---

---

# SECURITIES AND
EXCHANGE COMMISSION
Washington D.C. 20549

# FORM 20-F

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

# OR

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

For the fiscal year ended December 31, 2008

# 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.
(ExactName 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)

Rael Kolevsohn, +972-3-7679394 (phone), +972-3-7679382 (fax)
24 Raoul Wallenberg Street, Tel Aviv 69719, Israel (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person

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

|                                   |                                          
|---------------------------------- | -----------------------------------------
|
|
|
|
|Title of each class                | Name of each exchange on which registered
|Ordinary Shares, NIS 0.1 Par Value | 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 share19,632,713

(as of December 31, 2008)

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 basis
of accounting the registrant has used to prepare the financial          statements
included in this filing:

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

If Other has been checked
in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow:

Item 17 o Item 18 o

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.
333-127013, 333-141654, 333-155442 and 333-155444.

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                                       | 14      
|         | A.       History and Development of the Company                  | 14      
|         | B.       Business Overview                                       | 15      
|         | C.       Organizational Structure                                | 31      
|         | D.       Property, Plants and Equipment                          | 32      
|ITEM 4A. | UNRESOLVED STAFF COMMENTS                                        | 32      
|ITEM 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                     | 32      
|         | A.       Operating Results                                       | 32      
|         | B.       Liquidity and Capital Resources                         | 47      
|         | C.       Research and Development, Patents and Licenses          | 49      
|         | D.       Trend Information                                       | 49      
|         | E.       Off-Balance Sheet Arrangements                          | 50      
|         | F.       Tabular Disclosure of Contractual Obligations           | 50      
|ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                       | 51      
|         | A.       Directors and Senior Management                         | 51      
|         | B.       Compensation                                            | 54      
|         | C.       Board Practices                                         | 55      
|         | D.       Employees                                               | 62      
|         | E.       Share Ownership                                         | 63      
|ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                | 66      
|         | A.       Major Shareholders                                      | 66      
|         | B.       Related Party Transactions                              | 69      
|         | C.       Interests of Experts and Counsel                        | 70      
|ITEM 8.  | FINANCIAL INFORMATION                                            | 70      
|         | A.       Consolidated Statements and Other Financial Information | 70      
|         | B.       Significant Changes                                     | 72      
|ITEM 9.  | THE OFFER AND LISTING                                            | 72      
|         | A.       Offer and Listing Details                               | 72      
|         | B.       Plan of Distribution                                    | 73      
|         | C.       Markets                                                 | 73      
|         | D.       Selling Shareholders                                    | 73      
|         | E.       Dilution                                                | 73      
|         | F.       Expense of the Issue                                    | 73      
|ITEM 10. | ADDITIONAL INFORMATION                                           | 73      
|         | A.       Share Capital                                           | 73      
|         | B.       Memorandum and Articles of Association                  | 73      
|         | C.       Material Contracts                                      | 77      
|         | D.       Exchange Controls                                       | 77      
|         | E.       Taxation                                                | 77      
|         | F.       Dividends and Paying Agents                             | 86      
|         | G.       Statement by Experts                                    | 86      
|         | H.       Documents on Display                                    | 86      
|         | I.        Subsidiary Information                                 | 87      
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS      | 87      
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES           | 88      

iii

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|          |                                                                              |   
|--------- | ---------------------------------------------------------------------------- | --
|
|
|
|
|PART II   |                                                                              | 88
|         
|ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 88
|ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 88
|ITEM 15.  | CONTROLS AND PROCEDURES                                                      | 89
|ITEM 16.  | RESERVED                                                                     | 90
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 90
|ITEM 16B. | CODE OF ETHICS                                                               | 90
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       | 90
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 91
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 91
|ITEM 16F. | CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT                                | 91
|ITEM 16G. | CORPORATE GOVERNANCE                                                         | 92
|         
|PART III  |                                                                              | 92
|         
|ITEM 17.  | FINANCIAL STATEMENTS                                                         | 92
|ITEM 18.  | FINANCIAL STATEMENTS                                                         | 92
|ITEM 19.  | EXHIBITS                                                                     | 93

|                    |   
|------------------- | --
|
|
|
|
|S I G N A T U R E S | 95

iv

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# INTRODUCTION

RADVISION
Ltd., incorporated under the laws of the State of Israel, is a designer, developer and
provider 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. 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 nine
wholly-owned subsidiaries: RADVISION Inc. and its wholly-owned subsidiary RADVISION
Government Services, 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. As used in this annual report, the terms we, us
our, and RADVISION mean RADVISION Ltd. and its subsidiaries,
unless otherwise indicated.

We
have obtained U.S. trademark registrations for RADVISION, V2Oip, CU-SeeMe, SCOPIA,
DELIVERING THE VISUAL EXPERIENCE and ProLab. We have pending U.S. trademark applications
for IMS EXPRESS and MEETING MACHINE. 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,
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.

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, 2008, 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, 2007 and 2008 and for the years ended December 31, 2006, 2007 and 2008 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, 2005 and 2006 and for the years ended December 31, 2004 and 2005 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 audited 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              |                        
|Total operating expenses               |                        
|Operating income (loss)                |                        
|Financial income, net                  |                        
|                                       |                        
|Income (loss) before taxes on income   |                        
|Tax benefit (expense), net             |                        
|                                       |                        
|Net income (loss)                      |                        
|                                       |                        
|Basic net earnings (loss) per Ordinary |                        
|share                                  |                        
|Weighted average number of Ordinary    |                        
|shares used to compute basic net       |                        
|earnings (loss) per share              |                        
|Diluted net earnings (loss) per        |                        
|Ordinary share                         |                        
|Weighted average number of Ordinary    |                        
|shares used to compute diluted net     |                        
|earnings (loss) 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.

Continuing unfavorable national
and global economic conditions could have a material adverse effect on our business,
operating results and financial condition.

The
recent crisis in the financial and credit markets in the United States, Europe and Asia
has led to a global economic slowdown, with the economies of the United States and Europe
showing significant signs of weakness. If the economies in any part of the world continue
to be weak or weaken further, the demand for our products and technology may decrease as a
result of continued constraints on IT-related capital spending by our customers. In
addition, this could result in longer sales cycles, slower adoption of new technologies
and increased price competition for our products. Any of these events would likely harm
our business, operating results and financial condition. If global economic and market
conditions, or economic conditions in the United States, Europe or Asia or other key
markets, remain uncertain, persist, or deteriorate further, our business, operating
results and financial condition may be materially adversely affected.

3

---

---

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.

Cisco
accounted for approximately 35%, 34% and 39% of our sales in 2006, 2007 and 2008,
respectively. Our agreement with Cisco continues on a year to year basis and either party
may terminate the relationship no later than 90 days prior to the expiration of the then
current term. If Cisco 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.

4

---

---

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 client and server software
frameworks and complementary 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.

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

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. and TANDBERG. The principal
competitors in the market for our toolkit business unit products currently include
Aricent, Data Connection Limited, Open Source 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 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, Cisco, IBM, LifeSize, Siemens, Telstra and others. Some of
these companies also purchase 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 open source software 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 freeand HP offers its SIP testing tool (SIPp) for free. Other companies,
including Microsoft and Nokia, may offer similar development kits as part of their product
offerings. 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.

5

---

---

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.

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 
Consolidated Statements and Other 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.

6

---

---

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.

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.

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.

Capital market fluctuations may
decrease the value of our assets and may cause us to incur impairment charges relating to
our investment portfolio.

As
of December 31, 2008, we had $31.4 million in short and long-term marketable securities.
The performance of the capital markets affects the values of funds that are held in
marketable securities. These assets are subject to market fluctuations and will yield
uncertain returns, which may fall below our projected return rates. Due to recent market
developments, including a series of rating agency downgrades, the fair value of these
investments may decline. During 2008, we recorded an other-than-temporary impairment of
marketable securities in the amount of $1.8 million and recorded a loss from sale of
held-to-maturity securities in a loss position in the amount of $73,000. We expect that
market conditions will continue to fluctuate and that the fair value of our investments
may be impacted accordingly.

7

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One
of our primary market risk exposures is to changes in interest rates as a result of our
investment in marketable securities. A decline in market interest rates could have an
adverse effect on our investment income. In a declining interest rate environment,
borrowers may seek to refinance their borrowings at lower rates and, accordingly, prepay
or redeem securities we hold more quickly than we initially expected. This action may
cause us to reinvest the redeemed proceeds in lower yielding investments. An increase in
market interest rates could also have an adverse effect on the value of our investment
portfolio, for example, by decreasing the fair value of the fixed income securities that
comprise a substantial majority of our investment portfolio.

In addition, as of December 31,
2008, we had $3.5 million of principal invested in auction rate securities, or ARS. The
estimated market value of our ARS holdings at December 31, 2008 was $1.7 million, which
reflects a $1.8 million adjustment to the principal value of $3.5 million. Although the
ARS continue to pay interest according to their stated terms, based on external valuation
analysis using the discounted cash flow model and an analysis of other-than-temporary
impairment factors, we recorded an impairment charge of $1.8 million in 2008, reflecting
the portion of ARS holdings that we have concluded have an other-than-temporary decline in
value. If uncertainties in the credit and capital markets continue or these markets
deteriorate further, or if we experience any additional ratings downgrades on any
investments in our portfolio (including on ARS), we may incur additional impairments to
our investment portfolio, which could negatively affect our financial condition, cash flow
and reported earnings.

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. 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.

8

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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. If we are unable to maintain compliance with those
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 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 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.

We depend on a limited number of
manufacturing subcontractors with limited manufacturing capacity, and are exposed to the
risk that these manufacturers may be unable to fulfill our orders on a timely basis and at
the quality specifications that we require. As a result, we may not meet our
customers demands, which could harm our business and results of operations.

We
currently depend on a limited number of contract manufacturers with limited manufacturing
capacity to manufacture our products. The assembly of certain of our finished products,
the manufacture of custom printed circuit boards utilized in electronic subassemblies and
related services are also performed by these independent subcontractors. Reliance on third
party manufacturers exposes us to significant risks, including risks resulting from:

| |  | potential
lack of manufacturing capacity;
| | - | -----------------------------------------

| |  | limited
control over delivery schedules;
| | - | ----------------------------------------

| |  | quality
assurance and control;
| | - | ------------------------------

| |  | manufacturing
yields and production costs;
| | - | ------------------------------------------

| |  | voluntary
or involuntary termination of their relationship with us;
| | - | -------------------------------------------------------------------

| |  | difficulty
in, and timeliness of, substituting any of our contract manufacturers, which could take
              as long as six months or more;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
economic and political conditions in their environment; and
| | - | ---------------------------------------------------------------

| |  | their
financial strength.
| | - | -------------------------

9

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If
the operations of our contract manufacturers are halted, even temporarily, or if they are
unable to operate at full capacity for an extended period of time, we may experience
business interruption, increased costs, loss of goodwill and loss of customers.

In
addition, because we outsource the manufacture of several of our products, we are required
to place manufacturing orders well in advance of the time when we expect to sell these
products. In the event that we order the manufacture of a greater or lesser amount of
these products than we will ultimately require, we are generally obligated to purchase the
surplus products or to forego or delay the sale or delivery of the products that we did
not order in advance. In either case, our business and results of operations may be
adversely affected. Any of these risks could result in manufacturing delays or increases
in manufacturing costs and expenses. There may be an adverse affect on our profitability
and consequently on our results of operations, if we incur increased costs.

We may fail to maintain effective
internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which
could have an adverse effect on our financial results and the market price of our ordinary
shares.

The
Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors.
Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of
2002 governing internal control and procedures for financial reporting, which started in
connection with our 2006 Annual Report on Form 20-F, have resulted in increased general
and administrative expense and a diversion of management time and attention, and we expect
these efforts to require the continued commitment of significant resources. We may
identify material weaknesses or significant deficiencies in our assessments of our
internal control over financial reporting. Failure to maintain effective internal
control over financial reporting could result in investigation or sanctions by regulatory
authorities and could have a material adverse effect on our operating results, investor
confidence in our reported financial information and the market price of our ordinary
shares.

# 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.
| | - | ----------------------------------------------------------------------

10

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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.

There is a substantial risk that
we are a passive foreign investment company, or PFIC, which will subject our U.S.
investors to adverse tax rules.

Holders
of our ordinary shares who are U.S. residents face income tax risks.
There is a substantial risk that we are a passive foreign investment company, commonly
referred to as PFIC. Our treatment as a PFIC could result in a reduction in the after-tax
return to the holders of our ordinary shares and would likely cause a reduction in the
value of such ordinary shares. For U.S. federal income tax purposes, we will be classified
as a PFIC for any taxable year in which either (i) 75% or more of our gross income is
passive income, or (ii) at least 50% of the average value of all of our assets for the
taxable year produce or are held for the production of passive income. For this purpose,
cash is considered to be an asset, which produces passive income. As a result of our
substantial cash position and the decline in the value of our stock, we believe that there
is a substantial risk that we became a PFIC during the taxable year ended December 31,
2008 , under a literal application of the asset test described above, which looks solely
to the market value. If we are classified as a PFIC for U.S. federal income tax purposes,
highly complex rules would apply to U.S. holders owning ordinary shares. Accordingly, you
are urged to consult your tax advisors regarding the application of such rules. United
States residents should carefully read Item 10E. Additional Information 
Taxation, United States Federal Income Tax Consequences for a more complete
discussion of the U.S. federal income tax risks related to owning and disposing of our
ordinary shares.

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.

# Risks Relating to Our
Location in Israel

Political, economic and military
instability in Israel may disrupt our operations and negatively affect our business
condition, harm our results of operations and adversely affect our share price.

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,
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.

11

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Since
the establishment of the State of Israel in 1948, Israel and its Arab neighbors have
engaged in a number of armed conflicts. A state of hostility, varying from time to time in
intensity and degree, has led to security and economic problems for Israel. Major
hostilities between Israel and its neighbors may hinder Israels international trade
and lead to economic downturn. This, in turn, could have a material adverse effect on our
operations and business. 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 2008. The future effect of this deterioration and violence on the Israeli
economy and our operations is unclear. Since January 2006, there has been an escalation in
violence between Israel, the Palestinian Authority and other groups, as well as extensive
hostilities along Israels northern border with Lebanon in the summer of 2006.
Since June 2007, when Hamas effectively took control of the Gaza Strip, there have been
extensive hostilities along Israels border with the Gaza Strip, which have
intensified since February 2008. Ongoing violence between Israel and the Palestinians
as well as tension between Israel and the neighboring Syria and Lebanon may have a
material adverse effect on our business, financial conditions and results of operations.

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.

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 by fluctuations
in the exchange rate between the U.S. dollar and the NIS or if inflation in Israel is
not offset on a timely basis by a devaluation of the NIS 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 related personnel expenses, are in NIS. Therefore, our
NIS related costs, as expressed in U.S. dollars, are influenced by the exchange rate
between the U.S. dollar and the NIS. During 2007 and 2008, the NIS appreciated against the
U.S. dollar, which resulted in a significant increase in the U.S. dollar cost of our NIS
expenses in such periods. We are also 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. In the past, the NIS has 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 or
appreciation 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.

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 two investment programs at our manufacturing
facility and two programs qualify as beneficiary enterprises. 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, is 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 from the
Investment Center, and for our beneficiary enterprises, a pre-ruling that we received from
the Israeli Tax Authority in October 2007. 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.

12

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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.

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.

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. We follow Israeli
law and practice instead of NASDAQ rules regarding the requirement to obtain shareholder
approval for certain dilutive events.

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. We follow Israeli law and practice instead
of The NASDAQ Marketplace Rules regarding the requirement to 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). As a foreign private issuer listed on the NASDAQ Global Market, we may also
follow home country practice with regard to, among other things, the composition of the
board of directors, director nomination process, compensation of officers and quorum at
shareholders meetings. A foreign private issuer that elects to follow a home country
practice instead of NASDAQ 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.
Accordingly, our shareholders may not be afforded the same protection as provided under
NASDAQs corporate governance rules.

13

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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.

|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 that 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 a leading provider of high quality, scalable and easy-to-use products and technologies
for unified visual communication, 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 over 600 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 Italia.
Thousands of enterprises around the world and dozens of telecommunications operators are
using our products, 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.

14

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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. We sell our products and platforms to major vendors, such as Alcatel-Lucent and
Cisco, which then integrate our solutions into their communications platforms and
architectures. These integrated solutions enable the delivery of real-time interactive IP
and 3G-based video telephony services over both broadband connections (such as cable and
DSL) and 3G mobile networks. In addition, since 2006, we offer a complete video
conferencing solution comprised of our network infrastructure products and software
endpoints (SCOPIA Desktop) based on the technology that we acquired in connection with the
our acquisition of First Virtual Communications, Inc., or FVC, and its wholly-owned
subsidiary, CUseeMe Networks, Inc., in March 2005.

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 and IP multimedia subsystem, or IMS, products and solutions. The TBU
provides protocol toolkits, server software platforms and client frameworks, as well as
testing tools that enable equipment vendors to develop and deploy new rich-multimedia
products over IP and 3G-based converged networks, services, and technologies.

Our
TBU solutions include software enabling technology for developers, including toolkits for
SIP, Diameter, NAT Traversal, MEGACO/H.248,A/S-RTP, MGCP, H.323, RTSP (real time streaming
protocol) and 3G-324M, as well as our ProLab® Test Management Suite, eVident
testing tool and our Multimedia Terminal Framework. TBU also offers an IMS development
suite, which extends our existing toolkits to IMS for mobile, fixed and cable
implementations.

Our
toolkits have been used by developers in a wide range of environments from chipsets to
simple user devices like IP, video terminals and IADs (integrated access devices), 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, 2006, 2007 and 2008 were
approximately $2.3 million, $4.2 million and $3.0 million, respectively. These
expenditures were principally for research and development equipment, office furniture and
equipment, leasehold improvements and implementation of an enterprise resource planning
(ERP) system.

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

# Overview and Strategy

We
are a 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 over 600 customers worldwide using our TBU products including, Aethra, Alcatel,
Broadreach, Cisco, Comverse, Huawei, LG Electronics, LifeSize, Microsoft, NTT/DoCoMo,
Orange Telecom, Philips, Samsung, Siemens, Sony and Telecom Italia. Thousands of
enterprises around the world and dozens of telecommunications operators are using our NBU
videoconferencing products, systems and solutions.

15

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Our
goal is to develop and deliver market-leading technologies 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, hardware-based network infrastructure,
software-based desktop solutions, as well as fully integrated solutions that complement
the unified communication solutions of other vendors such as those from Aethra,
Alcatel-Lucent, Cisco, Huawei, IBM, LifeSize, Microsoft and Sony. We believe that our
offering combinations of IP-centric networking products with integrated desktop
conferencing along with software toolkits, positions us as a key enabling vendor in the
evolution of V2IP communications (Video and Voice over IP). 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 technologies for a broad range of IP
and 3G communication products and services. In this regard, in 2008 we announced
additional support for high definition video conferencing including enabling IBMs
Lotus Sametime, Microsofts OCS Communicator and Alcatel-Lucents OmniTouch
with high definition video and connectivity to high definition video room conferencing
systems. We continue to support Ciscos Unified Communications architecture with our
SCOPIA suite of products, including adding a video solution for Cisco Contact
Center. During 2008, we announced the support for bi-directional high definition
capabilities on our SCOPIA Desktop software client. 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 Aethra, Alcatel-Lucent, Cisco, Comverse, LifeSize, Microsoft, Samsung, Sony 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 to maintain our market leadership.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 unified communications technology vendors such as Cisco
and IBM, as well as developing partnerships with leading video conferencing manufacturers
such as Aethra, LifeSize and Sony, to extend video communication from a meeting room
application to a new mode of communication that supports video connectivity and interoperability
for all modes of video communication, including telepresence systems, conference room
systems, desktop and mobile devices. The announcement in 2008 of the integration of our
video conferencing solution into Ciscos Telepresence solution to provide
interoperability to traditional video conferencing systems was a continuation of our
approach in this direction. In 2008, Cisco announced and began deploying desktop video
solutions based on our SCOPIA Desktop technology. Our platforms are key technologies in
all of these solutions and we will continue to work to expand the use of video for
communication throughout the entire enterprise from the conference room, to the desktop
and to remote workers over broadband and mobile networks.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Strengthen
and expand our relationships with our OEM customers. We have established and continue
to maintain collaborative working relationships with many companies in the IP
communication market, including Aethra, Cisco and Lifesize as OEMs and Alcatel-Lucent,
Avistar, Huawei, IBM, Nokia, Samsung, 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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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
MCUs and 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 were the first to offer an
IMS-SIP protocol stack. We continue to be an industry standardization leader through
active participation and chairing of industry standards groups, leading to contributions
to important video technologies such as Firewall/NAT (network address translation)
traversal standardization (H.460.18/19), H.248 video enhancements and emerging IMS
specifications. 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enable
desktop conferencing and communication through strategic partners. We intend 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 telepresence and room
video conferencing vendors such as Aethra, Cisco, LifeSize, Sony and others to extend
their solutions to the desktop through our SCOPIA Desktop technology. We will also
continue to work closely with our unified communications partners such as Alcatel-Lucent,
Cisco, IBM, Microsoft and others to integrate our desktop video technology into their
unified communications offerings such as MyTeamwork, MeetingPlace and Sametime.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 visual 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 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 interactive video platform solutions enables the
development and delivery of real-time video services (both streaming and communications)
to wireless, wireline and broadband mobile users. Our solutions are used by institutions,
enterprises, and application 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.
These are a family of customizable, scalable array of ports, management solutions and
custom functionality with which system integrators can design and quickly deploy a highly
configurable and scalable visual communication network tailored for each clients
individual needs. With the SCOPIA product line, the customer can choose the best port
configuration, management solution and additional applications, with the entire solution
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
high scale 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 application 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 bundle, which 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 standalone
system.

In
addition, the SCOPIA 3G Video Gateway bridges the gap between mobile networks and
wire-line 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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In
March 2005, we acquired FVC and its Click to Meet, or CTM, product family, which 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
client  a web-based client that provides the video-collaboration environment on the
PC.
| | - | ---------------------------------------------------------------------------------------------------

SCOPIA
Desktop was developed as an evolution of the CTM technology. It was designed as a desktop
collaboration tool that extends the reach of room videoconferencing systems to make video
networks accessible to any member of the organization. Using SCOPIA network
infrastructure, team members can collaborate in a multiparty conference regardless of the
device: a high end room conferencing system, a laptop from a branch or a teleworkers
personal computer. Customers and partners can also be included by simply sending a web
link. SCOPIA Desktops built-in firewall traversal ensures call connectivity
regardless of the partners firewall configuration. By utilizing our audio and video
hardware processing, each participant is assured a high quality, low bitrate audio visual
experience. SCOPIA Desktop uses a freely distributable, highly advanced web client. There
are no client software fees, complex installations, license provisioning or software
upgrades.

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 will 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 our
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 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 signaling 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.

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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 are 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 has pioneered the introduction of Voice and Video over IP, or V2oIP, telecom developer
solutions, combining its expertise in signaling and multimedia. We were first to market
with V2oIP developer solutions such as protocol stacks and server platforms. Since our
inception, we have played a leading role in the industry as a member of standardization
boards and interoperability committees. Our solutions are used by hundreds of customers
worldwide and power major parts of todays IP telecom deployments.

TBU Products

Our
telecom developer solutions provide customers with solutions and frameworks at various
levels of integration, from protocol stack software development kits to comprehensive and
flexible server and client solutions over packet and 3G networks supporting IMS (IP
Multimedia Subsystem) and pre-IMS architectures. Our telecom developer solutions assist
application developers to focus on developing their applications and devices while
reducing the overall development and testing effort required, as these solutions offer a
comprehensive standard implementation and feature set. Our developer solutions are
constantly tested for interoperability reducing this effort required by the application
developer to a minimum. As a result, our customers benefit from a reduced time-to-revenue
as they can release products to the market with less development and testing efforts.
Complementing these offerings, our testing and analysis tools (ProLab Testing Suite
and eVident) enable developers, testing laboratories, system integrators and IT
managers to validate and test products, as well as measure multimedia quality on the
network.

Our
global services group, comprised of V2oIP experts in both signaling and media, provides
professional services to assist customers, from quick start, on-site development
assistance to complex turnkey 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.

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| |         RADVISION
SIP Developer Suite. 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 Developer Suite enables the development of products that
require full user/agent functionality. Our SIP Suite 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. 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), PacketCable 2.0 (Cable market) and TISPAN (Telco
networks) as a mandatory part of the IMS architecture for next generation mobile and
fixed networks. Our SIP Developer Suite 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. The SIP Suite was enhanced with new add-ons and
toolkits like XDM, ICE Toolkit and STUN Toolkit to provide our customers with one stop
shop value proposition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         RADVISION
IMS ExpressTM. IMS (IP multimedia subsystem) is a next
generation network architecture that serves fixed-line, cable and cellular networks. For
service providers, application service providers, or ASPs, content providers and
carriers, IMS enables converged service offerings and has been adopted by the worlds
largest carriers. IMS is the cornerstone of converged telecommunications and offers
unique opportunities for the development of next-generation devices and equipment and
converged mobile communications. RADVISION IMS Express provides customers with a complete
IMS developer suite. The suite covers the full range of IMS-ready tools  IMS
signaling protocols (such as IMS SIP, Diameter and IMS Megaco), complementary engines and
packages for IMS services development (such as XDM, MSRP and SIMPLE), IMS server
framework, IMS client framework for terminal development and IMS testing tool.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         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). Our IMS DIAMETER Toolkit is standards-based (IETF, TISPAN and 3GPP), and offers
highly reliable performance.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         RADVISION
NAT Traversal Toolkit. We offer a complete network address translation, or NAT,
traversal solution for developers. The RADVISION NAT Traversal Toolkit is an Internet
Engineering Task Force standards-based Simple Traversal Underneath NAT, or STUN, solution
which is comprised of the latest NAT-related solutions available for SIP, RTSP,
MEGACO/H.248, Diameter and others. We recently launched the ICE Toolkit, which is
comprised of the latest technology for NAT Traversal, and in 2009 we expect to release a
TURN Toolkit that will complement the NAT Traversal Toolkit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |         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 Development 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         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 next generation SIP and IMS-based handheld devices with applications such as
video share, video telephony, VoIP and others, 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. Since the second half of 2008, we have been developing an
advanced technology on top of the Multimedia Terminal Framework, which adds media (i.e.
codecs and media processing algorithms) and an upper layer application that manages and
synchronizes the entire behavior of the client, all in high definition quality, as a
result of which the customer may focus solely on the graphical user interface. This will
provide our TBU customers with a one stop shop solution for advanced multimedia client
and terminals development.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |         RADVISION
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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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.

In
2008, we introduced a new testing tool for the enterprise market, called eVident. eVident
provides enterprise IT and video-conferencing managers with a ready to use and simple tool
to validate the network readiness for video conferencing and measure user experience.
eVident provides a ready-made testing tool for pre and post-deployment scenarios and
serves enterprise IT departments, video conferencing service integrators and service
providers. eVident enables a real-time quality of experience measurement that allows
network administrators to fine-tune network configuration and topology to properly handle
interactive video services.

| |         Advanced
RTP/RTCP Toolkit. The 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TBU Product Benefits

Market
leading technology for standard-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, IMS and 3G-324M

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.

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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 chair the leading interoperability industry organizations  the
          International Multimedia Teleconferencing Consortium and the IMS Forum. In
          addition, we participate in all the major interoperability testing events to
          assure complete interoperability of our products. 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.

One
stop shop.Our solutions include a variety of technology components needed to build an
end product. This includes a combination of signaling, media and application that provides
our customer with a complete solution that speeds up its time to market.

Video
expertise.TBU has gained extensive expertise with video, such as video analysis and
metrics incorporated into ProLab and eVident, video algorithms and codecs embedded in the
client suite. With the increased penetration of video-related products into the market and
the complex perception that developers have of video, our TBU video technology offers a
clear value-added benefit to customers over competing solutions, most of which are still
either voice-centric or enable only basic video.

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.

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.

24

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---

Industry Trends That May
Benefit Our Developer Toolkits

Economic
climate.The recent global financial crisis has resulted in major cutbacks within
engineering development centers. We believe that this in turn may increase the necessity
to outsource development and focus on the core competence and differentiators, which would
benefit our TBU business.

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:

| |  | a
rapid growth in the adoption of IMS (IP multimedia subsystem architecture) for mobile
(3GPP),               fixed (TISPAN) and cable (PacketCable) networks;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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.

25

---

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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;
| | - | --------------------------------------------------------------------------------------

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

26

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| |  | 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.

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.

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 (such as news and sports) 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. The ITU officially adopted our fast call set-up time
amendments to the protocol (MONA), and we were granted a U.S. patent for 3G-324M fast call
set-up.

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 the 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.

27

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# 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. Our major investments
today are in both the client and server markets. For the client market, we are in the
process of developing a comprehensive solution for terminal developers that will offer a
state of the art engine to enable cost effective deployment of video telephony. For the
server market, we are developing a services layer on top of the SIP server product. We
believe that this will increase our customer value proposition, increase our
competitiveness, reduce the customers time to market and allow the customer to focus
on the business and economic benefits rather than invest time and energy in dealing with
the lower layers of a product.

# 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 private
labels.

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
application service providers, or 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, 2007 and 2008, Cisco accounted for approximately 34% and 39%,
respectively, of our sales.

The
following is a representative list of ourmajor customers in 2008:

|                                  |                                                |                                   
|--------------------------------- | ---------------------------------------------- | ----------------------------------
|
|
|
|
|Aethra Ltd                        | Innovation Insigma                             | Seal                              
|Alcatel-Lucent Ltd                | LM Technical Services                          | Shenzen Huawei                    
|Broadreach                        | Logica CMG                                     | Communication Technologies Co Ltd.
|Busch International Ltd.          | Motorola                                       | Shenzen Division Video            
|Cisco                             | NETCONN Solution Corp                          | Telecommunication EGT             
|Computer Science Corporation      | Northrop Grumman                               | Siemens                           
|Comverse                          | NortelLife size                                | Solincom Inc.                     
|Digital China Technology          | NTT                                            | Sony                              
|E-Soft                            | NTT BizLink                                    | Target                            
|France Telecom                    | Research In Motion Limited                     | Takeview                          
|Glovicom                          | Samsung                                        | Zhejiang University               
|Hands on Video Relay Service, Inc | Science Applications International Corporation

28

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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 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, 2008 was 61% in the Americas, 20% in Europe, Middle East and Africa and 19%
in the Asia-Pacific region.

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

RADVISION
won several prestigious awards for our 2008 solution offerings. For the second consecutive
year, VC Insight, a global video conferencing research firm, selected RADVISION as the
Best Unified Communications Company of the Year. In addition, we were also
awarded VC Insights Editors Choice Awards for our SCOPIA Desktop version 5.7
and our SCOPIA Conferencing Platform. Technology Marketing Corporations
(TMC®) INTERNET TELEPHONY magazine (www.itmag.com) named
RADVISIONs Multimedia Terminal Framework product family as a recipient of its 2008
IPTV Excellence Award and also named the SCOPIA video communications platform as one of
the two best video conferencing products of 2007.

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 website 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;
| | - | -----------------------------------------------------------------------------------------

| |  | 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.
| | - | ----------------------------------------------------------------------------

29

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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 Israel, New Jersey, New
Hampshire, California, London, Japan, Korea, India, Spain, France, Germany, 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, expedite hardware replacement 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, suppliers,
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 to 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.

30

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

|Networking Products     | Software Development Kits                 
|----------------------- | ------------------------------------------
|
|
|
|
|   Ericsson            |     Aricent                              
|    Polycom Inc.       |     Data Connection Limited              
|    TANDBERG           |     Dilithium Networks                   
|                        |     M5T                                  
|In the 3G market:       |     Netbrics                             
|    Dilithium Networks |     Trillium Digital Systems, acquired by
|    NMS Communications | Continuous Computing.                     
|                        |     Open source developers and in-house  
|                        | developers employed by manufacturers of   
|                        | telecommunication equipment and systems   

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

# 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, test and integrate our products in a subcontractors
facilities in Israel. We test our products both during and after the assembly process
using internally developed quality assurance testing procedures. We use an enterprise
resource planning, Oracle ERP, system. We believe that the efficiency of our assembly
process to date is largely due to our product architecture and our design for
manufacturability. 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 define 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.

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

We
have nine wholly-owned subsidiaries: RADVISION Inc. and its wholly-owned subsidiary
RADVISION Government Services, 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.

31

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Zohar
Zisapel, the Chairman of our Board of Directors and a principal shareholder of our
company, and Yehuda Zisapel, a principal shareholder of our company, who formerly was a
director and the Chairman of our Board of Directors, are brothers. Individually or
together they are directors and principal shareholders of several other companies which,
together with us and the other subsidiaries and affiliates, are known as the RAD-BYNET
group (although this is not a legal entity). 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 118,000 square feet of leased office space in Tel
Aviv, Israel at an aggregate rental cost of approximately $1.9 million in 2008. The lease
for our principal offices expires in June 2010.  In
the United States, we lease approximately 12,600 square feet of office space in Fair Lawn,
New Jersey under a lease expiring in September 2012, approximately 3,156 square feet in
Sunnyvale, California under a lease expiring in April 2010 and approximately 12,000 square
feet in Bedford, New Hampshire under a lease expiring in February 2011. We also lease
approximately 2,600 square feet in Hong Kong under a lease expiring in May 2009,
approximately 97 square feet in Singapore under a lease expiring in July 2009,
approximately 2,200 square feet in Uxbridge, Middlesex under a lease that we recently
executed that expires in July 2011, approximately 2,133 square feet in China under a lease
expiring in December 2010, approximately 900 square feet in Japan under a lease expiring
in February 2010, approximately 1,200 square feet in France under a lease expiring in
February 2015and approximately 650 square feet in Korea under a lease expiring in
December 2009. The aggregate annual rent for our sales and service offices in the United
States, Hong Kong, China, Japan, Singapore, the United Kingdom, Korea and France was
approximately $1.6 million in 2008.

|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.

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.

32

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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 mainly in U.S. dollars or are linked to the dollar and a majority
of our expenses is 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, or FASB,
Statement of Financial Accounting Standards, or SFAS, 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 one of 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 over 600 customers worldwide, including Aethra,
Alcatel-Lucent, Broadreach, Cisco, Comverse, Huawei, LG Electronics, LifeSize, Microsoft,
NTT/DoCoMo, Orange Telecom, Philips, Samsung, Siemens, Sony, Telecom Italia.

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 Scopia Desktop product line provides a unique highly scalable solution for
desktop video collaboration and is sold as a standalone application as well 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.

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 and suites for SIP, MEGACO/H.248, MGCP, H.323, and 3G-324M. Our
TBU solutions also include 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.

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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. 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 and Estimations

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, investment valuation, inventory valuation, goodwill and
intangible assets, warranty, income tax valuation allowance, tax contingencies and
uncertainties. 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 website 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 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; (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; and (v) 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.

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.

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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 services. 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 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 Statement of Position, or 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 likelihood of losses is identified.

Share-based
payments. On January 1, 2006, we adopted FASB SFAS No. 123 (revised 2004),
Share-Based Payment, or SFAS No. 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 No. 123(R) supersedes
our previous accounting under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, or 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, or SAB 107, relating to SFAS No. 123(R). We have applied the
provisions of SAB 107 in our adoption of SFAS No. 123(R).

SFAS
No. 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 our consolidated statements of operations.

We
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 our
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 SFAS No. 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 SFAS No. 123(R). Results for
prior periods have not been restated. We selected the Black-Scholes model, which is the
most common model in use in evaluating stock options. This model evaluates the options as
if there is a single exercise point, and thus considers and expected option life (expected
term). The input factored in this model is constant for the entire expected life of the
option.

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We
recognize compensation expenses for the value of awards which have graded vesting based on
the straight line method over the requisite service period of each of the awards, net of
estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. The term forfeitures is distinct from
cancellations or expirations and represents only the unvested
portion of the surrendered option.

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 before December
31, 2007 was calculated using the simplified method (expected term = (vesting
term + original contractual term) / 2). The expected term of options granted after
December 31, 2007 was calculated using historical exercise data for share option grants,
except for options which were re-priced, for which the expected term of the options before
the re-pricing was calculated using the binomial method. The risk-free interest rate is
based on the yield from U.S. treasury bonds with an equivalent term. We have not
historically paid dividends and have no foreseeable plans to pay dividends, therefore
estimated dividend yield is 0%. For more information on the assumptions used for the
calculation of the expense refer to Note 2q of our consolidated financial statements.

The
total compensation cost related to options granted to employees under our share-based
compensation plan recognized for the years ended December 31 2006, 2007 and 2008 amounted
to $4.8 million, $5.5 million and $5.4 million, respectively.

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.

Valuation
of Investments. Fair value of marketable securities is estimated using quoted market
prices where available. For securities not actively traded, fair value is estimated using
values obtained from our cash asset managers or an independent valuation firm. To estimate
the value of these investments, the cash asset managers or independent valuation firm
employ various models that take into consideration such factors, among others, as the
credit rating of the issuer, effective maturity of the security, yields on comparably
rated publicly traded securities, availability of insurance and risk-free yield curves.
The actual value at which such securities could actually be sold or settled with a willing
buyer or seller may differ from such estimated fair value depending on a number of
factors, including, but not limited to, current and future economic conditions, the
quantity sold or settled, the presence of an active market and the availability of a
willing buyer or seller.

Based
on our intent with respect to a particular investment at the time of investment, we are
generally required to classify our investments into one of two investment categories under
GAAP: held to maturity or available for sale. The classification
of the investment may affect our reported results. For investments classified as held to
maturity, we are required to carry the investment at amortized cost, with only the
amortization occurring during the period recognized into income. The other than temporary
impairment of available-for-sale securities totaled $0, $379,000 and $1.8 million for the
years ended December 31, 2006, 2007 and 2008, respectively, and such losses were recorded
in financial income, net. The adjustment to unrealized holding losses on
available-for-sale marketable securities was included as a separate component of
shareholders equity, Accumulated other comprehensive income, which
amounted to $0 and $182,000 for the years ended December 31, 2006 and 2007, respectively,
and as a reclassification to statement of operations of other-than-temporary impairment
from available-for-sale marketable securities, net of $182,000 for the year ended December
31, 2008.

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We
regularly review our investments for factors that may indicate that a decline in the fair
value of an investment below its cost or amortized cost is other than temporary. Some
factors considered in evaluating whether or not a decline in fair value is other than
temporary include: (i) our ability and intent to retain the investment for a period of
time sufficient to allow for a recovery in value; (ii) the duration and extent to which
the fair value has been less than cost; and (iii) the financial condition and prospects of
the issuer. Such reviews are inherently uncertain in that the value of the investment may
not fully recover or may decline further in future periods resulting in realized losses.

We
adopted FASB SFAS 157, Fair Value Measurements, or SFAS No. 157, as of
the beginning of fiscal year 2008.  In February 2008, FASB issued FASB Staff
Position No. FAS 157-2, Effective Date of FASB Statement No. 157 , which provides a one
year deferral of the effective date of SFAS No. 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually.  Therefore, we have only adopted the
provisions of SFAS 157 with respect to our financial assets and
liabilities.  SFAS No. 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements.  Fair value is defined under SFAS No.
157 as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement
date.  Valuation techniques used to measure fair value under SFAS No. 157 must
maximize the use of observable inputs and minimize the use of unobservable
inputs.  The adoption of this statement did not have a material impact on our
consolidated results of operations and financial condition.  See Note 4,
Fair Value Measurements, to our consolidated financial statements.

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. Goodwill and intangible assets that resulted from the
acquisitions of FVC and VisioNex are allocated to the NBU segment and the goodwill
impairment testing is performed at the reporting unit level. 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, 2008, 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. In addition, we have compared our market capitalization based upon our
closing share price as reported by NASDAQ, including an estimated control premium that an
investor would be willing to pay for a controlling interest in us, to the fair value of
our company based on the third party valuation study.  The determination of a
control premium requires the use of judgment and is based primarily on comparable industry
and deal-size transactions, related synergies and other benefits.

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In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we perform tests for impairment of long-lived assets whenever
events or circumstances suggest that other long-lived assets may not be
recoverable.  This analysis differs from our goodwill analysis in that an
impairment is only deemed to have occurred if the sum of the forecasted undiscounted
future cash flows related to the assets are less than the carrying value of the asset we
are testing for impairment.  If the forecasted cash flows are less than the carrying
value, then we are required to write down the carrying value to its estimated fair value
based primarily upon forecasted discounted cash flows.  Based on the impairment test
performed as of December 31, 2008, no impairment was identified.

These
forecasted undiscounted cash flows include estimates and assumptions related to revenue
growth rates and operating margins, future economic and market conditions and
determination of appropriate market comparables.  Our estimates of market segment
growth and our market segment share and costs are based on historical data, various
internal estimates and certain external sources, and are based on assumptions that are
consistent with the plans and estimates we are using to manage the underlying
business.  Our business consists of both established and emerging technologies, and
our forecasts for emerging technologies are based upon internal estimates and external
sources rather than historical information. If future forecasts are revised, they may
indicate or require future impairment charges. We base our fair value estimates on
assumptions we believe to be reasonable but that are unpredictable and inherently
uncertain.  Actual future results may differ from those estimates.

Deferred
Taxes and Uncertain Tax Positions. We utilize the liability method of accounting for
income taxes. We record a valuation allowance to reduce our deferred tax assets to the
amount that we believe is more likely than not to be realized. In assessing the need for a
valuation allowance, we consider all positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning
strategies, and recent financial performance. Forming a conclusion that a valuation
allowance is not required is difficult when there is negative evidence such as cumulative
losses in recent years. As a result of our cumulative losses in the United States and the
full utilization of our loss carryforward opportunities, we have recorded valuation
allowances to reduce our net deferred tax assets to the amount we believe is more likely
than not to be realized. During 2008, part of this valuation allowance was reduced against
income tax expense. In the future, if we realize a deferred tax asset that currently
carries a valuation allowance, we may record additional reduction to income tax expense in
the period of such realization.

In
July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109, or FIN 48, which requires
income tax positions to meet a more-likely-than-not recognition threshold to be recognized
in the financial statements. FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to
measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon settlement. As a multinational corporation, we are subject to taxation in
many jurisdictions, and the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax laws and regulations in various taxing
jurisdictions. If we ultimately determine that the payment of these liabilities will be
unnecessary, we reverse the liability and recognize a tax benefit during the period in
which we determine the liability no longer applies. Conversely, we record additional tax
charges in a period in which we determine that a recorded tax liability is less than we
expect the ultimate assessment to be. The application of tax laws and regulations is
subject to legal and factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of changes in fiscal policy,
changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability for U.S. or foreign taxes may be materially different from our estimates,
which could result in the need to record additional tax liabilities or potentially reverse
previously recorded tax liabilities.

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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, support services and professional services. We price our
networking products on a per unit basis. 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, the Middle East 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, related overhead and depreciation and amortization. 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, subcontractors,
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.

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.

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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, other than
temporary impairment of auction rate securities, amortization of marketable securities
premium net of accretion of discounts and realized gain or loss from redemption of
marketable securities.

# Results of Operations

The
following discussion of our results of operations for the years ended December 31, 2006,
2007 and 2008, 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 (loss)    |             
| | Financial income, net      |             
| | Tax benefit (expense), net |             
| |                            |             
| | Net income (loss)          |             
| |                            |             

# Year Ended December 31,
2008 Compared with Year Ended December 31, 2007

Revenues.
          Revenues decreased by 7.5% from $91.6 million for the year ended December 31,
          2007 to $84.7 million for the year ended December 31, 2008. This decrease in
          revenues was primarily attributable to lower sales of solutions for 3G-based
          networks, Click to Meet products and TBU sales in 2008 compared to 2007. In
          2008, we decided to reduce our investment in the 3G mobile market, which
          resulted in lower sales of 3G solutions compared to 2007. In addition, our
          revenues from Click to Meet as a standalone product decreased compared to 2007
          due to lower demand.

Revenues
from networking products decreased by 5.7% from $68.3 million for the year ended December
31, 2007 to $64.4 million for the year ended December 31, 2008. The decrease in revenues
from networking products was primarily attributable to a decrease in sales of solutions
for 3G-based networks and our Click to Meet solution, which decrease was offset in part by
an increase in sales to Cisco channels.

Revenues
from technology products decreased by 12.4% from to $23.3 million for the year ended
December 31, 2007 to $20.4 million for the year ended December 31, 2008. The decrease in
revenues from technology products was attributable to a $1.2 million decrease in software
license fees, a $0.8 million decrease in revenues from maintenance and a $1.0 million
decrease in revenues from professional services.

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Revenue
from sales to customers in the Americas decreased from $54.9 million, or 59.9% of revenue,
for the year ended December 31, 2007 to $52 million, or 61.4% of revenue, for the year
ended December 31, 2008, a decrease of $2.9 million, or 5.3%. The decrease in sales to
customers in the Americas was primarily attributable to decreased sales to our non-Cisco
channels, which decrease was offset in part by an increase in sales to Cisco.

Revenue
from sales to customers in Europe, the Middle East and Africa, or EMEA, decreased from
$19.9 million, or 21.7% of revenue, for the year ended December 31, 2007 to $17.0 million,
or 20.1% of revenue, for the year ended December 31, 2008, a decrease of $2.9 million, or
14.6%. The decrease in sales to customers in EMEA was primarily attributable to a decrease
in sales of our networking products to the 3G market.

Revenue
from sales to customers in the Asia-Pacific region decreased from $16.7 million, or 18.2%
of revenue, for the year ended December 31, 2007 to $15.7 million, or 18.6% of revenue,
for the year ended December 31, 2008, a decrease of $1.0 million, or 6.0%. The decrease in
sales to customers in the Asia-Pacific region is primarily attributable to a decrease in
sales of our networking products.

Cost
of Revenues. Cost of revenues increased from $18.3 million for the year ended December
31, 2007 to $18.8 million for the year ended December 31, 2008, an increase of $0.5
million, or 2.7%. Gross profit as a percentage of revenues was 80.0% for the year ended
December 31, 2007 as compared to 77.8% for the year ended December 31, 2008. Cost of
revenues for the years ended December 31, 2007 and 2008 includes $411,000 and $384,000,
respectively, of stock-based compensation recorded under SFAS No. 123(R).

Research
and Development Expenses. Research and development expenses increased from $30.3
million for the year ended December 31, 2007 to $36.9 million for the year ended December
31, 2008, an increase of $6.6 million, or 21.8%. The increase in research and development
expenses was primarily attributable to an increase in the research and development
personnel engaged in the execution of the strategic plan that we announced at the
beginning of 2008 to reassert our technology leadership with a focus on the enterprise
market. The dollar cost of our Israeli personnel expenses also increased in 2008 as a
result of the appreciation of the NIS against the U.S. dollar in such period. Research and
development expenses as a percentage of revenues increased from 33.1% for the year ended
December 31, 2007 to 43.5% for the year ended December 31, 2008. Research and development
expenses for the years ended December 31, 2007 and 2008 include $1.7 million and $1.5
million, respectively, of stock-based compensation recorded under SFAS No. 123(R). We
anticipate that research and development expenses will decrease in 2009 as a result of a
decrease in research and development personnel as a part of our cost-cutting measures.

Marketing
and Selling Expenses. Marketing and selling expenses increased from $32.6 million for
the year ended December 31, 2007 to $35.3 million for the year ended December 31, 2008, an
increase of $2.7 million, or 8.3%. The increase in marketing and selling expenses was
primarily attributable to the increased dollar cost of our Israeli personnel expenses as a
result of the appreciation of the NIS against the U.S dollar in such period. Marketing and
selling expenses as a percentage of revenues increased from 35.6% for the year ended
December 31, 2007 to 41.7% for the year ended December 31, 2008. Marketing and selling
expenses for the years ended December 31, 2007 and 2008 include $2.0 million and $1.8
million, respectively, of stock-based compensation recorded under SFAS No. 123(R). We
anticipate that marketing and selling expenses will decrease in 2009 as a result of a
decrease in marketing and selling personnel as part of our cost-cutting measures.

General
and Administrative Expenses. General and administrative expenses increased from $8.6
million for the year ended December 31, 2007 to $9.0 million for the year ended December
31, 2008, an increase of $0.4 million, or 4.7%. The increase in general and administrative
expenses was primarily attributable to increased labor expenses mainly due to increased
expenses related to the dollar cost of our Israeli personnel expenses as a result of the
appreciation of the NIS against the U.S. dollar. General and administrative expenses as a
percentage of revenues increased from 9.4% for the year ended December 31, 2007 to 10.6%
for the year ended December 31, 2008. General and administrative expenses for the years
ended December 31, 2007 and 2008 include $1.3 million and $1.7 million, respectively, of
stock-based compensation recorded under SFAS No. 123(R).

41

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Financial
Income, Net.Financial income, net decreased from $6.1 million for the year ended
December 31, 2007 to $2.5 million for the year ended December 31, 2008. The decrease was
primarily attributable to a decrease in the interest rates on securities, bonds and bank
deposits. Financial income, net includes $379,000 and $1.8 million other than temporary
impairment of available for sale securities in 2007 and 2008, respectively. In addition,
in 2008 auction rate securities classified as available for sale were redeemed at par
value in the amount of $600,000, as a result of which net income in the amount of $376,000
was recorded as financial income, net. Financial income in 2007 and 2008 was primarily
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, which was
offset in part by the use of cash to repurchase our ordinary shares.

Tax
Benefit (Expense), Net. For the year ended December 31, 2007, we recorded an income
tax benefit of approximately $1.8 million. The benefit was primarily derived froman increase in deferred income taxes assets of approximately $2.4 million, reversing
prior years tax benefit of approximately $250,000, offset in part by $800,000 of
current taxes. For the year ended December 31, 2008, we recorded an income tax expense of
approximately $280,000.  The expense was primarily derived from current tax expenses
of approximately $690,000 and prior years tax expenses of approximately $357,000,
offset by a $767,000 benefit resulting from an increase in deferred income tax assets.

# Year Ended December 31,
2007 Compared with Year Ended December 31, 2006

Revenues.
          Revenues increased by 0.7% from $91.0 million for the year ended December 31,
          2006 to $91.6 million for the year ended December 31, 2007. The increase in
          revenues was attributable to a $1.5 million increase in sales of our networking
          products, which was offset by a decrease of $0.9 million in sales of our
          technology products. The results primarily reflect increased sales in the
          Americas and Asia-Pacific regions, offset by a decrease in sales in Europe and
          the Middle East regions.

Revenues
from networking products increased by 2.2% from $66.8 million for the year ended December
31, 2006 to $68.3 million for the year ended December 31, 2007. The increase in revenues
from networking products was primarily attributable to increased sales to non- Cisco
channels in the Americas.

Revenues
from technology products decreased by 3.7% from to $24.2 million for the year ended
December 31, 2006 to $23.3 million for the year ended December 31, 2007. The decrease in
revenues from technology products was attributable to a $1.2 million decrease in software
license fees from approximately $8.5 million in 2006 to approximately $7.3 million in
2007.

Revenue
from sales to customers in the Americas increased from $52.5 million, or 57.7% of revenue,
for the year ended December 31, 2006 to $54.9 million, or 59.7% of revenue, for the year
ended December 31, 2007, an increase of $2.4 million, or 4.6%. The increase in sales to
customers in the Americas was primarily attributable to increased sales to the federal
market and non- Cisco channels.

Revenue
from sales to customers in Europe and the Middle East decreased from $23.1 million, or
25.4% of revenue, for the year ended December 31, 2006 to $19.9 million, or 21.7% of
revenue, for the year ended December 31, 2007, a decrease of $3.2 million, or 13.9%. The
decrease in sales to customers in Europe and the Middle East was primarily attributable to
decreased sales of our networking products to the third generation market.

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Revenue
from sales to customers in the Asia-Pacific region increased from $15.4 million, or 17.0%
of revenue, for the year ended December 31, 2006 to $16.7 million, or 18.2% of revenue,
for the year ended December 31, 2007, an increase of $1.3 million, or 8.4%. The increase
in sales to customers in the Asia Pacific region is primarily attributable to increased
sales of our networking products.

Cost
of Revenues. Cost of revenues increased from $18.2 million for the year ended December
31, 2006 to $18.3 million for the year ended December 31, 2007, an increase of $0.1
million, or 0.5%. Gross profit as a percentage of revenues remained constant at 80.0% for
the years ended December 31, 2006 and 2007. Cost of revenues for the years ended December
31, 2006 and 2007 includes $373,000 and $411,000, respectively, of stock-based
compensation recorded under SFAS No. 123(R).

Research
and Development Expenses. Research and development expenses increased from $25.3
million for the year ended December 31, 2006 to $30.3 million for the year ended December
31, 2007, an increase of $5.0 million, or 19.8%. The increase was primarily attributable
to increased expenses related to the dollar cost of our Israeli personnel expenses as a
result of the appreciation of the NIS against the U.S. dollar in 2007 and an increase in
contractors expenses. Research and development expenses as a percentage of revenues
increased from 27.8% for the year ended December 31, 2006 to 33.1% for the year ended
December 31, 2007. Research and development expenses for the years ended December 31, 2006
and 2007 include $1.5 million and $1.7 million, respectively, of stock-based compensation
recorded under SFAS No. 123(R).

Marketing
and Selling Expenses. Marketing and selling expenses increased from $30.6 million for
the year ended December 31, 2006 to $32.6 million for the year ended December 31, 2007, an
increase of $2.0 million, or 6.5%. The increase was primarily attributable to an increase
in the number of sales and marketing personnel. Marketing and selling expenses as a
percentage of revenues increased from 33.7% for the year ended December 31, 2006 to 35.6%
for the year ended December 31, 2007. Marketing and selling expenses for the years ended
December 31, 2006 and 2007 include $1.9 million and $2.0 million, respectively, of
stock-based compensation recorded under SFAS No. 123(R).

General
and Administrative Expenses. General and administrative expenses increased from $6.5
million for the year ended December 31, 2006 to $8.6 million for the year ended December
31, 2007, an increase of $2.1 million, or 32.3%. The increase was primarily attributable
to an increase in legal expenses, the number of general and administrative personal and
the dollar cost of our Israeli personnel expenses as a result of the appreciation of the
NIS against the U.S. dollar in 2007. General and administrative expenses as a percentage
of revenues increased from 7.1% for the year ended December 31, 2006 to 9.4% for the year
ended December 31, 2007. General and administrative expenses for the years ended December
31, 2006 and 2007 include $1.0 million and $1.3 million, respectively, of stock-based
compensation recorded under SFAS No. 123(R).

Patent
settlement reserve. For the year ended December 31, 2006, we recorded a $1.9 million
patent settlement reserve relating to a claim we received in 2005 from Avistar
Communications Corporation, a U.S. developer of video technologies, alleging that we
infringed on ten of their patents. We did not record a patent settlement reserve in 2007.

Financial
Income, Net.Financial income, net increased from $5.8 million for the year ended
December 31, 2006 to $6.1 million for the year ended December 31, 2007. The increase was
primarily a result of higher prevailing interest rates, which was offset by a one-time
impairment of auction rate securities in the amount of approximately $380,000. Financial
income in 2006 and 2007 was primarily 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, which was offset in part by the use of cash to repurchase our
ordinary shares.

Tax
Benefit (Expense), Net. 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. For the
year ended December 31, 2007, we recorded an income tax benefit of approximately $1.8
million. The benefit was primarily derived froman increase in deferred income
taxes assets of approximately $2.4 million, reversing prior years tax benefit of
approximately $250,000, offset in part by $800,000 of current taxes.

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# Consolidated Balance
Sheet Data

Trade
Receivables. Trade receivables decreased from $15.0 million at December 31, 2007 to
$14.1 million at December 31, 2008, a decrease of $0.9 million, or 6%. This decrease was
primarily attributable to the decrease in revenues.

Allowance
for Doubtful Accounts. Allowance for doubtful accounts increased from $0.8 million at
December 31, 2007 to $0.9 million at December 31, 2008, an increase of $0.1 million, or
12.5%. Allowance for doubtful accounts as a percentage of trade receivables increased from
5.1% as of December 31, 2007 to 6.2% as of December 31, 2008.

Other
Receivables and Prepaid Expenses. Other receivables and prepaid expenses decreased
from $8.5 million at December 31, 2007 to $6.1 million at December 31, 2008, a decrease of
$2.4 million, or 28.2%. This decrease was primarily attributable to a decrease in prepaid
rent expenses, receivables from governmental authorities and deferred tax asset.

Inventories.
          Inventories decreased from $1.7 million at December 31, 2007 to $1.2 million at
          December 31, 2008, a decrease of $0.5 million, or 29.4%. The number of inventory
          days outstanding decreased from approximately 35 days at December 31, 2007 to
          approximately 21 at December 31, 2008.

Trade
Payables. Trade payables decreased from $2.4 million at December 31, 2007 to $2.1
million at December 31, 2008, a decrease of $0.3 million, or 12.5%.

Other
Payables, Accrued Expenses and Deferred Revenues. Other payables, accrued expenses and
deferred revenues increased from $19.4 million at December 31, 2007 to $24.7 million at
December 31, 2008, an increase of $5.3 million, or 27.3%. This increase was primarily
attributable to an increase in payments to employees and related accruals, as well as an
increase in deferred revenues and accrued expenses for subcontractors and other vendors.

# 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. See Item 3.D.
Key Information  Risk Factors  Risks Relating to Our Location in
Israel for a description of governmental, economic, fiscal, monetary or political
polices or factors that have materially affected or could materially affect our
operations.

# 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.

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Israel
and the European Union Community, known 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

Most
of our revenues are in dollars or are linked to the dollar, while a portion of our
expenses, principally salaries and related personnel expenses, are in NIS. Therefore, 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, the dollar cost of our operations in Israel increase. If the
dollar cost of our operations in Israel increases, our dollar-measured results of
operations will be adversely affected.

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

|Year ended
December 31, | Israeli inflation
rate % | NIS devaluation
(appreciation)
rate % | Israeli inflation
adjusted for
devaluation
(appreciation) %
|----------------------- | ------------------------ | ------------------------------------- | -----------------------------------------------------------
|
|
|
|2004                    |                          |                                       |                                                            
|2005                    |                          |                                       |                                                            
|2006                    |                          |                                       |                                                            
|2007                    |                          |                                       |                                                            
|2008                    |                          |                                       |                                                            

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. During 2007 and 2008, the NIS appreciated against the U.S. dollar, which
resulted in a significant increase in the U.S. dollar cost of our NIS expenses.

Because
exchange rates between the NIS and the dollar fluctuate continuously 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.

To
manage this risk, from time to time, we have entered into forward exchange contracts to
hedge some of our foreign currency exposure. As of December 31, 2008, we had outstanding
forward exchange contracts for the acquisition of NIS 89 million in consideration for $23
million maturing in a period of up to one year from that date. As of December 31, 2008,
the changes in fair value of these contracts are $348,000.

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# Recently Issued
Accounting Standards

In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements, or SFAS 160. SFAS 160 amends ARB 51, Consolidated
Financial Statements, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It
also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in
the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 also changes the way the consolidated income statement is presented
by requiring consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated statement of income, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interest.
SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated and requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the parent
owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is
effective for fiscal periods, and interim periods within those fiscal years, beginning on
or after December 15, 2008. The adoption of SFAS 160 is not expected to have a material
effect on our consolidated financial statements.

In
December 2007, the FASB issued SFAS 141(revised), Business
Combinations, or SFAS 141(R). SFAS 141(R) replaces SFAS No. 141,
Business Combinations, and requires an acquirer to recognize the assets
acquired, the liabilities assumed, including those arising from contractual contingencies,
any contingent consideration, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited exceptions
specified in the statement. SFAS 141(R) also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step acquisition) to recognize
the identifiable assets and liabilities, as well as the noncontrolling interest in the
acquiree, at the full amounts of their fair values (or other amounts determined in
accordance with SFAS 141(R)). In addition, SFAS 141(R)s requirement to measure the
noncontrolling interest in the acquiree at fair value will result in recognizing the
goodwill attributable to the noncontrolling interest in addition to that attributable to
the acquirer. SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The adoption of SFAS 141(R) is not
expected to have a material effect on our consolidated financial statements.

In
February 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 157-2,
Effective Date of FASB Statement No. 157., or FSP No. FAS 157-2.
The Staff Position defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008 for nonfinancial assets and nonfinancial liabilities except for items
that are recognized or disclosed at fair value on a recurring basis at least annually, and
amends the scope of SFAS 157. We adopted SFAS 157 and the related FASB staff positions
except for those items specifically deferred under FSP No. FAS 157-2. We are
currently evaluating the potential impact, if any, of the adoption of FSP No.
FAS 157-2 on our consolidated financial statements.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an Amendment of FASB Statement No.
133, or SFAS 161. SFAS 161 changes the disclosure requirements for derivative
instruments and hedging activities. SFAS 161 requires entities to provide enhanced
disclosures about how and why an entity uses derivative instruments; how derivative
instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations; and how derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. We are currently evaluating the impact, if any, that SFAS 161 may
have on our financial condition and results of operations. Our adoption of SFAS 161 will
change our disclosures for derivative instruments and hedging activities beginning in
2009.

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In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful
Life of Intangible Assets,or FSP FAS 142-3. FSP FAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under FASB
SFAS No. 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and
early adoption is prohibited. We are currently evaluating the potential impact, if any, of
the adoption of FAS 142-3 on our consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
AccountingPrinciples, or SFAS No. 162. SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are presented in
conformity with U.S. GAAP. SFAS No. 162 will be effective from November 13, 2008. We do
not expect the adoption of SFAS No. 162 to have a material impact 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. Since our initial public offering in March
2000, we have satisfied our financial requirements primarily through cash generated by
operations and funds generated by our initial public offering (approximately $78.5 million
net proceeds).

As
of December 31, 2008, we had approximately $37.9 million in cash and cash equivalents,
$66.4 million in short term investments, and our working capital was approximately $99
million. Taking into account long-term investments, we had approximately $121.3 million in
cash and investments as of December 31, 2008. We believe that our working capital is
sufficient for our present requirements. In addition, we believe that we can meet our day
to day operating expenses and material commitments for the next 12 months.

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
were62 days at December 31, 2007 compared to 61 days atDecember 31, 2008.

Capital
expenditures for the years ended December 31, 2006, 2007 and 2008 were approximately $2.3
million, $4.2 million and $3.0 million,respectively. These expenditures were
principally for research and development equipment, office furniture and equipment and
implementation of an enterprise resource planning (ERP) system in 2007. 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 provided by (used in) investing activities  |                        
| | Net cash used in 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           |                        

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Net
cash provided by operating activities was approximately $5.9 millionfor the year
ended December 31, 2008. This amount was primarily attributable to net loss of $12.9
million adjusted for depreciation and amortization expenses of $3.9 million, stock-based
compensation of $5.4 million recorded under SFAS No. 123(R), a decrease of $0.5 million in
inventory, a $1.5 million increase of deferred revenues, a $0.9 million decrease in trade
receivables, a $2.0 million decrease in other receivables and prepaid expenses and a $1.8
million decrease in accrued interest. These adjustments to net income were offset in part
by an increase of $0.8 million in deferred tax assets. Net cash provided by operating
activities was approximately $9.9 million for the year ended December 31, 2007. This
amount was primarily attributable to net income of $9.6 million adjusted for depreciation
and amortization expenses of $3.6 million, stock-based compensation of $5.4 million
recorded under SFAS No. 123(R) and a decrease of $1.3 million in inventory. These
adjustments to net income were offset in part by an increase of $2.4 million in deferred
tax assets, a $1.9 million decrease of deferred revenues and $2.1 million increase in
trade receivables.

Net
cash used in investing activities was approximately $2.6 million for the year ended
December 31, 2008. Of the cash used in investing activities in the year ended December 31,
2008, approximately $3.0 million was used for purchases of property and equipment, offset
by approximately $0.4 million provided by proceeds from investments in bank deposits and
marketable securities. Net cash provided by investing activities was approximately $32.4
million for the year ended December 31, 2007. Of the cash provided by investing activities
in the year ended December 31, 2007, approximately $36.5 million, net was provided by
proceeds from investments in bank deposits and marketable securities, offset by
approximately $4.2 million that was used for purchases of property and equipment.

Net
cash used in financing activities was approximately $10.7 million for the year ended
December 31, 2008. Of the cash used in financing activities, $11.1 million was used for
the repurchase of our companys shares, offset by a $0.4 million tax benefit arising
from the exercise of non-qualified employee options. Net cash used in financing activities
was approximately $20.0 million for the year ended December 31, 2007. Of the cash used in
financing activities, $27.0 million was used for the repurchase of our companys
shares, offset by $6.9 million of proceeds received from the exercise of employee options.

During
the second quarter of 2006, we announced that our Board of Directors had 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, 2007, we had repurchased
1,631,724 ordinary shares under the program at a total purchase price of approximately $30
million, or an average price of $18.37 per share and we completed this program.

During
the third quarter of 2007, we announced that our Board of Directors had authorized the
repurchase of up to an additional $30 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 November 2007 in accordance with the
requirements of the Israeli Companies Law. As of December 31, 2008, we had repurchased
1,978,483 ordinary shares under the program at a total purchase price of approximately
$15.0 million, or an average price of $7.67 per share.

As
of December 31, 2008, we had reissued 726,697 of the repurchased ordinary shares in
connection with the exercise of employee stock options.

As
of December 31, 2008, 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.

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|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, 2006, 2007 and 2008 was $25.3 million, $30.3
million and $36.7 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, 2008, our research and development staff consisted of approximately 230
employees compared to 217 as of December 31, 2007. We reducedthe number of our
research and development employees during the latter part of 2008 and early 2009 as part
of our cost-cutting initiatives. 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 five registered U.S. patents relating to various aspects of interactive multimedia
communications. During 2008, we were awarded four new U.S. patents and filed two new
patent applications with the U.S. Patent and Trademark Office covering protocols and
techniques to improve multi-media communications. We also filed four patent applications
for some of such patentsin other countries patent offices.

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

Revenues
increased from $91.0 million for the year ended December 31, 2006 to $91.6 million for the
year ended December 31, 2007, an increase of 0.7%. This increase was primarily due to
increased sales of our networking products. Revenues decreased to $84.7 million for the
year ended December 31, 2008, a decrease of 7.5%, as a result decreased sales in all
regions, primarily due to lower sales of solutions for 3G-based networks and Click to Meet
product sales in 2008. In 2008, we decided to reduce our investment in the 3G mobile
market, which resulted in lower sales of 3G solutions compared to 2007. In addition, our
revenues from Click to Meet as a standalone product decreased compared to 2007 due to
lower demand. If global economic and market conditions, or economic conditions in the
United States or other key markets, remain uncertain, persist, or deteriorate further, the
demand for our products and technology may decrease in 2009.

Research
and development expenses increased from $25.3 million for the year ended December 31, 2006
to $30.3 million for the year ended December 31, 2007, an increase of $5 million or 19.8%,
to $36.9 million for the year ended December 31, 2008, an increase of $6.6 million, or
21.8%. The increase in research and development expenses in 2007 was primarily
attributable to increased expenses related to the dollar cost of our Israeli personnel
expenses as a result of the appreciation of the NIS against the U.S. dollar in 2007 and an
increase in contractors expenses. The increase in research and development expenses
in 2008 was primarily attributable to an increase in the research and development
personnel engaged in the execution of the strategic plan that we announced at the
beginning of 2008 to reassert our technology leadership with a focus on the enterprise
market. The dollar cost of our Israeli personnel expenses also increased in 2008 as a
result of the appreciation of the NIS against the U.S. dollar in such period. We
anticipate that research and development expenses will decrease in 2009 as a result of a
decrease in research and development personnel as a part of our cost-cutting measures.

49

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General
and administrative expenses increased from $6.5 million for the year ended December 31,
2006 to $8.6 million for the year ended December 31, 2007, an increase of $2.1 million, or
32.3%, to $9.0 million for the year ended December 31, 2008, an increase of $0.4 million,
or 4.7%. The increase in general and administrative expenses in 2007 was primarily
attributable to an increase in legal expenses, the number of general and administrative
personal and the dollar cost of our Israeli personnel expenses as a result of the
appreciation of the NIS against the U.S. dollar in 2007. The increase in general and
administrative expenses in 2008 was primarily attributable to the increased dollar cost of
our Israeli personnel expenses as a result of the appreciation of the NIS against the U.S
dollar in such period. We anticipate that general and administrative expenses will
decrease in 2009 as a result of a decrease in general and administrative personnel as part
of our cost-cutting measures.

|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, 2008 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       |                       
|Uncertain income tax position (*) |                       
|Accrued severance pay (**)        |                       
|                                  |                       
|Total                             |                       
|                                  |                       

|
|

|(*) | Under
FASB Interpretation No. 48, Accounting for Uncertainty in
                    Income Taxes, or FIN 48, uncertain income tax position is
due upon                     settlement and we are unable to reasonably estimate the
ultimate amount or                     timing of settlement. See Note 15 to the
consolidated financial statements for                     further information regarding
our potential liability under FIN 48.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(**) | Severance
pay relates to accrued severance obligations to our Israeli employees
                    as required under Israeli labor law. We are legally required to pay
severance                     upon certain circumstances, primarily termination of
employment by our company                     and retirement or death of the respective
employee and other than in certain                     circumstances, there is no
obligation to pay severance if the employee                     voluntarily resigns. Of
this amount, $1.3 million is unfunded.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

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|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)     |     |         
|Boaz Raviv            |     |         
|Adi Sfadia            |     |         
|Joseph Atsmon (1) (2) |     |         
|Liora Lev (2)         |     |         
|Yoseph Linde (2)      |     |         
|Efraim Wachtel        |     |         

|
|

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

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

Messrs.
          Zohar Zisapel and Efraim Wachtel, Class C directors, will serve as directors
          until our 2010 annual general meeting of shareholders. Our Class A and Class B
          director categories are currently vacant. Mr. Joseph Atsmon will serve as an
          outside director pursuant to the Israeli Companies Law for a second three-year
          term until our 2009 annual general meeting of shareholders, Ms. Liora Lev will
          serve as an outside director pursuant to the Israeli Companies Law for an
          initial three-year term until our 2009 annual general meeting of shareholders,
          and Dr. Yoseph Linde will serve as an outside director pursuant to the Israeli
          Companies Law for an initial three-year term, until our 2011 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 primarily in the 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. and Ceragon Networks Ltd. Mr. Zisapel holds a B.Sc. degree from the Technion 
Israel Institute of Technology and an 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.

Adi
Sfadia has served as our chief financial officer since July 30, 2008. Mr.
Sfadia served as our Vice President of Finance from mid-2007 until January 2008, when he
joined Alvarion Ltd., a WiMAX and wireless broadband solutions provider. Mr. Sfadia joined
us in 2004 as corporate controller. Prior thereto, Mr. Sfadia served in several senior
financial positions in Israeli companies, where he gained wide financial and managerial
experience. Mr. Sfadia served five years in a public accounting position with Kost Forer
Gabbay & Kasierer, a member of Ernst & Young Global. Mr. Sfadia holds a B.A.
degree in Business Administration and an M.B.A. degree (magna cum laude) from The College
of Management in Tel Aviv and Rishon Lezion, and he is a Certified Public Accountant 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 and Ceragon Networks Ltd. since July
2001. 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.

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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). In addition, Ms. Lev serves as the chief executive
officer and as a director of Advanced Technology Acquisition Corporation (publicly traded
on the American Stock Exchange, symbol: AXC), positions she has held since August, 2006.
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 an 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.

Dr. Yoseph Linde has served as an outside director (within the
          meaning of the Israeli Companies Law) since August 2008 and is a member of our
          audit committee. Dr. Linde currently serves as general partner of Jerusalem
          Global Ventures, or JGV, a venture capital fund specializing in early
          investments in start-up companies providing products for Internet
          infrastructure, a position that he has held since 1999.   Dr. Linde
          also serves as a director of LocationNet Ltd. and Lumus Ltd., portfolio
          companies of JGV.  JGV manages three parallel funds (Israel and
          Cayman).  Dr. Linde is a general partner and director of two of the funds
          (CommLaunch Holdings and NetLaunch Holdings) and is also a director of the
          management company (JGV). From 1993 until 1999, Dr. Linde was the founder and
          chairman of LANart Corporation, a company acquired by Communications Systems
          Inc. in 1999. From 1983 until 1993, Dr. Linde was the founder and chairman of
          Chipcom Corporation, a public company acquired by 3Com in 1995. From 1982 until
          1983, Dr. Linde held the position of Professor at the School of Engineering of
          Boston University. Dr. Linde holds a B.Sc. degree in electrical engineering from
          the Technion  Israel Institute of Technology, a M.Sc. degree in electrical
          engineering from Tel-Aviv University, and a Ph.D in electrical engineering from
          Stanford University.

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 served as 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
|---------------- | --- | --------
|
|
|
|
|Rael Kolevsohn   |     |         
|Zeev Bikowsky    |     |         
|Avishai Sharlin  |     |         
|Ilan Givon       |     |         
|Roberto Giamagli |     |         
|Eitan Livne      |     |         
|David Ruby       |     |         

Rael
Kolevsohn has served as our Vice President and General Counsel since
August, 2007. Prior to joining our company and from 1998 to 2007,
Mr. Kolevsohn served as Vice President and General Counsel of Gilat Satellite Networks
Ltd., a leading global provider of products and services for satellite based
communications networks. From 1994 to 1998, Mr. Kolevsohn completed his legal internship
and worked as an associate at the Tel Aviv law firm of Yosiffof, Amir, Cohen & Co. Mr.
Kolevsohn holds an LLB, with honors, from the Hebrew University of Jerusalem and is a
member of the Israel Bar Association.

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Zeev
Bikowsky has served as our General Manager, Networking Business Unit since
November, 2007. Between March 2006 and November 2007, Mr. Bikowsky served as our General
Manager, Technology Business Unit. 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 an MBA degree from
Boston University.

Avishai
Sharlinhas served as our General Manager, Technology Business Unit since
November 2007. Prior to joining our company and from 1996, Mr. Avishai was founder and
chief executive officer of Xor Technologies. Prior thereto and from 1994, Mr. Sharlin
served as the head of the networking and telecommunications business in Open Solution
Center at IBM Israel.  Mr. Sharlin holds a B.Sc. in Mathematics, Computer Science,
Sociology and anthropology from Bar-Ilan 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 (subsequently 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.

Roberto
Giamaglihas served as General Manager for our Europe, Middle East and
Africa operations since January 2008. Mr. Giamagli has over 18 years of international
sales and management experience in the voice, video and data communications industry.
Prior to joining our company and from 1989, Mr. Giamagli served as a vice president, sales
and vice president, marketing at Aethra spa, where he established and expanded a direct
and indirect sales team. Mr. Giamagli holds a B.Sc. degree in Computer Science from Pisa
University, Italy.

Eitan
Livne has served as 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. Mr. Livne holds a B.Sc. degree in Exact
Sciences from Tel Aviv University, Israel.

David
Ruby has served as General Manager for our operations in the Americas since
May 2008. Mr. Ruby is a highly experienced executive, whose 30 year career spans the high
technology industry through numerous entrepreneurial activities, in which he has held
positions in the Americas, Europe and Australia. In 2007, Mr. Ruby served as General
Manager and Chief Customer Officer of Codian, Ltd, including six months aiding in the
transition to TANDBERG following its acquisition by TANDBERG. Prior to that, Mr. Ruby has
held a number of other senior executive positions, including chief executive officer of
Tennyson Networks, VP of Worldwide Sales of Madge Networks, Director Worldwide Product
Sales of Western Digital and Regional Manager of Storage Technology Corporation.

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|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 during the year ended
December 31, 2008.

|Name and Principal Position                        | Salaries, fees,
commissions and
bonuses | Pension, retirement and other similar
benefits
|-------------------------------------------------- | --------------------------------------- | ----------------------------------------------
|
|
|
|
|All officers and directors as a group (11 persons) |                                         |                                               

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

As
of December 31, 2008, our directors and executive officers as a group, consisting of seven
persons, held options to purchase an aggregate of 744,687 ordinary shares, having exercise
prices ranging from $4.7 to $20.17. Generally, the options vest over a four-year period.
The options will expire between October 1, 2010 and January 3, 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 with respect to a director, within 12 months after
termination or resignation from such office. 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 Plan.

At
our 2008 annual general meeting, our shareholders resolved to pay to each of our outside
directors compensation in the form of the minimum annual fee and per meeting attendance
fee applicable to our company set forth from time to time in the Israeli Companies
Regulations (Rules Regarding Compensation and Expenses to Outside Directors), 2000, as
amended (currently, NIS 45,000 ($11,836) per year and NIS 1,590 ($418) per meeting
attended). In addition, the shareholders approved the grant to each of our outside
directors of options to purchase 30,000 ordinary shares, exercisable at $6.78 per share
(the closing price of our ordinary shares on the NASDAQ Global Market on the last trading
date prior to the date of the meeting). The options will vest quarterly over three years,
commencing in the case of Ms. Lev and Ms. Atsmon on May 14, 2006 (the date of the
appointment of Ms. Lev for an initial three year term as outside director and the
appointment of Mr. Atsmon for a second three year term as outside director), and in the
case of Mr. Linde, from the date of our 2008 shareholders meeting. In addition, the
shareholders resolved to modify the terms of options granted to directors such that the
exercise period of such options (including previously granted options) be extended from
thirty days to 12 months after the termination of their service or their resignation from
office as a director.

According
to regulations adopted under the Israeli Companies Law, the terms of compensation of an
outside director (within the meaning of Israeli law) must be set and agreed to prior to
the commencement of each three-year term of service of an outside director and may not be
modified during the three year term other than to conform to the terms of a newly
appointed outside director. Furthermore, all of the outside directors must receive the
same remuneration. At a meeting of our shareholders held on June 8, 2003, at which Mr.
Atsmon was elected to serve as our outside director for an initial three year term, our
shareholders also approved the payment to Mr. Atsmon of a service fee equal to the highest
applicable annual remuneration and per meeting attendance fee as provided by Israeli law
from time to time. Mr. Atsmon was never paid his remuneration in accordance with such
resolution and the following year, our shareholders approved the grant to Mr. Atsmon of
options to purchase 50,000 of our ordinary shares. In 2006, at the meeting approving his
election as an outside director for a second three-year term, our shareholders approved
the grant to Mr. Atsmon of options to purchase an additional 37,500 of our ordinary
shares. At the same meeting in 2006, our shareholders approved the appointment of Ms. Lev
as our second outside director for an initial term of three years and resolved to grant
her options to purchase 30,000 of our ordinary shares.

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Since
the grants of options to Mr. Atsmon and Ms. Lev described in the preceding paragraph did
not comply with the Israeli regulations relating to outside director compensation, upon
their consent, the previous grants were cancelled and they each agreed to waive any rights
that they may have had pursuant to such grants. Upon the appointment of Mr. Linde, all of
our outside directors were granted the options as described above for their services as
outside directors.In addition, we paid Mr. Atsmon the remuneration that our
shareholders resolved to pay him at the shareholders meeting in 2003 for his first three
year term of service as an outside director (between the years 2003 and 2006), in the
aggregate amount of NIS 155,985 ($45,747) (constituting approximately NIS 42,245 per year
($12,390) and NIS 1,625 per meeting attended ($477)). (For further information, see Note
11(d), Shareholders Equity, to our consolidated financial statements)

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.

|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 five
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. At our 2008 annual general meeting, our shareholders approved
an amendment to our articles of association under which we are permitted to create a
vacancy in one of the three director classes at any given time. Our Class A and
Class B director categories are currently vacant.

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. The Israeli Companies Law requires Israeli companies with shares that have
been offered to the public in or outside of Israel to appoint at least two outside
directors. No person may be appointed as an outside director if the person or the
persons relative, partner, employer or any entity under the persons control,
has or had, on or within the two years preceding the date of the persons appointment
to serve as outside director, any affiliation with the company or any entity controlling,
controlled by or under common control with the company. The term affiliation
includes:

| |  | an
employment relationship;
| | - | ---------------------------

| |  | a
business or professional relationship maintained on a regular basis;
| | - | ----------------------------------------------------------------------

| |  | control;
and
| | - | ------------

| |  | service
as an office holder.
| | - | ----------------------------

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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 an outside director or may otherwise interfere with the persons
ability to serve as an outside director. If, at the time an outside director is to be
appointed, all current members of the board of directors are of the same gender, then at
least one outside director must be of the other gender.

A
person is qualified to serve as an outside director only if he or she has accounting
and financial expertise or professional qualifications, as such terms
are defined under regulations promulgated under the Israeli Companies Law. At least one
outside director must have accounting and financial expertise. However,
Israeli companies listed on certain stock exchanges outside Israel, including The NASDAQ
Global Market, such as the Company, 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 qualifications.

Any
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 of 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.

Outside
directors are elected by a majority vote at a shareholders meeting, provided that
either:

| |  | the
majority of shares voted at the meeting in favor of their election include at least
one-third of the shares held by non-controlling shareholders that voted at the meeting
(not including abstentions); or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
total number of shares held by non-controlling shareholders voted against the election of
the outside director does not exceed one percent of the aggregate voting rights in the
company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
initial term of an outside director is three years and may be extended for an additional
three years. However, Israeli companies listed on certain stock exchanges outside Israel,
including the NASDAQ Global Market, such as our company, 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
may be removed from office only by the same percentage of shareholders as is required for
their election, or by a court, and then only if the outside directors cease to meet the
statutory qualifications for their appointment or if they violate their duty of loyalty to
the company. Each committee of a companys board of directors must include at least
one outside director and the audit committee must include all the outside directors.

Our
Board of Directors has three outside directors under Israeli law. Mr. Joseph Atsmon and
Ms. Liora Lev, both of whom have accounting and financial expertise, and Dr.
Yoseph Linde, who has professional expertise, as such terms are defined under
the Israeli Companies Law. Mr. Atsmon was elected to serve as an outside director for an
initial three year term in 2003 and was elected to serve as an outside director for an
additional three-year term at our 2006 annual general meeting of shareholders. Ms. Lev was
elected to serve as an outside director for an initial three year term at our 2006 annual
general meeting of shareholders. Dr. Yoseph Linde was elected to serve as an outside
director for an initial three year term at our 2008 annual general meeting of
shareholders.

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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.

Pursuant
to a recent amendment to the Israeli Companies Law, an Israeli company whose shares are
publicly traded, may elect to adopt a provision in its articles of association pursuant to
which a majority of its board of directors will constitute individuals complying with
certain independence criteria prescribed by the Israeli Companies Law. We have not
included such a provision in our articles of association since our board of directors
complies with the independent director requirements of the NASDAQ Marketplace Rules
described above.

Independent
directors of our company meet at least twice a year in an 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 Linde
qualifies as an independent director under the requirements of the Securities and Exchange
Commission and NASDAQ. Ms. Lev and Messrs. Atsmon and Linde are also our outside directors
within the meaning of the Israeli Companies Law.

# 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, Liora Lev and Yoseph Linde. 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.

57

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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 Plan). 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. Ilan Chaikin, Certified Public Accountant, at Chaikin,
Cohen, Rubin and Duvshani.

# 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.

# Approval of Related
Party Transactions Under Israeli Law

Fiduciary Duties of
Office Holders

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, other manager directly subordinate
to the general manager or any other person assuming the responsibilities of any of the
foregoing positions without regard to such persons title. An office holders
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care
requires an office holder to 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 appropriateness of a given action
brought for his approval or performed by him by virtue of his position and (ii) all other
information of importance pertaining to the foregoing actions. The duty of loyalty
includes (i) avoiding any conflict of interest between the office holders position
in the company and any other position he holds or his personal affairs, (ii) avoiding any
competition with the companys business, (iii) avoiding exploiting any business
opportunity of the company in order to receive personal gain for the office holder or
others, and (iv) disclosing to the company any information or documents relating to the
companys affairs that the office holder has received due to his 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.

Disclosure of Personal
Interests of an Office Holder

The
Israeli Companies Law requires that an office holder promptly, and no later than the first
board meeting at which such transaction is considered, disclose any personal interest that
he or she may have and all related material information known to him or her and any
documents in their possession, in connection with any existing or proposed transaction by
us. In addition, if the transaction is an extraordinary transaction, that 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, the office holder must also disclose any personal interest held by the office
holders spouse, siblings, parents, grandparents, descendants, spouses
descendants and the spouses of any of the foregoing, or by any corporation in which the
office holder or a relative is a 5% or greater shareholder, director or general manager or
in which he or she has the right to appoint at least one director or the general manager.

58

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Approval of Transactions with
Office Holders

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.

Some
transactions, actions and arrangements involving an office holder (or a third party in
which an office holder has an interest) must be approved by the board of directors or as
otherwise provided for in a companys articles of association, however, a
transaction that is adverse to the companys interest may not be approved. In some
cases, such a transaction must be approved by the audit committee and by the board of
directors itself, and under certain circumstances shareholder approval may be required. A
director who has a personal interest in a transaction that is considered at a meeting of
the board of directors or the audit committee may not be present during the board of
directors or audit committee discussions and may not vote on the transaction, unless the
transaction 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 of directors or the audit committee have a
personal interest, then the approval of the general meeting of shareholders is also
required.

Disclosure of Personal Interests of
a Controlling Shareholder; Approval of Transactions with Controlling Shareholders

The
disclosure requirements which apply to an office holder also apply to such transaction
with respect to his or her personal interest in the transaction. The Israeli Companies
Law provides that an extraordinary transaction with a controlling shareholder or an
extraordinary transaction with another person in whom the controlling shareholder has a
personal interest or a transaction with a controlling shareholder or his relative
regarding terms of service and employment, must be approved by the audit committee, the
board of directors and shareholders. The shareholder approval for such a transaction must
include at least one-third of the shareholders who have no personal interest in the
transaction who voted on the matter (not including abstentions). The transaction can be
approved by shareholders without this one-third approval if the total holdings of those
shareholders who have no personal interest and voted against the transaction do not
represent more than one percent of the voting rights in the company.

Under
the Companies Regulations (Relief from Related Party Transactions), 5760-2000,
promulgated under the Israeli Companies Law, as amended, certain extraordinary
transactions between a public company and its controlling shareholder(s) do not require
shareholder approval. Such extraordinary transactions must be approved by both the audit
committee and board of directors. In addition, under such regulations, directors compensation
and employment arrangements in a public company do not require the approval of the
shareholders if both the audit committee and the board of directors agree that such
arrangements are solely for the benefit of the company. Also, employment and compensation
arrangements for an office holder that is a controlling shareholder of a public company
do not require shareholder approval if certain criteria are met. The foregoing exemptions
from shareholder approval 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 use of these exemptions 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 pursuant to
the requirements of the Israeli Securities Law. If such objection is duly and timely
submitted, then the transaction or compensation arrangement of the directors will require
shareholders approval as detailed above.

59

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In
addition, a private placement of securities that will (i) cause a person to become a
controlling shareholder or (ii) increase the relative holdings of a shareholder that
holds 5% or more of the companys outstanding share capital, or (iii) will cause any
person to become, as a result of the issuance, a holder of more than 5% of the companys
outstanding share capital in 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 nor under market terms, requires approval by the board
of directors and the shareholders of the company. Other than as described, under Israeli
law private placements require the approval of the board of directors.

The
Israeli Companies Law provides that an acquisition of shares in a public company must be
made by means of a tender offer if as a result of the acquisition the purchaser would
become a 25% or greater shareholder of the company. This rule does not apply if there is
already another 25% or greater shareholder of the company. Similarly, the Israeli
Companies Law provides that an acquisition of shares in a public company must be made by
means of a tender offer if as a result of the acquisition the purchaser would hold
greater than a 45% interest in the company, unless there is another shareholder holding
more than a 45% interest in the company. These requirements do not apply if, in general,
the acquisition was made in a private placement that received shareholder approval, (i)
was from a 25% or greater shareholder of the company which resulted in the acquirer
becoming a 25% or greater shareholder of the company, if there is not already a 25% or
greater shareholder of the company, or (ii) was from a shareholder holding a 45% interest
in the company which resulted in the acquirer becoming a holder of a 45% interest in the
company if there is not already a 45% or greater shareholder of the company.

If,
as a result of an acquisition of shares, the acquirer will hold more than 90% of a public
companys outstanding shares or a class of shares, the acquisition must be made by
means of a tender offer for all of the outstanding shares or a class of shares. If less
than 5% of the outstanding shares are not tendered in the tender offer, all the shares
that the acquirer offered to purchase will be transferred to the acquirer. The Israeli
Companies Law provides for appraisal rights if any shareholder files a request with the
court within three months following the consummation of a full tender offer. If more than
5% of the outstanding shares are not tendered in the tender offer, then the acquirer may
not acquire shares in the tender offer that will cause his shareholding to exceed 90% of
the outstanding shares.

# 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 concerning a
distribution, a such term is defined under the Israeli Companies Law.

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;
| | - | ---------------------------------------------------------------------------------

60

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| |  | 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
legal 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
legal 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | any
act or omission done with the intent to unlawfully yield a personal gain; 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. At our 2007 annual general
meeting of shareholders, our shareholders approved a new form of indemnification
agreement, which indemnifies the office holders to the fullest extent permitted under the
Israeli Companies Law as currently in effect. We have obtained directors and officers
liability insurance for the benefit of our office holders.

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

As
of December 31, 2008, we had 442 employees worldwide, of whom 230 were employed in
research and development, 133 in sales and marketing, 31 in management and administration
and 48 in operations. Of such employees, 248 were based in Israel, 95 in the Americas, 81
in the Asia-Pacific region and 18 in Europe. We reduced the number of our employees
during the latter part of 2008 and early 2009 as part of our cost-cutting initiatives.

As
of December 31, 2007, we had 437 employees worldwide, of whom 217 were employed in
research and development, 140 in sales and marketing, 35 in management and administration
and 45 in operations. Of such employees, 242 were based in Israel, 93 in the Americas, 81
in the Asia-Pacific region and 21 in Europe.

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.

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 17.43% of wages, of which the employee contributes
approximately 69.0% and the employer contributes approximately 31.0%. 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.

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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.

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

# Beneficial Ownership of
Executive Officers and Directors

The
following table and the footnotes thereto contain information as of March 25, 2009
regarding the beneficial ownership of our ordinary shares by each of our directors and
executive officers.

| | Name           | Number of ordinary
shares (1) | Percentage of
outstanding
ordinary
shares (2)
| | -------------- | ----------------------------- | ---------------------------------------------
|
|
|
|
| | Zohar Zisapel  |                               |                                              
| | Boaz Raviv     |                               |                                              
| | Adi Sfadia     |                               |                                              
| | Joseph Atsmon  |                               |                                              
| | Liora Lev      |                               |                                              
| | Yoseph Linde   |                               |                                              
| | 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 19,427,880 ordinary shares issued and
               outstanding (which excludes 3,088,343 ordinary shares held as treasury
stock) as                of March 25, 2009.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes
(i) 3,148,235 ordinary shares owned of record by Mr. Zohar Zisapel;                (ii)
101,250 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, options to purchase 45,000 ordinary shares have an exercise
price of                $5.085 per share and expire in June 2012, options to purchase
26,250 ordinary                shares have an exercise price of $19.59 per share and
expire in July 2013 ;                (iii) 1,121,097 ordinary shares owned of record by
Lomsha Ltd., an Israeli                company controlled by Mr. Zohar Zisapel; (iv)
310,856 ordinary shares owned of                record by Michael and Klil Holdings (93)
Ltd., an Israeli company controlled by                Mr. Zohar Zisapel; and (v) 187,213
ordinary shares owned of record by RAD Data                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) | Subject
to currently exercisable options, with exercise prices ranging between           $4.7 and
$20.17, and expiration dates ranging between October 1, 2010 and           January 3,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Stock Option Plan

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 sufficient authorized share capital, provides for 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
7,530,233 ordinary shares under the 2000 Plan.

Type
of Options. Awards under the 2000 Plan may be granted pursuant to Section 102 of the
Israeli Income Tax Ordinance [New Version], 1961, or the Israeli Tax Ordinance, Section
3.(9) of the Israeli Tax Ordinance, and 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 2000 Plan, subject to the ratification of the Board of Directors. Subject to the
provisions of the 2000 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 2000 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
2000 Plan 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | interpret
the provisions of the 2000 Plan; and
| | - | ----------------------------------------------

| |  | prescribe,
amend, and rescind rules and regulations relating to the 2000 Plan 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
(as such term is defined in the 2000 Plan) of such share on the date of the award;
provided, however, that in the case of an award of an incentive stock option 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 of such share on the date of the award.

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Option
Period. 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 2000 Plan 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, 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 2000 Plan, 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 2000 Plan nor the change of control of our company, except to the
extent provided in the 2000 Plan, will affect any option previously granted.

On
November 25, 2008, we commenced a tender offer to eligible employees (other than our
directors, chief executive officer, chief financial officer, president and senior
officers who report to the chief executive officer) to exchange outstanding options to
purchase ordinary shares issued under our 2000 Plan having an exercise price of $7.50 or
more per share, for replacement options issued under our 2000 Plan that entitle the
holder to purchase the same number of our ordinary shares at an exercise price equal to
the greater of (i) $7.50 per share and (ii) the per share closing price of our ordinary
shares on the NASDAQ Global Market on the date the replacements options are granted.
Pursuant to the exchange offer that expired on December 24, 2008, we accepted for
exchange eligible options to purchase an aggregate of 1,276,950 ordinary shares that had
been granted under the 2000 Plan and granted new options to purchase an aggregate of
1,276,950 ordinary shares, under the 2000 Plan. The new options have an exercise price
equal to $7.5 and have a vesting schedule as described in the tender offer documents.

A
summary of the status of the 2000 Plan as of December 31, 2006, 2007 and 2008, and
changes during the years ended on those dates, is presented below:

65

---

---

|                       | Year ended December 31,
|---------------------- | -----------------------
|
|
|
|
|Options outstanding at |                        
|the beginning of the   |                        
|year                   |                        
|Granted                |                        
|Exercised              |                        
|Cancelled              |                        
|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 261,875 ordinary shares granted to directors of
                    our company and our former chief executive office outside of the 2000
Plan,                     pursuant to the approval of our shareholders.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Including
options to purchase 241,250 ordinary shares granted to directors of
                    our company outside of the 2000 Plan, pursuant to the approval of our
                    shareholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Including
options to purchase 377,500 ordinary shares granted to directors of
                    our company outside of the 2000 Plan, pursuant to the approval of our
                    shareholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Including
options to purchase 340,625 ordinary shares granted to directors of
                    our company outside of the 2000 Plan, pursuant to the approval of our
                    shareholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The
weighted average exercise price of the options outstanding at the beginning
                    of year was adjusted as a result of the option exchange offering.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

The
following table sets forth certain information, as of the date of March 25, 2009,
regarding the beneficial ownership by all shareholders known to us to own beneficially
more than 5% of our ordinary shares.

66

---

---

|Name                                 | Number of ordinary
shares beneficially
owned (1) | Percentage of
outstanding
ordinary
shares (2)
|------------------------------------ | ------------------------------------------------ | ---------------------------------------------
|
|
|
|
|Zohar Zisapel                        |                                                  |                                              
|Yehuda Zisapel                       |                                                  |                                              
|Royce & Associates, LLC              |                                                  |                                              
|Renaissance Technologies LLC         |                                                  |                                              
|Clough Capital Partners L.P.         |                                                  |                                              
|TimesSquare Capital Management, LLC  |                                                  |                                              
|Systematic Financial Management, L.P |                                                  |                                              

---

|(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 19,427,880 ordinary shares issued and
                    outstanding (which excludes 3,088,343 ordinary shares held as
treasury stock) as                     of March 25, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
(i) 3,148,235 ordinary shares owned of record by Mr. Zohar Zisapel;
                    (ii) 101,250 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, options to purchase 45,000 ordinary
shares have an exercise price of                     $5.085 per share and expire in June
2012, options to purchase 26,250 ordinary                     shares have an exercise
price of $19.59 per share and expire in July 2013; (iii)                     1,121,097
ordinary shares owned of record by Lomsha Ltd., an Israeli company
                    controlled by Mr. Zohar Zisapel; (iv) 310,856 ordinary shares owned
of record by                     Michael and Klil Holdings (93) Ltd., an Israeli company
controlled by Mr. Zohar                     Zisapel; and (v) 187,213 ordinary shares
owned of record by RAD Data                     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
upon a Schedule 13G/A filed with the Securities and Exchange Commission on
                    January 21, 2009. Includes: (i) 751,901 ordinary shares owned of
record by Mr.                     Yehuda Zisapel; (ii) 402,836 ordinary shares owned of
record by RADbit Inc., an                     Israeli company wholly-owned by Mr. Yehuda
Zisapel; and (iii) 187,213 ordinary                     shares owned of record by RAD
Data Communications Ltd., an Israeli company. Mr.                     Yehuda Zisapel is a
principal shareholder and a director of RAD Data                     Communications Ltd.
Mr. Yehuda Zisapel and his brother, Mr. Zohar Zisapel, have                     shared
voting and dispositive power with respect to the shares held by RAD Data
                    Communications Ltd.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G/A filed with the Securities and Exchange Commission on January
30, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G filed with the Securities and Exchange Commission on February 12,
2009. The                     Schedule 13G reflects that the shares are deemed
beneficially owned by James H.                     Simons due to his controlling interest
in Renaissance Technologies LLC.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G/A filed with the Securities and Exchange Commission on February
10, 2009.                     The Schedule 13G/A reflects that the shares include shares
beneficially owned by                     investment companies, pooled investment
vehicles and other accounts for which                     Clough Capital 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

67

---

---

|(8) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G/A filed with the Securities and Exchange Commission on January
31, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Based
solely upon, and qualified in its entirety with reference to, a Schedule
                    13G/A filed with the Securities and Exchange Commission on February
14, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Significant Changes in
the Ownership of Major Shareholders

As
of December 31, 2005, Mr. Zohar Zisapel, the Chairman of our Board of Directors,
beneficially owned 2,295,487, or 10.3%, of our ordinary shares, in accordance with a
Schedule 13G/A filed with the SEC on February 14, 2006. As of December 31, 2006, Mr.
Zohar Zisapel beneficially owned 2,590,050, or 11.7%, of our ordinary shares, in
accordance with a Schedule 13G/A filed with the SEC on February 14, 2007. On August 26,
2008, Mr. Zohar Zisapel filed a Schedule 13D with the SEC reflecting beneficial ownership
of 3,229,332, or 15.93% of our ordinary shares. On September 9, 2008, Mr. Zohar Zisapel
filed a Schedule 13D/A with the SEC reflecting beneficial ownership of 3,530,518, or
17.54 % of our ordinary shares. On November 18, 2008, Mr. Zohar Zisapel filed a Schedule
13D/A with the SEC reflecting beneficial ownership of 4,164,501, or 20.94% of our
ordinary shares. On November 24, 2008, Mr. Zohar Zisapel filed a Schedule 13D/A with the
SEC reflecting beneficial ownership of 4,375,127, or 22.08% of our ordinary shares. On
December 17, 2008, Mr. Zohar Zisapel filed a Schedule 13D/A with the SEC reflecting
beneficial ownership of 4,544,901, or 23.15%f our ordinary shares. On February 24, 2009,
Mr. Zohar Zisapel filed a Schedule 13D/A with the SEC reflecting beneficial ownership of
4,844,079, or 24.77%, of our ordinary shares.

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
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 6 ,2007, Clough Capital Partners L.P., or Clough Capital, filed a Schedule 13G
with the SEC reflecting ownership of 1,146,473, or 5.15%, of our ordinary shares. On
February 11, 2008, Clough Capital filed with the SEC an amendment to the Schedule 13G, on
Schedule 13G/A, reflecting ownership of 1,255,373, or 5.52%, of our ordinary shares. On
February 10, 2009, Clough Capital filed with the SEC Amendment No. 2 to the Schedule 13G,
on Schedule 13G/A, reflecting ownership of 1,232,973, or 6.09%, of our ordinary shares.
The Schedule 13G/A reflects that the shares include shares beneficially owned by
investment companies, pooled investment vehicles and other accounts for which Clough
Capital serves as investment adviser. Such shares may be deemed beneficially 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.

68

---

---

On
February 15, 2008, Systematic Financial Management, L.P., or Systematic, filed a Schedule
13G with the SEC reflecting ownership of 1,172,358, or 5.39%, of our ordinary shares. In
an amendment to the Schedule 13G filed with the SEC on February 13, 2009, Systematic
reported ownership of 1,124,890 of our ordinary shares and that it had therefore ceased
to be the beneficial owner of more than 5% of our outstanding shares. However, based on
the number of our outstanding shares as of March 25, 2009, Systematic is the beneficial
owner of 5.79% of our ordinary shares.

On
February 13, 2009, Renaissance Technologies LLC, or Renaissance, filed a Schedule 13G
with the SEC reflecting ownership of 1,513,023, or 7.7%, of our ordinary shares. The
Schedule 13G reflects that the shares are deemed beneficially owned by James H. Simons
due to his controlling interest in Renaissance Technologies LLC.

# 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 March 23,
2009, there were 32 holders of record of our ordinary shares, of which 20 record holders
holding approximately 93.7% 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, a principal shareholder of our company, who formerly was a
director and the Chairman of our Board of Directors, are brothers. Individually or
together they are directors and principal shareholders of several other companies, which,
together with us and the other subsidiaries and affiliates, are known as the RAD-BYNET
group (although this is not a legal entity). These corporations include, but are not
limited to:

|                                |                             |             
|------------------------------- | --------------------------- | ------------
|
|
|
|
|AB-NET Ltd.                     | Commex Technologies Ltd.    | RADLIVE Ltd 
|BYNET Data Communication Ltd.   | Internet Binat Ltd.         | RADWIN Ltd. 
|BYNET Electronics Ltd.          | Packetlight Networks Ltd.   | Sanrad Inc. 
|BYNET SEMECH Outsourcing Ltd.   | RAD-BYNET Properties and    | SILICOM Ltd.
|BYNET Systems Applications Ltd. | Services (1981) Ltd.        | WISAIR Inc. 
|BYNET Software Systems Ltd.     | RAD Data Communication Ltd.
|Ceragon Networks Ltd.           | RADWARE Ltd.               
|Channelot Ltd.                  | RADCOM Ltd.                

69

---

---

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.
| | --- | -------------------------------------------------------------------------------------------

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

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

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

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

Not
applicable.

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

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

# 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. 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.

70

---

---

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. As of December 31, 2008, we have recorded a provision of
approximately $2.2 million, which we believe covers the probable loss from such
allegations.

In
2005, we received a claim from Avistar Communications Corporation, or Avistar, a U.S.
developer of video technologies, alleging that we infringed on ten of their patents. In
June 2007, the parties executed a patent license agreement to, among others, settle and
conclude the dispute. In partial consideration of the licenses, releases and other rights
granted to us under the patent license agreement, we agreed to pay to Avistar $4.0
million and Avistar agreed to grant to us a non-exclusive worldwide patent license to use
all of Avistars patents for the field of videoconferencing according to Avistars
standard terms and conditions. We, in turn, have, among other things, granted to Avistar
a license to use all of our patents in the same field. Part of the payment was recorded
by us as a patent settlement reserve in 2006. The remainder is presented as long-term and
short-term prepaid expenses in the amount of $1.3 million and $336,000, respectively, as
of December 31, 2008 and will be gradually recognized over the estimated term of our use
of the Avistar technology.

In
addition, during 2006, we received a notification from TANDBERG, which was sued by
Avistar for infringement of certain of Avistar patents (some of the same patents Avistar
claimed that we infringed). TANDBERG sought indemnification from us against the Avistar
claim. In September 2006, we sent a letter to TANDBERG setting forth our positions and
refuting the allegations made by TANDBERG. Since such time, we have not received a
response from TANDBERG. In March 2007, TANDBERG and Avistar settled their dispute, the
details of which settlement were not publicly disclosed. Due to the fact that we
concluded a patent license agreement with Avistar, as described above, we believe that
the probability of the TANDBERG indemnification claim against us being sustained is
remote and that a material loss is not probable, therefore we have not recorded any
related provision in the financial statements.

In
October 2007, we received a letter from one of our resellers in China claiming that our
Chinese representative office was obligated to perform certain undertakings for the
benefit of the reseller and that the representative office had not met these obligations.
The reseller has not made any monetary claim as to its demands or expectations. Due to
the preliminary stage of the claim, we and our legal advisors cannot currently assess the
outcome or possible adverse effect on our financial position or results of operations,
however, we believe we have substantial legal claims to oppose these allegations. For the
years ended December 31, 2007 and 2008, we did not recognize any revenue related to the
reseller.

We
are periodically a party to routine litigation incidental to our business. We do not
believe that we are a party to any pending legal proceeding that is likely to have a
material adverse effect on our business, financial condition or results of operations.

# Dividend Distributions
Policy

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

71

---

---

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
|---- | -------------------- | -----------------------
|
|
|
|
|2004 |                      |                        
|2005 |                      |                        
|2006 |                      |                        
|2007 |                      |                        
|2008 |                      |                        

# Quarterly Stock
Information

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

|               | NASDAQ Global Market | Tel Aviv Stock Exchange
|-------------- | -------------------- | -----------------------
|
|
|
|
|2007           |                      |                        
|First Quarter  |                      |                        
|Second Quarter |                      |                        
|Third Quarter  |                      |                        
|Fourth Quarter |                      |                        
|               |                      |                        
|2008           |                      |                        
|First Quarter  |                      |                        
|Second Quarter |                      |                        
|Third Quarter  |                      |                        
|Fourth Quarter |                      |                        

72

---

---

# 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 2008                |                      |                        
|November 2008               |                      |                        
|December 2008               |                      |                        
|January 2009                |                      |                        
|February 2009               |                      |                        
|March 2009 (until March 25) |                      |                        

|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.

|D. | SELLING
SHAREHOLDERS
|-- | --------------------

Not
applicable.

|E. | DILUTION
|-- | --------

Not
applicable.

|F. | EXPENSE
OF THE ISSUE
|-- | --------------------

Not
applicable.

|ITEM 10. |  | ADDITIONAL
INFORMATION
|-------- |  | ----------------------

|A. | SHARE
CAPITAL
|-- | -------------

Not
applicable.

|B. | MEMORANDUM
AND ARTICLES OF ASSOCIATION
|-- | --------------------------------------

# Purposes and Objects of
the Company

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

73

---

---

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

The
rights attached to the ordinary shares are as follows:

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

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

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

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

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

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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.

# 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

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

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

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

| |  | the
acquisition was from the holder of a ``control block'' and resulted in a person becoming
the               holder of a ``control block;'' or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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| |  | the
merger does not require the alteration of the memorandum or articles of association of
the               surviving company;
| | - | -------------------------------------------------------------------------------------------------------------------------------

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

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

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

# Disclosure of
Shareholders Ownership

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

|C. | MATERIAL
CONTRACTS
|-- | ------------------

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.

|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.

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# 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 27% in 2008, which was
reduced to 26% in 2009 and will be further reduced to 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, 2008, the net operating loss carry-forwards of our U.S. subsidiary for
U.S. tax purposes amounted to approximately $5.7 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 2026.

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

We
have two capital investment programs that have been granted approved enterprise status
under the Law for the Encouragement of Capital Investments, 1959, commonly referred to as
the Investment Law, and two programs that qualify as beneficiary enterprises pursuant
to an amendment to the Investment Law that came into effect on April 1, 2005. One of the
beneficiary enterprise programs was converted from a previously approved enterprise
program pursuant to the approval of the Israel Tax Authority that we received in October
2007.

Prior
to the April 2005 amendment, the Investment Law provided that capital investments in a
production facility (or other eligible assets) may be designated as an approved
enterprise upon prior approval from the Investment Center of the Israel Ministry of
Industry, Trade and Labor, or the Investment Center. Each certificate of approval for an
approved enterprise relates to a specific investment program, delineated both by the
financial scope of the investment and by the physical characteristics of the facility or
the asset. The April 2005 amendment to the Investment Law revised the criteria for
investment programs qualified to receive tax benefits, which, if qualified, are referred
to as a beneficiary enterprise (rather than the previous terminology of approved
enterprise). Companies that meet the specified criteria will receive the tax
benefits without need for prior approval and instead, a company may claim the tax
benefits offered by the Investment Law directly in its tax returns. Among other things,
the April 2005 amendment provides tax benefits to both local and foreign investors. The
period of tax benefits for a new beneficiary enterprise commences in the year that is the
later of: (i) the year in which taxable income is first generated by a company, or (ii) a
year selected by the company for commencement, on the condition that the company meets
certain provisions provided by the Investment Law. The amendment does not apply to
investment programs approved prior to December 31, 2004 and applies only to new
investment programs. We began to generate income under the provision of the 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.

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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 relate only to taxable income attributable to the specific approved
enterprise and/or beneficiary enterprise. To the extent we have more than one approved
enterprise and/or beneficiary enterprise or only a portion of our capital investments are
derived from approved or beneficiary enterprises, our effective tax rate will be the
result of a weighted combination of the applicable rates.

|Percent of
Foreign Ownership | Rate of
Reduced Tax | Reduced Tax Period | Tax Exemption Period
|---------------------------- | ------------------- | ------------------ | --------------------
|
|
|
|
|0-25%                        |                     |                    |                     
|25-49%                       |                     |                    |                     
|49-74%                       |                     |                    |                     
|74-90%                       |                     |                    |                     
|90-100%                      |                     |                    |                     

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

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

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# Tax Benefits and Grants
for Research and Development

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

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

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

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

| |  | amortization
of purchases of acquired technology 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.

# Special Provisions
Relating to Taxation under Inflationary Conditions

The
Income Tax Law (Inflationary Adjustments), 1985, referred to as the Inflationary
Adjustments Law, 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.

On
February 26, 2008, the Israeli Parliament (the Knesset) enacted the Income Tax Law
(Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008. In
accordance with the amendment, the effective period of the Inflationary Adjustments Law
will cease at the end of the 2007 tax year and as of the 2008 tax year the provisions of
the law shall no longer apply, other than the transitional provisions intended at
preventing distortions in the tax calculations.

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# 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.

# UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES

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

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

| |  | an
individual citizen or resident of the United States or an individual treated as a U.S.
citizen or               resident for U.S. federal income tax purposes;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | 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;
| | - | -------------------------

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

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

| |  | individual
retirement and other tax-deferred accounts;
| | - | ------------------------------------------------------

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

| |  | persons
liable for the alternative minimum tax;
| | - | -----------------------------------------------

| |  | persons
having a "functional currency" other than the U.S. dollar; and
| | - | ----------------------------------------------------------------------

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

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

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

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

# Distributions Paid on
the Ordinary Shares

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

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

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

83

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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:

| |  | 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

There
is a substantial risk that we are a passive foreign investment company, or PFIC, for U.S.
federal income tax purposes. Special U.S. federal income tax rules apply to U.S. Holders
owning shares of a PFIC.

84

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For
U.S. federal income tax purposes, a non-U.S. corporation will be considered a PFIC for
any taxable year in which, after applying certain look-through rules, 75% or more of its
gross income consists of specified types of passive income, or 50% or more of the average
value of its assets consists of assets that produce, or are held for the production of,
passive income. For this purpose, passive income includes generally dividends, interest,
royalties, rents, annuities and the excess of gains over losses from the disposition of
assets which produce passive income. As a result of our substantial cash position and the
decline in the value of our stock, we believe that there is a substantial risk that we
qualified as a PFIC, for U.S. federal income tax purposes, during the taxable year ended
December 31, 2008, under a literal application of the asset test described above, which
looks solely to the market value. We believe that there is a substantial risk that we
will also qualify as a PFIC during the taxable year ended December 31, 2009.

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

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

As
an alternative to making a QEF election, a U.S. Holder of PFIC stock which is publicly
traded may in certain circumstances avoid certain of the tax consequences generally
applicable to holders of a PFIC by electing to mark the stock to market annually and
recognizing as ordinary income or loss each year an amount equal to the difference as of
the close of the taxable year between the fair market value of the PFIC stock and the
U.S. Holders adjusted tax basis in the PFIC stock. Losses would be allowed only to
the extent of net mark-to-market gain previously included by the U.S. Holder under the
election for prior taxable years. Income recognized and deductions allowed under the
mark-to-market provisions, as well as any gain or loss on the disposition of ordinary
shares with respect to which the mark to market election is made, is generally treated as
ordinary income or loss (except that loss is treated as capital loss to the extent the
loss exceeds the net mark-to-market gains, if any, that a U.S. Holder included in its
income with respect to such ordinary shares in prior years). However, gain or loss from
the disposition of ordinary shares (as to which a mark-to-market election was
made) in a year in which we are no longer a PFIC, will be capital gain or loss. The
mark-to-market election is available for so long as our ordinary shares constitute marketable
stock, which includes stock of a PFIC that is regularly traded on a
qualified exchange or other market. Generally, a qualified exchange or
other market includes a national securities exchange that is registered with the
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.

85

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

# 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. | DIVIDENDS
AND PAYING AGENTS
|-- | ---------------------------

Not
applicable.

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

Not
applicable.

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

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

86

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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
Securities and Exchange Commission public reference room at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. You may obtain information on the operation of the
Securities and Exchange Commissions public reference room in Washington, D.C. by
calling the 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
Securities and Exchange Commission maintains a website at www.sec.gov that
contains reports, proxy and information statements, and other information regarding
registrants that make electronic filings with the Securities and Exchange Commission
using its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.

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 DISCLOSURES ABOUT MARKET RISKS
|-------- |  | -----------------------------------------------------------

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

We
are exposed to market risks arising primarily from weak economic conditions in the
markets in which we sell our products and from changes in exchange rates or interest
rates.

The
securities in our portfolio are rated at the least as A1. Securities representing about
62.0% of the portfolio are rated as AAA.

Interest Rate Risk

As
of December 31, 2008, we had cash and cash equivalents, short and long-term investments
and short and long-term marketable securities of $121.3 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.

The
performance of the capital markets affects the value of funds held by us in marketable
securities. These assets are subject to market fluctuations and yield uncertain returns,
which may fall below our projected return rates. Due to recent market developments,
including a series of rating agency downgrades, the fair value of these investments has
declined and may decline in the future. We expect that market conditions will continue to
fluctuate in the foreseeable future and that the fair value of our investments may be
impacted accordingly.

One
of our primary market risk exposures is to changes in interest rates as a result of our
investment in marketable securities. Our marketable securities portfolio includes states
and political subdivisions debt instruments, corporate debt instruments and auction rate
securities. A decline in market interest rates could have an adverse effect on our
investment income. In a declining interest rate environment, borrowers may seek to
refinance their borrowings at lower rates and, accordingly, prepay or redeem securities
we hold more quickly than we initially expected. This action may cause us to reinvest the
redeemed proceeds in lower yielding investments. An increase in market interest rates
could also have an adverse effect on the value of our investment portfolio, for example,
by decreasing the fair value of the fixed income securities that comprise a substantial
majority of our investment portfolio.

87

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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 appreciation 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,
2007 and 2008, the NIS appreciated by approximately 8.2%, 9.0% and 1.1%, respectively,
against the U.S. dollar. In 2006 the deflation rate in Israel was approximately 0.1%,
compared to an annual inflation rate of approximately 3.4% and 3.8% in 2007 and 2008,
respectively.

To
manage this risk, from time to time, we have entered into forward exchange contracts to
hedge some of our foreign currency exposure. As of December 31, 2008, we had outstanding
forward exchange contracts for the acquisition of NIS 89.0 million in consideration for
$23.0 million maturing in a period of up to one year from that date. As of December 31,
2008, the changes in fair value of these contracts were $348,000.

|ITEM 12. |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- |  | ------------------------------------------------------

Not
applicable.

# PART II

|ITEM 13. |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- |  | -----------------------------------------------

None.

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

# Material Modifications
to the Rights of Security Holders

None.

# 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, 2008, we had $89.9 million in cash, cash
equivalents and short-term bank deposits.

88

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

# Disclosure Controls and
Procedures

We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in its Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the 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: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in
accordance with appropriate authorizations; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of our assets that could have a material effect on the financial statements.

Our
management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In conducting its assessment of internal control over financial
reporting, management based its evaluation on the framework in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations, or
the COSO, of the Treadway Commission. Based on that assessment, our management has
concluded that our internal control over financial reporting was effective as of December
31, 2008.

The
effectiveness of our internal control over financial reporting as of December 31, 2008
has been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, an independent registered public accounting firm, that audited and reported on
our consolidated financial statements for the year ended December 31, 2008. The
attestation report of our independent public accounting firm is set forth on page F-4 of
our audited consolidated financial statements set forth in Item 18 Financial
Statements,and is incorporated herein by reference.

# 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.

89

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|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 description of
Mr. Atsmons relevant experience, see Item 6.A. Directors, Senior Management
and Employees  Directors and Senior Management.

|ITEM 16B. |  | CODE OF ETHICS
|--------- |  | --------------

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

|ITEM 16C. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- |  | --------------------------------------

# Fees Paid to Independent
Registered Public Accounting Firm

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

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

| | 
| | 

| | (1) | Audit
fees are for audit services for each of the years shown in the table,
               including fees associated with the annual audit (including audit of our
internal                control over financial reporting) and reviews of our quarterly
financial results                submitted to the Securities and Exchange Commission on
Form 6-K, consultations                on various accounting issues and audit services
provided in connection with                other statutory or regulatory filings.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Tax
fees relate to services performed by the tax division for tax compliance,
               tax planning, and tax advice related to actual or contemplated
transactions,                review of our tax returns and tax consulting associated with
international                transfer prices.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Pre-Approval Policies
and Procedures

Our
Audit Committee has adopted policies and procedures for the pre-approval of audit and
non-audit services rendered by our independent registered public accountants, Kost Forer
Gabbay & Kasierer, a member of Ernst & Young Global. The policy generally
pre-approves certain specific services in the categories of audit services, audit-related
services and tax services up to specified amounts, and sets requirements for specific
case-by-case pre-approval of certain projects, those which may have a material effect on
our operations or services over certain amounts. Pre-approval may be given as part of the
Audit Committees approval of the scope of the engagement of our independent
registered public accountants or on an individual basis. Any proposed services exceeding
general pre-approved levels also 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.

90

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

Not
applicable.

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

# Issuer Purchase of
Equity Securities

During
the third quarter of 2007, we announced that our Board of Directors has authorized the
repurchase of up to $30 million of our ordinary shares in the open market from time to
time at prevailing market prices. The repurchase program received the approval of the
District Court in Tel Aviv Jaffa in November 2007 in accordance with the requirements of
the Israeli Companies Law. As of December 31, 2008, we had repurchased 1,978,483 ordinary
shares under the program at a total purchase price of approximately $15.1 million, or an
average price of $7.67 per share, of which 351,179 ordinary shares were repurchased
during 2007at a total purchase price of approximately $4.0 million, or an average price
of $11.49 per share, and 1,627,304 ordinary shares were repurchased during 2008 at a
total purchase price of approximately $11.1 million, or an average price of $6.84 per
share.

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

|Period in 2008 | Total Number of
Shares Purchased | Average Price Paid
per Share | Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs | Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs
|-------------- | -------------------------------- | ---------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|
|
|
|
|January        |                                  |                              |                                                                                  | -                                                                                       
|February       |                                  |                              |                                                                                  | 119,323                                                                                 
|March          |                                  |                              |                                                                                  | 371,980                                                                                 
|April          |                                  |                              |                                                                                  | -                                                                                       
|May            |                                  |                              |                                                                                  | 205,745                                                                                 
|June           |                                  |                              |                                                                                  | 202,454                                                                                 
|July           |                                  |                              |                                                                                  | -                                                                                       
|August         |                                  |                              |                                                                                  | 163,793                                                                                 
|September      |                                  |                              |                                                                                  | 145,047                                                                                 
|October        |                                  |                              |                                                                                  | -                                                                                       
|November       |                                  |                              |                                                                                  | 257,134                                                                                 
|December       |                                  |                              |                                                                                  | 161,828                                                                                 

|ITEM 16F. |  | CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
|--------- |  | ---------------------------------------------

Not
applicable.

91

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|ITEM 16G. |  | CORPORATE GOVERNANCE
|--------- |  | --------------------

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

# PART III

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

Not
applicable.

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

Consolidated Financial
Statements

| |                                                          |               
| | -------------------------------------------------------- | --------------
|
|
|
|
| | Index to Consolidated Financial Statements               | F - 1         
| |                                                         
| | Reports of Independent Registered Public Accounting Firm | F - 2 - F - 3 
| |                                                         
| | Consolidated Balance Sheets                              | F - 4         
| |                                                         
| | Consolidated Statements of Operations                    | F - 5         
| |                                                         
| | Statements of Changes in Shareholders' Equity            | F - 6 - F - 7 
| |                                                         
| | Consolidated Statements of Cash Flows                    | F - 8         
| |                                                         
| | Notes to Consolidated Financial Statements               | F - 9 - F - 42
| |                                                         
| | Schedule II                                              | 94            

92

---

---

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

| | Exhibit | Description                                                                            
| | ------- | ---------------------------------------------------------------------------------------
|
|
|
|
| | 1.1     | Memorandum of Association of the Registrant (1)                                        
| |        
| | 1.2     | Articles of Association of the Registrant, as amended                                  
| |        
| | 2.1     | Form of Ordinary Share Certificate (1)                                                 
| |        
| | 4.1     | Form of 2000 Employee Stock Option Plan (2)                                            
| |        
| | 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) under the          
| |         | Securities Exchange Act, as amended                                                    
| |        
| | 12.2    | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the          
| |         | Securities Exchange Act, as amended                                                    
| |        
| | 13.1    | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
| |         | pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                              
| |        
| | 13.2    | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
| |         | pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                              
| |        
| | 15.1    | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global              

| | 
| | 

| | (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 10-K for the year ended December 31, 2001,
                  filed with the Securities and Exchange Commission, and incorporated
herein by reference.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

93

---

---

# RADVISION LTD. AND ITS
SUBSIDIARIES

# CONSOLIDATED FINANCIAL STATEMENTS

# AS OF DECEMBER 31, 2008

# U.S. DOLLARS IN
THOUSANDS

# INDEX

|                                                         | Page      
|-------------------------------------------------------- | ----------
|
|
|
|
|Reports of Independent Registered Public Accounting Firm | F-2 - F-3 
|                                                        
|Consolidated Balance Sheets                              | F-4       
|                                                        
|Consolidated Statements of Operations                    | F-5       
|                                                        
|Statements of Changes in Shareholders' Equity            | F-6 - F-7 
|                                                        
|Consolidated Statements of Cash Flows                    | F-8       
|                                                        
|Notes to Consolidated Financial Statements               | F-9 - F-42

F - 1

---

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Board of
Directors and Shareholders of

# RADVISION LTD.

We
have audited the accompanying consolidated balance sheets of RADVISION Ltd. (the
Company) and its subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareholders equity and cash flows for each
of the three years in the period ended December 31, 2008. 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. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, 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.

We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 17, 2009 expressed an unqualified opinion
thereon.

|                 |                                   
|---------------- | ----------------------------------
|
|
|
|
|                 | /s/ Kost Forer Gabbay and Kasierer
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER      
|March 17, 2009   | A Member of Ernst & Young Global  

F - 2

---

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Board of
Directors and Shareholders of

# RADVISION LTD.

We
have audited RADVISION Ltd. ("Radvision" or the Company) and its subsidiaries internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Companys internal control over financial reporting based on our audit.

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

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

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

In
our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the COSO criteria.

We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company  and its
subsidiaries as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders equity and cash flows for each of
the three years in the period ended December 31, 2008. Our audits also included the
accompanying financial statement schedule II. Our report dated March 17, 2009
expressed an unqualified opinion thereon.

|                 |                                   
|---------------- | ----------------------------------
|
|
|
|
|                 | /s/ Kost Forer Gabbay and Kasierer
|Tel-Aviv, Israel | KOST FORER GABBAY  & KASIERER     
|March 17, 2009   | A Member of Ernst & Young Global  

F - 3

---

---

|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 marketable securities                                                    |             
|Trade receivables (net of allowance for doubtful accounts of $805 and $927 as of    |             
|December 31, 2007 and 2008, respectively)                                           |             
|Other accounts receivable and prepaid expenses                                      |             
|Inventories                                                                         |             
|                                                                                    |             
|                                                                                    |             
|Total current assets                                                                |             
|                                                                                    |             
|                                                                                    |             
|LONG-TERM INVESTMENTS AND OTHER ASSETS:                                             |             
|Long-term marketable securities                                                     |             
|Long-term prepaid expenses                                                          |             
|Severance pay fund                                                                  |             
|Long-term deferred tax asset                                                        |             
|                                                                                    |             
|                                                                                    |             
|Total long-term investments and other assets                                        |             
|                                                                                    |             
|                                                                                    |             
|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                                                                   |             
|                                                                                    |             
|                                                                                    |             
|SHAREHOLDERS' EQUITY:                                                               |             
|Share capital-                                                                      |             
|Ordinary shares of NIS 0.1 par value -                                              |             
|Authorized: 45,000,000 shares as of December 31, 2007 and 2008; Issued: 22,516,223  |             
|shares as of December 31, 2007 and 2008; Outstanding: 21,255,017 and 19,632,713     |             
|shares as of December 31, 2007 and 2008, respectively                               |             
|Additional paid-in capital                                                          |             
|Treasury stock (1,261,206 and 2,883,510 Ordinary shares as of December 31, 2007 and |             
|2008, respectively)                                                                 |             
|Accumulated other comprehensive income                                              |             
|Retained earnings                                                                   |             
|                                                                                    |             
|                                                                                    |             
|Total shareholders' equity                                                          |             
|                                                                                    |             
|                                                                                    |             
|Total liabilities and shareholders' equity                                          |             
|                                                                                    |             

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

F - 4

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|CONSOLIDATED STATEMENTS OF OPERATIONS
|-------------------------------------

---

|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 accrual                          |                        
|                                                   |                        
|                                                   |                        
|Total operating costs and expenses                 |                        
|                                                   |                        
|                                                   |                        
|Operating income (loss)                            |                        
|Financial income, net                              |                        
|                                                   |                        
|                                                   |                        
|Income (loss) before tax benefit (taxes on income) |                        
|Tax benefit (taxes on income)                      |                        
|                                                   |                        
|                                                   |                        
|Net income (loss)                                  |                        
|                                                   |                        
|                                                   |                        
|Basic net earnings (loss) per Ordinary share       |                        
|                                                   |                        
|                                                   |                        
|Diluted net earnings (loss) per Ordinary share     |                        
|                                                   |                        

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

F - 5

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|---------------------------------------------

---

|U.S. dollars in thousands, except share data
|--------------------------------------------

|                                                 | Ordinary shares | Additional
paid-incapital | Treasurystock | Accumulated
other
comprehensiveincome | Totalcomprehensive
income (loss) *) | Retainedearnings | Totalshareholders'
equity
|------------------------------------------------ | --------------- | ------------------------- | ------------- | ------------------------------------- | ----------------------------------- | ---------------- | -------------------------
|
|
|
|
|Balance as of January 1, 2006                    |                 |                           |               | 21,803,997                            |                                     | $                | 218                      
|                                                 |                 |                          
|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                               |                                     |                  | 10                       
|Stock-based compensation                         |                 |                           |               | -                                     |                                     |                  | -                        
|Net income                                       |                 |                           |               | -                                     |                                     |                  | -                        
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|Total comprehensive income                       |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                          
|Balance as of December 31, 2006                  |                 |                           |               | 22,142,667                            |                                     |                  | 228                      
|                                                 |                 |                          
|Tax benefit related to exercise of stock options |                 |                           |               | -                                     |                                     |                  | -                        
|Purchase of treasury shares                      |                 |                           |               | (1,526,930                            | )                                   |                  | -                        
|Exercise of share options by employees           |                 |                           |               | 639,280                               |                                     |                  | 6                        
|Stock-based compensation                         |                 |                           |               | -                                     |                                     |                  | -                        
|Other comprehensive income:                      |                 |                          
|Changes in fair value of cash flow hedge         |                 |                           |               | -                                     |                                     |                  | -                        
|Unrealized loss from available-for-sale          |                 |                          
|marketable securities                            |                 |                           |               | -                                     |                                     |                  | -                        
|Net income                                       |                 |                           |               | -                                     |                                     |                  | -                        
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|Total comprehensive income                       |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                          
|Balance as of December 31, 2007                  |                 |                           |               | 21,255,017                            |                                     |                  | 234                      
|                                                 |                 |                          
|Tax benefit related to exercise of stock options |                 |                           |               | -                                     |                                     |                  | -                        
|Purchase of treasury shares                      |                 |                           |               | (1,627,304                            | )                                   |                  | -                        
|Exercise of share options by employees           |                 |                           |               | 5,000                                 |                                     |                  | -                        
|Stock-based compensation                         |                 |                           |               | -                                     |                                     |                  | -                        
|Other comprehensive loss:                        |                 |                          
|Changes in fair value of cash flow hedge         |                 |                           |               | -                                     |                                     |                  | -                        
|Reclassification to statements of operations of  |                 |                          
|other-than-temporary impairment from             |                 |                          
|available-for-sale marketable securities         |                 |                           |               | -                                     |                                     |                  | -                        
|Net loss                                         |                 |                           |               | -                                     |                                     |                  | -                        
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|Total comprehensive loss                         |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                           |               |                                       |                                     |                  |                          
|                                                 |                 |                          
|Balance as of December 31, 2008                  |                 |                           |               | 19,632,713                            |                                     | $                | 234                      
|                                                 |                 |                           |               |                                       |                                     |                  |                          

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

F - 6

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|---------------------------------------------

---

|U.S. dollars in thousands
|-------------------------

*) Accumulated other comprehensive
income (loss)

|                                                                          | Year ended December 31,
|------------------------------------------------------------------------- | -----------------------
|
|
|
|
|Accumulated changes in fair value of cash flow hedge                      |                        
|Accumulated unrealized loss from available-for-sale marketable securities |                        
|                                                                          |                        
|Total                                                                     |                        
|                                                                          |                        

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

F - 7

---

---

|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 (loss)                                                        |                        
|Adjustments required to reconcile net income (loss) to net cash provided |                        
|by operating activities:                                                 |                        
|Depreciation and amortization                                            |                        
|Gain on sale of property and equipment                                   |                        
|Accrued interest, amortization of premium, accretion of discount , other |                        
|than temporary impairment, realized gain (loss) on sale of marketable    |                        
|securities and bank deposits, net                                        |                        
|Stock-based compensation                                                 |                        
|Tax benefit relating to loss carryforwards resulting from exercise of    |                        
|stock options                                                            |                        
|Decrease (increase) in trade receivables, net                            |                        
|Decrease (increase) in other accounts receivable and prepaid expenses    |                        
|Decrease (increase) in inventories                                       |                        
|Decrease (increase) in long-term prepaid expenses                        |                        
|Change in deferred tax asset, net                                        |                        
|Increase (decrease) in trade payables                                    |                        
|Increase (decrease) in deferred revenues                                 |                        
|Increase (decrease) in accrued expenses and other accounts payable       |                        
|Increase in accrued severance pay, net                                   |                        
|                                                                         |                        
|                                                                         |                        
|Net cash provided by operating activities                                |                        
|                                                                         |                        
|                                                                         |                        
|Cash flows from investing activities:                                    |                        
|Proceeds from redemption and sale of marketable securities               |                        
|Purchase of marketable securities                                        |                        
|Proceeds from withdrawal of bank deposits                                |                        
|Purchase of bank deposits                                                |                        
|Purchase of property and equipment                                       |                        
|Proceeds from sale of property and equipment                             |                        
|                                                                         |                        
|                                                                         |                        
|Net cash provided by (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 (used in) 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                         |                        
|                                                                         |                        
|                                                                         |                        
|Supplemental disclosure of non-cash activity:                            |                        
|                                                                         |                        
|Receivables on account of shares                                         |                        
|                                                                         |                        
|                                                                         |                        
|Supplemental disclosure of cash flow activity:                           |                        
|                                                                         |                        
|Cash paid during the year for:                                           |                        
|Interest                                                                 |                        
|                                                                         |                        
|                                                                         |                        
|Income taxes                                                             |                        
|                                                                         |                        

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

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
|------- | - | -------

| | 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 nine wholly-owned subsidiaries: RADVISION Inc. and its wholly-owned
subsidiary RADVISION Government Services, 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 the Companys
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 the Companys products and technology.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Revenues
derived from the Companys largest customer in 2008 represented           38.7% of
total sales (see Note 13e).
| | -- | -----------------------------------------------------------------------------------------------------------------------

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

| | The
consolidated  financial  statements are prepared  according to generally accepted
 accounting  principles 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | Accordingly,
the Companys and its subsidiaries transactions and balances denominated in
dollars are presented at their original amounts. Non-dollar transactions and balances
have been remeasured into dollars in accordance with Statement of Financial Accounting
Standards 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
exchange gains and losses from the remeasurement mentioned above are reflected in the
statements of operations 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 original 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 Standards 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. As of December 31, 2007
and 2008, the Company classified its marketable securities as available-for-sale or
held-to-maturity securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Securities
classified as available-for-sale are stated at fair value, with unrealized gains and
losses reported in accumulated other comprehensive income (loss) until realized, a
separate component of shareholders equity, net of taxes. Realized gains and losses
on sales of investments, as determined on a specific identification basis, are included
in the consolidated statements of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company presented its available-for-sale securities in long-term investments (see Note
3).
| | ----------------------------------------------------------------------------------------------

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | FASB
Staff Position (FSP) No. 115-1, The Meaning of Other-Than- Temporary
Impairment and Its Application to Certain Investments (FSP 115-1)
provides guidance for determining when an investment is considered impaired, whether
impairment is other-than-temporary, and measurement of an impairment loss. An investment
is considered impaired if the fair value of the investment is less than its cost. The
Company considers various factors to determine whether to recognize an impairment charge,
including the Companys intent and ability to hold the investment for a period of
time sufficient to allow for any anticipated recovery in market value, the length of time
and extent to which the fair value has been less than the cost basis, the credit ratings
of the securities and the financial condition and near-term prospects of the issuers. If,
after consideration of all available evidence to evaluate the realizable value of its
investment, impairment is determined to be other-than-temporary, then an impairment loss
should be recognized equal to the difference between the investments cost and its
fair value. As of December 31, 2008, the Company recognized an other-than-temporary
decline in the carrying value of its available-for-sale securities in the amount of
$1,767, which was included in the consolidated statements of operations as financial
expenses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Short-term
bank deposits are deposits with maturities of more than three months but less than one
year. The deposits are in dollars and bear interest at an annual weighted average rate of
4.99% and 2.60% at December 31, 2007 and 2008, respectively. The short-term deposits
are presented at their cost, including accrued interest.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $1,997
and $744 as of December 31, 2007 and 2008, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | 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

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

| | i. | 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 provisions 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) at the reporting unit level by
comparing the fair value of the reporting unit with its carrying value. The reporting
unit is described as an operating segment as that term is used in Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), or one level below the operating
segment. The Company allocated all of its goodwill to the NBU reporting unit.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. Fair value was defined according to the discounted cash flows (a
present value technique). As of December 31, 2006, 2007 and 2008, no instances of
impairment were found. As a result, step two was not required.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Intangible
assets are amortized over their useful lives using a method of amortization that reflects
the pattern in which the economic benefits of the intangible assets are consumed or
otherwise used up, in accordance with SFAS No. 142. The Company amortizes its intangible
assets on a straight-line basis.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill
and intangible assets resulted from the acquisitions of First Virtual Communication Inc. (FVC)
in 2005 and VisioNex Technologies Inc. (VisioNex) in 2004 allocated to the
NBU segment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Long-lived
assets are reviewed for impairment in accordance with Statement of Financial Accounting
Standards 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, 2007 and 2008, no
impairment has been identified.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 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, 2006, 2007 and 2008 amounted to
approximately $1,337, $1,680 and $1,770, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | l. | Derivative
instruments:
| | -- | -----------------------

| | Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133), requires companies to recognize
all of their derivative instruments as either assets or liabilities in the statement of
financial position at fair value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company entered into derivative instrument arrangements to hedge a portion of its
anticipated New Israeli Shekel (NIS) payroll payments and inventory
purchases. These derivative instruments are designated as cash flows hedges, as defined
by SFAS No. 133, as amended, and are highly effective. The Company measures the fair
value of the contracts in accordance with SFAS No. 157 at level 2. As of December 31,
2008, the Company recorded accumulated other comprehensive income in the amount of $348
from its forward contracts with respect to anticipated payroll payments expected in 2009.
Such amount will be recorded in earnings in 2009.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the years ended December 31, 2007 and 2008, the Company recognized earnings of $587 and a
loss of $56, respectively, as a result of these hedging activities. The Company did not
entered into derivative instrument arrangements to hedge a portion of its anticipated NIS
payroll payments and inventory purchases in 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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) professional
services. The Company and its subsidiaries sell their NBU products mainly through
original equipment manufacturers (OEMs), system integrators and value added
resellers, all of whom are considered end-users.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Software
licensing, royalties and sales of videoconferencing products revenues:
| | -------------------------------------------------------------------------------

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

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

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

| | In
case the agreement provide for specified upgrade, the revenue recognition is deferred
upon the general release of the specified upgrade.
| | -------------------------------------------------------------------------------------------------------------------------------------------

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

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | When
uncertainty of collectability exists, the Company and its subsidiaries defer revenues
until collection.
| | ------------------------------------------------------------------------------------------------------------

| | Revenues
from software licenses and or sale of products that require significant customization,
integration and installation are recognized based on Statement of Position 81-1, Accounting
for Performance of Construction-Type and Certain Production-Type Contracts (SOP
81-1), 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,
2008, no such estimated losses were identified.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that the use of the percentage of completion method is appropriate as
the Company has the ability to make reasonably dependable estimates of the extent of
progress towards completion, contract revenues and contract costs. In addition, contracts
executed include provisions that clearly specify the enforceable rights regarding
services to be provided and received by the parties to the contracts, the consideration
to be exchanged and the manner and terms of settlement. In all cases, the Company expects
to perform its contractual obligations and its licensees are expected to satisfy their
obligations under the contract. According to SOP 81-1, costs that are incurred and are
directly associated with a specific anticipated contract are being deferred, subject to
evaluation of their probable recoverability, and recorded as unbilled contract costs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company typically offers a one-year warranty on all of its products. The specific terms
and conditions of those warranties vary depending upon the product sold and country in
which the Company does business. The Company estimates the costs that may be incurred
under its basic 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 rollforward of the liability for 2008
and 2007 was as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                     | December 31,
| | --------------------------------------------------- | ------------
|
|
|
|
| | 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 Standards 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, 2007 and
2008, the Company had a provision for products returns in an amount of $350 and $164,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Research
and development costs are charged to the statements of operations as incurred. Statement
of Financial Accounting Standards 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company utilizes the liability method of accounting for income taxes as set forth in
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). Under the liability method, deferred
taxes are determined based on the temporary differences between the financial statement
and tax basis of assets and liabilities using tax rates expected to be in effect during
the years in which the basis differences reverse. A valuation allowance is recorded when
it is more likely than not that the deferred tax assets will not be realized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109. The first step is to evaluate
the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an
evaluation of the technical merits, the tax position will be sustained on audit,
including resolution of any related appeals or litigation processes. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. The Company accrues interest and penalties related to
unrecognized tax benefits in its provision for income tax. As of January 1, 2007,
there was no material difference between the provisions of Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies (SFAS 5)
and FIN 48, therefore no adjustment was recorded to the retained earnings.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Prior
to 2007, the Company determined its tax contingencies in accordance with SFAS 5. The
Company recorded estimated tax liabilities to the extent the contingencies were probable
and could be reasonably estimated.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
carrying amounts of the Companys financial instruments, including cash and cash
equivalents, short-term deposits, marketable securities (except held to maturity
securities), accounts receivable, accounts payable and accrued liabilities, approximate
fair value because of their generally short maturities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157) and, effective October 10,
2008, adopted FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP 157-2. SFAS 157 clarifies
that fair value is an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or a
liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier
value hierarchy, which prioritizes the inputs used in the valuation methodologies in
measuring fair value:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level 1 |  | Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets.
| | ------- | - | ----------------------------------------------------------------------------------------------------------------

| | Level 2 |  | Include other inputs that are directly or indirectly observable in the marketplace.
| | ------- | - | -----------------------------------------------------------------------------------

| | Level 3 |  | Unobservable inputs which are supported by little or no market activity.
| | ------- | - | ------------------------------------------------------------------------

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

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

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

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

| | 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 statements of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 generally 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, and option expected 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 before December 31, 2007 was calculated using the simplified method
(expected term = (vesting term + original contractual term) / 2) permitted by SAB 107 in
accordance with the guidance of SFAS 123 (R) and SAB 110. For options granted after
December 31, 2007, the Company derived the expected term assumption based on the
provisions of SAB 110, which, effective January 1, 2008, replaced SAB 107 and the use of
the simplified method, and which states that a company will determine its
expected terms according to its historical exercise data for share option grants with
sufficient exercise experience, except for options which were re-priced, for which the
expected term of the options before the re-pricing was calculated using the binomial
method. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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
fair value for the options granted in 2006, 2007 and 2008 was estimated at the date of
grant with the following weighted average assumptions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 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, long-term bank deposits and derivatives.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
majority of the Companys cash and cash equivalents, short-term bank deposits and
derivatives are invested in dollar investments with major banks in Israel and the United
States. Such cash and cash equivalents and short-term bank deposits in the United States
may be in excess of insured limits and are not insured in other jurisdictions. However,
management believes that the financial institutions that hold the Companys
investments are financially sound and accordingly, low 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, state and political subdivisions and auction rates
securities. The Companys investment policy, approved by the Audit Committee, limits
the amount the Company may invest in any one type of investment or issuer, thereby
reducing credit risk concentrations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of the recent turmoil in the capital markets, the Company has tightened its
control and monitoring over its marketable securities portfolio in order to minimize
potential risks stemming from the current capital markets environment. Such measures
included among others: reducing credit exposure to financial sector securities and
increasing the overall credit quality of the portfolio.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
trade receivables of the Company and its subsidiaries 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.
When uncertainty of collectability exists, the Company and its subsidiaries defer
revenues until collection.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
exchange contracts are transacted with two major banks in Israel.
| | -------------------------------------------------------------------------

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

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

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

| | The
total weighted average number of shares related to the outstanding options excluded from
the calculations of diluted earnings (loss) per share, since they would have an
anti-dilutive effect, was 1,358,160, 1,811,806 and 3,166,341 for 2006, 2007 and 2008,
respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | t. | Comprehensive
income:
| | -- | ---------------------

| | The
Company accounts for comprehensive income in accordance with Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130).
This Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income generally represents all changes in shareholdersequity during
the period except those resulting from investments by, or distributions to, shareholders.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | u. | 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 the event that the purchase cost is lower than the re-issuance price,
the Company credits the difference to additional paid-in capital.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements (SFAS 160).
SFAS 160 amends Accounting Research Bulletin No. 51, Consolidated Financial
Statements (ARB 51), to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 also changes the way the consolidated income
statement is presented by requiring consolidated net income to be reported at amounts
that include the amounts attributable to both the parent and the noncontrolling interest.
It also requires disclosure, on the face of the consolidated statement of operations, of
the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between the
interests of the parent owners and the interests of the noncontrolling owners of a
subsidiary.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
160 is effective for fiscal periods, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material effect on the Companys consolidated financial
statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141(revised), Business Combinations (SFAS 141(R)). This Statement
replaces SFAS No. 141, Business Combinations, and requires an acquirer to
recognize the assets acquired, the liabilities assumed, including those arising from
contractual contingencies, any contingent consideration and any noncontrolling interest
in the acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. SFAS 141(R) also requires the
acquirer in a business combination achieved in stages (sometimes referred to as a step
acquisition) to recognize the identifiable assets and liabilities, as well as the
noncontrolling interest in the acquiree, at the full amounts of their fair values (or
other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)s
requirement to measure the noncontrolling interest in the acquiree at fair value will
result in recognizing the goodwill attributable to the noncontrolling interest in
addition to that attributable to the acquirer. SFAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. As such,
the adoption of SFAS 141(R) is not expected to have a material effect on the Companys
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB
Statement No. 157". The Staff Positions defer the effective date of SFAS 157 to
fiscal years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities except for items that are recognized or disclosed at fair value
on a recurring basis at least annually, and amend the scope of SFAS 157. As described in
Note 4, the Company adopted SFAS 157 and the related FASB staff positions except for
those items specifically deferred under FSP No. FAS 157-2. The Company is
currently evaluating the potential impact, if any, of the adoption of FAS 157-2 on
its consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an Amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities. SFAS 161 requires entities to provide
enhanced disclosures about how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS 133 and its
related interpretations; and how derivative instruments and related hedged items affect
an entitys financial position, financial performance and cash flows. This statement
is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently evaluating the impact, if
any, that SFAS 161 may have on its financial condition and results of operations. The
Companys adoption of SFAS 161 will change its disclosures for derivative
instruments and hedging activities beginning in 2009.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination
of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill
and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008 and early adoption is prohibited. The Company is
currently evaluating the potential impact, if any, of the adoption of FAS 142-3 on
its consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS
162 identifies the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with U.S. GAAP. This statement shall be effective as of
November 13, 2008. The Company does not expect the adoption of SFAS 162 to have a
material impact on its consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3: |  | MARKETABLE SECURITIES
|------- | - | ---------------------

| | a. | Held-to-maturity
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: |  | 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 mainly by market interest
rate changes. Out of the unrealized losses as of December 31, 2008, $9 in losses has been
outstanding more than 12 months. 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 and ability to hold these investments until maturity, the bonds were not
considered to be other than temporarily impaired at December 31, 2008, except as
described below.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the year ended December 31, 2008, the Company sold two held-to maturity securities for a
total consideration of $577, resulting in a net loss in the amount of $73. The Company
decided to sell such securities as a result of a securities significant rating downgrade
during the year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Available-for-sale
marketable securities:
| | -- | -----------------------------------------

| | Auction
rate securities and collateralized debt obligations:
| | ------------------------------------------------------------

| |                               | December 31,
| | ----------------------------- | ------------
|
|
|
|
| | Available-for-sale securities |             
| |                               |             

| | The
other than temporary impairment of available-for-sale securities totaled $379 and $1,767
for the years ended December 31, 2007 and 2008, respectively, and such losses were
recorded in the financial income, net. The adjustment to unrealized holding losses on
available-for-sale marketable securities was included as a separate component of
shareholders equity, Accumulated other comprehensive income (loss),amounting
to income of $0 and $182 for the years ended December 31, 2006 and 2007, respectively,
and $182 loss for the year ended December 31, 2008. The contractual maturities of the
available-for-sale securities are greater than ten years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year 2008, available-for-sale marketable securities in the aggregate amount of $224
were redeemed at par value in the amount of $600. As a result, a gain in the amount of
$376 was recognized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 4: |  | FAIR VALUE MEASUREMENTS
|------- | - | -----------------------

| | In
accordance with SFAS 157, the Company measures its short-term deposits, marketable
securities (except held to maturity securities), auction rate securities and foreign
currency derivative contracts at fair value. Short-term deposits and securities (except
investments in auction rate securities) are classified within Level 1 or Level 2. This is
because these assets are valued using quoted market prices or alternative pricing sources
and models utilizing market observable inputs. Foreign currency derivative contracts are
classified within Level 2 as the valuation inputs are based on quoted prices and market
observable data of similar instruments. Investments in auction rate securities are
classified within Level 3 because they are valued using valuation techniques. Some of the
inputs to these models are unobservable in the market and are significant.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company values the Level 3 investments based on an externally developed valuation using
independent valuation firm using discounted cash flow model, whose inputs include
interest rate curves, credit spreads, bond prices, volatilities and illiquidity
considerations. Unobservable inputs used in these models are significant to the fair
value of the investments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys financial assets measured at fair value on a recurring basis, excluding
accrued interest components; consisted of the following types of instruments as of
December 31, 2008:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                       | As of December 31, 2008
Fair value measurements using input type
| | ------------------------------------- | ----------------------------------------------------------------
|
|
|
|
| | Auction rate securities               |                                                                 
| | Foreign currency derivative contracts |                                                                 
| |                                       |                                                                 
| |                                       |                                                                 
| | Total financials assets               |                                                                 
| |                                       |                                                                 

| | The
following table presents the changes in Level 3 instruments measured on a recurring basis
for the year ended December 31, 2008. The Companys Level 3 instruments consist
of auction rate securities with the unrealized losses reported in the consolidated
statements of operations
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                                                         | Auction rate
securities& Cash
Debt Obligations
| | ----------------------------------------------------------------------- | ----------------------------------------------
|
|
|
|
| | Balance as of December 31, 2007                                         |                                               
| | Redemption of collateralized debt obligations, net                      |                                               
| | Unrealized losses included in earning (other than temporary impairment) |                                               
| | Reclassification from other comprehensive income                        |                                               
| |                                                                         |                                               
| |                                                                         |                                               
| | Balance as of December 31, 2008                                         |                                               
| |                                                                         |                                               

F - 24

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 5: |  | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|------- | - | ----------------------------------------------

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

|NOTE 6: |  | INVENTORIES
|------- | - | -----------

| | Inventories
are composed of the following:
| | ------------------------------------------

| |                   | December 31,
| | ----------------- | ------------
|
|
|
|
| | Raw materials     |             
| | Finished products |             
| |                   |             
| |                   |             
| |                   |             
| |                   |             

|NOTE 7: |  | PROPERTY AND EQUIPMENT, NET
|------- | - | ---------------------------

| | 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, 2006, 2007 and 2008 amounted to $1,849, $2,543
and $2,834, respectively. Retirement of property and equipment was $0, $5,185 and $27 for
the years ended December 31, 2006, 2007 and 2008, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 8: |  | 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 the acquisitions of FVC in 2005 and VisioNex in 2004.
| | -------------------------------------------------------------------------------------

| | b. | Amortization
expenses amounted to $1,090 for each of the years ended           December 31, 2006,
2007 and 2008.
| | -- | ----------------------------------------------------------------------------------------------------------------

| | c. | The
amortization expenses in respect of identifiable intangible assets for the           year
ended December 31, 2009 will be $272.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------

|NOTE 9: |  | ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE
|------- | - | -------------------------------------------

| |                                                       | December 31,
| | ----------------------------------------------------- | ------------
|
|
|
|
| | Payroll and related accruals                          |             
| | Accrued expenses                                      |             
| | Government authorities                                |             
| | Contingent liability for patent claims (see Note 10e) |             
| | Other                                                 |             
| |                                                       |             
| |                                                       |             
| |                                                       |             
| |                                                       |             

|NOTE 10: |  | 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 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, 2007 and 2008. During the years ended December 31, 2006, 2007 and
          2008, the Company did not pay or accrue royalties to the BIRD-F.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 10: |  | 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 February 2015 (some with renewal options). The Company
          leases its motor vehicles under operating lease agreements that expire on
          various dates, the last of which is in 2012.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Annual
minimum future lease payments due under the above agreements, at the exchange rate in
effect on December 31, 2008, are approximately as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | 
|------------------- | 
|
|
|
|
|2009                | 
|2010                | 
|2011                | 
|2012                | 
|2013 and thereafter | 
|                    | 
|                    | 
|                    | 
|                    | 

| | For
the years ended December 31, 2006, 2007 and 2008, rent expenses and motor vehicle lease
expenses were $3,585, $4,785 and $5,612, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | The
Company obtained bank guarantees in the amount of $522 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, as long as the Company uses these technologies.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company expensed royalties in the amount of $525, $184 and $264 in the years ended
December 31, 2006, 2007 and 2008, respectively, in cost of revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | In
1998, a third party sent correspondence to a related party of the Company
          alleging that certain 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, the Company has a provision of $2,189, which it believes
covers the probable loss from such allegations.
| | ---------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 10: |  | COMMITMENTS AND CONTINGENCIES (Cont.)
|-------- | - | -------------------------------------

| | 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 began discussions to attempt to reach a settlement. In June 2007, the Company
concluded a settlement with Avistar in the amount of $4,000 pertaining to their claim and
grant of a license and standard maintenance support for two years. Part of the payment
was recorded by the Company as a patent settlement reserve in 2006. The remainder is
presented as long-term and short-term prepaid expenses in the amount of $1,618 and $336,
respectively as of December 31, 2007 and presented as long-term and short-term
prepaid expenses in the amount of $1,278 and $336 as of December 31, 2008 and will be
gradually recognized over the estimated term of the Companys use of the Avistar
technology.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, during 2006, the Company received a notification from TANDBERG, which was sued
by Avistar for infringement of certain of Avistar patents (some of the same patents
Avistar claimed that the Company infringed). TANDBERG sought indemnification from the
Company against the Avistar claim. In September 2006, the Company sent a letter to
TANDBERG setting forth its positions and refuting the allegations made by TANDBERG. Since
such time, the Company has not received a response from TANDBERG. In March 2007, TANDBERG
and Avistar settled their dispute, the details of which settlement were not publicly
disclosed. Due to the fact that the Company concluded a patent license agreement with
Avistar, as described above, the Company believes that the probability of the TANDBERG
indemnification claim against the Company being sustained is remote and that a material
loss is not probable, therefore the Company has not recorded any related provision in the
financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | In
October 2007, the Company received a letter from one of its resellers in           China
claiming that the Chinese representative office was obligated to perform
          certain undertakings for the benefit of the reseller and that the
representative           office had not met these obligations. The reseller has not made
any monetary           claim as to its demands or expectations. Due to the preliminary
stage of the           claim, the Company and its legal advisors cannot currently assess
the outcome or           possible adverse effect on the Companys financial position
or results of           operations. However, the Company believes that it has substantial
legal claims           to oppose these allegations. For the years ended December 31, 2007
and 2008, the           Company did not recognize any revenues related to the reseller.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | The
Company is periodically a party to routine litigation incidental to its
          business. The Company does not believe that it is a party to any pending legal
          proceeding that is likely to have a material adverse effect on its business,
          financial condition or results of operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 11: |  | 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 $30,000 but not more than 2,000,000 of its outstanding Ordinary shares           in
the open market, from time to time, at prevailing market prices. No time           limit
was given with respect to the duration of the share purchase program. As           of
December 31, 2007, the Company had repurchased 1,631,724 Ordinary shares           under
the program for total consideration of approximately $30,000, or an           average
price of $18.37 per share, and the program was completed.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2007, the Companys Board of Directors authorized the purchase of up to
additional $30,000 of its outstanding Ordinary shares in the open market, from time to
time, at prevailing market prices. No time limit was given with respect to the duration
of the share purchase program. As of December 31, 2008, the Company had repurchased
1,978,483 Ordinary shares under the program for total consideration of $15,173, or an
average price of $7.67 per share.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2006, 2007 and 2008, the Company issued 347,088, 374,609 and 5,000, respectively, of the
repurchased shares upon the exercise of employee stock options. The excess of the
purchase price of the shares over their aggregate re-issuance price in the amount of
$2,148, $3,083 and $38 was charged as a reduction to retained earnings for the years
ended December 31, 2006, 2007 and 2008, respectively. As of December 31, 2008, the
Company had a balance of 2,883,510 repurchased shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | On
November 25, 2008, the Company commenced a tender offer to eligible           employees
(other than its directors, Chief Executive Officer, Chief Financial           Officer,
president and senior officers who report to the Chief Executive           Officer) to
exchange outstanding options to purchase Ordinary shares issued           under the
Companys 2000 Employee Stock Option Plan (the 2000           Plan)
having an exercise price of $7.50 or more per share, for replacement           options
issued under the 2000 Plan that entitle the holder to purchase the same           number
of the Companys Ordinary shares at an exercise price equal to the           greater
of: (i) $7.50 per share, and (ii) the per share closing price of the           Ordinary
shares on the NASDAQ Global Market on the date the replacements options           are
granted.  Pursuant to the exchange offer that expired on December 24,
          2008, the Company accepted for exchange eligible options to purchase an
          aggregate of 1,276,950 Ordinary shares, with exercise prices ranging from
          $7.80-$28.0 per share, that had been granted under the 2000 Plan and granted
new           options to purchase an aggregate of 1,276,950 Ordinary shares, with an
exercise           price of $7.50 per share, under the 2000 Plan.  The new options
will vest           over a period of up to four years and nine months in accordance with
the vesting           schedule described in the tender offer documents. The new options
were granted           for a period of six years except for cases when the six year
period ended after           the original expiration date of the exchanged options. In
which case the           original expiration date was not extended.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 11: |  | SHAREHOLDERS EQUITY (Cont.)
|-------- | - | ----------------------------

| | The
Company accounted for the exchange of options under the provisions of SFAS 123(R) as a
modification. A modification to the terms of an award should be treated as an exchange of
the original award for a new award with total compensation cost equal to the grant-date
fair value of the original award plus the incremental value measured at the same date.
Under Statement 123(R), the calculation of the incremental value is based on the excess
of the fair value of the new (modified) award based on current circumstances over the
fair value of the original option measured immediately before its terms are modified
based on current circumstances. That is, the original (pre-modification) option will be
valued based on current assumptions, without regard to the assumptions made on the grant
date. The modification date was considered to be December 24, 2008. As a result of the
modification, the Company will record incremental compensation cost of $581 to be
recognized over the new service period beginning on the modification date. The
unrecognized compensation cost remaining from the original grant date valuation is
recognized over the remainder of the original requisite period. In its financial
statements as of December 31, 2008, the Company included an additional expense of $5 with
respect of this transaction.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | According
to regulations adopted under the Israeli Companies Law, the terms of
          compensation of an outside director must be set and agreed to prior to the
          commencement of each three-year term of service of an outside director and may
          not be modified during the three year term other than to conform to the terms
of           a newly appointed outside director. During the second quarter of 2008, after
          receiving an opinion from the Companys legal advisors, the Companys
          Board of Directors cancelled options to purchase 117,500 Ordinary shares
granted           to two of its outside directors, due to certain terms of the
aforementioned           regulations which were not met. In the third quarter of 2008,
the Company           granted to each of its outside directors options to purchase 30,000
Ordinary           shares, or in the aggregate options to purchase 90,000 Ordinary
shares,           exercisable at $6.78 per share. Of such options, options to purchase
60,000           Ordinary shares will vest quarterly over three years, commencing May 14,
2006           (the date of the appointment of two of the directors as outside
directors), and           options to purchase 30,000 Ordinary shares will vest quarterly
over three years           commencing September 24, 2008. The options are exercisable
within 12 months           after termination or resignation from office as a director of
the Company.           According to SFAS 123(R), the option exchange was treated as a
cancellation of           the option and a grant of new options. Accordingly, in the
financial statements           ended December 31, 2008, the Company recognized all the
remaining compensation           cost in the amount of $309 due to the cancellation of
options. The fair value of           the new options granted in the amount of $184 is
recognized over the remaining           vesting period. In 2008, $111 compensation costs
were recognized.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, at the annual general meeting of shareholders held in August 2008, the
shareholders resolved to modify the terms of options granted to the Companys
directors for his/her service in such capacity, such that the exercise period of such
options (including previously granted options), be extended from 30 days to 12 months
after a directors resignation from or termination of office. As a result of this
modification, the Company recorded an additional expense of $35 in the financial
statements for the year ended December 31, 2008. The Company will record an additional
expense in the amount of $8, which will be recognized according to the future vesting
schedules.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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: |  | SHAREHOLDERS EQUITY (Cont.)
|-------- | - | ----------------------------

| | e. | The
Company currently has one employee option plan, which provides for the           grant by
the Company of options to purchase up to an aggregate of 7,530,233           Ordinary
shares to officers, employees, directors and consultants of the Company           and its
subsidiaries at an exercise price equal to at least the fair market           value at
the date of grant. The options vest ratably over vesting periods of
          approximately four years. The options expire six to ten years from the date of
          grant. The option plan provides for the reservation of up to 4% of the
          Companys Ordinary shares on a diluted basis, in each year.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, 821,882 Ordinary shares are available for future issuance
under the option plan. Options that are cancelled or forfeited become available for
future grant.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of option activity during the year ended December 31, 2008 is summarized as
follows:
| | ----------------------------------------------------------------------------------------------

| |                                            | Year ended December 31, 2008
| | ------------------------------------------ | ----------------------------
|
|
|
|
| | Options outstanding at beginning of year   |                             
| | Granted                                    |                             
| | Exercised                                  |                             
| | Cancelled                                  |                             
| | Forfeited                                  |                             
| |                                            |                             
| |                                            |                             
| | Options outstanding at end of year         |                             
| |                                            |                             
| |                                            |                             
| | Vested and expected to vest 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 plan recognized for the years ended December 31 2006, 2007 and
2008 amounted to $4,776, $5,448 and $5,416, respectively, net of estimated forfeitures.
The total intrinsic value of options exercised during the years ended December 31,
2006, 2007, and 2008, was $8,085, $6,948 and $8, respectively. As of December 31,
2008, there was $8,103 of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the Companys option plan. That
cost is expected to be recognized over a weighted-average period of 2.47 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 2008 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, 2008. This           amount changes
based on the fair market value of the Companys stock. The           aggregate
intrinsic value as of December 31, 2008 is based on the share           price of the
Companys Ordinary shares as of December 31, 2008 ($5.39           per share).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | **) | The
weighted average exercise price of the options outstanding at the beginning           of
year was adjusted as a result of the option exchange offering.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 11: |  | SHAREHOLDERS EQUITY (Cont.)
|-------- | - | ----------------------------

| | All
options were granted at an exercise price that was equal to the market price of the
Ordinary shares at the date of grant. The weighted average grant date fair values of
options granted during the years ended December 31, 2006, 2007 and 2008 were as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Year ended December 31,
| |  | -----------------------
|
|
|
|
| |  |                        
| |  |                        

| | e. | 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 15).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 12: |  | NET EARNINGS (LOSS) PER SHARE
|-------- | - | -----------------------------

| | The
following table sets forth the computation of basic and diluted net earnings (loss) per
share:
| | --------------------------------------------------------------------------------------------------

| |                                                        | Year ended December 31,
| | ------------------------------------------------------ | -----------------------
|
|
|
|
| | Numerator:                                             |                        
| | Net income (loss)                                      |                        
| |                                                        |                        
| |                                                        |                        
| | Denominator:                                           |                        
| | Weighted average number of Ordinary shares outstanding |                        
| | during the year, used to compute basic net earnings    |                        
| | (loss) 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 (loss) per share          |                        
| |                                                        |                        
| |                                                        |                        
| | Basic net earnings (loss) per Ordinary share           |                        
| |                                                        |                        
| |                                                        |                        
| | Diluted net earnings (loss) per Ordinary share         |                        
| |                                                        |                        

F - 32

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 13: |  | 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 - 33

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 13: |  | SEGMENT REPORTING AND GEOGRAPHICAL INFORMATION (Cont.)
|-------- | - | ------------------------------------------------------

| | b. | The
following is information about reported segment gains and losses:
| | -- | ---------------------------------------------------------------------

| |                               | NBU | TBU | Total
| | ----------------------------- | --- | --- | -----
|
|
|
|
| | 2008                          |     |     |      
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Stock-based compensation      |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Loss before taxes on income   |     |     |      
| | Taxes on income               |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net loss                      |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      

| |                               | NBU | TBU | Total
| | ----------------------------- | --- | --- | -----
|
|
|
|
| | 2007                          |     |     |      
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Stock-based compensation      |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Income before taxes benefit   |     |     |      
| | Tax benefit                   |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net income                    |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      
| |                               |     |    
| | 2006                          |     |    
| | Total revenues                |     |     | $    
| | Expenses                      |     |     |      
| | Patent settlement             |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Segment income                |     |     | $    
| |                               |     |     |      
| | Stock-based compensation      |     |     |      
| | Financial income              |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Income before tax benefit     |     |     |      
| | Tax benefit                   |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Net income                    |     |     |      
| |                               |     |     |      
| |                               |     |    
| | Depreciation and amortization |     |     | $    
| |                               |     |     |      

F - 34

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

|U.S. dollars in thousands
|-------------------------

|NOTE 13: |  | 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, 2006, 2007 and 2008 and long-lived assets as of December 31,
2006, 2007 and 2008 according to their geographic location:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   | 2006 | 2007 | 2008
| | ----------------- | ---- | ---- | ----
|
|
|
|
| | The Americas      |      |      | $   
| | Europe and Africa |      |      |     
| | 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, 2006, 2007 and 2008, one customer accounted           for
approximately 35.0%, 33.8% and 38.7%, respectively, of the Companys           sales
for that period.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 14: |  | RELATED PARTY BALANCES AND TRANSACTIONS
|-------- | - | ---------------------------------------

| | a. | Balances
with related parties:
| | -- | ------------------------------

| |                   | December 31,
| | ----------------- | ------------
|
|
|
|
| | Trade receivables |             
| |                   |             
| | Trade payables    |             

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: |  | RELATED PARTY 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 15: |  | TAXES ON INCOME
|-------- | - | ---------------

| | a. | The
Company adopted the provisions of FIN 48 on January 1, 2007. Prior to
               adoption of FIN 48, the Company used the provisions of SFAS 5 to determine
tax                contingencies. As of January 1, 2007, there was no material difference
between                the provision under FIN 48 and SFAS 5, therefore there was no
effect on the                Companys shareholders equity upon the Companys
adoption of FIN 48.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                                         | 
| | ------------------------------------------------------- | 
|
|
|
|
| | Gross unrecognized tax benefits as of January 1 ,2008   | 
| | Interest                                                | 
| |                                                         | 
| |                                                         | 
| | Gross unrecognized tax benefits as of December 31 ,2008 | 
| |                                                         | 

| | The
Company conducts business globally and, as a result, the Company or one or more of its
subsidiaries file income tax returns in the U.S. federal jurisdiction and various state
and foreign jurisdictions. In the normal course of business, the Company is subject to
examination by taxing authorities throughout the world, including such major
jurisdictions as Israel, China and the United States. With few exceptions, the Company is
no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations
for years prior to 2004 and is no longer subject to Israeli examinations for years prior
to 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 15: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | b. | Israeli
corporate tax structure:
| | -- | --------------------------------

| | Taxable
income of Israeli companies is subject to tax at the rate of 27% in 2008, 26% in 2009 and
25% in 2010 and thereafter.
| | -----------------------------------------------------------------------------------------------------------------------------

| | c. | 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 by the Investment
Center.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 letter 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 two capital investment programs that have been granted Approved Enterprise
status, under the Law for Encouragement of Capital Investments, 1959 (the Approved
Programs) and a third and a fourth program under Beneficiary Enterprise status
pursuant to the Amendment (the Beneficiary Programs). 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 29% and 27% in 2007 and 2008, respectively) for the remaining five to
eight years depending on the level of foreign ownership of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
duration of tax benefits detailed above for the Approved Enterprise is subject to limits
of 12 years from the year of commencement of production, or 14 years from the date of
granting the approval, whichever is earlier. The Companys Approved and Beneficiary
programs expire between the years 2009 and 2017. The Company began using the tax benefits
during the year 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 37

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 15: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | Out
of the Companys retained earnings as of December 31, 2008, approximately $9,800 are
tax-exempt earnings attributable to its Approved Enterprise programs and $12,700 are
tax-exempt earnings attributable to its Beneficiary Enterprise program. The tax-exempt
income attributable to the Approved and Beneficiary enterprises cannot be distributed to
shareholders without subjecting the Company to taxes. If these retained tax-exempt
profits are distributed, the Company would be taxed at the corporate tax rate applicable
to such profits as if the Company had not elected the alternative benefits track (as of
December 31, 2008, this tax rate is 20%). According to the Amendment, tax-exempt income
generated under the Beneficiary Enterprise will be taxed upon dividend distribution or
complete liquidation, whereas tax exempt income generated under the Approved Enterprises
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, 2008, if the
income attributed to the Approved Enterprises was distributed as a dividend, the Company
would incur a tax liability of approximately $2,450 at a rate of 20%, while if income
attributed to the Beneficiary Enterprise was distributed as dividend, including upon
liquidation, the Company would incur a tax liability in the amount of $3,193, also at a
rate of 20%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
amounts will be recorded as an income tax expense in the period in which the Company
declares the dividend or liquidates.
| | -------------------------------------------------------------------------------------------------------------------------------

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

| | The
benefits from the Companys Approved and Beneficiary Enterprise programs are
dependent upon the Company fulfilling the conditions stipulated by the 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 the Law, the Company is entitled to claim accelerated depreciation on equipment
used by the Approved Enterprises during five tax years. The Company chose not to utilize
this benefit in 2008. Income from sources other than the Approved and Beneficiary
Enterprises during the benefit period will be subject to tax at Israels regular
corporate tax rate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

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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: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | e. | During
the fourth quarter of 2007, the Company reached an agreement with the           Israeli
Tax Authorities regarding the final tax assessments for the years ended           December 31,
2003, 2004, and 2005. According to the agreement, the           Companys
carryforward tax losses were reduced by $5,421.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Income
taxes for non-Israeli subsidiaries:
| | -- | ------------------------------------------

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

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

| | g. | The
Companys U.S. subsidiarys carryforward tax losses through           December
31, 2008, amounted to approximately $5,760. 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 2026. Considering the Companys income projections,
          management concluded based on the weight of available evidence that it is more
          likely than not that the deferred tax asset associated with the net operating
          loss carryforward and the other deferred tax items will be partially utilized
in           coming years. See h 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | h. | 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                           |             
| | SFAS 123(R) - compensation cost                   |             
| | Intangible assets                                 |             
| | Research and development expenses                 |             
| |                                                   |             
| |                                                   |             
| | Net deferred tax asset before valuation allowance |             
| | Valuation allowance                               |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| | Domestic:                                         |             
| | Current deferred tax asset, net                   |             
| | Non current deferred tax asset, net               |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| | Foreign:                                          |             
| | Current deferred tax asset, net                   |             
| | Non current deferred tax asset, net               |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             
| |                                                   |             

| | 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 2008, the valuation allowance,
recorded in the previous years, was partially released in the net amount of $459, out of
which $95 was released against the income statement and $364 was released to additional
paid-in capital as it related to carryforward losses resulting from past exercise of
stock options.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 15: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

| | i. | The
Companys total income (loss) before provision for income taxes is as
          follows:
| | -- | --------------------------------------------------------------------------------------------

| |                   | Year ended December 31,
| | ----------------- | -----------------------
|
|
|
|
| | Domestic (Israel) |                        
| | Foreign           |                        
| |                   |                        
| |                   |                        
| |                   |                        
| |                   |                        

| | j. | The
tax benefits (expense)  are comprised as follows:
| | -- | -----------------------------------------------------

| |                    |  |  |  
| | ------------------ |  |  | -
|
|
|
|
| | Domestic (Israel): |  |  |  
| |                    |  | 
| | Current taxes      |  |  | $
| | Deferred taxes     |  |  |  
| | Prior years        |  |  |  
| |                    |  |  |  
| |                    |  | 
| | Total domestic     |  |  |  
| |                    |  |  |  
| |                    |  | 
| | Foreign:           |  | 
| |                    |  | 
| | Current taxes      |  |  |  
| | Deferred taxes     |  |  |  
| | Prior years        |  |  |  
| |                    |  |  |  
| |                    |  | 
| | Total foreign      |  |  |  
| |                    |  |  |  
| |                    |  | 
| |                    |  |  | $
| |                    |  |  |  

F - 41

---

---

|RADVISION
LTD. AND ITS SUBSIDIARIES
|-----------------------------------

|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------

---

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

|NOTE 15: |  | TAXES ON INCOME (Cont.)
|-------- | - | -----------------------

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

| |                                                    | Year ended December 31,
| | -------------------------------------------------- | -----------------------
|
|
|
|
| | Income (loss) 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 (expense) for prior years              |                        
| | Non-deductible stock-based compensation            |                        
| | Non-deductible expenses and others                 |                        
| |                                                    |                        
| |                                                    |                        
| | Actual tax expense (benefit), net                  |                        
| |                                                    |                        
| |                                                    |                        
| | **)  Basic net earnings (loss) per Ordinary share  |                        
| |                                                    |                        
| |                                                    |                        
| | **) Diluted net earnings (loss) per Ordinary share |                        
| |                                                    |                        

| | *) | The
tax rates for domestic income are 31%, 28% and 27% for the years 2006, 2007           and
2008, respectively. The tax rate for foreign income was 35% for the year           2006
and 34% for the years 2007 and 2008.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 16: |  | FINANCIAL INCOME, NET
|-------- | - | ---------------------

| |                                                                | Year ended December 31,
| | -------------------------------------------------------------- | -----------------------
|
|
|
|
| | Financial and other income:                                    |                        
| | Interest income                                                |                        
| | Exchange rate differences, net                                 |                        
| | Gain on redemption of colleterelized debt obligations          |                        
| | 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                                                    |                        
| | Realized loss on sale of marketable securities                 |                        
| | Commission and others                                          |                        
| | Other than temporary impairment of available-for-sale          |                        
| | marketable securities, net                                     |                        
| | Exchange rate differences, net                                 |                        
| |                                                                |                        
| |                                                                |                        
| |                                                                |                        
| |                                                                |                        

F - 42

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# RADVISION Ltd. and Subsidiaries
Schedule
IIValuation and Qualifying Account

|Column A                      | Column B | Column C | Column D | Column E 
|----------------------------- | -------- | -------- | -------- | ---------
|
|
|
|
|Year ended December 31, 2008: |          |          |          |          
|Allowance for doubtful        |          |         
|accounts                      |          |          |          | 805,000  
|Provision for slow-moving     |          |         
|inventory or technological    |          |         
|obsolescence                  |          |          |          | 1,997,000
|Deferred taxes valuation      |          |         
|allowances                    |          |          |          | 1,131,000
|                              |          |          |          |          
|Total                         |          |          | $        | 3,933,000
|                              |          |          |          |          
|Year ended December 31, 2007: |          |         
|Allowance for doubtful        |          |         
|accounts                      |          |          |          | 749,000  
|Provision for slow-moving     |          |         
|inventory or technological    |          |         
|obsolescence                  |          |          |          | 1,246,000
|Deferred taxes valuation      |          |         
|allowances                    |          |          |          | 1,378,000
|                              |          |          |          |          
|Total                         |          |          | $        | 3,373,000
|                              |          |          |          |          
|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
|                              |          |          |          |          

94

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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:
March 25, 2009

95

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