EX-99.1 2 v419803_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2015

IN U.S. DOLLARS

UNAUDITED

INDEX

	Page

Interim Condensed Consolidated Balance Sheets	2 - 3

Interim Condensed Consolidated Statements of Operations	4

Interim Condensed Consolidated Statements of Comprehensive Income (Loss)	5

Interim Condensed Statements of Changes in Equity	6

Interim Condensed Consolidated Statements of Cash Flows	7 - 8

Notes to Interim Condensed Consolidated Financial Statements	9 - 16

- - - - - - - - - - -

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

	June 30,		December 31,
	2015		2014
	Unaudited		Audited

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	15,307	$	14,797
Short-term and restricted bank deposits		4,361		7,630
Short-term marketable securities and accrued interest		4,100		543
Trade receivables (net of allowance for doubtful accounts of $ 2,737 (unaudited) and $ 2,437 at June 30, 2015 and December 31, 2014, respectively)		28,059		31,056
Other receivables and prepaid expenses		5,833		6,244
Deferred tax assets, net		2,446		3,320
Inventories		15,132		14,736

Total current assets		75,238		78,326

LONG-TERM ASSETS:
Long-term and restricted bank deposits and accrued interest		2,733		4,066
Long-term marketable securities		52,107		58,684
Deferred tax assets, net		-		872
Severance pay funds		18,579		17,835

Total long-term assets		73,419		81,457

PROPERTY AND EQUIPMENT, NET		4,226		3,856

INTANGIBLE ASSETS, NET		2,331		2,996

GOODWILL		33,749		33,749

Total assets	$	188,963	$	200,384

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

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

	June 30,			December 31,
	2015			2014
	Unaudited			Audited
LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Current maturities of long-term bank loans	$	4,686		$	4,686
Trade payables		6,442			10,111
Other payables and accrued expenses		16,401			15,758
Deferred revenues		12,166			10,233

Total current liabilities		39,695			40,788

LONG-TERM LIABILITIES:
Accrued severance pay		18,731			17,908
Long-term banks loans		2,763			5,105
Deferred revenues and other liabilities		3,896			2,862

Total long-term liabilities		25,390			25,875

COMMITMENTS AND CONTINGENT LIABILITIES

EQUITY:
Share capital -
Ordinary shares of NIS 0.01 par value -
Authorized: 100,000,000 (unaudited) shares at June 30, 2015 and 100,000,000 shares at December 31, 2014; Issued: 54,929,810 (unaudited) shares at June 30, 2015 and 54,785,756 shares at December 31, 2014; Outstanding: 40,036,128 (unaudited) shares at June 30, 2015 and 42,380,158 shares at December 31, 2014		118			125
Additional paid-in capital		237,398			235,760
Treasury stock at cost- 14,893,682 (unaudited) shares as of June 30, 2015 and 12,405,598 shares as of December 31, 2014		(52,354	)		(41,032	)
Accumulated other comprehensive income (loss)		1,887			(261	)
Accumulated deficit		(63,171	)		(60,871	)

Total equity		123,878			133,721

Total liabilities and equity	$	188,963		$	200,384

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

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Six months ended June 30,
	2015			2014
	Unaudited
Revenues:
Products	$	51,673		$	57,917
Services		18,212			15,600

Total revenues		69,885			73,517

Cost of revenues:
Products		23,821			26,193
Services		4,823			3,961

Total cost of revenues		28,644			30,154

Gross profit		41,241			43,363

Operating expenses:
Research and development, net		14,676			16,228
Selling and marketing		22,637			22,895
General and administrative		4,655			3,716

Total operating expenses		41,968			42,839

Operating income (loss)		(727	)		524
Financial income, net		606			102

Income (loss) before taxes on income		(121	)		626
Income tax expenses, net		(2,179	)		(950	)

Net loss	$	(2,300	)	$	(324	)

Net loss per share – basic and diluted	$	(0.06	)	$	(0.01	)

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

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands

	Six months ended June 30,
	2015			2014
	Unaudited

Net loss	$	(2,300	)	$	(324	)

Other comprehensive income ("OCI") related to:
Unrealized gain on marketable securities recognized in OCI		272			-

Other comprehensive income (“OCI”), related to:
Gain on derivatives recognized in OCI		1,613			-
Loss on derivatives (effective portion) recognized in income		263			-
Other comprehensive income, related to unrealized gains on cash flow hedges		1,876			-

Other comprehensive income		2,148			-

Total comprehensive loss	$	(152	)	$	(324	)

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

AUDIOCODES LTD.

INTERIM CONDENSED STATEMENTS OF CHANGES IN EQUITY

U.S. dollars in thousands

									Accumulated
				Additional					other
	Share			paid-in		Treasury			comprehensive			Accumulated			Total
	capital			capital		stock			income (loss)			deficit			equity
Balance as of December 31, 2013 (audited)	$	114		$	201,248	$	(35,768	)	$	-		$	(60,785	)	$	104,809
Purchase of treasury stock (audited)		(3	)		-		(5,264	)		-			-			(5,267	)
Issuance of ordinary shares (audited)		12			29,732		-			-			-			29,744
Issuance of shares upon exercise of options (audited)		2			2,234		-			-			-			2,236
Stock compensation related to options granted to employees (audited)		-			2,546		-			-			-			2,546
Other comprehensive loss (audited)		-			-		-			(261	)		-			(261	)
Net loss (audited)		-			-		-			-			(86	)		(86	)
Balance as of December 31, 2014 (audited)		125			235,760		(41,032	)		(261	)		(60,871	)		133,721
Purchase of treasury stock (unaudited)		(7	)		-		(11,322	)		-			-			(11,329	)
Issuance of shares upon exercise of options (unaudited)		-			331		-			-			-			331
Stock compensation related to options granted to employees (unaudited)		-			1,307		-			-			-			1,307
Other comprehensive income (unaudited)		-			-		-			2,148			-			2,148
Net loss (unaudited)		-			-		-			-			(2,300	)		(2,300	)
Balance as of June 30, 2015 (unaudited)	$	118		$	237,398	$	(52,354	)	$	1,887		$	(63,171	)	$	123,878

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

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Six months ended June 30,
	2015			2014
	Unaudited
Cash flows from operating activities:

Net loss	$	(2,300	)	$	(324	)
Adjustments required to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,627			1,629
Amortization of marketable securities premiums and accretion of discounts, net		552			195
Stock-based compensation expenses		1,307			1,316
Decrease in accrued interest on loans, convertible notes, marketable securities, bank deposits and structured notes		29			159
Decrease in deferred tax assets, net		1,746			961
Decrease (increase) in trade receivables, net		2,997			(4,363	)
Decrease (increase) in other accounts receivable and prepaid expenses		1,936			(2,364	)
Increase in inventories		(396	)		(234	)
Increase (decrease) in trade payables		(3,669	)		546
Increase in other accounts payable and accrued expenses		950			953
Increase in deferred revenues		3,212			3,273
Increase (decrease) in accrued severance pay, net		79			(186	)

Net cash provided by operating activities		8,070			1,561

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

AUDIOCODES LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Six months ended June 30,
	2015			2014
	Unaudited
Cash flows from investing activities:

Purchase of marketable securities		-			(60,170	)
Proceeds from redemption and sale of marketable securities		2,711			15,390
Decrease in short-term deposits		3,269			1,000
Proceeds from redemption of long-term bank deposits		1,365			1,381
Purchase of property and equipment		(1,332	)		(719	)

Net cash provided by (used in) investing activities		6,013			(43,118	)

Cash flows from financing activities:

Purchase of treasury stock		(11,329	)		-
Repayment of senior convertible notes		-			(285	)
Repayment of long-term bank loans		(2,342	)		(2,343	)
Proceeds from issuance of shares upon exercise of stock options and warrants		331			2,112
Proceeds from issuance of shares, net of issuance cost in the amount of $ 2,456		-			29,744
Consideration related to payment of acquisition of Mailvision		(233	)		(233	)

Net cash provided by (used in) financing activities		(13,573	)		28,995

Increase (decrease) in cash and cash equivalents		510			(12,562	)
Cash and cash equivalents at the beginning of the period		14,797			30,763

Cash and cash equivalents at the end of the period	$	15,307		$	18,201

Supplemental disclosure of cash flow activities:

Cash paid during the period for income taxes	$	148		$	185

Cash paid during the period for interest	$	175		$	229

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

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1:-

GENERAL

Business overview:

AudioCodes Ltd. (the "Company") and its subsidiaries (together the "Group") design, develop and market products and services for voice, data and video over IP networks to service providers and channels (such as distributors), OEMs, network equipment providers and systems integrators.

The Company operates through its wholly-owned subsidiaries in the United States, Europe, Asia, Latin America and Israel.

The Group's major customer in the six months ended June 30, 2015, and 2014, accounted for 11.8% (unaudited) and 14.3% (unaudited) of the Group's revenues in those periods, respectively. No other customer accounted for more than 10% of the Group's revenues in those periods.

Asset Purchase Agreement with Mailvision Ltd ("Mailvision"):

In April 2013, the Company entered into an asset purchase agreement with Mailvision, an Israeli company which develops, markets and licenses VoIP solutions for mobile, PC and tablet devices for telecom operators and service providers, in which the Company held 29.2% of the outstanding share capital. Pursuant to the agreement, in May 2013, the Company acquired certain assets and assumed certain liabilities of Mailvision.

In May 2015, the Company paid an earn-out consideration of $ 233 and shall pay an additional amount of $ 233 in May 2016, due to meeting certain milestones of revenues. (See also Note 5 for changes in the fair value of contingent consideration liabilities related to Mailvision's acquisition).

The Group is dependent upon sole source suppliers for certain key components used in its products, including certain digital signal processing chips. Although there are a limited number of manufacturers of these particular components, management believes that other suppliers could provide similar components at comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which could adversely affect the operating results of the Group and its financial position.

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2014, are applied consistently in these financial statements. For further information refer to the consolidated financial statements as of December 31, 2014.

Interim financial statements:

The interim condensed consolidated balance sheet as of June 30, 2015 and the related interim condensed consolidated statements of operations, comprehensive loss and cash flows for the six months ended June 30, 2015 and 2014, and the statement of changes in equity for the six months ended June 30, 2015, are unaudited. This unaudited information has been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements, and on the same basis as the audited annual consolidated financial statements. In management's opinion, this unaudited information reflects all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles, for interim financial reporting for the periods presented and accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These interim condensed consolidated financial statements should be read in conjunction with the 2014 Annual consolidated financial statements and the notes thereto. The interim condensed consolidated balance sheet data as of December 31, 2014 was derived from the 2014 Annual Consolidated Financial Statements, but does not include all disclosures required by U.S. GAAP.

Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. As applicable to these interim condensed consolidated financial statements, the most significant estimates and assumptions relate to revenue recognition and allowance for sales returns, allowance for doubtful accounts, inventories, intangible assets, goodwill, income taxes and valuation allowance, stock-based compensation and contingent liabilities. Actual results could differ from those estimates.

Impact of recently issued accounting standard not yet adopted:

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers". ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Insurance contracts do not fall within the scope of this ASU. The effective date of ASU 2014-09 is for annual reporting periods beginning after December 15, 2017. In July 2015, the FASB decided to defer by one year the effective date of this ASU. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3:-

MARKETABLE SECURITIES AND ACCRUED INTEREST

The following is a summary of available for sale marketable securities:

	June 30, 2015
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			Value
	Unaudited
Corporate debentures:
Maturing within one year	$	3,584	$	14	$	(12	)	$	3,586
Maturing between one to five years		52,225		49		(167	)		52,107
Accrued interest		514		-		-			514

	$	56,323	$	63	$	(179	)	$	56,207

	December 31, 2014
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			Value
	Audited
Corporate debentures:
Maturing between one to five years	$	59,072	$	12	$	(400	)	$	58,684
Accrued interest		543		-		-			543

	$	59,615	$	12	$	(400	)	$	59,227

These investments were issued by highly rated corporations. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investment. As of June 30, 2015 and December 31, 2014, the Group did not have any investment in marketable securities that was in an unrealized loss position for a period of twelve months or greater. Since the Company had the ability and intent to hold these investments until an anticipated recovery of fair value, which may be until maturity, the Company did not consider these investments to be other-than-temporarily impaired as of June 30, 2015. Unrealized gains (losses) are valued using alternative pricing sources and models utilizing market observable inputs.

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4:-

INVENTORIES

	June 30,		December 31,
	2015		2014
	Unaudited		Audited

Raw materials	$	6,158	$	6,794
Finished products		8,974		7,942

	$	15,132	$	14,736

In the six months ended June 30, 2015 and 2014, the Group wrote-off inventories in a total amount of $ 67 (unaudited) and $ 60 (unaudited), respectively.

NOTE 5:-

FAIR VALUE MEASUREMENTS

In accordance with Accounting Statdards Codification ("ASC") No. 820, "Fair Value Measurements and Disclosures", the Group measures its foreign currency derivative instruments and its contingent consideration relating to the Mailvision acquisition, at fair value. Investments in foreign currency derivative instruments and debt securities are classified within Level 2 value hierarchy. This is because these assets are valued using alternative pricing sources and models utilizing market observable inputs.

The Group's financial assets and liabilities measured at fair value on a recurring basis, consisted of the following types of instruments as of the following dates:

	June 30, 2015
	Fair value measurements using input type
	Level 2		Level 3			Total
	Unaudited
Financial assets related to foreign currency derivative hedging contracts	$	2,002	$	-		$	2,002
Marketable securities		56,207		-			56,207
Contingent consideration related to Mailvision		-		(221	)		(221	)

Total Financial assets (liability)	$	58,209	$	(221	)	$	57,988

	December 31, 2014
	Fair value measurements using input type
	Level 2		Level 3			Total
	Audited
Financial assets related to foreign currency derivative hedging contracts	$	127	$	-		$	127
Marketable securities		59,227		-			59,227
Contingent consideration related to Mailvision		-		(443	)		(443	)

Total Financial assets (liability)	$	59,354	$	(443	)	$	58,911

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5:-

FAIR VALUE MEASUREMENTS (Cont.)

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

Balance at January 1, 2015 (audited)	$	(443	)
Payment of earn out liability (unaudited)		233
Adjustment due to time change value (unaudited)		(11	)

Balance at June 30, 2015 (unaudited)	$	(221	)

NOTE 6:-

COMMITMENTS AND CONTINGENT LIABILITIES

Lease commitments:

The Company's facilities are rented under several lease agreements in Israel, Europe and the U.S. for periods ending in 2024.

As of June 30, 2015, future minimum rental commitments under non-cancelable operating leases are as follows:

Year ending June 30,
	Unaudited
2016	$	6,791
2017		6,783
2018		6,375
2019		5,557
2020 and on		25,294

Total minimum lease payments *)	$	50,800

Minimum payments have been reduced by minimum sublease rental of $ 462 (unaudited) due in the future under non-cancelable subleases.

In connection with the Company's offices lease agreement in Israel, the lessor has a lien of approximately $ 1,500 (unaudited) which is included in short-term and restricted bank deposits.

Rent expenses for the six months ended June 30, 2015 and 2014, were approximately $ 3,052 (unaudited) and $ 3,150 (unaudited), respectively.

Inventory commitments:

The Company is obligated under certain agreements with its suppliers to purchase specified items of excess inventory. Non-cancelable obligations as of June 30, 2015, were $ 14,550 (unaudited).

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

Royalty commitment to the Office of the Chief Scientist of the Israeli Ministry of Economy ("OCS"):

As of June 30, 2015 and December 31, 2014 , the Company and its Israeli subsidiaries have a contingent obligation to pay royalties in the amount of $ 42,473 (unaudited) and $ 39,559 (audited), respectively.

As of June 30, 2015 and December 31, 2014, the Company and its Israeli subsidiaries have paid or accrued royalties to the OCS in the amount of $ 4,110 (unaudited) and $ 3,423 (audited), respectively, which was recorded as cost of revenues.

NOTE 7:-

BASIC AND DILUTED NET LOSS PER SHARE

	Six months ended June 30,
	2015			2014
	Unaudited
Numerator:

Net loss available to ordinary shareholders	$	(2,300	)	$	(324	)

Denominator:

Denominator for basic loss per share - weighted average number of ordinary shares, net of treasury stock		41,390,523			41,599,731
Effect of dilutive securities:
Employee stock options		-	*)		-	*)
Senior convertible notes		-			-	**)

Denominator for diluted net loss per share - adjusted weighted average number of shares		41,390,523			41,599,731

Antidilutive.

**)

Insignficant.

NOTE 8:-

DERIVATIVE INSTRUMENTS

The Group enters into hedge transactions with a major financial institution, using derivative instruments, primarily forward contracts and options to purchase and sell foreign currencies, in order to reduce the net currency exposure associated with anticipated expenses (primarily salaries and rent expenses) in currencies other than the dollar. The Group currently hedges such future exposures for a maximum period of one year. However, the Group may choose not to hedge certain foreign currency exchange exposures for a variety of reasons, including but not limited to immateriality, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates.

The Group records all derivatives in the consolidated balance sheet at fair value. The effective portions of cash flow hedges are recorded in other comprehensive income until the hedged item is recognized in earnings. The ineffective portions of cash flow hedges are adjusted to fair value through earnings in financial income or expense.

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8:-

DERIVATIVE INSTRUMENTS (Cont.)

As of June 30, 2015 and December 31, 2014, the Group had a net deferred gain associated with cash flow hedges of $ 2,002 (unaudited), and $ 127 recorded in other comprehensive income, respectively.

The Group entered into forward and options contracts that did not meet the requirement for hedge accounting. The Group measured the fair value of the contracts in accordance with ASC 820, at Level 2. The net gains recognized in "financial income, net" during the six month ended June 30, 2014 were $ 165. During the six month ended June 30, 2015 there were no net gains (losses) recognized in "financial income, net".

As of June 30, 2015 and December 31, 2014, the Group had outstanding forward and options collar (cylinder) contracts in the amount of $ 41,070 and $ 43,500 which were designated as payroll and rent hedging contracts.

The fair value of the Group's outstanding derivative instruments and the effect of derivative instruments in cash flow hedging relationship on other comprehensive income for the periods ended June 30, 2015 and December 31, 2014 are summarized below:

Foreign exchange forward		June 30,		December 31,
and options contracts	Balance sheet	2015		2014

Fair value of foreign exchange forward and options collar (cylinder) contracts	"Other receivables and prepaid expenses"	$	2,002	$	446
	"Other payables and accrued expenses"	$	-	$	(319	)

Gains (losses) recognized in other comprehensive income (loss) (effective portion)	"Other comprehensive income (loss)"	$	2,002	$	127

NOTE 9:-

GEOGRAPHIC INFORMATION

Summary information about geographic areas:

The Group manages its business on a basis of one reportable segment (see Note 1 for a brief description of the Group's business). The data is presented in accordance with ASC 280, "Segment Reporting". Revenues in the table below are attributed to geographical areas based on the location of the end customers.

AUDIOCODES LTD.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 9:-

GEOGRAPHIC INFORMATION (Cont.)

The following presents total revenues for the six months ended June 30, 2015 and 2014.

	Six months ended June 30,
	2015		2014
	Unaudited

Americas	$	37,076	$	37,170
Europe		18,204		21,093
Far East		10,977		10,771
Israel		3,628		4,483

	$	69,885	$	73,517

The following presents long-lived assets as of June 30, 2015 and December 31, 2014.

	June 30, 2015		December 31, 2014
	Unaudited		Audited

Israel	$	3,954	$	3,576
Americas		123		141
Europe		58		56
Far East		91		83

	$	4,226	$	3,856

Product lines:

Total revenues from external customers divided on the basis of the Company's product lines are as follows:

	Six months ended June 30,
	2015		2014
	Unaudited

Networking	$	61,111	$	64,103
Technology		8,774		9,414

	$	69,885	$	73,517

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