to engaging in other businesses, members of the RAD-BYNET group are actively engaged in designing, manufacturing, marketing and supporting data communication products, none of which currently compete with our products. Some of the products of members of the RAD-BYNET group are complementary to, and may be used in connection with, our products.

Efraim Wachtel, a director of our company, serves as the president and chief executive officer of RAD Data Communications Ltd.

We generally ascertain the market prices for goods and services that can be obtained at arms’ length from unaffiliated third parties before entering into any transaction with a member of the RAD-BYNET group for those goods and services. In addition, all of our transactions to date with members of the RAD-BYNET group were approved by our Audit Committee and Board of Directors. As a result, we believe that the terms of the transactions in which we have engaged and are currently engaged with other members of the RAD-BYNET group are beneficial to us and no less favorable to us than terms which might be available to us from unaffiliated third parties. Any future transactions and arrangements with entities, including other members of the RAD-BYNET group, in which our office holders have a personal interest will require approval by our Audit Committee, our Board of Directors and, if applicable, our shareholders.

Transactions with related parties:

	Year ended December 31,
	2009		2010		2011
	($ in thousands)
Revenues (1)	$	526	$	277	$	113
Cost of revenues (2)	$	11	$	15	$	30
Research and development expenses (3)	$	66	$	77	$	144
Marketing, selling, general and administrativeexpenses (3)	$	336	$	467	$	777
Purchase of property and equipment (4)	$	329	$	368	$	298

___________________________________

(1)

Reflects revenues from our products and maintenance sold to affiliated companies.

(2)

Reflects the purchase of components from affiliated companies.

(3)

Reflects the reimbursement of costs to affiliated companies that such affiliated companies incurred in connection with administrative services that they have provided to our company.

(4)

Reflects the cost of property and equipment that we purchased from affiliated companies.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Export Sales

See Note 14c of our consolidated financial statements.

Legal Proceedings

In 2003, a third party sent us correspondence alleging that some of our products infringe upon patents held by such third party and offered to license these patents to us. Subsequent correspondence was exchanged during 2004, in which additional requests were made by the third party. As of December 31, 2011, we recorded a provision of approximately $1,019 million, which we believe covers the probable loss from such allegations.

In March, 2010, Network Analysis GmbH, one of our resellers, filed a lawsuit against us in Germany, alleging we caused it damages due to, among other things, our cessation of the development of one of our products that we allegedly promised to develop. The court subsequently rendered a decision in our favor and no appeal was filed. In May, 2011 Network Analysis filed a lawsuit against the Company in the Tel Aviv District Court for the nominal amount of NIS 2,746,375 (Euro 504,691) with similar accusations. Following initial legal proceedings that included the filing of a number of motions, the parties reached a settlement agreement whereby, in exchange for a lump sum payment, the reseller waived all related claims.

In September 2010, we received a letter from a shareholder, addressed to the Chairman of our Board of Directors, in which certain allegations were made with respect to certain actions and alleged inactions of our company, directors and executive officers in connection with the self-tender offer that we completed in September 2010. We responded to the shareholder refuting all claims and denying any wrongdoings.

During the first quarter of 2012, we received letters from two separate third parties questioning the use in our products of certain technology that is allegedly patented by them. We are still evaluating our position in response to these letters. However, based on initial internal analysis we believe that these matters will not have a material effect on our financial position.

From time to time, we and our subsidiaries are subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including claims with respect to intellectual property, contracts, employment and other matters. In addition to the above mentioned legal proceedings, we do not believe that we are a party to any pending legal proceeding that is likely to have a material effect on our business, financial condition or results of operations.

Dividend Distributions Policy

We have never declared or paid any cash dividends to our shareholders. We currently intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our ordinary shares in the foreseeable future. Any future dividend policy will be determined by our Board of Directors and will be based upon conditions then existing, including our results of operations, financial condition, current and anticipated cash needs, contractual restrictions and other conditions. In addition, our Articles of Association provide that the declaration of a dividend requires approval by an ordinary resolution of our shareholders, which may decrease but not increase the amount proposed by the Board of Directors.

According to the Israeli Companies Law, a company may distribute dividends out of its profits provided that there is no reasonable concern that such dividend distribution will prevent the company from paying all its current and foreseeable obligations, as they become due. Notwithstanding the foregoing, dividends may be paid with the approval of a court, provided that there is no reasonable concern that such dividend distribution will prevent the company from satisfying its current and foreseeable obligations, as they become due. Profits, for purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years, after deducting previous distributions that were not deducted from the surpluses. In the event cash dividends are declared, such dividends will be paid in NIS.

B. Significant Changes

Since the date of the annual consolidated financial statements included in this annual report, no significant changes have occurred.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Annual Stock Information

The following table sets forth, for each of the years indicated, the high and low market prices of our ordinary shares on the NASDAQ Global Select Market (for periods from July 1, 2007), the NASDAQ Global Market (for periods prior to July 1, 2007) and the Tel Aviv Stock Exchange:

	NASDAQ				Tel Aviv Stock Exchange
Year	High		Low		High		Low
2007	$	24.97	$	10.39	$	25.13	$	10.57
2008	$	11.84	$	4.08	$	11.29	$	4.22
2009	$	9.61	$	4.31	$	9.41	$	4.55
2010	$	9.02	$	5.60	$	8.90	$	5.50
2011	$	12.00	$	4.55	$	12,56	$	4.67

Quarterly Stock Information

The following table sets forth, for each of the full financial quarters in the years indicated, the high and low market prices of our ordinary shares on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange:

	NASDAQ				Tel Aviv Stock Exchange
	High		Low		High		Low
2010
First Quarter	$	6.95	$	5.95	$	6.93	$	5.92
Second Quarter	$	6.96	$	5.60	$	6.84	$	5.50
Third Quarter	$	7.00	$	6.00	$	7.22	$	6.14
Fourth Quarter	$	9.02	$	6.30	$	8.90	$	6.34

2011
First Quarter	$	11.71	$	8.55	$	11.94	$	8.61
Second Quarter	$	12.00	$	7.28	$	12.56	$	7.12
Third Quarter	$	7.89	$	5.22	$	7.61	$	5.42
Fourth Quarter	$	10.27	$	4.55	$	9.94	$	4.67

2012
First Quarter	$	11.75	$	7.06	$	11.75	$	6.82

Monthly Stock Information

The following table sets forth, for the most recent six months, the high and low market prices of our ordinary shares on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange:

	NASDAQ				Tel Aviv Stock Exchange
	High		Low		High		Low
October 2011	$	5.83	$	4.88	$	5.95	$	5.00
November 2011	$	5.85	$	4.55	$	5.84	$	4.67
December 2011	$	10.27	$	4.76	$	9.81	$	4.81
January 2012	$	9.90	$	7.26	$	9.75	$	6.94
February 2012	$	8.41	$	7.06	$	8.27	$	6.87
March 2012	$	11.75	$	7.62	$	11.77	$	7.59
April 2012 (until April 20)	$	11.76	$	11.71	$	11.89	$	11.49

B. Plan of Distribution

Not applicable.

C. Markets

Our ordinary shares were listed on the NASDAQ Global Market from our initial public offering on March 14, 2000 until July 1, 2006, at which date the listing of our ordinary shares was transferred to the NASDAQ Global Select Market (symbol: RVSN). Since October 20, 2002, our ordinary shares have also been traded on the Tel Aviv Stock Exchange.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expense of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Purposes and Objects of the Company

We are a public company registered under the Israel Companies Law as RADVISION Ltd., registration number 51-165181-2. Pursuant to our memorandum of association, we were formed for the purpose of developing, manufacturing and supplying products in the electronics field in general, and specifically, in the field of data communication.

The Powers of the Directors

Under the provisions of the Israel Companies Law and our Articles of Association, a director cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is materially interested. In addition, our directors cannot vote compensation to themselves or any members of their body without the approval of our Audit Committee and our shareholders at a general meeting. See “Item 6B. Directors, Senior Management and Employees – Compensation.”

Directors may not enter into borrowing arrangements on our behalf except in the manner approved by the Company. The Board of Directors has approved a resolution regarding signing authority to ensure the proper oversight and regulation of officers and directors acting on our behalf.

Rights Attached to Shares

Our authorized share capital consists of 45,000,000 ordinary shares of a nominal value of NIS 0.1 each. All outstanding ordinary shares are validly issued, fully paid and non-assessable.

The rights attached to the ordinary shares are as follows:

Dividend rights. Holders of our ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may declare interim dividends and propose the final dividend with respect to any fiscal year only out of the retained earnings, in accordance with the provisions of the Israeli Companies Law. Our Articles of Association provide that the declaration of a dividend requires approval by an ordinary resolution of the shareholders, which may decrease but not increase the amount proposed by the board of directors. See “Item 8A. Financial Information – Consolidated Statements and Other Financial Information – Dividend Distributions Policy.” If after one year a dividend has been declared and it is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest or linkage differentials on an unclaimed dividend. Also see “Item 10E. Additional Information – Taxation.”

Voting rights. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.

The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two members present in person or by proxy.

An ordinary resolution, such as a resolution for the declaration of dividends, requires approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting thereon. Under our Articles of Association, a special resolution, such as amending our memorandum of association or articles of association, approving any change in capitalization, winding-up, authorization of a class of shares with special rights, or other changes as specified in our articles of association, requires approval of a special majority, representing the holders of no less than 65% of the voting rights represented at the meeting in person, by proxy or by written ballot, and voting thereon.

Pursuant to our Articles of Association, our directors (except the outside directors) are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting and hold office until the next annual general meeting of shareholders and until their successors have been elected. All the members of our Board of Directors (except the outside directors) may be reelected upon completion of their term of office. For information regarding the election of outside directors, see “Item 6C. Directors, Senior Management and Employees – Directors and Senior Management - Board Practices - Election of Directors.”

Rights to share in our company’s profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution. See this Item 10B. “Additional Information – Memorandum and Articles of Association – Rights Attached to Shares – Dividend Rights.”

Rights in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

Changing Rights Attached to Shares

According to our Articles of Association, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of 65% of the voting power participating in such meeting.

Annual and Extraordinary Meetings

Under the Israeli Companies Law, a company must convene an annual meeting of shareholders at least once every calendar year and within 15 months of the last annual meeting. Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to the date of the meeting is required. Our Board of Directors may, in its discretion, convene additional meetings as “special general meetings.” In addition, the board must convene a special general meeting upon the demand of two of the directors, 25% of the nominated directors, one or more shareholders having at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company. See this “Item 10B. Additional Information - Memorandum and Articles of Association- Rights Attached to Shares-Voting Rights.”

Limitations on the Rights to Own Securities in Our Company

Neither our Memorandum of Association nor our Articles of Association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel.

Changes in Our Capital

Changes in our capital are subject to the approval of the shareholders at a general meeting by a special majority of 65% of the votes of shareholders participating and voting in the general meeting.

Provisions Restricting Change in Control of Our Company

Tender Offer. A person wishing to acquire shares, or any class of shares, of a publicly traded Israeli company and who would as a result hold over 90% of the company’s issued and outstanding share capital, or a class of shares, is required by the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the remaining issued and outstanding shares of the company, or the class of shares, as the case may be. If the shareholders who do not respond to the offer hold less than 5% of the issued share capital of the company, or of the relevant class of shares, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, the shareholders may petition the court to determine that the consideration for the acquired shares is less than the shares’ fair value and that the acquiring party should pay the shares’ fair value. If the dissenting shareholders hold more than 5% of the issued and outstanding share capital of the company, or of the relevant class of shares, as the case may be, the acquirer may not acquire additional shares of the company from shareholders who accepted the tender offer if following such acquisition the acquirer would own over 90% of the company’s issued and outstanding share capital, or of the relevant class of shares.

The Israeli Companies Law provides that an acquisition of shares of a public company be made by means of a tender offer if as a result of the acquisition the purchaser would become the holder of a ‘‘control block.’’ Under the Israeli Companies Law, shares conferring 25% or more of the voting rights in the company constitute a ‘‘control block.’’ The requirement for a tender offer does not apply if there is already another holder of a control block. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the acquirer would hold more than 45% of the voting rights in the company, unless there is another person holding more than 45% of the voting rights in the company. These requirements do not apply if:

the acquisition was made in a private placement the object of which was to confer to the acquiring party a ‘‘control block’’ where there is no holder of a ‘‘control block,’’ or to confer to the acquiring party 45% of the voting rights in the company where there is no holder of 45% of the voting rights in the company, and the private placement received the general meeting’s approval;

·	the acquisition was from the holder of a ‘‘control block’’ and resulted in a person becoming the holder of a ‘‘control block;’’ or

·	the acquisition was from a shareholder holding more than 45% of the voting rights in the company and resulted in a person becoming a holder of more than 45% of the voting rights in the company.

Merger. The Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, except under certain circumstances specified below, by the majority of each party’s shares voted on the proposed merger at a shareholders meeting convened upon prior notice of at least 35 days (which may be shortened to 14 days in certain circumstances). A merger is defined as the transfer of all assets and liabilities, including conditional, future, known and unknown debts of the target company to the surviving company, as a result of which the target company is liquidated, and stricken out of the Companies Register.

Under the Israeli Companies Law, if the approval of a general meeting of the shareholders is required, merger transactions may be approved by holders of a simple majority of the shares present and voting, in person or by proxy or by written ballot, at the general meeting convened to approve the transaction. If one of the merging companies, or a shareholder that holds 25% or more of the means of control of one of the merging companies, or a 25% shareholder, holds shares of the other merging company, then a dissenting vote of holders of the majority of the shares of the other merging company present and voting, excluding shares held by the merging company or a 25% shareholder thereof, or by anyone acting on behalf of either of them, their relatives and corporations controlled thereby, is sufficient to reject the merger transaction. Means of control are defined as any of the following: (i) the right to vote at a general meeting of a company; and (ii) the right to appoint a director of a company. If the transaction would have been approved but for the exclusion of the votes as previously indicated, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of the company. The court will not approve a merger unless it is convinced that the merger is fair and reasonable, taking into account the values of the merging companies and the consideration offered to the shareholders. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the merged company. In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.

Notwithstanding the foregoing, a merger is not subject to the approval of the shareholders of the target company if the target company is a wholly-owned subsidiary of the surviving company. A merger is not subject to the approval of the shareholders of the surviving company if:

·	the merger does not require the alteration of the memorandum or articles of association of the surviving company;

·	the acquiring company would not issue more than 20% of the voting rights thereof to the shareholders of the target company in the course of the merger and no person will become, as a result of the merger, a controlling shareholder of the surviving company, on a fully diluted basis;

·	neither the target company, nor any shareholder that holds 25% of the means of control of the target company is a shareholder of the surviving company; and

·	there is no person that holds 25% or more of the means of control in both companies.

Disclosure of Shareholders’ Ownership

The Israeli Securities Law, 5728-1968 and regulations promulgated thereunder contain various provisions regarding the ownership threshold above which shareholders must disclose their share ownership. However, these provisions do not apply to companies, such as ours, whose shares are publicly traded in Israel as well as outside of Israel. As a result of the listing of our ordinary shares on the Tel Aviv Stock Exchange, we are required pursuant to the Israeli Securities Law and the regulations promulgated thereunder to deliver to the Israeli Share Registrar, the Israeli Securities Exchange Commission and the Tel Aviv Stock Exchange, all reports, documents, forms and information received by us from our shareholders regarding their shareholdings, provided that such information was published or required to be published under applicable foreign law.

C. Material Contracts

On March 14, 2012 we entered into a definitive merger agreement with Avaya, a global provider of business communications and collaboration systems and services, and Sonic, a wholly-owned indirect subsidiary of Avaya. Pursuant to the terms of the merger agreement, Sonic will merge with and into our company, with our company continuing as the surviving corporation. We will become a wholly-owned subsidiary of Avaya and our ordinary shares will cease to be traded on NASDAQ and the TASE. Each of our ordinary shares issued and outstanding at the effective time of the merger (other than ordinary shares held by us, Avaya or Sonic) will automatically be converted into the right to receive a payment in cash, without interest and less any applicable withholding tax, equal to $11.85. The merger is valued at approximately $230 million.

The merger, which was approved by the board of directors of both companies, is subject to the approval of our shareholders, as well as customary closing conditions. We have called for an Extraordinary General Meeting of Shareholders to take place on April 30, 2012 to vote on the approval of the merger agreement and the merger, among other items. The approval requires the affirmative vote of the holders of a majority of the ordinary shares present (in person or by proxy) at the meeting and voting on such matter (not including abstentions and broker non-votes).

There is no financing condition to the obligations of Avaya to consummate the transaction and it is currently anticipated that the transaction will be consummated within 90 days of the signing of the merger agreement. Holders of an aggregate of approximately 33.34% of our outstanding shares have entered into voting agreements with Avaya under which they have generally agreed, among other things, to vote all of the ordinary shares owned by them in favor of the approval of the merger agreement, the merger and the other transactions contemplated thereby and against any alternative transaction.

While we have numerous contracts with customers, resellers and distributors we do not deem any such individual contract to be material.

D. Exchange Controls

The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our Memorandum of Association or Articles of Association or by the laws of the State of Israel.

Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under such law, and enabled Israeli citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israeli currencies. Also, there are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding some transactions. However, legislation remains in effect under which currency controls can be imposed by administrative action at any time.

Non-residents of Israel, other than citizens of countries that are in a state of war with Israel, who purchase our ordinary shares will be able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, into freely repatriable dollars, at the exchange rate prevailing at the time of conversion, provided that the Israeli income tax has been withheld (or paid) with respect to such amounts or an exemption has been obtained.

E. Taxation

The following is a discussion of Israeli and United States tax consequences material to our shareholders. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.

You are urged to consult your own tax advisor as to the Israeli, United States and other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any non-Israeli, state or local taxes.

Israeli Tax Considerations

The following is a summary of the principal Israeli tax laws, applicable to us, of the Israeli Government programs from which we benefit and of Israeli foreign exchange regulations. This section also contains a discussion of material Israeli tax consequences to our shareholders who are not residents or citizens of Israel. This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances, or to some types of investors subject to special treatment under Israeli law. Examples of investors subject to special treatment under Israeli law include residents of Israel, traders in securities, or persons who own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on new tax legislation that has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax consequences.

General Corporate Tax Structure

Israeli companies were generally subject to corporate tax at the rate of 24% in 2011. On December 5, 2011, the Israeli Parliament, or the Knesset, passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Tax Burden Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate and increases the corporate tax rate and capital gains tax to 25% in 2012 and thereafter.

Tax Benefits under the Law for the Encouragement of Capital Investments, 1959

We had two capital investment programs that were granted “Approved Enterprise” status under the Investment Law which expired in 2009 and in 2011, and two programs that qualify as “Beneficiary Enterprises” pursuant to an amendment to the Investment Law that came into effect on April 1, 2005. One of the Beneficiary Enterprise programs was converted from a previously Approved Enterprise program pursuant to the approval of the Israel Tax Authority that we received in October 2007.

Prior to an April 2005 amendment to the Investment Law, the Investment Law provided that capital investments in a production facility (or other eligible assets) may be designated as an Approved Enterprise upon prior approval from the Investment Center of the Israel Ministry of Industry, Trade and Labor, or the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. If a company has more than one approval or only a portion of its capital investment is approved, its effective tax rate is the result of a weighted combination of the applicable rates.

The April 2005 amendment to the Investment Law revised the criteria for investment programs qualified to receive tax benefits, which, if qualified, are referred to as a “Beneficiary Enterprise” (rather than the previous terminology of “Approved Enterprise”). Companies that meet the specified criteria will receive the tax benefits without need for prior approval and instead, a company may claim the tax benefits offered by the Investment Law directly in its tax returns. Among other things, the April 2005 amendment provides tax benefits to both local and foreign investors. The period of tax benefits for a new Beneficiary Enterprise commences in the year that is the later of: (i) the year in which taxable income is first generated by a company, or (ii) a year selected by the company for commencement, on the condition that the company meets certain provisions provided by the Investment Law. The amendment does not apply to investment programs approved on or prior to March 31, 2005 and applies only to new investment programs. We began to generate income under the provision of the amendment as of the beginning of 2006.

Tax benefits are available under the April 2005 amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export. In order to receive the tax benefits, the April 2005 amendment states that the company must make an investment in the Beneficiary Enterprise exceeding a certain percentage or a minimum amount specified in the Investment Law. Such investment may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to the Beneficiary Enterprise, referred to as the "Year of Election." Where the company requests to have the tax benefits apply to an expansion of existing facilities, then only the expansion will be considered a Beneficiary Enterprise and the company’s effective tax rate will be the result of a weighted average of the applicable rates. In such case, the minimum investment required in order to qualify as a Beneficiary Enterprise is required to exceed a certain percentage or a minimum amount of the company’s production assets at the end of the year before the expansion.

The amended Investment Law specifies certain conditions that a Beneficiary Enterprise has to comply with in order to be entitled to benefits. These conditions include among others:

·	that the Beneficiary Enterprise’s revenues during the applicable tax year from any single market (i.e. country or a separate customs territory) do not exceed 75% of the Beneficiary Enterprise’s aggregate revenues during such year; or

·	that 25% or more of the Beneficiary Enterprise’s revenues during the applicable tax year are generated from sales into a single market (i.e. country or a separate customs territory) with a population of at least 12 million residents.

A company that owns an Approved Enterprise is eligible for governmental grants, but may elect to receive an alternative package comprised of tax benefits, referred to as the “alternative track.” Under the alternative track, a company’s undistributed income derived from an Approved Enterprise is exempt from corporate tax for an initial period (two to ten years, depending on the geographic location of the Approved Enterprise and Beneficiary Enterprise within Israel). The exemption begins in the first year that the company realizes taxable income from the Approved Enterprise. The benefits for a Beneficiary Enterprise are similar to the "alternative track" of an Approved Enterprise.

After expiration of the initial tax exemption period, the company is eligible for a reduced corporate tax rate of 15% to 25% for the following five to eight years, depending on the extent of foreign investment in the company (as shown in the table below). The benefits period is limited to 12 years from the commencement of Year of Election. A company in which more than 25% of the shareholders are non-residents of Israel, defined under the Investment Law as a Foreign Investors Company, may be eligible for benefits for an extended period of up to ten years.

The tax benefits under the Investment Law relate only to taxable income attributable to the specific Approved Enterprise and/or Beneficiary Enterprise. To the extent we have more than one Approved Enterprise and/or Beneficiary Enterprise or only a portion of our capital investments are derived from approved or Beneficiary Enterprises, our effective tax rate will be the result of a weighted combination of the applicable rates.

Percent of Foreign Ownership	Rate of Reduced Tax	Reduced Tax Period	Tax Exemption Period
0-25%	25%	5 years	2 years
25-49%	25%	8 years	2 years
49-74%	20%	8 years	2 years
74-90%	15%	8 years	2 years
90-100%	10%	8 years	2 years

If a company distributes dividends or completes a liquidation from tax-exempt Approved Enterprise and/or Beneficiary Enterprise income, the company will be taxed on the otherwise exempt income at the same reduced corporate tax rate that applies to it after the initial exemption period. Distribution of dividends or completion of a liquidation derived from Approved Enterprise and Beneficiary Enterprise income that was taxed at reduced rates, but not tax exempt, does not result in additional tax consequences to the company. Shareholders who receive dividends derived from Approved Enterprise and Beneficiary Enterprise income are generally taxed at a rate of 15 %, which is withheld and paid by the company paying the dividend, if the dividend is distributed during the benefits period or within the following 12 years (but the 12-year limitation does not apply to a Foreign Investors Company).

The benefits available to an Approved Enterprise program and a Beneficiary Enterprise program are dependent upon the fulfillment of conditions stipulated in the Investment Law and related regulations (which include making specified investments in property and equipment, and financing a percentage of these investments with share capital) and, for our Beneficiary Enterprises, the conditions contained in a pre-ruling that we received from the Israeli Tax Authority in October 2007. If we do not fulfill these conditions, in whole or in part, the benefits can be cancelled and we may be required to refund the amount of the benefits, linked to the Israeli consumer price index plus interest.

In 2011, due to the acquisition of certain assets from Aethra, we did not comply with all of the conditions stipulated in the pre-ruling that we received from the Israeli Tax Authority in October 2007. Therefore, on May 22, 2011 we submitted an application to the Israeli Tax Authority in respect to our acquisition of certain assets from Aethra. The Aethra acquisition and the provisions of such ruling may affect the tax benefits afforded to us under our Approved Enterprise and Beneficiary Enterprise programs. As of the date of this annual report, we have not received any ruling from the Israeli Tax Authority regarding such application.

We have derived, and expect to continue to derive, a substantial portion of our operating income from our Approved Enterprise and Beneficiary Enterprise facilities. We are therefore eligible for a tax exemption from income for two years, which is allocated to each of the programs on undistributed Approved Enterprise and Beneficiary Enterprise income, and an additional subsequent period of reduced corporate tax rates ranging between 10% and 25%, depending on the level of foreign ownership of our shares. The tax benefits attributable to our current Approved Enterprises and Beneficiary Enterprises are scheduled to expire in phases between 2009 and 2017. We intend to reinvest the entire amount of our tax-exempt income and not to distribute such income as a dividend.

In December 2010, the Knesset passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which, among other things, include amendment to the Investment Law, effective as of January 1, 2011. According to the amendment, the benefit tracks under the Investment Law were modified and a uniform tax rate will apply to companies eligible for the "Preferred Enterprise" status. In order to be eligible for preferred enterprise status, a company must meet minimum requirements to establish that it contributes to the country's economic growth and is a competitive factor for the gross domestic product. Companies may elect to irrevocably implement the amendment (while waiving benefits provided under the Investment Law in effect prior to 2011) and subsequently would be subject to the amended tax rates as follows: in peripheral regions (Development Area A) the reduced tax rate is 10% in 2011 and 2012 and is scheduled to be 7% in 2013 and 2014 and 6% starting from 2015. In other regions the tax rate is 15% in 2011 and 2012 and is scheduled to be 12.5% in 2013 and 2014 and 12% starting from 2015. Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the applicable reduced tax rates.

A distribution from a Preferred Enterprise out of the “Preferred Income” would be subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates). A distribution from a Preferred Enterprise out of the “Preferred Income” would be exempt from withholding tax for an Israeli-resident company. A company electing to waive its Privileged Enterprise or Approved Enterprise status through June 30, 2015 may distribute “Approved Income” or “Income” subject to 15% withholding tax for Israeli resident individuals and non-Israeli residents (subject to applicable treaty rates) and exempt from withholding tax for an Israeli-resident company. Nonetheless, a distribution from income exempt under Privileged Enterprise and Approved Enterprise programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Privileged Enterprise and Approved Enterprise programs upon distribution, or complete liquidation in the case of a Privileged Enterprise’s exempt income.

We are examining the possible effect of this amendment on our financial statements, if at all, and at this time have not yet decided whether to irrevocably implement the amendment.

Tax Benefits for Research and Development

Israeli tax law permits, under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, if the expenditures are approved by the relevant Israeli government ministry, determined by the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf of the company seeking such deduction. Expenditures not so approved are deductible over a three-year period. However, expenditures from proceeds made available to us through government grants are not deductible according to Israeli law.

Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969

According to the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law, an Industrial Company is a company resident in Israel, at least 90% of the income of which, in a given tax year, determined in Israeli currency (exclusive of income from some government loans, capital gains, interest and dividends), is derived from an industrial enterprise owned by it. An “industrial enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production activity.

Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferred corporate tax benefits:

·	amortization of purchases of acquired technology, the cost of know–how and patents over an eight-year period for tax purposes;

·	amortization of specified expenses incurred in connection with a public issuance of securities over a three-year period for tax purposes;

·	right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies; and

·	accelerated depreciation rates on equipment and buildings.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We cannot assure you that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in the future.

Taxation of our Shareholders

The Tax Burden Law also increased the tax rate on dividend and capital gains by 5%. As such, beginning in 2012, dividend paid to a non–Israeli resident and to Israeli individuals, will be subject to a rate of 25%-30% depending on ownership percentage, unless reduced by an applicable tax treaty.

Taxation of Israeli Shareholders

Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, other than bonus shares (share dividends) or stock dividends, at the rate of 25%, or 30% for a shareholder that is considered a significant shareholder (within the meaning of the Israeli Income Tax Ordinance, which is a shareholder that holds directly or indirectly, including with others, at least 10% of any means of control in the company ) at any time during the 12-month period preceding such distribution. Dividends paid on our ordinary shares to Israeli companies are exempt from such tax, except for dividends distributed from income derived outside of Israel, which are subject to the 25% tax rate.

Dividends paid from income derived from any of our Approved Enterprises or Beneficiary Enterprises are subject to tax, which is withheld at the source, at the rate of 15% (also for Israeli companies), although we cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability to this tax rate.

Taxation of Non-Israeli Shareholders

Non-residents of Israeli are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares, at the rates applicable to Israeli residents, which tax will be withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence.

Under the U.S.-Israel Treaty, the maximum Israeli withholding tax on dividends paid by us is 25%. Dividends of an Israeli company distributed from income of an Approved Enterprise or Beneficiary Enterprise are subject to a 15% withholding tax under Israeli law. The U.S.-Israel Tax Treaty further provides for a 12.5% Israeli dividend withholding tax on dividends paid by an Israeli company to a U.S. corporation owning at least 10% or more of such Israeli company’s issued voting power for, in general, the part of the tax year which precedes the date of payment of the dividend and the entire preceding tax year, provided such U.S. corporation meets certain limitations concerning the amount of its dividend and interest income. The lower 12.5% rate applies only to dividends from income not derived from an Approved Enterprise or Beneficiary Enterprise in the applicable period and does not apply if the company has more than 25% of its gross income derived from certain types of passive income. Residents of the United States generally will have withholding tax in Israel deducted at source. They may be entitled to a credit or deduction for U.S. federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in U.S. tax legislation.

Capital gains taxes on sales of our ordinary shares

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel, if those assets are either (i) located in Israel; (ii) are shares or right to shares in an Israeli resident corporation; (iii) represent, directly or indirectly , rights to assets located in Israel unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. As of January 1, 2012, capital gains derived by a non-Israeli residents and Israeli individuals, on most instruments will be subject to tax at a 25%-30% rate unless an exemption is available under domestic law or an applicable tax treaty. The Israeli Tax Ordinance distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain, which is equivalent to the increase of the relevant asset’s purchase price, which is attributable to the increase in the Israeli consumer price index, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.

Taxation of Israeli Residents

The tax rate generally applicable to the capital gains derived from the sale of shares, whether listed on a stock market or not, is 20% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 25%. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of listed shares. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering.

The tax basis of our shares acquired prior to January 1, 2003 will generally be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However, a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.

Taxation of Non-Israeli Residents. Capital gains from the sale of our ordinary shares are exempt from Israeli taxation for non-Israeli shareholders, that: (i) did not acquire their shares prior to our initial public offering; and (ii) such gains did not derive from a permanent establishment of such shareholders in Israel. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of 25% or more in such non-Israeli corporation, or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) and who holds ordinary shares as a capital asset is also exempt from Israeli capital gains tax under the U.S.-Israel Tax Treaty unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel. If the above conditions are not met, the U.S. resident would be subject to Israeli tax, to the extent applicable.

United States Federal Income Tax Consequences

The following discussion summarizes the material U.S. federal income tax considerations applicable to the purchase, ownership and disposition of our ordinary shares. Unless otherwise stated, this summary deals only with shareholders that are U.S. Holders (as defined below) who hold their ordinary shares as capital assets.

As used in this section, the term “U.S. Holder” means a beneficial owner of an ordinary share who is:

·	an individual citizen or resident of the United States or an individual treated as a U.S. citizen or resident 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 or under the laws of the United States, any State or the District of Columbia;

·	an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

any trust if (A)(i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States persons have the authority to control all substantial decisions of the trust, or (B) such trust validly elects to be treated as a United States person.

This description is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the US-Israel Tax Treaty, each as in effect as of the date hereof. These sources may change, possibly with retroactive effect, and are open to differing interpretations. This description does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under U.S. federal income tax law, including:

·	insurance companies;

·	dealers in stocks, securities or currencies;

·	financial institutions and financial services entities;

·	real estate investment trusts;

·	regulated investment companies;

·	persons that receive ordinary shares in connection with the performance of services;

·	tax-exempt organizations;

·	persons that hold ordinary shares as part of a straddle or appreciated financial position or as part of a hedging, conversion or other integrated instrument;

·	persons who acquire their ordinary shares through the exercise or cancellation of employee stock options or otherwise as consideration for their services;

·	individual retirement and other tax-deferred accounts;

·	expatriates of the United States and certain former long-term residents of the United States;

·	persons liable for the alternative minimum tax;

·	persons having a “functional currency” other than the U.S. dollar; and

·	direct, indirect or constructive owners of 10% or more, by voting power or value, of our company.

If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns ordinary shares and the partners in such partnership should consult their tax own advisors about the U.S. federal income tax consequences of holding and disposing of ordinary shares.

This discussion does not consider the possible application of U.S. federal gift or estate tax or alternative minimum tax.

All investors are urged to consult their own tax advisors as to the particular tax consequences to them of an investment in our ordinary shares, including the effect and applicability of United States federal, state, local and foreign income and other tax laws (including estate and gift tax laws) and tax treaties.

Distributions Paid on the Ordinary Shares

Subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally will be required to include in his or her gross income as ordinary dividend income the amount of any distributions paid on the ordinary shares, including the amount of any Israeli taxes withheld, to the extent that those distributions are paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Subject to the discussion below under “Passive Foreign Investment Company Considerations,” distributions in excess of our earnings and profits will be applied against and will reduce the U.S. Holder’s tax basis in its ordinary shares and, to the extent they exceed that tax basis, will be treated as gain from a sale or exchange of those ordinary shares. Our dividends will not qualify for the dividends-received deduction applicable in some cases to U.S. corporations.

Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day will have a foreign currency exchange gain or loss that would be treated as ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.

Subject to certain limitations, “qualified dividend income” received by a noncorporate U.S. Holder in tax years beginning on or before December 31, 2012 will be subject to tax at a reduced maximum tax rate of 15%. Distributions taxable as dividends paid on the ordinary shares should qualify for the 15% rate provided that we are not a passive foreign investment company (see disclosure below) for U.S. tax purposes and that either: (i) we are entitled to benefits under the income tax treaty between the United States and Israel (the “U.S.-Israel Tax Treaty”) or (ii) the ordinary shares are readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits under the U.S.-Israel Tax Treaty and that the ordinary shares currently will be readily tradable on an established securities market in the United States. However, no assurance can be given that the ordinary shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied. With respect to the ordinary shares, the U.S. Holder must have held such shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. The rate reduction also does not apply to dividends received from passive foreign investment companies, see discussion below, or in respect of certain hedged positions or in certain other situations. The legislation enacting the reduced tax rate contains special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to the reduced tax rate. U.S. Holders of ordinary shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.

Foreign Tax Credit

Any dividend income resulting from distributions we pay to a U.S. Holder with respect to the ordinary shares generally will be treated as foreign source income for U.S. foreign tax credit limitation purposes. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from taxable income or credited against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, any dividend that we distribute generally will constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income.” The rules relating to the determination of foreign source income and the foreign tax credit are complex, and the availability of a foreign tax credit depends on numerous factors. Each investor who is a U.S. Holder should consult with its own tax advisor to determine whether and to what extent that investor would be entitled to a foreign tax credit.

Disposition of Ordinary Shares

Upon the sale or other disposition of ordinary shares, subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and the holder’s adjusted tax basis in the ordinary shares. U.S. Holders should consult their own advisors with respect to the tax consequences of the receipt of a currency other than U.S. dollars upon such sale or other disposition.

Gain or loss upon the disposition of the ordinary shares will be treated as long-term if, at the time of the sale or disposition, the ordinary shares were held for more than one year. The deductibility of capital losses by a U.S. Holder is subject to limitations. In general, any gain or loss recognized by a U.S. Holder on the sale or other disposition of ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors concerning the source of income for U.S. foreign tax credit purposes and the effect of the U.S.-Israel Tax Treaty on the source of income.

Passive Foreign Investment Company Considerations

As a result of our substantial cash position, we believe that there is a substantial risk that we qualified as a PFIC during the taxable year ended December 31, 2010, and some prior years, under a literal application of the asset test described above, which looks solely to the market value. We believe that there is also a risk that we qualified as a PFIC during the taxable year ended December 31, 2011. Special U.S. federal income tax rules apply to U.S. Holders owning shares of a PFIC.

For U.S. federal income tax purposes, a non-U.S. corporation will be considered a PFIC for any taxable year in which, after applying certain look-through rules, 75% or more of its gross income consists of specified types of passive income, or 50% or more of the average value of its assets consists of assets that produce, or are held for the production of, passive income. For this purpose, passive income includes generally dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets which produce passive income. As a result of our substantial cash position, we believe that there is a substantial risk that we qualified as a PFIC, for U.S. federal income tax purposes, during the taxable year ended December 31, 2010, and some prior years, under a literal application of the asset test described above, which looks solely to the market value. We believe that there is a risk that we also qualified as a PFIC during the taxable year ended December 31, 2011.

If we were classified as a PFIC at any time in its holding period, a U.S. Holder could be subject to increased tax liability upon the sale or other disposition of ordinary shares or upon the receipt of amounts treated as “excess distributions.” Under these rules, the excess distribution and any gain would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares, and the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the other taxable years would be subject to tax at the highest marginal tax rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed on the resulting tax allocated to such other taxable years. The tax liability with respect to the amount allocated to years prior to the year of the disposition, or “excess distribution,” cannot be offset by any net operating losses. In addition, holders of stock in a PFIC may not receive a “step-up” in basis on shares acquired from a decedent. If we are a PFIC in any year, a U.S. Holder would be required to file an annual return on IRS Form 8621.

The PFIC tax consequences described above will not apply to a U.S. Holder if the U.S. Holder makes an election to treat us as a qualified electing fund, or QEF. If a U.S. Holder makes a timely QEF election, the U.S. Holder would be required to include in income for each taxable year its pro rata share of our ordinary earnings as ordinary income and its pro rata share of our net capital gain as long-term capital gain, whether or not such amounts are actually distributed to the U.S. Holder. However, a U.S. Holder would not be eligible to make a QEF election unless we comply with certain applicable information reporting requirements.

As an alternative to making a QEF election, a U.S. Holder of PFIC stock which is publicly traded may in certain circumstances avoid certain of the tax consequences generally applicable to holders of a PFIC by electing to mark the stock to market annually and recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. Holder’s adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. Income recognized and deductions allowed under the mark-to-market provisions, as well as any gain or loss on the disposition of ordinary shares with respect to which the mark to market election is made, is generally treated as ordinary income or loss (except that loss is treated as capital loss to the extent the loss exceeds the net mark-to-market gains, if any, that a U.S. Holder included in its income with respect to such ordinary shares in prior years). However, gain or loss from the disposition of ordinary shares (as to which a “mark-to-market” election was made) in a year in which we are no longer a PFIC, will be capital gain or loss. The mark-to-market election is available for so long as our ordinary shares constitute “marketable stock,” which includes stock of a PFIC that is “regularly traded” on a “qualified exchange or other market.” Generally, a “qualified exchange or other market” includes a national securities exchange that is registered with the SEC or the national market system established pursuant to Section 11A of the Securities Exchange Act of 1934. A class of stock that is traded on one or more qualified exchanges or other markets is “regularly traded” on an exchange or market for any calendar year during which that class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. We believe that the NASDAQ Global Select Market will constitute a qualified exchange or other market for this purpose. However, we cannot be certain that our ordinary shares will continue to trade on the NASDAQ Global Select Market or that the ordinary shares will be regularly traded for this purpose.

If we ceased to be a PFIC in 2011 (which is possible, but no assurance can be given in this regard), a U.S. Holder may make a “purging” election under Section 1298(b)(1) of the Code to mark the ordinary shares to market as of December 31, 2010. Any resulting gain would be treated as an excess distribution in 2010.

The rules applicable to owning shares of a PFIC are complex, and each holder who is a U.S. Holder should consult with its own tax advisor regarding the consequences of investing in a PFIC.

Additional Tax on Investment Income

In addition to the taxes on dividends and dispositions of our ordinary shares described above, recently enacted legislation requires certain U.S. Holders that are individuals, estates or trusts to pay up to an additional 3.8% tax on net investment income, which may include dividends and capital gains, for taxable years beginning after December 31, 2012.

Information Reporting and Backup Withholding

Payments in respect of ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and to U.S. backup withholding tax at the rate(currently) of 28%. Backup withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.

Beginning with the 2011 tax year, U.S. individuals that hold certain specified foreign financial assets, including stock in a foreign corporation, with values in excess of certain thresholds are required to file Form 8938 with their U.S. Federal income tax return. Such Form requires disclosure of information concerning such foreign assets, including the value of the assets. Failure to file the form when required is subject to penalties. An exemption from reporting applies to foreign assets held through a U.S. financial institution, generally including a non-U.S. branch or subsidiary of a U.S. institution and a U.S. branch of a non-US institution. Investors are encouraged to consult with their own tax advisors regarding the possible application of this disclosure requirement to their investment in ordinary shares.

Any U.S. holder who holds 10% or more in vote or value of our ordinary shares may be subject to certain additional U.S. information reporting requirements.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to certain of the reporting requirements of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file with the SEC an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also submit to the SEC reports on Form 6-K containing (among other things) press releases and unaudited financial information. We post our annual report on Form 20-F and quarterly unaudited financial statements filed on Form 6-K on our website (www.radvision.com) promptly following the filing of such reports with the SEC. The information on our website is not incorporated by reference into this annual report.

100

This annual report and the exhibits thereto and any other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the SEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Securities and Exchange Commission’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. The Exchange Act file number for our SEC filings is 0-29871.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.

The documents concerning our company that are referred to in this annual report may also be inspected at our offices located at 24 Raoul Wallenberg Street, Tel Aviv 69719, Israel.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to a variety of risks, including changes in interest rates and foreign currency fluctuations. We are exposed to market risks arising primarily from weak economic conditions in the markets in which we sell our products and from changes in exchange rates or interest rates.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment in Short-term bank deposits and marketable securities. As of December 31, 2011, the vast majority of this amount was linked to the U.S. dollar. The table below details our balance sheet exposure.

The securities in our portfolio are rated at the least as A1. Securities representing about 23% of our marketable securities portfolio are rated as AAA. The table below details our balance sheet exposure:

Expected Maturity Dates
	2012		2013		2014		2015		2016 and thereafter
	(in thousands)
Marketable securities		12,785		20,119		14,244		-		-
Auction rate securities(*)		-		-		-		-		1,042

(*) The balance is comprised of four auction rate securities, which have suffered from failed auctions since September 2007. As a result of the auction failures these auction rate securities do not have a readily determinable market value. As such, since 2008, we obtain a third party valuation to determine the fair values of these securities. The maturity dates for these securities are between 2036 and 2052.

101

Foreign Currency Exchange Risk

We develop products in Israel and sell them in the Americas, the Asia-Pacific region and in the Europe, Middle East and Africa region. As a result our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.

Most of our revenues generated outside of the United States are denominated in U.S. dollars. Costs not effectively denominated in U.S. dollars are re-measured into U.S. dollars, when recorded, at the prevailing exchange rates at the date of the transaction. Consequently, fluctuations in the rates of exchange between the U.S. dollar and non-U.S. dollar currencies affect our results of operations. An increase in the value of a particular currency relative to the U.S. dollar will increase the dollar reporting value for transactions in that particular currency, and a decrease in the value of that currency relative to the U.S. dollar will decrease the dollar reporting value for those transactions.

Since most of our sales are quoted in dollars, and a portion of our expenses are incurred in NIS and Euro, our results may be adversely affected by the appreciation of the NIS and Euro against the U.S. dollar or by a change in the rate of inflation in Israel or if such change in the rate of inflation is not offset, or is offset on a lagging basis, by a corresponding depreciation of the NIS and Euro against the U.S. dollar and other foreign currencies. In 2011 the NIS depreciated by approximately 7.7%, while in 2009 and 2010, the NIS appreciated by approximately 0.7% and 6.0%, respectively, against the U.S. dollar. In 2009, 2010 and 2011, the annual inflation rate in Israel was approximately 3.9%, 2.7% and 2.2%, respectively.

To manage this risk, from time to time, we have entered into forward exchange contracts to hedge some of our foreign currency exposure. During the year ended December 31, 2011, we recognized net income of $299,000 related to the effective portion of our hedging instruments. The effective portion of the hedged instruments was included as an offset of payroll expenses in the statement of operations. During the year ended December 31, 2011, we recorded a loss of $ 1 due to ineffectiveness of payroll hedging activities in financial income, net. As of December 31, 2011, we had outstanding forward exchange contracts for the acquisition of NIS 3.7 million in consideration for $1.0 million matured in January 2012. As of December 31, 2011, the changes in fair value of these contracts were a loss of $50,000.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

None.

102

Use of Proceeds

We sold 4,370,000 of our ordinary shares in our initial public offering on March 14, 2000. The aggregate offering price of the shares sold was $87.4 million. The total expenses of the offering were approximately $8,950,000. None of such expenses were paid directly or indirectly to directors, officers, persons owning 10% or more of any class of equity securities of our company or to our affiliates. The net public offering proceeds to us, after deducting the total expenses were approximately $78,500,000. Such proceeds have been invested in liquid investments and short-term bank deposits and have been used for working capital purposes. As of December 31, 2011, we had $42.4 million in cash, cash equivalents and short-term bank deposits.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure. Our management, including our chief executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of the end of the period covered by this Annual Report on Form 20-F. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Management's Annual Report on Internal Control over Financial Reporting

Our management, including our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In conducting its assessment of internal control over financial reporting, management based its evaluation on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations, or the COSO, of the Treadway Commission. Based on that assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2011.

The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent registered public accounting firm that audited and reported on our consolidated financial statements for the year ended December 31, 2011. The attestation report of our independent registered public accounting firm is set forth on page F-3 of our audited consolidated financial statements set forth in Item 18 “Financial Statements,” and is incorporated herein by reference.

103

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 16. RESERVED.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Joseph Atsmon, an outside director and the Chairman of our Audit Committee, qualifies as an audit committee financial expert, as defined by rules of the SEC. For a brief description of Mr. Atsmon’s relevant experience, see Item 6.A. “Directors, Senior Management and Employees - Directors and Senior Management.”

ITEM 16B. CODE OF ETHICS

We have adopted a Code of Business Conduct and Ethics that applies to our executive and financial officers and all of our employees. The Code of Business Conduct and Ethics is publicly available on our website at www.radvision.com and we will provide shareholders with a written copy upon request. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of these codes to our chief executive officer, chief financial officer or corporate controller, we will disclose the nature of such amendment or waiver on our website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Registered Public Accounting Firm Fees

The following table sets forth, for each of the years indicated, the fees billed by our independent registered public accounting firm. All such fees were pre-approved by our Audit Committee.

	Year ended December 31,
Services Rendered	2010			2011
Audit (1)	$	295,500		$	215,000
Tax (2)		65,974			65,687
Other		49,790	(3)		-
Total	$	411,264		$	280,687

______________

(1)

Audit fees are for audit services for each of the years shown in the table, including fees associated with the annual audit (including audit of our internal control over financial reporting) and reviews of our quarterly financial results submitted to the SEC on Form 6-K, consultations on various accounting issues and audit services provided in connection with other statutory or regulatory filings.

(2)

Tax fees relate to services performed by the tax division for tax compliance, tax planning, and tax advice related to actual or contemplated transactions, review of our tax returns and tax consulting associated with international transfer prices.

(3)

Other fees in 2010 relate to services performed in connection with the Aethra asset acquisition, including due diligence and tax advice relating to the acquisition.

104

Pre-Approval Policies and Procedures

Our Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accountants, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. The policy generally pre-approves certain specific services in the categories of audit services, audit-related services and tax services up to specified amounts, and sets requirements for specific case-by-case pre-approval of certain projects, those which may have a material effect on our operations or services over certain amounts. Pre-approval may be given as part of the Audit Committee’s approval of the scope of the engagement of our independent registered public accountants or on an individual basis. Any proposed services exceeding general pre-approved levels also require specific pre-approval by our Audit Committee. The pre-approval of services is sometimes delegated to one or more of the Audit Committee’s members, but the decision must be presented to the full Audit Committee at its next scheduled meeting. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit services defined in Section 201 of the Sarbanes-Oxley Act or the rules of the SEC, and also considers whether proposed services are compatible with the independence of the registered public accountants.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the third quarter of 2007, our Board of Directors authorized the repurchase of up to $30 million of our ordinary shares in the open market from time to time at prevailing market prices (the Repurchase Program). In November 2007, the Repurchase Program received the approval of the District Court in Tel Aviv - Jaffa in accordance with the requirements of the Israeli Companies Law. As of December 31, 2011, we had repurchased 3,564,360 ordinary shares under the Repurchase Program at a total purchase price of approximately $27.3 million, or an average price of $7.66 per share. In 2011, we purchased 404,138 ordinary shares at a total purchase price of approximately $3.9 million, or an average price of $9.55 per share.

On September 7, 2010, we completed a self-tender offer, under the Repurchase Program, to purchase 5.0% of our voting power, or 976,906 of our ordinary shares, for $7.30 per share, net in cash, less any required withholding taxes and without interest. We paid an aggregate of approximately $7.13 million for the tendered shares accepted for purchase.

The following table sets forth, for each of the months indicated, the total number of shares purchased by us under the Repurchase Program, the average price paid per share, the number of shares purchased as part of our publicly announced repurchase programs, the maximum number of shares that may yet be purchased under the programs.

Period in 2011	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January		-		-		-		6,579,562
February		81,848	$	11.31		3,242,070		5,653,578
March		117,250	$	11.16		3,359,320		4,345,559
April		-		-		-		4,345,559
May		29,227	$	9.47		3,388,547		4,068,769
June		100,667	$	8.97		3,489,214		3,166,130
July		-		-		-		3,166,130
August		46,850	$	5.99		3,536,064		2,885,482
September		28,296	$	5.86		3.564,360		2,719,715
October		-		-		-		2,719,715
November		-		-		-		2,719,715
December		-		-		-		2,719,715

105

ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

Under NASDAQ Listing Rule 5615(a)(3), foreign private issuers, such as our company, are permitted to follow certain home country corporate governance practices instead of certain provisions of the NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of any of such NASDAQ rules must submit to NASDAQ, in advance, a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.

On May 12, 2008, we provided NASDAQ with a notice of non-compliance with respect to the requirement to obtain shareholder approval for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Under Israeli law and practice, the approval of the board of directors is required for the establishment or amendment of equity based compensation plans. For the approvals and procedures required under Israeli law and practice for an issuance that will result in a change of control of the company, private placements and acquisitions of the stock or assets of another company, see in this Item 6.C. “Directors, Senior Management and Employee - Board Practices - Approval of Related Party Transactions Under Israeli Law-Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders” and Item 10.B. “Additional Information -- Memorandum and Articles of Association - Provisions Restricting Change in Control of Our Company.”

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

106

ITEM 18. FINANCIAL STATEMENTS

Consolidated Financial Statements

	Page

Reports of Independent Registered Public Accounting Firm	F-2 - F-4

Consolidated Balance Sheets	F-5 - F-6

Consolidated Statements of Operations	F-7

Statements of Changes in Shareholders' Equity	F-8 - F-9

Consolidated Statements of Cash Flows	F-10 - F-11

Notes to Consolidated Financial Statements	F-12- F-55

Schedule II	104

107

ITEM 12. EXHIBITS

Exhibit Description

1.1

Memorandum of Association of the Registrant (1)

1.2

Articles of Association of the Registrant, as amended(2)

2.1

Form of Ordinary Share Certificate(1)

4.1

Form of 2000 Employee Stock Option Plan (3)

4.2

Key Employee Share Incentive Plan, as amended(1)

4.3

Consultant Option Plan, as amended(1)

4.4

Merger Agreement with Avaya dated March 14, 2012(2)

8.1

List of Subsidiaries of the Registrant

12.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended

12.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended

13.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1

Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

___________________

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(1)

Filed as an exhibit to our registration statement on Form F-1, registration number 333-30916, as amended, filed with the SEC, and incorporated herein by reference.

(2)

Filed as an exhibit to our Report on Form 6-K for the month of March 2012 submitted on March 19, 2012, and incorporated herein by reference.

(3)

Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC, and incorporated herein by reference.

108

RADVISION Ltd. and Subsidiaries

Schedule II—Valuation and Qualifying Account

Column A	Column B		Column C				Column D						Column E
			Additions				Deductions
	Balance at Beginning of period		Charged to costs and expenses		Charged to shareholders equity		Due to write offs		Charged to costs and expenses		Charged to shareholders equity		Balance at end of period
Year ended December 31, 2011:
Allowance for doubtful accounts		1,520,000		481,000		-		-		43,000		-		1,958,000
Provision for slow-moving inventory or technological obsolescence		972,000		530,000		-		76,000		-		-		1,426,000
Deferred taxes valuation allowances		7,537,000		5,952,000		-		-		-		396,000		13,093,000
Total	$	10,124,000		6,963,000		-		76,000		43,000		396,000		17,602,000
Year ended December 31, 2010:
Allowance for doubtful accounts		1,471,000		67,000		-		18,000		-		-		1,520,000
Provision for slow-moving inventory or technological obsolescence		804,000		444,000		-		182,000		94,000		-		972,000
Deferred taxes valuation allowances		7,705,000		329,000		-		-		-		497,000		7,537,000
Total	$	9,980,000	$	935,000	$	-	$	200,000	$	94,000	$	497,000	$	10,124,000
Year ended December 31, 2009:
Allowance for doubtful accounts		927,000		580,000		-		36,000		-		-		1,471,000
Provision for slow-moving inventory or technological obsolescence		744,000		366,000		-		244,000		62,000		-		804,000
Deferred taxes valuation allowances		672,000		7,600,000		-		-		-		567,000		7,705,000
Total	$	2,343,000	$	8,546,000	$	-	$	280,000	$	62,000	$	567,000	$	9,980,000

109

RADVISION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

U.S. DOLLARS IN THOUSANDS

INDEX

	Page

Reports of Independent Registered Public Accounting Firm	F-2 - F-4

Consolidated Balance Sheets	F-5 - F-6

Consolidated Statements of Operations	F-7

Statements of Changes in Shareholders' Equity	F-8 - F-9

Consolidated Statements of Cash Flows	F-10 - F-11

Notes to Consolidated Financial Statements	F-12- F-55

Kost Forer Gabbay & Kasierer

3 Aminadav St.

Tel-Aviv 67067, Israel

Tel: 972 (3)6232525

Fax: 972 (3)5622555

www.ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

RADVISION LTD.

We have audited the accompanying consolidated balance sheets of RADVISION Ltd. ("the Company") and its subsidiaries as of December 31, 2010 and 2011, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the accompanying financial statement Schedule II listed in the Index in Item 18. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the accompanying financial statement Schedule II listed in the Index in Item 18, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 23, 2012 expressed an unqualified opinion thereon.

As discussed in Note 2e to the consolidated financial statements, effective April 1, 2009, the Company changed its method of accounting for recognition and measurement of other-than-temporary losses on debt securities.

	/s/ Kost Forer Gabbay & Kasierer
Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
April 23 , 2012	A Member of Ernst & Young Global

F - 2

Kost Forer Gabbay & Kasierer

3 Aminadav St.

Tel-Aviv 67067, Israel

Tel: 972 (3)6232525

Fax: 972 (3)5622555

www.ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

RADVISION LTD.

We have audited RADVISION Ltd.'s ("the Company") and its subsidiaries' internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("the COSO criteria"). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F - 3

Kost Forer Gabbay & Kasierer

3 Aminadav St.

Tel-Aviv 67067, Israel

Tel: 972 (3)6232525

Fax: 972 (3)5622555

www.ey.com

In our opinion, the Company and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company and its subsidiaries as of December 31, 2010 and 2011, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the accompanying financial statement Schedule II listed in the Index in item 18. Our report dated April 23, 2012 expressed an unqualified opinion thereon.

	/s/ Kost Forer Gabbay & Kasierer
Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
April 23 , 2012	A Member of Ernst & Young Global

F - 4

RADVISION LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2010		2011

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	17,753	$	19,710
Short-term bank deposits		47,792		22,690
Short-term marketable securities		14,897		12,785
Trade receivables (net of allowance for doubtful accounts of $ 1,520 and $ 1,958 as of December 31, 2010 and 2011, respectively)		15,137		18,495
Other accounts receivable and prepaid expenses		7,083		6,129
Inventories		2,556		2,216

Total current assets		105,218		82,025

NON-CURRENT ASSETS:
Marketable securities		35,943		35,405
Prepaid expenses		1,055		258
Severance pay fund		7,662		7,260
Deferred tax asset, net		1,488		733

Total non-current assets		46,148		43,656

PROPERTY AND EQUIPMENT, NET		4,573		4,194

GOODWILL		4,747		4,747

OTHER INTANGIBLE ASSETS, NET		4,925		3,163

Total assets	$	165,611	$	137,785

The accompanying notes are an integral part of the consolidated financial statements.

F - 5

RADVISION LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share data

	December 31,
	2010			2011

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables	$	3,499		$	3,137
Deferred revenues		7,938			7,868
Accrued expenses and other accounts payable		19,057			15,035

Total current liabilities		30,494			26,040

ACCRUED SEVERANCE PAY		8,776			8,956

Total liabilities		39,270			34,996

SHAREHOLDERS' EQUITY:
Share capital-
Ordinary shares of NIS 0.1 par value -
Authorized: 45,000,000 shares as of December 31, 2010 and 2011; Issued: 22,516,223 shares as of December 31, 2010 and 2011; Outstanding: 18,565,949 and 18,435,699 shares as of December 31, 2010 and 2011, respectively		234			234
Additional paid-in capital		149,121			151,554
Treasury stock (3,950,274 and 4,080,524 Ordinary shares as of December 31, 2010 and 2011, respectively)		(39,745	)		(40,747	)
Accumulated other comprehensive loss		(276	)		(742	)
Retained earnings (Accumulated deficit)		17,007			(7,510	)

Total shareholders' equity		126,341			102,789

Total liabilities and shareholders' equity	$	165,611		$	137,785

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

RADVISION LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except per share data

	Year ended December 31,
	2009			2010			2011

Revenues:
Products	$	52,199		$	67,051		$	48,030
License and royalties		13,374			11,135			11,261
Services		15,425			17,053			18,667

Total revenues		80,998			95,239			77,958

Cost of revenues:
Products		12,375			20,600			20,114
Services		4,996			5,657			4,865

Total cost of revenues		17,371			26,257			24,979

Gross profit		63,627			68,982			52,979

Operating costs and expenses:
Research and development		26,980			30,937			31,944
Selling and marketing		27,577			31,740			36,111
General and administrative		5,493			6,057			5,701
Acquisition-related restructuring expenses, net		-			2,722			105
Acquisition-related costs		580			364			806

Total operating costs and expenses		60,630			71,820			74,667

Operating income (loss)		2,997			(2,838	)		(21,688	)
Financial income, net		1,719			1,000			920

Income (loss) before taxes on income		4,716			(1,838	)		(20,768	)
Taxes on income		5,490			1,586			2,655

Net loss	$	(774	)	$	(3,424	)	$	(23,423	)

Basic and diluted net loss per Ordinary share	$	(0.04	)	$	(0.18	)	$	(1.27	)

The accompanying notes are an integral part of the consolidated financial statements.

F - 7

RADVISION LTD.

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands, except share data

											Accumulated other						Retained
						Additional					comprehensive			Total			Earnings			Total
	Ordinary shares					paid-in		Treasury			income			comprehensive			(Accumulated			shareholders'
	Number			Amount		Capital		stock			(loss)*)			loss			deficit)			equity

Balance as of January 1, 2009		19,632,713		$	234	$	141,107	$	(32,733	)	$	348					$	20,627		$	129,583
Tax benefit related to exercise of stock options		-			-		567		-			-						-			567
Purchase of treasury shares		(204,833	)		-		-		(1,141	)		-						-			(1,141	)
Exercise of share options by employees		81,500			-		-		904			-						(458	)		446
Stock-based compensation		-			-		4,324		-			-						-			4,324
Other comprehensive loss:
Changes in fair value of cash flow hedge		-			-		-		-			(186	)	$	(186	)		-			(186	)
Accumulated effect of adoption of new accounting standard (Note 2e)		-			-		-		-			(1,198	)		-			1,198			-
Unrealized gain from available-for-sale marketable securities		-			-		-		-			194			194			-			194
Net loss		-			-		-		-			-			(774	)		(774	)		(774	)
Total comprehensive loss														$	(766	)

Balance as of December 31, 2009		19,509,380			234		145,998		(32,970	)		(842	)					20,593			133,013
Tax benefit related to exercise of stock options		-			-		497		-			-						-			497
Purchase of treasury shares		(976,906	)		-		-		(7,131	)		-						-			(7,131	)
Exercise of share options by employees		33,475			-		-		356			-						(162	)		194
Stock-based compensation		-			-		2,626		-			-						-			2,626
Other comprehensive loss:
Changes in fair value of cash flow hedge		-			-		-		-			317		$	317			-			317
Unrealized gain from available-for-sale marketable securities		-			-		-		-			249			249			-			249
Net loss		-			-		-		-			-			(3,424	)		(3,424	)		(3,424	)
Total comprehensive loss														$	(2,858	)

Balance as of December 31, 2010		18,565,949			234		149,121		(39,745	)		(276	)					17,007			126,341
Tax benefit related to exercise of stock options		-			-		396		-			-						-			396
Purchase of treasury shares		(404,138	)		-		-		(3,860	)		-						-			(3,860	)
Exercise of share options by employees		273,888			-		-		2,858			-						(1,094	)		1,764
Stock-based compensation		-			-		2,037		-			-						-			2,037
Other comprehensive loss:
Changes in fair value of cash flow hedge		-			-		-		-			(529	)	$	(529	)		-			(529	)
Unrealized gain from available-for-sale marketable securities		-			-		-		-			63			63			-			63
Net loss		-			-		-		-			-			(23,423	)		(23,423	)		(23,423	)
Total comprehensive loss														$	(23,889	)

Balance as of December 31, 2011		18,435,699		$	234	$	151,554	$	(40,747	)	$	(742	)				$	(7,510	)	$	102,789

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

RADVISION LTD.

AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands

*) Accumulated other comprehensive income (loss):	Year ended December 31,
	2009			2010			2011

Accumulated changes in fair value of cash flow hedge	$	162		$	479		$	(50	)
Accumulated unrealized loss from available-for-sale marketable securities		(1,004	)		(755	)		(692	)

Total	$	(842	)	$	(276	)	$	(742	)

The accompanying notes are an integral part of the consolidated financial statements.

F - 9

RADVISION LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2009			2010			2011
Cash flows from operating activities:
Net loss	$	(774	)	$	(3,424	)	$	(23,423	)
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,153			4,724			4,583
Gain on sale of property and equipment		(1	)		-			-
Accrued interest on marketable securities and bank deposits, amortization of premium, accretion of discount, other-than-temporary impairment of marketable securities, net		421			(365	)		480
Stock-based compensation		4,324			2,626			2,037
Tax benefit related to loss carryforwards resulting from exercise of stock options		(567	)		(497	)		(396	)
Decrease (increase) in trade receivables, net		2,406			(3,425	)		(3,358	)
Decrease (increase) in other accounts receivable and prepaid expenses		(1,000	)		(1,032	)		48
Decrease (increase) in inventories		205			(1,476	)		340
Decrease (increase) in long-term prepaid expenses		(1,032	)		1,255			797
Change in deferred tax asset, net		4,406			(136	)		1,235
Increase (decrease) in trade payables		(577	)		2,024			(362	)
Decrease in deferred revenues		(245	)		(126	)		(70	)
Increase (decrease) in accrued expenses and other accounts payable		(3,120	)		5,800			(2,101	)
Change in accrued severance pay, net		(343	)		57			582

Net cash provided by (used in) operating activities		7,256			6,005			(19,608	)

The accompanying notes are an integral part of the consolidated financial statements.

F - 10

RADVISION LTD.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,
	2009			2010			2011

Cash flows from investing activities:
Proceeds from maturity of marketable securities		32,495			23,490			27,140
Purchase of marketable securities		(31,490	)		(43,285	)		(24,973	)
Proceeds from withdrawal of bank deposits		169,875			50,512			66,331
Purchase of bank deposits		(173,490	)		(42,971	)		(41,163	)
Purchase of property and equipment		(2,103	)		(2,863	)		(2,442	)
Payment for the acquisition of Aethra		-			(6,984	)		(1,575	)
Proceeds from sale of property and equipment		2			-			-

Net cash provided by (used in) investing activities		(4,711	)		(22,101	)		23,318

Cash flows from financing activities:
Purchase of treasury shares at cost		(1,141	)		(7,131	)		(3,860	)
Issuance of treasury shares for cash upon exercise of options		446			194			1,711
Tax benefit related to exercise of stock options		567			497			396

Net cash used in financing activities		(128	)		(6,440	)		(1,753	)

Increase (decrease) in cash and cash equivalents		2,417			(22,536	)		1,957
Cash and cash equivalents at the beginning of the year		37,872			40,289			17,753

Cash and cash equivalents at the end of the year	$	40,289		$	17,753		$	19,710

Supplemental disclosure of cash flow activity:

Cash paid during the year for:
Interest	$	29		$	-		$	131

Income taxes	$	242		$	294		$	472

The accompanying notes are an integral part of the consolidated financial statements.

F - 11

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL

RADVISION Ltd. ("the Company") is an Israeli company which designs, develops and supplies products and technology that enable real-time voice, video and data communications over packet networks, including the Internet and other networks based on the Internet Protocol ("IP").

The Company's products and technology are used by its customers to develop systems that enable enterprises and service providers to use packet networks for real-time IP communications.

The Company operates under two reportable segments: 1) the Video Business Unit ("VBU"), which develops a complete portfolio of video conferencing products, including video network infrastructure, desktop video solutions, conference room endpoint products and management software; and 2) the Technology Business Unit ("TBU"), which focuses on creating developer toolkits for the underlying IP communication protocols and testing tools needed for real-time voice and video over IP.

Revenues derived from the Company's largest customer in 2009, 2010 and 2011 represented 42%, 34% and 12%, respectively, of total sales. In April 2010, this customer acquired one of the Company's principal competitors. The Company expects that its sales to this customer will continue to decline in 2012.

On February 10, 2010, the Company acquired certain assets of Aethra Video Srl and Aethra SpA of Ancona, Italy (together, "Aethra"), including certain intellectual property and technology for High Definition video conferencing endpoint systems. With this acquisition, the Company entered into the video conferencing endpoint market segment. The Company has had an original equipment manufacturer ("OEM") relationship with Aethra since 2005, through which the Company's video infrastructure products and technology have been included in Aethra video solutions, allowing Aethra to offer the market a complete end-to-end solution.

The agreements for the acquisition were incorporated into Aethra's pre-insolvency plan that was filed and admitted by the Italian court on January 25, 2010.

The acquisition also included the purchase of additional fixed assets and selected commercial agreements. As of December 31, 2010, the Company has paid $ 6,984 and accrued $ 1,575 for Aethra’s purchase price. As of December 31, 2011, the Company has paid the entire purchase price amount of $ 8,559 and has no additional obligations to pay for the aquisition.

F - 12

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL (Cont.)

Purchase Price Allocation:

In accordance with ASC 805, the total purchase price which was accrued during the first 12 months following the closing of the purchase agreement, was allocated to the assets acquired and liabilities assumed based on their estimated fair values as set forth below as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.

Current assets, net	$	68
Customer relationships		1,680
Technology		4,200
In-process research and development		830
Goodwill (tax deductible) *)		1,781

Total final purchase price	$	8,559

Allocated to the VBU segment.

Intangible assets:

In performing the purchase price allocation, the Company considered, among other factors, the intention for future use of acquired assets, analyses of historical financial performance and estimates of future performance of Aethra's products. The fair value of intangible assets was based on a valuation completed by a third party valuation firm using the income approach and estimates and assumptions provided by management. The following table sets forth the components of intangible assets associated with the Aethra acquisition:

	Fair value		Useful life

Customer relationships (1)	$	1,680	4 years
Technology (2)		4,200	4 years
In-process research and development (3)		830	4 years (*)

Total intangible assets	$	6,710

(*)

In May 2010, upon completion of the development stage, the Company determined the useful life to be four years and classified this amount to Technology.

(1)

Customer relationships represent the underlying relationships and agreements with Aethra's installed customer base and will be amortized over a period of four years using the accelerated method.

F - 13

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL (Cont.)

(2)

Technology represents a combination of Aethra processes, patents and trade secrets related to the design and development of its products. This proprietary know-how can be leveraged to develop new technology and improve the Company's products. The technology is amortized over a period of four years using the straight line method.

(3)

In-process research and development ("IPR&D") represents incomplete Aethra research and development projects that had not reached technological feasibility and had no alternative future use as of the date of the acquisition. Upon completion of development, the acquired IPR&D will be considered finite-lived assets and will be amortized accordingly over four years.

The total acquisition related restructuring expenses, net of $ 2,722 in 2010 and $ 105 in 2011, consisted of certain labor related liabilities of Aethra's video department employees. Under Italian law, the Company assumed certain obligations towards these employees following the acquisition of certain Aethra assets in February 2010. These employees do not provide any service to the Company.

Such employees are currently subject to the Italian Cassa Integrazione Guadagni Straordinaria ("CIGS") unemployment plan. Under the CIGS plan, such employees are entitled to unemployment benefits from the Italian government and the Company is required to pay monthly social security payments and severance payments. Under the terms of the CIGS plan, the Company recorded a provision in the total amount of $ 2,478 and $ 1,764 as of December 31, 2010 and 2011, respectively (see also Note 10).

During 2011, the Company completed the second and final phase of the acquisition of Aethra. As part of the second phase the Company paid an additional $ 806 which was recorded as part of acquisition related costs since according to ASC 805 this payment was not part of business combination payment.

In 2010, acquisition-related costs in the amount of $ 364 consisted mainly of legal and financial advisors fees.

F - 14

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL (Cont.)

The following unaudited condensed combined pro forma information for the year ended December 31, 2009, gives effect to the acquisition of certain assets of Aethra as if the acquisition had occurred on January 1, 2009. The pro forma information is not necessarily indicative of the results of operations, which actually would have occurred had the acquisition been consummated on that date, nor does it purport to represent the results of operations for future periods. For the purposes of the pro forma information, the Company has assumed that net loss includes additional amortization of intangible assets related to the acquisition of $ 1,785 and other acquisition-related expenses of $ 3,086 in 2009. The acquisition did not have a material effect on pro forma financial data for the period from January 1, 2010 to February 10, 2010.

	December 31,
	2009
	Unaudited

Revenues	$	89,586

Net loss	$	(5,937	)

Basic and diluted net loss per share	$	(0.30	)

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to generally accepted accounting principles in the United States ("U.S. GAAP").

Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Financial statements in U.S. dollars:

The Company's revenues are generated mainly in U.S. dollars ("dollar"). In addition, a significant portion of the costs of the Company and its subsidiaries is incurred in dollars. The Company's management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the dollar.

F - 15

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Accordingly, the Company's and its subsidiaries' transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured into dollars in accordance with ASC 830, "Foreign Currency Matters." Amounts in currencies other than dollars have been remeasured as follows:

Monetary balances - at the exchange rate in effect on the balance sheet date;

Non monetary balances - at the exchange rates in effect as of the date of the transactions;

All exchange gains and losses from the remeasurement mentioned above are reflected in the statements of operations under financial income, net.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

Cash and cash equivalents:

Cash and cash equivalents include short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date of purchase.

Marketable securities:

The Company accounts for investments in debt securities in accordance with ASC 320, "Investments - Debt and Equity Securities." Management determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. As of December 31, 2010 and 2011, the Company classified its marketable securities (except for auction rate securities) as held-to-maturity securities and the auction rate securities as available-for-sale.

Securities classified as available-for-sale are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss) until realized, a separate component of shareholders' equity, net of taxes. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the consolidated statements of operations. The Company presented its available-for-sale securities in long-term investments (see Note 3b).

F - 16

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Debt securities are classified as held-to-maturity since the Company has the intent and ability to hold these securities to maturity. These securities are stated at amortized cost and are therefore adjusted for amortization of premiums or accretion of discounts to maturity. Such amortization, accretion and interest on the debt securities are included in financial income, net.

The Company adopted ASC 320, "Recognition and Presentation of Other-Than-Temporary Impairment." This guidance clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired; provides guidance as to the amount of other-than-temporary impairment recognized in earnings and other comprehensive income; and expands the disclosures required for other-than-temporary impairments for debt and equity securities. The guidance requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis. If either of those criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The Company adopted this guidance on April 1, 2009, and reclassified $ 1,198 of the non-credit related portion of other-than-temporary impairment losses recognized in prior period earnings as a cumulative effect adjustment that increased retained earnings and decreased accumulated other comprehensive income at April 1, 2009. (See also Note 3b).

Short-term bank deposits:

Short-term bank deposits are deposits with maturities of more than three months but less than one year. The deposits are in dollars and bear interest at an annual weighted average rate of 1.36% and 1.70% at December 31, 2010 and 2011, respectively. The short-term deposits are presented at their cost, including accrued interest.

Inventories:

Inventories are stated at the lower of cost or market value.

Cost is determined as follows:

Raw materials and finished products - using the average cost method.

F - 17

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Inventory write-offs and write-down provisions are recorded to cover risks arising from slow-moving items and/or technological obsolescence. The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. Based on this evaluation, provisions are made when required to write inventory down, recorded as part of cost of revenues in consolidated statement of operations. During the years ended December 31, 2009, 2010 and 2011, the Company wrote-off and wrote down inventory due to slow-moving items and/or technological obsolescence in the amounts of $ 304, $ 350 and $ 530, respectively.

Property and equipment:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

	%

Computers and peripheral equipment	33
Office furniture and equipment	7 - 15
Motor vehicles	15
Leasehold improvements	Over the shorter of the term of the lease or useful lives

Goodwill and intangible assets:

Goodwill reflects the excess of the purchase price of a business acquired over the fair value of net assets acquired. Intangible assets consist of acquired technology, distribution network, customer relationships and IPR&D.

The Company follows the provisions of ASC 350, "Intangibles - Goodwill and Other" ("ASC 350"), according to which goodwill is not amortized but instead is tested for impairment at least annually (or more frequently if impairment indicators arise) at the reporting unit level. The reporting unit is described as an operating segment as that term is used in ASC 280, "Segment Reporting" ("ASC 280"), or one level below the operating segment. The Company has allocated all of its goodwill (including goodwill recorded as part of the Aethra acquisition) to the VBU reporting unit.

ASC 350 prescribes a two-phase process for impairment testing of goodwill.

F - 18

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In the first phase of impairment testing, goodwill attributable to each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. For purpose of performing step one of the impairment test the Company estimated the fair value of the reporting unit according to the discounted cash flows (a present value technique). If the carrying value is less than the fair value, no impairment exists and the second step does not need to be completed. If the carrying value is higher than the fair value, there is an indication that impairment may exist, and a second step must be completed, to compute the amount of impairment. As of December 31, 2009, 2010 and 2011, no indication of impairment was identified. As a result, step two was not required.

Intangible assets are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, in accordance with ASC 350. The Company amortizes its intangible assets on a straight-line basis, except for customer relationships (see also Note 1c and Note 2j).

Impairment of long-lived assets:

Long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" and ASC 205, "Presentation of Financial Statements" ("ASC 360" and "ASC 205," respectively), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment exists when the carrying value of the asset exceeds the aggregate undiscounted cash flows expected to be generated by the asset. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. As of December 31, 2009, 2010 and 2011, no impairment losses were identified.

Severance pay:

The Company's liability for severance pay is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Company covers this liability by monthly deposits to insurance policies and by an accrual.

The value of these policies is recorded as an asset in the Company's balance sheet. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only once an employee is entitled to severance pay pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes immaterial profits.

F - 19

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Severance pay expense for the years ended December 31, 2009, 2010 and 2011 amounted to approximately $ 1,182, $ 1,497 and $ 1,570, respectively.

Derivative instruments:

ASC 815, "Derivatives and Hedging" ("ASC 815"), requires companies to recognize all of their derivative instruments as either assets or liabilities in the balance sheet at fair value.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings or losses during the period of change.

The Company entered into derivative instrument arrangements to hedge a portion of its anticipated New Israeli Shekel ("NIS") payroll payments. These derivative instruments are designated as cash flows hedges, as defined by ASC 815, as amended, and are highly effective. The Company measures the fair value of the contracts in accordance with ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820") at Level 2. As of December 31, 2011, the Company had outstanding forward exchange contracts for the acquisition of NIS 3.7 million in consideration for $ 1,013 maturing in January 2012. As of December 31, 2011, the Company recorded accumulated unrealized loss in accumulated other comprehensive loss in the amount of $ 50 from its forward contracts with respect to anticipated payroll payments expected in 2012. Such amount is expected to be recorded in earnings in 2012.

For the years ended December 31, 2009, 2010 and 2011, the Company recognized earnings of $ 155, a loss of $ 389 and earnings of $ 299, respectively, as a result of these hedging activities. These hedge activities were recorded as part of cost of revenues, research and development, selling and marketing and general and administrative expenses in accordance with the classifications of payroll expenses as part of the consolidated statements of operations.

For the years ended December 31, 2011, 2010 and 2009, the Company recorded a loss of $ 1 and $75 and income of $ 200, respectively, due to ineffectiveness of payroll hedging activities in financial income, net.

F - 20

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Revenue recognition:

The Company and its subsidiaries generate revenues mainly from: 1) sales of videoconferencing products, or VBU products; 2) licensing the rights to use their software products and royalty income, or TBU products; 3) maintenance and support, and 4) professional services. The Company and its subsidiaries sell their VBU products mainly through original equipment manufacturers, system integrators and value added resellers, all of whom are considered end-users.

In accordance with ASC 605, "Revenue Recognition", the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have transferred, product payment is not contingent upon performance of installation or service obligations, the price is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or service is specified by the customer, revenue is deferred until all acceptance criteria have been met. Additionally, the Company generally recognizes maintenance service revenues on its hardware and software products ratably over the service period, and other services upon the completion of installation or professional services provided.

Most of the Company’s products are integrated with software that is essential to the functionality of the equipment. Additionally, the Company provides unspecified software upgrades and enhancements related to most of these products through maintenance contracts.

Starting January 1, 2011 the Company adopted the guidance of ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) ("ASU 2009-13") and ASU 2009-14, Certain Arrangements That Include Software Elements (amendments to FASB ASC Topic 985, Software) ("ASU 2009-14") for applicable transactions. ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendment eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. The Company adopted this accounting guidance on a prospective basis for applicable transactions originating or materially modified beginning on or after January 1, 2011.

F - 21

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated services offerings, each of which are individually considered separate units of accounting. The determination of the Company’s units of accounting did not change with the adoption of the revenue recognition guidance. Beginning with new or materially modified arrangements as of January 1, 2011, the Company allocates revenue to each element in a multiple-element arrangement based upon the relative selling price of each deliverable. When applying the relative selling price method, the Company determines the selling price for each deliverable using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, the Company uses its best estimate of selling price (hereinafter “estimated selling price” or “ESP”) for that deliverable. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met for each element.

The VSOE of fair value of the maintenance and support services is determined based on the price charged when sold separately (i.e. when renewed) and based on management's estimations. For substantially all of the arrangements with multiple deliverables pertaining maintenance and support services the Company has used and intends to continue using VSOE to allocate the selling price of maintenance and support services.

Consistent with its methodology under previous accounting guidance,VSOE is established based on the Company’s standard pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range. When VSOE cannot be established, the Company attempts to establish the selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately.

When the Company is unable to establish the selling price using VSOE or TPE, the Company uses ESP in its allocation of arrangement consideration. ESP represents the price at which the Company would transact a sale if the element was sold on a stand-alone basis.

The Company determines ESP for a product by reviewing historical transactions taking into consideration the go-to-market strategy. The Company also considers other multiple factors including, but not limited to: the cost to produce the product; the anticipated margin on that product; the economic conditions, geographies and market trends; the selling price and profit margin for similar products; and its ongoing pricing strategy and policies.

The Company regularly reviews its basis for establishing VSOE, TPE and ESP. There were no material impacts during the year ended December 31, 2011nor does the Company currently expect a material impact in the near term from changes in VSOE, TPE or ESP.

F - 22

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company accounted for transactions which contain tangible products entered into prior to January 1, 2011 and for its all of its software licensing sales which do not contain tangible products in accordance with ASC 985-605, "Software Revenue Recognition." ASC 985-605 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair value of the elements. In addition, according to ASC 985-605, revenues should be allocated to the different elements in the arrangement under the "residual method" when VSOE of fair value exists for all undelivered elements and no VSOE exists for the delivered elements. Under the residual method, at the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (usually maintenance and support) and recognizes revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (software products) when all other criteria in ASC 985-605 have been met. Any discount in the arrangement is allocated to the delivered element.

In arrangements which include software, support/maintenance and services a determination is made whether the service element can be accounted for separately. In order for the service element to be accounted for separately, (a) sufficient VSOE of fair value should exist to permit allocation of the revenue to the various elements of the arrangement, (b) the services must not be essential to the functionality of any other element in the arrangement, and (c) the service must be described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. If all such criteria are not met the Company accounts for the services together with the other elements in the arrangement as applicable.

Certain royalty agreements provide for per unit royalties to be paid to the Company based on the shipments by customers of units containing the Company's products. Revenues under such agreements are recognized at the time of delivery by customers, as they are reported to the Company by these customers and all other revenue recognition criteria have been met. Non-refundable payments on account of future royalties where no future obligation exists are recognized upon the signing of such arrangement and all other revenue recognition criteria have been met.

Revenues from software licenses and sale of products that require significant customization, integration and installation are recognized based on ASC 605-35, "Construction-Type and Production-Type Contracts," according to which revenues are recognized on a percentage of completion basis. Percentage of completion is determined based on the "Output Method" upon completion of milestones, and when collectability is probable. After delivery of milestones, if uncertainty exists about customer acceptance, revenue is not recognized until acceptance. Provisions for estimated losses on uncompleted contracts are recognized in the period in which the likelihood of the losses is identified. As of December 31, 2010 and December 31, 2011, no such estimated losses were identified.

F - 23

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company believes that the use of the percentage of completion method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion, contract revenues and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights regarding services to be provided and received by the parties to the contracts, the consideration to be exchanged and the manner and terms of settlement. In all cases, the Company expects to perform its contractual obligations and its licensees are expected to satisfy their obligations under the contract. According to ASC 605-35, costs that are incurred and are directly associated with a specific anticipated contract are being deferred, subject to evaluation of their probable recoverability, and recorded as unbilled contract costs.

Deferred revenue includes unearned amounts received under maintenance and support contracts, and amounts received from customers but not recognized as revenues due to the fact that these transactions did not meet the revenue recognition criteria.

The Company and its subsidiaries generally do not grant a right of return to their customers. In accordance with ASC 605, "Revenue Recognition" the Company records a provision for estimated product returns at the time product revenues are recognized based on the Company's historical experience. As of December 31, 2010 and 2011, the Company’s provision for product returns was $ 255 and $ 233, respectively.

Research and development costs:

Research and development costs are charged to the statements of operations as incurred. ASC 985, "Software", requires capitalization of certain software development costs subsequent to the establishment of technological feasibility.

Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release has been insignificant. Therefore, all research and development costs have been expensed.

Income taxes:

The Company utilizes the liability method of accounting for income taxes as set forth in ASC 740, "Income Taxes." Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized.

F - 24

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company applies ASC 740-10-55. ASC 740-10-55 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income tax.

Fair value of financial instruments:

The carrying amounts of the Company's financial instruments, including cash and cash equivalents, short-term bank deposits, accounts receivable, trade payables and accrued expenses and other accounts payables, approximate fair value because of their generally short maturities.

The fair value of foreign currency contracts, (used for hedging purposes) (see note 2(1) and note 5) is estimated by obtaining current quotes from banks.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2

Include other inputs that are directly or indirectly observable in the marketplace.

Level 3

Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

F - 25

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Warranty:

The Company typically offers a one-year warranty on all of its products. The specific terms and conditions of those warranties vary depending upon the product sold and country in which the Company does business. The Company estimates the costs that may be incurred under its basic warranty and records a liability in the amount of such costs at the time product revenue is recognized. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Liability for warranty expense is included in "Accrued expenses and other accounts payable" in the accompanying consolidated balance sheets. The roll forward of the liability for 2010 and 2011 was as follows:

	December 31,
	2010			2011

Balance, beginning of year	$	520		$	699
Additions to the accrual - costs of product revenue		865			329
Usage		(686	)		(521	)

Balance, end of year	$	699		$	507

Accounting for stock-based compensation:

The Company applies ASC 718, "Compensation - Stock Compensation" ("ASC 718"), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors to be based on estimated fair values.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.

The Company estimates option values using the Black-Scholes-Merton option pricing model that uses the weighted average assumptions noted in the table below. Expected volatility was calculated based upon actual historical stock price movements over a period equal to the expected term of the options. Estimated forfeitures are based on actual historical pre-vesting forfeitures. The Company derived the expected term assumption based on the provisions of SAB 110, which states that a company will determine its expected terms according to its historical exercise data for share option grants with sufficient exercise experience, except for options which were re-priced, for which the expected term of the options before the re-pricing was calculated using the binomial method.

F - 26

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends, therefore estimated dividend yield is 0%. The Company recognized the compensation expense over the requisite service period using the straight-line method.

The fair value of the options granted in 2009, 2010 and 2011 was estimated at the date of grant with the following weighted average assumptions:

	Year ended December 31,
	2009			2010			2011

Risk free interest rate		1.76	%		1.39	%		1.22	%
Dividend yields		0	%		0	%		0	%
Volatility		45.6	%		49.5	%		49.6	%
Expected life (years)		3.55			4.13			4.11

The Company applies ASC 718 and ASC 505-50 with respect to options issued to non-employees which requires the use of option valuation models to measure the fair value of the options at the measurement date.

Concentration of credit risk:

Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, short-term bank deposits, trade receivables and derivatives.

The majority of the Company's cash and cash equivalents, short-term bank deposits and derivatives are invested in dollar investments with major banks in Israel and the United States. Such cash and cash equivalents and short-term bank deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. However, management believes that the financial institutions that hold the Company's investments are institutions with high credit standing and accordingly, low credit risk exists with respect to these investments.

The marketable securities of the Company include investments in debentures of corporations and debt investments of the states and auction rates securities. The Company's investment policy, approved by the Board of Directors, limits the amount that the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations.

F - 27

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The trade receivables of the Company and its subsidiaries are derived from sales to organizations located mainly in America, Europe, the Far East and Israel. The Company and its subsidiaries perform ongoing credit evaluations of their customers and to date have not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company and its subsidiaries have determined to be doubtful of collection. In certain circumstances, the Company and its subsidiaries may require letters of credit, other collateral or additional guarantees. When uncertainty of collectability exists, the Company and its subsidiaries defer revenues until collection.

Basic and diluted net loss per share:

Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during the year. Diluted net loss per share also includes the effect of dilutive stock options outstanding during the year, all in accordance with ASC 260, "Earning per Share."

Comprehensive income (loss):

The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income" ("ASC 220"). ASC 220 establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of general purpose financial statements. Comprehensive income (loss) generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.

The Company determined that its items of comprehensive income (loss) relate to unrealized gains and losses on hedging derivative instruments and unrealized gains and losses on available-for-sale securities.

Treasury shares:

The Company repurchases its Ordinary shares from time to time in the open market and holds such shares as treasury shares. The Company presents the cost to repurchase treasury shares as a reduction in shareholders' equity.

When treasury shares are reissued, the Company accounts for the re-issuance in accordance with ASC 505-30, "Treasury Stock" and charges the excess of the purchase cost over the re-issuance price (loss) to retained earnings. The purchase cost is calculated based on the weighted average method. In the event that the purchase cost is lower than the re-issuance price, the Company credits the difference to additional paid-in capital.

F - 28

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Recently issued accounting pronouncements:

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance that changed the requirement for presenting “Comprehensive Income” in the consolidated financial statements. The update requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The currently available option to disclose the components of other comprehensive income within the statement of stockholders’ equity will no longer be available. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. The adoption of the standard will have no impact on our financial position or results of operations, but will result in a change in the presentation of our basic consolidated financial statements. The Company is still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In September 2011, the FASB amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more likely than not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

NOTE 3:-

MARKETABLE SECURITIES

Held-to-maturity securities:

Marketable securities with contractual maturities of less than one year are as follows:

	December 31,
	2010									2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair Value

Debt investments of the states	$	961	$	4	$	-		$	965	$	1,042	$	-	$	(24	)	$	1,018
Corporate debentures		13,936		18		(111	)		13,843		11,743		21		(114	)		11,650

	$	14,897	$	22	$	(111	)	$	14,808	$	12,785	$	21	$	(138	)	$	12,668

F - 29

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:-

MARKETABLE SECURITIES (Cont.)

Marketable securities with contractual maturities of more than one year are as follows:

	December 31,
	2010									2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Aggregate fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Aggregate fair value

Debt investments of the states	$	12,599	$	1	$	(174	)	$	12,426	$	12,022	$	-	$	(153	)	$	11,869
Corporate debentures		22,025		59		(166	)		21,918		22,341		11		(498	)		21,854

	$	34,624	$	60	$	(340	)	$	34,344	$	34,363	$	11	$	(651	)	$	33,723

The unrealized losses in the Company's investments in debt instruments of states and corporate debentures were caused mainly by market interest rate changes. It is expected that the securities will not be settled at a price less than the amortized cost of the Company's investment. Based on the Company's intention and ability to hold these investments until maturity, the securities were not considered to be other-than-temporarily impaired at December 31, 2010 and 2011.

Available-for-sale marketable securities:

Auction rate securities:

The following table represents other-than-temporary impairment recognized in other comprehensive income:

	December 31,
	2010									2011
	Cost		Gross unrealized gains		Gross unrealized losses			Aggregate fair value		Cost		Gross unrealized gains		Gross unrealized losses			Aggregate fair Value

Available-for-sale securities	$	876	$	452	$	(9	)	$	1,319	$	536	$	582	$	(76	)	$	1,042

F - 30

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:-

MARKETABLE SECURITIES (Cont.)

The following table presents a cumulative roll forward of credit losses recognized in earnings as of December 31, 2011:

	Credit loss

Balance as of December 31, 2009	$	1,123
Additional credit loss on debt securities for which an other-than-temporary impairment was previously recognized		306

Total for the year ended December 31, 2010		1,429
Additional credit loss on debt securities for which an other-than-temporary impairment was previously recognized		340

Total for the year ended December 31, 2011	$	1,769

The remaining contractual life of the auction rate securities is greater than ten years.

The Company's auction-rate securities, which have experienced a lack of liquidity and therefore do not have an active market of observable prices, are measured separately at fair value, which is determined using a valuation model. The valuation model relies on, among others things: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect the uncertainty of current market conditions; (iii) consideration of the probabilities of default, auction failure or repurchase at par for each period; (iv) assessments of counterparty credit quality; (v) estimates of recovery rates in the event of default for each security; and (vi) overall capital market liquidity. These estimated fair values are subject to uncertainties that are difficult to predict.

NOTE 4:-

DERIVATIVE INSTRUMENTS

Effective January 1, 2009, the Company adopted the disclosure requirements of ASC 815-10-15. The Standard requires additional disclosures about the Company's objectives and strategies for using derivative instruments, the accounting for the derivatives investments and the related hedged items and the effect of derivative instruments and related hedged items on the financial statements. The Company's risk management strategy includes the use of derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes. The Company designated its derivatives as cash flow hedges. The Company recognizes all derivatives in the consolidated balance sheets at fair value. The Company enters into derivative contracts with major financial institutions in order to mitigate the credit risk in these transactions.

These contracts do not contain any credit-risk related contingent features. See Note 5 for information on the fair value of these contracts.

F - 31

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 4:-

DERIVATIVE INSTRUMENTS (Cont.)

Cash flow hedges:

To protect against the increase in value of forecasted foreign currency cash flows resulting from salaries denominated in NIS during the year, the Company has instituted a foreign currency cash flow hedging program.

The Company hedges some of the anticipated payroll payments of its Israeli employees denominated in NIS with forward contracts. Accordingly, when the dollar appreciates against the NIS, the decline in present value of future foreign currency is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts.

These forward contracts are designated as cash flow hedges, and are all effective as hedges of these expenses. Accordingly, for derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change.

Net unrealized gains on cash flow hedges as of December 31, 2010	$	479
Changes associated with hedging transactions		(231	)
Reclassification into earnings		(298	)

Net unrealized losses on cash flow hedges as of December 31, 2011	$	(50	)

NOTE 5:-

FAIR VALUE MEASUREMENTS

The Company measures its auction rate securities and foreign currency derivative contracts at fair value. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

Investments in auction rate securities are classified within Level 3 because they are valued using valuation techniques. The Company values the Level 3 investments based on an externally developed valuation by an independent valuation firm using discounted cash flow model, whose inputs include interest rate curves, credit spreads, bond prices, volatilities and illiquidity considerations. Unobservable inputs used in these models are significant to the fair value of the investments.

F - 32

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 5:-

FAIR VALUE MEASUREMENTS (Cont.)

The Company's financial assets measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of December 31, 2010 and 2011:

	As of December 31, 2010
	Fair value measurements using input type
	Level 1		Level 2		Level 3		Total

Auction rate securities	$	-	$	-	$	1,319	$	1,319
Foreign currency derivative contracts		-		479		-		479

Total financial assets	$	-	$	479	$	1,319	$	1,798

	As of December 31, 2011
	Fair value measurements using input type
	Level 1		Level 2			Level 3		Total

Auction rate securities	$	-	$	-		$	1,042	$	1,042
Foreign currency derivative contracts		-		(50	)		-		(50	)

Total financial assets	$	-	$	(50	)	$	1,042	$	992

For the years ended December 31, 2010 and 2011 there has been no change in the above items' Level classification.

The following table presents the changes in the fair value measurements that are using significant unobservable inputs (Level 3 instruments measured on a recurring basis) for the years ended December 31, 2010 and 2011. The Company's Level 3 instruments consist of auction rate securities (see Note 3b).

Fair value measurements using significant unobservable inputs (Level 3):

	December 31, 2011
	2010			2011

Opening balance	$	1,376		$	1,319
Unrealized losses included in earnings (other-than-temporary impairment)		(306	)		(340	)
Unrealized gain from available-for-sale marketable securities		249			63

Closing balance	$	1,319		$	1,042

F - 33

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 6:-

OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	December 31,
	2010		2011

Government authorities	$	2,853	$	2,519
Prepaid expenses and other short-term assets		3,067		2,919
Employees		233		261
Deferred taxes		930		430

	$	7,083	$	6,129

NOTE 7:-

INVENTORIES

Inventories are composed of the following:

	December 31,
	2010		2011

Raw materials	$	377	$	706
Finished products		2,179		1,510

	$	2,556	$	2,216

NOTE 8:-

PROPERTY AND EQUIPMENT, NET

Composition of assets, grouped by major classifications, is as follows:

	December 31,
	2010		2011
Cost:

Computers and peripheral equipment	$	20,433	$	22,521
Office furniture and equipment		2,875		3,034
Motor vehicles		22		22
Leasehold improvements		2,468		2,663

		25,798		28,240

Less - accumulated depreciation		21,225		24,046

Depreciated cost	$	4,573	$	4,194

Depreciation expenses for the years ended December 31, 2009, 2010 and 2011 amounted to $ 2,881, $ 2,939 and $ 2,821, respectively.

F - 34

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 9:-

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill:

Change in goodwill as of December 31, 2010 and 2011 are as follows:

	December 31,
	2010		2011

Goodwill at the beginning of the year	$	2,966	$	4,747
Acquisition of certain assets of Aethra		1,781		-

Goodwill at the end of the year	$	4,747	$	4,747

The following table shows the Company's intangible assets for the periods presented:

	December 31,
	2010		2011
Cost:
Technology	$	8,988	$	8,988

Customer relationships and distribution networks		2,755		2,755

		11,743		11,743
Less - accumulated amortization		6,818		8,580

Amortized cost	$	4,925	$	3,163

Intangible assets resulted from the acquisitions of Aethra in 2010 (see Note 1c), First Virtual Communications, Inc. in 2005 and VisioNex in 2004.

Amortization expenses amounted to $ 272 for the year ended December 31, 2009, $ 1,785 for the year ended December 31, 2010 and $ 1,762 for the year ended December 31, 2011.

The estimated future amortization expense of other intangible assets as of December 31, 2011 is as follows:

2012	$	1,535
2013		1,410
2014		218

	$	3,163

F - 35

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 10:-

ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE

	December 31,
	2010		2011

Payroll and related accruals	$	3,571	$	3,144
Accrued expenses		8,862		7,944
Government authorities and other		1,380		1,266
Contingent liability		1,191		917
Restructuring accrual (Note 1c)		2,478		1,764
Accrued payments (Note 1c)		1,575		-

	$	19,057	$	15,035

NOTE 11:-

COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease premises in Israel, the United States, China, Japan, the United Kingdom, France, Korea, Italy, Singapore, India and Hong Kong. The leases expire through April 2016 (some with renewal options). The Company also leases its motor vehicles under operating lease agreements that expire on various dates, the last of which is in 2013.

Annual minimum future lease payments due under the above agreements, at the exchange rate in effect on December 31, 2011, are approximately as follows:

2012	$	4,076
2013		2,991
2014		2,525
2015		1,294
2016 and thereafter		20

	$	10,906

For the years ended December 31, 2009, 2010 and 2011, rent expenses and motor vehicle lease expenses were $ 5,099, $ 4,898 and $ 4,952, respectively.

The Company obtained bank guarantees in the amount of $ 416 and $ 451, as of December 31, 2010 and 2011, respectively in connection with securing its office lease in Israel, in connection with custom tax payments and in connection with projects.

F - 36

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:-

COMMITMENTS AND CONTINGENCIES (Cont.)

The Company is committed to pay royalties to several third parties for the integration of these third parties' technologies into the Company's products. Royalties are generally payable based on the sales volume of these products as long as the Company uses these technologies.

The rates for the royalties to the third parties are based on an amount per product sold by the Company. The agreements pursuant to which the royalties are payable have no expiration dates.

The Company expensed royalties in the amount of $ 224, $ 216 and $ 163 in the years ended December 31, 2009, 2010 and 2011, respectively, in cost of revenues.

In 2003, a third party sent correspondence to the Company alleging that some products manufactured by the Company infringe upon patents held by this third party and offered to license these patents to the Company. Subsequent correspondence was exchanged during 2004, in which additional requests were made by this third party. As of December 31, 2011, the Company has a provision of $ 917, which it believes covers the probable loss from such allegations.

In September, 2010, the Company received a letter from a shareholder, addressed to the Chairman of its Board of Directors, in which certain allegations were made with respect to certain actions and alleged inactions of the Company, its directors and executive officers in connection with the self tender offer that the Company completed in September 2010. The Company has responded to the shareholder refuting all claims and denying any wrongdoings.

During the first quarter of 2012, the Company received a letter from two separate third parties questioning the use in the Company’s products of certain technology that is allegedly patented by them. The Company is currently evaluating its position in response to these letters. However, based on initial internal analysis, the Company believes that this matter will not have a material effect on its financial statements.

F - 37

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:-

COMMITMENTS AND CONTINGENCIES (Cont.)

From time to time, the Company and its subsidiaries are subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including claims with respect to intellectual property, contracts, employment and other matters. In addition to the above mentioned legal proceedings, the Company does not believe that it is a party to any pending legal proceeding that is likely to have a material effect on its financial condition or results of operations.

NOTE 12:-

SHAREHOLDERS' EQUITY

The Ordinary shares of the Company are traded on the NASDAQ Global Select Market and on the Tel-Aviv Stock Exchange.

The Ordinary shares confer upon their holders the right to receive notice, to participate and vote in general meetings of the Company, and the right to receive dividends, if declared.

In August 2006, the Company's Board of Directors authorized the purchase of up to $ 30,000 but not more than 2,000,000 of its outstanding Ordinary shares in the open market, from time to time, at prevailing market prices. No time limit was given with respect to the duration of the share purchase program. As of December 31, 2007, the Company had repurchased 1,631,724 Ordinary shares under the program for total consideration of approximately $ 30,000, or an average price of $ 18.37 per share, and the program was completed.

In July 2007, the Company's Board of Directors authorized the purchase of up to additional $ 30,000 of its outstanding Ordinary shares in the open market, from time to time, at prevailing market prices. No time limit was given with respect to the duration of the share purchase program. As of December 31, 2011, the Company had repurchased 3,564,360 Ordinary shares under the program for total consideration of $ 27,306, or an average price of $ 7.66 per share.

On September 7, 2010, the Company completed a self tender offer to purchase 5% of its voting power or 976,906 of the Ordinary shares for a total consideration of approximately $ 7,131 at a price of $ 7.30 per share. These shares are included in the 3,564,360 Ordinary shares repurchased as of December 31, 2011 as stated above.

In 2009, 2010 and 2011, the Company issued 81,500 shares, 33,475 shares and 273,888 shares, respectively, of the repurchased shares upon the exercise of employee stock options.

The excess of the purchase price of the shares over their aggregate re-issuance price in the amount of $ 458, $ 162 and $ 1,094 was charged as a reduction to retained earnings for the years ended December 31, 2009, 2010 and 2011, respectively.

F - 38

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:-

SHAREHOLDERS' EQUITY (Cont.)

On November 25, 2008, the Company exchanged options to purchase an aggregate of 1,276,950 Ordinary shares, with exercise prices ranging from $ 7.80-$ 28.0 per share, which had been granted under the 2000 Plan and granted new options to purchase an aggregate of 1,276,950 Ordinary shares, with an exercise price of $ 7.50 per share, under the 2000 Plan. The new options will vest over a period of up to four years and nine months. The contractual term of the new options are six years except for cases when the original contractual term should be completed before the modified one.

The Company accounted for the exchange of options as a modification. A modification to the terms of an award should be treated as an exchange of the original award for a new award with total compensation cost equal to the grant-date fair value of the original award plus the incremental value measured at the same date. The calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original option measured immediately before its terms are modified based on current circumstances. That is, the original (pre-modification) option will be valued based on current assumptions, without regard to the assumptions made on the grant date. The modification date was considered to be December 24, 2008. As a result of the modification, the Company recorded incremental compensation cost of $ 581 to be recognized over the new service period beginning on the modification date. The unrecognized compensation cost remaining from the original grant date valuation is recognized over the remainder of the original requisite period. In its financial statements as of December 31, 2009, 2010 and 2011, the Company included an additional expense of $ 142, $ 140 and $ 137, respectively, with respect to this transaction.

According to regulations adopted under the Israeli Companies Law, the terms of compensation of an outside director must be set and agreed to prior to the commencement of each three-year term of service of an outside director and may not be modified during the three year term other than to conform to the terms of a newly appointed outside director. During the second quarter of 2008, after receiving an opinion from the Company's legal advisors, the Company's Board of Directors cancelled options to purchase 117,500 Ordinary shares granted to two of its outside directors, due to certain terms of the aforementioned regulations which were not met. In the third quarter of 2008, the Company granted to each of its outside directors options to purchase 30,000 Ordinary shares, or in the aggregate options to purchase 90,000 Ordinary shares, exercisable at $ 6.78 per share. Options to purchase 60,000 Ordinary shares vested quarterly over three years, commencing May 14, 2006 (the date of the appointment of two of the directors as outside directors), and options to purchase 30,000 Ordinary shares vest quarterly over three years commencing September 24, 2008. The options are exercisable within 12 months after termination or resignation as a director of the Company. According to ASC 718, the option exchange was treated as a cancellation of the options and a grant of new options.

F - 39

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:-

SHAREHOLDERS' EQUITY (Cont.)

Accordingly, in the financial statements for the year ended December 31, 2008, the Company recognized all the remaining compensation cost in the amount of $ 309 due to the cancellation of options. The fair value of the new options granted in the amount of $ 184 is recognized over the remaining vesting period. In 2009, 2010 and 2011, $ 38, $ 20 and $ 0 in compensation costs were recognized, respectively.

At the annual general meeting of shareholders held in October 2009, the Company's shareholders resolved to modify the terms of options granted to the Company's directors for their service in such capacity, such that the exercise period of such options (including previously granted options), be extended from 12 months to 18 months after a director's resignation from or termination of office. As a result of this modification, the Company recorded immaterial compensation expenses.

The Company currently has one employee stock option plan, which provides for the grant by the Company of options to purchase up to an aggregate of 8,430,935 Ordinary shares to officers, employees, directors and consultants of the Company and its subsidiaries at an exercise price equal to at least the fair market value at the date of grant. The options vest ratably over vesting periods of approximately four years. The options expire six to ten years from the date of grant.

As of December 31, 2011, 551,040 Ordinary shares are available for future issuance under the option plan. Options that are cancelled or forfeited become available for future grant.

F - 40

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:-

SHAREHOLDERS' EQUITY (Cont.)

A summary of option activity during the year ended December 31, 2011 is summarized as follows:

	Year ended December 31, 2011
	Amount			Weighted average exercise price		Weighted remaining contractual life (years)		Aggregate intrinsic value

Options outstanding at beginning of year		3,726,280		$	8.64		3.93	$	6,509
Granted		990,800		$	8.30
Exercised		(273,888	)	$	6.44
Forfeited		(436,451	)	$	8.09

Options outstanding at end of year		4,006,741		$	8.77		3.51	$	5,277

Vested and expected to vest at end of year		3,222,431		$	9.11		3.26	$	4,096

Options exercisable at end of year		2,163,900		$	9.97		2.87	$	2,478

The total compensation cost related to options granted to employees under the Company's share-based compensation plan recognized for the years ended December 31 2009, 2010 and 2011 amounted to $ 4,324, $ 2,507 and $ 1,995, respectively, net of estimated forfeitures. The total intrinsic value of options exercised during the years ended December 31, 2009, 2010 and 2011, was $ 60, $ 35 and $ 1,109, respectively. As of December 31, 2011, there was $ 2,748 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's option plan. That cost is expected to be recognized over a weighted-average period of 2.61 years.

All options were granted at an exercise price that was equal to the market price of the Ordinary shares at the date of grant. The weighted average grant date fair values of options granted during the years ended December 31, 2009, 2010 and 2011 were as follows:

Year ended December 31,
2009				2010				2011
Options		Weighted average fair value		Options		Weighted average fair value		Options		Weighted average fair value

	746,300	$	2.21		826,800	$	2.57		990,800	$	3.33

F - 41

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:-

SHAREHOLDERS' EQUITY (Cont.)

In April 2010, the Company granted 50,000 options to non-employee consultants. The options vest over two years. The fair value of the options was estimated using a Black-Sholes option-pricing model with the following assumptions for 2010 and 2011, respectively: risk free interest rates of 0.42%-0.61% and 0.25%-0.80%, dividend yield of 0% for both years and volatility of 50.7%-57.8% and 42.74%-48.48%.

Compensation expense of $119 and $ 42 was recognized for the years ended December 31, 2010 and 2011, respectively, in accordance with accelerated method.

In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. The Company does not intend to pay cash dividends in the foreseeable future. The Company has decided not to declare dividends out of tax exempt earnings (see Note 16).

NOTE 13:-

NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share:

	Year ended December 31,
	2009			2010			2011

Numerator:
Net loss	$	(774	)	$	(3,424	)	$	(23,423	)

Denominator:
Weighted average number of Ordinary shares outstanding during the year, used to compute basic net loss per share		19,474,165			19,221,050			18,448,792
Incremental shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock)		(*	)		(*	)		(*	)
Weighted average number of Ordinary shares used to compute diluted net loss per share		19,474,165			19,221,050			18,448,792

Basic net loss per Ordinary share	$	(0.04	)	$	(0.18	)	$	(1.27	)

Diluted net loss per Ordinary share	$	(0.04	)	$	(0.18	)	$	(1.27	)

(*)

Anti-dilutive.

F - 42

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:-

SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION

The Company operates under two reportable segments: the TBU and the VBU.

The TBU is responsible for the development of enabling technologies for real-time voice and video over IP. The VBU is responsible for the development of videoconferencing solutions, including video network infrastructure, desktop and conference room endpoint products and management software. There are no significant transactions between the two segments.

The Company evaluates segment performance based on revenues and operating income (loss) of each segment.

The Company's reportable operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities. The Company's chief operating decision maker, who is the Company's Chief Executive Officer, evaluates the performance of the Company's segments based on revenues and expenses, which do not include stock-based compensation.

Allocation of general and administrative costs is based on the number of employees assigned to the specific segment during the year.

The following is information about reported segment gains and losses:

	VBU		TBU		Total
2009
Total revenues	$	62,584	$	18,414	$	80,998
Expenses		57,834		15,263		73,097

Segment income	$	4,750	$	3,151		7,901
Acquisition-related costs						(580	)
Stock-based compensation						(4,324	)
Financial income						1,719

Income before taxes on income						4,716
Taxes on income						5,490

Net loss					$	(774	)

Depreciation and amortization	$	2,746	$	407	$	3,153

F - 43

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:-

SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION (Cont.)

	VBU		TBU			Total
2010
Total revenues	$	79,255	$	15,984		$	95,239
Expenses		75,807		16,558			92,365

Segment income (loss)	$	3,448	$	(574	)		2,874
Acquisition-related restructuring expenses							(2,722	)
Acquisition-related costs							(364	)
Stock-based compensation							(2,626	)
Financial income							1,000

Loss before taxes on income							(1,838	)
Taxes on income							1,586

Net loss						$	(3,424	)

Depreciation and amortization	$	4,340	$	384		$	4,724

	VBU			TBU		Total
2011
Total revenues	$	62,009		$	15,949	$	77,958
Expenses		81,587			15,111		96,698

Segment income (loss)	$	(19,578	)	$	838		(18,740	)
Acquisition-related restructuring expenses							(105	)
Additional consideration for Aethra assets purchase							(806	)
Stock-based compensation							(2,037	)
Financial income							920

Loss before taxes on income							(20,768	)
Taxes on income							2,655

Net loss						$	(23,423	)

Depreciation and amortization	$	4,268		$	315	$	4,583

F - 44

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:-

SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION (Cont.)

Summary information about geographic areas:

The Company markets and sells both of its product lines in the United States and other regions through its sales personnel, resellers and distributors.

The following represents total revenues for the years ended December 31, 2009, 2010 and 2011, and long-lived assets as of December 31, 2009, 2010 and 2011, according to their geographic location:

	2009				2010				2011
	Total revenues		Long-lived assets		Total revenues		Long-lived assets		Total revenues		Long-lived assets

The Americas	$	50,610	$	592	$	49,702	$	432	$	28,556	$	324
Europe and Africa		11,590		144		21,472		660		23,427		692
Far East		16,042		514		22,076		368		23,613		432
Israel		2,756		6,365		1,989		12,785		2,362		10,656

	$	80,998	$	7,615	$	95,239	$	14,245	$	77,958	$	12,104

The Company does not allocate its assets to its reportable segments; accordingly, asset information by reportable segments is not presented.

NOTE 15:-

RELATED PARTY BALANCES AND TRANSACTIONS

Balances with related parties:

	December 31,
	2010		2011

Trade receivables	$	8	$	16

Trade payables	$	89	$	154

F - 45

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:-

RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

Transactions with related parties:

	Year ended December 31,
	2009		2010		2011

Revenues (1)	$	526	$	277	$	113

Cost of revenues (3)	$	11	$	15	$	30

Research and development expenses (2)	$	66	$	77	$	144

Marketing, selling, general and administrative expenses (2)	$	336	$	467	$	777

Purchase of property and equipment (4)	$	329	$	368	$	298

(1)

Includes revenues from the Company's products and maintenance sold to companies held by principal shareholders ("affiliated companies").

(2)

Includes administrative services provided to the Company by affiliated companies that the Company reimburses for the costs incurred in providing these services.

(3)

Includes the purchase of components from affiliated companies.

(4)

Includes property and equipment that were purchased from affiliated companies.

F - 46

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Gross unrecognized tax benefits as of January 1 ,2011	$	1,179
Reduction of unrecognized tax benefit as a result of a lapse of the applicalble statute of limitations		(602	)
Interest		50

Gross unrecognized tax benefits as of December 31 ,2011	$	627

The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Israel and the United States. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years prior to 2007 and is no longer subject to Israeli examinations for years prior to 2007.

Israeli corporate tax structure:

Taxable income of Israeli companies is subject to tax at the rate of 26%, 25% and 24% in 2009, 2010 and 2011, respectively.

In July 2009, the Israeli Parliament passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among other things, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%, 2012 - 23%, 2013 - 22%, 2014 - 21%, 2015 - 20%, 2016 and thereafter - 18%.

On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax Burden Reform (Legislative Amendments), 2011 ("the Tax Burden Law") which, among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Tax Burden also increases the corporate tax rate to 25% in 2012. Following the amendment , corporate tax rates and capital gains rates are: 2011- 24%, 2012- and thereafter- 25%. The Tax Burden Law was published on December 7, 2011 and enters into force on January 1, 2012.

F - 47

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

Tax Benefits under the Law for the Encouragement of Capital Investment, 1959 ("the Investment Law"):

The Investment Law, prior to its amendment in April 2005, authorized the Israeli Investment Center to grant approved enterprise status ("Approved Enterprise") to capital investments in production facilities that meet certain relevant criteria specified by the law and the regulations specified thereafter. The tax benefits derived from any Approved Enterprise relate only to taxable income attributable to the specific program of investment to which the status was granted by the Investment Center.

On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") that significantly changed the provisions of the Investment Law. The Amendment revised the criteria for investment programs qualified to receive tax benefits, which, if qualified, are referred to as a "Beneficiary Enterprise" (rather than the previous terminology of "Approved Enterprise"). The Amendment generally requires that at least 25% of the Beneficiary Enterprise's income be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. However, the Investment Law provides that terms and benefits included in any letter of approval already granted to an Approved Enterprise will remain subject to the provisions of the law as they were on the date of such approval.

The Company has one capital investment program that has been granted Approved Enterprise status under the Investment Law ("the Approved program") and two additional programs that qualify as Beneficiary Enterprises pursuant to the Amendment ("the Beneficiary programs"). One of the Beneficiary programs was converted from a previously Approved Enterprise program pursuant to the approval of the Israel Tax Authority that the Company received in October 2007 (the”ITA Approval”). Pursuant to the Beneficiary and Approved programs, the Company is entitled to a tax benefit period of seven to ten years on income derived from these programs, as follows: a full income tax exemption for the first two years and a reduced income tax rate of 10%-25% (instead of the regular tax rate) for the remaining five to eight years depending on the level of foreign ownership of the Company.

The duration of tax benefits detailed above for the Approved Enterprise is subject to limits of 12 years from the year of commencement of production, or 14 years from the date of granting the approval, whichever is earlier. As of December 31, 2011, the Company's Approved Enterprise program has expired and the Beneficiary Enterprise programs expire between the years 2011 and 2015. The Company began using the tax benefits during the year 2006.

F - 48

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

As of December 31, 2011, approximately $ 25,277 out of the Company's retained earnings are tax-exempt earnings attributable to its Approved Enterprise program and $ 32,554 are tax-exempt earnings attributable to its Beneficiary Enterprise program. The tax-exempt income attributable to the Approved and Beneficiary Enterprises cannot be distributed to shareholders without subjecting the Company to taxes. If these retained tax-exempt profits are distributed, the Company would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative benefits track of 15%-25% tax rates. According to the Amendment, tax-exempt income generated under the Beneficiary Enterprise will be taxed upon dividend distribution or complete liquidation, whereas tax exempt income generated under the Approved Enterprise will be taxed only upon dividend distribution (and not upon complete liquidation, where the tax liability will be incurred by the shareholders). As of December 31, 2011, if the income attributed to the Approved Enterprise or Beneficiary enterprise, including upon liquidation, was distributed as a dividend, the Company would incur a tax liability at a rate of 15-25%.

The Company's Board of Directors has determined that the Company will not distribute any amounts of its undistributed tax-exempt income as a dividend. The Company intends to reinvest its tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Approved and Beneficiary Enterprise programs, as the undistributed tax exempt income is essentially permanent in duration.

The benefits from the Company's Approved and Beneficiary Enterprise programs are dependent upon the Company fulfilling the conditions stipulated by the Investment Law, the Amendment and the regulations published thereunder (as applicable), as well as the criteria in theITA Approval. If the Company does not comply with those conditions, the tax benefits may be canceled, and the Company may be required to refund the amount of the canceled benefits, with the addition of linkage differences and interest. In 2011, due to the acquisition of certain assets from Aethra, the Company did not comply with all of the conditions stipulated in the ITA Approval. Therefore on May 22, 2011 the Company submitted an application to the Israeli Tax Authority in respect to the acquisition of certain assets from Aethra. As of the date of these financial statements, the Company has not received any ruling by the Israeli Tax Authority regarding such application.

By virtue of the Investment Law, the Company is entitled to claim accelerated depreciation on equipment used by the Approved Enterprises during five tax years. The Company chose not to utilize this benefit in 2011. Income from sources other than the Approved and Beneficiary Enterprises during the benefit period will be subject to tax at Israel's regular corporate tax rate.

F - 49

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

In December 2010, the Israeli Parliament passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among other things, amendments to the Investment Law, effective as of January 1, 2011. According to the amendment, the benefit tracks under the Investment Law were modified and a uniform tax rate will apply to companies eligible for the "Preferred Enterprise" status. In order to be eligible for preferred enterprise status, a company must meet minimum requirements to establish that it contributes to the country's economic growth and is a competitive factor for the gross domestic product. Companies may elect to irrevocably implement the amendment (while waiving benefits provided under the Investment Law in effect prior to 2011) and subsequently would be subject to the amended tax rates that are in peripheral regions (Development Area A) the reduced tax rate will be 10% in 2011 and 2012, 7% in 2013 and 2014 and 6% starting from 2015. In other regions the tax rate will be 15% in 2011 and 2012, 12.5% in 2013 and 2014 and 12% starting from 2015. Preferred Enterprises in peripheral regions will be eligible for Investment Center grants, as well as the applicable reduced tax rates.

A distribution from a Preferred Enterprise out of the “Preferred Income” would be subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates). A distribution from a Preferred Enterprise out of the “Preferred Income” would be exempt from withholding tax for an Israeli-resident company. A company electing to waive its Privileged Enterprise or Approved Enterprise status through June 30, 2015 may distribute “Approved Income” or “Privileged Income” subject to 15% withholding tax for Israeli resident individuals and non-Israeli residents (subject to applicable treaty rates) and exempt from withholding tax for an Israeli-resident company. Nonetheless, a distribution from income exempt under Privileged Enterprise and Approved Enterprise programs will subject the exempt income to tax at the reduced corporate income tax rates pertaining to the Privileged Enterprise and Approved Enterprise programs upon distribution, or complete liquidation in the case of a Privileged Enterprise’s exempt income.

Under the transitional provisions of the 2011 Amendment, the Company may elect whether to irrevocably implement the 2011 Amendment with respect to its existing Beneficiary Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment or may continue to implement the legislation prior to the 2011 Amendment during the next years. The Company has not yet decided whether to apply the amendment.

Israeli carryforward losses:

As of December 31, 2011, Radvision Ltd. had an available tax loss carryforward amounting to approximately $23,640 which may be carryforward, in order to offset taxable income in the future for an indefinite period.

F - 50

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

Income taxes for non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence.

Israeli income taxes and foreign withholding taxes were not provided for undistributed earnings of the Company's foreign subsidiaries. The Company's Board of Directors has determined that the Company will not distribute any amounts of its subsidiaries' undistributed earnings as a dividend. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. Accordingly, no deferred income taxes have been provided. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

The Company's U.S. subsidiary's carryforward tax losses through December 31, 2011, amounted to approximately $ 5,495. These losses may be offset against any future U.S. taxable income of the U.S. subsidiary and will expire in the years 2021 through 2027. Considering the Company's income projections, management concluded based on the weight of available evidence that it is more likely than not that the deferred tax asset associated with the net operating loss carryforward and the other deferred tax items will be partially utilized in coming years. See also f below for the deferred taxes and valuation allowance recorded in respect of carryforward losses.

Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.

Deferred income taxes:

Deferred income taxes reflect the net tax effects of carryforward tax losses and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets, net are as follows:

F - 51

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

	December 31,
	2010			2011

Net operating loss carryforwards	$	1,057		$	5,158
Reserves and allowances, net		1,948			1,937
Compensation cost		1,756			1,915
Intangible assets		135			126
Research and development expenses		5,059			5,140

Net deferred tax asset before valuation allowance		9,955			14,276
Valuation allowance		(7,537	)		(13,093	)

	$	2,418		$	1,183

Domestic:
Current deferred tax asset, net	$	482		$	-
Non-current deferred tax asset, net		746			-

		1,228			-

Foreign:
Current deferred tax asset, net		448			450
Non-current deferred tax asset, net		742			733

	$	1,190		$	1,183

	$	2,418		$	1,183

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the period in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a valuation allowance amounting to $ 7,537 and $ 13,093 as of December 31, 2010 and 2011, respectively.

F - 52

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

The Company's total income (loss) before provision for income taxes is as follows:

	Year ended December 31,
	2009		2010			2011

Domestic (Israel)	$	3,681	$	(3,711	)	$	(22,326	)
Foreign		1,035		1,873			1,558

	$	4,716	$	(1,838	)	$	(20,768	)

The tax expenses are comprised as follows:

	Year ended December 31,
	2009			2010			2011

Domestic (Israel):

Deferred taxes	$	(2,594	)	$	(152	)	$	(1,228	)
Prior years taxes		(365	)		(451	)		(523	)

Total domestic		(2,959	)		(603	)		(1,751	)

Foreign:

Current taxes		(719	)		(1,190	)		(897	)
Deferred taxes		(1,812	)		288			(7	)
Prior years taxes		-			(81	)		-

Total foreign		(2,531	)		(983	)		(904	)

	$	(5,490	)	$	(1,586	)	$	(2,655	)

F - 53

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 16:-

TAXES ON INCOME (Cont.)

A reconciliation between the theoretical tax income, assuming all income is taxed at the statutory tax rate applicable to the income of the Company, and the actual tax income, as reported in the statements of operations, is as follows:

	Year ended December 31,
	2009			2010			2011

Income (loss) before taxes on income	$	4,716		$	(1,838	)	$	(20,768	)

Theoretical tax expense (benefit) computed at the statutory rate *)	$	1,309		$	(291	)	$	(4,829	)
Change in valuation allowance, net		7,600			329			5,952
Tax exempt or reduced tax on (income) loss due to approved enterprise status		(5,138	)		(730	)		(234	)
Tax loss for prior years		365			532			632
Non-deductible stock-based compensation		852			568			438
Non-deductible employees related expenses		-			771			-
Others		502			407			696

Actual tax expense, net	$	5,490		$	1,586		$	2,655

The tax rates for domestic income were 26%, 25% and 24% for the years 2009, 2010 and 2011, respectively. The tax rate for the US income was 34% for the years 2009, 2010 and 2011.

The effect of the tax exempt or reduced (income) loss due to Approved Enterprise status on net earnings per share is:

	Year ended December 31,
	2009		2010		2011

Basic net earnings per Ordinary share	$	0.27	$	0.04	$	0.04

Diluted net earnings per Ordinary share	$	0.27	$	0.04	$	0.04

F - 54

RADVISION LTD.

AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 17:- FINANCIAL INCOME, NET

	Year ended December 31,
	2009			2010			2011

Financial and other income:

Interest income	$	2,659		$	2,308		$	2,270
Exchange rate differences, net		89			-			34

Financial and other expenses:

Interest expenses		(11	)		(9	)		(138	)
Amortization of marketable securities premium net of accretion of discount		(370	)		(631	)		(711	)
Commission and others		(94	)		(144	)		(195	)
Other-than-temporary impairment of available-for-sale marketable securities, net		(554	)		(306	)		(340	)
Exchange rate differences, net		-			(218	)		-

	$	1,719		$	1,000		$	920

F - 55

S I G N A T U R E S

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	RADVISION LTD.

	By:	/s/ Boaz Raviv
	Name:	Boaz Raviv
	Title:	Chief Executive Officer

Dated: April 22, 2012

110

Title of each class	Name of each exchange on which registered
Ordinary Shares, NIS 0.1 Par Value	NASDAQ Global Select Market

Consolidated Balance Sheet Data:
	As at December 31,
	2007		2008		2009		2010		2011
Cash and cash equivalents	$	45,370	$	37,872	$	40,289	$	17,753	$	19,710
Working capital		118,990		98,903		96,913		74,724		55,985
Total assets		175,040		162,188		161,997		165,611		137,785
Shareholders’ equity		147,559		129,583		133,013		126,341		102,789
Capital stock		135,561		141,341		146,232		149,355		151,788

Contractual Obligations	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	10,888,000	$	4,057,000		5,516,000		1,315,000		-
Uncertain income tax position (*)	$	627,000		-		-		-		-
Accrued severance pay (**)		8,956,000		-		-		-		-
Total	$	20,471,000	$	4,057,000	$	5,516,000	$	1,315,000	$	-

Name	Age	Position
Rael Kolevsohn	42	Vice President and General Counsel
Shani Sandner	41	Vice President of Human Resources
Roberto Giamagli	47	General Manager, Video Business Unit
Pierre Hagendorf	43	General Manager, Technology Business Unit
Ilan Givon	53	Vice President of Operations
Itai Margalit	42	General Manager for Europe, Middle East, Africa, Central and Latin America
Eitan Livne	49	General Manager for Asia-Pacific
Gabriela (Gaby) Koren	40	General Manager for the Americas
Robert Romano	56	Vice President of Marketing
Yair Wiener	35	Chief Technology Officer
Avi Moyal	52	Vice President of Business Development

Name and Principal Position		Salaries, fees, commissions and bonuses				Pension, retirement and other similar benefits
All officers and directors as a group (7 persons)		$	744,260			$	88,906


Large accelerated filer o	Accelerated filer x	Non-accelerated filer o


U.S. GAAP x	International Financial Reporting Standards as issued by the International Accounting Standards Board o	Other o

		Page No.
PART I		3
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	3
ITEM 3.	KEY INFORMATION	3
	A. Selected Financial Data	3
	B. Capitalization and Indebtedness	4
	C. Reasons for the Offer and Use of Proceeds	4
	D. Risk Factors	4
ITEM 4.	INFORMATION ON THE COMPANY	18
	A. History and Development of the Company	18
	B. Business Overview	20
	C. Organizational Structure	39
	D. Property, Plants and Equipment	40
ITEM 4A.	UNRESOLVED STAFF COMMENTS	40
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	40
	A. Operating Results	40
	B. Liquidity and Capital Resources	55
	C. Research and Development, Patents and Licenses	57
	D. Trend Information	58
	E. Off-Balance Sheet Arrangements	58
	F. Tabular Disclosure of Contractual Obligations	58
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	59
	A. Directors and Senior Management	59
	B. Compensation	63
	C. Board Practices	64
	D. Employees	74
	E. Share Ownership	76
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	79
	A. Major Shareholders	79
	B. Related Party Transactions	82
	C. Interests of Experts and Counsel	83
ITEM 8.	FINANCIAL INFORMATION	83
	A. Consolidated Statements and Other Financial Information	83
	B. Significant Changes	84
ITEM 9.	THE OFFER AND LISTING	84
	A. Offer and Listing Details	84
	B. Plan of Distribution	85
	C. Markets	85
	D. Selling Shareholders	86
	E. Dilution	86
	F. Expense of the Issue	86
ITEM 10.	ADDITIONAL INFORMATION	86
	A. Share Capital	86
	B. Memorandum and Articles of Association	86
	C. Material Contracts	90
	D. Exchange Controls	90
	E. Taxation	91
	F. Dividends and Paying Agents	101
	G. Statement by Experts	101
	H. Documents on Display	101
	I. Subsidiary Information	102
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	102

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	103
PART II		103
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	103
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	103
ITEM 15.	CONTROLS AND PROCEDURES	104
ITEM 16.	RESERVED.	104

ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	105
ITEM 16B.	CODE OF ETHICS	105
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	105
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	106
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	106
ITEM 16F.	CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT	107
ITEM 16G.	CORPORATE GOVERNANCE	107
ITEM 16H.	MINE SAFETY DISCLOSURE	107

PART III		107
ITEM 17.	FINANCIAL STATEMENTS	107
ITEM 18.	FINANCIAL STATEMENTS	107
ITEM 19.	EXHIBITS	108
S I G N A T U R E S		110

Consolidated Statement of Operations Data:
	Year Ended December 31,
	2007		2008			2009			2010			2011
	(in thousands, except per share data)
Revenues	$	91,583	$	84,747		$	80,998		$	95,239		$	77,958
Cost of revenues		18,294		18,779			17,371			26,257			24,979
Gross profit		73,289		65,968			63,627			68,982			52,979
Operating expenses:
Research and development		30,329		36,883			26,980			30,937			31,944
Marketing and selling		32,627		35,330			27,577			31,740			36,111
General and administrative		8,633		8,954			5,493			6,057			5,701
Additional consideration for Aethra assets purchase		-		-			-			-			806
Acquisition-related restructuring expenses, net		-		-			-			2,722			105
Acquisition-related costs		-		-			580			364			-
Total operating expenses		71,589		81,167			60,630			71,820			74,667
Operating income (loss)		1,700		(15,199	)		2,997			(2,838	)		(21,688	)
Financial income, net		6,095		2,539			1,719			1,000			920
Income (loss) before taxes on income		7,795		(12,660	)		4,716			(1,838	)		(20,768	)
Tax benefit (expense), net		1,790		(280	)		(5,490	)		(1,586	)		(2,655	)
Net income (loss)	$	9,585	$	(12,940	)	$	(774	)	$	(3,424	)	$	(23,423	)
Basic net earnings (loss) per Ordinary share	$	0.44	$	(0.63	)	$	(0.04	)	$	(0.18	)	$	(1.27	)
Weighted average number of Ordinary shares used to compute basic net earnings (loss) per share		21,951		20,472			19,474			19,221			18,449
Diluted net earnings (loss) per Ordinary share	$	0.43	$	(0.63	)	$	(0.04	)	$	(0.18	)	$	(1.27	)
Weighted average number of Ordinary shares used to compute diluted net earnings (loss) per share		22,482		20,472			19,474			19,221			18,449

Year Ended December 31,
Region	2009			2010			2011
The Americas		62	%		52	%		37	%
Europe, the Middle East and Africa...		18	%		25	%		33	%
Asia-Pacific		20	%		23	%		30	%

Year ended December 31,	Israeli inflation rate %		NIS depreciation (appreciation) rate %			Israeli inflation adjusted for depreciation (appreciation) %
2007		3.4		(9.0	)		12.4
2008		3.8		(1.1	)		4.9
2009		3.9		(0.7	)		4.6
2010		2.7		(6.0	)		8.7
2011		2.2		7.7			(5.5	)

Name	Age	Position
Zohar Zisapel (1)	63	Chairman of the Board of Directors
Boaz Raviv	52	Chief Executive Officer
Adi Sfadia	42	Chief Financial Officer
Joseph Atsmon (1) (2)	63	Director
Liora Lev (2)	59	Director
Yoseph Linde(2)	65	Director
Efraim Wachtel	67	Director

	As of December 31,
	2009		2010		2011
Research and development		199		222		209
Sales and marketing		127		139		147
Operations and customer support		35		36		37
Management and administration		32		32		31
Total		393		429		424

Name	Number of ordinary shares (1)			Percentage of outstanding ordinary shares (2)
Zohar Zisapel		5,128,317	(3)		27.35	%
Boaz Raviv		477,798	(4)		2.5	%
Adi Sfadia		*			*
Joseph Atsmon		*			*
Liora Lev		*			*
Yoseph Linde		*			*
Efraim Wachtel		*			*