---

---

# SECURITIES AND
EXCHANGE COMMISSIONWashington D.C. 20549

# FORM 20-F

|o | REGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

# OR

|x | ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December
31, 2006

# OR

|o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

# For the transition
period from __________ to __________

|o | SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell
company report .................

# Commission file number
0-29871



RADVISION LTD.(Exact Name of Registrant as specified in its charter
and translation of Registrant's name into English)

Israel(Jurisdiction of incorporation or organization)

24 Raoul Wallenberg Street, Tel Aviv 69719, Israel(Address of principal executive offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act:

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

Securities registered or to be
registered pursuant to Section 12(g) of the Act:  None

Securities for which there is a
reporting obligation pursuant to Section 15(d) of the Act:  None

|Indicate
the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

Ordinary
Shares, par value NIS 0.1 per share22,251,552 
(as of December 31, 2006)

|Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
|-----------------------------------------------------------------------------------------------------------------------

Yes o No  x

|If
this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Yes o No  x



---

---

|Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Yes  x  No o

|Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Indicate
by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18  x

If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

Yes o No  x

|This
report on Form 20-F is being incorporated by reference into our Registration Statements on
Form S-8 File Nos. 333-45422, 333-53814, 333-55130, 333-66250, 333-82488, 333-104377,
333-116964, 333-127013 and 333-141654.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- ii -

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# TABLE OF CONTENTS

|         |                                                            |                                                         | Page No.
|-------- | ---------------------------------------------------------- | ------------------------------------------------------- | --------
|
|PART I   |                                                            |                                                         | 2       
|        
|ITEM 1.  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      | 2                                                      
|ITEM 2.  | OFFER STATISTICS AND EXPECTED TIMETABLE                    | 2                                                      
|ITEM 3.  | KEY INFORMATION                                            | 2                                                      
|         | A.                                                         | Selected Financial Data                                 | 2       
|         | B.                                                         | Capitalization and Indebtedness                         | 3       
|         | C.                                                         | Reasons for the Offer and Use of Proceeds               | 3       
|         | D.                                                         | Risk Factors                                            | 3       
|ITEM 4.  | INFORMATION ON THE COMPANY                                 | 12                                                     
|         | A.                                                         | History and Development of the Company                  | 12      
|         | B.                                                         | Business Overview                                       | 13      
|         | C.                                                         | Organizational Structure                                | 30      
|         | D.                                                         | Property, Plants and Equipment                          | 30      
|ITEM 4A. | UNRESOLVED STAFF COMMENTS                                  | 30                                                     
|ITEM 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS               | 30                                                     
|         | A.                                                         | Operating Results                                       | 30      
|         | B.                                                         | Liquidity and Capital Resources                         | 43      
|         | C.                                                         | Research and Development, Patents and Licenses          | 45      
|         | D.                                                         | Trend Information                                       | 46      
|         | E.                                                         | Off-Balance Sheet Arrangements                          | 46      
|         | F.                                                         | Tabular Disclosure of Contractual Obligations           | 46      
|ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 | 46                                                     
|         | A.                                                         | Directors and Senior Management                         | 46      
|         | B.                                                         | Compensation                                            | 50      
|         | C.                                                         | Board Practices                                         | 51      
|         | D.                                                         | Employees                                               | 58      
|         | E.                                                         | Share Ownership                                         | 59      
|ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          | 62                                                     
|         | A.                                                         | Major Shareholders                                      | 62      
|         | B.                                                         | Related Party Transactions                              | 64      
|         | C.                                                         | Interests of Experts and Counsel                        | 66      
|ITEM 8.  | FINANCIAL INFORMATION                                      | 66                                                     
|         | A.                                                         | Consolidated Statements and Other Financial Information | 66      
|         | B.                                                         | Significant Changes                                     | 67      
|ITEM 9.  | THE OFFER AND LISTING                                      | 67                                                     
|         | A.                                                         | Offer and Listing Details                               | 67      
|         | B.                                                         | Plan of Distribution                                    | 68      
|         | C.                                                         | Markets                                                 | 68      
|         | D.                                                         | Selling Shareholders                                    | 69      
|         | E.                                                         | Dilution                                                | 69      
|         | F.                                                         | Expense of the Issue                                    | 69      
|ITEM 10. | ADDITIONAL INFORMATION                                     | 69                                                     
|         | A.                                                         | Share Capital                                           | 69      
|         | B.                                                         | Memorandum and Articles of Association                  | 69      
|         | C.                                                         | Material Contracts                                      | 71      
|         | D.                                                         | Exchange Controls                                       | 71      
|         | E.                                                         | Taxation                                                | 72      
|         | F.                                                         | Dividend and Paying Agents                              | 80      
|         | G.                                                         | Statement by Experts                                    | 80      
|         | H.                                                         | Documents on Display                                    | 81      
|         | I.                                                         | Subsidiary Information                                  | 81      
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS | 81                                                     
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     | 82                                                     

- iii -

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|                    |                                                                              |   
|------------------- | ---------------------------------------------------------------------------- | --
|PART II             |                                                                              | 82
|                   
|ITEM 13.            | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 82
|ITEM 14.            | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 82
|ITEM 15.            | CONTROLS AND PROCEDURES                                                      | 82
|ITEM 15T.           | CONTROLS AND PROCEDURES                                                      | 83
|ITEM 16.            | RESERVED                                                                     | 83
|ITEM 16A.           | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 83
|ITEM 16B.           | CODE OF ETHICS                                                               | 84
|ITEM 16C.           | PRINCIPAL ACCOUNTING FEES AND SERVICES                                       | 84
|ITEM 16D.           | EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE   | 84
|ITEM 16E.           | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 85
|                   
|PART III            |                                                                              | 85
|                   
|ITEM 17.            | FINANCIAL STATEMENTS                                                         | 85
|ITEM 18.            | FINANCIAL STATEMENTS                                                         | 85
|ITEM 19.            | EXHIBITS                                                                     | 86
|S I G N A T U R E S | 88                                                                          

- iv -

---

---

# INTRODUCTION

RADVISION
Ltd., incorporated under the laws of the State of Israel, is a designer, developer and
supplier of products and technology that enable real-time voice, video and data
communication over packet and mobile 3G (Third Generation) networks, including the
Internet and other Internet Protocol, or IP, networks. Since our initial public offering
on March 14, 2000, our ordinary shares have been listed on the NASDAQ Global Market
(symbol: RVSN). Since October 20, 2002, our ordinary shares have also traded on the Tel
Aviv Stock Exchange. We were incorporated in January 1992, commenced operations in
October 1992 and commenced sales of our products in the fourth quarter of 1994.

We
have obtained U.S. trademark registrations for RADVISION, V2oIP and CU-SeeMe. 
We have pending U.S. trademark applications for SCOPIA, DELIVERING THE VISUAL EXPERIENCE,
IMS EXPRESS, PATHFINDER and FLAT CAPACITY PLUS. We also claim common-law trademark rights
in the following marks: Beyond the Standard, Click to Meet, iContact, IMfirst, IMS
Developer Suite, Intelligent Linking, Interactive Video Platform, INVISION, iView,
PC-2-Mobile, ProLab, QualiVision, Video Mojo, Video Ringback Clip and Virtual MCU.  
All other trademarks and trade names appearing in this annual report are owned by their
respective holders.

We
currently have sales offices in the United States and Israel and marketing, representative
and liaison offices in Brazil, China, France, Germany, Hong Kong, India, Italy, Japan,
Korea, Singapore, Spain and the United Kingdom. As used in this annual report, the terms
we, us, our, and RADVISION mean RADVISION
Ltd. and its subsidiaries, unless otherwise indicated.

RADVISION
Ltd. is a foreign private issuer as defined in Rule 3b-4 under the Securities
Exchange Act of 1934. As a result, we are eligible to file this annual report pursuant to
Section 13 of the Securities Exchange Act of 1934 Act on Form 20-F and to file interim
reports on Form 6-K.

Our
consolidated financial statements appearing in this annual report are prepared in U.S.
dollars and in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP, and audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States) generally accepted in the United States. All
references in this annual report to dollars or $ are to U.S.
dollars and all references in this annual report to NIS are to New Israeli
Shekels.

Statements
made in this annual report concerning the contents of any contract, agreement or other
document are summaries of such contracts, agreements or documents and are not complete
descriptions of all of their terms. If we filed any of these documents as an exhibit to
this annual report or to any registration statement or annual report that we previously
filed, you may read the document itself for a complete description of its terms.

This
Annual Report on Form 20-F contains various forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and within the Private Securities
Litigation Reform Act of 1995, as amended. Such forward-looking statements reflect our
current view with respect to future events and financial results. Forward-looking
statements usually include the verbs, anticipates, believes,
estimates, expects, intends, plans,
projects, understands and other verbs suggesting uncertainty. We
remind readers that forward-looking statements are merely predictions and therefore
inherently subject to uncertainties and other factors and involve known and unknown risks
that could cause the actual results, performance, levels of activity, or our achievements,
or industry results, to be materially different from any future results, performance,
levels of activity, or our achievements expressed or implied by such forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events.
We have attempted to identify additional significant uncertainties and other factors
affecting forward-looking statements in the Risk Factors section which appears in Item 3.D
Key Information -Risk Factors.



---

---

# PART I

|ITEM 1. |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- |  | -----------------------------------------------------

Not
applicable.

|ITEM 2. |  | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- |  | ---------------------------------------

Not
applicable.

|ITEM 3. |  | KEY INFORMATION
|------- |  | ---------------

|A. | SELECTED
FINANCIAL DATA
|-- | -----------------------

The
following selected consolidated financial data for and as of the five years ended December
31, 2006, are derived from our audited consolidated financial statements which have been
prepared in accordance with U.S. GAAP. The selected consolidated financial data as of
December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004 have
been derived from our audited consolidated financial statements and notes thereto included
elsewhere in this annual report. The selected consolidated financial data as of December
31, 2004, 2003 and 2002 and for the years ended December 31, 2003 and 2002 have been
derived from audited consolidated financial statements not included in this annual report.
The selected consolidated financial data set forth below should be read in conjunction
with and are qualified by reference to Item 5, Operating and Financial Review and
Prospects and our consolidated financial statements and notes thereto included
elsewhere in this annual report.

# Consolidated Statement
of Operations Data:

|                                                   | Year Ended December 31,
|-------------------------------------------------- | -----------------------
|
|
|
|
|Revenues                                           |                        
|Cost of revenues                                   |                        
|                                                   |                        
|Gross Profit                                       |                        
|Operating expenses:                                |                        
|Research and development                           |                        
|Marketing and selling                              |                        
|General and administrative                         |                        
|Patent settlement reserve                          |                        
|Restructuring cost                                 |                        
|                                                   |                        
|Total operating expenses                           |                        
|Operating income                                   |                        
|Financial income, net                              |                        
|                                                   |                        
|Income before taxes on income                      |                        
|Taxes benefit, net                                 |                        
|                                                   |                        
|Net income                                         |                        
|                                                   |                        
|Basic net earnings per Ordinary share              |                        
|Weighted average number of Ordinary shares used to |                        
|compute basic net earnings per share               |                        
|Diluted net earnings per Ordinary share            |                        
|Weighted average number of Ordinary shares used to |                        
|compute diluted net earnings per share             |                        

2

---

---

Consolidated Balance Sheet Data:

|                          | As at December 31,
|------------------------- | ------------------
|
|
|
|
|Cash and cash equivalents |                   
|Working capital           |                   
|Total assets              |                   
|Shareholders' equity      |                   
|Capital stock             |                   

|B. | CAPITALIZATION
AND INDEBTEDNESS
|-- | -------------------------------

Not
applicable.

|C. | REASONS
FOR THE OFFER AND USE OF PROCEEDS
|-- | -----------------------------------------

Not
applicable.

|D. | RISK
FACTORS
|-- | ------------

Investing
in our ordinary shares involves a high degree of risk and uncertainty. You should
carefully consider the risks and uncertainties described below before investing in our
ordinary shares. If any of the following risks actually occurs, our business, prospects,
financial condition and results of operations could be harmed. In that case, the value of
our ordinary shares could decline, and you could lose all or part of your investment.

# Risks Relating to Our
Business

Our quarterly financial
performance is likely to vary significantly in the future. Our revenues and operating
results in any quarter may not be indicative of our future performance and it may be
difficult for investors to evaluate our prospects.

Our
quarterly revenues and operating results have varied significantly in the past and are
likely to continue to vary significantly in the future. Fluctuations in our quarterly
financial performance may result from the fact that we may receive a small number of
relatively large orders in any given quarter. Because these orders generate
disproportionately large revenues, our revenues and the rate of growth of our revenues for
that quarter may reach levels that may not be sustained in subsequent quarters. In
addition, some of our products have lengthy sales cycles. For example, it typically takes
from three to 12 months after we first begin discussions with a prospective customer
before we receive an order from that customer. We also have a limited order backlog, which
makes revenues in any quarter substantially dependent upon orders we deliver in that
quarter. Because of these factors, our revenues and operating results in any quarter may
not meet market expectations or be indicative of future performance and it may be
difficult for investors to evaluate our prospects.

We rely on a small number of
marketing partners who distribute our products either under our name or as private label
products for a significant portion of our business.

We
rely in great measure on original equipment manufacturers, or OEMs, systems integrators
and value added resellers, or VARs, to sell our products. Our OEM customers typically may
purchase our products to integrate with products that they developed in-house to build
complete IP communication solutions. Our systems integrator customers either purchase our
full suite of products or integrate our individual products with those of other
manufacturers in order to build complete IP communication solutions. Our VAR customers
purchase our products to resell to end-users as separate units, or as part of a family of
related product offerings, either under our RADVISION label or under their private label.
If we are unable to maintain these marketing partners or obtain new marketing partners,
our future revenues and profitability will be affected and we may lose market share.

3

---

---

One
OEM customer accounted for approximately 35.0% of our sales in 2006 and approximately
27.0% of our sales in both 2005 and 2004. Our agreement with this OEM customer continues
on a year to year basis and either party may terminate the relationship no later than
ninety days prior to the expiration of the then current term. If this partner were to
curtail or terminate its relationship with us, our sales would be materially adversely
impacted and our revenues would decline.

If the use of packet-based
networks as a medium for real-time voice, video and data communication does not continue
to grow, the demand for our products and technology will slow and our revenues will
decline.

Our
future success depends on the growth in the use of packet-based networks, including the
Internet and other IP networks, as a medium for real-time voice, video and data
communication. If the use of packet-based networks does not expand, the demand for our
products and technology will slow and our revenues will decline. Market acceptance of
packet-based networks as a viable alternative to circuit-switched networks for the
transmission of real-time voice and video communication is not proven and may be inhibited
by concerns about quality of service and potentially inadequate development of the
necessary infrastructure.

We must develop new products and
technology and enhancements to existing products and technology to remain competitive. If
we fail to do so, we may lose market share to our competitors and our revenues may
decline.

The
market for our products and technology is characterized by rapid technological change, new
and improved product introductions, changes in customer requirements and evolving industry
standards. Our research and development team may not be as large as those of our
competitors, which may result in longer lead times to develop and implement new
technologies and may limit our ability to compete effectively with them and may result in
our losing market share. Our future success will depend to a substantial extent on our
ability to:

| |  | timely
identify new market trends; and
| | - | --------------------------------------

| |  | develop,
introduce and support new and enhanced products and technology on a successful and timely
              basis.
| | - | -----------------------------------------------------------------------------------------------------------------------

We
may not be successful in developing new products and technology and enhancements to our
existing products and technology. If we fail to develop and deploy new products and
technology or product and technology enhancements on a successful and timely basis, we may
lose market share to our competitors and our revenues may decline.

We have invested, and will
continue to invest, in products and technology that comply with those industry standards
that we believe have been, or will be, broadly adopted. If one or more alternative
standards were to gain greater acceptance than the standards that we believe have or will
be broadly adopted, sales of our products and technology would suffer.

Our
current suite of IP communication protocol toolkits includes H.323, SIP (session
initiation protocol), and SIP IMS (session initiation protocol IP multimedia subsystem),
NAT (network address translation) Traversal, Diameter, MGCP (media gateway control
protocol) and MEGACO (media gateway control protocol for large-scale IP-centric
communication networks). We also support the 3G-324M protocol for real time multimedia
services over 3G (Third Generation) networks. We also offer testing suite for H.323, Sip,
SIP IMS, and 3G-324M. IffutureIP networks are not designed with components
built around these protocols, or if one or more alternative protocols were to gain greater
acceptance than these protocols, our investments may be of little or no value and sales of
our products and technology would suffer.

4

---

---

Competition in the markets for our
products and technology is intense. We may not be able to compete effectively in these
markets and we may lose market share to our competitors.

The
markets for our products and technology are highly competitive and we expect competition
to intensify in the future. The principal competitors in the market for our network
infrastructure unit products currently include Polycom Inc., Tandberg and Codian Ltd. The
principal competitors in the market for our toolkit business unit products currently
include Hughes Software Systems acquired in 2004 by Flextronics Software Systems (now
Aricent), Data Connection Limited and in-house developers employed by manufacturers of
telecommunication equipment and systems. Additional competitors may enter each of our
markets at any time. Moreover, our customers may seek to develop internally the products
that we currently sell to them and compete with us. We may not be able to compete
effectively in these markets and we may lose market share to our competitors.

Some of our competitors have
greater resources than we do. This may limit our ability to compete effectively and
discourage customers from purchasing our products and technology.

Some
of our competitors have greater financial, personnel and other resources than we do, which
may limit our ability to compete effectively with them. These competitors may be able to
respond more quickly to new or emerging technologies or changes in customer requirements.
These competitors may also benefit from greater economies of scale, offer more aggressive
pricing; or devote greater resources to the promotion of their products. Any of these
advantages may discourage customers from purchasing our products and technology. If we are
unable to compete successfully against our existing or potential competitors, our revenues
and margins will decline.

Major solutions providers who
currently work with us might compete with us in the future.

We
currently offer our technology either directly to or in association with, major solutions
providers such as Aethra, Alcatel, Cisco, Comverse, Huawei, IBM, LifeSize, Siemens,
Telstra and others. Some of these companies also purchase the technology from our
competitors. If these providers choose to develop their own technologies, acquire
technologies from our competitors, or acquire such competitors, our financial condition
and operating results could be adversely impacted and we may face increased levels of
competition from these major companies.

Our software development kit
revenues will decrease if our customers choose to use source code that is available for
free.

Both
Vovida Networks, Inc., a subsidiary of Cisco Systems Inc., and Open H.323 offer H.323
source code for free. In addition, Vovida Networks, Inc. offers MGCP and SIP source code
for free. Other companies, including Microsoft and Nokia, may offer similar development
kits as part of their product offerings. In addition there are other open source toolkits
for SIP (SIP foundry) and Diameter (OpenDiameter). If our customers choose to use the free
source code offered by any of these organizations instead of purchasing our technology,
our revenues from the sale of our software development kits will decline.

Our agreements with our customers
generally do not have minimum purchase requirements. If our customers decrease or cease
purchasing our products and technology, our revenues will decline.

Our
agreements with our customers generally do not have minimum purchase requirements nor do
they require our customers to purchase any products from us. If any or all of our
customers cease to purchase or reduce their purchases of our products and technology at
any time, our revenues will decline. Our customers may choose to independently develop for
themselves, or purchase from others, products and technology similar to our products and
technology. Moreover, if our customers do not successfully market and sell the systems and
products into which they incorporate our products and technology, the demand of these
customers for our products and technology will decline. Our customers sales of
systems and products containing our products and technology may be adversely affected by
circumstances over which we have no control and over which our customers may have little,
if any, control.

5

---

---

Undetected errors may increase our
costs and impair the market acceptance of our products and technology.

Our
products and technology have occasionally contained, and may in the future contain,
undetected errors when first introduced or when new versions are released. Our customers
integrate our products and technology into systems and products that they develop
themselves or acquire from other vendors. As a result, when problems occur in equipment or
a system into which our products or technology have been incorporated, it may be difficult
to identify the cause of the problem. Regardless of the source of these errors (whether
the source is our products or technology or the products of another vendor), we must
divert the attention of our engineering personnel from our research and development
efforts to address the errors. We may incur warranty or repair costs, be subject to
liability claims for damages related to product errors or experience delays as a result of
these errors in the future. Any insurance policies that we may have may not provide
sufficient protection or coverage should a claim be asserted. Moreover, the occurrence of
errors, whether caused by our products or technology or the products of another vendor,
may result in significant customer relations problems and injury to our reputation and may
impair the market acceptance of our products and technology.

Our products may infringe on the
intellectual property rights of others, which could increase our costs and negatively
affect our profitability.

Third
parties have asserted in the past and may assert in the future against us infringement
claims or claims that we have infringed a patent, copyright, trademark or other
proprietary right belonging to them. Some of these third parties have offered to license
their intellectual property to our company. See Item. 8A. Financial Information 
Legal Proceedings. Any infringement claim, even if not meritorious, could result in
the expenditure of significant financial and managerial resources and could negatively
affect our profitability. If there is a successful claim of product infringement against
us and we are not able to license the infringed or similar technology, our business,
operating results and financial condition would be materially and adversely affected.

We are dependent upon a limited
number of suppliers of key components. If these suppliers delay or discontinue manufacture
of these components, we may experience delays in shipments, increased costs and
cancellation of orders for our products.

We
currently obtain key components used in the manufacture of our products from a sole
supplier or from a limited number of suppliers. We do not have long-term supply contracts
with our suppliers. Any delays in delivery of or shortages in these components could
interrupt and delay manufacturing of our products and result in the cancellation of orders
for our products. In addition, these suppliers could discontinue the manufacture or supply
of these components at any time. We may not be able to identify and integrate alternative
sources of supply in a timely fashion or at all. Any transition to alternate suppliers may
result in delays in shipment and increased expenses and may limit our ability to deliver
products to our customers. Furthermore, if we are unable to identify an alternative source
of supply, we would have to modify our products to use a substitute component, which may
cause delays in shipments, increased design and manufacturing costs and increased prices
for our products.

From
time to time we issue irrevocable purchase orders to our suppliers. If market demand for
our products declines, we may be required to recognize a provision for expected loss which
may have a negative impact on our financial results.

6

---

---

We rely on third party technology
and licenses. If we are unable to continue to license or purchase this technology on
reasonable terms, we may face delays in releases of our products and may be required to
reduce the functionality of our products derived from this technology.

We
rely on technology that we license or procure from third parties, including software that
is integrated with internally developed software and used in our products to perform key
functions. If we are unable to continue to license any of this software on commercially
reasonable terms or otherwise obtain the technology, we will face delays in releases of
our products or will be required to reduce the functionality of our products until
equivalent technology can be identified, licensed or developed, and integrated into our
current products.

We provide 3G-324M-based solutions
to both service providers and equipment developers. If our 3G customers move to all IP
networks, the demand for these products will end.

The
3G-324M protocol is a circuit switched protocol for delivering real-time services (video
primarily) over 3G mobile networks. This is a strong market both for our service provider
gateways and our Technology Business Unit developer toolkits. However, we believe that the
3G-324M protocol will only be used until such time as packet switching technology such as
HSPA (high school proficiency assessment), IMS (IP multimedia subsystem) or an all-IP
broadband mobile 3G network can sustain high quality, high bandwidth services. This is not
expected to happen for a few years, but there are specific markets, such as in the United
States, where the goal is to provide video services based exclusively on packet switching
technology. As technology for real-time IP communications gains acceptance, service
providers are expected to gradually move to all-IP architectures, as a result of which
they may gradually cease to need our 3G-324M gateway. As service providers move to all-IP
networks, our telecommunications equipment developer customers will no longer need to
develop 3G-324M-based devices and sales of our 3G-324M toolkits would be adversely
affected.

Third parties may infringe upon or
misappropriate our intellectual property, which could impair our ability to compete
effectively and negatively affect our profitability.

Our
success depends upon the protection of our technology, trade secrets and trademarks. Our
profitability could suffer if third parties infringe upon our intellectual property rights
or misappropriate our technology and other assets or the intellectual property rights
licensed from third parties. To protect our rights to our intellectual property, we rely
on a combination of trade secret protection, trademark law, confidentiality agreements and
other contractual arrangements. We rely on third parties to protect their intellectual
property which is licensed to us, but we do not generally investigate to what extent such
intellectual property is protected. The protective steps we have taken may be inadequate
to deter infringement or misappropriation. We may be unable to detect the unauthorized use
of our intellectual property or take appropriate steps to enforce our intellectual
property rights. Policing unauthorized use of our products and technology is difficult. In
addition, the laws of some foreign countries in which we currently sell or may in the
future sell our products do not protect our proprietary rights to as great an extent as do
the laws of the United States. Failure to adequately protect or to promptly detect
unauthorized use of our intellectual property could devalue our proprietary content and
impair our ability to compete effectively. Further, defending our intellectual property
rights could result in the expenditure of significant financial and managerial resources,
whether or not the defense is successful.

We are dependent on our senior
management. Any loss of the services of our senior management could negatively affect our
business.

Our
future success depends to a large extent on the continued services of our senior
management and key personnel. We do not carry key-man life insurance for any of our senior
management. Any loss of the services of members of our senior management or other key
personnel could negatively affect our business.

7

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Our failure to retain and attract
personnel could harm our business, operations and product development efforts.

Our
products require sophisticated research and development, marketing and sales, and
technical customer support. Our success depends on our ability to attract, train and
retain qualified research and development, marketing and sales and technical customer
support personnel. We intend to increase substantially the number of our employees who
perform these functions. Competition for personnel in all of these areas is intense and we
may not be able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel we require
is very competitive, due to the limited number of people available with the necessary
technical skills and understanding of our products and technology. If we fail to attract
and retain qualified personnel, our business, operations and product development efforts
would suffer.

Our non-competition agreements
with our employees may not be enforceable. If any of these employees leaves us and joins a
competitor, our competitor could benefit from the expertise our former employee gained
while working for us.

We
currently have non-competition agreements with our key employees in Israel.These
agreements prohibit those employees, if they cease to work for us, from directly competing
with us or working for our competitors. Under current U.S. and Israeli law, we may not be
able to enforce these non-competition agreements. If we are unable to enforce any of these
agreements, our competitors that employ our former employees could benefit from the
expertise our former employees gained while working for us. In addition, we have
non-competition agreements with only a limited number of employees outside of Israel, and
we can not guarantee that such agreements are enforceable under applicable law.

Government regulation could delay
or prevent product offerings, resulting in decreased revenues.

Our
products are designed to operate with local telephone systems throughout the world and
therefore must comply with the regulations of the Federal Communication Commission and
other regulations affecting the transmission of voice, video and data over
telecommunication and other media. Each time we introduce a new product, we are required
to obtain regulatory approval in the countries in which it is offered. In certain cases,
we rely on our resellers or other partners to obtain the appropriate regulatory approvals.
In addition, we must periodically obtain renewals of the regulatory approvals for the use
of our products in countries where we have already obtained approval. We cannot assure you
that regulatory approval for our current products will be renewed or that regulatory
approval for future products will be obtained. If we do not obtain the necessary approvals
and renewals, we may be required to delay the sales of our products in those countries
until approval for use is granted or renewed. This could result in decreased revenues.

We
are also subject to laws relating to the use and disposal of hazardous materials in
electrical and electronic equipment. For example, in January 2005, the European Parliament
and the Council of the European Union adopted The Restriction of the Use of Certain
Hazardous Substances in Electrical and Electronic Equipment Regulations 2005, which
restrict the use of certain hazardous substances in electrical and electronic equipment
effective as of July 1, 2006. We believe we are in compliance with these regulations. If
we are unable to timely comply with these new regulations, we may be denied the ability to
sell our products in the European Union. This could result in decreased revenues,
inventory write-offs and write-down provisions.

We intend to manufacture and
maintain an inventory of customized products for some customers who will have no
obligation to purchase these products. If these customers fail to purchase these products,
our financial results may be harmed.

To
satisfy the timing requirements of some of our larger customers, we intend to manufacture
and maintain an inventory of certain of our products that we will customize to the
specifications of these customers. The size of this inventory will be based upon the
purchasing history and forecasts of these customers, which we currently estimate to be
approximately two months of sales to these customers. These customers will have no
obligation to purchase the inventoried products at any time. If the customers for whom the
inventoried products are manufactured do not purchase them, we may be required to modify
the products for sale to others and we may be unable to find other purchasers. In either
case, the value of the products may be materially diminished which may have a negative
impact on our financial results.

8

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# Risks Relating to Our
Ordinary Shares

Our share price has been volatile
in the past and may decline in the future.

Our
ordinary shares have experienced significant market price and volume fluctuations in the
past and may experience significant market price and volume fluctuations in the future in
response to factors such as the following, some of which are beyond our control:

| |  | quarterly
variations in our operating results;
| | - | ----------------------------------------------

| |  | operating
results that vary from the expectations of securities analysts and investors;
| | - | ---------------------------------------------------------------------------------------

| |  | changes
in expectations as to our future financial performance, including financial estimates by
              securities analysts and investors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | announcements
of technological innovations or new products by us or our competitors;
| | - | ------------------------------------------------------------------------------------

| |  | announcements
by us or our competitors of significant contracts, acquisitions, strategic partnerships,
              joint ventures or capital commitments;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes
in the status of our intellectual property rights;
| | - | ----------------------------------------------------------

| |  | announcements
by third parties of significant claims or proceedings against us;
| | - | -------------------------------------------------------------------------------

| |  | additions
or departures of key personnel;
| | - | -----------------------------------------

| |  | future
sales of our ordinary shares; and
| | - | ----------------------------------------

| |  | stock
market price, competitor's performances and volume fluctuations.
| | - | ----------------------------------------------------------------------

Domestic
and international stock markets often experience extreme price and volume fluctuations.
Market fluctuations, as well as general political and economic conditions, such as a
recession or interest rate or currency rate fluctuations or political events or
hostilities in or surrounding Israel, could adversely affect the market price of our
ordinary shares.

In
the past, securities class action litigation has been brought against a company following
periods of volatility in the market price of its securities. We could potentially in the
future be the target of similar litigation. Securities litigation could result in
substantial costs and divert managements attention and resources.

Our ordinary shares are traded on
more than one market and this may result in price variations.

Our
ordinary shares are traded on the NASDAQ Global Market and on the Tel Aviv Stock Exchange.
Trading in our ordinary shares on these markets is made in different currencies (dollars
on the NASDAQ Global Market and NIS on the Tel Aviv Stock Exchange), and at different
times (resulting from different time zones, different trading days and different public
holidays in the United States and Israel). Consequently, the trading prices of our
ordinary shares on these two markets often differ. Any decrease in the trading price of
our ordinary shares on one of these markets could cause a decrease in the trading price of
our ordinary shares on the other market.

9

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# Risks Relating to Our
Location in Israel

# Conducting business in
Israel entails special risks.

We
are incorporated under the laws of, and our principal executive offices and manufacturing
and research and development facilities are located in, the State of Israel. As a result,
the political, economic and military conditions affecting Israel directly influence us.
Any major hostilities involving Israel, a full or partial mobilization of the reserve
forces of the Israeli army, the interruption or curtailment of trade between Israel and
its present trading partners, or a significant downturn in the economic or financial
condition of Israel could have a material adverse effect on our business, financial
condition and results of operations.

Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its Arab neighbors, and a state of hostility, varying from time
to time in intensity and degree, has led to security and economic problems for Israel.
Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian
Authority, there has been an increase in unrest and terrorist activity in Israel, which
began in September 2000 and which has continued with varying levels of severity through
2006. In July 2006, an armed conflict began between Israel and Hezbollah forces in
Lebanon, which involved rocket attacks on populated areas in the northern parts of Israel.
On August 14, 2006, a cease-fire between Hezbollah and Israel took effect. This situation
has had an adverse effect on Israels economy, primarily in the geographical areas
directly harmed by this conflict. Any future armed conflict, political instability or
violence in the region may have a negative effect on our business condition, harm our
results of operations and adversely affect our share price.

Furthermore,
there are a number of countries, primarily in the Middle East, as well as Malaysia and
Indonesia, that restrict business with Israel or Israeli companies, and we are precluded
from marketing our products to these countries. Restrictive laws or policies directed
towards Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business.

No
predictions can be made as to whether or when a final resolution of the areas
problems will be achieved or the nature thereof and to what extent the situation will
impact Israels economic development or our operations.

Our results of operations may be
negatively affected by the obligation of our personnel to perform military service.

Many
of our officers and employees in Israel are obligated to perform annual reserve duty in
the Israeli Defense Forces and may be called for active duty under emergency circumstances
at any time. If a military conflict or war arises, these individuals could be required to
serve in the military for extended periods of time. Our operations could be disrupted by
the absence for a significant period of one or more of our executive officers or key
employees or a significant number of other employees due to military service. Any
disruption in our operations could adversely affect our business.

Because most of our revenues are
generated in dollars or are linked to the dollar while a portion of our expenses are
incurred in NIS, our results of operations would be adversely affected if inflation in
Israel is not offset on a timely basis by a devaluation of the new Israeli shekel against
the dollar.

Most
of our revenues are in dollars or are linked to the dollar, while a portion of our
expenses, principally salaries and the related personnel expenses, are in NIS. As a
result, we are exposed to the risk that the rate of inflation in Israel will exceed the
rate of devaluation of the NIS in relation to the dollar or that the timing of this
devaluation lags behind inflation in Israel. This would have the effect of increasing the
dollar cost of our operations. Over time, the NIS has been devalued against foreign
currencies, generally reflecting inflation rate differentials. We cannot predict any
future trends in the rate of inflation in Israel or the rate of devaluation of the NIS
against the dollar. If the dollar cost of our operations in Israel increases, our
dollar-measured results of operations will be adversely affected.

10

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The tax benefits from our approved
enterprise and beneficiary enterprise programs require us to satisfy specified conditions.
If we fail to satisfy these conditions, we may be required to pay additional taxes and
would likely be denied these benefits in the future

The
Investment Center of the Ministry of Industry, Trade and Labor of the State of Israel has
granted approved enterprise status to three investment programs at our manufacturing
facility, one of which we are currently in the process of converting to a beneficiary
enterprise program, and a fourth program, which was granted beneficiary enterprise status.
The portion of our income derived from any of our approved enterprise programs and
beneficiary enterprise programs, commencing when we begin to generate net income from
these programs, will be exempt from tax for a period of two years and will be subject to a
reduced tax rate for an additional five to eight years, depending on the percentage of our
share capital held by non-Israelis.The benefits available to an approved enterprise
program and a beneficiary enterprise program are dependent upon the fulfillment of
conditions stipulated in applicable law and, for an approved enterprise, the conditions
contained in the certificate of approval. If we fail to comply with one or more of these
conditions, we may be required to pay additional taxes during the period in which we would
have benefited from the tax exemption or reduced tax rates and would likely be denied
these benefits in the future.

Service and enforcement of legal
process on us and our directors and officers may be difficult to obtain.

Service
of process upon our directors and officers and the Israeli experts named in this annual
report, most of whom reside outside the United States, may be difficult to obtain within
the United States. Furthermore, since substantially most our assets, our directors and
officers and the Israeli experts named in this annual report are located outside the
United States, any judgment obtained in the United States against us or these individuals
or entities may not be collectible within the United States.

There
is doubt as to the enforceability of civil liabilities under the Securities Act and the
Securities Exchange Act in original actions instituted in Israel. However, subject to
certain time limitations and other conditions, Israeli courts may enforce final judgments
of United States courts for liquidated amounts in civil matters, including judgments based
upon the civil liability provisions of those Acts.

Provisions of Israeli law may
delay, prevent or make difficult our acquisition by a third-party, which could prevent a
change of control and therefore depress the price of our shares.

Provisions
of Israeli corporate and tax law may have the effect of delaying, preventing or making
more difficult a merger with, or other acquisition of, us. This could cause our ordinary
shares to trade at prices below the price for which third parties might be willing to pay
to gain control of us. Third parties who are otherwise willing to pay a premium over
prevailing market prices to gain control of us may be unable or unwilling to do so because
of these provisions of Israeli law.

The rights and responsibilities of
our shareholders are governed by Israeli law and differ in some respects from the rights
and responsibilities of shareholders under U.S. law.

We
are incorporated under Israeli law. The rights and responsibilities of holders of our
ordinary shares are governed by our memorandum of association, articles of association and
by Israeli law. These rights and responsibilities differ in some respects from the rights
and responsibilities of shareholders in typical U.S. corporations. In particular, a
shareholder of an Israeli company has a duty to act in good faith in exercising his or her
rights and fulfilling his or her obligations toward the company and other shareholders and
to refrain from abusing his power in the company, including, among other things, in voting
at the general meeting of shareholders on certain matters. Israeli law provides that these
duties are applicable in shareholder votes at the general meeting with respect to, among
other things, amendments to a companys articles of association, increases in a
companys authorized share capital, mergers and actions and transactions involving
interests of officers, directors or other interested parties which require the
shareholders general meetings approval. In addition, a controlling shareholder
of an Israeli company or a shareholder who knows that he or she possesses the power to
determine the outcome of a vote at a meeting of our shareholders, or who has, by virtue of
the companys articles of association, the power to appoint or prevent the
appointment of an office holder in the company, or any other power with respect to the
company, has a duty of fairness toward the company. However, Israeli law does not define
the substance of this duty of fairness. There is little case law available to assist in
understanding the implications of these provisions that govern shareholder behavior.

11

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As a foreign private issuer whose
shares are listed on The NASDAQ Global Market, we may follow certain home country
corporate governance practices instead of certain NASDAQ requirements.

As
a foreign private issuer whose shares are listed on The NASDAQ Global Market, we are
permitted to follow certain home country corporate governance practices instead of certain
requirements of the NASDAQ Marketplace Rules. A foreign private issuer that elects to
follow a home country practice instead of such requirements, 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. In addition, a foreign private issuer must disclose in its annual reports filed with
the Securities and Exchange Commission each such requirement that it does not follow and
describe the home country practice followed by the issuer instead of any such requirement.
As a foreign private issuer listed on The NASDAQ Global Market, we may follow home country
practice with regard to, among other things, composition of the board of directors,
director nomination procedure, compensation of officers, and quorum at shareholders
meetings. In addition, we may follow our home country law, instead of the NASDAQ
Marketplace Rules, which require that we obtain shareholder approval for certain dilutive
events, such as 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.

|ITEM 4. |  | INFORMATION ON THE COMPANY
|------- |  | --------------------------

|A. | HISTORY
AND DEVELOPMENT OF THE COMPANY
|-- | --------------------------------------

We
were incorporated under the laws of the State of Israel in January 1992, commenced
operations in October 1992 and commenced sales of our products in the fourth quarter of
1994. We are a public limited liability company under the Israeli Companies Law, 5759-1999
and operate under this law and associated legislation. Our registered offices and
principal place of business are located at 24 Raoul Wallenberg Street, Tel Aviv 69719,
Israel, and our telephone number is +972-3-767-9300. Our address on the Internet is
www.radvision.com. The information on our website is not incorporated by reference
into this annual report.

We
are the industrys leading provider of high quality, scalable and easy-to-use
products and technologies for videoconferencing, video telephony, and the development of
converged voice, video and data over IP and 3G (Third Generation) networks. Hundreds of
thousands of end-users around the world today communicate over a wide variety of networks
using products and solutions based on or built around our multimedia communication
platforms and software development solutions.

We
have approximately 450 customers worldwide using our Technology Business Unit products
including, Aethra, Alcatel, Broadreach, Cisco, Comverse, Huawei, LG Electronics, LifeSize,
Microsoft, Nortel, NTT/DoCoMo, Orange Telecom, Philips, Samsung, Siemens, Sony and Telecom
Italy. Hundreds of enterprises around the world and tens of telecommunications operators
are using our videoconferencing systems and solutions.

Since
2001, we have conducted our business through two separate business units, corresponding to
our two product lines, to enable our product development and product marketing teams to
respond quickly to evolving market needs with new product introductions.

Our
Networking Business Unit, or NBU, offers one of the broadest and most complete set of
multimedia communication and videoconferencing network solutions for IP, ISDN (integrated
services digital network), SIP, H.323 and 3G-based networks, supporting most end points in
the industry today. These products are sold to the enterprise market, U.S. federal
government and service provider market.

12

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On
March 15, 2005, we acquired substantially all of the assets of FVC and its wholly owned
subsidiary, CUseeMe Networks, Inc., in a bankruptcy proceeding. We acquired FVCs
leading software products that enable interactive voice, video and data collaboration over
IP-based networks.

In
the enterprise market we sell to resellers, OEMs, and system integrators who use our
infrastructure products to develop and install advanced IP and ISDN-based visual
communication systems for use in the company meeting room and on employees desktop
computers. The NBU also provides video services solutions to service providers, both 3G
mobile and IP wireline. We sell our products and platforms to major telecom equipment
vendors, such as Cisco and Alcatel, which then integrate our solutions into their larger
communications platforms and architectures. These integrated solutions enable the delivery
of real-time interactive IP and 3G-based multimedia streaming and video telephony services
over both broadband connections (such as cable and DSL) and 3G mobile networks.

Our
Technology Business Unit, or TBU, is a one-stop-shop for developer platforms that
equipment vendors use to build multimedia (voice, video, presence and messaging) services
over IP and 3G products and solutions. The TBU provides protocol development tools and
platforms, as well as associated solutions such as testing platforms and our Multimedia
Terminal Framework that enable equipment vendors and service providers to develop and
deploy new IP and 3G-based converged networks, services, and technologies.

Our
TBU solutions include developer toolkits for SIP, MEGACO/H.248, MGCP, H.323, RTSP (real
time streaming protocol) and 3G-324M, our ProLab Test Management Suite and our
Multimedia Terminal Framework. TBU also offers an IMS (IP multimedia subsystem)
development suite, which extends our existing toolkits to IMS, and recently added new
toolkits as part of the IMS development suite, including the IMS Diameter toolkit and NAT
traversal.

Our
toolkits have been used by developers in a wide range of environments from chipsets to
simple user devices like IP phones, and from integrated video systems through carrier
class network devices like gateways, switches, soft switches and 3G multimedia gateways.

Both
business units also assist customers to integrate our technology into their products and
to customize our products to their specific needs.

Our
capital expenditures for the years ended December 31, 2004, 2005 and 2006 were
approximately $2.3 million, $2.0 million and $2.3 million, respectively. These
expenditures were principally for research and development equipment, office furniture and
equipment and leasehold improvements.

|B. | BUSINESS
OVERVIEW
|-- | -----------------

# Overview and Strategy

We
are the industrys leading provider of high quality, scalable and easy-to-use
products and technologies for videoconferencing, video telephony, and the development of
unified communications systems over IP and 3G networks. Hundreds of thousands of end-users
around the world today communicate over a wide variety of networks using products and
solutions based on or built around our multimedia communication platforms and software
development solutions.

We
have approximately 450 customers worldwide using our TBU products including, Aethra,
Alcatel, Broadreach, Cisco, Comverse, Huawei, LG Electronics, LifeSize, Microsoft, Nortel,
NTT/DoCoMo, Orange Telecom, Philips, Samsung, Siemens, Sony and Telecom Italy. Hundreds of
enterprises around the world and tens of telecommunications operators are using our
videoconferencing systems and solutions.

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Our
goal is to develop and deliver market-leading technology and products that drive
widespread adoption and deployment of interactive unified visual communications over
packet and next-generation networks. We provide solutions at every level  protocol
developer toolkits, professional services, network infrastructure, as well as integrated
solutions that complement the communication solutions of other vendors such as those from
Aethra, Alcatel, Cisco, Huawei, IBM, LifeSize, and Sony. We believe that the combination
of offering IP-centric networking products, along with software toolkits, positions us as
a key enabling vendor in the evolution of IP communications. Key elements of our business
strategy include the following:

| |  | Maintain
and extend our technology leadership. We believe that we have established ourselves
as a technology leader in providing core-enabling technology for a broad range of IP and
3G communication products and services. In this regard, in 2006 we announced support for
IBMs Lotus Sametime and continue to support Ciscos Unified Communications
architecture. During 2006, we announced the new SCOPIA architecture that includes
an all new MCU (multipoint conferencing unit) with advanced video processing including
high definition videoconferencing, and support for a new telecommunications grade
chassis. We have accumulated extensive knowledge and expertise as designers and
developers of commercial products and technologies for real-time packet-based
communication. We continue to place considerable emphasis on research and development to
expand the capabilities of our existing products, to develop new products and to improve
our existing technology and capabilities. We believe that our future success will depend
upon our ability to maintain our technological leadership; bring value to the
communications solutions of our partners such as Cisco, Alcatel, Aethra, Comverse
and others; enhance our existing products; and introduce on a timely basis new
commercially viable products addressing the needs of our customers. We intend to continue
to allocate significant resources to research and development.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enable
the extension of visual communications from the traditional conference room
(videoconferencing)application to the desktop, the home, and onto the road over
IP and wireless. We have been working with leading technology vendors such as Cisco
and IBM, as well as developing partnerships with broadband and wireless service
providers, to transform videoconferencing from a meeting room application to a new mode
of personal communication. The announcement in 2006 of our integration of our enabling
technology with IBM Lotus Sametime, allowing video conferencing and data collaboration,
was a significant step in this direction. In 2004, Cisco announced and began deploying
desktop video networks based, in part, on our technology. In 2006, we introduced the PC
(personal computer)-to-Mobile solution that connects desktop videoconferencing and 3G
video phones. 3G operators around the world have performed pilots of our powered video
telephony and video streaming applications. Our platforms are key technologies in all of
these solutions and we will continue to work to expand the use of video for
communications and entertainment at the desktop, in the home and over broadband mobile
networks.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Strengthen
and expand our relationships with our OEM customers. We have established and continue
to maintain collaborative working relationships with many companys in the IP
communication market, including Aethra, Cisco and Lifesize as OEMs and Alcatel, Huawei,
IBM, Nokia, Nortel, Siemens and Sony as partners. We work closely with our OEM customers
to integrate our products and core technology into their solutions. Our core technology
and our system design expertise enable us to assist these customers in the development of
complete solutions that contain enhanced features and functionality compared to
competitive alternatives. We strive to establish long-term relationships with our OEM
customers by starting with a few products and subsequently expanding these relationships
by increasing the number and range of products sold to these customers. We intend to
expand the depth and breadth of our existing OEM relationships, while initiating similar
new relationships with other leading OEMs focused on the IP communication market.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Continue
to offer new and enhanced products and features. We believe that we have consistently
been either first, or among the first, to market products that support real-time voice,
video and data communication over packet networks. We were the first-to-market with IP
gateways that provide combined voice, video and data functionality, the first-to-market
with software development kits for the development of H.323-compliant IP communication
products and applications, and the first to announce support for SIP (Session Initiation
Protocol) in our infrastructure platform. We were also the first to offer a 3G toolkit
and 3G to IP (H.323 and SIP) bridging. We continue to be active in enhancing industry
standards by improving the call set-up time in video cellular calls, contributing to
Firewall/NAT (network address translation) traversal standardization (H.460.18/19) and
H.248 video enhancements. We intend to utilize our technological expertise as a basis for
market leadership by striving to be the first-to-market with new and enhanced products
and features that address the increasingly sophisticated needs of our customers and the
evolving markets they serve. In addition, we believe that our participation in the
drafting of industry standards gives us the ability to quickly identify emerging trends
enabling us to develop new products and technologies that are at the forefront of
technological evolution in the IP communication industry.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Leverage
service provider opportunities. We are working closely with telecommunications
equipment providers, 3G mobile carriers, and residential IP (wireline) service providers
to enable video services (both communications and streaming/entertainment) to be
delivered to the home and the mobile device. In 2005, our 3G products were commercially
used for the first time. 3G carriers around the world continued to perform pilots and
trials for our video services in 2006. We expect that the market will continue to grow
into general use in the next few years, although we cannot assure you what, if any, will
be our market share.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enable
desktop conferencing and communication through strategic partners. We plan to
continue our efforts to maintain our position as a key enabling solution provider for
major vendors activities to drive visual communication beyond the meeting room and
onto the desktop. We intend to leverage our close relationship with Cisco and their
efforts in enterprise video telephony by virtue of our Cisco OEM arrangement for certain
products, such as MCUs (multipoint conferencing units) and gateways,and the
integration of such products into Ciscos MeetingPlace collaboration product.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Our Business

Our
business is separated into two units: our videoconferencing Networking Business Unit, or
NBU, and our software developer toolkit business unit known as the Technology Business
Unit, or TBU. The discussion below of our business is separated by unit. In each section
we provide an overview of our products, our competitive advantage, and industry trends
that are beneficial to each unit and our business.

# NETWORKING BUSINESS UNIT

Our
NBU provides powerful unified communications solutions, including meeting room and desktop
videoconferencing and video telephony infrastructure and middleware solutions, as well as
video solutions, for 3G networks. All references in this annual report to
systems and solutions refer to our videoconferencing products sold
through our NBU.

NBU Products

Our
award-winning multimedia communication, videoconferencing and video services network
infrastructure products provide both the platform and applications to enable advanced
video-based conferencing and collaboration functionality between any video-enabled device,
such as a meeting room or a desktop videoconferencing end point, with other telephony and
videoconferencing systems. Additionally, our portfolio of telecommunication carrier
solutions enables the development and delivery of real-time video services (both streaming
and communications) to wireless, wireline, and broadband mobile users. Our solutions can
be used by institutions, enterprises, and service providers to create high quality,
easy-to-use voice, video, and data communication, collaboration, and entertainment
environments, regardless of the communication network  IP, SIP, 3G, H.323, ISDN or
next generation IMS (IP multimedia subsystem).

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Our
core infrastructure solution for the enterprise is the SCOPIA line of infrastructure. The
SCOPIA line of products have replaced the viaIP line of products. These are a family of
customizable, scalable array of ports, management solutions, and custom functionality with
which customers can design and quickly deploy a highly configured, highly scalable visual
communication network for each clients individual needs. With the SCOPIA product
line, the customer can choose the best port configuration, management solution and
additional applications, and the entire solution is delivered in an integrated chassis.
The SCOPIA family of products is a plug-and-play line of videoconferencing network
appliances targeted at the enterprise and service provider market.

The
carrier-grade SCOPIA platform is currently available in two configurations: the SCOPIA 400
(formerly viaIP), a 4-slot, 2U chassis configuration; and the SCOPIA 1000, a larger
21-slot, 12U chassis, which serves new emerging service provider network architectures and
higher density needs in large-scale deployments. The blades used in the SCOPIA 400 and
SCOPIA 1000 are interchangeable, thereby providing an easy upgrade path from lower
capacity deployments using the SCOPIA 400 to higher capacity deployments using the SCOPIA
1000.

Within
the SCOPIA product family, we also offer the SCOPIA 12/24 (which replaced our former
product known as INVISION). The SCOPIA 12/24 bundle is an off-the-shelf,
pre-configured solution designed for smaller enterprises.

To
complement the SCOPIA line, we offer the iVIEW Suite, a family of management
applications to meet such videoconferencing needs such as robust network management and
easy-to-use conference scheduling. iVIEW has been extended to address the desktop
conferencing market which requires a scalable, robust software-based architecture to
enable the delivery of video services to the employees video phones and personal
computers, or PCs, through integration with third party systems and as a stand alone
system.

In
addition, the SCOPIA 3G Video Gateway bridges the gap between mobile networks and wireline
networks (IP/ISDN, or IP/Integrated Services Digital Network) and supports real-time
bi-directional video telephony and streaming sessions between 3G-324M-based mobile
handsets or devices and IP or ISDN-based video terminals, RTSP(real time streaming
protocol) streaming servers, network cameras and messaging systems.

Our
complete solution is customizable to layer video, voice, and data collaboration onto a
customers network. Key components of our solution include:

| |  | Gateways
 provide videoconferencing interoperability between IP, circuit-switched ISDN and
3G end points and networks.
| | - | -----------------------------------------------------------------------------------------------------------------------

| |  | Gatekeepers
 control, manage, and monitor real-time voice, video and data traffic over the
visual communication networks.
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | Conferencing
bridges (or multipoint conferencing units, or MCUs)  enable voice or multimedia
conferencing over packet and ISDN networks among three or more participants.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | PathFinder  a
firewall/NAT (network address translation) traversal solution to enable endpoints in
different enterprises to communicate with each other across their firewall and NAT
devices.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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In
March 2005, we acquired FVC and its Click to Meet, or CTM, product family was added to our
NBU portfolio. The CTM solution is designed to address the desktop collaboration market
and provides a highly scalable and cost effective solution to PC based video conferencing.
The CTM solution provides for scalability to thousands of endpoints within an organization
and connectivity to include legacy room systems and hardware endpoint devices into a CTM
conference.

The
CTM solution consists of the following components:

| |  | Conference
server  a software based MCU (multipoint conferencing unit) that is highly
scalable.
| | - | ------------------------------------------------------------------------------------------------

| |  | Conference
manager  a conference management server that registers users and sets up
conferences using Microsoft Active Directory services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | Conference
client  a web-based client that provides the video-collaboration environment on the
PC.
| | - | ---------------------------------------------------------------------------------------------------

As
part of the unified communications concept, we integrate The CTM solution into
Microsofts Real-Time Communication family of products, such as Live Meeting and
Office Communicator, and into IBMs Lotus Notes and Same Time environments, so that
users are using the same applications that they are already familiar with, but with the
CTM audio/video collaboration engine.

For
carriers and mobile service providers, our NBU offers a wide range of IMS (IP multimedia
subsystem)-ready products that enable mobile, wireline and wireless operators, application
service providers, or ASPs, and integrators to deploy and roll out interactive video
services. This suite of carrier-grade products, based on advanced video processing,
enables access from any bearer  including wireline, wireless, cable, and 3G-324M.
These products enable interactive video services that help carrier and operators increase
chargeable bandwidth, maximize average revenue per unit, reduce churn and strengthen
subscriber loyalty.

Our
Interactive Video Platform, released under the SCOPIA name in early 2007, is an IMS (IP
multimedia subsystem)-ready, carrier-grade advanced media server with flexible application
programming interfaces (APIs) for deployment and delivery of multiple converged services
over any bearer. The SCOPIA Interactive Video Platform enables carriers and service
providers to roll out customized interactive mobile video services.

Mobile
operators and ASPs can use our PC (personnel computer)-to-mobile solution to deploy a
value added service that enables mobile subscribers to initiate and receive billable video
calls from personnel computers or mobile handsets.

Leveraging
technologies pioneered by us over three years ago and which can already be found powering
3G networks trials worldwide, the SCOPIA network infrastructure and SCOPIA Interactive
Video Platform are key components in enabling new revenue-generating video-based services
that will complement traditional voice and data services these providers already offer.
Sample services that can be delivered using the SCOPIA infrastructure and SCOPIA
Interactive Video Platform include:

| |  | video
telephony and conferencing;
| | - | ---------------------------------

| |  | video
mail, video messaging;
| | - | ----------------------------

| |  | multimedia
content streaming (such as television and movies);
| | - | -------------------------------------------------------------

| |  | video
call centers;
| | - | -------------------

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| |  | remote
surveillance and reporting; and
| | - | --------------------------------------

| |  | live
entertainment and communications services.
| | - | -----------------------------------------------

NBU Product Benefits

While
our products fully support ISDN, we believe that the principal competitive advantage of
our family of solutions, for both our enterprise and service provider offerings, is our IP
expertise. We believe that our products are among the leading visual communication
infrastructure solutions in the industry today by virtue of our technological innovation
in five key areas:

        Connectivity. We
believe that our network elements can allow connectivity between any networks  circuit
switch, packet IP or 3G based.

        Simplicity. We
deliver easy to use and easy to operate videoconferencing systems that will connect to
any standard video endpoint.

        Distributed
architecture. We believe that no competing product can match the capacity of the
SCOPIA platform. Because of its IP architecture, the entire infrastructure does not
need to be mounted in a single integrated rack but can be distributed throughout a
network.  By distributing intelligence throughout the network, the enterprise
benefits from increased redundancy, network traffic optimization, resource management,
and high scalability. These benefits of huge scalability and distributed architecture are
also found in the CTM product portfolio which is designed to support mass deployments in
large enterprises.

        Extensive
protocol support.In addition to supporting both ISDN and H.323, our solution also
supports SIP and 3G-324M for desktop and mobile communications, as well as emerging IMS
(IP multimedia subsystem) protocols.

        IP
protocol expertise.We are a leader in developing and delivering advanced voice and
video protocols over IP networks, primarily H.323 and SIP.  As a result, our
solutions support the most recent versions of each of the signal protocols with the
associated features they enable. In addition, our solutions are interoperable with
standards-based end point on the market today.

Visual Communication
Market Trends Which May Benefit our Company

Unified
communications in the workplace and at home.With the need for greater efficiency and
the importance of accurate communication, companies are turning to new ways of
communicating to enable remote parties to interact as if they were in the same room.
Conference calls and e-mail usage have increased dramatically and Instant Messaging (IM)
is being adopted increasingly in the enterprise. We believe that this trend of accessing
all forms of communication from familiar applications is driving the unified
communications experience and is making enterprises explore multimedia applications that
provide advanced voice, video and data experiences to maximize information flow, whether
in a group meeting or person to person.

Major
vendors who provide video telephony and desktop multimedia communications. In 2006,
IBM entered into the desktop multimedia communications space with the launch of its
SameTime 7.5 software. Microsoft also continues to improve its Office Communicator. Both
of these vendors are competing in the enterprise collaboration market with the use of all
available medias (such as voice, data and video). We believe that due to our unique
IP-based architecture and support of standards, such as SIP, we are well positioned to
provide complementary solutions and/or capitalize on the strong marketing and solution
trends that these two large companies, as well as others in the industry, are offering to
the information technology (IT) manager, chief executive officer, chief information
officer and chief technology officer. We have has also integrated our SCOPIA product
portfolio with Ciscos Video Telephony desktop solution, VT Advantage.

18

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The
spread of video telephony beyond the enterprise, into the home and on the road. End
users are beginning to use multimedia applications for their communication not only in the
enterprise through meeting rooms and desktops, but also at home and on the road. We are
encountering this trend and have begun to realize sales from service providers as they are
beginning to use our technology to deliver video telephony services to residential homes
as just another broadband application like Internet access and video-on-demand.
Additionally, 3G wireless providers are increasingly looking to deliver real-time
multimedia content to their mobile subscribers. We believe we are well suited to play a
role in this market with our 3G-324M architecture and multimedia services support.

IP
leads the way.Traditional (legacy) videoconferencing systems were ISDN (integrated
services digital network)-based, however IP-based videoconferencing is the new standard
for todays video telephony and videoconferencing solutions. We were the pioneers of
videoconferencing over IP. Our technology is sited in the core of the IP network, enabling
network managers to leverage their installed high speed data networks, merge video with
voice and data applications (running over the same IP connection) and centrally manage a
host of video end points, from meeting room to desktop to PC based systems, and to the
wireless and 3G mobile arena. Under our agreement with Cisco, we may in the future supply,
at Ciscos request and discretion, the Cisco TelePresence technology, which was
introduced to the market in 2006, through the SCOPIA MCU for multi-site connectivity to
traditional VC environments. Ciscos TelePresence solution is IP based, enabling us
to leverage our pioneering position in the video communications over IP arena by enabling
distributed architecture, smart bandwidth management and high quality video and voice.

# TECHNOLOGY BUSINESS UNIT

Our
TBU provides standards-based protocol toolkits and testing solutions for the development
of real-time voice, video and data communication solutions over packet, 3G and IMS (IP
multimedia subsystem) networks.

TBU Products

We
offer one of the most complete sets of development toolkits for IP and next generation
environments. We sell core enabling technology for real-time IP and 3G-based
communications in the form of software development kits and testing tools. Communication
equipment providers and developers seeking to create and market industry standard
compliant IP telephony and multimedia products, systems and applications need core IP
communication protocol software to develop their IP-centric solutions. The same holds true
for developers of 3G and next generation-based multimedia solutions.

Developers
can use our toolkits to reduce the high costs of in-house continuous investments in order
to stay up to date with the rapidly changing and evolving standards and to maintain
complete interoperability with different equipment, vendors and service providers. We
believe that our toolkits enable customers to focus on their core competencies and reduce
the time to market and risk involved with industry standard compliant IP and 3G
communication products, systems and applications.

        RADVISION
SIP Development Toolkit. Session initiation protocol, commonly referred to as SIP, is
a popular signaling protocol for initiating, managing and terminating voice and video
sessions across packet networks. SIP was designed for building high performance user
agents. The RADVISION SIP Toolkit enables the development of products that require full
user/agent functionality. The SIP Toolkit is designed to provide high scalability and
extensibility for both small and large-scale projects. It enables the implementation of
feature-rich SIP entities such as application servers, softswitches, IP-PBXs, gateways
and conferencing bridges. The RADVISION SIP Server Toolkit enables the development of
SIP-based infrastructure devices such as IP-PBXs and softswitches. Our SIP is a key
milestone for implementing the upcoming IMS network and components. The SIP protocol was
also adopted by the 3GPP (3rd Generation Partnership Project) as a mandatory part of the
IMS architecture for next generation mobile and fixed networks. The SIP Toolkit supports
the needed extensions to cope with the 3GPP requirements in order to provide a solution
for IMS applications, services and core-network IMS equipment vendors.

19

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        RADVISION
IMS DIAMETER Toolkit.The IMS DIAMETER Toolkit is a powerful software tool designed
for the development of IMS (IP multimedia subsystem) Diameter-compliant network elements.
It includes all required development components, including a set of quick start sample
applications that demonstrate efficient API (application programming interface) usage, a
graphical user interface, or GUI, test application and detailed documentation.
Implementing all major IMS interfaces and assuring IETF RFC 3588-compliancy, the IMS
DIAMETER Toolkit allows seamless integration with IMS based IP networks (3GPP and
TISPAN). The IMS DIAMETER Toolkit is standards-based (IETF, TISPAN and 3GPP), and offers
highly reliable performance.

        RADVISION
NAT Traversal Toolkit. We offer a complete NAT (network address translation)
traversal solution for developers. The RADVISION NAT Traversal Toolkit is an Internet
Engineering Task Force standards-based Simple Traversal Underneath NAT (STUN) solution
that comprises of the latest NAT-related solutions available today for SIP, RTSP,
MEGACO/H.248, Diameter and others.

        RADVISION
SIP Server Platform. The SIP Server Platform provides a complete framework for
developing all types of SIP Server applications including Proxies, Redirect Servers,
Registrars, Presence Servers, IMS Application Servers and different types of B2BUAs. The
SIP Server Platform radically simplifies and accelerates development by providing a
standards-compliant, robust and high performance implementation of standard SIP server
functionality controlled through a multi-level, user friendly API.

        RADVISION
H.323 Development Toolkit. H.323 is currently the most widely deployed standard for
real-time IP communication. All components of an H.323-compliant network, including
terminals, gateways, gatekeepers and conferencing bridges, use the H.323 protocol to
communicate. The RADVISION H.323 software development kits provide developers with the
core software building blocks needed to develop H.323-compliant products, systems and
applications. The RADVISION H.323 software development kit is an integrated set of
software programs that execute the H.323 protocol and perform the functions necessary to
establish and maintain real-time voice, video and data communication over packet-based
networks. The RADVISION H.323 software development kits can be used to develop a broad
spectrum of products, including gateways, gatekeepers, conferencing bridges, IP
telephones and other H.323-compliant products.

        RADVISION
MGCP Development Toolkit. Media gateway control protocol, commonly referred to as
MGCP, provides functions that complement H.323 and has been developed for large packet
networks operated by telecommunication carriers and service providers that require
gateways that can support a high number of calls. MGCP is the protocol by which a
centralized gateway controller communicates with and controls the numerous gateways
throughout a packet network and manages the network traffic through those gateways. MGCP
has been adopted by large telecommunication companies and Internet service providers as
well as by cable television companies building IP communication solutions over their
networks. The RADVISION MGCP software development kit is used to build MGCP compliant
media gateways controllers and media gateways.

        RADVISION
MEGACO Development Toolkit. MEGACO/H.248 is the official industry standard media
gateway control protocol for large-scale IP-centric communication networks. Like MGCP, it
is an internal protocol used between intelligent centralized gateway
controllers and numerous dumb media gateways that handle voice and video
media streams. The standard is the result of a unique collaborative effort between the
Internet Engineering Task Force, or IETF, and International Telecommunication Union, or
ITU, standards organizations. Derived from MGCP, MEGACO/H.248 offers several key
enhancements including support for multimedia and conferencing calls, improved handling
of protocol messages and a formal process for creating extensions to support advanced
functionality. The RADVISION MEGACO/H.248 Toolkit includes a unique Media Device Manager
to greatly simplify application development and reduce development time by eliminating
the need for developers to write code for interpreting MEGACO/H.248 messages.

20

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        3G-324M
Developer Toolkit.The IP network has not evolved sufficiently to support
high-quality real-time video and voice services over 3G networks. As a result, the 3G
standards body, 3GPP, specified that the 3G-324M protocol would be used as the signaling
and transport mechanism for real-time media over 3G (such as video streaming and video
chat). 3G-324M routes traffic over the circuit switched network rather than the IP
network, enabling the delivery of higher quality services. Because it is circuit-switched
based, the standard is well suited for streaming real-time multimedia. 3G-324M enables
the immediate development, deployment and support of a wide variety of delay-sensitive
applications. These include multimedia conferencing with other 3G mobile end points and
wire lined H.323 or SIP terminals, video streaming, cell phone TV, video-on-demand (such
as news and sports), multimedia and multi-participant gaming. We were one of the first
companies to introduce a toolkit for the development of 3G-324M-based products in early
2003 and we continue to develop improved versions of this solution. We are active in the
ITU (International Telecommunication Union) and 3GPP, which are the 3G-324M
standardization organizations, and we chair the 3G-324M Activity Group within the IMTC
(International Multimedia Telecommunications Consortium).

        RADVISION
Multimedia Terminal Framework. In mid-2003, we first introduced a product for the
manufacture of IP phones. In mid 2005, we introduced the Video Phone function, designated
for videophone and residential gateway developers and manufacturers. The framework
bundles TBU toolkits along with call control and endpoint management software to provide
an IP phone and video phone application for any IP protocol (such as SIP). It is now used
for the development of a wide variety of applications and devices, from video phones and
IP phones to SoHo PBX systems and IP voice gateways. The advanced functionality and broad
flexibility, together with multi-protocol support and advanced features, makes this
toolkit central for the development of IP communications solutions.

        RADVISION
ProLab Testing Suite.The ProLab Testing Suite is comprised of powerful testing
tools that comply with the most recent industry standards and are suitable for use in
various stages of the product development cycle, quality assurance and pre-deployment.
The products perform essential automated tests for IMS, SIP, 3G-324M and H.323 networks
and devices, including performance, load, stress, interoperability, media and protocol
compliance. Testing is script-driven, which allows for maximum flexibility and
customization, and enables the tests to be re-used. The testing suite contains hundreds
of pre-written scripts, canned messages and media files to allow for turnkey test setup.

These
highly scalable and feature-rich testing and validation products emulate a wide range of
real-world network conditions to test devices and components in rich media collaborative
networks. The ProLab suite allows vendors and service providers to perform the rigorous
testing and validation needed to ensure high quality, dependability and product
deployment. The ProLab suite simulates different network topologies and is specifically
designed to perform advanced signaling and media tests. A highly sophisticated scheduling
system enables comprehensive automated test procedures during testing cycles. The
client/server application is capable of managing single or multiple test agents, such as
IMS, SIP, H.323 or 3G-324M

At
the core of the ProLab suite is the ProLab Test Manager. It comes bundled with a variety
of components and specific testing products for either single or multi-protocol testing.

        Advanced
RTP Toolkit. The RADVISIONs Advanced RTP/RTCP (Real-Time Transport
Protocol/Real-Time Transport Control Protocol) Toolkit is designed to address the
requirements of mature, production IP telephony applications. The Toolkit provides
enhanced media transport functionality, including support for Security and IPv6 and
NAT/Firewall traversal. The Advanced RTP/RTCP Toolkit seamlessly scales from small,
embedded platforms up to densely populated parallel processing environments.

        RADVISION
RTSP Toolkit. The RADVISION RTSP (Real Time Streaming Protocol) Toolkit includes a
set of intuitive application program interfaces, or APIs,for developing multimedia
streaming applications for mobile devices such as personal digital assistants (PDAs) and
mobile phones as well as broadband IP-based solutions such as IP TV. Our RTSP Toolkit
facilitates faster time-to-market by allowing developers to focus on implementing
value-added features instead of the intricacies of the underlying protocols. Our RTSP
Toolkit is IETF RFC 2326 compliant.

21

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TBU Product Benefits

Market
leading technology for standards  based real-time IP communication. We were one
of the original five members of the International Telecommunication
Union-Telecommunication committee responsible for defining the H.323 standard, which has
been adopted worldwide for real-time packet-based communication. We believe our technology
is recognized as the market-leading implementation of the H.323 industry standard for
real-time voice, video and data communication over packet networks. We also believe that
our technology is recognized as one of the market-leading implementations of the SIP, and
other protocols such as 3G-324M and MEGACO/ H.248.

We
have been actively involved in the development of protocols for real-time communication
since the inception of the industry in 1994 and believe that we were the first-to-market
with enabling products and technology for voice, video and data communication over IP
networks.

We
believe that our technology has become the technology of choice among developers of
standards-compliant IP communication systems. We believe our customers benefit from our
ability to develop and provide them market-tested, proven products and technology. Using
our products and technology, our customers can develop unique capabilities with increased
functionality that will differentiate their IP communication solutions in the market. Our
products are designed to enable our customers to perform a simple integration using
flexible and multi-level APIs. We believe that the accumulated knowledge that we have
gained participating in the development of industry standards provides us with a
competitive advantage, and positions us to be among the first to market new products and
technology based on the latest technological advances.

Interoperability.          We
provide our customers with products and technology that are interoperable
          across a broad range of IP communication systems. Our products and technology
          have been integrated into a variety of systems developed by hundreds of
          communication equipment providers. This field-proven technology together with
          our on-going participation in the entire industrys interoperability
events           leads us to believe that our products and technology are interoperable
with all           major equipment vendors and products. We believe that our
long-standing           involvement in the definition of standards and accumulated
experience with           product development across our broad customer base provides us
with a           competitive advantage in addressing interoperability needs.

Multi-domain,
real-time voice, video and data communication functionality. We are one of the few
companies that offer IP communication products that support combined voice, video and data
communication over IP and 3G networks. We believe that this functionality is attractive to
enterprises and service providers that seek a flexible IP communication solution, which
can provide enhanced multimedia functionality in fixed line and mobile environments.

Improved
time to market. Our customers rely on our accumulated expertise with communication
standards and core technology to significantly reduce their development cycle and improve
time to market. Communication equipment providers seeking to market standards-compliant
systems for real-time voice and video communication over packet and 3G networks require
standards-compliant building blocks to develop their products. Implementing standards as
deployable products and technology is a complex task that requires significant technical
knowledge and expertise as well as substantial investments of time and resources. Our
products and technology enable our customers to shorten their own development time by
integrating our proven enabling products and technology into their solutions. Rather than
dedicate in-house resources to implementing industry standards, these developers can use
our products and technology and focus their core competencies on building enhanced
systems, products and applications.

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Broad
range of product environments. Our products and technology provide our customers with
flexibility to design individual products and applications or complete systems. Our
customers can build a complete network solution for real-time IP communication using our
full suite of products or integrate our products with their own products or other vendor
products into their real-time IP communication solution. Similarly, our technology has
been designed to enable the development of a broad range of products and applications,
from those that can service single users, including hand held devices and residential IP
phones, to multi-user products, like highly complex, powerful carrier class gateways.
Taken together, we believe our products and technology provide all of the key network
components necessary to build real-time IP communication solutions.

Industry Trends That May
Benefit Our Developer Toolkits

Growth
in IP communications. In the 1990s, IP communication experienced dramatic growth
in traffic. Even during the downturn of 2000 and 2001, IP communications continue to grow.
We believe that this trend will continue in the future due to:

| |  | an
increasing need for enterprises to expand their networks to enable them to send, access
and receive               information quickly, economically and globally;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | an
increasing use of the Internet and other packet networks for communicating and engaging
in commercial               transactions;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| |  | an
increase in available bandwidth at declining prices;
| | - | -------------------------------------------------------

| |  | the
introduction of new voice, video and data communication services and applications;
| | - | --------------------------------------------------------------------------------------

| |  | the
dramatic growth of wireless and broadband mobile networks and the interest by consumers
to use WiFi and 3G-based devices and networks for new multimedia services such as video
streaming and video telephony;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
increasing focus by both major vendors, such as Cisco and Microsoft, and IT managers to
deploy IP-based multimedia communications to employee desktops;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
emergence of low cost, high quality IP communications devices that enable people, both in
business and in every day life, to communicate more effectively and access real-time
video over broadband mobile or residential IP or 3G connections;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
growth in complexity of the SIP standard, which is making in-house SIP development by
potential customers a more difficult task; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | the
introduction of the IMS next generation network architecture for both fixed and wireless
operators. IMS mandates SIP as its primary signaling protocol and requires a set of new
protocols (such as Diameter) as well as major changes and solutions of existing
protocols. We offer a complete IMS developers suite that accommodates the growing demand
from the IMS developer community.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Limitations
of traditional networks. Traditionally, circuit-switched networks have been the
principal medium for the transmission of communication. Circuit-switched technology
dedicates a circuit with a fixed amount of bandwidth for the duration of the connection,
regardless of a users actual bandwidth usage. The growth in data communication
traffic, particularly the growth in the number of Internet users, has placed significant
strains on the capacity of traditional circuit-switched networks. Circuit-switched
networks were initially deployed to handle only voice communication and are not well
suited for the types of converged multimedia services now seen over IP networks. These
networks were not designed to handle data and broadband applications such as video
efficiently and cannot scale cost-effectively to accommodate the growth in data traffic.

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Advantages
of packet-based networks. While circuit-switched networks were principally designed to
handle analog voice traffic, packet-based networks were principally designed for
transmitting digital information. Packet-based networks, including IP networks, transmit
voice, video and data information in the form of small digital packages called packets.
Voice, video and data packets are sent over a single network simultaneously and
reassembled at the destination. Packet switching enables more efficient utilization of
available network bandwidth than circuit-switching, allowing more calls to travel through
a packet network at the same time. In addition, packet networks are built using open
standards, like IP, which promote competition by allowing different vendors to build
products and applications that can interoperate with one another. By using packet
technologies based on industry standards, new services can be deployed rapidly and
economically.

The
need for products that deliver industry standards for real-time IP communications.
Originally, enterprises and communication service providers deployed packet networks
primarily for handling data traffic and not for real-time IP communications. Technical
barriers initially hampered the use of packet networks for real-time communication. For
example, packet networks were not designed to guarantee the sequential delivery of packets
and packets could be lost. In addition, the time of delivery of packets was dependent upon
the amount of packet traffic being transmitted over the network. For real-time
communication, it is critical that the packets associated with a specific voice or video
communication be transmitted in the correct sequence and in a timely manner. Early
attempts at real-time IP communication solved these technical problems by using
proprietary solutions developed by individual vendors. However, proprietary solutions from
different vendors meant that different vendor products could not interoperate with one
another.

Our
leadership position stems from the pioneering work we began in 1993. We were the first to
develop and demonstrate commercially viable technology for establishing real-time voice,
video, and data on IP networks. Since our inception, we have been helping to develop the
industry standards that are driving the emergence and growth of the use of packet networks
for real-time communication. Our company was an original member of the ITU (International
Telecommunication Union) team that defined the H.323 standard, and we continue to work
closely with the ITU, the IETF (Internet Engineering Task Force), IMTC (International
Multimedia Telecommunications Consortium), and other industry consortia to define a broad
spectrum of IP telephony protocols for voice and video communication including, SIP, MGCP,
MEGACO/H.248, 3G-324M, ARTP, SRTP and Diameter.

Our
protocol toolkits provide the underpinning technology required for the rapid development
of next generation products and applications for real-time multimedia communication.
Industry giants and emerging technology companies use our family of IP communication
protocol toolkits to reduce their time to market for developing interoperable,
standards-compliant products, applications and services. Today, our protocols are
implemented in a wide range of environments from chipsets to simple user devices like IP
phones, video phones, mobile terminals, SIP servers, application servers and video systems
through carrier class network devices like gateways, switches and softswitches.

Growth
in real-time voice and video IP communication. Due to the inherent benefits of packet
networks and the advent of new technologies and standards that have enabled real-time
communication over these networks, the use of packet networks for real-time voice, video
and data communication is expected to grow dramatically. This anticipated growth in
real-time IP communication is expected to be driven primarily by enterprises and
communication service providers migrating to packet networks. As enterprises move from
centralized organizations to distributed networks of employees, customers, suppliers and
business partners, they require more effective communication capabilities to support their
operations and remain competitive in a global and rapidly changing market. Packet networks
are well suited for enterprises because they provide enterprises with the following
advantages:

| |  | cost-effective
increases in capacity to meet increasing communication traffic demands;
| | - | --------------------------------------------------------------------------------------

24

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| |  | support
for new communication applications, such as video conferencing and data collaboration,
for               improved workforce productivity;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | interoperability
with different network configurations of their customers, suppliers and partners; and
| | - | ------------------------------------------------------------------------------------------------------

| |  | cost
savings associated with simplified network management resulting from creating a single
network that handles all communication, rather than having to maintain separate telephone
and computer networks.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Communication
service providers have also begun to deploy packet networks in an effort to compete more
effectively in a deregulated market. Global deregulation and rapid technological advances
have resulted in the emergence of many new communication service providers, increased
competition among traditional telecommunication carriers, lower prices, innovative new
product and service offerings and accelerated customer turnover. To remain competitive,
communication service providers must be able to develop and introduce new services to
differentiate themselves in the market and attract and maintain customers. Packet networks
are well suited to accomplish these objectives because they enable the rapid deployment of
new and differentiated solutions. In addition, packet-based technology allows new
competitors to enter the market quickly without substantial investment in infrastructure.

Broadband
mobile. The roll out of 3G (Third Generation) broadband mobile services is moving
rapidly in a number of key world markets. While these efforts are proceeding more
cautiously in North America, a number of 3G networks in Asia and Europe are already in
operation and serving millions of customers. We believe this trend will increase when
all-IP networks, such as IMS (IP multimedia subsystem), gain greater acceptance.

Both
3G standards bodies, 3GPP and 3GPP2, as well as other standardization organizations
envision 3G as running entirely over an IP-based communication network (the Internet). Our
products are a key element in implementing this network.

The
main problem is that todays IP network (the Internet) is not sufficiently robust for
delay sensitive applications and, in fact, will not be so until service providers move to
IPv6 and SIP-based IP communication. IP, with its variant transmission delays (many hops
routing and congestion effects) and packet overheads, is ill equipped at this time to
provide high quality, real time multimedia delivery over 3G (WCDMA and CDMA2000) networks.

While
the vision of a true IP-based 3G network has been delayed, the promise of a feature-rich,
multimedia wireless experience has not. This is due to the emergence of a standard, called
3G-324M, which addresses and supports the real-time streaming of multimedia broadband
wireless communication by routing traffic over the circuit switched network. Being
circuit-switched based, the standard has all the hallmarks of a protocol ideal for
streaming real-time multimedia, including a fixed delay, low overhead of CODECS, and no
IP/UDP/RTP header overheads.

3G-324M,
based on ITU H.324M and specified in detail by 3GPP (3GPP TS 26.112 and 3GPP TS 26.111
Working Groups), enables the development, deployment and support of a wide variety of
delay-sensitive applications immediately. Enabled applications include multimedia
conferencing with other 3G mobile end points, and wire lined H.323 or SIP terminals, video
streaming, cell phone TV, video-on-demand (news, sports, etc.) and multimedia,
multi-participant gaming.

We
have taken a pioneering role in providing 3G-324 developer toolkits (as well as
3G-324M-based infrastructure in our NBU) that enable equipment developers to develop
products, ranging from 3G handsets to gateways and media servers, that will deliver real
time multimedia services over 3G. Recently, our amendment to the protocol was adopted by
the ITU to provide faster call set-up time.

25

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Professional
Services. In 2003, we launched our Professional Services Division, which assists our
customers in developing specialized telecommunications products based on our developer
toolkit and reference design solution. This division offers a full range of consulting,
engineering and software development services to support our customers in bringing
innovative voice and video products to market on time using our suite of developer
toolkits and protocol and development expertise. Our Professional Services Division
handles the complete project life-cycle from design, throughout the product development,
until on-site deployment.

# Products and Technology
under Development

We
intend to capitalize upon our technological leadership in real-time IP communication and
visual communication network appliance and functionality to develop new products and
technology that meet the evolving needs of the IP, 3G, and emerging IMS markets, as well
as platforms and tools to create new IP-centric enhanced services. We have recently added
an IMS portfolio that includes both toolkits and testing tools to provide IMS developers
with IMS-compliant software infrastructure. We believe that IMS represents the actual
standardized evolution of both wireless (3G evolution to IMS) and fixed (next generation
and cable) networks into an all-IP network architecture. Accordingly, we view IMS as an
opportunity for us to leverage our technological leadership to achieve business growth.

# Customers

We
generally sell our NBU enterprise products to OEMs, systems integrators and VARs. Our OEM
customers purchase our products to integrate with their own products or products of other
third parties to build complete IP communication solutions. Our systems integrator
customers either purchase our full suite of products or integrate our individual products
with products of other third parties to build complete IP communication solutions. Our VAR
customers purchase our products to resell to end-users as separate units, or as part of a
family of related product offerings, either under our RADVISION label or under their
private label.

We
sell our service provider products to major telecommunications equipment vendors (who may
use our solution as part of a larger service portfolio), telecommunications operators and
ASPs.

We
generally sell our TBU products in the form of software development kits directly to
developers of IP communication products, systems and applications for developing their own
IP communication solutions based on our core enabling technology.

For
the years ended December 31, 2005 and 2006, one customer accounted for approximately 27%
and 35%, respectively, of our sales.

The
following is a representative list of our major customers in 2006:

|                     |                   |                               
|-------------------- | ----------------- | ------------------------------
|
|
|
|
|Aethra Ltd           | Huawei            | NTT                           
|Alcatel Ltd          | Hypcom            | Oracle                        
|Broadreach           | IPC               | Presidio                      
|Cisco                | Iwatsu            | Shenzhen SunLong Communication
|Comneon              | Kelyan Lab        | Shanghai Caohejing            
|Computer Assets      | LG                | Siemens                       
|Comverse             | Logica CMG        | Sony                          
|Conference Solutions | Merck & Co.       | Spirent                       
|ECI                  | Motorola          | Telefonica                    
|E-Soft               | MSTEL Corporation | TIM                           
|France Telecom       | Nortel            | Wisepot                       
|Glovicom             | Northrop Grumman  | Wire One                      
|GS Plus              |                   |                               

26

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# Sales and Marketing

Sales
organization. We market and sell our products through multiple channels in North and
South America, Europe, the Middle East and the Asia-Pacific region. Our networking
products are sold to end-users principally through indirect channels by OEMs, system
integrators and VARs. We market and sell our technology products, primarily in the form of
software development kits, directly to developers of IP and 3G communication products and
applications. We sell to service providers through major telecommunications equipment
vendors. In several countries in the Asia-Pacific region we sell our software development
kits indirectly through local sales representatives.

We
currently have sales offices in the United States in New Jersey, California, Washington
and New Hampshire. We also have a sales office in Israel and marketing or
representative/liaison offices in Hong Kong, China, Korea, Japan, Singapore, the United
Kingdom, France, Germany, Italy, Spain and Brazil. The geographic breakdown of our total
sales for the year ended December 31, 2006 was 57.6% in the Americas, 21.1% in Europe,
4.3% in the Middle East and 17% in the Asia-Pacific region.

We
have dedicated sales teams to support our large strategic accounts as well as to identify
potential strategic customers who would deploy our products on large scales and generate
significant revenues for us.

In
October 2006, we announced that the global growth consulting company Frost & Sullivan
selected RADVISION as the recipient of the 2006 Frost & Sullivan Competitive Strategy
Leadership Award for its significant gains in market share in 2005 and distinctive market
strategies in the Asia Pacific videoconferencing infrastructure systems market.

Marketing
organization. Our marketing organization develops strategies and implements programs
to support the sale of our products and technology and to sustain and enhance our market
position as an industry leader. Our current marketing efforts include various sales and
channel support programs designed to drive sales and marketing communication programs
designed to increase industry visibility, including press/analyst tours, trade shows and
events, speaking engagements and ongoing interaction with analysts and the media as well
as targeted marketing programs. Additional programs include technical seminars where
customers and other industry participants are educated in real-time IP communication
technology and the benefits of our products and technology. We also view our web site as
an important marketing tool for lead generation, customer relations and to support our
market position as video communication experts through quality content, including
providing information related to issues relevant to the communication industry, as well as
important product and market trends.

To
reinforce and further strengthen our market position as a technology leader in the field
of real-time IP, 3G and visual communication, we actively participate in key industry
consortia and standards bodies. We are also active in defining and reviewing evolving IP
communication standards that are being developed by international standards bodies
including:

| |  | ITU-T
(International Telecommunication Union - Telecommunication), which has published the
H.323 and               MEGACO standards;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| |  | IETF
(Internet Engineering Task Force), which has published the SIP and MEGACO standards;
| | - | -----------------------------------------------------------------------------------------

| |  | CableLabs,
an organization of cable operators, which is currently working on defining the MGCP
(media gateway control protocol) standard;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | IMTC
(International Multimedia Telecommunications Consortium), a global organization to
promote interoperable multimedia communication solutions based on international
standards. We regularly participate in IMTC-sponsored InterOP (Interoperability) events,
a vendor-neutral forum where IMTC members test the interoperability of their products;
and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3GPP
(3rd Generation Partnership Project), which develops the IMS standards.
| | - | ----------------------------------------------------------------------------

27

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Customer Care and Support
Services

Our
ability to provide our customers with responsive and qualified customer care and support
services globally is essential to attract and retain customers, build brand loyalty and
maintain our leadership position in the market. We believe our customer care and support
organizational structure enables us to provide superior technical support and customer
service on a cost- and time-efficient basis.

We
provide global customer care and support services for our products and technology. Our
customer care and technical support teams are located in Tel Aviv, Israel; Fair Lawn, New
Jersey; Bedford, New Hampshire; Sunnyvale, California Hong Kong and China. We offer a 24
hour, seven day a week, 365 days a year service program in certain of our offices to
better serve our networking customers who desire the expanded service. We also offer
various other services, such as assisting our networking customers with the initial
installation, set-up and training. In addition, our technical support team trains and
certifies our networking customers to provide local support in each of the geographical
areas in which our products are sold.

In
addition, customers who purchase our TBU software development kits generally request that
we provide them with ongoing engineering and technical support services to integrate our
technology into their products, although these services are not essential for the use of
our software development kits. Our standard software development kit contract provides for
one year of support services, renewable annually at the customers option. Customers
who have contracted for support services receive all relevant software updates as well as
access to our customer care and technical support teams.

We
also offer professional services, including consulting, development, customization and
system integration expertise to our customers, in order to work hand-in-hand throughout
the development process. Our professional services are offered both for TBU and NBU
customers.

# Intellectual Property

We
rely on copyright, trademark and trade secret laws, confidentiality agreements and other
contractual arrangements with our customers, third-party distributors, employees and
others to protect our intellectual property.

Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products and technology or obtain and use information that we regard as
proprietary. Policing unauthorized use of our products and technology is difficult. In
addition, the laws of some foreign countries in which we currently or may in the future
sell products do not protect our proprietary rights to as great an extent as do the laws
of the United States. Our means of protecting our proprietary rights may not be adequate
and our competitors may independently develop similar technology, duplicate our products
or design around our intellectual property.

We
rely on certain technology that we license from third parties, including software that is
integrated with internally developed software and used in our products to perform key
functions.If we are unable to continue to license any of this software on
commercially reasonable terms, we will face delays in releases of our products or will be
required to reduce the functionality of our products until equivalent technology can be
identified, licensed or developed, and integrated into our current products.

# Competition

We
compete in a new, rapidly evolving and highly competitive and fragmented market. We expect
competition to intensify in the future. We believe that the main competitive factors in
our market are time to market, product quality, features, cost, technological performance,
scalability, compliance with industry standards and customer relationships.

28

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The
principal competitors in the market for our products currently include:

|Networking Products | Software development kits
|------------------- | -------------------------
|
|
|
|
|                   | Polycom Inc.             
|                   | Tandberg                 
|                   | Codian Ltd.              
|                   | Arel                     
|                    |                          
|In the 3G market:   |                         
|                   | Ericsson                 
|                   | Dilithium Networks       
|                   | NMS Communications       

Additional
competitors may enter any of our markets at any time.

Both
Vovida Networks, a subsidiary of Cisco Systems, Inc., and OpenH323 offer H.323 source code
for free. In addition, Vovida Networks offers MGCP and SIP source code for free. If our
customers choose to use the free source code offered by these organizations instead of
purchasing our technology, our revenues from the sale of our software development kits
will decline.

# Manufacturing

Our
manufacturing operations consist of materials planning, procurement, out-sourcing of
sub-assembled kits, final assembly, testing, quality control, packaging and
shipping. We generally assemble our products in a subcontractors facilities in
Israel and test our products at our facilities in Tel Aviv, Israel. We test our products
both during and after the assembly process using internally developed quality assurance
testing procedures. We have a flexible assembly process that enables us to configure our
products at the final assembly stage for customers who require that our products be
modified to bear their private label (such as OEM arrangements). This flexibility is
designed to reduce our assembly cycle time and reduce our need to maintain a large
inventory of finished goods. We use an enterprise resource planning, or ERP, system that
we purchased from BAAN Systems and modified to our specific needs. This system allows us
to use just in time procurement and manufacturing procedures. We believe that the
efficiency of our assembly process to date is largely due to our product architecture and
our commitment to assembly process design. We manufacture our software development kits on
CD-ROMs and package and ship them accompanied by relevant documentation.

As
part of our commitment to quality, we have been certified as an ISO 9001:2000 and ISO
14001 supplier. The ISO 9001:2000 and ISO 14001 standards defines the procedures required
for research and development, customer support and manufacture of products with
predictable and stable performance and quality. We are continuously improving our quality
based on the quality standards and indicators measured by the ISO 9001:2000 and ISO 14001
processes.

We
currently obtain key components used in the manufacture of certain of our products from a
single supplier or from a limited number of suppliers. Any delays in delivery or shortages
in these components could interrupt and delay manufacturing of our products and result in
the cancellation of orders for our products. In addition, these suppliers could
discontinue the manufacture or supply of these components at any time. We may not be able
to identify and integrate alternative sources of supply in a timely fashion or at all. Any
transition to alternate suppliers may result in delays in shipment and increased expenses
and may limit our ability to deliver products to our customers. Furthermore, if we are
unable to identify an alternative source of supply, we would have to modify our products
to use a substitute component, which may cause delays in shipments, increased design and
manufacturing costs and increased prices for our products. To date, we have not
encountered any material interruptions in supply.

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|C. | ORGANIZATIONAL
STRUCTURE
|-- | ------------------------

We
have eight wholly-owned subsidiaries: RADVISION Inc. in the United States, RADVISION (HK)
Ltd. in Hong Kong, RADVISION (UK) Ltd.in the United Kingdom, RADVISION FRANCE
S.A.R.L. in France, RADVISION Japan KK in Japan, RADVISION B.V. in the Netherlands and
RADVISION GmbH in Germany, all of which are primarily engaged in the sale and marketing of
our products and technology, and RADVISION Communication Development (Beijing) Co. Ltd. in
China., which is engaged in research and development and in the sales and marketing of our
products and technology.

Zohar
Zisapel, the Chairman of our Board of Directors and a principal shareholder of our
company, and Yehuda Zisapel, who formerly was a director, the Chairman of our Board of
Directors and a principal shareholder of our company, 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). 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.

|D. | PROPERTY,
PLANTS AND EQUIPMENT
|-- | ------------------------------

Our
headquarters and principal administrative, finance, sales and marketing and promotion
operations are located in approximately 67,500 square feet of leased office space in Tel
Aviv, Israel at an aggregate rental cost of approximately $1.2 million in 2006. The lease
for our principal offices expires in June 2010. In the United States, we lease
approximately 12,000 square feet of office space in Fair Lawn, New Jersey expiring in
September 2007, approximately 3,156 square feet in Sunnyvale, California expiring in April
2010 and approximately 22,000 square feet in Bedford, New Hampshire expiring in February
2011. We also lease approximately 2,600 square feet in Hong Kong expiring in May 2009,
approximately 3000 square feet in the United Kingdom expiring in November 2007,
approximately 6,500 square feet in China expiring in December 2008, approximately 900
square feet in Japan expiring in January 2008, approximately 1200 square feet in France
expiring in March 2009 and approximately 1000 square feet in the Korea expiring in
December 2007. The aggregate annual rent for our sales and service offices in the United
States, Hong Kong, China, Japan the United Kingdom, Korea and France was approximately
$1.2 million in 2006.

|ITEM 4A. |  | UNRESOLVED STAFF COMMENTS
|-------- |  | -------------------------

Not
applicable.

|ITEM 5. |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- |  | --------------------------------------------

|A. | OPERATING
RESULTS
|-- | -----------------

The
following discussion of our results of operations should be read together with our
consolidated financial statements and the related notes, which appear elsewhere in this
annual report. The following discussion contains forward-looking statements that reflect
our current plans, estimates and beliefs and involve risks and uncertainties. Our actual
results may differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those discussed below
and elsewhere in this annual report.

30

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Background

We
are a leading provider of solutions that enable real-time multimedia (voice, video and
data) collaboration and communication over packet and 3G networks. We were incorporated in
January 1992, commenced operations in October 1992 and commenced sales of our
products in the fourth quarter of 1994. Since our initial public offering on March 14,
2000, our ordinary shares have been listed on the NASDAQ Global Market (symbol: RVSN) and
our ordinary shares have also traded on the Tel Aviv Stock Exchange since October 20,
2002.

We
have eight wholly-owned subsidiaries: RADVISION Inc. in the United States, RADVISION (HK)
Ltd. in Hong Kong, RADVISION (UK) Ltd.in the United Kingdom, RADVISION FRANCE
S.A.R.L. in France, RADVISION Japan KK in Japan, RADVISION B.V. in the Netherlands and
RADVISION GmbH in Germany, all of which are primarily engaged in the sale and marketing of
our products and technology, and RADVISION Communication Development (Beijing) Co. Ltd. in
China., which is primarily engaged in research and development and the sale and marketing
of our products and technology.

Our
consolidated financial statements appearing in this annual report are prepared in U.S.
dollars and in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP, and audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States).

Our
revenues are generated in U.S. dollars or are linked to the dollar and a majority of our
expenses are incurred in U.S. dollars. Consequently, we use the dollar as our functional
currency. Transactions and balances in other currencies are re-measured into dollars
according to the principles in Financial Accounting Standards Board Statement No. 52.
Gains and losses arising from re-measurement are reflected in the statements of operations
as financial income or expenses as appropriate.

# Overview

We
are the industrys leading provider of high quality, scalable and easy-to-use
products and technologies for videoconferencing, video telephony, and the development of
converged voice, video and data over IP and 3G networks. Hundreds of thousands of
end-users around the world today communicate over a wide variety of networks using
products and solutions based on or built around our multimedia communication platforms and
software development solutions. We have approximately 450 customers worldwide including,
Aethra, Alcatel, Broadreach, Cisco, Comverse, GS Plus, LifeSize, Microsoft, Nortel,
NTT/DoCoMo, Orange Telecom, Philips, Review Video, Samsung, Siemens, Sony, Telecom Italy
and Wisespot.

We
have two separate business units, corresponding to our two product lines, to enable our
product development and product marketing teams to respond quickly to evolving market
needs with new product introductions.

Our
Networking Business Unit, or NBU, offers one of the broadest and most complete set of
multimedia communication and videoconferencing network solutions for IP, ISDN, H.323, SIP
and 3G-based networks, supporting most end points in the industry today. These products
are sold primarily to resellers and OEMs who use this infrastructure to develop and
install advanced IP and ISDN-based communication systems for enterprise customers. The
NBUs Click to Meet product line provides a unique highly scalable solution for
desktop video collaboration and is sold as an integrated product with common desktop
applications. The NBU also provides service providers, both 3G wireless and wireline, with
integrated solutions that enable the delivery of converged IP-based multimedia streaming
and video telephony applications to corporate customers as a managed service, residential
broadband customers and 3G subscribers worldwide.

31

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Our
Technology Business Unit, or TBU, is a one-stop shop of voice and video over IP and 3G
Development toolkits. The TBU provides protocol development tools and platforms as well as
associated solutions, such as testing platforms and IP phone toolkits, that enable
equipment vendors and service providers to develop and deploy new IP and 3G-based
converged networks, services, and technologies.TBU solutions include
developer toolkits for SIP, MEGACO/H.248, MGCP, H.323, and 3G-324M. It also includes our
ProLab Test Management Suite and IP phone toolkit. Our toolkits have been
implemented in a wide range of environments from chipsets to simple user devices like IP
phones, and from integrated video systems through carrier class network devices like
gateways, switches, soft switches and 3G multimedia gateways.

Both
business units also assist customers to integrate our technology into their products and
to customize our products to their specific needs.

Our
goal is to be the leading provider of solutions that enable real-time multimedia (voice,
video and data) collaboration and communication over packet and 3G networks. We provide
solutions at every level  protocol developer toolkits, professional services,
network infrastructure, as well as integrated solutions that complement the communication
solutions of other vendors such as those from Cisco, Sony, Microsoft and Alcatel. We
believe that the combination of offering IP-centric networking products, along with
software toolkits, positions us as a key enabling vendor in the evolution of
next-generation communications. Both of our product lines are essential for building
networks that support real time voice and video communication with full interoperability
with legacy ISDN/PSTN networks and technologies. We also believe that the opportunities
for mass deployment in desktop collaboration and 3G are promising growth levers for our
company, complementing our traditional sources of revenues from our TBU and NBU
businesses.

# Critical Accounting
Policies

We
have identified the following policies as critical to the understanding of our financial
statements. The preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of sales and expenses during the reporting periods. Areas where
significant judgments are made include, but are not limited to, revenue recognition,
allowance for doubtful accounts, inventory valuation, goodwill and intangible assets,
warranty, income tax valuation allowance, tax contingencies and contingencies. Actual
results could differ materially from these estimates.

Revenue
Recognition. We account for our revenue in accordance with the provisions of SOP 97-2,
Software Revenue Recognition, issued by the American Institute of Certified
Public Accountants and as amended by SOP 98-9 and related interpretations. When an
arrangement does not require significant production, modification or customization of
software or does not contain services considered to be essential to the functionality of
the software, revenue is recognized when the following four criteria are met:

| |  | Persuasive
evidence of an arrangement exists. We require evidence of an agreement with a customer
specifying the terms and conditions of the products or services to be delivered typically
in the form of a signed contract, statement of work or purchase order.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Delivery
has occurred. For software licenses, delivery takes place when the customer is given
access to the software programs via access to a web site or shipped medium. For sales of
videoconferencing systems that are delivered physically, delivery takes place upon
transfer of the videoconferencing system to the customers possession. For services,
delivery takes place as the services are provided.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
fee is fixed or determinable. Fees are fixed or determinable if they are not subject to a
refund or cancellation and do not have payment terms that exceed our standard payment
terms. Typical payment terms are between net 30 days to net 90 days.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Collection
is probable. We perform a credit review of all customers with significant transactions to
determine whether a customer is credit worthy and collection is probable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

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In
general, revenues are recognized as follows: (i) revenues from license fees and sales of
products are recognized when persuasive evidence of an arrangement exists, delivery has
occurred, no significant obligations with regard to implementation remain, the fee is
fixed or determinable and collectability is probable; (ii) maintenance, upgrade protection
and technical support is deferred and recognized on a straight-line basis over the term of
the maintenance and support agreement; (iii) other services are recognized as the services
are performed; and (iv) revenues from royalties are recognized at the time of shipment by
customers, as they are reported to us by those customers, and when collectability is
probable.

We
exercise judgment and use estimates in connection with the determination of the amount of
product software license and services revenues to be recognized in each accounting period.
If collection is not considered probable, revenue is recognized when the fee is collected.
We record provisions against revenue for estimated sales returns and allowances on product
and service-related sales in the same period as the related revenue is recorded. These
estimates are based on historical sales returns and analyses of credit memo data, and
other known factors. If the historical data we use to calculate these estimates do not
accurately reflect future returns, adjustments to these reserves may be required that
would increase or decrease revenue or net income.

Many
of our arrangements include multiple elements. Such elements typically include any or all
of the following: products or software licenses, software maintenance and technical
support and in some cases customization and development of software. For multiple-element
arrangements that do not involve significant modification or customization of the software
and do not involve services that are considered essential to the functionality of the
software, revenues are allocated to the different elements in the arrangement under the
residual method since vendor-specific objective evidence, or 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, we defer
revenue for the fair value of our undelivered elements (maintenance and support) and
recognize revenue for the remainder of the arrangement fee attributable to the elements
initially delivered in the arrangement (software product) when all other criteria in SOP
97-2 have been met. Any discount in the arrangement is allocated to the delivered element.
If sufficient specific objective evidence does not exist for all undelivered elements,
revenue is deferred for the entire arrangement until all revenue recognition criteria are
met for such undelivered elements.

The
VSOE of fair value of the maintenance and support services included in multiple element
arrangements is determined based on the price charged when sold separately (i.e. when
renewed).

In
the case of multiple-element arrangements that involve significant modification or
customization of the software or involve services that are considered essential to the
functionality of the software, contract accounting is applied according to the provisions
of SOP 81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, in accordance with which revenues are recognized on
the percentage of completion basis, when collectability is probable. Percentage of
completion is determined based on the output method, meaning upon completion
of milestones. However, in cases where uncertainty exists subsequent to the completion of
the milestone with regard to customer acceptance, revenue is not recognized until actual
customer acceptance. The recognition of losses on contracts is reflected in the period in
which the changes or losses become known.

Allowances
for Doubtful Accounts. We perform ongoing credit evaluations of our customers
financial condition and we require collateral as deemed necessary. We maintain allowances
for doubtful accounts for estimated losses resulting from the inability of our customers
to make payments. In judging the adequacy of the allowance for doubtful accounts, we
consider multiple factors including the aging of our receivables, historical bad debt
experience and the general economic environment. Management applies considerable judgment
in assessing the realization of receivables, including assessing the probability of
collection and the current credit worthiness of each customer. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

33

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Inventories.          Inventories
are stated at the lower of cost or market. Cost is determined by the           average
cost method. We write down obsolete or slow moving inventory in an           amount equal
to the difference between the cost of inventory and the estimated           market value
based upon assumptions about future demand, market conditions and           sale
forecasts. If actual market conditions are less favorable than we           anticipate,
additional inventory write-downs may be required.

Warranty
Reserves.Upon shipment of products to our customers, we provide for the estimated
cost to repair or replace products that may be returned under warranty. Our warranty
period is typically 12 months from the date of shipment although this may vary depending
on the demands of the customer. For existing products, the reserve is estimated based on
actual historical experience. Factors that may impact our warranty costs in the future
include our reliance on our contract manufacturer to provide quality products and the fact
that our products are complex and may contain undetected defects, errors or failures in
either the hardware or the software.

Goodwill
and Intangible Assets. Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business combinations. The goodwill on
our balance sheet is a result of our acquisitions of the assets of FVC in March 2005 and
VisionNex Technologies, Inc., or VisionNex, in September 2004. The identifiable intangible
assets, other than goodwill, included in our balance sheet are technology and distribution
networks acquired from FVC and VisionNex. We review goodwill for potential impairment at
least annually and other intangible assets when events or changes in circumstances
indicate the carrying value of the other intangible assets may be impaired, in which case
we may obtain an appraisal from an independent valuation firm to determine the amount of
impairment, if any. In addition to the possible use of an independent valuation firm, we
perform internal valuation analyses. We determine fair value using widely accepted
valuation techniques, including discounted cash flow analysis. This type of analysis
requires us to make assumptions and estimates regarding industry economic factors and the
profitability of future business strategies. It is our policy to conduct impairment
testing based on our current business strategy in light of present industry and economic
conditions, as well as future expectations. As of December 31, 2006 we determined there
was no impairment of the VisionNex and FVC goodwill. If actual results are not consistent
with our assumptions and estimates, we may be exposed to a goodwill impairment charge.

Tax
Valuation Allowance. Estimates and judgments are required in the determination of the
recoverability of certain of the deferred tax assets, which arise from net operating
losses and temporary differences between the tax and financial statement bases of assets
and liabilities. Statement of Financial Accounting Standards, or SFAS, No. 109,
Accounting for Income Taxes, requires that the deferred tax assets be reduced
by a valuation allowance, if based on the weight of available evidence, it is more likely
than not that some portion or all of the recorded deferred tax assets will not be realized
in future periods.

In
evaluating our ability to recover our deferred tax assets, in full or in part, we consider
all available positive and negative evidence including our past operating results, the
existence of cumulative losses in the most recent fiscal years and our forecast of future
taxable income on a jurisdiction by jurisdiction basis. In determining future taxable
income, we are responsible for assumptions utilized, including the amount of Israel and
international pre-tax operating income, the reversal of temporary differences and the
implementation of feasible and prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable income and are consistent with
the plans and estimates we use to manage the underlying businesses.

Based
on estimates of future taxable profits and losses in certain foreign tax jurisdictions, we
determined that a valuation allowance of $1.4 million was required for specific tax loss
carryforwards and other temporary differences as of December 31, 2006. If these estimates
prove inaccurate, a change in the valuation allowance could be required in the future.

34

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Tax
contingencies.Like most companies, domestic and foreign tax authorities periodically
audit our income tax returns. These audits include questions regarding our tax filing
positions, including the timing and amount of deductions and the allocation of income
among various tax jurisdictions. In evaluating the exposure associated with our various
tax filing positions, including state, foreign and local taxes, we record reserve for
probable exposures. A number of years may elapse before a particular matter, for which we
have established a reserve, is audited and fully resolved. The estimate of our tax
contingency reserve contains uncertainty because management must use judgment to estimate
the exposure associated with our various filing positions. Although management believes
that the estimates and judgments about the tax contingencies are reasonable, actual
results could differ, and we may be exposed to gains or losses that could be material. To
the extent we prevail in matters for which reserves have been established, or are required
to pay amounts in excess of the reserve, our effective tax rate in a given financial
statements period could be materially affected. An unfavorable tax settlement would
require use of our cash and result in an increase in our effective tax rate in the year of
resolution. A favorable tax settlement would be recognized as a reduction in our effective
tax rate in the year of resolution.

Contingencies.
          We are involved in legal proceedings and other claims from time to time. We are
          required to assess the likelihood of any adverse judgments or outcomes to these
          matters, as well as potential ranges of probable losses. A determination of the
          amount of reserves required, if any, for any contingencies are made after
          careful analysis of each individual claim. The required reserves may change due
          to future developments in each matter or changes in approach, such as a change
          in the settlement strategy in dealing with any contingencies, which may result
          in higher net loss. If actual results are not consistent with our assumptions
          and judgments, we may be exposed to gains or losses that could be material. See
          Item 8A. Financial Information  Consolidated Statements and Other
          Financial Information  Legal Proceedings.

# Revenues

We
generate revenues from sales of our networking products and our technology products as
well as related maintenance and support services. We price our networking products on a
per unit basis, and grant discounts based upon unit volumes. We price our software
development kits on the basis of a fixed-fee plus royalties from products developed using
the software development kits. We sell our products and technology through direct sales
and various indirect distribution channels in the Americas, Europe and the Asia-Pacific
region.

# Significant Expenses

Cost
of Revenues.Our cost of revenues consists of component and material costs, direct
labor costs, subcontractor fees, overhead related to manufacturing and depreciation of
manufacturing equipment. Our gross margin is affected by the selling prices for our
products as well as the proportion of our revenues generated from the sale of our
technology products as compared to our networking products. Our revenues from the sale of
our technology products have higher gross margins than our revenues from the sale of our
networking products and we offer greater discounts to our high volume OEM customers. As
the relative proportion of our revenues from our networking products increases as a
percentage of our total revenues and we generate a higher percentage of our revenues from
sales to our high volume OEM customers, our gross margins will decline.

Research
and development expenses. Our research and development expenses consist primarily of
compensation and related costs for research and development personnel, expenses for
testing facilities and depreciation of equipment.

Research
and development costs are charged to operations as incurred. Software development costs
are considered for capitalization when technological feasibility is established according
to SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Costs incurred after achievement of technological feasibility in
the process of software production have not been material. Therefore, we have not
capitalized any of our research and development expenses.

35

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Marketing
and selling expenses. Our marketing and selling expenses consist primarily of
compensation and related costs for sales personnel, marketing personnel, sales
commissions, marketing programs, public relations, promotional materials, travel expenses
and trade show exhibit expenses.

General
and administrative expenses. Our general and administrative expenses consist primarily
of salaries and related expenses for executive, accounting and human resources personnel,
professional fees, provisions for doubtful accounts and other general corporate expenses.

Financial
income, net. Our financial income, net consists primarily of interest earned on bank
deposits and other liquid investments, gains and losses from the re-measurement of
monetary balance sheet items denominated in non-dollar currencies into dollars.

# Results of Operations

The
following discussion of our results of operations for the years ended December 31, 2004,
2005 and 2006, including the percentage data in the following table, is based upon our
statements of income contained in our financial statements for those periods and the
related notes, included in this annual report:

| |                            | December 31,
| | -------------------------- | ------------
|
|
|
|
| | Revenues                   |             
| | Cost of revenues           |             
| |                            |             
| | Gross profit               |             
| | Operating expenses:        |             
| | Research and development   |             
| | Marketing and selling      |             
| | General and administrative |             
| | Patent settlement reserve  |             
| |                            |             
| | Total operating expenses   |             
| | Operating income           |             
| | Financial income, net      |             
| | Taxes benefit, net         |             
| |                            |             
| | Net income                 |             
| |                            |             

---

| | *
Including stock-based compensation recorded in 2006 under Financial Accounting Standards
Board Statement No. 123 (revised 2004), Share-Based Payment,
representing 0.4%, 1.6%, 2.1% and 1.1% of total revenues relating to Cost of revenues,
Research and development expenses, Marketing and selling expenses and General and
administration expenses, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Year Ended December 31,
2006 Compared with Year Ended December 31, 2005

Revenues.
          Revenues increased by 23.0% from $74.0 million for the year ended December 31,
          2005 to $91.0 million for the year ended December 31, 2006. This increase was
          due to a $15.5 million increase in sales of our networking products and a $1.5
          million increase in sales of our technology products. The results reflect
          increased sales in all regions.

Revenues
from networking products increased by 30.3% from $51.3 for the year ended December 31,
2005 to $66.8 million for the year ended December 31, 2006. The increase in revenues from
networking products was primarily attributable to increased OEM sales to Cisco.

36

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Revenues
from technology products increased by 6.6% from $22.7 million for the year ended December
31, 2005 to $24.2 million for the year ended December 31, 2006. The increase in revenues
from technology products was attributable to a $2.3 million increase in royalty fees from
approximately $4.8 million in 2005 to approximately $7.1 million in 2006. This increase
was offset in part by a $1.2 million decrease in software license fee from approximately
$9.7 million in 2005 to approximately $8.5 million in 2006.

Revenue
from sales to customers in the Americas increased from $40.0 million, or 54.1% of revenue,
for the year ended December 31, 2005 to $52.5 million, or 57.7% of revenue, for the year
ended December 31, 2006, an increase of $12.5 million, or 31.3%. This increase in sales to
customers in the Americas was primarily attributable to increased OEM sales to Cisco.

Revenue
from sales to customers in Europe and the Middle East increased from $20.9 million, or
28.2% of revenue, for the year ended December 31, 2005 to $23.1 million, or 25.4% of
revenue, for the year ended December 31, 2006, an increase of $2.2 million, or 10.5%. This
increase in sales to customers in Europe and the Middle East was primarily attributable to
increased sales of our networking products.

Revenue
from sales to customers in the Asia-Pacific region increased from $13.1 million, or 17.6%
of revenue, for the year ended December 31, 2005 to $15.4 million, or 17.0% of revenue,
for the year ended December 31, 2006, an increase of $2.3 million, or 17.6%. This increase
in sales to customers in the Asia Pacific region is primarily attributable to increased
sales of our networking products mainly in China, Australia, Hong Kong and Korea.

Cost
of Revenues. Cost of revenues increased from $13.1 million for the year ended December
31, 2005 to $18.2 million for the year ended December 31, 2006, an increase of $5.1
million, or 38.6%. Gross profit as a percentage of revenues decreased from 82.3% for the
year ended December 31, 2005 to 80.0% for the year ended December 31, 2006. The decrease
in gross profit margin resulted from an increase in our networking product sales which
have lower profit margins. In addition, cost of revenues for the year ended December 31,
2006 included $373,000 of stock-based compensation recorded under Financial Accounting
Standards Board Statement No. 123 (revised 2004), Share-Based Payment,
or FASB No. 123(R).

Research
and Development Expenses. Research and development expenses increased from $20.1
million for the year ended December 31, 2005 to $25.3 million for the year ended December
31, 2006, an increase of $5.2 million, or 26.0%. The increase was primarily attributable
to an increase in the number of research and development personnel. In addition, research
and development expenses for the year ended December 31, 2006 included $1.5 million of
stock-based compensation recorded under FASB No. 123(R). Research and development expenses
as a percentage of revenues increased from 27.2% for the year ended December 31, 2005 to
27.8% for the year ended December 31, 2006.

Marketing
and Selling Expenses. Marketing and selling expenses increased from $24.6 million for
the year ended December 31, 2005 to $30.6 million for the year ended December 31, 2006, an
increase of $6.0 million, or 24.4%. The increase was primarily attributable to an increase
in the number of sales and marketing personnel and increased expenses related to
personnel. Marketing and selling expenses as a percentage of revenues increased from 33.2%
for the year ended December 31, 2005 to 33.7% for the year ended December 31, 2006. In
addition, marketing and selling expenses for the year ended December 31, 2006 included
$1.9 million of stock-based compensation recorded under FASB No. 123(R).

General
and Administrative Expenses. General and administrative expenses increased from $4.7
million for the year ended December 31, 2005 to $6.5 million for the year ended December
31, 2006, an increase of $1.8 million, or 38.3%. This increase was primarily attributable
to $1.0 million of stock-based compensation recorded under FASB No. 123(R) and increased
expenses related to personnel. General and administrative expenses as a percentage of
revenues increased from 6.3% for the year ended December 31, 2005 to 7.1% for the year
ended December 31, 2006.

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Patent
settlement reserve. In 2005, we received a claim from Avistar Communications
Corporation, a U.S. developer of video technologies, alleging that we infringed on ten of
their patents. During the second half of 2006, following a number of meetings with
Avistar, we had the ability to estimate the portion of the possible settlement related to
past due royalties in the amount of approximately $1.9 million.

Financial Income, Net.Financial income, net increased from $3.1 million for the year
ended December 31, 2005 to $5.8 million for the year ended December 31, 2006. The increase
was primarily a result of higher prevailing interest rates and an increase in funds
available for investment. Financial income in 2006 was principally derived from the
investment of the proceeds of our March 2000 initial public offering, cash generated from
operating activities and exercise of options by employees.

Taxes
on Income. For the year ended December 31, 2006, we recorded an income tax benefit of
approximately $900,000. The benefit was primarily derived from an increase in deferred
income taxes assets of approximately $900,000, reversing valuation allowances on deferred
income tax assets of approximately $600,000 and reversing prior years taxes of
approximately $700,000, offset in part by $1.3 million of current taxes.

# Year Ended December 31,
2005 Compared with Year Ended December 31, 2004

Revenues.
          Revenues increased by 15.3% from $64.2 million for the year ended December 31,
          2004 to $74.0 million for the year ended December 31, 2005. This increase was
          due to a $3.3 million increase in sales of our technology products and a $6.5
          million increase in sales of our networking products. The increased sales in
          networking products were derived from our traditional products and sales of our
          Click to Meet products that we acquired from FVC in March 2005. The results
          primarily reflect increased sales in the Americas, Asia-Pacific region and
          Middle East.

Revenues
from networking products increased by 14.5% from $44.8 million for the year ended December
31, 2004 to $51.3 million for the year ended December 31, 2005. The increase in revenues
from networking products was primarily attributable to $5.1 million revenues from the
sales of the Click to Meet products that we acquired from FVC in March 2005.

Revenues
from technology products increased by 17.0% from $19.4 million for the year ended December
31, 2004 to $22.7 million for the year ended December 31, 2005. The increase in revenues
from technology products was attributable to a $1.4 million increase in software license
fees from approximately $8.3 million in 2004 to approximately $9.7 million in 2005, a $0.9
million increase in royalty revenues, and a $1.5 million increase in maintenance revenues.
This was offset in part by a $0.5 million decrease in professional services with respect
to customization services.

Revenue
from sales to customers in the Americas increased from $33.7 million, or 52.0 % of
revenue, for the year ended December 31, 2004, to $40.0 million, or 54.1% of revenue, for
the year ended December 31, 2005, an increase of $6.3 million, or 18.7%. This increase in
sales to customers in the Americas was primarily attributable to increased sales to Cisco
and due to revenues from the sales of the Click to Meet products that we acquired from FVC
in March 2005.

Revenue
from sales to customers in Europe and the Middle East increased from $18.9million,
or 29.4% of revenue, for the year ended December 31, 2004, to $20.9 million, or 28.2% of
revenue, for the year ended December 31, 2005, an increase of $2.0 million, or 10.6%,
mainly due to increased sales to service providers.

Revenue
from sales to customers in the Asia-Pacific region increased from $11.7million, or
18.2% of revenue, for the year ended December 31, 2004, to $13.1 million, or 17.6% of
revenue, for the year ended December 31, 2005, an increase of $1.4 million, or 12.0%. This
increase in sales to customers in the Asia-Pacific region is primarily attributable to
increase in sales in Korea, Japan and Taiwan.

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Cost
of Revenues. Cost of revenues decreased from $13.9 million for the year ended December
31, 2004 to $13.1 million for the year ended December 31, 2005, a decrease of $0.8
million, or 5.8%. Gross profit as a percentage of revenues increased from 78.4% for the
year ended December 31, 2004 to 82.3% for the year ended December 31, 2005. The increase
in gross profit margin resulted from an increase in revenues volume, sales of Click To
Meet products which have higher gross margin, and the product mix.

Research
and Development. Research and development expenses increased from $17.5 million for
the year ended December 31, 2004 to $20.1 million for the year ended December 31, 2005, an
increase of $2.6 million, or 14.9%. The increase is primarily attributable to an increase
in the number of research and development personnel, mainly to support the acquisition of
the Click to Meet products. Research and development expenses as a percentage of revenues
remained constant at approximately 27.2% for the years ended December 31, 2004 and 2005.

Marketing
and Selling. Marketing and selling expenses increased from $23.8 million for the
year ended December 31, 2004 to $24.6 million for the year ended December 31, 2005, an
increase of $0.8 million, or 3.4%. Marketing and selling expenses as a percentage of
revenues decreased from 37.1% for the year ended December 31, 2004 to 33.2% for the year
ended December 31, 2005.

General
and Administrative. General and administrative expenses decreased from $4.9 million
for the year ended December 31, 2004 to $4.7 million for the year ended December 31, 2005,
a decrease of $0.2 million, or 4.1%. General and administrative expenses as a percentage
of revenues decreased from 7.6% for the year ended December 31, 2004 to 6.3% for the year
ended December 31, 2005.

Financial
Income, Net.Financial income increased from $1.9 million for the year ended December
31, 2004 to $3.1 million for the year ended December 31, 2005, principally as a result of
higher prevailing interest rates and higher cash and cash equivalent, deposits and
marketable securities balances. Financial income in 2005 was principally derived from the
investment of the proceeds of our March 2000 initial public offering, cash generated from
operating activities and exercise of options by employees.

Taxes
on Income.Income tax benefits were $0.1 million for the year ended December 31, 2005.
The benefit mainly derived from an increase in deferred income tax assets on temporary
differences. We did not record an income tax benefit in 2004.

# Consolidated Balance
Sheet Data

Trade
Receivables. Trade receivables increased from $12.3 million at December 31, 2005 to
$12.9 million at December 31, 2006, an increase of $0.6 million, or 4.8%. This increase
was primarily attributable to increased sales volume.

Allowance
for Doubtful Accounts. Allowance for doubtful accounts remained constant at
approximately $0.7 million at December 31, 2005 and 2006. Allowance for doubtful accounts
as a percentage of trade receivables decreased from 5.4% as of December 31, 2005 to 5.1%
as of December 31, 2006.

Other
Receivables and Prepaid Expenses. Other receivables and prepaid expenses increased
from $4.3 million at December 31, 2005 to $5.8 million at December 31, 2006, an increase
of $1.5 million, or 34.9%. This increase was primarily attributable to an increase in
government authorities receivables and deferred tax assets.

Inventories.          Inventories
increased from $2.6 million at December 31, 2005 to $3.0 million at           December
31, 2006, an increase of $0.4 million, or 15.4%. The number of           inventory days
outstanding decreased from approximately 72 days at December 31,           2005 to
approximately 61 at December 31, 2006. The increase in inventory level           was
primarily attributed to changes we performed in our inventory management.

39

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Trade
Payables. Trade payables increased from $1.8 million at December 31, 2005 to $2.9
million at December 31, 2006, an increase of $1.1 million, or 61.1%. The increase was
primarily attributed to an increase in our operating volume.

Other
Payables, Accrued Expenses and Deferred Revenues. Other payables, accrued expenses and
deferred revenues increased from $20.7 million at December 31, 2005 to $22.6 million at
December 31, 2006, an increase of $1.9 million, or 9.2%. The increase was primarily
attributed to a $2.0 patent settlement reserve that we recorded for the year ended
December 31, 2006.

# Quarterly Results of
Operations

The
following tables present consolidated statements of operations data for each of the eight
fiscal quarters ended December 31, 2006, in dollars and as a percentage of revenues.
In managements opinion, this unaudited information has been prepared on the same
basis as our audited consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for fair presentation of the
unaudited information for the quarters presented. The results of operations for any
quarter are not necessarily indicative of results that we might achieve for any subsequent
periods.

|                             | Mar. 31,2005 | June 30,2005 | Sept. 30,2005 | Dec. 31,2005 | Mar. 31,2006 | June 30,2006 | Sept. 30,2006 | Dec. 31,2006
|---------------------------- | ------------ | ------------ | ------------- | ------------ | ------------ | ------------ | ------------- | ------------
|
|
|
|
|Revenues                     |              |              | $             | 16,280       |              | $            | 17,473        |             
|Cost of revenues             |              |              |               | 2,776        |              |              | 3,103         |             
|Gross profit                 |              |              |               | 13,504       |              |              | 14,370        |             
|Operating expenses:          |              |             
|Research and development     |              |              |               | 4,655        |              |              | 5,054         |             
|Marketing and selling        |              |              |               | 5,757        |              |              | 6,006         |             
|General and administrative   |              |              |               | 1,159        |              |              | 1,152         |             
|Patent settlement reserve    |              |              |               | -            |              |              | -             |             
|Operating income             |              |              |               | 1,933        |              |              | 2,158         |             
|Financial income, net        |              |              |               | 561          |              |              | 768           |             
|Tax benefit, net             |              |              |               | -            |              |              | (30           | )           
|Net income                   |              |              | $             | 2,494        |              | $            | 2,896         |             
|                             |              |             
|As a percentage of revenues: |              |             
|Revenues                     |              |              |               | 100          | %            |              | 100           | %           
|Cost of revenues             |              |              |               | 17           |              |              | 18            |             
|Gross profit                 |              |              |               | 83           |              |              | 82            |             
|Operating expenses:          |              |             
|Research and development     |              |              |               | 29           |              |              | 29            |             
|Marketing and selling        |              |              |               | 35           |              |              | 34            |             
|General and administrative   |              |              |               | 7            |              |              | 7             |             
|Patent settlement reserve    |              |              |               | -            |              |              | -             |             
|Operating income             |              |              |               | 12           |              |              | 12            |             
|Financial income, net        |              |              |               | 3            |              |              | 4             |             
|Tax benefit, net             |              |              |               | -            |              |              | -             |             
|Net income                   |              |              |               | 15           | %            |              | 16            | %           

40

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Our
operating results are likely to fluctuate significantly in the future as a result of
various factors, many of which are outside our control. Consequently, we believe that
period-to-period comparisons of our operating results may not necessarily be meaningful
and, as a result, you should not rely on them as an indication of future performance. See
Item 3D Key Information  Risk Factors  Risks Relating to Our
Business.

# Conditions in Israel

We
are incorporated under the laws of, and our principal executive offices and manufacturing
and research and development facilities are located in, the State of Israel. Accordingly,
we are directly affected by political, economic and military conditions in Israel.
Specifically, we could be adversely affected by any major hostilities involving Israel, a
full or partial mobilization of the reserve forces of the Israeli army, the interruption
or curtailment of trade between Israel and its present trading partners, and a significant
downturn in the economic or financial condition of Israel.

# Political Conditions

Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its Arab neighbors, and a state of hostility, varying from time
to time in intensity and degree, has led to security and economic problems for Israel.
Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian
Authority, there has been an increase in unrest and terrorist activity in Israel, which
began in September 2000 and which has continued with varying levels of severity through
2006. In July 2006, an armed conflict began between Israel and Hezbollah forces in
Lebanon, which involved rocket attacks on populated areas in the northern parts of Israel.
On August 14, 2006, a cease-fire between Hezbollah and Israel took effect. This situation
has had an adverse effect on Israels economy, primarily in the geographical areas
directly harmed by this conflict. Any future armed conflict, political instability or
violence in the region may have a negative effect on our business condition, harm our
results of operations and adversely affect our share price.

Furthermore,
there are a number of countries, primarily in the Middle East, as well as Malaysia and
Indonesia, that restrict business with Israel or Israeli companies, and we are precluded
from marketing our products to these countries. Restrictive laws or policies directed
towards Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business.

No
predictions can be made as to whether or when a final resolution of the areas
problems will be achieved or the nature thereof and to what extent the situation will
impact Israels economic development or our operations.

In
addition, many of our officers and employees in Israel are obligated to perform annual
reserve duty in the Israeli Defense Forces and may be called for active duty under
emergency circumstances at any time. If a military conflict or war arises, these
individuals could be required to serve in the military for extended periods of time. Our
operations could be disrupted by the absence for a significant period of one or more of
our executive officers or key employees or a significant number of other employees due to
military service. Any disruption in our operations could adversely affect our business.

# Economic Conditions

In
recent years Israel has been going through a period of recession in economic activity,
resulting in low growth rates and growing unemployment. Although economic activity in
Israel has improved recently, our operations could be adversely affected if the economic
conditions in Israel begin to deteriorate again.

41

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# Trade Relations

Israel
is a member of the United Nations, the International Monetary Fund, the International Bank
for Reconstruction and Development and the International Finance Corporation. Israel is a
member of the World Trade Organization and is a signatory to the General Agreement on
Tariffs and Trade. In addition, Israel has been granted preferences under the Generalized
System of Preferences from the United States, Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either duty-free
or at reduced tariffs.

Israel
and the European Union Community, known now as the European Union, concluded a
Free Trade Agreement in July 1975 that confers some advantages with respect to Israeli
exports to most European countries and obligates Israel to lower its tariffs with respect
to imports from these countries over a number of years. In 1985, Israel and the United
States entered into an agreement to establish a Free Trade Area. The Free Trade Area has
eliminated all tariff and some non-tariff barriers on most trade between the two
countries. On January 1, 1993, an agreement between Israel and the European Free Trade
Association, known as the EFTA, established a free-trade zone between Israel
and the EFTA nations. In November 1995, Israel entered into a new agreement with the
European Union, which includes a redefinition of rules of origin and other improvements,
such as allowing Israel to become a member of the Research and Technology programs of the
European Union. In recent years, Israel has established commercial and trade relations
with a number of other nations, including Russia, China, India, Turkey and other nations
in Eastern Europe and the Asia-Pacific region.

# Impact of Currency
Fluctuation and of Inflation

The
dollar cost of our operations is influenced by the extent to which any inflation in Israel
is offset on a lagging basis, or is not offset by the devaluation of the NIS in relation
to the dollar. When the rate of inflation in Israel exceeds the rate of devaluation of the
NIS against the dollar, companies experience increases in the dollar cost of their
operations in Israel. Unless offset by a devaluation of the NIS, inflation in Israel will
have a negative effect on our profitability as we receive payment in dollars or
dollar-linked NIS for all of our sales while we incur a portion of our expenses,
principally salaries and related personnel expenses, in NIS.

The
following table presents information about the rate of inflation in Israel, the rate of
devaluation of the NIS against the U.S. dollar, and the rate of inflation of Israel
adjusted for the devaluation:

| | Year ended December 31, | Israeli inflationrate % | Israeli devaluation(appreciation)rate % | Israeli inflationadjusted fordevaluation %
| | ----------------------- | ----------------------- | --------------------------------------- | ------------------------------------------
|
|
|
|
| | 2002                    |                         |                                         |                                           
| | 2003                    |                         |                                         |                                           
| | 2004                    |                         |                                         |                                           
| | 2005                    |                         |                                         |                                           
| | 2006                    |                         |                                         |                                           

We
cannot assure you that we will not be materially and adversely affected in the future if
inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing
of the devaluation lags behind inflation in Israel.

A
devaluation of the NIS in relation to the dollar has the effect of reducing the dollar
amount of any of our expenses or liabilities which are payable in NIS, unless these
expenses or payables are linked to the dollar. This devaluation also has the effect of
decreasing the dollar value of any asset which consists of NIS or receivables payable in
NIS, unless the receivables are linked to the dollar. Conversely, any increase in the
value of the NIS in relation to the dollar has the effect of increasing the dollar value
of any unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and
expenses.

42

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---

Because
exchange rates between the NIS and the dollar fluctuate continuously, with a historically
declining trend in the value of the NIS, exchange rate fluctuations and especially larger
periodic devaluations will have an impact on our profitability and period-to-period
comparisons of our results. The effects of foreign currency re-measurements are reported
in our consolidated financial statements in current operations.

# Recently Issued
Accounting Standards

In
June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation
No. 48, or FIN 48, Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements. FIN 48
utilizes a two-step approach for evaluating tax positions. Recognition (step one) occurs
when an enterprise concludes that a tax position, based solely on its technical merits, is
more-likely-than-not to be sustained upon examination. Measurement (step two) is only
addressed if step one has been satisfied (when the position is more-likely-than-not to be
sustained). Under step two, the tax benefit is measured as the largest amount of benefit,
determined on a cumulative probability basis that is more-likely-than-not to be realized
upon ultimate settlement. FIN 48 applies to all tax positions related to income taxes
subject to the FASB SFAS No. 109, Accounting for income taxes, orFAS 109. This includes tax positions considered to be routine as
well as those with a high degree of uncertainty. FIN 48 has expanded disclosure
requirements, which include a tabular roll forward of the beginning and ending aggregate
unrecognized tax benefits as well as specific detail related to tax uncertainties for
which it is reasonably possible the amount of unrecognized tax benefit will significantly
increase or decrease within 12 months. These disclosures are required at each annual
reporting period unless a significant change occurs in an interim period. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The cumulative effect of
applying FIN 48 will be reported as an adjustment to the opening balance of retained
earnings. We do not anticipate any material impact on our consolidated financial
statements upon the adoption of FIN 48.

In
September 2006, the FASB issued Statement of Financial Accounting Standard, or SFAS, No.
157 Fair Value Measurements, or SFAS No. 157, which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157 applies to
other accounting pronouncements that require or permit fair value measurements. SFAS No.
157 is effective for financial statements issued for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 157 is
not expected to have any material impact on our consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, orSFAS No. 159. SFAS No. 159 permits
companies to choose to measure certain financial instruments and certain other items at
fair value. SFAS No. 159 requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, although earlier adoption is permitted. We are
currently assessing the impact SFAS No. 159 will have on our consolidated financial
statements.

|B. | LIQUIDITY
AND CAPITAL RESOURCES
|-- | -------------------------------

From
our inception until our initial public offering in March 2000, we financed our operations
through cash generated by operations and a combination of private placements of our share
capital and borrowings under lines of credit. We raised a total of approximately
$12.2 million in net proceeds in four private placements prior to our initial public
offering. In March 2000, we sold 4,370,000 of our ordinary shares in our initial public
offering and 590,822 ordinary shares in a private placement to Samsung Venture Investment
Corporation, a member of the Samsung group, and Siemens Aktiengesellschraft. We received
net proceeds of $89.2 million from the public offering and private placement.

43

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As
of December 31, 2006, we had approximately $23.1 million in cash and cash equivalents,
$84.4million in short term investments and our working capital was approximately
$103.7million. Taking into account long-term liquid investments, we had
approximately $145.6 million in cash and liquid investments as of December 31, 2006.

Our
management believes that another financial measure that is important in assessing our
companys financial condition is days sales outstanding, or DSOs. Our DSOs
were46 days atDecember 31, 2006 compared to 53 days at December 31, 2005.

Capital
expenditures for the years ended December 31, 2004, 2005 and 2006 were approximately $2.3
million, $2.0 million and $2.3 million,respectively. These expenditures were
principally for research and development equipment, and office furniture and equipment. In
addition, we invested $1.3 million in connection with the purchase of the VisionNex assets
in September 2004 and $7.0 million in connection with the purchase of the FVC assets in
March 2005. We currently do not have significant capital spending or purchase commitments,
but we expect to continue to engage in capital spending consistent with anticipated growth
in our operations, infrastructure and personnel.

# Cash Flows

The
following table summarizes our cash flows for the periods presented:

|                                                     | Year ended December 31,
|---------------------------------------------------- | -----------------------
|
|
|
|
|Net cash provided by operating activities            |                        
|Net cash used in investing activities                |                        
|Net cash provided by financing  activities           |                        
|Net increase (decrease) in cash and cash equivalents |                        
|Cash and cash equivalents at beginning of period     |                        
|Cash and cash equivalents at end of period           |                        

Net
cash provided by operating activities was approximately $20.1 millionfor the year
ended December 31, 2006. This amount was primarily attributable to net income of $15.2
million adjusted for depreciation and amortization expenses of $2.9 million, stock based
compensation of $4.8 million recorded under FASB No. 123(R), an increase in trade payables
of $1.1 million and an increase of $0.4 million in deferred revenues and accrued severance
pay. These adjustments to net income were offset in part by an increase of $3.3 million in
deferred income taxes, a $0.4 million increase of inventories and $0.6 million increase in
trade receivables. Net cash provided by operating activities was approximately $14.1
millionfor the year ended December 31, 2005. This amount was primarily
attributable to net income of $14.7 million adjusted for an increase in deferred revenues
of $1.0 million, and depreciation and amortization expenses of $2.6 million. These
adjustments to net income were offsetin part by increased accounts receivables of
$2.2 million and a $1.4 million increase of inventories.

Net
cash used in investing activities was approximately $31.8 million for the year ended
December 31, 2006. Of the cash used in investing activities in the year ended December 31,
2006, approximately $29.5 million, net was used for investments in bank deposits and
purchases of marketable securities and approximately $2.3 million was used for purchases
of property and equipment. Net cash used in investing activities was approximately $11.0
million for the year ended December 31, 2005. Of the cash used in investing activities in
the year ended December 31, 2005, approximately $7.0 million was used to acquire
substantially all of the assets of FVC and its wholly owned subsidiary, CUseeMe Networks,
Inc., approximately $2.0 million, net was used for bank deposits and purchases of
marketable securities and approximately $2.0 million was used for purchases of property
and equipment.

44

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---

Net
cash provided by financing activities was $1.8 million for the year ended December 21,
2006 compared to $9.6 million net for the year ended December 31, 2005. Of the cash
provided by financing activities in 2006, $7.0 million was used for repurchase of our
companys shares, $6.8 million was attributable to proceeds received from the
exercise of employee options and $2.0 million was attributable to an increase in tax
benefits from options. In 2005, cash provided by financing activities was principally
attributable to the issuance of ordinary shares for cash upon exercise of options by
employees.

During
the second quarter of 2006, we announced that our Board of Directors has authorized the
repurchase of up to $30 million or two million of our ordinary shares in the open market
from time to time at prevailing market prices. The repurchase program received the
approval of the District Court in Tel Aviv Jaffa in August 2006 in accordance with the
requirements of the Israeli Companies Law. As of December 31, 2006, we had repurchased
455,973 ordinary shares under the program at a total purchase price of $7.0 million, or an
average price of $15.3 per share. As of December 31, 2006, we had reissued 347,088 of the
repurchased ordinary shares in connection with the exercise of employee stock options.

As
of December 31, 2006, our principal commitments consisted of obligations outstanding under
operating leases.Our capital requirements are dependent on many factors, including
market acceptance of our products and the allocation of resources to our research and
development efforts, as well as our marketing and sales activities. In the last three
years, we have experienced substantial increases in our expenditures as a result of the
growth in our operations and personnel.We intend to increase our expenditures in
the future consistent with our anticipated growth. We anticipate that our cash resources
will be used primarily to fund our operating activities, as well as for capital
expenditures.

|C. | RESEARCH
AND DEVELOPMENT, PATENTS AND LICENSES
|-- | ----------------------------------------------

We
place considerable emphasis on research and development to expand the capabilities of our
existing products and technology, to develop new products and to improve our existing
technologies and capabilities. We believe that our future success will depend upon our
ability to maintain our technological leadership, to enhance our existing products and
technology and to introduce on a timely basis new commercially viable products and
technology addressing the needs of our customers. Our gross investment in research and
development for the years ended December 31, 2004, 2005 and 2006 was $17.5 million, $20.1
million and $25.3 million, respectively. We intend to continue to devote a significant
portion of our personnel and financial resources to research and development. As part of
our product development process, we seek to maintain close relationships with our
customers to identify market needs and to define appropriate product specifications.

As
of December 31, 2006, our research and development staff consisted of approximately 221
employees compared to 197 as of December 31, 2005. Our research and development activities
are conducted mainly at our facilities in Tel Aviv, Israel and in part in Beijing, China
and New Hampshire, the United States. To introduce new, high quality products, we deploy
procedures for the design, development and quality assurance of our new product
developments. Our team is divided according to our existing product lines. Each product
line team is headed by a team leader and includes software or hardware engineers and
quality control technicians.

We
own one registered U.S. patent relating to packet network trunking. During 2006, we filed
three new patent applications with the U.S. Patent and Trademark Office covering protocols
and techniques to improve multi-media communication.

45

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|D. | TREND
INFORMATION
|-- | -----------------

Revenues
increased from $64.2 million for the year ended December 31, 2004 to $74.0 million for the
year ended December 31, 2005, an increase of 15.3%, to $91.0 million for the year ended
December 31, 2006, an increase of 22.8%. This increase was primarily due to increased
sales of our networking products.

Revenues
from networking products increased from $44.8 million for the year ended December 31, 2004
to $51.3 million for the year ended December 31, 2005, an increase of 14.5%, to $66.8
million for the year ended December 31, 2006, an increase of 30.2%.

Revenues
from technology products increased from $19.4 million for the year ended December 31, 2004
to $22.7 million for the year ended December 31, 2005, an increase of 17%, to $24.2
million for the year ended December 31, 2006, an increase of 6.6%.

|E. | OFF-BALANCE
SHEET ARRANGEMENTS
|-- | ------------------------------

We
are not a party to any material off-balance sheet arrangements. In addition, we have no
unconsolidated special purpose financing or partnership entities that are likely to create
material contingent obligations.

|F. | TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|-- | ---------------------------------------------

The
following table summarizes our minimum contractual obligations and commercial commitments,
as of December 31, 2006 and the effect we expect them to have on our liquidity and cash
flow in future periods.

|Contractual Obligations     | Payments due by period
|--------------------------- | ----------------------
|
|
|
|
|Operating lease obligations |                       
|Accrued severance pay       |                       
|                            |                       
|Total                       |                       
|                            |                       

|ITEM 6. |  | DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|------- |  | ------------------------------------------

|A. | DIRECTORS
AND SENIOR MANAGEMENT
|-- | -------------------------------

Set
forth below are the name, age, principal position and a biographical description of each
of our directors and executive officers:

|Name                  | Age | Position                          
|--------------------- | --- | ----------------------------------
|
|
|
|
|Zohar Zisapel (1)     | 58  | Chairman of the Board of Directors
|Boaz Raviv            | 47  | Chief Executive Officer           
|Eli Doron             | 54  | President                         
|Tsipi Kagan           | 41  | Chief Financial Officer           
|Joseph Atsmon (1) (2) | 58  | Director                          
|Dan Barnea (2)        | 61  | Director                          
|Liora Lev (2)         | 54  | Director                          
|Andreas Mattes        | 46  | Director                          
|Efraim Wachtel        | 62  | Director                          

---

|(1) | Member
of our Option Committee and Compensation Committee.
|--- | ----------------------------------------------------------

|(2) | Member
of our Audit Committee
|--- | -----------------------------

46

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Mr.
          Dan Barnea, a Class I director, will serve as a director until our 2008 annual
          general meeting of shareholders. Mr. Andreas Mattes, a Class II director, will
          serve as a director until our 2009 annual general meeting of shareholders.
          Messrs. Zohar Zisapel and Efraim Wachtel, Class III directors, will serve as
          directors until our 2007 annual general meeting of shareholders. Mr. Joseph
          Atsmon will serve as outside director pursuant to the Israeli Companies Law for
          a second three-year term until our 2009 annual general meeting of shareholders
          and Ms Liora Lev will serve as outside director pursuant to the Israeli
          Companies Law for an initial three-year term, until our 2009 annual general
          meeting of shareholders (see Item 6C. Directors, Senior Management and
          Employees  Board Practices  Outside Directors).

Zohar
Zisapel has served as a director since November 1992. Mr. Zisapel served as
the Chairman of our Board of Directors from November 1992 until August 1999 and again
assumed the position of Chairman of our Board of Directors in April 2001. During the last
several years, Mr. Zisapel has been engaged mainly in management of high technology
companies. Mr. Zisapel is a founder and chairman of the board of directors of RAD Data
Communication Ltd. and he serves as a director of other public companies, including RADCOM
Ltd., RIT Technologies Ltd., Ceragon Networks Ltd. and Verisity Ltd. Mr. Zisapel holds a
B.Sc. degree from the Technion  Israel Institute of Technology and M.Sc. degree from
Tel Aviv University.

Boaz
Raviv has served as our chief executive officer since January 2006. Prior
to assuming that position and from December, 2000, he served as general manager of our
Technology Business Unit (TBU) and he assumed additional responsibility for our Networking
Business Unit (NBU) in late 2004. From December 1999 to December 2000, Mr. Raviv served as
vice president, business development and marketing of Elron TeleSoft Ltd. and from January
1996 to November 1999, Mr. Raviv served as telecom division manager at Elron Software
Ltd.. From July 1989 until December 1995, Mr. Raviv served in various positions at CAP
GEMINI, France, among such positions in the development of its data communications
network. Mr. Raviv served his apprenticeship at Robotic in CEMAGREF, the French National
Center of Mechanical Engineering. Mr. Raviv holds a B.Sc. degree from the Technion 
Israel Institute of Technology.

Eli
Doronhas served as our President since January 2006 and as our chief
technology officer since October 1992. Mr. Doron was a co-founder of our company. Prior to
founding our company and from 1983, Mr. Doron served at SIMTECH Advanced Training and
Simulation Systems Ltd., initially as hardware manager and from 1998 as chief technology
officer. Prior thereto and from 1977, Mr. Doron served as an electronic engineer at MBT
Israel Aircraft Industries Ltd. Mr. Doron holds a B.Sc degree in electronics and computer
science from Ben-Gurion University and a M.B.A. degree from the University of Bradford in
the United Kingdom.

Tsipi
Kaganhas served as our chief financial officer since August 1, 2003. Prior to
joining us and from April 2000, Ms. Kagan was Chief Financial Officer for Phone-Or Ltd., a
leader in advanced optical microphones and sensors. Prior thereto and from September 1994,
Ms. Kagan was Senior Manager for Ernst & Young in Israel and from February 1991 to
August 1994, she served as a Certified Public Accountant (CPA) for Miller, Kaplan, Arase
& Co., an accounting firm in Los Angeles. Ms. Kagan holds a B.A. degree in Accounting
and Economics from Tel-Aviv University and is a licensed CPA in Israel.

Joseph
Atsmonhas served as an outside director (within the meaning of the Israeli
Companies Law) since June 2003 and is the Chairman of our audit committee. Mr. Atsmon has
served as a director of Nice Ltd. since July 2001, Ceragon Networks Ltd. since July 2001
and Vocal Tec Communication since December 2005. From 1995 until 2000, Mr. Atsmon served
as chief executive officer of Teledata Communication Ltd., a public company acquired by
ADC Telecommunication Inc. in 1998. From 1986 until 1995, Mr. Atsmon served in various
positions at Tadiran Ltd., among them a division president and corporate vice president
for Business Development. Mr. Atsmon holds a B.Sc. degree in Electrical Engineering, summa
cum laude, from the Technion  Israel Institute of Technology.

47

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Dan
Barnea has served as a director since June 2005 and is a member of our
audit committee. Mr. Barnea has served as the senior vice president of research and
development of BMC Software, Inc., or BMC, a leading provider of enterprise management,
since 1999 when BMC acquired New Dimension Software, where he served as chief executive
officer from 1995. Prior thereto and from 1991, Mr. Barnea served as chief executive
officer of Laser Industries, from 1987 until 1991 he served as general manager for Indigo
Ltd. and from 1981 until 1987 he served as vice president of research and development of
Elscint Ltd. Mr. Barnea holds a B.Sc. in Electrical Engineering and M.Sc. degree in
Computer Science, both from the Technion Israel Institute of Technology.

Liora
Lev has served as an outside director (within the meaning of the Israeli
Companies Law) since December 2006 and is a member of our audit committee. Ms. Lev is the
founder and has served as general partner of Ascend Technology Ventures since 1999. Of the
portfolio companies of Ascend Technology Ventures, Ms. Lev currently serves as a member of
the board of directors of Columbus Application Provider and as a member of the board of
directors of SintecMedia Ltd., Intellinx Ltd. and Can-Fite BioPharma Ltd. (publicly traded
on the Tel Aviv Stock Exchange). From 1994 until 2000, Ms. Lev served as Commissioner of
the Israel Securities Authority and as a member of the Israeli Accounting Standards Board.
From 1992 until 1998, Ms. Lev served as chief financial officer and was in charge of the
chief information officer of Ashtrom Group. Ms. Lev is a certified public accountant in
Israel, with over 20 years of experience in business management, information systems
management and finance of public and private companies. Ms. Lev holds a B.A. in Accounting
and Economics and M.Sc. degree in Management Science, specializing in information systems,
both from Tel Aviv University. Ms. Lev is also a graduate of the Advanced Management
Program, Harvard Business School.

Andreas
Mattes has served as a director since February 2000. Since January 1, 2006,
Mr. Mattes holds a senior sales position at Hewlett-Packard. Since April 1999, Mr. Mattes
has been the president of enterprise networks of Siemens ICN. From October 1998 until
April 1999, Mr. Mattes was the president of central sales of Siemens ICN. From June 1997
until October 1998, Mr. Mattes was the president of international sales of Siemens PN.
From January 1996 until June 1997, Mr. Mattes was the vice president of product management
of Siemens PN. From October 1985 until January 2006, Mr. Mattes held various sales,
marketing and business administration positions at Siemens. Mr. Mattes graduated as
Diplom Kaufman from the Ludwigs-Maximilians- Universitaet; Munich Germany in
1985.

Efraim
Wachtel has served as a director since March 1998. Mr. Wachtel has served
as president and chief executive officer of RAD Data Communication Ltd., or RAD Data,
since November 1997. From October 1985 to November 1997, Mr. Wachtel was vice president of
sales and marketing of RAD Data. Prior to joining RAD Data, Mr. Wachtel held various
research and development positions in several companies in Israel and the United States.
Mr. Wachtel holds a B.Sc. degree in electrical engineering from the Technion -Israel
Institute of Technology.

Set
forth below are the name, age, principal position and a biographical description of each
of our other senior officers:

|Name            | Age | Position                                       
|--------------- | --- | -----------------------------------------------
|
|
|
|
|Dana Maor       | 40  | Vice President Human Resources                 
|Arnie Taragin   | 51  | Corporate Vice President and General Counsel   
|Zeev Bikowsky   | 50  | General Manager, Technology Business Unit      
|Alon Barnea     | 47  | General Manager, Mobile and Service Providers  
|Ilan Givon      | 48  | Vice President Operations                      
|Robert Rickwood | 56  | General Manager, Europe, Middle East and Africa
|Eitan Livne     | 44  | General Manager, Asia-Pacific                  
|Ron Bleakney    | 62  | General Manager, the Americas                  

48

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Dana
Maor has served as our Vice President of Human Resources since September
2006. Prior to joining our company and from September 2004, Ms. Maor served as a
management and organizational consultant for several high-technology and communications
companies. Prior thereto and from January 1999, Ms. Maor held senior human resources
positions at Amdocs, a leading provider of software and services solutions. Prior thereto
and from September 1996, Ms. Maor held senior human resources positions at Telrad
Networks, a telecommunications equipment and services provider. Ms. Maor holds a B.A.
degree (cum laude) in psychology and criminology and M.A. degree (cum laude)
in industrial and social psychology, both from Bar Ilan University.

Arnie
Taragin has served as our Corporate Vice President and General Counsel
since early 2003. Prior to joining our company and from April 1999, Mr. Taragin served as
general counsel of Scitex Corporation, and when Scitex Corporation merged with Creo Inc.,
he became vice president and general counsel of CreoScitex Corporation Ltd. Prior thereto
and from 1999, Mr. Taragin was employed by Israeli Aircraft Industries as an attorney.
Prior to moving to Israel in 1992, Mr. Taragin practiced law in the United States, first
as an associate and then in 1985 as a partner in a law firm, specializing in business law,
international commerce and regulatory matters. Mr. Taragin graduated with honors from the
Johns Hopkins University (1997) and the University of Maryland Law School (1980) where he
received national awards for achievement.

Zeev
Bikowsky has served as our General Manager, Technology Business Unit since
March 2006. Prior to joining our company and from 1998, Mr. Bikowsky was the chief
executive officer of Seagull Semiconductors, which was acquired by Cisco Systems in 2000.
After the acquisition, he served as a group manager in Ciscos Israeli development
center. Prior thereto and from 1996, Mr. Bikowsky was a vice president at DSP Group, where
he managed their core technology licensing business unit. Mr. Bikowsky holds a B.Sc.
degree from the Ben Gurion University of the Negev and MBA degree from Boston University.

Alon
Barnea has served as our General Manager Mobile and Service Providers
Business Unit since May 2006. Prior to joining our company and from 2000, Mr. Barnea
served as vice president marketing and business development at Starhome and played a
central role in its growth to become the worlds leading provider of mobile roaming
technology and solutions. Prior thereto and from 1998, Mr. Barnea held senior positions
with Silicon Graphics, on the Europe, Middle East and Africa management team, and as
director of e-Business, customer care and emerging technologies. Prior thereto and from
1990, Mr. Barnea served as Managing Director of a Silicon Graphics I subsidiary in
Israel. Mr. Barnea holds a B.Sc. degree and M.Sc. degree (cum laude) in Industrial
Engineering and Management, both from Tel Aviv University.

Ilan
Givon has served as our Vice President Operations since March 2006. Prior
to joining our company and from 2003, Mr. Givon served as the Corporate Vice President for
strategic accounts with M-Systems (recently merged into Sandisk), a leading manufacturer
of personal data storage solutions. Prior thereto and from 1998, Mr. Givon served for ten
years at Intel Corporation, both in Israel and the United States in several key positions
related to operations, materials management and logistics. Mr. Givon holds a B.A. degree
in Economics and Political Science from Tel Aviv University, and did advanced studies in
Executive Business Management at the Hebrew University of Jerusalem Business School and in
Purchasing and Materials Supply Management at the Technion-Israel Institute of Technology.

Robert
Rickwood has served as our General Manager for our Europe, Middle East and
Africa operations since May 2003. Prior to joining our company and from 1999, Mr. Rickwood
served in various positions at Polycom Inc., a manufacturer of videoconferencing
equipment, including account director and vice president of sales for the Europe, Middle
East and Africa region, with sales management responsibility for the companys
complete line of videoconferencing products in the region. Mr. Rickwood has over 20 years
of international sales and management experience in the voice, video and data
communications industry. Prior to joining Polycom Inc. and from 1986, Mr. Rickwood was a
founder and served as a director of sales at Tricom Group Plc, a voice and data networking
company, where he established and expanded a direct and indirect sales team. Prior thereto
and from 1978, Mr. Rickwood held a number of sales management positions at CASE Plc,
including international sales manager.

49

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---

Eitan
Livne has served as our General Manager for our Asia-Pacific operations
since April 2004. In such position, Mr. Livne manages all sales, field marketing, customer
support, human resources, and accounting for this region. Mr. Livne has a wealth of
experience in high technology sales throughout Asia. Prior to joining our company and from
2002, Mr. Livne served as the president of TGM International, a specialized multinational
firm focusing on providing sales support in Asia to global high technology companies.
Prior thereto and from 1994, Mr. Livne served in various positions at ECI Telecom, an
Israeli based provider of SDH (Synchronous Digital Hierarchy) Optical networking
equipment, during which time he managed the companys operations in Asia and served
as its president for the Asia-Pacific region.

Ron
Bleakney has served as our General Manager for our operations in the
Americas since December 2005. Mr. Bleakney has a proven track record in the high
technology and telecommunications industries. Prior to joining our company and from 2002,
he served as Senior Vice President of Worldwide Sales at Brooktrout Technology, in which
capacity he managed OEM, service provider and channel enterprise activities.  Prior
thereto and from 1999, Mr. Bleakney served as President of Surf Communications Solutions,
Inc., where he spearheaded the companys expansion into the North American market.
Prior thereto, Mr. Bleakney spent nine years at NMS Communications, Inc., where he held
senior level sales and marketing positions.

|B. | COMPENSATION
|-- | ------------

The
following table sets forth information concerning the total compensation paid with respect
to all of our directors and our executive officers as a group in the year ended December
31, 2006.

|Name and Principal Position                          |  | Salaries, fees,commissions and bonuses | Pension, retirement and other similar benefits
|---------------------------------------------------- |  | -------------------------------------- | ----------------------------------------------
|
|
|
|
|All officers and directors as a group (nine persons) |  |                                        | $                                             

We
provide automobiles or automobiles expense reimbursement to our executive officers at our
expense.

As
of December 31, 2006, our directors and executive officers as a group, consisting of nine
persons, held options to purchase an aggregate of 601,941 ordinary shares, having
exercise prices ranging from $4.70 to $16.58.  Generally, the options vest over a
four-year period. The options will expire between October 1, 2010 to January 1, 2016
(which is six to ten years from the date of grant of the respective options) or earlier
upon termination of employment as an executive officer or service as a director of our
company.  All of such options were granted under our 2000 Stock Option Plan.  See this
Item 6E. "Directors, Senior Management and Employees - Share Ownership - Stock Option
Plans."

Pursuant
to NASDAQ Marketplace Rules, compensation of our chief executive officer and other
executive officers (within the meaning of such rules) is recommended to our board of
directors for determination by a majority of our independent directors, subject to any
further approvals required under the Israeli Companies Law.  See Item 6C. "Directors,
Senior Management and Employees - Board Practices - Approval of Related Party
Transactions Under Israeli Law."

50

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|C. | BOARD
PRACTICES
|-- | ---------------

Election of Directors

Our
Articles of Association provide for a board of directors consisting of no less than five
and no more than nine members or such other number as may be determined from time to time
at a general meeting of shareholders.  Our board of directors is currently composed of
six directors.

In
accordance with our articles of association, our board of directors is divided into three
classes (other than outside directors), each consisting of a number of directors equal as
nearly as practicable to one-third of the total number of non-external directors.
 Generally, at each annual meeting of shareholders one class of directors is elected for
a term of three years by a vote of the holders of a majority of the voting power
represented and voting at such meeting.

All
the members of our board of directors, except the outside directors (as detailed below)
may be reelected upon completion of their term of office.  In the intervals between
annual general meetings of the company, our Board of Directors may elect new directors,
whether to fill vacancies or in addition to those of their body, provided that the total
number of directors will not at any time exceed any maximum number, if any, fixed by or
in accordance with our articles of association.

Our
directors are nominated by a majority of our independent directors, as such term is
defined under NASDAQ Marketplace Rules.

Outside and Independent Directors

Outside
Directors. Under the Israeli Companies Law, companies incorporated under the laws of the
State of Israel whose shares have been offered to the public are required to appoint at
least two outside directors. The Israeli Companies Law provides that a person may not be
appointed as an outside director if the person, or the person's relative, partner,
employer or an entity under that person's control, has or had during the two years
preceding the date of appointment any affiliation with the company, or any entity
controlling, controlled by or under common control with the company. The term "relative"
means a spouse, sibling, parent, grandparent, child or child of spouse or spouse of any
of the above. The term "affiliation" includes an employment relationship, a business or
professional relationship maintained on a regular basis, control and service as an office
holder excluding service as an outside director of a company that is offering its shares
to the public for the first time.

In
addition, no person may serve as an outside director if the person's position or other
activities create, or may create, a conflict of interest with the person's
responsibilities as director or may otherwise interfere with the person's ability to
serve as director.  If, at the time an outside director is appointed, all current members
of the board of directors are of the same gender, then that outside director must be of
the other gender.  A director of one company may not be appointed as an outside director
of another company if a director of the other company is acting as an outside director of
the first company at such time.

As
of 2006, at least one of the outside directors elected must have "accounting and
financial expertise" and any other outside director must have "accounting and financial
expertise" or "professional qualification," as such terms are defined by regulations
promulgated under the Israeli Companies Law. However, Israeli companies listed on certain
stock exchanges outside Israel, including The NASDAQ Global Market, are not required to
appoint an outside director with "accounting and financial expertise" if a director with
accounting and financial expertise who qualifies as an independent director for purposes
of audit committee membership under the laws of the foreign country in which the stock
exchange is located serves on its board of directors.  All of the outside directors of
such a company must have "professional qualification."

51

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Outside
directors are elected by shareholders at a general meeting.  The shareholders voting in
favor of their election must include at least one-third of the shares of the
non-controlling shareholders of the company who voted on the matter. This minority
approval requirement need not be met if the total shareholdings of those non-controlling
shareholders who vote against their election represent 1% or less of all of the voting
rights in the company.

In
general, outside directors serve for a three-year term and may be reelected to one
additional three-year term.  However, Israeli companies listed on certain stock exchanges
outside Israel, including the NASDAQ Global Market, may appoint an outside director for
additional terms of not more than three years subject to certain conditions.  Such
conditions include the determination by the audit committee and board of directors, that
in view of the director's professional expertise and special contribution to the
company's board of directors and its committees, the appointment of the outside director
for an additional term is in the best interest of the company.  Outside directors can be
removed from office only by the same special percentage of shareholders as can elect
them, or by a court, and then only if the outside directors cease to meet the statutory
qualifications with respect to their appointment or if they violate their duty of loyalty
to the company.

Each
committee of the board of directors that is authorized to exercise powers vested in the
board of directors must include at least one outside director, and the audit committee
must include all the outside directors.  An outside director is entitled to compensation
as provided in regulations adopted under the Israeli Companies Law and is otherwise
prohibited from receiving any other compensation, directly or indirectly, in connection
with such service.

Our
Board of Directors has two outside directors under Israeli law, Mr. Joseph Atsmon, who
has "accounting and financial expertise," and Ms. Liora Lev, who has "professional
qualification," as such terms are defined under the Israeli Companies Law.

Independent
Directors.  In general, NASDAQ Marketplace Rules require that the board of directors of a
NASDAQ-listed company have a majority of independent directors and its audit committee
must have at least three members and be comprised only of independent directors, each of
whom satisfies the respective "independence" requirements of NASDAQ and the Securities
and Exchange Commission.  However, foreign private issuers, such as our company, may
follow certain home country corporate governance practices instead of certain
requirements of the NASDAQ Marketplace Rules.  A foreign private issuer that elects to
follow a home country practice instead of such requirements, 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
March, 30, 2005, we provided NASDAQ with a notice of non-compliance with respect to the
requirement to maintain a majority of independent directors, within the meaning of the
NASDAQ Marketplace Rules.  Instead, under Israeli law and practice, we are required to
appoint at least two outside directors, within the meaning of the Israeli Companies Law,
to our Board of Directors.  However, despite such notification of non-compliance, as of
June 2005, we have maintained a majority of independent directors.  In addition, in
accordance with the rules of the Securities and Exchange Commission and NASDAQ, we have
the mandated three independent directors, as defined by the rules of the Securities and
Exchange Commission and NASDAQ, on our audit committee.

Independent
directors of our company meet at least twice a year in executive session.  Among other
things, at such sessions the independent directors recommend the compensation of all our
senior officers and nominate directors to be elected by our shareholders at our annual
general meeting.  Our executive officers do not participate in any discussions or
decisions that involve any aspect of their compensation.

Our
Board of Directors has determined that each of Ms. Lev and Messrs. Atsmon and Barnea
qualifies as an independent director under the requirements of the Securities and
Exchange Commission and NASDAQ. Ms. Lev and Mr. Atsmon are also our outside directors
within the meaning of the Israeli Companies Law.

52

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Committees of the Board of Directors

Audit
Committee.  Our audit committee, established in accordance with Section 114 of the
Israeli Companies Law and Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
assists our board of directors in overseeing the accounting and financial reporting
processes of our company and audits of our financial statements, including the integrity
of our financial statements, compliance with legal and regulatory requirements, our
independent public accountants' qualifications and independence, the performance of our
internal audit function and independent public accountants, finding any defects in the
business management of our company for which purpose the audit committee may consult with
our independent auditors and internal auditor, proposing to the board of directors ways
to correct such defects, and such other duties as may be directed by our board of
directors.

The
responsibilities of the audit committee also include approving related-party transactions
as required by Israeli law.  Under Israeli law, an audit committee may not approve an
action or a transaction with a controlling shareholder, or with an office holder, unless
at the time of approval two outside directors are serving as members of the audit
committee and at least one of the outside directors was present at the meeting in which
an approval was granted.

Our
Audit Committee is authorized generally to investigate any matter within the scope of its
responsibilities and has the power to obtain from the internal auditing unit, our
independent auditors or any other officer or employee any information that is relevant to
such investigations. Our Audit Committee also has the right to hire independent counsel
and accountants to assist it in any investigation that it may instigate.

Our
audit committee consists of three members of our Board of Directors who satisfy the
respective "independence" requirements of the Securities and Exchange Commission, NASDAQ
and Israeli Law for audit committee members. Our audit committee is currently composed of
Joseph Atsmon, Dan Barnea and Liora Lev. Joseph Atsmon has been elected as the
Chairperson of the Audit Committee. The audit committee meets at least once each
quarter. Our Audit Committee charter is available on our website at www.radvision.com.

Option
Committee.  Our board of directors has established an option committee, which administers
our option plans (see Item 6E. Directors, Senior Management and Employees - Share
Ownership - Stock Option Plans"). The Option Committee is responsible for approving all
option grants other than grants to our directors, chief executive officer and all other
officers that report to the chief executive officer.  Messrs. Zohar Zisapel and Joseph
Atsmon are the current members of our option committee.

Compensation
Committee.  Our board of directors has established a compensation committee, which is
responsible for the hiring and compensation of all employees that report to the chief
executive officer of our company, subject to any other approvals that may be required
under applicable law.  Messrs. Zohar Zisapel and Joseph Atsmon are the current members of
our compensation committee.

Internal Audit

The
Israeli Companies Law requires the board of directors of a public company to appoint an
internal auditor nominated by the audit committee.  The role of the internal auditor is
to examine, among other things, the compliance of the company's conduct with applicable
law and orderly business practice.  A person who does not satisfy the Israeli Companies
Law's independence requirements may not be appointed as an internal auditor.  Our
Internal Auditor is currently Mr. Gideon Duvshani, Certified Public Accountant, at
Schwartz, Lerner, Duvshani &Co.

Directors' Service Contracts

We
do not have any service contracts with our directors. There are no arrangements or
understandings between us and any of our subsidiaries, on the one hand, and any of our
directors, on the other hand, providing for benefits upon termination of their employment
or service as directors of our company or any of our subsidiaries.

53

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Approval of Related Party
Transactions Under Israeli Law

The
Israeli Companies Law codifies the fiduciary duties that "office holders," including
directors and executive officers, owe to a company.  An "office holder" is defined in the
Israeli Companies Law as a director, general manager, chief business manager, deputy
general manager, vice general manager, or any person filling any of these positions in a
company even if he or she holds a different title, and also includes any other manager
directly subordinate to the general manager.  An office holder's fiduciary duties consist
of a duty of care and a duty of loyalty.  An office holder must act at a level of care
that a reasonable office holder in the same position would employ under the same
circumstances. This includes the duty to utilize reasonable means to obtain (i)
information regarding the business feasibility of an action brought for his or her
approval or performed by him or her by virtue of his or her position; and (ii) all other
important information pertaining to these actions.  The duty of loyalty requires that an
office holder act in good faith and for the benefit of the company, including the duty to
(i) avoid any conflict of interest between the office holder's position in the company
and any other position he holds or his personal affairs; (ii) avoid any competition with
the company's business; (iii) avoid exploiting any business opportunity of the company in
order to obtain benefit for the office holder or any other person; and (iv) disclose to
the company any information or documents relating to the company's affairs which the
office holder received by virtue of his or her position as an office holder.  Each person
identified as a director or executive officer in the first table under Item 6.A.
"Directors, Senior Management and Employees-- Directors and Senior Management" above is
an office holder.  Under the Israeli Companies Law and our Articles of Association, all
arrangements as to compensation of office holders who are not directors require approval
of our Audit Committee and Board of Directors if the transaction is an "extraordinary
transaction," or relates to exculpation, insurance or indemnification of an office
holder, and if such transaction is not an "extraordinary transaction," the approval of
our General Manager according to guidelines of the Board of Directors.  The compensation
of office holders who are directors must be approved by our Audit Committee, Board of
Directors and shareholders.

Under
the Israeli Companies Law, transactions of a company with an office holder and
transactions of a company with another entity in which an office holder has a personal
interest and which are not extraordinary transactions, must be approved by the board of
directors or as otherwise provided for in a company's articles of association.  An
extraordinary transaction is a transaction other than in the ordinary course of business,
other than on market terms, or likely to have a material impact on the company's
profitability, assets or liabilities. Extraordinary transactions with an office holder
that is not a director and transactions that involve the grant of an exemption,
insurance, indemnification or an undertaking to indemnify an office holder that is not a
director must be approved by the audit committee and the board of directors.
 Extraordinary transactions with a director and transactions involving the conclusion of
a contract by a company with a director as to the terms of his office, including the
grant of an exemption, insurance, indemnification or an undertaking to indemnify, or the
conclusion of a contract by a company with a director as to the terms of his employment
in other positions, must be approved by the audit committee, board of directors and
shareholders.  If the office holder is a controlling shareholder or a relative of a
controlling shareholder, any extraordinary transaction, compensation, exemption,
indemnification and insurance of the office holder must be approved by our audit
committee, board of directors and shareholders, supported by the vote of at least
one-third of the shares of the non-controlling shareholders voting on the matter, or
provided that the total number of shares held by non-controlling shareholders that voted
against the proposal did not exceed one percent of all of the voting rights in the
company.

The
Israeli Companies Law requires that an office holder and a controlling shareholder
disclose promptly, and no later than by the first board meeting at which such transaction
is considered, any personal interest that he or she may have and all related material
information and documents, in connection with any existing or proposed transaction of the
company.  Personal interest includes any personal interest of the person's relative, or
any corporation in which the person or any relative of such person is an interested
party. The disclosure requirement does not apply where the office holder or controlling
shareholder's personal interest is created only by the personal interest of a relative in
a transaction that is not an extraordinary transaction.

54

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A
director who has a personal interest in a matter, which is considered at a meeting of the
board of directors or the audit committee, may not be present during the discussions of
the board of directors or audit committee and may not vote on this matter, unless the
transaction under consideration is not an extraordinary transaction or the majority of
the members of the board or the audit committee have a personal interest, as the case may
be.  In the event the majority of the members of the board or the audit committee have a
personal interest, then the approval of the general meeting of shareholders is also
required.

Under
the Companies Regulations (Relief from Related Party Transactions), 5760-2000,
promulgated under the Israeli Companies Law, and amended in January 2002, certain
transactions between a company and its controlling shareholder(s) do not require
shareholder approval.  In addition, under such regulations, directors' compensation and
employment arrangements do not require the approval of the shareholders if both the audit
committee and the board of directors agree that such arrangements only benefit the
company or if the directors' compensation does not exceed the maximum amount of
compensation for outside directors determined by applicable regulations.  Under very
limited circumstances, employment and compensation arrangements for an office holder that
is a controlling shareholder of the company or his relative do not require the approval
of shareholders. The foregoing relief will not apply if one or more shareholders holding
at least 1% of the issued and outstanding share capital of the company or of the
company's voting rights, objects to the grant of such relief, provided that such
objection is submitted to the company in writing not later than fourteen days from the
date of the filing of a report regarding the adoption of such resolution by the company.
 If such objection is duly and timely submitted, then the transaction or compensation
arrangement will require shareholders' approval as detailed above.

Board
of directors and shareholder approval is also required in the event a company issues its
securities in a private placement of securities that will cause a person to become a
controlling shareholder, or in the event a private placement in which 20% or more of the
company's outstanding share capital prior to the placement are offered, the payment for
which (in whole or in part) is not in cash or not under market terms, and that issuance
will (i) increase the relative holdings of a shareholder that holds 5% or more of the
company's outstanding share capital, or (ii) cause any person to become a holder of more
than 5% of the company's outstanding share capital.

Notwithstanding
all of the above, if any of the enumerated transactions requiring special approvals is
adverse to the company's interest, such approval would not be effective.

In
addition, since our ordinary shares are listed on the Tel Aviv Stock Exchange, we are
subject to additional provisions of the Israeli Companies Law.  Under these provisions, a
private placement of securities that will increase the relative holdings of a shareholder
that holds 5% or more of the company's outstanding share capital or that will cause any
person to become, as a result of the issuance, a holder of more than five percent of the
company's outstanding share capital, requires approval by the board of directors and the
shareholders of the company.

Regulations
under the Israeli Companies Law provide that the Israeli Companies Law's tender offer
rules do not apply to a company whose shares are publicly traded outside of Israel, if
pursuant to the applicable foreign securities laws and stock exchange rules there is a
restriction on the acquisition of any level of control of the company, or if the
acquisition of any level of control of the company requires the purchaser to make a
tender offer to the public shareholders.

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Exculpation, Indemnification and
Insurance of Directors and Officers

Exculpation of Office Holders

The
Israeli Companies Law provides that an Israeli company cannot exculpate an office holder
from liability with respect to a breach of his or her duty of loyalty.   If permitted by
its articles of association, a company may exculpate in advance an office holder from his
or her liability to the company, in whole or in part, with respect to a breach of his or
her duty of care.  However, a company may not exculpate in advance a director from his or
her liability to the company with respect to a breach of his duty of care in the event of
distributions.

Insurance of Office Holders

The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, enter into a contract to insure office holders in respect of liabilities
incurred by the office holder with a respect to an act or omission performed in his or
her capacity as an office holder, as a result of:

| |  | a
breach of the office holder's duty of care to the company or to another person;
| | - | ---------------------------------------------------------------------------------

| |  | a
breach of the office holder's duty of loyalty to the company, provided that the office
holder acted in               good faith and had reasonable cause to assume that his or
her act would not prejudice the company's               interests; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
financial liability imposed upon the office holder in favor of another person.
| | - | --------------------------------------------------------------------------------

Indemnification of Office Holders

The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, indemnify an office holder for acts or omissions performed by the office
holder in such capacity for:

| |  | a
monetary liability imposed on the office holder in favor of another person by any
judgment, including               a settlement or an arbitrator's award approved by a
court;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reasonable
litigation expenses, including attorney's fees, actually incurred by the office holder as
a               result of an investigation or proceeding instituted against him or her by
a competent authority,               provided that such investigation or proceeding
concluded without the filing of an indictment               against the office holder or
the imposition of any monetary liability in lieu of criminal               proceedings,
or concluded without the filing of an indictment against the office holder and a
              monetary liability was imposed on the officer holder in lieu of criminal
proceedings with respect               to a criminal offense that does not require proof
of criminal intent; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reasonable
litigation expenses, including attorneys' fees, incurred by the office holder or which
were               imposed on him or her by a court, in an action instituted by the
company or on the company's behalf               or by another person, against the office
holder, or in a criminal charge from which he was               acquitted, or in a
criminal proceeding in which the office holder was convicted of a criminal
              offense which does not require proof of criminal intent.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
accordance with the Israeli Companies Law, a company's articles of association may permit
the company to:

| |  | prospectively
undertake to indemnify an office holder, except that with respect to a monetary liability
              imposed on the office holder by any judgment, settlement or court-approved
arbitration award, the               undertaking must be limited to types of events which
the company's board of directors deems               foreseeable considering the
company's actual operations at the time of the undertaking, and to an
              amount or standard that the board of directors has determined as reasonable
under the circumstances.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | retroactively
indemnify an office holder of the company.
| | - | --------------------------------------------------------

Limitations on Exculpation,
Insurance and Indemnification

The
Israeli Companies Law provides that neither a provision of the articles of association
permitting the company to enter into a contract to insure the liability of an office
holder, nor a provision in the articles of association or a resolution of the board of
directors permitting the indemnification of an office holder, nor a provision in the
articles of association exculpating an office holder from duty to the company shall be
valid, where such insurance, indemnification or exculpation relates to any of the
following:

| |  | a
breach by the office holder of his duty of loyalty unless, with respect to insurance
coverage or               indemnification, the office holder acted in good faith and had
a reasonable basis to believe that               the act would not prejudice the company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
breach by the office holder of his duty of care if such breach was committed
intentionally or               recklessly, unless the breach was committed only
negligently.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | any
act or omission done with the intent to unlawfully yield a personal benefit; or
| | - | -----------------------------------------------------------------------------------

| |  | any
fine or forfeiture imposed on the office holder.
| | - | ----------------------------------------------------

Pursuant
to the Israeli Companies Law, exculpation of, procurement of insurance coverage for, and
an undertaking to indemnify or indemnification of, our office holders must be approved by
our audit committee and our board of directors and, if the office holder is a director,
also by our shareholders.

Our
Articles of Association allow us to insure, indemnify and exempt our office holders to
the fullest extent permitted by law, subject to the provisions of the Israeli Companies
Law.  On January 18, 2000, our shareholders agreed to indemnify our office holders to the
fullest extent permitted under the Israeli Companies Law. We have obtained directors and
officers liability insurance for the benefit of our office holders.

NASDAQ Marketplace Rules and Home
Country Practices

Under
NASDAQ Marketplace Rule 4350, or Rule 4350, foreign private issuers, such as our company,
are permitted to follow certain home country corporate governance practices instead of
certain provisions of Rule 4350.  A foreign private issuer that elects to follow a home
country practice instead of any of such provisions of Rule 4350, 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
March, 30, 2005, we provided NASDAQ with a notice of non-compliance with respect to the
requirement to maintain a majority of independent directors, as defined under the NASDAQ
Marketplace Rules.  Instead, under Israeli law and practice, we are required to appoint
at least two outside directors, within the meaning of the Israeli Companies Law, to our
board of directors.  However, despite such notification of non-compliance, as of June
2005, we have a majority of independent directors on our Board of Directors.  In
addition, in accordance with the rules of the Securities and Exchange Commission and
NASDAQ, we have the mandated three independent directors, as defined by the rules of the
Securities and Exchange Commission and NASDAQ, on our audit committee. See above in this
Item 6C. "Directors, Senior Management and Employees - Board Practices - Independent and
Outside Directors."

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|D. | EMPLOYEES
|-- | ---------

As
of December 31, 2006, we had 427 employees worldwide, of whom 221 were employed in
research and development, 135 in sales and marketing, 31 in management and administration
and 40 in operations.  Of such employees, 228 were based in Israel, 99 in the Americas,
79 in the Asia Pacific region and 21 in Europe.

As
of December 31, 2005, we had 395 employees worldwide, of whom 197 were employed in
research and development, 131 in sales and marketing, 32 in management and administration
and 35 in operations.  Of such employees, 207 were based in Israel, 94 in the Americas,
74 in Hong Kong and China, 16 in the United Kingdom and four in France.

As
of December 31, 2004, we had 335 employees worldwide, of whom 175 were employed in
research and development, 107 in sales and marketing, 29 in management and administration
and 24 in operations.  Of such employees, 208 were based in Israel, 54 in the Americas,
60 in Hong Kong and China and 13 in the United Kingdom.

Our
relationships with our employees in Israel are governed by Israeli labor legislation and
regulations, extension orders of the Israeli Ministry of Labor and personal employment
agreements.  Israeli labor laws and regulations are applicable to all of our employees in
Israel.  The laws concern various matters, including severance pay rights at termination,
notice period for termination, retirement or death, length of workday and workweek,
minimum wage, overtime payments and insurance for work-related accidents.  We currently
fund our ongoing legal severance pay obligations by paying monthly premiums for our
employees' insurance policies and or pension funds.

In
addition, Israeli law requires Israeli employees and employers to pay specified sums to
the National Insurance Institute, which is similar to the United States Social Security
Administration. Since January 1, 1995, such amounts also include payments for national
health insurance. The payments to the National Insurance Institute that include health
insurance fees are approximately 16.25% of wages, of which the employee contributes
approximately 64.0% and the employer contributes approximately 36.0%.  The majority of
our permanent employees are covered by life and pension insurance policies providing
customary benefits to employees, including retirement and severance benefits. We
contribute 13.3% to 15.8%, depending on the employee, of base wages to such plans and the
employee contributes about 5.0%.  We and our employees are not parties to any collective
bargaining agreements.  However, certain provisions of the collective bargaining
agreements between the Histadrut, the General Federation of Labor in Israel, and the
Coordination Bureau of Economic Organizations, including the Manufacturers' Association
of Israel, are applicable to our employees by "extension orders" of the Israeli Ministry
of Labor.  These provisions principally concern periodic cost of living adjustments,
procedures for dismissing employees, travel allowances, recuperation pay and other
conditions of employment.

At
the start of their employment, our employees in Israel generally sign written employment
agreements that include confidentiality and non-compete provisions. At the start of their
employment, our employees in North America generally sign offer letters specifying basic
terms and conditions of employment as well as non-disclosure agreements.

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|E. | SHARE
OWNERSHIP
|-- | ---------------

Beneficial Ownership of Executive Officers and Directors

The
following table and the footnotes thereto contain information as of June 4, 2007
regarding the beneficial ownership of our ordinary shares by each of our directors and
executive officers.

|Name           | Number of ordinaryshares (1) | Percentage ofoutstanding ordinaryshares (2)
|-------------- | ---------------------------- | -------------------------------------------
|
|Zohar Zisapel  |                              |                                            
|Boaz Raviv     |                              |                                            
|Eli Doron      |                              |                                            
|Tsipi Kagan    |                              |                                            
|Joseph Atsmon  |                              |                                            
|Dan Barnea     |                              |                                            
|Liora Lev      |                              |                                            
|Andreas Mattes |                              |                                            
|Efraim Wachtel |                              |                                            

---

|* | Less
than 1%
|- | ------------

|(1) | Beneficial
ownership is determined in accordance with the rules of the                Securities and
Exchange Commission 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, and
subject to community property                laws where applicable, the persons named in
the table above have sole voting and                investment power with respect to all
shares shown as beneficially owned by them.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
percentages shown are based on 22,002,897 ordinary shares issued and
               outstanding (which excludes 515,326 ordinary shares held as treasury
stock) as                of June 4, 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
(i) 1,510,525 ordinary shares owned of record by Mr. Zohar Zisapel;                (ii)
75,000 ordinary shares issuable upon the exercise of currently exercisable
               options granted to Mr. Zohar Zisapel, of which options to purchase 30,000
               ordinary shares have an exercise price of $6.1563 per share and expire in
June                2011 and options to purchase 45,000 ordinary shares have an exercise
price of                $5.085 per share and expire in June 2012; (iii) 306,456 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
Communications Ltd., an Israeli company. Mr.                Zohar Zisapel is a principal
shareholder and Chairman of the Board of Directors                of RAD Data
Communications Ltd. Mr. Zohar Zisapel and his brother, Mr. Yehuda                Zisapel,
have shared voting and dispositive power with respect to the shares                held
by RAD Data Communications Ltd.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

59

---

---

# Stock Option Plans

In
April 1996, we adopted our key employee share incentive plan, or the 1996 Plan. Employees
of our company, its subsidiaries and affiliates belonging to the RAD-BYNET group are
eligible to participate in the 1996 Plan.

In
March 1999, we adopted our consultants option plan, or the 1999 Plan. Employees and
directors and consultants employed by us are eligible to participate in the 1999 Plan.

Under
the 1996 Plan and 1999 Plan, we are authorized to issue up to an aggregate 3,163,523
ordinary shares.

In
2000, we adopted our 2000 Employee Stock Option Plan, or the 2000 Plan, which authorizes
the grant of options to employees and consultants of our company and its subsidiaries. The
2000 Plan initially authorized the issuance thereunder of up to 636,477 ordinary shares
and, in addition, subject to sufficiency of our authorized share capital, to approve the
reservation of up to 4% of our share capital, on a fully diluted basis, in each subsequent
year following the year 2000. We are currently authorized to issue up to 7,000,667
ordinary shares under the 2000 Plan. Presently, we only grant new options under the 2000
Plan.

The
1996 Plan, 1999 Plan and 2000 Plan are collectively referred to as the Option Plans.

Type
of Options. Awards under the Option Plans may be granted pursuant to Section 102 of
the Israeli Income Tax Ordinance [New Version], 1961, or the Israeli Tax Ordinance, and
Section 3.(9) of the Israeli Tax Ordinance, and awards under the 2000 Plan may also be
granted in the form of incentive stock options, as provided in Section 422 of the U.S.
Internal Revenue Code of 1986, as amended, and non-qualified stock options.

Plan
Administration. The option committee appointed by the Board of Directors administers
the Option Plans, subject to the ratification of the Board of Directors. Subject to the
provisions of the applicable Option Plan and applicable law, the option committee has the
authority to recommend to the Board of Directors:

| |  | the
persons to whom awards are granted;
| | - | ---------------------------------------

| |  | the
form, terms and conditions of the written stock option agreement evidencing the option,
including the type of option and the number of shares to which it pertains, the exercise
price, option term, vesting schedule and exercisability of the option in special cases
(such as death, retirement, disability and change of control); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
form and provisions of the notice of exercise and payment upon exercise of the option.
| | - | ------------------------------------------------------------------------------------------

Subject
to the provisions of the applicable Option Plan and law, the Board of Directors has the
authority to:

| |  | nominate
a trustee for options issued under Section 102 of the Israeli Tax Ordinance;
| | - | -------------------------------------------------------------------------------------

| |  | adjust
any or all of the number and type of shares that thereafter may be made the subject of
options, the number and type of shares subject to outstanding options, and the grant or
exercise price with respect to any option, or, if deemed appropriate, make provision for
a cash payment to the holder of any outstanding option in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the
Option Plans in the event of any dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares or other securities;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

60

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---

| |  | interpret
the provisions of the Option Plans; and
| | - | -------------------------------------------------

| |  | prescribe,
amend, and rescind rules and regulations relating to the Option Plans or any award there
under as it may deem necessary or advisable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

Option
Price. The option price per share may not be less than 100% of the fair market value
of such share on the date of the award; provided, however, that in the case of an award of
an incentive stock option under the 2000 Plan made to a 10% owner (as such term is defined
in the 2000 Plan), the option price per share may not be less than 110% of the fair market
value (as such term is defined in the 2000 Plan) of such share on the date of the award.

Option
Period. Under the 1996 Plan and 1999 Plan, unless otherwise provided in the option
grant instrument, an option may not be exercisable after the expiration of 62 months from
the date of its award. Under the 2000 Plan, an option may not be exercisable after the
expiration of ten years from the date of its award, and in the case of an award of
incentive stock options made to a 10% owner, such options may not be exercisable after the
expiration of five years from its date of award. No option may be exercised after the
expiration of its term. In 2006, the Board of Directors resolved to reduce the option
period of future grants to employees to six years.

Non-Transferability
of Options.Options granted under the Option Plans are not assignable or transferable
by the optionee, other than by will or the laws of descent and distribution, and may be
exercised during the lifetime of the optionee only by the optionee or his or her guardian
or legal representative. However, under the 2000 Plan, during the optionees
lifetime, the optionee may, with the consent of the option committee, transfer without
consideration all or any portion of his options to members of the optionees
immediate family (as defined in the 2000 Plan), a trust established for the exclusive
benefit of members of the optionees immediate family, or a limited liability company
in which all members are members of the optionees immediate family.

Amendment
and Termination. Except as set forth in the Option Plans, neither the Board of
Directors nor the option committee may, without the consent of the optionee, alter or in
any way impair the rights of such optionee under any award previously granted. Neither the
termination of the Option Plans nor the change of control of our company, except to the
extent provided in the applicable Option Plan, will affect any option previously granted.

61

---

---

A
summary of the status of the Option Plans as of December 31, 2004, 2005 and 2006, and
changes during the years ended on those dates, is presented below:

|                                                        | Year ended December 31,
|------------------------------------------------------- | -----------------------
|
|
|
|
|Options outstanding at the                              |                        
|beginning of the year                                   |                        
|Granted                                                 |                        
|Exercised                                               |                        
|Forfeited                                               |                        
|                                                        |                        
|                                                        |                        
|Options outstanding at the end
  of the year            |                        
|                                                        |                        
|                                                        |                        
|Options exercisable at the end
  of the year            |                        
|                                                        |                        
|                                                        |                        
|Options that may be granted as
  of the end of the year |                        
|                                                        |                        

---

|(1) | Including
options to purchase 862,500 ordinary shares granted to directors of
                    our company and our former chief executive office outside of the
Option Plans,                     pursuant to the approval of our shareholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Including
options to purchase 728,750 ordinary shares granted to directors of
                    our company and our former chief executive office outside of the
Option Plans,                     pursuant to the approval of our shareholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Including
options to purchase 261,875 ordinary shares granted to directors of
                    our company and our former chief executive office outside of the
Option Plans,                     pursuant to the approval of our shareholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Including
options to purchase 241,250 ordinary shares granted to directors of
                    our company outside of the Option Plans, pursuant to the approval of
our                     shareholders.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------

|A. | MAJOR
SHAREHOLDERS
|-- | ------------------

The
following table sets forth certain information, as of the date of June 4, 2007, regarding
the beneficial ownership by all shareholders known to us to own beneficially more than 5%
of our ordinary shares.

|Name                                | Number of ordinaryshares beneficiallyowned (1) | Percentage ofoutstanding ordinaryshares (2)
|----------------------------------- | ---------------------------------------------- | -------------------------------------------
|
|
|
|
|Zohar Zisapel                       |                                                |                                            
|Royce & Associates, LLC             |                                                |                                            
|TimesSquare Capital Management, LLC |                                                |                                            
|Clough Capital Partners L.P.        |                                                |                                            

62

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|(1) | Beneficial
ownership is determined in accordance with the rules of the
                    Securities and Exchange Commission 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, and subject to community property                     laws
where applicable, the persons named in the table above have sole voting and
                    investment power with respect to all shares shown as beneficially
owned by them.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
percentages shown are based on 22,002,897 ordinary shares issued and
                    outstanding (which excludes 515,326 ordinary shares held as treasury
stock) as                     of June 4, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
(i) 1,510,525 ordinary shares owned of record by Mr. Zohar Zisapel;
                    (ii) 75,000 ordinary shares issuable upon the exercise of currently
exercisable                     options granted to Mr. Zohar Zisapel, of which options to
purchase 30,000                     ordinary shares have an exercise price of $6.1563 per
share and expire in June                     2011 and options to purchase 45,000 ordinary
shares have an exercise price of                     $5.085 per share and expire in June
2012; (iii) 306,456 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 Communications Ltd., an
Israeli company. Mr.                     Zohar Zisapel is a principal shareholder and
Chairman of the Board of Directors                     of RAD Data Communications Ltd.
Mr. Zohar Zisapel and his brother, Mr. Yehuda                     Zisapel, have shared
voting and dispositive power with respect to the shares                     held by RAD
Data Communications Ltd.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G filed with the Securities and Exchange Commission on January 31,
2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G filed with the Securities and Exchange Commission on February 9,
2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G filed with the Securities and Exchange Commission on February 6,
2007. The                     Schedule 13G reflects that the shares include shares
beneficially owned by                     investment companies, pooled investment
vehicles and other accounts for which                     Clough Capital Partners L.P.
serves as investment adviser. Such shares may be                     deemed beneficially
owner 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Significant Changes in
the Ownership of Major Shareholders

As
of December 31, 2002 and 2003, various Samsung entities held 1,000,000, or 5.44% and
5.11%, respectively, of our ordinary shares. The Samsung entities interest in our
company fell below 5.0% in 2004.

On
February 14, 2004, Salomon Bros. Asset Management and various Citigroup Inc. entities, or
Citigroup, filed a Schedule 13G with the Securities and Exchange Commission, or the SEC,
reflecting ownership of 1,560,900, or 7.7%, of our ordinary shares. In an amendment to the
Schedule 13G report filed with the SEC on March 10, 2004, Citigroup reported ownership of
2,076,800, or 10.3%, of our ordinary shares. In a second amendment to the Schedule 13G
filed with the SEC on October 11, 2004, Citigroup reported ownership of 3,125,100, or
15.5%, of our ordinary shares. In a final amendment to the Schedule 13G filed with the SEC
on February 14, 2005, Citigroup reported that it no longer held an ownership interest in
our company.

63

---

---

As
of December 31, 2004, The Baupost Group L.L.C, or Baupost, held 3,555,875, or 17.78%, of
our ordinary share, in accordance with a Schedule 13G/A that it filed with the SEC on
February 11, 2005. The Schedule 13G/A reflects that Baupost is a registered investment
adviser, that SAK Corporation is the Manager of Baupost, and that Seth A. Klarman, as the
sole director of SAK Corporation and a controlling person of Baupost, may be deemed to
have beneficial ownership of the securities beneficially owned by Baupost. The Schedule
13G/A further reflects that securities reported as being beneficially owned by Baupost
include securities purchased on behalf of various investment limited partnerships. On
December 9, 2005, Baupost filed a Schedule 13G/A with the SEC reflecting ownership of
1,580,000, or 7.30%, of our ordinary shares. In a final amendment to the Schedule 13G
filed with the SEC on February 9, 2006, Baupost reported that it no longer held an
ownership interest in our company.

On
February 14, 2005, Saranac Capital Management LP, or Saranac LP, filed a Schedule 13G
filed with the SEC reflecting ownership of 3,214,000, or 16.07%, of our ordinary shares.
On November 10, 2005, Saranac LP filed with the SEC an amendment to the Schedule 13G, on
Schedule 13G/A, reflecting ownership of 2,324,100, or 11.0%, of our ordinary shares. On
February 14, 2006, Saranac LP filed with the SEC Amendment No. 2 to the Schedule 13G, on
Schedule 13G/A, reflecting ownership of 1,444,299, or 6.83%, of our ordinary shares. The
Schedule 13G and amendments thereto reflect that Saranac Capital Management GP LLC is the
general partner of Saranac LP and, in such capacity, may be deemed to have investment
discretion over and be the beneficial owner of securities held for the account of Saranac
LP. In his capacity as the managing member of Saranac Capital Management GP LLC, Mr. Ross
Margolies may be deemed to have investment discretion over, and may be deemed to be the
beneficial owner of, securities held for the account of Saranac LP, in addition to 20,012
ordinary shares held for the benefit of members of his immediate family. In a final
amendment to the Schedule 13G filed with the SEC on June 30, 2006, Saranac LP reported
that it no longer held an ownership interest in our company.

On
February 14, 2006, Mr. Yehuda Zisapel filed with the SEC Amendment No. 2 to Schedule 13G,
on Schedule 13G/A, reflecting beneficial ownership of 1,434,969, or 6.6%, of our ordinary
shares. On February 14, 2007, Mr. Yehuda Zisapel filed with the SEC Amendment No. 3 to
Schedule 13G, on Schedule 13G/A, reflecting beneficial ownership of 1,183,605, or 5.3%, of
our ordinary shares. Since such filing, Mr. Yehuda Zisapels interest in our company
fell below 5.0%.

# 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 June 4, 2007,
there were 30 holders of record of our ordinary shares, of which 16 record holders holding
approximately 91.61% 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.

|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, who formerly was a director, the Chairman of our Board of
Directors and a principal shareholder of our company, 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 not limited
to:

64

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|AB-NET Ltd.                     | Commex Technologies Ltd.    | RADView Software Ltd.   
|------------------------------- | --------------------------- | ------------------------
|Axerra Networks Inc.            | Packetlight Networks Ltd.   | RADWIN Ltd.             
|BYNET Data Communication Ltd.   | RAD-BYNET Properties and    | RIT Technologies Ltd.   
|BYNET Electronics Ltd.          | Services (1981) Ltd.        | Sanrad Inc.             
|BYNET SEMECH Outsourcing Ltd.   | RAD Data Communication Ltd. | SILICOM Ltd.            
|BYNET Systems Applications Ltd. | RADWARE Ltd.                | WISAIR Inc.             
|BYNET Software Systems Ltd.     | RADCOM Ltd.                 | QOS Value Added         
|Ceragon Networks Ltd.           | RADLIVE Ltd                 | Communications 2000 Ltd.

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 Communication 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,
|----------------------------------------------------------- | -----------------------
|
|
|
|
|Revenues (1)                                                |                        
|Cost of revenues (2)                                        |                        
|Research and development expenses (3)                       |                        
|Marketing, selling, general and administrative expenses (3) |                        
|Purchase of property and equipment (4)                      |                        

---

|(1) | Reflects
revenues from our products and maintenance sold to affiliated           companies.
|--- | -------------------------------------------------------------------------------------------

|(3) | Reflects
the purchase of components from affiliated companies.
|--- | --------------------------------------------------------------

|(2) | Reflects
the reimbursement of costs to affiliated companies that they incurred           in
connection with administrative services they provide to our company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Reflects
the cost of property and equipment that we purchased from affiliated           companies.
|--- | --------------------------------------------------------------------------------------------------

65

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|C. | INTERESTS
OF EXPERTS AND COUNSEL
|-- | --------------------------------

Not
applicable.

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

|A. | CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
|-- | -------------------------------------------------------

# Legal Proceedings

In
1998, a third party holder of certain patents sent correspondence to a related party
alleging that some products manufactured by the related party infringe upon patents held
by the third party and offered to license us these patents. In subsequent correspondence,
the related party requested that the third party specifically substantiate each allegation
of infringement before the related party would be prepared to enter into any licensing
arrangements. We do not believe that these allegations will have a material adverse effect
on our business, financial position, results of operations or liquidity. The related party
has received further correspondence from the third party, in which the third party has,
among other things, reiterated its claims. The related party does not believe the third
party has substantiated its claims and has communicated this belief to the third party.
The related party has advised us that the alleged infringement claims are unresolved.

In
2003, another corporation sent us correspondence alleging that some of our products
infringe upon patents held by that corporation and offered to license these patents to us.
Subsequent correspondence was exchanged during 2004, in which additional requests were
made by the claimant.

We
have recorded a provision of approximately $3.4 million, which we believe covers the
potential loss from such allegations.

In
2005, we received a claim from Avistar Communications Corporation, a U.S. developer of
video technologies, alleging that we infringed on ten of their patents. The parties have
met in an attempt to reach a settlement. While the parties are discussing the licensing
fees, the matter is presently still open due to issues regarding the nature and extent of
coverage of the proposed license. The parties are continuing to try to resolve these
matters in good faith. We believe that we have good defenses to many of the patent claims.
During the second half of 2006, following a number of meetings with Avistar, we had the
ability to estimate the portion of the possible settlement related to past due royalties
in the amount of approximately $1.9 million.

In
September 2006, we became aware that one of our customers, Vemics, Inc., or Vemics, had
filed suit in a New York State trial court to obtain the source code of our Click to Meet,
or CTM, product. In March 2005, we purchased certain assets of First Virtual
Communications, Inc., or FVC, associated with its CTM product in a bankruptcy proceeding.
Prior to FVCs bankruptcy, FVC had signed a contract with Vemics to provide CTM
licenses and service to Vemics for approximately $1.6 million, which remained outstanding
at the date of the acquisition. When we purchased the CTM business of FVC, we assumed this
contract. In connection with the contract, FVC had deposited certain CTM software into
escrow with Iron Mountain Intellectual Property Management, Inc., or Iron Mountain.
Following the closing of the FVC asset purchase, Vemics claimed financial difficulties and
stated that it could not pay the amounts owed to us. In early 2006, without our knowledge,
Vemics contacted Iron Mountain and requested release of the escrow. Neither Iron Mountain
nor Vemics contacted us, despite contractual requirements that they do so. Vemics claimed
it was entitled to the release of the escrow because the filing of bankruptcy by FVC was a
release condition. When Iron Mountain did not release the escrow, Vemics filed
suit against Iron Mountain in the Rockland County State Court in New York claiming that
Iron Mountain had promised to release the escrow but had lost the escrowed property. Iron
Mountain filed an interpleader action in the Superior Court of Santa Clara against us and
Vemics, claiming that under the escrow agreement, we (as successor in interest to FVC) and
Vemics were required to indemnify Iron Mountain against any claim (other than for their
gross negligence). We have since filed a suit against Vemics for sums owed to us and other
violations of the CTM agreements, and Vemics has sued us claiming lost business based on
FVCs failure to repair alleged bugs in the CTM product and/or failure to release the
escrow. We have also requested the State Court in California to direct that this matter be
resolved by arbitration in accordance with the CTM agreements. Vemics has challenged this
request.

66

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We
have performed a preliminary review of this matter with outside counsel. This matter is at
a preliminary stage and at this point we do not have enough information to evaluate the
risk of exposure to us or the amount, if any, of any potential liability. We believe,
however, that we have numerous substantial defenses to the claims of Vemics and that we
are entitled to be paid our license fees and other amounts from Vemics and/or Iron
Mountain.

Other
than the above, we are not involved in any legal proceedings that are material to our
business or financial condition.

# 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 Market and the Tel Aviv Stock Exchange:

|     | NASDAQ Global Market | Tel Aviv Stock Exchange
|---- | -------------------- | -----------------------
|
|
|
|
|2002 |                      |                        
|2003 |                      |                        
|2004 |                      |                        
|2005 |                      |                        
|2006 |                      |                        

67

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# Quarterly Stock
Information

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

|               | NASDAQ Global Market | Tel Aviv Stock Exchange
|-------------- | -------------------- | -----------------------
|
|
|
|
|2005           |                      |                        
|First Quarter  |                      |                        
|Second Quarter |                      |                        
|Third Quarter  |                      |                        
|Fourth Quarter |                      |                        
|               |                      |                        
|2006           |                      |                        
|First Quarter  |                      |                        
|Second Quarter |                      |                        
|Third Quarter  |                      |                        
|Fourth Quarter |                      |                        
|               |                      |                        
|2007           |                      |                        
|First Quarter  |                      |                        

# 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 Market and the Tel Aviv Stock Exchange:

|              | NASDAQ Global Market | Tel Aviv Stock Exchange
|------------- | -------------------- | -----------------------
|
|
|
|
|October 2006  |                      |                        
|November 2006 |                      |                        
|December 2006 |                      |                        
|January 2007  |                      |                        
|February 2007 |                      |                        
|March 2007    |                      |                        
|April 2007    |                      |                        

|B. | PLAN
OF DISTRIBUTION
|-- | --------------------

Not
applicable.

|C. | MARKETS
|-- | -------

Our
ordinary shares have been listed on the NASDAQ Global Market since our initial public
offering on March 14, 2000 (symbol: RVSN). Since October 20, 2002, our ordinary shares
have also traded on the Tel Aviv Stock Exchange.

68

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|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
filed 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 have 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 25,000,000 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.

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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 represent 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 fifteen 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.

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# Limitations on the
Rights to Own Securities in Our Company

Neither
our memorandum of association or 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

The
Israeli Companies Law requires that mergers between Israeli companies be approved by the
board of directors and general meeting of shareholders of both parties to the transaction.
The approval of the board of directors of both companies is subject to such boards
confirmation that there is no reasonable doubt that after the merger the surviving company
will be able to fulfill its obligations towards its creditors. Each company must notify
its creditors about the contemplated merger. The approval of the merger is also subject to
additional approval requirements as specified in the Israeli Companies Law and regulations
promulgated thereunder. See also Item 6C. Directors, Senior Management and Employees
 Board Practices  Approval of Related Party Transactions Under Israeli
Law.

# 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
|-- | ------------------

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

|D. | EXCHANGE
CONTROLS
|-- | -----------------

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.

Non-residents
of 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.

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|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 31% of their taxable
income in 2006. The corporate tax will be reduced to a rate of 29% in 2007, 27% in 2008,
26% in 2009 and 25% in 2010 and thereafter.

However,
the rate is effectively reduced for income derived from an approved enterprise and
beneficiary enterprise, as discussed below.

As
of December 31, 2006, the net operating loss carry-forwards of our U.S. subsidiary
for U.S. tax purposes amounted to approximately $6.5 million. These losses are available
to offset any future U.S. taxable income of our U.S. subsidiary and will expire in the
years 2020 through 2025.

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

Our
facilities in Israel have been granted approved enterprise status under the
Law for the Encouragement of Capital Investments, 1959, commonly referred to as the
Investment Law. The Investment Law provides that capital investments in a production
facility (or other eligible assets) may be designated as an approved enterprise. Until
recently, the designation required advance 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.

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On
April 1, 2005, an amendment to the Investment Law came into effect, which revised the
criteria for investments qualified to receive tax benefits. An eligible investment program
under the amendment will qualify for benefits as a beneficiary enterprise (rather than the
previous terminology of approved enterprise). Among other things, the April 2005 amendment
provides tax benefits to both local and foreign investors and simplifies the approval
process. 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 prior to December 31, 2004. The new tax regime
will apply to new investment programs only. We began to generate income under the
provision of the new amendment as of the beginning of 2006.

A
company that owns an approved enterprise and/or beneficiary 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 and beneficiary
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.

After
expiration of the initial tax exemption period, the company is eligible for a reduced
corporate tax rate of 10% 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 completion of the investment under the approved plan or
14 years from the date of the approval, whichever is earlier. 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 derived from any certificate of approval relate only to taxable income
attributable to the specific approved enterprise and beneficiary enterprise. To the extent
we have more than one approval or only a portion of our capital investments are approved,
our effective tax rate will be the result of a weighted combination of the applicable
rates.

|Percent ofForeign Ownership | Rate ofReduced Tax | Reduced Tax Period | Tax ExemptionPeriod
|--------------------------- | ------------------ | ------------------ | -------------------
|
|
|
|
|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 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 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 and beneficiary enterprise are conditioned
upon terms stipulated in the Investment Law and the related regulations (which include
making specified investments in property and equipment, and financing a percentage of
these investments with share capital), and the criteria set forth in the applicable
certificate of approval. 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. We believe that our approved
enterprise and beneficiary enterprise programs currently operate in compliance with all
applicable conditions and criteria, but we cannot assure you that they will continue to do
so.

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Currently,
we have three approved enterprise programs and a fourth program, which was granted
beneficiary enterprise status, all of them under the alternative track of the Investment
Law. We are in the process of converting the third approved enterprise program to a
beneficiary enterprise program. As of December 31, 2006, no final approval was received.
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 for a limited period 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 enterprise
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 this
income as a dividend.

# Tax Benefits and Grants
for Research and Development

Israeli
tax law allows, 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 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.

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# Special Provisions
Relating to Taxation under Inflationary Conditions

The
Income Tax Law (Inflationary Adjustments), 1985 represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid inflation.
This law is highly complex. Until December 31, 2005, we measured our Israeli taxable
income in accordance with the provisions of this law. Since January 1, 2006, however, we
have elected to measure our taxable income based on the changes in the exchange rate of
the U.S. dollar rather than on the basis of inflation, and the provisions of this law have
not been applicable to us.

# Taxation of Dividends
Paid on our Ordinary Shares

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 20%, or 25% for a shareholder that is considered a material
shareholder (within the meaning of the Israeli Income Tax Ordinance) 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%, 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
applicable to non-Israeli shareholders

Capital
gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from
Israeli taxation, provided that the capital gain is not derived from a permanent
establishment in Israel. In addition, the United States-Israel tax treaty exempts United
States residents who hold less than 10% of our voting rights, and who held less than 10%
of our voting rights during the 12 months prior to a sale of their shares, from Israeli
capital gains tax in connection with such sale.

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# UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES

The
following discussion summarizes the material U.S. federal income tax considerations
generally 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
term Non-U.S. Holder means a beneficial owner of an ordinary share that is an
individual, corporation, estate or trust and is not a U.S. Holder. The tax consequences to
a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder.
Certain aspects of U.S. federal income tax relevant to a Non-U.S. Holder are discussed
below.

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 of this prospectus. 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;
| | - | -------------------------

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| |  | 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 hold the ordinary shares through partnerships or other pass-through entities:
| | - | -----------------------------------------------------------------------------------------

| |  | 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.

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Subject
to certain limitations, qualified dividend income received by a noncorporate
U.S. Holder in tax years beginning on or before December 31, 2010 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 (as described 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.

Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on
dividends received on ordinary shares unless that income is effectively connected with the
conduct by that Non-U.S. Holder of a trade or business in the United States, in which case
a corporate Non-U.S. Holder may also be subject to the U.S. branch profits tax.

# 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 its income with respect to the ordinary shares would be
foreign source income and 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.

Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on
any gain realized on the sale or exchange of ordinary shares unless:

78

---

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| |  | that
gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the               United States, and, if a tax treaty applies, is
attributable to a permanent establishment or fixed               base of the Non-U.S.
Holder in the United States; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | in
the case of any gain realized by an individual Non-U.S. Holder, that holder is present in
the United States for 183 days or more in the taxable year of the sale or exchange, and
other conditions are met.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Passive Foreign
Investment Company Considerations

Special
U.S. federal income tax rules apply to U.S. Holders owning shares of a passive foreign
investment company. A non-U.S. corporation will be considered a passive foreign investment
company 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.

If
we were classified as a passive foreign investment company, 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 passive
foreign investment company 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 passive foreign investment
company may not receive a step-up in basis on shares acquired from a decedent.
If we are a passive foreign investment company in any year, a U.S. Holder would be
required to file an annual return on IRS Form 8621 regarding distributions received with
respect to ordinary shares and any gain realized on the disposition of ordinary shares.

Based
on our current and projected income, assets and activities, we do not believe that we will
be a passive foreign investment company for our current taxable year. However, because the
determination of whether we are a passive foreign investment company is based upon the
composition of our income and assets from time to time, we cannot be certain that we will
not be considered a passive foreign investment company for the current taxable year or any
future taxable year.

The
passive foreign investment company 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. We will provide U.S. Holders with the
information needed to report income and gain under a QEF election should we become a
passive foreign investment company.

79

---

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As
an alternative to making a QEF election, a U.S. Holder of passive foreign investment
company stock which is publicly traded may in certain circumstances avoid certain of the
tax consequences generally applicable to holders of a passive foreign investment company
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 passive foreign investment company stock and the U.S.
Holders adjusted tax basis in the passive foreign investment company 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
passive foreign investment company, 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 passive foreign investment company 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 Securities and Exchange Commission 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 Market will constitute a
qualified exchange or other market for this purpose. However, we can not be certain that
our ordinary shares will continue to trade on The NASDAQ Global Market or that the
ordinary shares will be regularly traded for this purpose.

The
rules applicable to owning shares of a passive foreign investment company 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 passive foreign investment company.

# 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 a rate equal to the fourth lowest
income tax rate applicable to individuals (which, under current law, is 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.

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

# U.S. Gift and Estate Tax

An
individual U.S. Holder of ordinary shares will generally be subject to U.S. gift and
estate taxes with respect to ordinary shares in the same manner and to the same extent as
with respect to other types of personal property.

|F. | DIVIDEND
AND PAYING AGENTS
|-- | --------------------------

Not
applicable.

|G. | STATEMENT
BY EXPERTS
|-- | --------------------

Not
applicable.

80

---

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|H. | DOCUMENTS
ON DISPLAY
|-- | --------------------

We
are subject to the reporting requirements of the United States Securities Exchange Act of
1934, as amended, as applicable to foreign private issuers as defined in Rule
3b-4 under the Exchange Act, and in accordance therewith, we file annual and interim
reports and other information with the Securities and Exchange Commission.

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, 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, in 2001, we began to voluntarily file our
annual and interim reports on Forms 10-K, 10-Q and 8-K. On March 14, 2005, we filed a Form
8-K advising that we would begin to file our annual reports with the Securities and
Exchange Commission on Form 20-F for foreign private issuers, effective as of the year
ended December 31, 2004, and that we would timely furnish our quarterly unaudited
financial statements under a Report of Foreign Private Issuer on Form 6-K.

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
following Securities and Exchange Commission public reference rooms at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549 and on the Securities and Exchange Commission Internet
site (http://www.sec.gov) and on our website at www.radvision.com. You may obtain
information on the operation of the Securities and Exchange Commissions public
reference room in Washington, D.C. by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange Commission
filings is 0-29871.

The
documents concerning our company which 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 DISCLOSURE ABOUT MARKET RISKS
|-------- | ----------------------------------------------------------

We
are exposed to a variety of risks, including changes in interest rates and foreign
currency fluctuations.

# Interest Rate Risk

As
of December 31, 2006, we had cash and cash equivalents and short and long-term investments
of $145.6 million. We invest our cash surplus in time deposits, cash deposits, U.S.
federal agency securities and corporate bonds with an average credit rating of AA. These
investments are not purchased for trading or other speculative purposes. Due to the nature
of these investments, we believe that we do not have a material exposure to market risk.

Our
exposure to market risks for changes in interest rates other than our investment is
securities is limited since we do not have any material indebtedness

81

---

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# Foreign Currency
Exchange Risk

We
develop products in Israel and sell them in the Americas, the Asia-Pacific region and
several European countries. 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 translated 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 will 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, our results may be adversely affected by the revaluation of the NIS 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 devaluation
of the NIS against the U.S. dollar and other foreign currencies. In 2006, the NIS
appreciated by approximately 8.2% against the U.S. dollar. In comparison, in 2005, the NIS
depreciated against the U.S. dollar by approximately 6.8%. In 2006 the deflation rate in
Israel was approximately 0.1% compared to an annual inflation rate of approximately 2.4%
in 2005

|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.

# 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, 2006, we had $145.6 million in cash, cash equivalents
and short-term bank deposits.

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Not
applicable.

82

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|ITEM 15T. | 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 Securities and Exchange
Commission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: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets, (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 the our receipts and expenditures are being made only in
accordance with appropriate authorizations; and (3) 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 the end of the period covered by this annual report. Their assessment included an
evaluation of the design of our internal control over financial reporting and testing of
the operational effectiveness of our internal control over financial reporting. Based on
that assessment, our management concluded that as of December 31, 2006 the companys
internal control over financial reporting was effective.

This
annual report does not include an attestation report of our independent registered public
accounting firm regarding internal control over financial report. Managements report
was not subject to attestation by our independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that permit us to
provide only managements report in this annual report.

# 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 Securities and Exchange Commission. For a brief listing of Mr.
Atsmons relevant experience, see Item 6.A. Directors, Senior Management and
Employees  Directors and Senior Management.

83

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|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 ACCOUNTING FEES AND SERVICES
|--------- | --------------------------------------

# Fees Paid to Independent
Public Accountants

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

| |           | Year ended December 31,
| | --------- | -----------------------
|
|
|
|
| | Audit (1) |                        
| | Tax (2)   |                        
| | Other (3) |                        
| | Total     |                        

| | 
| | 

| | (1) | Audit
fees relate to services that would normally be provided in connection with
               statutory and regulatory filings or engagements, including services that
               generally only the independent accountant can reasonably provide.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Tax
fees relate to services performed by the tax division for tax compliance,
               planning, and advice.
| | --- | ------------------------------------------------------------------------------------------------------------------

| | (3) | Other
fees include fees for consulting services rendered to us, mainly with
               respect to implementation of incentive laws in Israel.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

# 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 Ernest & 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 requires 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 Securities and Exchange Commission, and also
considers whether proposed services are compatible with the independence of the registered
public accountants.

|ITEM 16D. | EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE
|--------- | --------------------------------------------------------------------------

Not
applicable.

84

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

# Issuer Purchase of
Equity Securities

On
August, 2006, our Board of Directors authorized the repurchase of up to $30 million or two
million of our ordinary shares in the open market from time to time at prevailing market
prices. The repurchase program received the approval of the District Court in Tel Aviv
 Jaffa in August 2006 in accordance with the requirements of the Israeli Companies
Law. In August and September 2006, we repurchased am aggregate 455,973 ordinary shares
under the program at a total purchase price of $7.0 million, or an average price of $15.33
per share. We did not repurchase any ordinary shares under the program after September
2006 through the remainder of 2006. As of December 31, 2006, we used 347,088 of the
repurchased shares for issuance upon exercise of employee stock options. We intend to
continue this program during 2007.

The
following table sets forth, for each of the months indicated, the total number of shares
purchased by us or on our behalf or any affiliated purchaser, the average price paid per
share, the number of shares purchased as part of a publicly announced repurchase plan or
program, the maximum number of shares or approximate dollar value that may yet be
purchased under the plans or programs.

|Period in 2006 | Total Numberof SharesPurchased | Average PricePaid per Share | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs | ApproximateDollar Value ofShares that MayYet Be PurchasedUnder the Plans orPrograms
|-------------- | ------------------------------ | --------------------------- | ---------------------------------------------------------------------------- | -----------------------------------------------------------------------------------
|
|
|
|
|August         |                                |                             |                                                                              | 439,272                                                                            
|September      |                                |                             |                                                                              | 16,701                                                                             

# PART III

|ITEM 17. | FINANCIAL
STATEMENTS
|-------- | --------------------

Not
applicable.

|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

| |                                                         | 
| | ------------------------------------------------------- | 
|
|
|
|
| | Consolidated Financial Statements                       | 
| | Index to Consolidated Financial Statements              | 
| | Report of Independent Registered Public Accounting Firm | 
| | Consolidated Balance Sheets                             | 
| | Consolidated Statements of Income                       | 
| | Statements of Changes in Shareholders' Equity           | 
| | Consolidated Statements of Cash Flows                   | 
| | Notes to Consolidated Financial Statements              | 
| | Schedule II                                             | 

85

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|ITEM 19. | EXHIBITS
|-------- | --------

|Exhibit |  | Description
|------- |  | -----------

|1.1 |  | Memorandum
of Association of the Registrant (1)
|--- |  | -----------------------------------------------

|1.2 |  | Articles
of Association of the Registrant (1)
|--- |  | ---------------------------------------------

|1.3 |  | Amendment
to Articles of Association of the Registrant  (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)
|--- |  | --------------------------------------

|8. |  | List
of Subsidiaries of the Registrant
|-- |  | --------------------------------------

|12.1 |  | Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
                      the Securities Exchange Act, as amended
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
                      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
|---- |  | -------------------------------------------------------------------------

---

|(1) | Filed
as an exhibit to our registration statement on Form F-1, registration
               number 333-30916, as amended, filed with the Securities and Exchange
Commission,                and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Filed
as an exhibit to our Annual Report on Form 20-F for the year ended
               December 31, 2005, filed with the Securities and Exchange Commission, 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 Securities and Exchange Commission, and
               incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

86

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# RADVISION LTD. AND ITS
SUBSIDIARIES

# CONSOLIDATED FINANCIAL STATEMENTS

# AS OF DECEMBER 31, 2006

# U.S. DOLLARS IN
THOUSANDS

# INDEX

|                                                        | Page      
|------------------------------------------------------- | ----------
|
|
|
|
|Report of Independent Registered Public Accounting Firm | F-2       
|                                                       
|Consolidated Balance Sheets                             | F-3       
|                                                       
|Consolidated Statements of Income                       | F-4       
|                                                       
|Statements of Changes in Shareholders' Equity           | F-5       
|                                                       
|Consolidated Statements of Cash Flows                   | F-6 - F-7 
|                                                       
|Notes to Consolidated Financial Statements              | F-8 - F-40

F - 1

---

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Board of
Directors and Shareholders of

# RADVISION LTD. AND ITS
SUBSIDIARIES

We
have audited the accompanying consolidated balance sheets of Radvision Ltd. (the
Company) and its subsidiaries as of December 31, 2005 and 2006, and the related
consolidated statements of income, shareholders equity and cash flows for each of
the three years in the period ended December 31, 2006. Our audits also included the
accompanying financial statement schedule II. 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. We were not engaged to perform an audit of the Companys
internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
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, 2005 and 2006, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the accompanying financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As
explained in Note 2(q) to the consolidated financial statements, on January 1, 2006 the
Company adopted Statement of Financial Accounting Standards No. 123(revised 2004),
Share Based Payment.

|                 |                                   
|---------------- | ----------------------------------
|
|
|
|
|                 | /s/ Kost Forer Gabbay and Kasierer
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER      
|May 14, 2007     | A Member of Ernst & Young Global  

F - 2

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|CONSOLIDATED BALANCE SHEETS                               
|                                                          
|U.S. dollars in thousands, except share and per share data

|                                                                   | December 31,
|------------------------------------------------------------------ | ------------
|
|
|
|
|ASSETS                                                             |             
|                                                                   |             
|CURRENT ASSETS:                                                    |             
|Cash and cash equivalents                                          |             
|Short-term bank deposits                                           |             
|Short-term held-to-maturity marketable securities                  |             
|Trade receivables (net of allowance for doubtful accounts of $ 734 |             
|and $ 749 at December 31, 2005 and 2006, respectively)             |             
|                                                                   |             
|Other accounts receivable and prepaid expenses                     |             
|Inventories                                                        |             
|                                                                   |             
|Total current assets                                               |             
|                                                                   |             
|                                                                   |             
|LONG-TERM INVESTMENTS AND RECEIVABLES:                             |             
|Long-term bank deposits                                            |             
|Long-term held-to-maturity marketable securities                   |             
|Severance pay fund                                                 |             
|Long term deferred tax asset                                       |             
|                                                                   |             
|Total long-term investments and receivables                        |             
|                                                                   |             
|PROPERTY AND EQUIPMENT, NET                                        |             
|                                                                   |             
|GOODWILL                                                           |             
|                                                                   |             
|OTHER INTANGIBLE ASSETS, NET                                       |             
|                                                                   |             
|Total assets                                                       |             
|                                                                   |             
|                                                                   |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                               |             
|                                                                   |             
|CURRENT LIABILITIES:                                               |             
|Trade payables                                                     |             
|Deferred revenues                                                  |             
|Accrued expenses and other accounts payable                        |             
|                                                                   |             
|Total current liabilities                                          |             
|                                                                   |             
|ACCRUED SEVERANCE PAY                                              |             
|                                                                   |             
|Total liabilities                                                  |             
|                                                                   |             
|                                                                   |             
|COMMITMENTS AND CONTINGENCIES                                      |             
|                                                                   |             
|SHAREHOLDERS' EQUITY:                                              |             
|Ordinary shares of NIS 0.1 par value -                             |             
|Authorized: 25,000,000 shares at December 31, 2005 and 2006;       |             
|Issued and outstanding: 21,803,997 and 22,251,552                  |             
|shares at December 31, 2005 and 2006, respectively                 |             
|Additional paid-in capital                                         |             
|Treasury stock (0 and 108,885 Ordinary shares at December 31,      |             
|2005 and 2006, respectively)                                       |             
|Retained earnings                                                  |             
|                                                                   |             
|Total shareholders' equity                                         |             
|                                                                   |             
|Total liabilities and shareholders' equity                         |             
|                                                                   |             

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

F - 3

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES             
|------------------------------------------------
|                                                
|CONSOLIDATED STATEMENTS OF INCOME               
|                                                
|U.S. dollars in thousands, except per share data

|                                        | Year ended December 31,
|--------------------------------------- | -----------------------
|
|
|
|
|Revenues:                               |                        
|Products                                |                        
|License and royalties                   |                        
|Services                                |                        
|                                        |                        
|                                        |                        
|Total revenues                          |                        
|                                        |                        
|                                        |                        
|Cost of revenues:                       |                        
|Products                                |                        
|Services                                |                        
|                                        |                        
|                                        |                        
|Total cost of revenues                  |                        
|                                        |                        
|                                        |                        
|Gross profit                            |                        
|                                        |                        
|                                        |                        
|Operating costs and expenses:           |                        
|Research and development                |                        
|Selling and marketing                   |                        
|General and administrative              |                        
|Patent settlement reserve               |                        
|                                        |                        
|                                        |                        
|Total operating costs and expenses      |                        
|                                        |                        
|                                        |                        
|Operating income                        |                        
|Financial income, net                   |                        
|                                        |                        
|                                        |                        
|Income before taxes on income           |                        
|Tax benefit, net                        |                        
|                                        |                        
|                                        |                        
|Net income                              |                        
|                                        |                        
|                                        |                        
|Basic net earnings per Ordinary share   |                        
|                                        |                        
|                                        |                        
|Diluted net earnings per Ordinary share |                        
|                                        |                        

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

F - 4

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES          
|---------------------------------------------
|                                             
|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|                                             
|U.S. dollars in thousands, except share data 

|                                                     | Ordinary shares | Additionalpaid-incapital | Treasurystock | Retainedearnings(accumulateddeficit) | Totalshareholders'equity
|---------------------------------------------------- | --------------- | ------------------------ | ------------- | ------------------------------------ | ------------------------
|
|
|
|
|Balance as of January 1, 2004                        |                 |                          |               | 19,344,849                           |                         
|                                                     |                 |                         
|Exercise of share options by employees               |                 |                          |               | 1,224,169                            |                         
|Net income                                           |                 |                          |               | -                                    |                         
|                                                     |                 |                          |               |                                      |                         
|                                                     |                 |                         
|Balance as of December 31, 2004                      |                 |                          |               | 20,569,018                           |                         
|                                                     |                 |                         
|Exercise of share options by employees               |                 |                          |               | 1,234,979                            |                         
|Tax benefit related to exercise of stock options     |                 |                          |               | -                                    |                         
|Net income                                           |                 |                          |               | -                                    |                         
|                                                     |                 |                          |               |                                      |                         
|                                                     |                 |                         
|Balance as of December 31, 2005                      |                 |                          |               | 21,803,997                           |                         
|                                                     |                 |                         
|Reversal of valuation allowance relating to          |                 |                         
|loss carryforwards in respect of exercise            |                 |                         
|of stock options                                     |                 |                          |               | -                                    |                         
|Tax benefit resulting from exercise of stock options |                 |                          |               | -                                    |                         
|Purchase of treasury shares                          |                 |                          |               | (455,973                             | )                       
|Exercise of share options by employees               |                 |                          |               | 794,643                              |                         
|Stock based compensation                             |                 |                          |               | -                                    |                         
|Net income                                           |                 |                          |               | -                                    |                         
|                                                     |                 |                          |               |                                      |                         
|                                                     |                 |                         
|Balance as of December 31, 2006                      |                 |                          |               | 22,142,667                           |                         
|                                                     |                 |                          |               |                                      |                         

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

F - 5

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES  
|-------------------------------------
|                                     
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. dollars in thousands            

|                                                                                           | Year ended December 31,
|------------------------------------------------------------------------------------------ | -----------------------
|
|
|
|
|Cash flows from operating activities:                                                      |                        
|Net income                                                                                 |                        
|Adjustments required to reconcile net income to net cash provided by operating activities: |                        
|Depreciation and amortization                                                              |                        
|Loss (gain) on sale of property and equipment                                              |                        
|Accrued interest on held-to-maturity marketable securities and bank deposits and           |                        
|amortization of premium                                                                    |                        
|Stock-based compensation                                                                   |                        
|Tax benefit relating to loss carryforwards resulting from exercise of stock options        |                        
|Increase in trade receivables, net                                                         |                        
|Increase in other accounts receivable and prepaid expenses                                 |                        
|Increase in inventories                                                                    |                        
|Deferred tax benefit                                                                       |                        
|Increase (decrease) in trade payables                                                      |                        
|Increase in deferred revenues                                                              |                        
|Increase (decrease) in accrued expenses and other accounts payable                         |                        
|Tax benefit related to exercise of stock options                                           |                        
|Decrease (increase) in accrued severance pay, net                                          |                        
|                                                                                           |                        
|Net cash provided by operating activities                                                  |                        
|                                                                                           |                        
|                                                                                           |                        
|Cash flows from investing activities:                                                      |                        
|Proceeds from redemption of held-to-maturity marketable securities                         |                        
|Purchase of held-to-maturity marketable securities                                         |                        
|Proceeds from withdrawal of bank deposits                                                  |                        
|Purchase of bank deposits                                                                  |                        
|Purchase of property and equipment                                                         |                        
|Proceeds from sale of property and equipment                                               |                        
|Purchase of FVC's assets (2a)                                                              |                        
|Purchase of VisioNex's assets (2b)                                                         |                        
|                                                                                           |                        
|Net cash used in investing activities                                                      |                        
|                                                                                           |                        
|                                                                                           |                        
|Cash flows from financing activities:                                                      |                        
|                                                                                           |                        
|Purchase of treasury shares at cost                                                        |                        
|Issuance of Ordinary shares and treasury stock for cash upon exercise of options           |                        
|Tax benefit relating to loss carryforwards resulting from exercise of stock options        |                        
|                                                                                           |                        
|Net cash provided by financing activities                                                  |                        
|                                                                                           |                        
|Increase (decrease) in cash and cash equivalents                                           |                        
|Cash and cash equivalents at the beginning of the year                                     |                        
|                                                                                           |                        
|Cash and cash equivalents at the end of the year                                           |                        
|                                                                                           |                        
|                                                                                           |                        
|(1) Supplemental disclosure of non-cash activity:                                          |                        
|                                                                                           |                        
|Receivables on account of shares                                                           |                        
|                                                                                           |                        
|Cash paid during the year for:                                                             |                        
|Interest                                                                                   |                        
|                                                                                           |                        
|Income taxes                                                                               |                        
|                                                                                           |                        

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

F - 6

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES  
|-------------------------------------
|                                     
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. dollars in thousands            

|(2) | Supplemental
disclosure of cash flow information:
|--- | -------------------------------------------------

| | a. | In
March 2005, the Company acquired the assets and the business of First Virtual
                    Communication Inc. (FVC). The net fair value of the
assets acquired                     and the liabilities assumed at the date of
acquisition was as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                      | 
| | ---------------------------------------------------- | 
|
|
|
|
| | Working capital, excluding cash and cash equivalents | 
| | Property and equipment                               | 
| | Technology                                           | 
| | Distribution network                                 | 
| | Goodwill                                             | 
| |                                                      | 
| |                                                      | 
| |                                                      | 
| |                                                      | 

| | b. | In
July 2004,  the  Company  acquired  the assets and the  business  of  VisioNex
 Technologies  Inc.               ("VisioNex"). The net fair value of the assets acquired
was as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |            | 
| | ---------- | 
|
|
|
|
| | Technology | 
| | Goodwill   | 
| |            | 
| |            | 
| |            | 
| |            | 

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

F - 7

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 1: |  | GENERAL
|------- | - | -------

| | a. | RADVISION
Ltd. (the Company) is an Israeli corporation 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 Networking Business Unit (NBU),
which focuses on networking products and is responsible for developing networking
products for IP-centric voice, video and data conferencing services; and 2) the
Technology Business Unit (TBU), which focuses on creating developer toolkits
for the underlying IP communication protocols and testing tools needed for real-time
voice and video over IP.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has eight wholly-owned subsidiaries: RADVISION Inc. in the United States,
RADVISION HK in Hong Kong, RADVISION U.K. in the United Kingdom, RADVISION Japan KK in
Japan, RADVISION FRANCE S.A.R.L in France, RADVISION B.V. in the Netherlands and
RADVISION GmbH in Germany, all of which are primarily engaged in marketing the Companys
products and technology, and RADVISION Communication Development (Beijing) Co. Ltd. in
China (see c below), which is engaged in research and development and marketing the
Companys products and technology.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Acquisition
of assets and the business of First Virtual Communication Inc.           (FVC):
| | -- | ---------------------------------------------------------------------------------------------

| | Following
a bidding process held under the supervision of a United States Bankruptcy Court, the
Company acquired certain of the assets of FVC and its wholly-owned subsidiary, CUseeMe
Networks, Inc. on March 15, 2005. FVC creates leading software products that enable
interactive voice, video and data collaboration over IP­based networks. The cash
purchase price for the acquisition, including transaction costs, was $ 7,496.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
acquisition was accounted for under the purchase method of accounting, in accordance with
Statement of the Financial Accounting Standard No. 141, Business Combinations, or
SFAS 141 and accordingly, the purchase price was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of acquisition. The
results of FVCs operations were included in the consolidated financial statements
commencing from the date of acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired was recorded as goodwill. The purchase
price of the acquisition was determined and paid based on significant consideration for
synergistic and strategic benefits. Accordingly, the transaction resulted in goodwill of $ 2,319.
The Company believes that the goodwill represents synergies achievable by combining FVCs
technology, customer relationships and established reputation with the Companys
products and expertise in interactive voice, video and data collaboration over IP­based
networks solutions to accelerate the development and commercialization of the Companys
product.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

|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.)
|------- | - | ---------------

| | Based
upon a valuation of tangible and intangible assets acquired, the Company has allocated
the total cost of the acquisition to FVCs net assets as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                | 
| | -------------------------------------------------------------- | 
|
|
|
|
| | Tangible assets acquired (including cash and cash equivalents) | 
| | Liabilities assumed                                            | 
| | Intangible assets:                                             | 
| | Technology                                                     | 
| | Distribution networks                                          | 
| | Goodwill                                                       | 
| |                                                                | 
| |                                                                | 
| | Total consideration                                            | 
| |                                                                | 

| | Amortization
of acquired technology and distribution networks is calculated using estimated useful
lives of four years.
| | -----------------------------------------------------------------------------------------------------------------------

| | Goodwill
of $ 2,319 represents the excess of the purchase price over the fair market value of
the net tangible and identifiable intangible assets acquired. Goodwill will not be
amortized and will be tested for impairment at least annually. The acquired goodwill is
allocated to the NBU segment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
unaudited pro forma combined revenues of the Company and FVC for the year ended December
31, 2004, assuming the acquisition had occurred at the beginning of the period, amounted
to $76,960.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Acquisition
of assets and the business of VisionNex Technologies Inc.:
| | -- | ----------------------------------------------------------------------

| | In
May 2004, the Company entered into an asset purchase agreement with VisionNex
Technologies Inc. (VisionNex), a U.S.  based company with a
wholly-owned Chinese subsidiary.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2004, the Company incorporated a wholly-owned subsidiary under the laws of China,
RADVISION Communication Development (Beijing) Co. Ltd., for the purpose of operating a
research and development center in China.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
cash purchase price amounted to $ 1,320. The assets to which the acquisition cost
was allocated consisted of the technology and workforce used by VisionNex in conducting
its business. For the useful life of intangible asset see Note 7. In addition, the
Company hired certain former employees of VisionNex.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
transaction was accounted for in accordance with SFAS 141. The purchase price was
allocated to the technology with the residual recognized as goodwill. The pro-forma
effect of the acquisition is immaterial to the Companys results.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

|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.)
|------- | - | ---------------

| | Based
upon a valuation of tangible and intangible assets acquired, the Company has allocated
the total cost of the acquisition to VisionNex net assets as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |            | 
| | ---------- | 
|
|
|
|
| | Technology | 
| | Goodwill   | 
| |            | 
| |            | 
| |            | 
| |            | 

| | Goodwill
of $ 647 represents the excess of the purchase price over the fair market value of
intangible assets acquired. Goodwill will not be amortized and will be tested for
impairment at least annually. The acquired goodwill is allocated to the NBU segment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Revenues
derived from the Companys largest customer in 2006, represented           35.0% of
total sales (see Note 12e).
| | -- | ------------------------------------------------------------------------------------------------------------------------

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES
|------- | - | -------------------------------

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

| | a. | Use
of estimates:
| | -- | -----------------

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

| | b. | Financial
statements in U.S. dollars:
| | -- | -------------------------------------

| | The
Companys revenues are generated in U.S. dollars (dollar). In addition,
a significant portion of the Companys and its subsidiaries costs 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 Statement of the Financial
Accounting Standard No. 52, Foreign Currency Translation (SFAS No. 52).
Amounts in currencies other than U.S. dollars have been remeasured as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Monetary
balances  at the exchange rate in effect on the balance sheet date; revenues and
costs  at the exchange rates in effect as of the date of the transactions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---

|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.)
|------- | - | ---------------------------------------

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

| | c. | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Cash
and cash equivalents:
| | -- | --------------------------

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

| | e. | Marketable
securities:
| | -- | ----------------------

| | The
Company accounts for investments in debt securities in accordance with Statement of
Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt
and Equity Securities (SFAS No. 115). 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. 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. According to the Staff Accounting Bulletin No. 59 (SAB 59),
management is required to evaluate each period whether the impairment of value for
securities is other than temporary. The Companys policy in evaluating the fair
value of its investments in marketable securities is based on the following factors: (i)
whether there is a significant impairment of value of the securities suspected to be
other than temporary, (ii) the ability to hold the security until recovery and (iii) the
intention to hold the security until recovery.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Short-term
bank deposits:
| | -- | -------------------------

| | Short-term
bank deposits are deposits with maturities of less than one year. The deposits are in
dollars and bear interest at an annual weighted average rate of 4.99% and 3.68% at
December 31, 2006 and 2005 respectively. The short-term deposits are presented at
their cost, including accrued interest.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | Long-term
bank deposits:
| | -- | ------------------------

| | Long-term
bank deposits are deposits with maturities of more than one year. The deposits are in
dollars and bear interest at an annual weighted average rate of 5.08% and 4.36% at
December 31, 2006 and 2005 respectively. The long-term deposits as of December 31,
2006 mature in 2008. The long-term deposits are presented at their cost, including
accrued interest.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

|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.)
|------- | - | ---------------------------------------

| | h. | Inventories:
| | -- | ------------

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

| | Cost
is determined as follows: Raw materials  using the average cost method.
| | -----------------------------------------------------------------------------

| | Finished
products  raw materials using the average cost method and subcontractorscosts.
| | -----------------------------------------------------------------------------------------

| | Inventory
write-offs and write-down provisions are recorded to cover risks arising from slow-moving
items or technological obsolescence. The Company periodically evaluates the quantities on
hand relative to historical and projected sales volume (which is determined based on
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 in an amount
equal to the difference between the cost of inventory and the estimated market value. The
Companys provision for slow-moving items or technological obsolescence was $ 895
and $ 1,246 as of December 31, 2005 and 2006, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i. | 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

| | j. | 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 mainly of acquired technology and
distribution network.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company follows the provision of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142), according to which
goodwill is not amortized but instead is tested for impairment at least annually (or more
frequently if impairment indicators arise).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

|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.)
|------- | - | ---------------------------------------

| | SFAS
No. 142 prescribes a two-phase process for impairment testing of goodwill. The first
phase screens for impairment while the second phase (if necessary) measures impairment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. As of December 31, 2006 and 2005, no instances of impairment were
found.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 SFAS No. 142. The Company amortizes its intangible
assets on a straight line basis.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Impairment
of long-lived assets:
| | -- | --------------------------------

| | Long-lived
assets are reviewed for impairment in accordance with Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
No. 144) 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, 2006, no impairment
indicators have been identified.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l. | 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 for 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 upon the fulfillment of the obligation pursuant to Israels
Severance Pay Law or labor agreements. The value of the deposited funds is based on the
cash surrendered value of the policies and includes immaterial profits.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
pay expense for the years ended December 31, 2004, 2005 and 2006 amounted to
approximately $ 590, $ 659 and $ 1,337 respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

|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.)
|------- | - | ---------------------------------------

| | m. | Revenue
recognition:
| | -- | --------------------

| | The
Company and its subsidiaries generate revenues mainly from: 1) sales of videoconferencing
products, or networking business unit products (NBU); 2) licensing the
rights to use their software products and royalty income, or technology business unit
products (TBU); 3) maintenance and support, and 4) customization
services. The Company and its subsidiaries sell their NBU products mainly through OEMs,
system integrators and value added resellers, all of whom are considered end-users.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounts for its product and software licensing sales in accordance with
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).
SOP 97-2 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. However, the Company has adopted Statement of Position 98-9, Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions (SOP
98-9). According to SOP No. 98-9, revenues should be allocated to the different
elements in the arrangement under the residual method when Vendor Specific
Objective Evidence (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 product) when all other criteria in SOP 97-2 have been met. Any
discount in the arrangement is allocated to the delivered element. If sufficient specific
objective evidence does not exist for all undelivered elements, revenue is deferred for
the entire arrangement until all revenue recognition criteria are met for such
undelivered elements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenues
from license fees and sales of products are recognized when persuasive evidence of an
arrangement exists, delivery of the product has occurred, no significant obligations with
regard to implementation remain, the fee is fixed or determinable and collectability is
probable.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maintenance
and support revenue included in multiple element arrangements is deferred and recognized
on a straight-line basis over the term of the maintenance and support agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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).
| | -------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

|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
arrangements which include software, PCS 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Service
revenues is recognizes as services are preformed.
| | ---------------------------------------------------------

| | In
cases where transaction terms include extended payment terms, the revenue is recognized
when payment becomes due.
| | --------------------------------------------------------------------------------------------------------------------

| | 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 shipment by customers, as they are reported
to the Company by these customers, and when collectability is probable. Non-refundable
payments on account of future royalties where no future obligation exists with regard to
these royalties are recognized upon the signing of such arrangement and if collectability
is probable.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenues
from software licenses and or sale of products that require significant customization,
integration and installation are recognized based on SOP 81-1, Accounting for
Performance of Construction-Type and Certain 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, 2006, no such
estimated losses were identified.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 criteria for recognizing revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company 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 limited warranty and records a liability in the amount of such costs at the time
product revenue is recognized. Factors that affect the Companys warranty liability
include the number of installed units, historical and anticipated rates of warranty
claims, and cost per claim. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | 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 2006
was as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                     | December 31, 2006
| | --------------------------------------------------- | -----------------
|
|
|
|
| | Balance, beginning of period                        |                  
| | Additions to the accrual - costs of product revenue |                  
| | Usage                                               |                  
| |                                                     |                  
| |                                                     |                  
| | Balance, end of period                              |                  
| |                                                     |                  

| | The
Company and its subsidiaries generally do not grant a right of return to their customers.
In accordance with Statement of Financial Accounting Standard No. 48, Revenue
Recognition When Right of Return Exists. When returns are expected, 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, 2005 and
2006, the Company had a provision for products returns in an amount of $ 369 and $ 350,
respectively in respect of expected future returns.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Customer
incentives:
| | --------------------

| | The
Company records reductions to revenue and trade receivables for volume-based incentives,
at the time revenue is recorded, based on the estimated amount of incentives earned. As
of December 31, 2005 and 2006, the Company had a provision in the amount of $ 270
and $ 233 respectively with respect of these incentives.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Marketing
development programs, when granted, are recorded as an addition to marketing expense,
according to the provisions of EITF 01-9, Accounting for a Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendors Products)". As of
December 31, 2005 and 2006, the Company had a provision in the amount of $ 99
with respect of these programs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n. | Research
and development costs:
| | -- | -------------------------------

| | Research
and development costs are charged to the statement of income as incurred. Statement of
Financial Accounting Standard No. 86, Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed, 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | o. | Income
taxes:
| | -- | -------------

| | Income
taxes are accounted for in accordance with Statement of Financial Accounting Standard No.
109, Accounting for Income Taxes (SFAS No. 109). According to
SFAS No. 109 deferred tax assets and liabilities are recorded for temporary differences
between financial reporting and tax bases of assets and liabilities and for carryforward
losses. Deferred taxes are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiaries provide a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Fair
value of financial instruments:
| | -- | ------------------------------------

| | The
carrying amounts reported in the balance sheet for cash and cash equivalents, short-term
bank deposits, trade and other receivables and trade and other payables approximate their
fair values due to the short-term maturities of such instruments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of held-to-maturity marketable securities is based on quoted market prices and
it does not differ significantly from its carrying amount (see Note 3).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of long-term bank deposits approximates its carrying amount since the deposits
bear interest at a rate approximating the market rate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | q. | Accounting
for stock-based compensation:
| | -- | ----------------------------------------

| | At
December 31, 2006, the Company has one stock-based employee compensation plan, which
is described more fully in Note 10. Prior to January 1, 2006, the Company
accounted for this plan under the recognition and measurement provisions of APB Opinion
No. 25, Accounting for Stock Issued to Employees(Opinion 25),
and related Interpretations, as permitted by Financial Accounting Standards Board, or
FASB, Statement No. 123, Accounting for Stock-Based Compensation (Statement 123).
No stock-based employee compensation cost was recognized in the statements of income for
the years ended December 31, 2005 and 2004, as all options granted under this plan
had an exercise price equal to the market value of the underlying common stock on the
date of grant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123(R)), 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. SFAS 123(R)
supersedes the Companys previous accounting under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
for periods beginning January 1, 2006, under which compensation expense was measured
based on the intrinsic value method. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to
SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of
SFAS No. 123(R).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | SFAS
123(R) 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 expense over the requisite service
periods in the Companys consolidated statement of income.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company adopted SFAS 123(R) using the modified prospective transition method which
requires the application of the accounting standard starting from January 1, 2006, the
first day of the Companys 2006 fiscal year. Under that transition method,
compensation cost recognized during 2006 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original provisions
of Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of Statement 123(R). Results for prior periods have not
been restated.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
conjunction with the adoption of SFAS 123(R), the Company estimates option values using
the Black-Scholes option pricing model. The option-pricing model requires a number of
assumptions, of which the most significant are the expected stock price volatility,
pre-vesting forfeiture rate and option term (the amount of time from the grant date until
the options are exercised or expired). 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 expected term of options granted was calculated using the simplified method
(expected term = (vesting term + original contractual term) / 2) permitted by SAB 107.
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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of adopting SFAS 123(R) on January 1, 2006, the Companys income before
income taxes and net income for the year ended December 31, 2006, is $ 4,776
lower than if it had continued to account for stock-based compensation under APB 25.
Basic and diluted net earnings per share for the year ended December 31, 2006, are $ 0.22
and $ 0.21, respectively, per share lower, than if the Company had continued to
account for share-based compensation under APB 25.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value for the options granted in 2006 was estimated at the date of grant with the
following weighted average assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------

| |                         | Year ended
December 31, 2006
| | ----------------------- | ----------------------------
|
|
|
|
| | Risk free interest rate |                             
| | Dividend yields         |                             
| | Volatility              |                             
| | Expected life (years)   |                             

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.)
|------- | - | ---------------------------------------

| | The
following table illustrates the effect on net income, stock based compensation expense
and earnings per share in 2005 and 2004 if the Company had applied the fair value
recognition provisions of SFAS 123 to options granted under the Companys stock
option plans beginning from the effective date of SFAS 123. For purposes of this pro
forma disclosure, the value of the options is estimated using a Black-Scholes
option-pricing formula and amortized to expense over the options vesting periods
based on the straight-line method.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                  | Year endedDecember 31,
| | -------------------------------------------------------------------------------- | ----------------------
|
|
|
|
| | Net income as reported                                                           |                       
| | Deduct - stock-based compensation expense determined under                       |                       
| | fair value method for all awards                                                 |                       
| |                                                                                  |                       
| |                                                                                  |                       
| | Pro forma net income                                                             |                       
| |                                                                                  |                       
| |                                                                                  |                       
| | Weighted average number of Ordinary shares used to compute pro forma basic net   |                       
| | earnings per share                                                               |                       
| |                                                                                  |                       
| | Weighted average number of Ordinary shares used to compute pro forma diluted net |                       
| | earnings per share                                                               |                       
| |                                                                                  |                       
| |                                                                                  |                       
| | Basic net earnings per share, as reported                                        |                       
| |                                                                                  |                       
| | Pro forma basic net earnings per share                                           |                       
| |                                                                                  |                       
| | Diluted net earnings per share, as reported                                      |                       
| |                                                                                  |                       
| | Pro forma diluted net earnings per share                                         |                       
| |                                                                                  |                       

| | The
pro forma effects of estimated equity-based compensation expense on net income and
earnings per share for the two years ended December 31, 2005 and 2004 were estimated
at the date of grant using the Black-Scholes model based on the following assumptions
(annualized percentages):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | Year ended
December 31,
| | ----------------------- | -----------------------
|
|
|
|
| | Risk free interest rate |                        
| | Dividend yields         |                        
| | Volatility              |                        
| | Expected life (years)   |                        

| | Prior
to the adoption of Statement 123(R), the Company presented tax benefits of deductions
resulting from the exercise of stock options in excess of the compensation cost
recognized for those options (excess tax benefits) as operating cash flows in the
statement of cash flows. Statement 123(R) requires the cash flows resulting from excess
tax benefits to be classified as financing cash flows. The $ 2,011 excess tax
benefit classified as a financing cash inflow would have been classified as an operating
cash inflow if the Company had not adopted Statement 123(R).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | Pro
forma compensation expense under SFAS 123, among other computational differences, does
not consider potential pre-vesting forfeitures. Because of these differences, the pro
forma stock compensation expense presented above for the years ending December 31,
2004 and 2005 under SFAS 123 and the stock compensation expense recognized during the
year ended December 31, 2006 under SFAS 123(R) are not directly comparable
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | r. | 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 long-term bank deposits.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
majority of the Companys cash and cash equivalents, short-term and long-term bank
deposits are invested in dollar investments with major banks in Israel and the United
States. Such cash and cash equivalents, short-term and long-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 financially sound and accordingly, minimal credit risk
exists with respect to these investments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
marketable securities of the Company and its subsidiaries include investments in
debentures of U.S corporations, and state and political subdivisions. Management believes
that the portfolio is well diversified, and accordingly, minimal credit risk exists with
respect to these marketable securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
trade receivables of the Company and its subsidiaries related to the NBU business are
derived from sales to large and solid organizations located mainly in North 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
trade receivables of the Company and its subsidiaries related to the TBU business
are derived from sales to companies located mainly in North America, Europe, the Far East
and Israel. The Company and its subsidiaries perform ongoing credit evaluations of their
customers and record an allowance for doubtful accounts with respect to those amounts
that were determined to be doubtful of collection.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
uncertainty of collectibility exists, the Company and its subsidiaries defer revenues
until such uncertainty expires.
| | --------------------------------------------------------------------------------------------------------------------------

| | The
Company and its subsidiaries do not have any significant off-balance-sheet concentration
of credit risk, such as foreign exchange contracts, options contracts or other foreign
hedging arrangements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | s. | Basic
and diluted net earnings per share:
| | -- | -----------------------------------------

| | Basic
net earnings per share are computed based on the weighted average number of Ordinary
shares outstanding during the year. Diluted net earnings per share further include the
effect of dilutive stock options outstanding during the year, all in accordance with SFAS
No. 128, Earnings per Share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Options
outstanding to purchase approximately 947,949, 342,186 and 1,358,160 Ordinary shares for
the years ended December 31, 2004, 2005 and 2006, respectively, were not included in the
computation of diluted net earnings per share, because option exercise prices were
greater than the average market price of the Ordinary shares and therefore their
inclusion would have been anti-dilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | t. | Treasury
Shares:
| | -- | ----------------

| | The
Company repurchases its Ordinary shares from time to time on 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
Accounting Principles Board No. 6, Status of Accounting Research Bulletins(APB
No. 6) 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 case the purchase cost is lower than the re-issuance price, the
Company credits the difference to additional paid-in capital.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | u. | Recently
issued accounting pronouncements:
| | -- | ------------------------------------------

| | In
July 2006, the FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48). FIN
48 clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely on its
technical merits, is more-likely-than-not to be sustained upon examination. Measurement
(step two) is only addressed if step one has been satisfied (i.e., the position is
more-likely-than-not to be sustained). Under step two, the tax benefit is measured as the
largest amount of benefit, determined on a cumulative probability basis that is
more-likely-than-not to be realized upon ultimate settlement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FIN
48 applies to all tax positions related to income taxes subject to the Financial
Accounting Standard Board Statement No. 109, Accounting for Income Taxes(FAS
109). This includes tax positions considered to be routine as well as
those with a high degree of uncertainty.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.)
|------- | - | ---------------------------------------

| | FIN
48 has expanded disclosure requirements, which include a tabular roll forward of the
beginning and ending aggregate unrecognized tax benefits as well as specific detail
related to tax uncertainties for which it is reasonably possible the amount of
unrecognized tax benefit will significantly increase or decrease within twelve months.
These disclosures are required at each annual reporting period unless a significant
change occurs in an interim period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FIN
48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect
of applying FIN 48 will be reported as an adjustment to the opening balance of retained
earnings. The Company does not anticipate any material impact on its consolidated
financial statements upon the adoption of FIN No. 48.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2006, the FASB issued Statement of Financial Accounting Standard No. 157,
Fair Value Measurements (SFAS No. 157), which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS No. 157
applies to other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Company does not anticipate any material impact on its consolidated financial
statements upon the adoption of SFAS No. 157.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159
permits companies to choose to measure certain financial instruments and certain other
items at fair value. The standard requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings. SFAS No. 159
is effective for financial statements issued for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years, although earlier adoption is
permitted. The Company is currently evaluating the impact that SFAS No. 159 will
have on its consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3: |  | HELD TO MATURITIES MARKETABLE SECURITIES
|------- | - | ----------------------------------------

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

| |                            | December 31,
| | -------------------------- | ------------
|
|
|
|
| | Debt investments of states |             
| | and political subdivisions |             
| | Corporate debentures       |             
| |                            |             
| |                            |             
| |                            |             
| |                            |             

F - 22

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 3: |  | HELD TO MATURITIES MARKETABLE SECURITIES (Cont.)
|------- | - | ------------------------------------------------

| | Marketable
securities with contractual maturities of one year through two years are as follows:
| | -----------------------------------------------------------------------------------------------

| |                                | December 31,
| | ------------------------------ | ------------
|
|
|
|
| | Debt investments of states and |             
| | political subdivisions         |             
| | Corporate debentures           |             
| |                                |             
| |                                |             
| |                                |             
| |                                |             

| | The
unrealized losses in the Companys investments in debt investments of states and
political subdivisions and corporate debentures were caused 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 Companys intention to
hold these investments until maturity, the bonds were not considered to be other than
temporarily impaired at December 31, 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 4: |  | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|------- | - | ----------------------------------------------

| |                        | December 31,
| | ---------------------- | ------------
|
|
|
|
| | Government authorities |             
| | Prepaid expenses       |             
| | Employees              |             
| | Deferred taxes         |             
| |                        |             
| |                        |             
| |                        |             
| |                        |             

|NOTE 5: |  | INVENTORIES
|------- | - | -----------

| | Inventories
are composed of the following:
| | ------------------------------------------

| |                   | December 31,
| | ----------------- | ------------
|
|
|
|
| | Raw materials     |             
| | Finished products |             
| |                   |             
| |                   |             
| |                   |             
| |                   |             

F - 23

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 6: |  | PROPERTY AND EQUIPMENT
|------- | - | ----------------------

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

| |                                    | December 31,
| | ---------------------------------- | ------------
|
|
|
|
| | Cost:                              |             
| | Computers and peripheral equipment |             
| | Office furniture and equipment     |             
| | Motor vehicles                     |             
| | Leasehold improvements             |             
| |                                    |             
| |                                    |             
| |                                    |             
| | Less - accumulated depreciation    |             
| |                                    |             
| |                                    |             
| | Depreciated cost                   |             
| |                                    |             

| | Depreciation
expenses for the years ended December 31, 2004, 2005 and 2006 amounted to $ 2,146, $ 1,465
and $ 1,849, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------

|NOTE 7: |  | OTHER INTANGIBLE ASSETS, NET
|------- | - | ----------------------------

| | a. | The
following table shows the Companys intangible assets for the periods
          presented:
| | -- | ----------------------------------------------------------------------------------------------

| |                                 | December 31,
| | ------------------------------- | ------------
|
|
|
|
| | Cost:                           |             
| | Technology                      |             
| | Distribution networks           |             
| |                                 |             
| |                                 |             
| |                                 |             
| | Less - accumulated amortization |             
| |                                 |             
| |                                 |             
| | Amortized cost                  |             
| |                                 |             

| | Intangible
assets resulted from acquisitions of VisionNex (see Note 1c), and FVC (see Note 1b).
| | -----------------------------------------------------------------------------------------------

F - 24

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 7: |  | OTHER INTANGIBLE ASSETS, NET (Cont.)
|------- | - | ------------------------------------

| | b. | Amortization
expenses amounted to $ 367, $ 1,124 and $ 1,090 for           the years
ended December 31, 2004, 2005 and 2006, respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Technology
acquired from VisionNex in 2004 was amortized over a period of 1.5           years. The
technology was fully amortized as of December 31, 2005.           Technology and
distribution network acquired from FVC in 2005 is being amortized           over a period
of four years.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
is the estimated amortization expenses in respect of identifiable intangible assets for
the years ended:
| | ------------------------------------------------------------------------------------------------------------------

| |      | 
| | ---- | 
|
|
|
|
| | 2007 | 
| | 2008 | 
| | 2009 | 
| |      | 
| |      | 
| |      | 
| |      | 

|NOTE 8: |  | ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
|------- | - | -------------------------------------------

| |                                                      | December 31,
| | ---------------------------------------------------- | ------------
|
|
|
|
| | Payroll and related accruals                         |             
| | Accrued expenses                                     |             
| | Government authorities                               |             
| | Contingent liability for patent claims (see Note 9e) |             
| | Patent settlement (see Note 9f)                      |             
| | Other                                                |             
| |                                                      |             
| |                                                      |             
| |                                                      |             
| |                                                      |             

|NOTE 9: |  | COMMITMENTS AND CONTINGENCIES
|------- | - | -----------------------------

| | a. | In
connection with its research and development, the Company received
          participation payments from the Israel U.S. Binational Industrial Research and
          Development Foundation (BIRD-F), in the total amount of
          approximately $ 188. In return for the participation, the Company is
          committed to pay royalties at a rate of 2.5% of proceeds from the first
          years sales and 5% of the proceeds from the succeeding years sales,
          up to the amount of the grant. Once the amount of the grant has been repaid,
          royalties will be payable at the rate of 2.5% of proceeds, until additional
          royalties equal to one half of the grant amount have been repaid. The
          Companys total commitment for royalties payable with respect to future
          sales, based on BIRD-F participations received, net of royalties paid or
          accrued, totaled approximately $ 276 as of December 31, 2005 and 2006.
          During the years 2004, 2005 and 2006, the Company did not pay or accrue
          royalties to the BIRD-F.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 9: |  | COMMITMENTS AND CONTINGENCIES (Cont.)
|------- | - | -------------------------------------

| | b. | The
Company and its subsidiaries operate from leased premises in Israel, the           United
States, China, Japan, the United Kingdom, France, Korea and Hong Kong.           The
leases expire through June 2010 (some with renewal options). The Company           leases
its motor vehicles under operating lease agreements that expire on           various
dates, the latest of which is in 2010.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Annual
minimum future lease payments due under the above agreements, at the exchange rate in
effect on December 31, 2006, are approximately as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |      | 
| | ---- | 
|
|
|
|
| | 2007 | 
| | 2008 | 
| | 2009 | 
| | 2010 | 
| |      | 
| |      | 
| |      | 
| |      | 

| | For
the years ended December 31, 2004, 2005 and 2006, rent expenses and motor vehicle lease
expenses were $ 2,636, $ 3,025 and $ 3,585, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | The
Company obtained bank guarantees in the amount of $ 401 in connection           with
securing its office space in Israel and in connection with custom tax           payments.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | 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, generally 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 date.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company expensed royalties in the amount of $ 237, $ 334 and $ 525 in
2004, 2005 and 2006, respectively.
| | ------------------------------------------------------------------------------------------------------------

| | e. | In
1998, a third party sent correspondence to a related party of the Company
          alleging that some products manufactured by the Company infringe upon patents
          held by the third party and offered to license these patents to the Company. In
          subsequent correspondence, the Companys related party requested that the
          third party specifically substantiate each allegation of infringement before
the           Companys related party would be prepared to enter into any licensing
          arrangements. The Companys related party has received further
          correspondence from the third party, in which the third party has, among other
          things, reiterated its claims. The Companys related party does not
believe           the third party has substantiated its claims and has communicated this
belief to           the third party. The Companys related party has advised the
Company that           the alleged infringement claims are unresolved.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2003, another 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 9: |  | COMMITMENTS AND CONTINGENCIES (Cont.)
|------- | - | -------------------------------------

| | As
of December 31, 2006, the Company has a provision of $ 3,391, which it believes
covers the potential loss from such allegations.
| | -----------------------------------------------------------------------------------------------------------------------------------

| | f. | In
2005, the Company received a claim from Avistar Inc. (Avistar) (a
          U.S. company) regarding a potential infringement of ten of its patents. In
          August 2006, the parties met to attempt to reach a settlement. While the
parties           are discussing proposed licensing fees, as of December 31, 2006,
the matter           is still open due to certain disagreements between the parties
regarding the           nature and extent of coverage of the proposed license. The
Company believes it           has good defenses to many of the patent claims.
Nevertheless, the Company           believes it is probable that it will incur a loss in
respect of this claim with           respect to certain of Avistars allegations.
The Company estimated such           loss at an amount of $ 1,993 based on the
parties discussions up           until the date of the issuance of the financial
statements. Accordingly, in           2006, the Company recorded an accrual in such
amount.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, during 2006 the Company received a notification from Tandberg (Tandberg).
Tandberg was sued by Avistar for infringement of certain of Avistar patents (some of the
same patents Avistar is claiming that the Company infringes). Tandberg sought
indemnification from the Company against the Avistar claim. In September 2006, the
Company sent a letter to Tandberg setting forth the Companys positionsand
refuting the allegations made by Tandberg. Since then the Company has not received a
response from Tandberg. The Companys management assessment is that the probability
of the claim to be sustained is remote and that a material loss is not probable,
therefore no provision is included in the financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | In
September 2006, the Company became aware that one of its customers, Vemics,
          Inc., (Vemics), filed a suit in a New York State trial court to obtain the
          source code of the Companys products associated with the FVC acquisition
          (see Note 1a). Prior to FVCs bankruptcy, FVC had signed a contract with
          Vemics to provide CTM licenses and service to Vemics for approximately
          $ 1.6 million which remained outstanding at the date of the acquisition.
          When the Company purchased the CTM business of FVC, it assumed this contract.
In           connection with the contract, FVC had deposited certain CTM software into
escrow           with Iron Mountain Intellectual Property Management, Inc. (Iron
          Mountain). Following the closing of the FVC asset purchase, Vemics
claimed           financial difficulties and stated that it could not pay the amounts
owed to the           Company. In early 2006, without the Companys knowledge,
Vemics contacted           Iron Mountain and requested release of the escrow. Neither
Iron Mountain nor           Vemics contacted the Company, despite contractual
requirements to do so. Vemics           claimed it was entitled to the release of the
escrow because the filing of           bankruptcy by FVC was a release condition.
When Iron Mountain did           not release the escrow, Vemics filed suit against Iron
Mountain in the Rockland           County State Court in New York claiming that Iron
Mountain had promised to           release the escrow but had lost the escrowed property.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 9: |  | COMMITMENTS AND CONTINGENCIES (Cont.)
|------- | - | -------------------------------------

| | Iron
Mountain filed an interpleader action in the Superior Court of Santa Clara against the
Company and Vemics, claiming that under the escrow agreement, the Company (as successor
in interest to FVC) and Vemics were required to indemnify Iron Mountain against any claim
(other than for their gross negligence). The Company has since filed a suit against
Vemics for sums owed to the Company and other violations of the CTM agreements, and
Vemics has sued the Company claiming lost business based on FVCs failure to repair
alleged bugs in the CTM product and/or failure to release the escrow. The Company has
also requested the State Court in California to direct that this matter be resolved by
arbitration in accordance with the CTM agreements. Vemics has challenged this request.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has performed a preliminary review of this matter with outside counsel. This
matter is at a preliminary stage and, at this point, the Company does not have sufficient
information to evaluate the risk of exposure to the Company or to estimate the amount, if
any, of any potential liability. Therefore, the Company did not record any provision
related to such litigation. The Company believes, however, that it has numerous
substantial defenses to the claims of third parties and is entitled to be paid its
license fees and other amounts from them.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | The
Company adopted certain tax positions in the ordinary course of business.           The
tax authorities may raise certain claims and challenge part or all of these
          positions, which might result in payment of additional taxes. The Companys
          management believes that it has provided adequate provisions to cover for all
of           its tax positions in accordance with SFAS 5.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 10: |  | SHAREHOLDERS EQUITY
|-------- | - | --------------------

| | a. | The
Ordinary shares of the Company are traded on the NASDAQ Global 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | In
August 2006, the Companys Board of Directors authorized the purchase of
          up to 30 million but not more than $2 million 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, 2006, the Company had repurchased 455,973 Ordinary shares under the
program at a total purchase price of $ 7,000, or an average price of $ 15.33
per share. As of December 31, 2006 the Company used 347,088 of such shares for
re-issuance upon exercise of employee stock options. The excess of the purchase price of
the shares over their re-issuance price in the amount of $ 2,148 was charged as a
reduction to retained earnings. As of December 31, 2006, the Company had a balance of
108,885 repurchased shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 10: |  | SHAREHOLDERS EQUITY (Cont.)
|-------- | - | ----------------------------

| | c. | The
Company adopted three employee share incentive plans which provide for the
          grant by the Company of option awards to purchase up to an aggregate of
          9,650,170 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 issuance. The incentive plan provides for the grant of options of
up to a           number that will constitute 4% of the Companys Ordinary shares on
a           diluted basis. As of December 31, 2006, 267,831 Ordinary shares are
          available for future grant. Options that are cancelled or forfeited become
          available for future grant.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of option activity during the years ended December 31, 2004, 2005 and 2006,
and the weighted average exercise prices per share are summarized as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | Year ended December 31,
| | ----------------------------------- | -----------------------
|
|
|
|
| | Options outstanding at beginning of |                        
| | year                                |                        
| | Granted                             |                        
| | Exercised                           |                        
| | Forfeited                           |                        
| |                                     |                        
| |                                     |                        
| | Options outstanding at end of year  |                        
| |                                     |                        
| |                                     |                        
| | Options exercisable at end of year  |                        
| |                                     |                        

| | The
total compensation cost related to options granted to employees under the Companys
share-based compensation plans recognized for the year ended December 31, 2006, amounted
at $4,776, net of estimated forfeitures. As of December 31, 2006, 3,097,946 options
were vested and expected to vest. The aggregate intrinsic value as of December 31,
2006 of the options vested and expected to vest was $ 22,196 (*). The weighted
average remaining contractual life of options vested and expected to vest as of December
31, 2006 was 7.43 years. The total intrinsic value of options exercised during the years
ended December 31, 2006, 2005, and 2004, was $ 8,085, $ 8,532 and $ 8,945
respectively. As of December 31, 2006, there was $ 10,932 of total unrecognized
compensation cost related to non-vested share-based compensation arrangements granted
under the Companys stock option plans. That cost is expected to be recognized over
a weighted-average period of 2.81 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *) | Aggregate
intrinsic value represents the total intrinsic value (the difference
               between the Companys closing stock price on the last trading day of
the                fiscal year 2006 and the exercise price, multiplied by the number of
               in-the-money options) that would have been received by the option holders
had                all option holders exercised their options on December 31, 2006
This amount                changes based on the fair market value of the Companys
stock. The                aggregate intrinsic value as of December 31, 2006 is based
on the share                price of the Companys Ordinary shares as of December 29,
2006                ($ 20.08 per share).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 10: |  | SHAREHOLDERS EQUITY (Cont.)
|-------- | - | ----------------------------

| | A
summary of the options outstanding and exercisable at December 31, 2006, is as follows:
| | -----------------------------------------------------------------------------------------

|                  | Options outstanding | Options exercisable
|----------------- | ------------------- | -------------------
|
|
|
|
|$ 4.57 - $ 5.57   |                     |                    
|$ 5.81 - $ 6.70   |                     |                    
|$ 7.62 - $ 8.78   |                     |                    
|$ 9.84 - $ 10.58  |                     |                    
|$ 10.80 - $ 12.00 |                     |                    
|$ 12.04 - $ 14.00 |                     |                    
|$ 15.86 - $ 17.73 |                     |                    
|$ 19.91 - $ 20.16 |                     |                    
|$ 28.00           |                     |                    
|                  |                     |                    
|                  |                     |                    
|                  |                     |                    
|                  |                     |                    

| | All
options were granted at an exercise price that was equal to the market price of the share
at the date of grant. The weighted average grant date fair values of options granted
during 2004, 2005 and 2006 were as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Year ended December 31,
| |  | -----------------------
|
|
|
|
| |  |                        
| |  |                        

| | d. | In
the event that cash dividends are declared in the future, such dividends will
          be paid in New Israeli Shekel (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 14).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 11: |  | NET EARNINGS PER SHARE
|-------- | - | ----------------------

| | The
following table sets forth the computation of basic and diluted net earnings per share:
| | -------------------------------------------------------------------------------------------

| |                                                                         | Year ended December 31,
| | ----------------------------------------------------------------------- | -----------------------
|
|
|
|
| | Numerator:                                                              |                        
| | Net income                                                              |                        
| |                                                                         |                        
| |                                                                         |                        
| | Denominator:                                                            |                        
| | Weighted average number of Ordinary shares outstanding during the year, |                        
| | used to compute basic net earnings per share                            |                        
| | 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  |                        
| | earnings per share                                                      |                        
| |                                                                         |                        
| |                                                                         |                        
| | Basic net earnings per Ordinary share                                   |                        
| |                                                                         |                        
| |                                                                         |                        
| | Diluted net earnings per Ordinary share                                 |                        
| |                                                                         |                        

|NOTE 12: |  | SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION
|-------- | - | ----------------------------------------------

| | a. | The
Company operates under two reportable segments: the Technology Business Unit           (TBU)
and the Networking Business Unit (NBU).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------

| | The
TBU is responsible for the development of enabling technologies for real-time voice and
video over IP. The NBU is responsible for developing networking products for IP-centric
voice, video and data conferencing services. 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 accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies, except for the accounting
policy for share based payments (as described in Note 2q). 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 (recorded in financial statements in accordance with
SFAS 123(R)).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 31

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 12: |  | SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION (Cont.)
|-------- | - | ------------------------------------------------------

| | b. | The
following is information about reported segment gains and losses:
| | -- | ---------------------------------------------------------------------

| |                               | NBU | TBU | Total
| | ----------------------------- | --- | --- | -----
|
|
|
|
| | 2006                          |     |     |      
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| | Patent settlement             |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Stock based compensation      |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Income before taxes on income |     |     |      
| | Tax benefit, net              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net income                    |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      
| |                               |     |    
| | 2005                          |     |    
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Income before taxes on income |     |     |      
| | Tax benefit, net              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net income                    |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      
| |                               |     |    
| | 2004                          |     |    
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net income                    |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      

F - 32

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 12: |  | SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION (Cont.)
|-------- | - | ------------------------------------------------------

| | c. | 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 and distributors.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | The
following represents total revenues according to the end customers location for the
years ended December 31, 2004, 2005 and 2006, and long-lived assets as of December 31,
2005 and 2006 according to their geographic location:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |              | 2004 | 2005 | 2006
| | ------------ | ---- | ---- | ----
|
|
|
|
| | The Americas |      |      | $   
| | Europe       |      |      |     
| | Far East     |      |      |     
| | Israel       |      |      |     
| |              |      |      |     
| |              |      |     
| |              |      |      | $   
| |              |      |      |     

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

| | e. | For
the years ended December 31, 2004, 2005 and 2006, one customer accounted for
          approximately 27.2%, 26.5% and 35.0%, respectively, of the Companys sales
          for that period.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 13: |  | RELATED PARTIES BALANCES AND TRANSACTIONS
|-------- | - | -----------------------------------------

| | a. | Balances
with related parties:
| | -- | ------------------------------

| |                   | December 31,
| | ----------------- | ------------
|
|
|
|
| | Trade receivables |             
| |                   |             
| | Trade payables    |             

F - 33

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 13: |  | RELATED PARTIES BALANCES AND TRANSACTIONS (Cont.)
|-------- | - | -------------------------------------------------

| | b. | Transactions
with related parties:
| | -- | ----------------------------------

| |                                                             | Year ended December 31,
| | ----------------------------------------------------------- | -----------------------
|
|
|
|
| | Revenues (1)                                                |                        
| |                                                             |                        
| | Cost of revenues (3)                                        |                        
| |                                                             |                        
| | Research and development expenses (2)                       |                        
| |                                                             |                        
| | Marketing, selling, general and administrative expenses (2) |                        
| |                                                             |                        
| | Purchase of property and equipment (4)                      |                        

| | (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.
| | --- | ------------------------------------------------------------------------------

|NOTE 14: |  | TAXES ON INCOME
|-------- | - | ---------------

| | a. | Israeli
corporate tax structure:
| | -- | --------------------------------

| | Taxable
income of Israeli companies is subject to tax at the rate of 31% in 2006, 29% in 2007,
27% in 2008, 26% in 2009 and 25% in 2010 and thereafter.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Tax
benefits under the Law for the Encouragement of Capital Investment, 1959           (the
Law):
| | -- | ---------------------------------------------------------------------------------------------------

| | The
Investment Law empowers the Israeli Investment Center to grant Approved Enterprise status
to capital investments in production facilities that meet certain relevant criteria (Approved
Enterprise) 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 14: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | On
April 1, 2005, an amendment to the Investment Law came into effect (the Amendment)
and has significantly changed the provisions of the Investment Law. The Amendment limits
the scope of enterprises which may be approved by the Investment Center by setting
criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions
generally requiring that at least 25% of the Beneficiary Enterprises income will 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 certificate of approval
already granted will remain subject to the provisions of the law as they were on the date
of such approval.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has three capital investment programs that have been granted Approved Enterprise
status, under the Law for Encouragement of Capital Investments, 1959 and a fourth program
under Beneficiary Enterprise status pursuant to the Amendment. Pursuant to the
Beneficiary and Approved programs, the Company is entitled to a tax benefit period of
seven to 10 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 rate of 31% in 2006) for the remaining five to eight years (depending on the
level of foreign ownership of the Company). Based on the percentage of foreign ownership
in the Company, during the year 2006, the Company is entitled to a reduced tax rate of
15% and a period of eight years of a reduced income tax rate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is in the process of converting the third Approved Enterprise program to a
Beneficiary program. As of December 31, 2006, no final approval was received.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. The Companys Approved and Beneficiary
programs expire between the years 2009 and 2017.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Out
of the Companys retained earnings as of December 31, 2006 approximately $ 13,100
are tax-exempt earnings attributable to its Approved Enterprise programs and $ 8,700
are tax-exempt earnings attributable to its Beneficiary Enterprise programs. The
tax-exempt income attributable to the Approved and Beneficiary Enterprise 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 (as of December 31, 2006, this tax rate is 15%). According to the Amendment,
tax-exempt income generated under the Beneficiary Enterprise status will be taxed upon
dividend distribution or complete liquidation, whereas tax exempt income generated under
the Approved Enterprise status 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, 2006, if the income attributed to the Approved Enterprise were
distributed as dividend, the Company would incur a tax liability of approximately $ 2,311
at a rate of 15%, while if income attributed to the Beneficiary Enterprise were
distributed as dividend, including upon liquidation, the Company would incur a tax
liability in the amount of $ 1,535, also at a rate of 15%.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 35

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 14: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | These
amounts will be recorded as an income tax expense in the period in which the Company
declares the dividend.
| | -----------------------------------------------------------------------------------------------------------------

| | The
Companys Board of Directors has determined that the Company will not distribute any
amounts of its undistributed tax-exempt income as 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 Law, the Amendment
and the regulations published thereunder (as applicable), as well as the criteria in the
approval for the specific investments in the Companys Approved Enterprise programs.
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. As of the date of these financial
statements, the Companys management believes that it has complied with these
conditions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | By
virtue of this Law, the Company is entitled to claim accelerated depreciation on
equipment used by the Approved Enterprise during five tax years. The Company chose not to
utilize this benefit in 2006. Income from sources other than the Approved and Beneficiary
Enterprise during the benefit period will be subject to tax at Israels regular
corporate tax rate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Measurement
of taxable income under the Income Tax (Inflationary Adjustments)           Law, 1985:
| | -- | --------------------------------------------------------------------------------------------------

| | Results
for tax purposes are usually measured and reflected in real terms in accordance with the
change in the Israeli Consumer Price Index (CPI). As explained in Note 2b,
the consolidated financial statements are presented in dollars. The differences between
the change in the Israeli CPI and in the NIS/U.S. dollar exchange rate causes a
difference between taxable income or loss and the income or loss before taxes reflected
in the consolidated financial statements. Since January 1, 2006, however, the Company has
elected to measure its taxable income based on the changes in the exchange rate of the
U.S. dollar rather than on the basis of inflation, and the provisions of this law have
not been applicable to the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | The
Company has final tax assessments through the 2002 tax year.
| | -- | ----------------------------------------------------------------

F - 36

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 14: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | e. | Income
taxes on 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 undistributed earnings
as 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | The
Companys U.S. subsidiarys carryforward tax losses through           December
31, 2006, amounted to approximately $ 6,500. These losses may be           offset
against any future U.S. taxable income of the U.S. subsidiary and will           expire
in the years 2020 through 2025. Considering the Companys income
          projections, management concluded based on the weight of available evidence
that           it is more likely than not 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 g 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 limitation 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | 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 are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                   | December 31,
| | ------------------------------------------------- | ------------
|
|
|
|
| | Net operating loss carryforwards                  |             
| | Reserves and allowances                           |             
| | FAS 123(R) - compensation cost                    |             
| | Intangible assets                                 |             
| | Research and development expenses                 |             
| |                                                   |             
| |                                                   |             
| | Net deferred tax asset before valuation allowance |             
| | Valuation allowance                               |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             

F - 37

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 14: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| |                                 | December 31,
| | ------------------------------- | ------------
|
|
|
|
| | Domestic:                       |             
| | Non current deferred tax asset  |             
| |                                 |             
| |                                 |             
| | Foreign:                        |             
| | Current deferred tax asset, net |             
| | Non current deferred tax asset  |             
| |                                 |             
| |                                 |             
| |                                 |             
| |                                 |             
| |                                 |             
| |                                 |             
| |                                 |             

| | The
Companys U.S. subsidiary provided valuation allowances in respect of a portion of
its deferred tax assets since management currently believes that it is not more likely
than not that such portion will be fully realized. During 2006, the valuation allowance,
recorded in the previous years, was partially released in the net amount of $ 2,835,
out of which $ 1,068 was released against the income statement and $ 1,767 was
released to additional paid-in capital as it related to carryforward losses resulting
from past exercise of stock options. In addition, during 2006 the Company wrote-off
carryforward tax losses in the amount of $ 7,452 due to certain reconciliations
performed in the U.S. subsidiarys tax returns filed in the previous years following
the Internal Revenue Service tax assessment and as such wrote-off the related deferred
taxes and valuation allowance in the amount of $ 2,937.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | The
Companys total income before provision for income taxes is as follows:
| | -- | ---------------------------------------------------------------------------

| |                   | Year ended December 31,
| | ----------------- | -----------------------
|
|
|
|
| | Domestic (Israel) |                        
| | Foreign           |                        
| |                   |                        
| |                   |                        
| |                   |                        
| |                   |                        

F - 38

---

---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 14: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | i. | The
tax benefits are comprised as follows:
| | -- | ------------------------------------------

| |                    | Year ended December 31,
| | ------------------ | -----------------------
|
|
|
|
| | Domestic (Israel): |                        
| |                    |                        
| | Current taxes      |                        
| | Deferred taxes     |                        
| | Prior years        |                        
| |                    |                        
| |                    |                        
| | Total domestic:    |                        
| |                    |                        
| |                    |                        
| | Foreign:           |                        
| |                    |                        
| | Current taxes      |                        
| | Deferred taxes     |                        
| | Prior years        |                        
| |                    |                        
| |                    |                        
| | Total foreign:     |                        
| |                    |                        
| |                    |                        
| |                    |                        
| |                    |                        

| | j. | 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
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                           | Year ended December 31,
| | --------------------------------------------------------- | -----------------------
|
|
|
|
| | Income before taxes on income                             |                        
| |                                                           |                        
| |                                                           |                        
| | Theoretical tax expense computed at the statutory rate *) |                        
| | Change in valuation allowance, net                        |                        
| | Tax exempt income due to approved enterprise status **)   |                        
| | Tax benefit for prior years                               |                        
| | Non-deductible stock based compensation                   |                        
| | Non-deductible expenses and others                        |                        
| |                                                           |                        
| |                                                           |                        
| | Actual tax benefit, net                                   |                        
| |                                                           |                        
| |                                                           |                        
| | **) Basic net earnings per Ordinary share                 |                        
| |                                                           |                        
| |                                                           |                        
| | **) Diluted net earnings per Ordinary share               |                        
| |                                                           |                        

| | *) | The
tax rates for domestic income are 35%, 34% and 31% for the years 2004, 2005
               and 2006, respectively. The tax rate for foreign income was 35% for the
years                2004, 2005 and 34% for the year 2006.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 39

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---

|RADVISION LTD. AND ITS SUBSIDIARIES                       
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 15: |  | FINANCIAL INCOME, NET
|-------- | - | ---------------------

| |                                                                            | Year ended December 31,
| | -------------------------------------------------------------------------- | -----------------------
|
|
|
|
| | Financial and other income:                                                |                        
| | Interest income                                                            |                        
| | Exchange rate differences                                                  |                        
| | Accretion of discount net of amortization of marketable securities premium |                        
| |                                                                            |                        
| | Financial and other expenses:                                              |                        
| | Interest expenses                                                          |                        
| | Amortization of marketable securities premium net of accretion of discount |                        
| | Commission and others                                                      |                        
| | Exchange rate differences                                                  |                        
| |                                                                            |                        
| |                                                                            |                        
| |                                                                            |                        
| |                                                                            |                        

F - 40

---

---

RADVISION Ltd. and SubsidiariesSchedule II  Valuation and Qualifying Account

|Column A                                                          | Column B | Column C | Column D | Column E  
|----------------------------------------------------------------- | -------- | -------- | -------- | ----------
|
|
|
|
|Year ended December 31, 2006:                                     |          |          |          |           
|Allowance for doubtful accounts                                   |          |          |          | 734,000   
|Provision for slow-moving
inventory or technological
obsolescence |          |          |          | 895,000   
|Deferred taxes valuation                                          |          |         
|allowances                                                        |          |          |          | 7,150,000 
|                                                                  |          |          |          |           
|Total                                                             |          |          | $        | 8,779,000 
|                                                                  |          |          |          |           
|Year ended December 31, 2005:                                     |          |         
|Allowance for doubtful accounts                                   |          |          |          | 1,276,000 
|Provision for slow-moving                                         |          |         
|inventory or technological                                        |          |         
|obsolescence                                                      |          |          |          | 1,505,000 
|Deferred taxes valuation
allowances                               |          |          |          | 6,181,000 
|                                                                  |          |          |          |           
|Total                                                             |          |          | $        | 8,962,000 
|                                                                  |          |          |          |           
|Year ended December 31, 2004:                                     |          |         
|Allowance for doubtful accounts                                   |          |          |          | 1,704,000 
|Provision for slow-moving
inventory or technological
obsolescence |          |          |          | 2,452,000 
|Deferred taxes valuation                                          |          |         
|allowances                                                        |          |          |          | 6,679,000 
|                                                                  |          |          |          |           
|Total                                                             |          |          | $        | 10,835,000
|                                                                  |          |          |          |           

87

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# 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
Boaz RavivChief Executive Officer
| |  | --------------------------------------------------------------------------------

Dated: June 4, 2007

88

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