OBAS » Topics » 5C. Research and Development

This excerpt taken from the OBAS 20-F filed Jun 29, 2009.

5.C. RESEARCH AND DEVELOPMENT

        Research and development expenses, net, consist primarily of labor expenses, development-related raw materials and subcontractors’ services and related overhead, offset by grants. Our net research and development expenses have increased from $4.2 millions in 2006 to $5.4 million in 2007 and to $6.4 million in 2008. As a percentage of revenues, our net research and development expenses changed to approximately 32% in 2008 from approximately 23.3% in 2007 and approximately 23.4% in 2006. Our level of research and development expenses increased over the years. The increase in research and development expenses between 2008 and 2007 can primarily be attributed to the decrease in our research and development grants received from the OCS and the European Union and the increase in compensation expenses due to the devaluation of the USD against the NIS. The increase in research and development expenses between 2007 and 2006 can primarily be attributed to the increase in salaries and related costs mainly as a result of an increase in our research and development headcount. The increase can also be attributed to the increase in other expenses mainly subcontractors costs. Research and development grants totaled $1.1 million in 2008, $1.8 million in 2007 and $1.9 million in 2006.

        For grants received from certain entities, see “Item 4.B. Business Overview – Research and Development” above.

This excerpt taken from the OBAS 20-F filed Jun 27, 2008.

Research and Development

          We believe that our innovative and versatile technology is at the core of our strength, and that our ability to enhance our current products, to develop and to introduce new products, to maintain technological competitiveness and to meet customer requirements is essential to our future success. Accordingly, we devote and intend to continue to devote significant human and financial resources to research and development.

          As part of the process of product development, we work closely with current and potential customers, dealers, distributors and leading companies in relevant industries to identify market needs and define appropriate product specifications. As of June 25, 2008, our research and development department was comprised of 45 employees all of whom are located in our headquarters in Israel. Our research and development net expenses were $4 million in 2005, $4.2 million in 2006, and $5.4 million in 2007.

          Our research and development efforts have been financed through internal resources as well as through programs sponsored by the Israeli OCS, in the Israeli Ministry of Industry and Trade, and the European Union Research and Development Program. The total funding from these sources was $2.1 million in 2005, $1.9 million in 2006, and $1.8 million in 2007.

          Under the Encouragement of Industrial Research and Development Law, of 1984, or the R&D Law, and the terms of the OCS grants we are subject to three main obligations: (i) the obligation to locally manufacture the OCS supported products; manufacturing the OCS supported products outside of Israel, that resulted in a reduction if more than 10% of the local manufacturing rate, is subject to the OCS’s prior written approval and the payment of an increased total amount of royalties, which may be up to 300% of the grant amount plus interest, depending on the manufacturing volume that is performed outside of Israel, at an increased annual return rate; (ii) the obligation not to transfer know how, that was developed as a result of grants received from the OCS (in the course of an ‘approved plan’), outside the State of Israel; Under section 19B of the R&D Law, the Research Committee is authorized to approve the transfer of know-how, that results from research and development made in the course of an ‘approved plan’, outside of Israel pursuant to certain terms, including payment of a redemption fee; and (iii) the obligation to pay royalties to the OCS whenever the company successfully commercializes OCS funded products. Thus, as described above, the terms of the OCS grants limit us from manufacturing products or transferring technologies developed using these grants outside of Israel without special approvals, which may or may not be granted. Even if we receive approval to manufacture the OCS supported products outside of Israel, we would be required to pay an increased total amount of royalties, which may be up to 300% of the grant amount plus interest, depending on the manufacturing volume that is performed outside of Israel at an increased annual return rate. Israeli Law for Encouragement of Industrial Research and Development, 1984, permits the transfer of OCS financed technology outside of Israel, under certain conditions and subject to receipt of approval from the OCS for such transfer. Through December 31, 2007, we received grants from the OCS aggregating $7.0 million for certain of our research and development projects. As of December 31, 2007, accrued and paid royalties to the OCS totaled $3.8 million. As of December 31, 2007 the Company had an outstanding contingent obligation to pay royalties in the amount of approximately $3.2 million plus interest.

          In addition to the programs mentioned above the OCS provides royalty-free grants through the MAGNET project which dedicates its funds to the development of generic technology by consortia of Israeli companies in Israel. We have already participated in two consortiums under the MAGNET project, MOST and STRIMM and are currently participating in the NEGEV consortium. The goal of the NEGEV consortium is to develop the infrastructure and techniques for the processing, management and delivery of content to facilitate personalized, on-demand services over broadband and mobile networks. This consortium began operation in August 2006.

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          Through December 31, 2007, we recorded grants from the MAGNET, MOST, STRIMM and NEGEV consortiums, aggregating $5.6 million. To maintain our eligibility for these programs and tax benefits, we must continue to meet conditions, including payment of royalties, amounting to 3%-5% of the sales of the products and other related revenues generated from such projects, up to 100% of the grants received, linked to the U.S. dollar and for grants received after January 1, 1999 also bearing interest at the rate of LIBOR. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required.

          We are also involved in joint development projects with large European companies under the auspices of, and with financial assistance from, the European Union Research and Development Framework Programs. We have been active contributors in many such projects and have been the coordinator of three: VideoGateway, MUFFINS and TIRAMISU.

          The VideoGateway project developed a gateway between the narrow band internet and the next generation broadband internet for the purpose of offering live and on-demand video content. MUFFINS was established to investigate the problem of description, delivery and protection of rich-media content, and to propose different scenarios for using that content. The scenarios include the definition and search for the content, as well as the delivery and the related handling of rights management. TIRAMISU proposes a protected framework for the creation, delivery and consumption of audio-visual media across a wide range of hybrid networks and platforms.

          We believe that participation in such projects increases our exposure to new technologies, products and potential customers. Within the EU framework we have cooperated closely with large European organizations such as France Telecom, Alcatel, T-Systems, Siemens AG, Fraunhofer, Telefónica I+D and THALES. These programs provide royalty-free funding to consortia of industrial companies and academic institutions aimed at improving the competitiveness of European industry through technological research and development, partnerships and strategic alliances.

          Through December 31, 2007 we have obtained approvals for grants for fifteen research and development projects for a total amount of approximately $7.6 million (of which approximately $7.1 million has already been offset against research and development expenses).

This excerpt taken from the OBAS 20-F filed May 14, 2007.

5C. Research and Development

        Research and development expenses, net, consist primarily of labor expenses, development-related raw materials and subcontractors’ services and related overhead, offset by grants. Our net research and development expenses have decreased from $3.8 million in 2004 to $4 millions in 2005 and increased to 4.2 million in 2006. As a percentage of revenues, our net research and development expenses changed to approximately 23% in 2006 from approximately 21% in 2005 and approximately 21% in 2004. Our level of research and development expenses stayed relatively the same over the years. Research and development grants totaled $1.9 million in 2006, $2.1 million in 2005 and $2 million in 2004

        For grants received from certain entities, see Item 4B. “Business Overview - Research and Development” above.

This excerpt taken from the OBAS 20-F filed Apr 12, 2006.

5C. Research and Development

        Research and development expenses, net, consist primarily of labor expenses, development-related raw materials and subcontractors’ services and related overhead, offset by grants. Our net research and development expenses have increased from $4.8 million in 2003 to $6.3 million in 2004 and decreased to 4.6 million in 2005, constituting a decrease of approximately 26% from the previous year. As a percentage of revenues, our net research and development expenses changed to approximately 21% in 2005 from approximately 30% in 2004 and approximately 25% in 2003. The decrease in research and development expenses can primarily be attributed to the restructuring and cost reductions plan executed during 2005 in our Digital Non-Linear Editing product line totaling approximately $1.8 million which was offset by an increase in development–related raw materials and subcontractors services. Research and development grants totaled $2.1 million in 2005, $2 million in 2004 and $2.2 million in 2003. We expect research and development expenses to decrease in absolute dollars and as a percentage of revenues during 2006 primarily as a result of the management’s ongoing efforts to tighten cost controls and improve financial performance while introducing additional products and conducting ongoing improvements to our standard and custom products. We receive grants from certain entities, see Item 4B. “Business Overview” above under the heading “Research and Development”.

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This excerpt taken from the OBAS 20-F filed Jun 10, 2005.

    Research and Development

        We believe that our innovative and versatile technology is at the core of our strength, and that our ability to enhance our current products, to develop and to introduce new products, to maintain technological competitiveness and to meet customer requirements is essential to our future success. Accordingly, we devote and intend to continue to devote significant human and financial resources to research and development. For example, we are currently developing technologies for a High Definition video encoder to be incorporated into the MovieMaker product line. We continue to add new functionality to our products. For instance, we recently added support for MXF. MXF is an open standard that enables exchange of multimedia files prepared during the production and post-production workflow. We are also researching algorithms to improve the quality of our encoders using advanced preprocessing.

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        As part of the process of product development, we work closely with current and potential customers, dealers, distributors and leading companies in relevant industries to identify market needs and define appropriate product specifications. As of May 31, 2005, our research and development department was comprised of 48 employees all of whom are located in our headquarters in Israel and our facilities in Massachusetts. Our research and development net expenses were $8.1 million in 2002, $4.8 million in 2003, and $6.3 million in 2004. During the quarter ended June 30, 2004 in connection with the acquisition of certain assets and liabilities we recorded write off of in process research and development associated with the Media 100 HD. Research and development grants we received from the OCS and the European Union Research and Development Program were $2.2 million in 2002, $2.2 million in 2003, and $2 million in 2004.

        Our research and development efforts have been financed through internal resources as well as through programs sponsored by the Office of the Chief Scientist, or OCS, in the Israeli Ministry of Industry and Trade, and the European Union Research and Development Program. Generally, grants from the OCS constitute up to 50% of qualifying research and development expenditures for particular approved projects. Under the terms of the OCS participation, a royalty of 3% to 5% is due on revenues from sales of products and related services that are developed from projects funded by the OCS. Royalty obligations vary between 100% and 150% of the dollar-linked amount of the OCS grant. Royalties on grants recorded for programs beginning on or after January 1, 1999 bear interest linked to the LIBOR. The terms of the OCS grants prohibit us from manufacturing products or transferring technologies developed using these grants outside of Israel without special approvals. Even if we receive approval to manufacture the OCS supported products outside of Israel, we would be required to pay an increased total amount of royalties, which may be up to 300% of the grant amount plus interest, depending on the manufacturing volume that is performed outside of Israel. On March 29, 2005, the Israeli parliament approved an amendment to Israeli Law for Encouragement of Industrial Research and Development, which permits under certain conditions the transfer of such technology outside of Israel, including the payment of a redemption price to be determined under regulations that have not yet been promulgated. Through December 31, 2004, we received grants from the OCS aggregating $5.3 million for certain of our research and development projects. As of December 31, 2004, accrued and paid royalties to the OCS totaled $3.3 million.

        In addition to the general OCS grants, we have received OCS royalty-free grants through our participation in consortium research programs supported by the MOST Consortium and the STRIMM Consortium, which participate in the OCS Magnet royalty-free program. One of the goals of the MOST project was the creation and distribution of digital video over networks for on-line services. The MOST consortium project was terminated on March 31, 2000. The goals of the STRIMM project are to provide seamless usage of internet-base video and audio mail messaging services. Various clients (using a PC, PDA, cellular phone or similar terminals) on various access networks (broadband and narrowband) would be able to receive and play video messages in stream mode without the need to download the (large) video message to their device. Video format and network protocols will be transcoded without user intervention, according to the connection and device capabilities of the terminal. The STRIMM project started in July 2000 and will continue until July 2005. Through December 31, 2004, we recorded grants from the MAGNET, MOST and STRIMM consortiums, aggregating $4.5 million.

        We are also involved in joint development projects with large European companies, such as Philips research, Deutsche Telecom, TDF, Aerospatiale Matra, Beta Research and THALES, conducted under the auspices of, and with financial assistance from, the European Union Research and Development Program. Among the goals of these projects are providing solutions aimed at bridging between video streaming standards for the broadband and narrowband Internet and the development of tools and applications for the creation and secure distribution of digital video content. We believe that participation in such projects increases our exposure to new technologies, products and potential customers. These programs provide royalty-free funding to consortia of industrial companies and academic institutions aimed at improving the competitiveness of European industry through technological research and development, partnerships and strategic alliances. Through December 31, 2004 we have obtained approvals for grants for thirteen research and development projects for a total amount of approximately $6.4 million (of which approximately $4.8 million has already been offset against research and development expenses).

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