10-Q

United States
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________

FORM 10-Q

(Mark One)

  ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

or

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

For the transition period from             to

Commission File Number 1-35256

___________

DSP GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-2683643
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)
161 S. San Antonio Road, Suite 10 Los Altos, California	94022
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 986-4300

___________

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 4, 2017, there were 22,249,706 shares of Common Stock ($.001 par value per share) outstanding.

INDEX

DSP GROUP, INC.

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed consolidated balance sheets—June 30, 2017 and December 31, 2016	2
	Condensed consolidated statements of operations—Three months ended June 30, 2017 and 2016	4
	Condensed consolidated statements of cash flows—Three months ended June 30, 2017 and 2016	7
	Condensed consolidated statements of stockholders’ equity—Three months ended June 30, 2017 and 2016	8
	Notes to condensed consolidated financial statements—June 30, 2017	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosure	54
Item 5.	Other Information	54
Item 6.	Exhibits	55
SIGNATURES		56

1

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DSP GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	June 30, 2017		December 31, 2016
	Unaudited		Audited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	17,862	$	17,752
Restricted deposits		90		70
Marketable securities and short-term deposits		33,476		29,031
Trade receivables		14,624		19,069
Other accounts receivable and prepaid expenses		2,806		2,331
Inventories		10,641		9,748
TOTAL CURRENT ASSETS		79,499		78,001
PROPERTY AND EQUIPMENT, NET		3,837		4,130
NON-CURRENT ASSETS:
Long-term marketable securities		74,357		78,092
Long-term prepaid expenses and lease deposits		1,457		1,329
Deferred income taxes		720		918
Severance pay fund		14,446		12,751
Intangible assets, net		3,630		4,480
Goodwill		6,243		6,243
		100,853		103,813
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS	$	184,189	$	185,944

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

2

DSP GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	June 30, 2017			December 31, 2016
	Unaudited			Audited
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	$	11,342		$	12,540
Accrued compensation and benefits		7,867			8,666
Income tax accruals and payables		879			1,137
Accrued expenses and other accounts payable		3,868			3,556
TOTAL CURRENT LIABILITIES		23,956			25,899
NON-CURRENT LIABILITIES:
Deferred income taxes		589			787
Accrued severance pay		14,663			12,908
Accrued pensions		862			803
TOTAL NON-CURRENT LIABILITIES		16,114			14,498
STOCKHOLDERS’ EQUITY:
Capital stock:
Common stock, $ 0.001 par value -
Authorized shares: 50,000,000 shares at June 30, 2017 and December 31, 2016; Issued and outstanding shares: 22,150,957 and 21,931,157 shares at June 30, 2017 and December 31, 2016, respectively		22			22
Additional paid-in capital		369,209			366,121
Treasury stock at cost		(120,854	)		(122,632	)
Accumulated other comprehensive loss		(1,391	)		(1,852	)
Accumulated deficit		(102,867	)		(96,112	)
TOTAL STOCKHOLDERS’ EQUITY		144,119			145,547
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	184,189		$	185,944

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

3

DSP GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(U.S. dollars in thousands, except per share amounts)

	Three months ended					Six months ended
	June 30,					June 30,
	2017			2016		2017			2016
Revenues	$	31,301		$	36,164	$	59,234		$	63,823
Cost of revenues (1)		16,804			20,279		32,490			36,221
Gross profit		14,497			15,885		26,744			27,602
Operating expenses:
Research and development, net (2)		9,161			9,036		18,351			17,925
Sales and marketing (3)		3,430			3,323		7,005			6,715
General and administrative (4)		2,372			2,275		4,859			4,558
Intangible assets amortization		425			321		850			642
Total operating expenses		15,388			14,955		31,065			29,840
Operating income (loss)		(891	)		930		(4,321	)		(2,238	)
Financial income		418			273		834			565
Income (loss) before taxes on income		(473	)		1,203		(3,487	)		(1,673	)
Taxes on income (tax benefit)		113			123		(35	)		160
Net income (loss)	$	(586	)	$	1,080	$	(3,452	)	$	(1,833	)
Net earnings (loss) per share:
Basic	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Diluted	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Weighted average number of shares used in per share computations of net earnings (loss):
Basic		22,180			21,739		22,141			21,725
Diluted		22,180			22,845		22,141			21,725

(1) Includes equity-based compensation expense in the amount of $94 and $83 for the three months ended June 30, 2017 and 2016, and $191 and $144 for the six months ended June 30, 2017 and 2016, respectively.

(2) Includes equity-based compensation expense in the amount of $623 and $521 for the three months ended June 30, 2017 and 2016, respectively; and $1,239 and $947 for the six months ended June 30, 2017 and 2016, respectively.

(3) Includes equity-based compensation expense in the amount of $297 and $194 for the three months ended June 30, 2017 and 2016, respectively; and $597 and $325 for the six months ended June 30, 2017 and 2016, respectively.

(4) Includes equity-based compensation expense in the amount of $543 and $461 for the three months ended June 30, 2017 and 2016, respectively; and $1,061 and $828 for the six months ended June 30, 2017 and 2016, respectively.

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

4

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (U.S. dollars in thousands)

	Three months ended June 30,
	2017			2016
Net income (loss):	$	(586	)	$	1,080
Other comprehensive income (loss):
Available-for-sale securities:
Changes in unrealized gains/losses		156			205
Reclassification adjustments for losses included in net loss		11			7
Net change		167			212
Cash flow hedges:
Changes in unrealized gains/losses		49			(110	)
Reclassification adjustments for gains included in net loss		(78	)		(14	)
Net change		(29	)		(124	)
Change in unrealized components of defined benefit plans:
Amortization of actuarial loss and prior service benefit		5			4
Net change		5			4
Foreign currency translation adjustments, net		3			18
Other comprehensive income		146			110
Comprehensive income (loss)	$	(440	)	$	1,190

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

5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) (U.S. dollars in thousands)

	Six months ended June 30,
	2017			2016
Net loss:	$	(3,452	)	$	(1,833	)
Other comprehensive income (loss):
Available-for-sale securities:
Changes in unrealized gains/losses		360			618
Reclassification adjustments for losses included in net loss		58			33
Net change		418			651
Cash flow hedges:
Changes in unrealized gains/losses		192			58
Reclassification adjustments for (gains) losses included in net loss		(153	)		15
Net change		39			73
Change in unrealized components of defined benefit plans:
Amortization of actuarial loss and prior service benefit		10			8
Net change		10			8
Foreign currency translation adjustments, net		(6	)		61
Other comprehensive income		461			793
Comprehensive loss	$	(2,991	)	$	(1,040	)

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

6

DSP GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(U.S. dollars in thousands)

	Six months ended June 30,
	2017			2016
Net cash provided by operating activities	$	3,091		$	4,760
Investing activities
Purchases of marketable securities		(15,375	)		(26,112	)
Proceeds from maturity of marketable securities		9,388			21,500
Investment in short-term deposits		(3,000	)		-
Proceeds from sales of marketable securities		8,578			7,987
Purchases of property and equipment		(625	)		(1,012	)
Increase in restricted deposits		(20	)		-
Net cash provided by (used in) investing activities		(1,054	)		2,363
Financial activities
Purchase of treasury stock		(2,629	)		(3,737	)
Issuance of treasury stock upon exercise of stock options		681			666
Net cash used in financing activities		(1,948	)		(3,071	)
Increase in cash and cash equivalents		89			4,052
Erosion due to exchange rate differences		21			52
Cash and cash equivalents at the beginning of the period		17,752			13,704
Cash and cash equivalents at the end of the period	$	17,862		$	17,808

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

7

DSP GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(U.S. dollars in thousands)

Three months ended June 30, 2016	Number of common stock			Common stock		Additional paid-In capital		Treasury stock			Accumulated deficit			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance at March 31, 2016		21,697		$	22	$	362,008	$	(124,212	)	$	(96,109	)	$	(584	)	$	141,125
Net income		-			-		-		-			1,080			-			1,080
Change in accumulated other comprehensive income		-			-		-		-			-			110			110
Purchase of treasury stock		(132	)		*)		-		(1,270	)		-			-			(1,270	)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		-			-		-		-			-			-			-
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		178			*)		-		1,773			(1,647	)					86
Equity-based compensation		-			-		1,259		-			-			-			1,259
Balance at June 30, 2016		21,743		$	22	$	363,267	$	(123,749	)	$	(96,676	)	$	(474	)	$	142,390
Three months ended June 30, 2017
Balance at March 31, 2017		22,169		$	22	$	367,652	$	(120,404	)	$	(101,276	)	$	(1,537	)	$	144,457
Net loss		-			-		-		-			(586	)		-			(586	)
Change in accumulated other comprehensive income		-			-		-		-			-			146			146
Purchase of treasury stock		(124	)		*)		-		(1,490	)		-			-			(1,490	)
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		106			*)		-		1,040			(1,005	)					35
Equity-based compensation		-			-		1,557		-			-			-			1,557
Balance at June 30, 2017		22,151		$	22	$	369,209	$	(120,854	)	$	(102,867	)	$	(1,391	)	$	144,119

(*) Represents an amount lower than $1.

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

8

DSP GROUP, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(U.S. dollars in thousands and shares in thousands)

	Number of common stock			Common stock		Additional paid-in capital		Treasury stock			Accumulate deficit			Other comprehensive income (loss)			Total stockholders’ equity
Six months ended June 30, 2016
Balance at December 31, 2015		21,573		$	22	$	361,023	$	(125,697	)	$	(90,763	)	$	(1,267	)	$	143,318
Net loss		-			-		-		-			(1,833	)		-			(1,833	)
Change in accumulated other comprehensive income		-			-		-		-			-			793			793
Purchase of treasury stock		(408	)		*)		-		(3,676	)		-			-			(3,676	)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		114			*)		-		1,114			(236	)		-			878
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		464			*)		-		4,510			(3,844	)		-			666
Equity-based compensation		-			-		2,244		-			-			-			2,244
Balance at June 30, 2016		21,743		$	22	$	363,267	$	(123,749	)	$	(96,676	)	$	(474	)	$	142,390
Six months ended June 30, 2017
Balance at December 31, 2016		21,932		$	22	$	366,121	$	(122,632	)	$	(96,112	)	$	(1,852	)	$	145,547
Net loss		-			-		-		-			(3,452	)		-			(3,452	)
Change in accumulated other comprehensive income		-			-		-		-			-			461			461
Purchase of treasury stock		(248	)		*)		-		(2,802	)		-			-			(2,802	)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		113			*)		-		1,109			(167	)		-			942
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		354			*)		-		3,471			(3,136	)		-			335
Equity-based compensation		-			-		3,088		-			-			-			3,088
Balance at June 30, 2017		22,151		$	22	$	369,209	$	(120,854	)	$	(102,867	)	$	(1,391	)	$	144,119

*) Represents an amount lower than $1.

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

9

DSP GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(UNAUDITED)

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

NOTE A—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K of DSP Group, Inc. (the "Company") for the year ended December 31, 2016.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2016, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2017, have been applied consistently in these unaudited interim condensed consolidated financial statements.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the interim condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements.

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updates (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The ASU 2016-09 simplifies several aspects of the accounting for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. For public companies, ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted ASU 2016-09 during the quarter ended June 30, 2017. The Company will continue to use the current method of estimated forfeitures each period rather than accounting for forfeitures as they occur. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.  The new revenue recognition standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized on the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. While the Company is still in the process of completing its assessment on the impact this guidance will have on its consolidated financial statements and related disclosures, the Company does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

10

In May 2017, FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company is evaluating the impact of ASU 2017-09.

NOTE B—INVENTORIES

Inventories are stated at the lower of cost or market value. The Company periodically evaluates the quantities on hand relative to current and historical selling prices, and historical and projected sales volume. Based on these evaluations, provisions are made in each period to write inventory down to its net realizable value. Inventories are composed of the following:

	June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)
Work-in-process	$	5,374	$	5,784
Finished goods		5,267		3,964
	$	10,641	$	9,748

Inventory write-off amounted to $20 and $151 for the six months ended June 30, 2017 and 2016, respectively.

11

NOTE C—NET EARNINGS (LOSS) PER SHARE

Basic net earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the period. For the same periods, diluted net earnings (loss) per share further include the effect of dilutive stock options, stock appreciation rights and restricted share units outstanding during the period, all in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 260 "Earnings per Share." The following table sets forth the computation of basic and diluted net earnings (loss) per share:

	Three months ended June 30,					Six months ended June 30,
	2017			2016		2017			2016
	Unaudited
Net income (loss)	$	(586	)	$	1,080	$	(3,452	)	$	(1,833	)
Earnings (loss) per share:
Basic	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Diluted	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Weighted average number of shares of common stock outstanding during the period used to compute basic net earnings (loss) per share (in thousands)		22,180			21,739		22,141			21,725
Incremental shares attributable to exercise of outstanding options, stock appreciation rights and restricted stock units (assuming proceeds would be used to purchase treasury stock) (in thousands)		-			1,106		-			-
Weighted average number of shares of common stock used to compute diluted net earnings (loss) per share (in thousands)		22,180			22,845		22,141			21,725

NOTE D — MARKETABLE SECURITIES and SHORT –TERM deposits

The Company accounts for investments in marketable securities in accordance with FASB ASC No.320-10 "Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in government and corporate marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date.

The Company classifies marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported in other comprehensive income. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and interest are included in financial income, net. Interest and dividends on securities are included in financial income, net. The following is a summary of available-for-sale securities at June 30, 2017 and December 31, 2016:

	Amortized cost				Unrealized losses, net						Fair value
	June 30, 2017		December 31, 2016		June 30, 2017			December 31, 2016			June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)		(Unaudited)			(Audited)			(Unaudited)		(Audited)
Short-term deposits		10,919	$	7,610	$	-		$	-		$	10,919	$	7,610
U.S. GSE securities		20,952		24,351		(217	)		(289	)		20,735		24,062
Corporate obligations		76,645		76,264		(466	)		(813	)		76,179		75,451
	$	108,516	$	108,225	$	(683	)	$	(1,102	)	$	107,833	$	107,123

12

The amortized cost of marketable debt securities and short-term deposits at June 30, 2017, by contractual maturities, is shown below:

			Unrealized gains (losses) (unaudited)
	Amortized cost		Gains		Losses			Fair value
Due in one year or less	$	33,495	$	9	$	(28	)	$	33,476
Due after one year to five years		75,021		45		(709	)		74,357
	$	108,516	$	54	$	(737	)	$	107,833

The actual maturity dates may differ from the contractual maturities because debtors may have the right to call or prepay obligations without penalties.

Management believes that as of June 30, 2017, the unrealized losses in the Company’s investments in all types of marketable securities were temporary and no impairment loss was realized in the Company’s condensed consolidated statement of income.

The unrealized losses related to corporate obligations were primarily due to changes in interest rates. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2017.

The total fair value of marketable securities with outstanding unrealized losses as of June 30, 2017 amounted to $75,788, while the unrealized losses for these marketable securities amounted to $737. Of the $737 unrealized losses outstanding as of June 30, 2017, a portion of which in the amount of $183 related to marketable securities that were in a loss position for more than 12 months and the remaining portion in the amount of $554 was related to marketable securities that were in a loss position for less than 12 months.

Proceeds from maturity of available-for-sale marketable securities during the six months ended June 30, 2017 and 2016 were $9,388 and $21,500, respectively. Proceeds from sales of available-for-sale marketable securities during the six months ended June 30, 2017 and 2016 were $8,578 and $7,987, respectively. Net realized losses from the sale of available-for-sale securities for the six months ended June 30, 2017 were $58 compared to net realized losses for the six months ended June 30, 2016 of $33. The Company determines realized gains or losses on the sale of marketable securities based on a specific identification method.

Marketable securities are periodically reviewed for impairment. If management concludes that any marketable security is impaired, management determines whether such impairment is other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period, and the Company’s intent to sell, or whether it is more likely than not that the Company will be required to sell the marketable security before recovery of cost basis. If any impairment is considered other-than-temporary, the marketable security is written down to its fair value through a corresponding charge to financial income, net.

NOTE e—TAXES ON Income

The effective tax rate used in computing the provision for income taxes is based on projected fiscal year income before taxes, including estimated income by tax jurisdiction.

13

The total amount of net unrecognized tax benefits was $927 and $1,023 at June 30, 2017 and December 31, 2016, respectively. The Company accrues interest and penalties, relating to unrecognized tax benefits, in its provision for income taxes. At June 30, 2017 and December 31, 2016, the Company had accrued interest and penalties relating to unrecognized tax benefits of $46 for both periods.

The Company intends to permanently reinvest earnings of its foreign operations and its current operating plans do not demonstrate a need to repatriate foreign earnings to fund the Company’s U.S. operations. However, if these funds were needed for the Company’s operations in the United States, the Company would be required to accrue and pay U.S. taxes as well as taxes in other countries to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated.

NOTE f—SIGNIFICANT CUSTOMERS

The Company sells its products primarily through distributors and directly to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who incorporate the Company’s products into consumer products. The Company’s future performance will depend, in part, on the continued success of its distributors in marketing and selling its products. The loss of the Company’s distributors and the Company’s inability to obtain satisfactory replacements in a timely manner may harm the Company’s sales and results of operations. In addition, the Company expects that a limited number of customers, varying in identity from period-to-period, will account for a substantial portion of its revenues in any period. The loss of, or reduced demand for products from, any of the Company’s major customers could have a material adverse effect on the Company’s business, financial condition and results of operations.

The following table represents the Company’s sales, as a percentage of the Company’s total revenues, for the three and six month periods ended June 30, 2017 and 2016, of the Company’s significant customers:

	Three months ended June 30,						Six months ended June 30,
				Unaudited
Major customers/ distributors	2017			2016			2017			2016
VTech Holdings Ltd.		29	%		29	%		30	%		30	%
Tomen Electronics Corporation ¹ ²		9	%		12	%		10	%		10	%
Ascend Technology Inc. ¹ ³		20	%		17	%		21	%		16	%
Samsung Electronics Ltd.		2	%		13	%		1	%		13	%

¹ Distributor.

² Tomen Electronics sells the Company’s products to a limited number of customers; however none of those customers accounted for more than 10% of the Company’s total revenues for the three and six month periods ended June 30, 2017 and 2016 .

³ Ascend Technology sells the Company’s products to a limited number of customers; however none of those customers accounted for more than 10% of the Company’s total revenues for the three and six months ended June 30, 2017 and 2016 .

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NOTE G—DERIVATIVE INSTRUMENTS

The Company accounts for derivative instruments in accordance with FASB. ASC No. 815 "Derivatives and Hedging" ("ASC 815"). Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward contracts and put options (collectively, "hedging contracts"). The policy, however, prohibits the Company from speculating on hedging contracts for profit.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekels ("NIS"), during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease payments denominated in NIS for a period of one to twelve months with hedging contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 815 and are all effective hedges of these expenses.

In accordance with ASC 815, for derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gain or loss on a derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item is recognized in current earnings during the period of change. As of June 30, 2017, the Company had outstanding option contracts in the amount of $750 and no outstanding foreign exchange forward contracts. These hedging contracts do not contain any credit-risk-related contingency features. See Note K for information on the fair value of these hedging contracts.

The fair value of derivative assets and derivative liabilities were $48 and $0, respectively, at June 30, 2017. The Company recorded a net amount of $48 in other accounts receivable and prepaid expenses in the condensed consolidated balance sheet at June 30, 2017.

The amount recorded as an income in research and development expenses, sales and marketing expenses and general and administrative expenses in the condensed consolidated statements of income for the six months ended June 30, 2017 that resulted from the above referenced hedging transactions was $120, $12 and $21, respectively.

The fair value of the outstanding derivative instruments at June 30, 2017 and December 31, 2016 is summarized below (unaudited):

:

		Fair value of derivative instruments
Derivative Assets (Liabilities)	Balance Sheet Location	June 30, 2017		December 31, 2016
		Unaudited
Foreign exchange put and -call options	Other accounts receivable and prepaid expenses	$	48	$	9

15

The effect of derivative instruments in cash flow hedging transactions on income and other comprehensive income (“OCI”) for the three and six months ended June 30, 2017 and 2016 is summarized below (unaudited):

	Gains (Losses) on Derivatives Recognized in OCI
	for the three months ended June 30,					for the six months ended June 30,
			Unaudited
	2017		2016			2017		2016
Foreign exchange forward and option contracts	$	49	$	(110	)	$	192	$	58

	Gains (Losses) Reclassified from OCI into income
		for the three months ended June 30				for the six months ended June 30,
				Unaudited
	Location	2017		2016		2017		2016
Foreign exchange forward and option contracts	Operating expenses	$	78	$	14	$	153	$	(15	)

NOTE h—CONTINGENCIES

From time to time, the Company may become involved in litigation relating to claims arising from its ordinary course of business. In addition, as is typical in the semiconductor industry, the Company has been and may from time to time be notified of claims that the Company may be infringing patents or intellectual property rights owned by third parties. The Company currently believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on the Company.

NOTE i—EQUITY-BASED COMPENSATION

Grants for the three months ended June 30, 2017 and June 30, 2016:

The weighted average estimated fair value of employee restricted stock units (“RSUs”) granted during the three months ended June 30, 2017 and 2016 was $11.12 and $9.40 per share, respectively (using the weighted average pre vest cancellation rate of 4.31% and 4.32% for the three months ended June 30, 2017 and 2016, respectively, on an annual basis).

The weighted-average estimated fair value of stock appreciation rights ("SARs") granted during the three months ended June 30, 2017 was $2.76 per SARs, using the binomial model with the following weighted-average assumptions (annualized percentages):

	Three months ended June 30,
	2017
Volatility		34.96%
Risk-free interest rate		2.14%
Dividend yield		0%
Pre-vest cancellation rate		4.31%
Post-vest cancellation rate		3.37%
Suboptimal exercise factor		1.117

The expected life of employee SARs is impacted by all of the underlying assumptions used in the Company’s model. The binomial model assumes that employees’ exercise behavior is a function of the remaining contractual life of the SAR and the extent to which the SAR is in-the-money (i.e., the average stock price during the period is above the exercise price of the SAR). The binomial model estimates the probability of exercise as a function of these two variables based on the history of exercises and cancellations on past award grants made by the Company. The expected life for SARs granted during the three months ended June 30, 2017 derived from the binomial model was 3.99 years.

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No SARs were granted during the three months ended June 30, 2016.

Employee stock benefit plans

As of June 30, 2017, the Company had two equity incentive plans from which the Company may grant future equity awards and three expired equity incentive plans from which no future equity awards may be granted but had outstanding equity awards granted prior to expiration. The Company also had one employee stock purchase plan. As of June 30, 2017, approximately 829,000 shares of common stock remain available for grant under the Company’s employee stock purchase plan and approximately 691,000 shares of common stock remain available for grant under the Company’s equity incentive plans.

The table below presents a summary of information relating to the Company’s stock option, RSU and SAR grants pursuant to its equity incentive plans:

	Number of Options/SARs/RSUs			Weighted average exercise price		Weighted average remaining contractual term (years) (3)		Aggregate value (*)
	in thousands							in thousands
Outstanding at March 31, 2017		2,507		$	4.93
RSUs granted		29			-
SARs granted		22			12.30
Options / SARs / RSUs cancelled/forfeited/expired		(9	)		-
Options / SARs exercised and RSUs vested		(149	)	$	3.78
Outstanding at June 30, 2017 (1)		2,400		$	5.03		4.30	$	15,915
Exercisable at June 30, 2017 (2)		1,041		$	8.09		3.56	$	3,716

(*) Calculation of aggregate intrinsic value is based on the share price of the Company’s common stock on June 30, 2017 ($11.60 per share).

(1) Due to the ceiling imposed on the stock appreciation right ("SAR") grants, the outstanding amount above can be exercised for a maximum of 2,230,000 shares of the Company’s common stock as of June 30, 2017. SAR grants made on or after January 1, 2010 and before January 1, 2012 are convertible for a maximum number of shares of the Company’s common stock equal to 66.67% of the SARs subject to the grant. SAR grants made on or after January 1, 2012 are convertible for a maximum number of shares of the Company’s common stock equal to 50% of the SARs subject to the grant.

(2) Due to the ceiling imposed on the SAR grants, the exercisable amount above can be exercised for a maximum of 966,000 shares of the Company’s common stock as of June 30, 2017.

(3) Calculation of weighted average remaining contractual term does not include the RSUs that were granted, which have indefinite contractual term.

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Additional information about stock options, SARs and RSUs outstanding and exercisable at June 30, 2017 with exercise prices above $11.60 per share (the closing price of the Company’s common stock on June 30, 2017) is as follows:

	Exercisable				Unexercisable				Total
Exercise prices	Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price
Less than $11.60		1,001	$	7.89		1,289	$	2.13		2,290	$	4.65
Above $11.60		40	$	13.10		70	$	12.81		110	$	12.92
Total		1,041	$	8.09		1,359	$	2.68		2,400	$	5.03

The Company’s aggregate equity-based compensation expense for the three months ended June 30, 2017 and 2016 totaled $1,557 and $1,259, respectively.

As of June 30, 2017, there was $6,426 of total unrecognized equity-based compensation expense related to unvested equity-based compensation awards granted under the Company’s equity incentive plans. This amount is expected to be recognized during the period from 2017 through 2021.

NOTE j—Pension Liability

The information in this note represents the net periodic pension and post-retirement benefit costs and related components in accordance with FASB ASC No. 715 "Employers’ Disclosures about Pensions and Other Post-Retirement Benefits." The components of net pension and post-retirement periodic benefit cost (income) for the six months ended June 30, 2017 and 2016 are as follows:

	Six months ended June 30,
	2017		2016
Components of net periodic benefit cost:
Service cost and amortization of loss	$	13	$	10
Interest cost		7		9
Expected return on plan assets		-		(1	)
Net periodic benefit cost	$	20	$	18

The net pension liability as of June 30, 2017 amounted to $862.

NOTE k—FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis:

The Company measures its cash equivalents, short-term deposits, marketable securities and foreign currency derivative contracts at fair value. Cash equivalents, short-term deposits and marketable securities are classified within Level 1 or Level 2 value hierarchies as they 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 value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.

18

The following table provides information by value level for assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2017:

	Balance as of		Fair value measurements
	June 30, 2017		Level 1		Level 2		Level 3
Description
Assets:
Cash equivalents:
Money market mutual funds	$	3,121	$	3,121		-		-
Short-term marketable securities and cash deposits:
U.S. GSE securities	$	787		-	$	787
Corporate debt securities	$	21,770		-	$	21,770		-
Long-term marketable securities:
U.S. GSE securities	$	19,948		-	$	19,948		-
Corporate debt securities	$	54,409		-	$	54,409		-
Derivative Assets	$	48		-	$	48		-

The following table provides information by value level for assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2016.

	Balance as of		Fair value measurements
Description	December 31, 2016		Level 1		Level 2		Level 3
Assets
Cash equivalents
Money market mutual funds	$	1,370	$	1,370		-		-
Short-term marketable securities and time deposits
U.S. GSE securities	$	376		-	$	376		-
Corporate debt securities	$	21,045		-	$	21,045		-
Long-term marketable securities
U.S. GSE securities	$	23,686		-	$	23,686		-
Corporate debt securities	$	54,406		-	$	54,406		-
Derivative assets	$	9		-	$	9		-

In addition to the assets and liabilities described above, the Company’s financial instruments also include cash and cash equivalents, restricted and short-term deposits, trade receivables, other accounts receivable, trade payables, accrued expenses and other payables. The fair value of these financial instruments was not materially different from their carrying values at June 30, 2017 due to the short-term maturity of these instruments.

NOTE l—STOCKHOLDERS’ EQUITY

During the first six months of 2017, the Company repurchased 248,376 shares of common stock at an average purchase price of $11.28 per share for an aggregate purchase price of $2,802. As of June 30, 2017, 71,844 shares of common stock remained authorized for repurchase under the Company's board-authorized share repurchase program.

19

Repurchases of common stock are accounted for as treasury stock, and result in a reduction of stockholders’ equity. The Company reissues treasury shares pursuant to its stock purchase plan, upon exercise of options and upon vesting of restricted stock units. Reissuance of treasury shares is accounted for in accordance with ASC No. 505-30 whereby gains are credited to additional paid-in capital and losses are charged to additional paid-in capital to the extent that previous net gains are included therein; otherwise losses are charged to retained earnings.

During the first six months of 2017, the Company issued approximately 468,000 shares of common stock out of treasury stock to employees who exercised their stock options, SARs or RSUs, or purchased shares from the Company’s 1993 Employee Stock Purchase Plan.

NOTE M—SEGMENT INFORMATION

Description of segments:

The Company operates under three reportable segments.

The Company's segment information has been prepared in accordance with ASC 280, "Segment Reporting." Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is available that is evaluated regularly by the Company's chief operating decision-maker ("CODM") in deciding how to allocate resources and assess performance. The Company's CODM is its Chief Executive Officer, who evaluates the Company's performance and allocates resources based on segment revenues and operating income.

The Company's operating segments are as follows: Home, Office and Mobile. The classification of the Company’s business segments is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are not limited to, customer base, homogeneity of products and technology.

A description of the types of products provided by each business segment is as follows:

Home - Wireless chipset solutions for converged communication at home. Such solutions include integrated circuits targeted for cordless phones sold in retail or supplied by telecommunication service providers, home gateway devices supplied by telecommunication service providers which integrate the DECT/CAT-iq functionality, integrated circuits addressing home automation applications, as well as fixed-mobile convergence solutions. In this segment, revenues from cordless telephony products exceeded 10% of the Company’s total revenues and amounted to 56% and 55% of the Company’s total revenues for the first half of 2017 and 2016, respectively, and 53% and 56% of the Company’s total revenues for the second quarter of 2017 and 2016, respectively,

Office - Comprehensive solution for Voice-over-IP (VoIP) office products, including office solutions that offer businesses of all sizes low-cost VoIP terminals with converged voice and data applications. Revenues from the Company’s VoIP products represented 26% and 20% of its total revenues for the first six months of 2017 and 2016, respectively. Revenues from the Company’s VoIP products represented 28% and 20% of its total revenues for the second quarter of 2017 and 2016, respectively. No revenues derived from other products in the office segment exceeded 10% of the Company’s total revenues for the first six months of 2017 and 2016.

SmartVoice (formerly called “Mobile”) - Products for the SmartVoice market that provides voice enhancement, always-on and far-end noise elimination targeted for mobile phone, mobile headsets and other devices that incorporate the Company’s noise suppression and voice quality enhancement HDClear technology. Revenues derived from products in the SmartVoice segment represented 2% and 13% of the Company’s total revenues for the first half of 2017 and 2016, respectively, and 3% and 13% of the Company’s total revenues for the second quarter of 2017 and 2016, respectively. No revenues derived from other products in the SmartVoice segment exceeded 10% of the Company’s total consolidated revenues for both the first six months of 2017 and 2016. The SmartVoice segment was previously named the Mobile segment. However, the Company believes that the designation - SmartVoice - is a better reflection of the diverse end markets that the Company’s HDClear products target. The addressable market relating to voice user interface in applications extends beyond smartphones and therefore a broader name like SmartVoice better reflects the current design pipeline for the products in this segment.

20

Segment data:

The Company derives the results of its business segments directly from its internal management reporting system and by using certain allocation methods. The accounting policies the Company uses to derive business segment results are substantially the same as those the Company uses for consolidation of its financial statements. The CODM measures the performance of each business segment based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. The Company does not allocate to its business segments certain operating expenses, which it manages separately at the corporate level. These unallocated costs include primarily amortization of purchased intangible assets, equity-based compensation expenses, and certain corporate governance costs.

Selected operating results information for each business segment was as follows for the three months ended June 30, 2017 and 2016 (unaudited):

:

	Three months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	21,789	$	24,211	$	4,564		$	4,843
Office	$	8,620	$	7,392	$	2,429		$	(475	)
SmartVoice	$	892	$	4,561	$	(5,461	)	$	(1,408	)
Total	$	31,301	$	36,164	$	1,532		$	2,960

Selected operating results information for each business segment was as follows for the six months ended June 30, 2017 and 2016 (unaudited):

:

	Six months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	42,744	$	42,866	$	7,909		$	6,321
Office	$	15,219	$	12,470	$	3,044		$	(2,498	)
SmartVoice	$	1,271	$	8,487	$	(10,482	)	$	(2,225	)
Total	$	59,234	$	63,823	$	471		$	1,598

The reconciliation of segment operating results information to the Company’s consolidated financial information was as follows for the three and six months periods ended June 30, 2017:

	Three months			Six months
Income from operations	$	1,532		$	471
Unallocated corporate, general and administrative expenses		(441	)		(854	)
Equity-based compensation expenses		(1,557	)		(3,088	)
Intangible assets amortization expenses		(425	)		(850	)
Financial income, net		418			834
Total consolidated income before taxes	$	(473	)	$	(3,487	)

21

The reconciliation of segment operating results information to the Company’s consolidated financial information was as follows for the three and six months ended June 30, 2016:

	Three months			Six months
Income from operations	$	2,960		$	1,598
Unallocated corporate, general and administrative expenses		(450	)		(950	)
Equity-based compensation expenses		(1,259	)		(2,244	)
Intangible assets amortization expenses		(321	)		(642	)
Financial income, net		273			565
Total consolidated income before taxes	$	1,203		$	(1,673	)

NOTE N —ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income for the three months ended June 30, 2017:

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(850	)	$	77		$	(450	)	$	(314	)	$	(1,537	)
Other comprehensive income before reclassifications		156			49			-			3			208
Losses (gains) reclassified from accumulated other comprehensive income (loss)		11			(78	)		5			-			(62	)
Net current period other comprehensive income (loss)		167			(29	)		5			3			146
Ending balance	$	(683	)	$	48		$	(445	)	$	(311	)	$	(1,391	)

22

The following table provides details about reclassifications out of accumulated other comprehensive income for the three months ended June 30, 2017:

Details about accumulated other comprehensive income (loss) components	Amount reclassified from accumulated other comprehensive income (loss)			Affected line item in the statement of income
Losses on available-for-sale marketable securities	$	11		Financial income, net
		-		Provision for income taxes
		11		Total, net of income taxes
Gains on cash flow hedges
		(61	)	Research and development
		(6	)	Sales and marketing
		(11	)	General and administrative
		(78	)	Total, before income taxes
		-		Provision for income taxes
		(78	)	Total, net of income taxes
Losses on components of defined benefit plans		3		Research and development
		2		Sales and marketing
		5		Total, before income taxes
		-		Provision for income taxes
		5		Total, net of income taxes
Total reclassifications for the period	$	(62	)	Total, net of income taxes

23

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2017:

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on Cash Flow Hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(1,101	)	$	9		$	(455	)	$	(305	)	$	(1,852	)
Other comprehensive income (loss) before reclassifications		360			192			-			(6	)		546
Losses reclassified from accumulated other comprehensive income (loss)		58			(153	)		10			-			(85	)
Net current period other comprehensive income		418			39			10			(6	)		461
Ending balance	$	(683	)	$	48		$	(445	)		(311	)	$	(1,391	)

The following table provides details about reclassifications out of accumulated other comprehensive income for the six months ended June 30, 2017:

Details about accumulated other comprehensive income (loss) components	Amount reclassified from accumulated other comprehensive income (loss)			Affected line item in the statement of income
Losses on available-for-sale marketable securities	$	58		Financial income, net
		-		Provision for income taxes
		58		Total, net of income taxes
Losses on cash flow hedges
		(120	)	Research and development
		(12	)	Sales and marketing
		(21	)	General and administrative
		(153	)	Total, before income taxes
		-		Provision for income taxes
		(153	)	Total, net of income taxes
Losses on components of defined benefit plans		7		Research and development
		3		Sales and marketing
		10		Total, before income taxes
		-		Provision for income taxes
		10		Total, net of income taxes
Total reclassifications for the period	$	(85	)	Total, net of income taxes

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NOTE O—GOVERNMENT GRANTS

Government grants received by the Company’s Israeli subsidiary relating to categories of operating expenditures are credited to the consolidated statements of income during the period during which the expenditure to which they relate is charged. Royalty and non-royalty-bearing grants from the Israeli Innovation Authority ("IIA") (formerly known as Office of the Chief Scientist for funding certain approved research and development projects are recognized at the time when the Company’s Israeli subsidiary is entitled to such grants, on the basis of the related costs incurred, and are included as a deduction from research and development expenses, net.

The Company recorded grants in the amount of $0.8 and $1.0 million for the three month periods ended June 30, 2017 and 2016, respectively.

The Company recorded grants in the amount of $0.9 and $1.6 million for the six month periods ended June 30, 2017 and 2016, respectively.

The Company’s Israeli subsidiary is obligated to pay royalties amounting to 5% of the sales of certain products, the development of which benefited from grants received from the IIA in previous years. The obligation to pay these royalties is contingent on actual sales of such products. Grants received from the IIA may become repayable if certain criteria under the grants are not met. In addition, the grants may be required to be repaid with a multiple of up to six times the initial grant amount in case the technology that was developed using these grants are transferred, directly or indirectly, to a third party.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report and certain information incorporated herein by reference contain forward-looking statements, which are provided under the "safe harbor" protection of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements that are purely historical in nature, are forward-looking statements. Forward-looking statements are generally written in the future tense and/or are preceded by words such as "will," "may," "should," "could," "expect," "suggest," "believe," "anticipate," "intend," "plan," or other similar words. Forward-looking statements include statements regarding: 

● Our expectation that revenues from certain of our new products will continue to increase in 2017 and expect such revenues to represent a higher percentage of 2017 total revenues, as compared to 2016;

● Our anticipation that our gross margin on an annual basis will continue to increase in the foreseeable future as our product mix shifts in favor of new products, which generally have higher gross margins;

● Our anticipation that annual revenues generated from our new products in the VoIP, home gateway and home-automation domains will increase in 2017 as compared to 2016;

● Our belief that our past research and development investments in new technologies are paying off;

● Our belief that new communication access methods, including mobile, wireless broadband, cable and other connectivity, the traditional cordless telephony market using fixed-line telephony will continue to decline, which will continue to reduce our revenues derived from, and unit sales of, cordless telephony products; and

● Our belief that our available cash and cash equivalents at June 30, 2017 should be sufficient to finance our operations for the foreseeable future.

All forward looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. Many factors may cause actual results to differ materially from those express or implied by the forward –looking statements contained in this report. These factors include, but are not limited to, our dependence on one primary distributor, our OEM relationships and competition, as well as those risks described in Part II Item 1A "Risk Factors" of this Form 10-Q.

This Quarterly Report on Form 10-Q includes trademarks and registered trademarks of DSP Group. Products or service names of other companies mentioned in this Quarterly Report on Form 10-Q may be trademarks or registered trademarks of their respective owners.

DSP Group, Inc. is referred to in this Quarterly Report as "DSP Group," "we," "us" "our" or "company."

Overview

The following discussion and analysis is intended to provide investors with a narrative of our financial results and an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto.

Business Overview

DSP Group is a leading global provider of wireless chipset solutions for converged communications, delivering system solutions that combine semiconductors and software with reference designs. We provide a broad portfolio of wireless chipsets integrating DECT, Wi-Fi, PSTN and VoIP technologies with state-of-the-art application processors. We also enable converged voice, audio and data connectivity across diverse consumer products – from cordless and VoIP phones to home gateways and connected multimedia screens. In addition, our mobile segment products consist of products targeted at mobile, IoT and wearable device markets that incorporate our HDClear technology (the SmartVoice segment), as well as other third party advanced voice processing, always on and sensor hub functionalities.

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 A majority of our revenues is derived from products targeted for digital cordless telephony. Such revenues currently represent approximately 56% of our total revenues for the first half of 2017, as compared to 55% of our total revenues for the first half of 2016.

Our revenues were $59.2 million for the first six months of 2017, a 7% decrease compared to the corresponding period of 2016. The decrease for the first half of 2017 was primarily as a result of decreased sales of our SmartVoice and cordless telephony products, partially offset by increased sales of our VoIP and home automation products. Revenues from our new products accounted for 44% of our total revenues for the first six months of 2017, as compared to 45% of our total revenues for the first six months of 2016.

Revenues derived from the sale of cordless telephony products represented 56% of our total revenues for the first half of 2017, as compared to 55% of our total revenues for the first half of 2016. Sales of our home gateway products represented 9% of our total revenues for the first half of 2017, as compared to 8% of our total revenues for the first half of 2016. Sales of our VoIP products represented 26% of our total revenues for the first half 2017, as compared to 20% of our total revenues for the first half of 2016. Revenues from our SmartVoice products represented 2% of our total revenues for the first half of 2017, as compared to 13% of our total revenues for the first half of 2016. Revenues from our home automation products represented 7% of our total revenues for the first half of 2017, as compared to 4% of our total revenues for the first half of 2016. We expect that revenues from certain of our new products will continue to increase in 2017 and expect such revenues to represent a higher percentage of 2017 total revenues, as compared to 2016.

Our gross margin increased to 45.1% of our total revenues for the first half of 2017 from 43.2% for the first half of 2016, primary due to (i) an improvement in direct contribution and production yield of certain of our products, (ii) a change in the mix of products sold and mix of customers and (iii) a decrease in the provision for slow or obsolete inventories. This was partially offset by a decrease in total revenues for the first half of 2017, as compared to the corresponding period in 2016. We anticipated that our gross margin on an annual basis will continue to increase in the foreseeable future as our product mix shifts in favor of new products, which generally have higher gross margins.

Our operating loss was $4.3 million for the first half of 2017, as compared to an operating loss of $2.2 million for the first half of 2016. The increase in our operating loss is attributed to an increase in total operating expenses for the first six months of 2017 as compared to the corresponding period of 2016 and as a result of a decrease in total revenues for the first six months of 2017, as compared to the corresponding period of 2016. Our operating expenses increased by 4% to $31.1 million for the first half of 2017, as compared to $29.8 million for the first half of 2016, mainly as a result of an increase in equity-based compensation expenses for the first half of 2017, as compared for the first half of 2016.

Notwithstanding our success in increasing our gross margin as a percentage of our total revenues, we expect that our financial condition will continue to be challenged by the expected decline of the cordless telephony market. With the rapid deployment of new communication access methods, including mobile, wireless broadband, cable and other connectivity, the traditional cordless telephony market using fixed-line telephony will continue to decline, which will continue to reduce our revenues derived from, and unit sales of, cordless telephony products. Furthermore, our business also may be significantly affected by the outcome of the competition between cellular phone operators and fixed-line operators for the provision of residential communication. A significant majority of our revenues are currently generated from sales of chipsets used in cordless phones that are based on fixed-line telephony. If we are unable to continue to develop new technologies to address alternative connectivity methods, our business could be materially adversely affected.

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We see evidence that our past research and development investments in new technologies are paying off. We achieved a number of design wins for our new products and a number of such new products have begun mass shipments. Aggregate revenues derived from our new products were 44% and 45% of our total revenues for the first half of 2017 and 2016, respectively. Notwithstanding the loss of a design win for a flagship mobile phone, based on a strong pipeline of design wins, our current mix of new products and anticipated commercialization schedules of customers incorporating our new products, we anticipate annual revenues generated from our new products in the VoIP, home gateway and home-automation domains will increase in 2017 as compared to 2016.

However, despite our successes thus far, we can provide no assurances about our continued success in introducing new products and penetrating new markets, as well as our predictions regarding market trends. Furthermore, although our new products targeted for mobile devices, home control & automation and enterprise VoIP solutions are gradually being introduced into the market, market adoption of such products is at early stages and may require us to increase our research and development spending to capitalize on opportunities in those markets. Moreover, although we have achieved a number of design wins with top-tier OEMs for new products, revenue generated from the commercialization of new products is a measured process as there is generally a long lead time from a design win to commercialization. From initial product design win to volume production, many factors could impact the timing and/or amount of sales actually realized from the design win. In addition to general price sensitivity and price erosion in the markets we operate, the introduction of new products may accelerate price erosion of older products. As a result, we expect the market to remain price sensitive for our traditional cordless telephony products and expect that price erosion and the decrease in the average selling prices of such products to continue. In addition, our continued success and growth in new markets that we have recently gained market share, which markets are highly competitive, is highly dependent on our ability to be designed into future flagship products of top-tier OEMs. Furthermore, various other factors, including increases in the cost of raw materials and commodities and our suppliers passing such increases onto us, increases in silicon wafer costs and increases in production, assembly and testing costs, and shortage of capacity to fulfill our fabrication, assembly and testing needs, all may decrease our gross profit and harm our ability to grow our revenues in future periods.

As of June 30, 2017, our principal source of liquidity consisted of cash and cash equivalents of $17.9 million and marketable securities and short term deposits of $107.9 million, totaling $125.8 million.

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RESULTS OF OPERATIONS

Total revenues.

The following tables represent our total revenues and our revenues by product family for the three and six month periods ended June 30, 2017 and 2016 (dollars in millions):

	Three months ended June 30,									Six months ended June 30,
	2017			2016			Change			2017			2016			Change
Total Revenues (1)	$	31.3		$	36.2			(13%	)	$	59.2		$	63.8			(7%	)
Cordless (2)	$	16.6		$	20.3			(18%	)	$	33.3		$	35.2			(5%	)
Percentage of total revenues		53	%		56	%					56	%		55	%
Home Gateway (3)	$	2.9		$	2.6			9	%	$	5.5		$	5.3			4	%
Percentage of total revenues		9	%		7	%					9	%		8	%
Home automation (4)	$	2.3		$	1.3			80	%	$	3.9		$	2.4			63	%
Percentage of total revenues		7	%		4	%					7	%		4	%
VoIP (5)	$	8.6		$	7.4			17	%	$	15.2		$	12.5			22	%
Percentage of total revenues		28	%		20	%					26	%		20	%
HDClear (6)	$	0.9		$	4.6			(80%	)	$	1.3		$	8.5			(85%	)
Percentage of total revenues		3	%		13	%					2	%		13	%

1.    The decrease in revenues for the second quarter and first six months of 2017 as compared to the same periods in 2016 was primarily as a result of a decrease in sales of our cordless telephony and HDClear products, offset to some extent by increased sales of our VoIP and home automation products.

2.    The decrease in cordless revenues for the first six months of 2017 compared to the same period in 2016 was mainly attributable to decreased demand from our customers in all markets. The decrease in cordless revenues for the second quarter of 2017 compared to the same period in 2016 was mainly attributable to a weaker demand for cordless products targeted for the European market.

3.    The increase of our home gateway sales for both comparable periods is attributable to an increase in customer demand for our home gateway products.

4.    The increase of our home automation product sales for both comparable periods is attributable to an increase in customer demand for our home automation products, resulting from new projects being launched into the market.

5.    The increase in our VoIP sales for both comparable periods is mainly attributable to a growth in market demand for our VoIP products that resulted from the growth of our market share within this market.

6.    The decrease in our HDClear product sales for both the comparable periods was attributed to a decrease in demand from our tier one mobile customer.

The following table shows the breakdown of revenues for all product lines for the periods based on the geographic location of our customers (in dollars thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
United States	$	1,447	$	1,384	$	2,746	$	2,105
Japan		3,394		4,788		7,198		7,453
Europe		2,888		2,491		4,982		4,160
Hong-Kong		12,376		14,729		23,920		26,431
China		4,130		1,834		6,477		4,365
Taiwan		5,055		4,801		9,641		8,168
Korea		1,100		5,093		1,969		9,520
Other		911		1,044		2,301		1,621
Total revenues	$	31,301	$	36,164	$	59,234	$	63,823

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Sales to our customers in Japan decreased for the second quarter and first half of 2017 as compared to the same periods of 2016, representing a decrease of 29% and 3% in absolute dollars, respectively. The decrease in our sales to Japan for the comparable periods resulted mainly from a decrease in sales, through our distributor, Tomen Electronics, Ltd. (“Tomen Electronics”), to Panasonic Communications Ltd (“Panasonic”), representing a 29% and 1% decrease in absolute dollars for the second quarter and first half of 2017, as compared to the second quarter and first half of 2016, respectively.

Sales to our customers in Taiwan increased for the second quarter and first six months of 2017, as compared to the same periods of 2016, representing an increase of 5% and 18%, respectively, in absolute dollars. The increase in our sales to Taiwan for the comparable periods resulted mainly from an increase in sales through our distributor, Ascend Technology Inc. ("Ascend Technology").

Sales to our customers in Hong-Kong decreased for the second quarter and first six months of 2017, as compared to the same periods of 2016, representing a decrease of 16% and 10%, respectively, in absolute dollars, and resulted mainly from a decrease in demand from one of our main customers, VTech Holdings Ltd.

Sales to our customers in Korea decreased for the second quarter and first six months of 2017, as compared to the same periods of 2016, representing a decrease of 78% and 79%, respectively, in absolute dollars, resulted mainly from a decrease in demand from our tier one mobile customer.

As our products are generally incorporated into consumer electronics products sold by our OEM customers, our revenues are affected by seasonal buying patterns of consumer electronics products sold by our OEM customers that incorporate our products, as well as inventory correction cycles within the market.

Significant customers. The Japanese and Hong Kong markets and the OEMs that operate in those markets are among the largest suppliers of residential wireless products with significant market share in the U.S. market. The loss of any of our significant customers or distributors could have a material adverse effect on our business, financial condition and results of operations.

The following table represents our total revenues, as a percentage of our total revenues, from our significant customers for the three and six month periods ended June 30, 2017 and 2016:

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
VTech Holdings Ltd.		29	%		29	%		30	%		30	%
Samsung Electronics Ltd.		2	%		13	%		1	%		13	%

The following table represents our total revenues, as a percentage of our total revenues, through our main distributors for the three and six month periods ended June 30, 2017 and 2016:

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Tomen Electronics (1)		9	%		12	%		10	%		10	%
Ascend Technology (2)		20	%		17	%		21	%		16	%

(1) Our distributor, Japan-based Tomen Electronics, sells our products to a limited number of customers; however none of those customers accounted for more than 10% of our total revenues for the first six months of 2017 or 2016. Sales to Panasonic through Tomen Electronics generated 8% and 10% of our total revenues for the second quarter of 2017 and 2016, respectively.

(2) Ascend Technology sells our products to a limited number of customers; however none of those customers accounted for more than 10% of our total revenues for the second quarter and first six months of 2017 or 2016.

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Significant products. Revenues from our digital cordless telephony products represented 53% and 56% of our total revenues for the three months ended June 30, 2017 and 2016, respectively. Revenues from our digital cordless telephony products represented 56% and 55% of our total revenues for the six months ended June 30, 2017 and 2016, respectively. We believe that sales of digital cordless telephony products will continue to represent a substantial percentage of our revenues for the remainder of 2017. We believe that the rapid deployment of new communication access methods, as well as the lack of growth in fixed-line telephony, will reduce our total revenues derived from, and unit sales of, cordless telephony products for the short and long term.

Revenues from our home gateway products represented 9% and 7% of our total revenues for the three months ended June 30, 2017 and 2016, respectively. Revenues from our home gateway products represented 9% and 8% of our total revenues for the six months ended June 30, 2017 and 2016, respectively.

Revenues from our home automation products represented 7% and 4% of our total revenues for the three months ended June 30, 2017 and 2016, respectively. Revenues from our home automation products represented 7% and 4% of our total revenues for the six months ended June 30, 2017 and 2016, respectively.

Revenues from our VoIP products represented 28% and 20% of our total revenues for the three months ended June 30, 2017 and 2016, respectively. Revenues from our VoIP products represented 26% and 20% of our total revenues for the six months ended June 30, 2017 and 2016, respectively.

Revenues from our SmartVoice products represented 3% and 13% of our total revenues for the three months ended June 30, 2017 and 2016, respectively. Revenues from our SmartVoice products represented 2% and 13% of our total revenues for the six months ended June 30, 2017 and 2016, respectively.

Gross profit. Gross profit as a percentage of revenues was 46.3% for the second quarter of 2017 and 43.9% for the second quarter of 2016. Gross profit as a percentage of revenues was 45.1% for the first half of 2017 and 43.2% for the first half of 2016. The increase in our gross profit for the comparable periods was primarily due to (i) an improvement in direct contribution and production yield of certain of our products, (ii) a change in the mix of products sold and mix of customers and (iii) a decrease in the provision for slow or obsolete inventories. The above mentioned increase was partially offset by a decrease in total revenues for both comparable periods.

As gross profit reflects the sale of chips and chipsets that have different margins, changes in the mix of products sold have impacted and will continue to impact our gross profit in future periods. Our gross profit may decrease in the future due to a variety of factors, including the continued decline in the average selling prices of our products, changes in the mix of products sold, our failure to achieve cost reductions, roll-out of new products in any given period, our success in introducing new engineering processes to reduce manufacturing costs, increases in the cost of raw materials such as gold, oil and silicon wafers, and increases in production, assembly and testing costs. Moreover, our suppliers may pass the increase in the cost of raw materials and commodities onto us, which would further reduce the gross margins of our products. There are no guarantees that our ongoing efforts in cost reduction and yield improvements will keep pace with the anticipated continuing decline in average selling prices of our products.

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Cost of goods sold consists primarily of costs of wafer manufacturing and fabrication, assembly and testing of integrated circuit devices and related overhead costs, and compensation and associated expenses related to manufacturing and testing support, inventory obsolesce and logistics personnel.

Research and development expenses, net. Our research and development expenses, net, increased to $9.2 million for the second quarter of 2017 from $9.0 million for the second quarter of 2016. The increase for the second quarter of 2017 was mainly due to (i) a decrease in funding received from Israeli Innovation Authority ("IIA") (formerly known as Office of the Chief Scientist) in the amount of $0.2 million, as compared to the second quarter of 2016, (ii) an increase in equity-based compensation expense of $0.1 million, as compared to the second quarter of 2016, and (iii) an increase in salaries and related expenses in amount of $0.2 million, as compared to the second quarter of 2016, mainly due to the devaluation of the U.S dollar against the NIS. Those increases were partially offset by a decrease in IP and Tape out expenses for the second quarter of 2017, as compared to the second quarter of 2016.

Our research and development expenses, net, increased to $18.4 million for the first half of 2017 from $17.9 million for the first half of 2016. The increase for the first half of 2017 was mainly due to (i) a decrease in funding received from IIA in the amount of $0.7 million, as compared to the first half of 2016, (ii) an increase in equity-based compensation expense of $0.3 million, as compared to the first half of 2016, (iii) an increase in salaries and related expenses in amount of $0.2 million, as compared to the first half of 2016, mainly due to the devaluation of the U.S dollar against the NIS. Those increases were partially offset by a decrease of $0.5 million in IP and tape out expenses for the first half of 2017, as compared to the first half of 2016, and a decrease of $0.3 million in subcontractor expenses in the first half of 2017, as compared to the first half of 2016.

Our research and development expenses, net, as a percentage of our total revenues were 29% and 25% for the three months ended June 30, 2017 and 2016, respectively and 31% and 28% for the six months ended June 30, 2017 and 2016, respectively. The increase in research and development expenses, net, as a percentage of our total revenues for both comparable periods ended June 30, 2017 and 2016, was mainly due to an increase in research and development expenses and a decrease in revenues for the comparable periods.

Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to tape out and mask work, subcontracting, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, and facilities expenses associated with and allocated to research and development activities.

Sales and marketing expenses. Our sales and marketing expenses increased to $3.4 million for the second quarter of 2017 from $3.3 million for the second quarter of 2016. The increase in sales and marketing expenses for the second quarter of 2017, compared to the comparable period of 2016, was mainly due to an increase in equity-based compensation expenses for the second quarter of 2017, as compared to the second quarter of 2016.

Our sales and marketing expenses increased to $7.0 million for the first half of 2017 from $6.7 million for the first half of 2016. The increase in sales and marketing expenses for the first half of 2017, compared to the comparable period of 2016, was mainly due to an increase in equity-based compensation expenses for the first half of 2017, as compared to the first half of 2016.

Our sales and marketing expenses, net, as a percentage of our total revenues were 11% and 9% for the three months ended June 30, 2017 and 2016, respectively, and 12% and 11% for the first half of 2017 and 2016, respectively. The increase as a percentage of our total revenues for both comparable periods ended June 30, 2017 was mainly due to an increase in sales and marketing expenses and a decrease in revenues for the comparable periods.

Sales and marketing expenses consist mainly of sales commissions, payroll expenses to direct sales and marketing employees, travel, trade show expenses, and facilities expenses associated with and allocated to sales and marketing activities.

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General and administrative expenses. Our general and administrative expenses were $2.4 million and $2.3 million for the second quarter of 2017 and 2016, respectively. The increase in general and administrative expenses for the second quarter of 2017, as compared to the comparable period of 2016, was mainly due to an increase in equity-based compensation expenses for the second quarter of 2017, as compared to the second quarter of 2016.

Our general and administrative expenses were $4.9 million and $4.6 million for the first half of 2017 and 2016, respectively. The increase in general and administrative expenses for the first half of 2017, as compared to the comparable period of 2016, was mainly due to an increase in equity-based compensation expenses for the first half of 2017, as compared to the first half of 2016.

General and administrative expenses as a percentage of our total revenues were 8% and 6% for the three months ended June 30, 2017 and 2016, respectively, and 8% and 7% for the first six months of 2017 and 2016, respectively. The increase in general and administrative expenses, as a percentage of our total revenues for the three and six month periods ended June 30, 2017 as compared to the comparable periods of 2016, was mainly due to an increase in general and administrative expenses and a decrease in revenues for the comparable periods.

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, accounting and legal fees, expenses related to investor relations as well as facilities expenses associated with general and administrative activities.

Description of segments. 

We operate under three reportable segments.

Our segment information has been prepared in accordance with ASC 280, “Segment Reporting.” Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is available that is evaluated regularly by the company’s chief operating decision-maker (“CODM”) in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer, who evaluates the Company’s performance and allocates resources based on segment revenues and operating income.

Our operating segments are as follows: Home, Office and Mobile. The classification of our business segments is based on a number of factors that our management uses to evaluate, view and run the company’s business operations, which include, but are not limited to, customer base, homogeneity of products and technology.

A description of the types of products provided by each business segment is as follows:

Home - Wireless chipset solutions for converged communication at home. Such solutions include integrated circuits targeted for cordless phones sold in retail or supplied by telecommunication service providers, home gateway devices supplied by telecommunication service providers which integrate the DECT/CAT-iq functionality, integrated circuits addressing home automation applications, as well as fixed-mobile convergence solutions. In this segment, (i) revenues from cordless telephony products exceeded 10% of our total revenues and amounted to 56% and 55% of our total revenues for the first half of 2017 and 2016, respectively, and 53% and 56% of our total revenues for the second quarter of 2017 and 2016, respectively.

Office - Comprehensive solution for Voice-over-IP (VoIP) office products, including office solutions that offer businesses of all sizes low-cost VoIP terminals with converged voice and data applications. VoIP products in the Office segment represented 26% and 20% of our total revenues for the first half of 2017 and 2016, respectively, and 28% and 20% of our total revenues for the second quarter of 2017 and 2016, respectively. No revenues derived from other products in the office segment exceeded 10% of our total consolidated revenues for the first six months and second quarter of 2017 and 2016.

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SmartVoice (formerly called “Mobile”) - Products for the SmartVoice market that provides voice enhancement, always-on and far-end noise elimination targeted for mobile phone, mobile headsets and other devices that incorporate the Company’s noise suppression and voice quality enhancement HDClear technology. Revenues derived from products in the SmartVoice segment represented 2% and 13% of the Company’s total revenues for the first half of 2017 and 2016, respectively, and 3% and 13% of the Company’s total revenues for the second quarter of 2017 and 2016, respectively. No revenues derived from other products in the SmartVoice segment exceeded 10% of the Company’s total consolidated revenues for both the first six months of 2017 and 2016. However, the Company believes that the designation - SmartVoice - is a better reflection of the diverse end markets that the Company’s HDClear products target. The SmartVoice segment was previously named the Mobile segment. The addressable market relating to voice user interface in applications extends beyond smartphones and therefore a broader name like SmartVoice better reflects the current design pipeline for the products in this segment.

Segment data. We derive the results of our business segments directly from our internal management reporting system and by using certain allocation methods. The accounting policies we use to derive business segment results are substantially the same as those the Company uses for consolidation of our financial statements. The CODM measures the performance of each business segment based on several metrics, including earnings from operations. CODM uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. We do not allocate to our business segments certain operating expenses, which are managed separately at the corporate level. These unallocated costs include primarily amortization of purchased intangible assets, equity-based compensation expenses, and certain corporate governance costs.

We do not allocate any assets to segments and, therefore, no amount of assets is reported to our management or disclosed in the financial information for segments.

Selected operating results information for each business segment was as follows for the three months ended June 30, 2017 and 2016 (unaudited):

	Three months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	21,789	$	24,211	$	4,564		$	4,843
Office	$	8,620	$	7,392	$	2,429		$	(475	)
SmartVoice	$	892	$	4,561	$	(5,461	)	$	(1,408	)
Total	$	31,301	$	36,164	$	1,532		$	2,960

Selected operating results information for each business segment was as follows for the six months ended June 30, 2017 and 2016 (unaudited):

	Six months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	42,744	$	42,866	$	7,909		$	6,321
Office	$	15,219	$	12,470	$	3,044		$	(2,498	)
SmartVoice	$	1,271	$	8,487	$	(10,482	)	$	(2,225	)
Total	$	59,234	$	63,823	$	471		$	1,598

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Sales to our customers in the home segment decreased for the second quarter of 2017, as compared to the second quarter of 2016, representing a decrease of 10% in absolute dollars. The decrease in sales in the home segment for the comparable periods was mainly attributable to decreased demands for cordless phones over the comparable periods.

Sales to our customers in the office segment increased for the second quarter and first six months of 2017 as compared to corresponding periods of 2016, representing an increase of 17% and 22% in absolute dollars, respectively. The increase in sales in the office segment for the comparable periods was mainly due to an increase in our market share of VoIP products.

The decrease in sales to our customers in the SmartVoice segment for the second quarter and first six months of 2017 as compared to the second quarter and first six months of 2016 was mainly due to a decrease in demand from our tier one mobile customer.

The reconciliation of segment operating results information to our consolidated financial information is included in Note M to our condensed consolidated financial statements.

Amortization of intangible assets. During the second quarter of 2017 and 2016, we recorded an expense of $0.4 million and $0.3 million, respectively, relating to the amortization of intangible assets associated with previous acquisitions. During the first half of 2017 and 2016, we recorded an expense of $0.9 million and $0.6 million relating to the amortization of intangible assets associated with previous acquisitions. The increase in 2017 as compared to 2016 is attributable to additional amortization of intangible assets related to the acquisition of a private company in Asia in the second half of 2016.

Financial income, net. Financial income, net, amounted to $0.4 million and $0.3 million for the second quarter ended June 30, 2017 and 2016, respectively, and $0.8 million and $0.6 million for the first half of 2017 and 2016, respectively.

The increase in financial income for both comparable periods was mainly as a result of (i) the devaluation of the U.S. dollar against the Israeli currency (NIS) in 2017 as compared to the devaluation of the Israeli currency (NIS) against the U.S. dollar in 2016, and (ii) an increase in interest income from our marketable securities and deposits.

Provision for income taxes. We had $0.1 million income tax expense for the second quarter of 2017 and 2016. We had no tax expense in the first six months of 2017, as compared to $0.2 million of tax expense for the first half of 2016. The income tax expenses for the first half of 2016 were mainly attributed to current tax expenses of $0.3 million, offset to some extent by income in the amount $0.2 million, resulting from the amortization of deferred tax liability related to intangible assets acquired in previous acquisitions. In the first half of 2017, we had an income of $0.2 million, resulting from changes in deferred taxes related to intangible assets acquired in previous acquisitions and equity-based compensation expenses, fully offset by current tax expenses for the first half of 2017.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities. During the first six months of 2017, we generated $3.1 million of cash and cash equivalents for our operating activities, as compared to $4.8 million of cash generated from operating activities for the first half of 2016. The decrease in cash from our operating activities during the first half of 2017 as compared to the first half of 2016 was mainly due to (i) an increase in net loss during the first half of 2017 as compared to the first half of 2017, and (ii) changes in working capital items, which generated cash and cash equivalents in the amount of $1.6 million for the first half of 2017 as compared to changes in working capital items, which generated cash and cash equivalents in the amount of $2.6 million for the first half of 2016.

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Investing activities. We invest excess cash in marketable securities of varying maturity, depending on our projected cash needs for operations, capital expenditures and other business purposes. During the first half of 2017, we purchased $18.4 millions of marketable securities and short term deposits, as compared to $26.1 million of marketable securities and short term deposits during the first half of 2016. During the first half of 2017, $9.4 million of marketable securities matured and were called by the issuers, as compared to $21.5 million during the first half of 2016. During the first half of 2017 and 2016, $8.6 million and $8.0 million, respectively, of marketable securities were sold. As of June 30, 2017, the amortized cost of our marketable securities and short term deposits was $108.5 million and their stated market value was $107.8, representing $0.7 million of unrealized losses.

Our capital equipment purchases, consisting primarily of research and development software tools, computers, peripheral, engineering test and lab equipment, leasehold improvements, furniture and fixtures, totaled $0.6 and $1.0 million, for the first half of 2017 and 2016, respectively.

Financing activities. During the first half of 2017, we paid an aggregate purchase price of $2.6 million to repurchase 233,376 shares of common stock at an average purchase price of $11.27 per share. During the first half of 2016, we repurchased 414,000 shares of common stock at an average purchase price of $9.02 per share for an aggregate purchase price of $3.7 million.

In addition, during the first half of 2017, we received $0.7 million upon the exercise of employee stock options, same as for the first half of 2016. We cannot predict cash flows from exercises of stock options for future periods.

Our board of directors has previously approved a number of share repurchase programs, including those in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, for the repurchase of our common stock. In August 2016, our board authorized a $10 million buyback program, inclusive of the shares that remained available for repurchase from previously authorized share repurchase programs.

At June 30, 2017, approximately 0.1 million shares of our common stock were available for repurchase under our board authorized share repurchase program.

As of June 30, 2017, we had cash and cash equivalents totaling approximately $17.9 million and marketable securities and time deposits of approximately $107.8 million. Out of total cash, cash equivalents and marketable securities of $125.7 million, $114.4 million was held by foreign entities. Our intent is to permanently reinvest earnings of our foreign operations and our current operating plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations. However, if these funds were needed for our operations in the United States, we would be required to accrue and pay U.S. taxes as well as taxes in other countries to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated.

Our working capital at June 30, 2017 was approximately $55.5 million, compared to $45.1 as of June 30, 2016. The increase in working capital was mainly due to (i) net cash of $14.8 million generated by operating activities from June 30, 2016 through June 30, 2017, and (ii) an increase in short term marketable securities and deposits due to the replacement of long term marketable securities and deposits with short term marketable securities and deposits. The above mentioned increases were offset to some extent by the repurchase of our common stock in the amount of $9.6 million from June 30, 2016 through June 30, 2017.

We believe that our current cash, cash equivalents, cash deposits and market securities will be sufficient to meet our cash requirements for both the short and long term.

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In addition, as part of our business strategy, we may evaluate potential acquisitions of businesses, products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot assure you that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all. See the section of the risk factors entitled "We may engage in future acquisitions that could dilute our stockholders’ equity and harm our business, results of operations and financial condition." for more detailed information.

Off-Balance sheet arrangements

We do not have any off-balance sheet arrangements, as such term is defined in recently enacted rules by the Securities and Exchange Commission, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk. It is our policy not to enter into interest rate derivative financial instruments, except for hedging of foreign currency exposures discussed below. We do not currently have any significant interest rate risk since we do not have any financial obligations.

The majority of our cash and cash equivalents are invested in high grade certificates of deposits with major U.S., European and Israeli banks. Generally, cash and cash equivalents and short term deposits may be redeemed and therefore minimal credit risk exists with respect to them. Nonetheless, cash deposits with these banks exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits in the U.S. or similar limits in foreign jurisdictions to the extent such deposits are even insured in such foreign jurisdictions. While we monitor on a systematic basis the cash balances and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit our funds fails or is subject to other adverse conditions in the financial or credit markets. To date we have experienced no loss of principal or lack of access to our cash; however, we can provide no assurances that access to our cash will not be affected if the financial institutions that we hold our cash fail or if there is significant instability in the financial and credit markets.

We hold an investment portfolio of marketable securities consisting principally of debentures of U.S. and European corporations, and state and political subdivisions of the U.S. government. We intend, and have the ability, to hold investments in marketable securities even with a decline in fair value until recovery of any temporary declines in their market value. We typically do not attempt to reduce or eliminate our market exposures on our investment securities because a majority of our investments are short term. However, we can provide no assurance that we will recover any present declines in the market value of our investments.

Interest rate fluctuations relating to our cash and cash equivalents and within our investment portfolio have not had, and we do not currently anticipate such fluctuations will have, a material effect on our financial position on an annual or quarterly basis.

Foreign currency exchange rate risk. A significant part of our sales and expenses are denominated in U.S. dollars. Part of our expenses in Israel is paid in NIS, which subjects us to the risks of foreign currency fluctuations between the U.S. dollar and the NIS. Our primary expenses paid in NIS are employee salaries and lease payments on our Israeli facilities. Furthermore, a portion of our expenses for our European operations are paid in the Euro, which subjects us to the risks of foreign currency fluctuations between the U.S. dollar and the Euro. Our primary expenses paid in Euro are employee salaries, lease and operational payments on our European facilities. To partially protect the company against an increase in value of forecasted foreign currency cash flows resulting from salary and lease payments denominated in NIS during 2017, we instituted a foreign currency cash flow hedging program. The option and forward contracts used are designated as cash flow hedges, as defined by FASB ASC No. 815,” Derivatives and Hedging,” and are all effective as hedges of these expenses. For more information about our hedging activity, see Note 2 to notes to our consolidated financial statements for the period ended June 30, 2017. An increase in the value of the NIS and the Euro in comparison to the U.S. dollar could increase the cost of our research and development expenses and general and administrative expenses, all of which could harm our operating profit. Although we currently are using a hedging program to minimize the effects of currency fluctuations relating to the NIS, our hedging position is partial, may not exist at all in the future and may not succeed in minimizing our foreign currency fluctuation risks.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREs ABOUT MARKET RISK

See "Management’s discussion and analysis of financial condition and results of operations—quantitative and qualitative disclosures about market risk."

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in litigation relating to claims arising from our ordinary course of business. In addition, as is typical in the semiconductor industry, we have been and may from time to time be notified of claims that we may be infringing patents or intellectual property rights owned by third parties. We currently believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on our company.

ITEM 1A. RISK FACTORS.

There are no material changes to the Risk Factors described under the title "Factors That May Affect Future Performance" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 other than (1) changes to the Risk Factor below entitled "We generate a significant amount of our total revenues from the sale of digital cordless telephony products and our business and operating results may be materially adversely affected if we do not continue to succeed in this highly competitive market or if sales within the overall cordless digital market decreases;" (2) changes to the Risk Factor below entitled “The market for mobile device components is highly competitive and we expect competition to intensify in the future;” (3) changes to the Risk Factor below entitled "We rely significantly on revenue derived from a limited number of customers;" (4) changes to the Risk Factor below entitled “Our future success is dependent on market acceptance of our HDClear product family targeted for the mobile device market and market acceptance of our VoIP products, which are intensively competitive markets with dominant and established players;” (5) changes to the Risk Factor below entitled "We rely on a few distributors for a significant portion of our total revenues and the failure of those distributors to perform as expected would materially reduce our future sales and revenues;" (6) changes to the Risk Factor below entitled "Because we have significant international operations, we may be subject to political, economic and other conditions relating to our international operations that could increase our operating expenses and disrupt our business;" (7) changes to the Risk Factor below entitled "Because we have significant operations in Israel, we may be subject to political, economic and other conditions affecting Israel that could increase our operating expenses and disrupt our business;" (8) changes to the Risk Factor below entitled “The tax benefits available to us under Israeli law requires us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes;” and (9) changes to the Risk Factor below entitled “We are exposed to fluctuations in currency exchange rates.” In addition, a risk factor entitled “Our research and development expenses may increase if the grants we currently receive from the Israeli government are reduced or withheld.” was added.

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We generate a significant amount of our total revenues from the sale of digital cordless telephony products and our business and operating results may be materially adversely affected if we do not continue to succeed in this highly competitive market or if sales within the overall cordless digital market continue to decrease.

Sales of our digital cordless telephony products comprised 56% of our total revenues for the first half of 2017 and 55% for the same period of 2016. Any adverse change in the digital cordless market or in our ability to compete and maintain our competitive position in that market would harm our business, financial condition and results of operations.

With the rapid deployment of new communication access methods, including mobile, wireless broadband, cable and other connectivity, the traditional cordless telephony market using fixed-line telephony is declining and will continue to decline, which reduces our revenues derived from, and unit sales of, cordless telephony products. Moreover, macro-economic trends in the consumer electronics industry may adversely impact our future revenues.

Furthermore, the decline in fixed line telephony together with the prevalence of new communication access methods, including mobile, wireless broadband, cable and other connectivity, has sales of products using fixed-line telephony. A significant majority of our revenues are currently generated from sales of chipsets used in cordless phones that are based on fixed-line telephony, and the continued decline in fixed-line telephony would reduce our revenues derived from, and unit sales of, our digital cordless telephony products.

In addition, the digital cordless telephony market is competitive and is facing pricing pressures, and we expect that competition and pricing pressures will continue. It is possible that we may one day be unable to respond to increased pricing competition for digital cordless telephony processors or other products through the introduction of new products or reduction of manufacturing costs. This inability to compete would have a material adverse effect on our business, financial condition and results of operations. Likewise, any significant delays by us in developing, manufacturing or shipping new or enhanced products in this market also would have a material adverse effect on our business, financial condition and results of operations.

We rely significantly on revenue derived from a limited number of customers.

We expect that a limited number of customers, varying in identity from period-to-period, will account for a substantial portion of our revenues in any period. Our four largest customers – VTech, Panasonic through Tomen Electronics, Samsung and Guo Wei accounted for approximately 47% and 59% of our total revenues for the first half of 2017 and 2016, respectively.

The following table represents our sales from our main customers as a percentage of our total revenues for the six months ended June 30, 2017 and 2016:

	Six months ended June 30,
Major Customers	2017			2016
VTech Holdings Ltd.		30	%		30	%
Samsung Electronics Ltd.		1	%		13	%

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Typically, our sales are made on a purchase order basis, and most of our customers have not entered into a long-term agreement requiring it to purchase our products. Moreover, we do not typically require our customers to purchase a minimum quantity of our products, and our customers can generally reschedule the delivery date of their orders on short notice without significant penalties. A significant amount of our revenues will continue to be derived from a limited number of large customers. Furthermore, the primary customers for our products are original equipment manufacturers (OEMs) and original design manufacturers (ODMs) in the cordless digital market. This industry is highly cyclical and has been subject to significant economic downturns at various times, particularly in recent periods. These downturns are characterized by production overcapacity and reduced revenues, which at times may affect the financial stability of our customers. Therefore, the loss of one of our major customers, or reduced demand for products from, or the reduction in purchasing capability of, one of our major customers, could have a material adverse effect on our business, financial condition and results of operations.

We rely on a few distributors for a significant portion of our total revenues and the failure of those distributors to perform as expected would materially reduce our future sales and revenues.

The following table represents our sales as a percentage of our total revenues through our main distributors Tomen Electronics and Ascend Technology Inc, for the six months ended June 30, 2017 and 2016:

	Six months ended June 30,
Major Distributors	2017			2016
Tomen Electronics Corporation		10	%		10	%
Ascend Technology Inc.		21	%		16	%

The loss of Tomen Electronics and/or Ascend Technology as our distributors and our inability to obtain satisfactory replacements in a timely manner would materially harm our sales and results of operations.

Our future success is dependent on market acceptance of our HDClear product family targeted for the mobile device market and on market acceptance of our VoIP products, which are intensively competitive markets with dominant and established players.

Our ability to increase our revenues and offset declining revenues from our cordless product family are substantially dependent on our ability to gain market share for our HDClear and VoIP product families. Moreover, we are targeting a new market with our HDClear product family, a market with dominant and established players selling to OEM customers with whom they have established relationships. We will need to win over such customers, with whom we do not have established relationships, to gain market share. If we are unable to generate significant revenues from our HDClear product family and gain significant and sustainable market share in the mobile device market, our operating results would be adversely affected. Furthermore, our future growth is also dependent on the market acceptance of our VoIP products, a market where we also compete with existing and potential competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales and distribution resources and management expertise than we do. In addition, our continued success and growth in the new markets in which we have recently gained market share, which markets are highly competitive, is highly dependent on our ability to be designed into future flagship products of top tier OEMs.

The market for mobile device components is highly competitive and we expect competition to intensify in the future.

The market for mobile device components is highly competitive and characterized by the presence of large companies with significantly greater resources than we have. Our HDClear product family relates only to the voice and audio subsystem of a mobile device and there are only a limited number of OEMs targeted for this market. Our main competitors include Audience (acquired by Knowles Corporation), Conexant and Cirrus Logic. We also face competition from other companies and could face competition from new market entrants. We also compete against solutions internally developed by OEMs, as well as combined third-party software and hardware systems. Notwithstanding prior design wins with any OEM customer, our HDClear products may be designed out as a result of internal solutions or replacement with software systems in future products of such OEM customer. If we are unable to compete effectively, we may not succeed in achieving additional design wins and may have to lower our pricing to gain design wins, both of which would adversely impact our operating results.

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Because our products are components of end products, if OEMs do not incorporate our products into their end products or if the end products of our OEM customers do not achieve market acceptance, we may not be able to generate adequate sales of our products.

Our products are not sold directly to the end-user; rather, they are components of end products. As a result, we rely upon OEMs to incorporate our products into their end products at the design stage. Once an OEM designs a competitor’s product into its end product, it becomes significantly more difficult for us to sell our products to that customer because changing suppliers involves significant cost, time, effort and risk for the customer. As a result, we may incur significant expenditures on the development of a new product without any assurance that an OEM will select our product for design into its own product and without this “design win” it becomes significantly difficult to sell our products. This is especially the case for our HDClear product family. Moreover, even after an OEM agrees to design our products into its end products, the design cycle is long and may be delayed or discontinued due to factors beyond our control which may result in the end product incorporating our products not to reach the market until long after the initial “design win” with the OEM or not at all. From initial product design-in to volume production, many factors could impact the timing and/or amount of sales actually realized from the design-in. These factors include, but are not limited to, changes in the competitive position of our technology, our customers’ financial stability, and our ability to ship products according to our customers’ schedule. Moreover, the continued uncertainty about the sustainability of the global economic recovery and outlook may further prolong an OEM customer’s decision-making process and design cycle.

Furthermore, we rely on the end products of our OEM customers that incorporate our products to achieve market acceptance. Many of our OEM customers face intense competition in their markets. If end products that incorporate our products are not accepted in the marketplace, we may not achieve adequate sales volume of our products, which would have a negative effect on our results of operations.

Because our quarterly operating results may fluctuate significantly, the price of our common stock may decline.

● Our quarterly results of operations may vary significantly in the future for a variety of reasons, many of which are outside our control, including the following:

● fluctuations in volume and timing of product orders;

● timing, rescheduling or cancellation of significant customer orders and our ability, as well as the ability of our customers, to manage inventory;

● changes in demand for our products due to seasonal consumer buying patterns and other factors;

● timing of new product introductions by us and by our customers or competitors;

● changes in the mix of products sold by us or our competitors;

● fluctuations in the level of sales by our OEM customers and other vendors of end products incorporating our products;

● timing and size of expenses, including expenses to develop new products and product improvements, and expenses resulting from restructuring activities;

● the timing and amount of funding from IIA;

● entry into new markets, including China, Korea and South America;

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● our ability to scale our operations in response to changes in demand for our existing products and services or demand for new products requested by our customers;

● mergers and acquisitions by us, our competitors and our existing and potential customers; and

● general economic conditions, including current economic conditions in the United States and worldwide, and the adverse effects on the semiconductor and consumer electronics industries.

Each of the above factors is difficult to forecast and could harm our business, financial condition and results of operations. Also, we sell our products to OEM customers that operate in consumer markets. As a result, our revenues are affected by seasonal buying patterns of consumer products sold by our OEM customers that incorporate our products and the market acceptance of such products supplied by our OEM customers.

Our revenues, gross margins and profitability may be materially adversely affected by the continued decline in average selling prices of our products and other factors, including increases in assembly and testing expenses, and raw material and commodity costs.

We have experienced and will continue to experience a decrease in the average selling prices of our products. Decreasing average selling prices could result in decreased revenues even if the volume of products sold increases. Decreasing average selling prices may also require us to sell our products at much lower gross margin than in the past and reduce profitability. Although we have to date been able to partially offset on an annual basis the declining average selling prices of our products through general operational efficiencies and manufacturing cost reductions by achieving a higher level of product integration and improving our yield percentages, there is no guarantee that our ongoing efforts will be successful or that they will keep pace with the anticipated, continued decline in average selling prices of our products.

In addition to the continued decline in the average selling prices of our products, our gross profit may decrease in the future due to other factors, including the roll-out of new products in any given period and the penetration of new markets which may require us to sell products at a lower margin, our failure to introduce new engineering processes and mix of products sold.

Our gross margins also are affected by the product mix. For example, mature products have lower average gross margins than other products. Therefore, increased sales of certain mature products would lower our gross margins. The pressures in the supply chain make it very difficult for us to increase or even maintain our product pricing, which further adversely affects our gross margins.

Furthermore, increases in the price of silicon wafers, testing costs and commodities such as gold and oil, which may result in increased production costs, mainly assembly and packaging costs, may result in a decrease in our gross margins. Moreover, our suppliers may pass the increase in raw materials and commodity costs onto us which would further reduce the gross margin of our products. In addition, as we are a fabless company, global market trends such as “over-capacity” problems so that there is a shortage of capacity to fulfill our fabrication needs also may increase our raw material costs and thus decrease our gross margin.

There are several emerging market trends that may challenge our ability to continue to grow our business.

New technological developments in the home connectivity market may adversely affect our operating results. For example, the prevalence of new communication access methods, including mobile, wireless broadband, cable and other connectivity, as well as the lack of growth in products using fixed-line telephony would reduce our total revenues derived from, and unit sales of, cordless fixed-line telephony products. Our ability to maintain our growth will depend on the expansion of our product lines to capitalize on the emerging access methods and on our success in developing and selling a portfolio of “system-on-a-chip” solutions targeted at wider markets, including the intensively competitive mobile devices market. We cannot assure you that we will succeed in expanding our product lines or portfolio of “system-on-a-chip” solutions, or that they would receive market acceptance.

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Furthermore, there is continued threat from alternative technologies accelerating the decline of the fixed-line telephony market. This competition comes from mobile telephony, including emerging dual-mode mobile Wi Fi phones and other innovative applications, such as Skype and iChat. Given that we derive a significant amount of revenues from chipsets incorporated into fixed-line telephony products, if we are unable to develop new technologies in the face of the decline of this market, our business could be materially adversely affected.

Our future business growth depends on the growth in demand for mobile devices with improved sound quality and always-on capability.

Our HDClear product family is designed to enhance the sound quality and eliminate background voices for mobile device users and to enable always-on capabilities in mobile and other wearable devices. OEMs and ODMs may decide that the costs of improving sound quality outweigh the benefits or that always-on voice technology is not a required feature, both of which could limit demand for our HDClear product family. Moreover, users may also be satisfied with existing sound quality or blame poor quality on their phone carriers. The market that we are targeting is evolving rapidly and is technologically challenging. New mobile devices with different components or software may be introduced that provide the same functionality as HDClear product family. Our future business growth will depend on the growth of this market and our ability to adapt to technological changes, user preferences and OEM demands. Our business could be materially adversely affected if we fail to do so.

Because we have significant international operations, we may be subject to political, economic and other conditions relating to our international operations that could increase our operating expenses and disrupt our business.

Although the majority of end users of the consumer products that incorporate our products are located in the U.S., we are dependent on sales to OEM customers, located outside of the U.S., that manufacture these consumer products. Also, we depend on a network of distributors to sell our products that also are primarily located outside of the U.S. Export sales, primarily consisting of digital cordless telephony products shipped to manufacturers in Europe and Asia, including Japan and Asia Pacific, represented 95% and 97% of our total revenues for the first half of 2017 and 2016, respectively. Furthermore, we have material operations in Germany, Hong Kong and India and employ a number of individuals within those foreign operations. As a result, the occurrence of any negative international political, economic or geographic events, as well as our failure to mitigate the challenges in managing an organization operating in various countries, could result in significant revenue shortfalls and disrupt our workforce within our foreign operations. These shortfalls and disruptions could cause our business, financial condition and results of operations to be harmed. Some of the risks of doing business internationally include:

● unexpected changes in foreign government regulatory requirements;

● fluctuations in the exchange rate for the United States dollar;

● import and export license requirements;

● imposition of tariffs and other barriers and restrictions;

● burdens of complying with a variety of foreign laws, treaties and technical standards;

● uncertainty of laws and enforcement in certain countries relating to the protection of intellectual property;

● difficulty in collecting accounts receivable and longer payment cycles for international customers than existing customers;

● difficulty in staffing and managing foreign operations and maintaining the morale and productivity of employees within foreign operations;

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● multiple and possibly overlapping tax structures and potentially adverse tax consequences;

● political and economic instability, including protectionist policies; and

● changes in diplomatic and trade relationships.

One or more of these factors may have a material adverse effect on our future operations and consequently, on our business, financial conditions and operating results.

In order to sustain the future growth of our business, we must penetrate new markets and our new products must achieve widespread market acceptance.

In order to increase our sales volume and expand our business, we must penetrate new markets and introduce new products, especially our HDClear product family. We are exploring opportunities to expand sales of our products in China, Japan, Korea and South America. However, there are no assurances that we will gain significant market share in those competitive markets. In addition, due to the cyclical nature of manufacturing capacity issues, the increasing cost of silicon integrated circuits, the continued decline of average selling prices of chipsets and other industry-wide factors, many North American, European and Japanese OEMs are moving their manufacturing sites to Asia. This trend may cause the mix of our OEM customers to change in the future, thereby further necessitating our need to penetrate new markets. Furthermore, to sustain the future growth of our business, we need to introduce new products as sales of our older products taper off. Moreover, the penetration of new competitive markets and introduction of new products could require us to reduce the sale prices of our products or increase the cost per product and thus reducing our total gross profit in future periods. Our revenue growth is dependent on the successful deployment of our new VoIP and HDClear products. Our inability to penetrate such markets and increase our market share in those markets or lack of customer acceptance of those products may harm our business and potential growth.

Our research and development expenses may increase if the grants we currently receive from the Israeli government are reduced or withheld.

We currently receive research grants from programs of the IIA. To be eligible for these grants, we must meet certain development conditions and comply with periodic reporting obligations. Although we have met such conditions in the past, should we fail to meet such conditions in the future our research grants may be repayable, reduced or withheld. Such reduction can also take place due to different allocation and methodology that IIA is implementing. The reduction of such research grants may increase our research and development expenses which in turn may reduce our operating income. As an example, in 2017, the amount of grants approved by the IIA was substantially lower than prior years due to different allocation and methodology that IIA has implemented. Our research and development expenses may increase if the grants from the IIA are reduced which may negatively affect our financial results.   

Because the markets in which we compete are subject to rapid changes, our products may become obsolete or unmarketable.

The markets for our products and services are characterized by rapidly changing technology, short product life cycles, evolving industry standards, changes in customer needs, demand for higher levels of integration, growing competition and new product introductions. This is especially the case for the mobile device market. Our future growth is dependent not only on the continued success of our existing products but also successful introduction of new products. Our ability to adapt to changing technology and anticipate future standards, and the rate of adoption and acceptance of those standards, will be a significant factor in maintaining or improving our competitive position and prospects for growth. If new industry standards emerge, our products or our customers’ products could become unmarketable or obsolete, and we could lose market share. We may also have to incur substantial unanticipated costs to comply with these new standards. If our product development and improvements take longer than planned, the availability of our products would be delayed. Any such delay may render our products obsolete or unmarketable, which would have a negative impact on our ability to sell our products and our results of operations.

● Because of changing customer requirements and emerging industry standards, we may not be able to achieve broad market acceptance of our products. Our success is dependent, in part, on our ability to:

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● successfully develop, introduce and market new and enhanced products at competitive prices and in a timely manner in order to meet changing customer needs;

● convince leading OEMs to select our new and enhanced products for design into their own new products;

● respond effectively to new technological changes or new product announcements by others;

● effectively use and offer leading technologies; and

● maintain close working relationships with our key customers.

There are no assurances that we will be successful in these pursuits, that the demand for our products will continue or that our products will achieve market acceptance. Our failure to develop and introduce new products that are compatible with industry standards and that satisfy customer requirements, and the failure of our products to achieve broad market acceptance, could have a negative impact on our ability to sell our products and our results of operations.

Because we depend on independent foundries and other third party suppliers to manufacture and test all of our integrated circuit products, we are subject to additional risks that may materially disrupt our business.

All of our integrated circuit products are manufactured and tested by independent foundries and other third party suppliers. While these foundries and other third party suppliers have been able to adequately meet the demands of our increasing business, we are and will continue to be dependent upon these foundries and third party suppliers to achieve acceptable manufacturing yields, quality levels and costs, and to allocate to us a sufficient portion of their foundry, assembly and test capacity to meet our needs in a timely manner.

While we currently believe we have adequate capacity to support our current sales levels pursuant to our arrangement with our foundries and other third party suppliers, we may encounter capacity shortage issues in the future. In the event of a worldwide shortage in foundry, assembly and/or test capacity, we may not be able to obtain a sufficient allocation of such capacity to meet our product needs or we may incur additional costs to ensure specified quantities of products and services. Over-capacity at the current foundries and other third party suppliers we use, or future foundries or other third party suppliers we may use, to manufacture and test our integrated circuit products may lead to increased operating costs and lower gross margins. In addition, such a shortage could lengthen our products’ manufacturing and testing cycle and cause a delay in the shipment of our products to our customers. This could ultimately lead to a loss of sales of our products, harm our reputation and competitive position, and our revenues could be materially reduced. Our business could also be harmed if our current foundries or other third party suppliers terminate their relationship with us and we are unable to obtain satisfactory replacements to fulfill customer orders on a timely basis and in a cost-effective manner. Moreover, we do not have long term capacity guarantee agreements with our foundries and with other third party suppliers.

In addition, as TSMC produces a significant portion of our integrated circuit products and ASE tests and assembles a significant portion of them, earthquakes, aftershocks or other natural disasters in Asia, or adverse changes in the political situation in Taiwan, could preclude us from obtaining an adequate supply of wafers to fill customer orders. Such events could harm our reputation, business, financial condition, and results of operations.

Our operating results are affected by general economic conditions and the highly cyclical nature of the semiconductor industry.

The general worldwide economic conditions remain uncertain which continues to make it difficult for our customers, the end-product customers, our vendors and us to accurately forecast and plan future business activities and make reliable projections. Moreover, we operate within the semiconductor industry which experiences significant fluctuations in sales and profitability. Downturns in the semiconductor industry are characterized by diminished product demand, excess customer inventories, accelerated erosion of prices and excess production capacity. These factors could cause substantial fluctuations in our revenues and in our results of operations. If global economic and market conditions remain uncertain or deteriorate, we could experience a material adverse impact on our business and results of operations.

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Because the manufacture of our products is complex, the foundries on which we depend may not achieve the necessary yields or product reliability that our business requires.

The manufacture of our products is a highly complex and precise process, requiring production in a highly controlled environment. Changes in manufacturing processes or the inadvertent use of defective or contaminated materials by a foundry could adversely affect the foundry’s ability to achieve acceptable manufacturing yields and product reliability. If the foundries we currently use do not achieve the necessary yields or product reliability, our ability to fulfill our customers’ needs could suffer. This could ultimately lead to a loss of sales of our products and have a negative effect on our gross margins and results of operations.

Furthermore, there are other significant risks associated with relying on these third-party foundries, including:

● risks due to the fact that we have reduced control over production cost, delivery schedules and product quality;

● less recourse if problems occur as the warranties on wafers or products supplied to us are limited; and

● increased exposure to potential misappropriation of our intellectual property.

As we depend on independent subcontractors, located in Asia, to assemble and test our semiconductor products, we are subject to additional risks that may materially disrupt our business.

Independent subcontractors, located in Asia, assemble and test our semiconductor products. Because we rely on independent subcontractors to perform these services, we cannot directly control our product delivery schedules or quality levels. We are dependent on these subcontractors to allocate to us a sufficient portion of their capacity to meet our needs in a timely manner. Our future success also depends on the financial viability of our independent subcontractors. If the capital structures of our independent subcontractors weaken, we may experience product shortages, production delays, quality assurance problems, increased manufacturing costs, and/or supply chain disruption. All of this could ultimately lead to a loss of sales of our products, harm our reputation and competitive position, and our revenues could be materially harmed.

Moreover, the economic, market, social, and political situations in countries where some of our independent subcontractors are located are unpredictable, can be volatile, and can have a significant impact on our business because we may not be able to obtain product in a timely manner. Market and political conditions, including currency fluctuation, terrorism, political strife, war, labor disruption, and other factors, including natural or man-made disasters, adverse changes in tax laws, tariff, import or export quotas, power and water shortages, or interruption in air transportation, in areas where our independent subcontractors are located also could have a severe negative impact on our operating capabilities.

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We are subject to order and shipment uncertainties and if we are unable to accurately predict customer demand, our business may be harmed.

We typically sell products pursuant to purchase orders rather than long-term purchase commitments. Customers can generally change or defer purchase orders on short notice without incurring a significant penalty. Given current market conditions, we have less ability to accurately predict what or how many products our customers will need in the future. In addition, we have little visibility into and no control of the demand by our customer’s customers – generally consumer electronics retailers. Furthermore, based on discussions with our customers, we understand that our customers also have less visibility into their product demands. A decrease in the consumer electronics retailers’ demand or a build-up of their inventory, both of which are out of the control of our customers and us, may cause a cancellation, change or deferral of purchase orders on short notice by our customers. Anticipating demand is difficult because our customers and their customers face volatile pricing and unpredictable demand for their own products, and are increasingly focused on cash preservation and tighter inventory management. Based on these trends, our customers are reluctant to place orders with normal lead times, and we are seeing a shift to shorter lead-times and rush orders. However, we place orders with our suppliers based on forecasts of our customers’ demand and, in some instances, may establish buffer inventories to accommodate anticipated demand. Our forecasts are based on multiple assumptions, each of which may introduce error into our estimates. If we overestimate our customers’ demand or our customers overestimate their demand, we may allocate resources to manufacturing products that we may not be able to sell when we expect to, if at all. As a result, we could hold excess or obsolete inventory, which would reduce our profit margins and adversely affect our financial results. Conversely, if we underestimate our customers’ demand or our customers underestimate their demand and insufficient manufacturing capacity is available, we could forego revenue opportunities and potentially lose market share and damage our customer relationships.

Furthermore, we maintain inventory, or hubbing, arrangements with certain of our customers. Pursuant to these arrangements, we deliver products to a customer or a designated third party warehouse based upon the customer’s projected needs, but do not recognize product revenue unless and until the customer reports that it has removed our product from the warehouse to incorporate into its end products. Since we own inventory that is physically located in a third party’s warehouse, our ability to effectively manage inventory levels may be impaired, causing our total inventory turns to decrease, which could increase expenses associated with excess and obsolete product and negatively impact our cash flow.

We are dependent on a small number of OEM customers, and our business could be harmed by the loss of any of these customers or reductions in their purchasing volumes.

We sell our products to a limited number of OEM customers directly or through a network of distributors. Moreover, many North American, European and Japanese OEMs are moving their manufacturing sites to Southeast Asia, as a result of the cyclical nature of manufacturing capacity issues and cost of silicon integrated circuits, the continued decline of average selling prices of chipsets and other industry-wide factors. In addition, OEMs located in Southeast Asia are growing and gaining competitive strength. As a result, the mix of our OEM customers may change in the future. However, we may not succeed in attracting new customers as these potential customers may have pre-existing relationships with our current or potential competitors. This trend also may promote the consolidation of OEMs located in North America, Europe and Japan with OEMs located in Southeast Asia, which may reduce the number of our potential customers and reduce the volume of chipsets the combined OEM customer may purchase from us. However, as is common in our industry, we typically do not enter into long term contracts with our customers in which they commit to purchase products from us. The loss of any of our OEM customers may have a material adverse effect on our results of operations. To attract new customers, we may be faced with intense price competition, which may affect our revenues and gross margins.

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The possible emerging trend of our OEM customers outsourcing their production may cause our revenue to decline.

We believe there may be an emerging trend of our OEM customers outsourcing their production to third parties. We have invested substantial resources to build relationships with our OEM customers. However the outsourcing companies whom our OEM customers may choose to outsource production may not have prior business relationship with us or may instead have prior or ongoing relationships with our competitors. The emergence of this trend may require us to expend substantial additional resources to build relationships with these outsourcing companies, which would increase our operating expenses. Even if we do expend such resources, there are no assurances that these outsourcing companies will choose to incorporate our chipsets rather than chipsets of our competitors. Our inability to retain an OEM customer once such customer chooses to outsource production would have a material adverse effect on our future revenue.

Third party claims of infringement or other claims against us could adversely affect our ability to market our products, require us to redesign our products or seek licenses from third parties, and seriously harm our operating results and disrupt our business.

As is typical in the semiconductor industry, we and our customers have been and may from time to time be notified of claims that we may be infringing patents or intellectual property rights owned by third parties. In addition, patent infringement claims are increasingly being asserted by patent holding companies (so-called patent “trolls”), which do not use technology and whose sole business is to enforce patents against companies, such as us, for monetary gain. Because such patent holding companies do not provide services or use technology, the assertion of our own patents by way of counter-claim may be ineffective. We have received claims that our products infringe upon the proprietary rights of such patent holding companies. In addition, third parties have asserted and may in the future assert intellectual property infringement claims against our customers, which we have agreed in certain circumstances to indemnify and defend against such claims. If litigation becomes necessary to determine the validity of any third party claims, it could result in significant expense to us and could divert the efforts of our technical and management personnel, whether or not the claim has merit and notwithstanding that the litigation is determined in our favor.

If it appears necessary or desirable, we may try to obtain licenses for those patents or intellectual property rights that we are allegedly infringing. Although holders of these types of intellectual property rights commonly offer these licenses, we cannot assure you that licenses will be offered or that the terms of any offered licenses will be acceptable to us. Our failure to obtain a license for key intellectual property rights from a third party for technology used by us could cause us to incur substantial liabilities, suspend the manufacturing of products utilizing the technology or damage the relationship with our customers. Alternatively, we could be required to expend significant resources to develop non-infringing technology. We cannot assure you that we would be successful in developing non-infringing technology. The occurrence of any of these events could harm our business, financial condition or results of operations.

Because we have significant operations in Israel, we may be subject to political, economic and other conditions affecting Israel that could increase our operating expenses and disrupt our business.

Our principal research and development facilities are located in the State of Israel and, as a result, at June 30, 2017, 206 of our 331 employees were located in Israel, including 141 out of 205 of our research and development personnel. In addition, although we are incorporated in Delaware, a majority of our directors and executive officers are residents of Israel. Although substantially all of our sales currently are being made to customers outside of Israel, we are nonetheless directly influenced by the political, economic and military conditions affecting Israel. Any major hostilities involving Israel, or the interruption or curtailment of trade between Israel and its present trading partners, could significantly harm our business, operating results and financial condition.

Israel’s economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. In addition, Israel and companies doing business with Israel have been the subject of an economic boycott by the Arab countries since Israel’s establishment. Although they have not done so to date, these restrictive laws and policies may have an adverse impact on our operating results, financial condition or expansion of our business.

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Since the establishment of the State of Israel in 1948, a state of hostility has existed, varying in degree and intensity, between Israel and the Arab countries. Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, hostilities between Israel and some of its Arab neighbors have recently escalated and intensified. We cannot predict whether or in what manner these conflicts will be resolved. Our results of operations may be negatively affected by the obligation of key personnel to perform military service. In addition, certain of our officers and employees are currently obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called for active military duty at any time. Although we have operated effectively under these requirements since our inception, we cannot predict the effect of these obligations on the company in the future. Our operations could be disrupted by the absence, for a significant period, of one or more of our officers or key employees due to military service.

The tax benefits available to us under Israeli law require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes.

Our facilities in Israel have been granted Approved Enterprise and Beneficiary Enterprise status under the Law for the Encouragement of Capital Investments, 1959, commonly referred to as the “Investment Law,” as amended. The Investment Law provides that capital investments in a production facility (or other eligible assets) designated as an Approved Enterprise or Beneficiary Enterprise receive certain tax benefits in Israel. Our investment programs that generate taxable income are currently subject to an average tax rate of up to approximately 10% based on a variety of factors, including percentage of foreign ownership and approvals for the erosion of the tax basis of our investment programs. To be eligible for tax benefits, we must meet certain conditions, relating principally to adherence to the investment program filed with the Investment Center of the Israeli Ministry of Economy and periodic reporting obligations. Although we believe we have met such conditions in the past, should we fail to meet such conditions in the future, we would be subject to corporate tax in Israel at the standard corporate tax rate (24% for 2017) and could be required to refund tax benefits (including with interest and adjustments for inflation based on the Israeli consumer price index) already received. Our average tax rate for our investment programs also may change in the future due to circumstances outside of our control, including changes to legislation. For example, in July 2013, the Investment Law was amended whereby the reduction of corporate tax rate for preferred enterprises was eliminated such that such enterprises, which are subject to the new law, would be subject to a 16% tax rate. Therefore, we cannot provide any assurances that our average tax rate for our investment programs will continue in the future at their current levels, if at all. The termination or reduction of certain programs and tax benefits or a requirement to refund tax benefits (including with interest and adjustments for inflation based on the Israeli consumer price index) already received may have a material adverse effect on our business, operating results and financial condition.

We may engage in future acquisitions that could dilute our stockholders’ equity and harm our business, results of operations and financial condition.

We have pursued, and will continue to pursue, growth opportunities through internal development and acquisition of complementary businesses, products and technologies. We are unable to predict whether or when any other prospective acquisition will be completed. The process of integrating an acquired business may be prolonged due to unforeseen difficulties and may require a disproportionate amount of our resources and management’s attention. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, or expand into new markets. Further, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as our existing business or otherwise perform as expected. The occurrence of any of these events could harm our business, financial condition or results of operations. Future acquisitions may require substantial capital resources, which may require us to seek additional debt or equity financing.

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● Future acquisitions by us could result in the following, any of which could seriously harm our results of operations or the price of our stock:

● issuance of equity securities that would dilute our current stockholders’ percentages of ownership;

● large one-time write-offs;

● the incurrence of debt and contingent liabilities;

● difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of the acquired companies;

● diversion of management’s attention from other business concerns;

● contractual disputes;

● risks of entering geographic and business markets in which we have no or only limited prior experience; and

● potential loss of key employees of acquired organizations.

We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.

Our success and ability to compete is in part dependent upon our internally-developed technology and other proprietary rights, which we protect through a combination of copyright, trademark and trade secret laws, as well as through confidentiality agreements and licensing arrangements with our customers, suppliers, employees and consultants. In addition, we have filed a number of patents in the United States and in other foreign countries with respect to new or improved technology that we have developed. However, the status of any patent involves complex legal and factual questions, and the breadth of claims allowed is uncertain. Accordingly, we cannot assure you that any patent application filed by us will result in a patent being issued, or that the patents issued to us will not be infringed by others. Also, our competitors and potential competitors may develop products with similar technology or functionality as our products, or they may attempt to copy or reverse engineer aspects of our product line or to obtain and use information that we regard as proprietary. Moreover, the laws of certain countries in which our products are or may be developed, manufactured or sold, including Hong Kong, Japan, Korea and Taiwan, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Policing the unauthorized use of our products is difficult and may result in significant expense to us and could divert the efforts of our technical and management personnel. Even if we spend significant resources and efforts to protect our intellectual property, we cannot assure you that we will be able to prevent misappropriation of our technology. Use by others of our proprietary rights could materially harm our business and expensive litigation may be necessary in the future to enforce our intellectual property rights.

Because our products are complex, the detection of errors in our products may be delayed, and if we deliver products with material defects, our credibility will be harmed, the sales and market acceptance of our products may decrease and product liability claims may be made against us.

Our products are complex and may contain errors, defects and bugs when introduced. If we deliver products with material errors, defects or bugs, our credibility and the market acceptance and sales of our products could be significantly harmed. Furthermore, the nature of our products may also delay the detection of any such error or defect. If our products contain material errors, defects and bugs, then we may be required to expend significant capital and resources to alleviate these problems. This could result in the diversion of technical and other resources from our other development efforts. Any actual or perceived problems or delays may also adversely affect our ability to attract or retain customers. Furthermore, the existence of any defects, errors or failures in our products could lead to product liability claims or lawsuits against us or against our customers. We generally provide our customers with a standard warranty for our products, generally lasting one year from the date of purchase. Although we attempt to limit our liability for product defects to product replacements, we may not be successful, and customers may sue us or claim liability for the defective products. A successful product liability claim could result in substantial cost and divert management’s attention and resources, which would have a negative impact on our financial condition and results of operations.

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We are exposed to the credit risk of our customers and to credit exposures in weakened markets, which could result in material losses.

Most of our sales are on an open credit basis. Because of current conditions in the global economy, our exposure to credit risks relating to sales on an open credit basis has increased. We expect demand for enhanced open credit terms, for example, longer payment terms, to continue and believe that such arrangements are a competitive factor in obtaining business. Although we monitor and attempt to mitigate credit risks, including through insurance coverage from time to time, there can be no assurance that our efforts will be effective. Moreover, even if we attempt to mitigate credit risks through insurance coverage, such coverage may not be sufficient to cover all of our losses and we would be subject to a deductible under any insurance coverage. As a result, our future credit risk exposure may increase. Although any losses to date relating to credit exposure of our customers have not been material, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition. Moreover, the loss of a customer due to its financial default also could harm our future business and potential growth.

Our executive officers and key personnel are critical to our business, and because there is significant competition for personnel in our industry, we may not be able to attract and retain such qualified personnel.

Our success depends to a significant degree upon the continued contributions of our executive management team, and our technical, marketing, sales customer support and product development personnel. The loss of significant numbers of such personnel could significantly harm our business, financial condition and results of operations. We do not have any life insurance or other insurance covering the loss of any of our key employees. Because our products are specialized and complex, our success depends upon our ability to attract, train and retain qualified personnel, including qualified technical, marketing and sales personnel. However, the competition for personnel is intense and we may have difficulty attracting and retaining such personnel.

We may have exposure to additional tax liabilities as a result of our foreign operations.

We are subject to income taxes in the United States and various foreign jurisdictions. In addition to our significant operations in Israel, we have operations in Germany, the United Kingdom, Hong Kong, China, Japan, South Korea and India. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities and as an example, we are now under audit for one of our subsidiaries, the outcome of which could have material adverse impact on our financial condition. Our intercompany transfer pricing may be reviewed by the U.S. Internal Revenue Service and by foreign tax jurisdictions. Although we believe that our tax estimates are reasonable, due to the complexity of our corporate structure, the multiple intercompany transactions and the various tax regimes, we cannot assure you that a tax audit or tax dispute to which we may be subject will result in a favorable outcome for us. If taxing authorities do not accept our tax positions and impose higher tax rates on our foreign operations, our overall tax expenses could increase.

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We are exposed to fluctuations in currency exchange rates.

A significant portion of our business is conducted outside the United States. Export sales to manufacturers in Europe and Asia, including Japan and Asia Pacific, represented 95% and 97% of our total revenues for the second quarter of 2017 and 2016, respectively. Although most of our revenue and expenses are transacted in U.S. dollars, we may be exposed to currency exchange fluctuations in the future as business practices evolve and we are forced to transact business in local currencies. Moreover, part of our expenses in Israel are paid in Israeli currency, which subjects us to the risks of foreign currency fluctuations between the U.S. dollar and the New Israeli Shekel (NIS) and to economic pressures resulting from Israel’s general rate of inflation. Our primary expenses paid in NIS are employee salaries and lease payments on our Israeli facilities. Furthermore, a portion of our expenses for our European operations are paid in the Euro, which subjects us to the risks of foreign currency fluctuations between the U.S. dollar and the Euro. Our primary expenses paid in the Euro are employee salaries, lease and operational payments on our European facilities. As a result, an increase in the value of the NIS and Euro in comparison to the U.S. dollar could increase the cost of our technology development, research and development expenses and general and administrative expenses, all of which could harm our operating profit. From time to time, we use derivative instruments in order to minimize the effects of currency fluctuations, but our hedging positions may be partial, may not exist at all in the future or may not succeed in minimizing our foreign currency fluctuation risks. Our financial results may be harmed if the trend relating to the devaluation of the U.S. dollars continues for an extended period.

Because the markets in which we compete are highly competitive, and many of our competitors have greater resources than we do, we cannot be certain that our products will be accepted in the marketplace or capture market share.

The markets in which we operate are extremely competitive and characterized by rapid technological change, evolving standards, short product life cycles and price erosion. We expect competition to intensify as current competitors expand their product offerings and new competitors enter the market. Given the highly competitive environment in which we operate, we cannot be sure that any competitive advantages enjoyed by our current products would be sufficient to establish and sustain our new products in the market. Any increase in price or competition could result in the erosion of our market share, to the extent we have obtained market share, and would have a negative impact on our financial condition and results of operations.

In each of our business activities, we face current and potential competition from competitors that have significantly greater financial, technical, manufacturing, marketing, sales and distribution resources and management expertise than we do. These competitors may also have pre-existing relationships with our customers or potential customers. Further, in the event of a manufacturing capacity shortage, these competitors may be able to manufacture products when we are unable to do so. Our principal competitors in the cordless market include Lantiq (acquired by Intel) and Dialog Semiconductors. Our principal competitors in the VoIP market include Broadcom (acquired by Avago Technologies), Dialog Semiconductors, Infineon, Texas Instruments and new Taiwanese IC vendors. Our principal competitors in the smart audio and noise reduction market include Audience (acquired by Knowles Corporation), Cirrus Logic, Conexant and developers of noise cancellation software running on mobile phones such as NXP and ForteMedia.

As discussed above, various new developments in the home residential market may require us to enter into new markets with competitors that have more established presence, and significantly greater financial, technical, manufacturing, marketing, sales and distribution resources and management expertise than we do. The expenditure of greater resources to expand our current product lines and develop a portfolio of “system-on-a-chip” solutions that integrate video, voice, data and communication technologies in a wider multimedia market may increase our operating expenses and reduce our gross profit. We cannot assure you that we will succeed in developing and introducing new products that are responsive to market demands.

An unfavorable government review of our federal income tax returns or changes in our effective tax rates could adversely affect our operating results.

Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, we are subject to the periodic examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, as an example, we are now under audit for one of our subsidiaries. The outcome from this examination may have an adverse effect on our operating results and financial condition.

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Our business operations would be disrupted if the information technology systems we rely on fail to function properly.

We rely on complex information technology systems to manage our business which operates in many geographical locations. For example, to achieve short delivery lead times and superior levels of customer service while maintaining low levels of inventory, we constantly adjust our production schedules with manufacturers and subcontractors. We develop and adjust these schedules based on end customer demand as communicated by our customers and distributors and based on our inventory levels, manufacturing cycle times, component lead times, and projected production yields. We combine and distribute all of this information electronically over a complex global communications network. Our ability to estimate demand and to adjust our production schedules is highly dependent on this network. Any delay in the implementation of, or disruption in the transition to, new or enhanced processes, systems or controls, could adversely affect our ability to manage customer orders and manufacturing schedules, as well as generate accurate financial and management information in a timely manner. These systems are also susceptible to power and telecommunication disruptions and other system failures. Failure of our IT systems or difficulties in managing them could result in business disruption. Our business could be significantly disrupted and we could be subject to third party claims associated with such disruptions.

We may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

A growing trend in our industry is the integration of greater semiconductor content into a single chip to achieve higher levels of functionality. In order to remain competitive, we must achieve higher levels of design integration and deliver new integrated products on a timely basis. This will require us to expend greater research and development resources, and may require us to modify the manufacturing processes for some of our products, to achieve greater integration. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs. Although this migration to smaller geometry process technologies has helped us to offset the declining average selling prices of our products, this effort may not continue to be successful. Also, because we are a fabless semiconductor company, we depend on our foundries to transition to smaller geometry processes successfully. We cannot assure you that our foundries will be able to effectively manage the transition. In case our foundries or we experience significant delays in this transition or fail to efficiently implement this transition, our business, financial condition and results of operations could be materially and adversely affected.

The anti-takeover provisions in our certificate of incorporation and bylaws could prevent or discourage a third party from acquiring us.

Our certificate of incorporation and bylaws contain provisions that may prevent or discourage a third party from acquiring us, even if the acquisition would be beneficial to our stockholders. Our board of directors also has the authority to fix the rights and preferences of shares of our preferred stock and to issue such shares without a stockholder vote. Our bylaws also place limitations on the authority to call a special meeting of stockholders. Our stockholders may take action only at a meeting of stockholders and not by written consent. We have advance notice procedures for stockholders desiring to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders. In addition, these factors may also adversely affect the market price of our common stock, and the voting and other rights of the holders of our common stock.

Our stock price may be volatile so you may not be able to resell your shares of our common stock at or above the price you paid for them.

Announcements of developments related to our business, announcements by competitors, quarterly fluctuations in our financial results, changes in the general conditions of the highly dynamic industry in which we compete or the national economies in which we do business, and other factors could cause the price of our common stock to fluctuate, perhaps substantially. In addition, in recent years, the stock market has experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. These factors and fluctuations could have a material adverse effect on the market price of our common stock.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the second quarter of 2017, we repurchased 124,082 shares of common stock at an average purchase price of $12.00 per share for approximately $1.5 million. The table below sets forth the information with respect to repurchases of our common stock during the first quarter ended June 30, 2017.

Period	(a) Total number of shares purchased		(b) average price paid per share		(c) Total number of shares purchased as part of publicly announced plans or programs		(d) Maximum number of shares that may yet be purchased under the plans or programs) (1)
Month #1 (April 1, 2017 to April 30, 2017)		-		-		-		195,926
Month #2 (May 1, 2017 to May 31, 2017)		68,000		12.20		68,000		127,926
Month #3 (June 1, 2017 to June 30, 2017)		56,082		11.76		56,082		71,844	(1)

(1) The number represents the number of shares of our common stock that remained available for repurchase as of June 30, 2017 under previously authorized share repurchase programs.

Our board of directors has previously approved a number of share repurchase programs, including those in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, for the repurchase of our common stock. In August 2016, our board authorized a $10 million dollar buyback program, inclusive of the shares that remained available for repurchase from previously authorized share repurchase programs.

At June 30, 2017, 71,844 shares of our common stock are available for repurchase under our board authorized share repurchase programs. The repurchase program is being affected from time to time, depending on market conditions and other factors, through Rule 10b5-1 plans, open market purchases and privately negotiated transactions. The repurchase program has no set expiration or termination date.

ITEM 3. defaults upon senior securities.

Not applicable.

ITEM 4. mine safety disclosure.

Not applicable.

ITEM 5. other information,

Not applicable.

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ITEM 6. EXHIBITS.

Exhibit 31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS XBRL Instance Document

Exhibit 101.SCH XBRL Taxonomy Schema Linkbase Document

Exhibit 101.CAL XBRL Taxonomy Calculation Linkbase Document

Exhibit 101.DEF XBRL Taxonomy Definition Linkbase Document

Exhibit 101.LAB XBRL Taxonomy Labels Linkbase Document

Exhibit 101.PRE XBRL Taxonomy Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DSP GROUP, INC. (Registrant)
Date: August 9, 2017	By:	/s/ Dror Levy Dror Levy, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ofer Elyakim, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DSP Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our provision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2017

/s/ Ofer Elyakim

Ofer Elyakim
Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Dror Levy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DSP Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our provision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2017

/s/ Dror Levy
Dror Levy
Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of DSP Group, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission (the "Report"), I, Ofer Elyakim, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.

Date: August 9, 2017

/s/ Ofer Elyakim

Ofer Elyakim

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION

In connection with the periodic report of DSP Group, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission (the "Report"), I, Dror Levy, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.

Date: August 9, 2017

/s/ Dror Levy

Dror Levy

Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 04, 2017
Document Information [Line Items]
Entity Registrant Name	DSP GROUP INC /DE/
Entity Central Index Key	0000915778
Trading Symbol	dspg
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		22,249,706
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
CURRENT ASSETS:
Cash and cash equivalents	$ 17,862	$ 17,752
Restricted deposits	90	70
Marketable securities and short-term deposits	33,476	29,031
Trade receivables	14,624	19,069
Other accounts receivable and prepaid expenses	2,806	2,331
Inventories	10,641	9,748
TOTAL CURRENT ASSETS	79,499	78,001
PROPERTY AND EQUIPMENT, NET	3,837	4,130
NON-CURRENT ASSETS:
Long-term marketable securities	74,357	78,092
Long-term prepaid expenses and lease deposits	1,457	1,329
Deferred income taxes	720	918
Severance pay fund	14,446	12,751
Intangible assets, net	3,630	4,480
Goodwill	6,243	6,243
TOTAL NON-CURRENT ASSETS	100,853	103,813
TOTAL ASSETS	184,189	185,944
CURRENT LIABILITIES:
Trade payables	11,342	12,540
Accrued compensation and benefits	7,867	8,666
Income tax accruals and payables	879	1,137
Accrued expenses and other accounts payable	3,868	3,556
TOTAL CURRENT LIABILITIES	23,956	25,899
NON-CURRENT LIABILITIES:
Deferred income taxes	589	787
Accrued severance pay	14,663	12,908
Accrued pensions	862	803
TOTAL NON-CURRENT LIABILITIES	16,114	14,498
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value - Authorized shares: 50,000,000 shares at March 31, 2017 and December 31, 2016; Issued and outstanding shares: 22,168,804 and 21,931,157 shares at March 31, 2017 and December 31, 2016, respectively	22	22
Additional paid-in capital	369,209	366,121
Treasury stock at cost	(120,854)	(122,632)
Accumulated other comprehensive loss	(1,391)	(1,852)
Accumulated deficit	(102,867)	(96,112)
TOTAL STOCKHOLDERS’ EQUITY	144,119	145,547
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 184,189	$ 185,944

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	22,168,804	21,931,157
Common stock, outstanding (in shares)	22,168,804	21,931,157

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues		$ 31,301	$ 36,164	$ 59,234	$ 63,823
Cost of revenues (1)	[1],[2]	16,804	20,279	32,490	36,221
Gross profit		14,497	15,885	26,744	27,602
Operating expenses:
Research and development	[3]	9,161	9,036	18,351	17,925
Sales and marketing	[1]	3,430	3,323	7,005	6,715
General and administrative	[4]	2,372	2,275	4,859	4,558
Intangible assets amortization		425	321	850	642
Total operating expenses		15,388	14,955	31,065	29,840
Operating income (loss)		(891)	930	(4,321)	(2,238)
Financial income, net		418	273	834	565
Income (loss) before taxes on income		(473)	1,203	(3,487)	(1,673)
Taxes on income (tax benefit)		113	123	(35)	160
Net income (loss)		$ (586)	$ 1,080	$ (3,452)	$ (1,833)
Net earnings (loss) per share:
Basic (in dollars per share)		$ (0.03)	$ 0.05	$ (0.16)	$ (0.08)
Diluted (in dollars per share)		$ (0.03)	$ 0.05	$ (0.16)	$ (0.08)
Weighted average number of shares used in per share computations of net earnings (loss):
Basic (in shares)		22,180	21,739	22,141	21,725
Diluted (in shares)		22,180	22,845	22,141	21,725

[1] Includes equity-based compensation expense in the amount of $297 and $194 for the three months ended June 30, 2017 and 2016, respectively; and $597 and $325 for the six months ended June 30, 2017 and 2016, respectively.

[2] Includes equity-based compensation expense in the amount of $94 and $83 for the three months ended June 30, 2017 and 2016, and $191 and $144 for the six months ended June 30, 2017 and 2016, respectively.

[3] Includes equity-based compensation expense in the amount of $623 and $521 for the three months ended June 30, 2017 and 2016, respectively; and $1,239 and $947 for the six months ended June 30, 2017 and 2016, respectively.

[4] Includes equity-based compensation expense in the amount of $543 and $461 for the three months ended June 30, 2017 and 2016, respectively; and $1,061 and $828 for the six months ended June 30, 2017 and 2016, respectively.

XML

Condensed Consolidated Statements of Income (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Equity-based compensation expenses included in cost of revenues	$ 94	$ 83	$ 191	$ 144
Equity-based compensation expense included in research and development, net	623	521	1,239	947
Equity-based compensation expense included in sales and marketing	297	194	597	325
Equity-based compensation expense included in general and administrative	$ 543	$ 461	$ 1,061	$ 828

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net change	$ 167	$ 212	$ 418	$ 651
Changes in unrealized gains/losses	49	(110)	192	58
Reclassification adjustments for (gains) losses included in net loss	(78)	(14)	(153)	15
Net change	(29)	(124)	39	73
Amortization of actuarial loss and prior service benefit	5	4	10	8
Net change	5	4	10	8
Foreign currency translation adjustments, net	3	18	(6)	61
Net current period other comprehensive income (loss)	146	110	461	793
Comprehensive income (loss)	(440)	1,190	(2,991)	(1,040)
Net income (loss)	(586)	1,080	(3,452)	(1,833)
Changes in unrealized gains/losses	156	205	360	618
Reclassification adjustments for losses included in net loss	$ 11	$ 7	$ 58	$ 33

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Net cash provided by operating activities	$ 3,091	$ 4,760
Investing activities
Purchases of marketable securities	(15,375)	(26,112)
Proceeds from maturity of marketable securities	9,388	21,500
Investment in short-term deposits	(3,000)
Proceeds from sales of marketable securities	8,578	7,987
Purchases of property and equipment	(625)	(1,012)
Increase in restricted deposits	(20)
Net cash provided by (used in) investing activities	(1,054)	2,363
Financial activities
Purchase of treasury stock	(2,629)	(3,737)
Issuance of treasury stock upon exercise of stock options	681	666
Net cash used in financing activities	(1,948)	(3,071)
Increase in cash and cash equivalents	89	4,052
Erosion due to exchange rate differences	21	52
Cash and cash equivalents at the beginning of the period	17,752	13,704
Cash and cash equivalents at the end of the period	$ 17,862	$ 17,808

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]		Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2015	21,573,000
Balance at Dec. 31, 2015	$ 22		$ 361,023	$ (125,697)	$ (90,763)	$ (1,267)	$ 143,318
Net income (loss)					(1,833)		(1,833)
Change in accumulated other comprehensive income						793	793
Purchase of treasury stock (in shares)	(408,000)
Purchase of treasury stock		[1]		(3,676)			(3,676)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan (in shares)	114,000
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		[1]		1,114	(236)		878
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors (in shares)	464,000
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		[1]		4,510	(3,844)		666
Equity-based compensation			2,244				2,244
Balance (in shares) at Jun. 30, 2016	21,743,000
Balance at Jun. 30, 2016	$ 22		363,267	(123,749)	(96,676)	(474)	142,390
Balance (in shares) at Mar. 31, 2016	21,697,000
Balance at Mar. 31, 2016	$ 22		362,008	(124,212)	(96,109)	(584)	141,125
Net income (loss)					1,080		1,080
Change in accumulated other comprehensive income						110	110
Purchase of treasury stock (in shares)	(132,000)
Purchase of treasury stock		[1]		(1,270)			(1,270)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan (in shares)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		[1]
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors (in shares)	178,000
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		[1]		1,773	(1,647)		86
Equity-based compensation			1,259				1,259
Balance (in shares) at Jun. 30, 2016	21,743,000
Balance at Jun. 30, 2016	$ 22		363,267	(123,749)	(96,676)	(474)	142,390
Balance (in shares) at Dec. 31, 2016	21,932,000
Balance at Dec. 31, 2016	$ 22		366,121	(122,632)	(96,112)	(1,852)	145,547
Net income (loss)					(3,452)		(3,452)
Change in accumulated other comprehensive income						461	$ 461
Purchase of treasury stock (in shares)	(248,000)						(248,376)
Purchase of treasury stock		[1]		(2,802)			$ (2,802)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan (in shares)	113,000
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan		[1]		1,109	(167)		942
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors (in shares)	354,000
Issuance of treasury stock upon exercise of stock options, stock appreciation rights and restricted stock units by employees and directors		[1]		3,471	(3,136)		335
Equity-based compensation			3,088				3,088
Balance (in shares) at Jun. 30, 2017	22,151,000
Balance at Jun. 30, 2017	$ 22		369,209	(120,854)	(102,867)	(1,391)	144,119
Balance (in shares) at Mar. 31, 2017	22,169,000
Balance at Mar. 31, 2017	$ 22		367,652	(120,404)	(101,276)	(1,537)	144,457
Net income (loss)					(586)		(586)
Change in accumulated other comprehensive income						146	146
Purchase of treasury stock (in shares)	(124,000)
Purchase of treasury stock		[1]		(1,490)			(1,490)
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan (in shares)	106,000
Issuance of treasury stock upon purchase of common stock under employee stock purchase plan				1,040	(1,005)		35
Equity-based compensation			1,557				1,557
Balance (in shares) at Jun. 30, 2017	22,151,000
Balance at Jun. 30, 2017	$ 22		$ 369,209	$ (120,854)	$ (102,867)	$ (1,391)	$ 144,119

[1] Represents an amount lower than $1.

XML

Note A - Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE A—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 

10

-Q and Article 

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the

six

months ended

June 

30,

2017

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 

31,

2017.

For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 

10

-K of DSP Group, Inc. (the "Company") for the year ended

December 

31,

2016.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of

December 31, 2016,

contained in the Company’s Annual Report on Form

10

-K filed with the Securities and Exchange Commission on

March 16, 2017,

have been applied consistently in these unaudited interim condensed consolidated financial statements.

Use of Estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the interim condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

.

In

March 2016,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updates (“ASU”)

2016

-

09,

Compensation - Stock Compensation (Topic

718

), Improvements to Employee Share-Based Payment Accounting (“ASU

2016

-

09”

). The ASU

2016

-

09

simplifies several aspects of the accounting for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. For public companies, ASU

2016

-

09

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016.

The Company adopted ASU

2016

-

09

during the quarter ended

June 30, 2017.

The Company will continue to use the current method of estimated forfeitures each period rather than accounting for forfeitures as they occur.

In

May 2014,

FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

) (“ASU

2014

-

09”

), which amends the existing accounting standards for revenue recognition. In

August 2015,

the FASB issued ASU

No.

2015

-

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date, which delays the effective date of ASU

2014

-

09

by

one

year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.  The new revenue recognition standard will be effective in the

first

quarter of

2018,

with the option to adopt it in the

first

quarter of

2017.

The Company currently anticipates adopting the new standard effective

January 1, 2018.

The new standard also permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized on the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. While the Company is still in the process of completing its assessment on the impact this guidance will have on its consolidated financial statements and related disclosures, the Company does

not

expect the adoption of this standard will have a material impact on its consolidated financial statements.

In

May 2017,

FASB issued ASU

2017

-

09,

Compensation-Stock Compensation (Topic

718

) Scope of Modification Accounting (“ASU

2017

-

09”

). ASU

2017

-

09

provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does

not

change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would

not

be required if the changes are considered non-substantive. The Company is evaluating the impact of ASU

2017

-

09.

XML

Note B - Inventories

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE B—INVENTORIES

Inventories are stated at the lower of cost or market value. The Company periodically evaluates the quantities on hand relative to current and historical selling prices, and historical and projected sales volume. Based on these evaluations, provisions are made in each period to write inventory down to its net realizable value. Inventories are composed of the following:

	June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)
Work-in-process	$	5,374	$	5,784
Finished goods		5,267		3,964
	$	10,641	$	9,748

Inventory write-off amounted to

$20

and

$151

for the

six

months ended

June 30, 2017

and

2016,

respectively.

XML

Note C - Net Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE C—NET EARNINGS (LOSS) PER SHARE

Basic net earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the period. For the same periods, diluted net earnings (loss) per share further include the effect of dilutive stock options, stock appreciation rights and restricted share units outstanding during the period, all in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")

No.

260

"Earnings per Share." The following table sets forth the computation of basic and diluted net earnings (loss) per share:

	Three months ended June 30,					Six months ended June 30,
	2017			2016		2017			2016
	Unaudited
Net income (loss)	$	(586	)	$	1,080	$	(3,452	)	$	(1,833	)
Earnings (loss) per share:
Basic	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Diluted	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Weighted average number of shares of common stock outstanding during the period used to compute basic net earnings (loss) per share (in thousands)		22,180			21,739		22,141			21,725
Incremental shares attributable to exercise of outstanding options, stock appreciation rights and restricted stock units (assuming proceeds would be used to purchase treasury stock) (in thousands)		-			1,106		-			-
Weighted average number of shares of common stock used to compute diluted net earnings (loss) per share (in thousands)		22,180			22,845		22,141			21,725

XML

Note D - Marketable Securities and Time Deposits

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE D — MARKETABLE SECURITIES and SHORT –TERM deposits

The Company accounts for investments in marketable securities in accordance with FASB ASC

No.320

-

10

"Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in government and corporate marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date.

The Company classifies marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of taxes, reported in other comprehensive income. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and interest are included in financial income, net. Interest and dividends on securities are included in financial income, net. The following is a summary of available-for-sale securities at

June 30, 2017

and

December 31, 2016:

	Amortized cost				Unrealized losses, net						Fair value
	June 30, 2017		December 31, 2016		June 30, 2017			December 31, 2016			June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)		(Unaudited)			(Audited)			(Unaudited)		(Audited)
Short-term deposits		10,919	$	7,610	$	-		$	-		$	10,919	$	7,610
U.S. GSE securities		20,952		24,351		(217	)		(289	)		20,735		24,062
Corporate obligations		76,645		76,264		(466	)		(813	)		76,179		75,451
	$	108,516	$	108,225	$	(683	)	$	(1,102	)	$	107,833	$	107,123

The amortized cost of marketable debt securities and short-term deposits at

June 

30,

2017,

by contractual maturities, is shown below

:

			Unrealized gains (losses) (unaudited)
	Amortized cost		Gains		Losses			Fair value
Due in one year or less	$	33,495	$	9	$	(28	)	$	33,476
Due after one year to five years		75,021		45		(709	)		74,357
	$	108,516	$	54	$	(737	)	$	107,833

The actual maturity dates

may

differ from the contractual maturities because debtors

may

have the right to call or prepay obligations without penalties.

Management believes that as of

June 30, 2017,

the unrealized losses in the Company’s investments in all types of marketable securities were temporary and

no

impairment loss was realized in the Company’s condensed consolidated statement of income.

The unrealized losses related to corporate obligations were primarily due to changes in interest rates. Because the Company does

not

intend to sell the investments and it is

not

more likely than

not

that the Company will be required to sell the investments before recovery of their amortized cost bases, which

may

be maturity, the Company does

not

consider those investments to be other-than-temporarily impaired at

June 30, 2017.

The total fair value of marketable securities with outstanding unrealized losses as of

June 30, 2017

amounted to

$75,788,

while the unrealized losses for these marketable securities amounted to

$737.

Of the

$737

unrealized losses outstanding as of

June 30, 2017,

a portion of which in the amount of

$183

related to marketable securities that were in a loss position for more than

12

months and the remaining portion in the amount of

$554

was related to marketable securities that were in a loss position for less than

12

months.

Proceeds from maturity of available-for-sale marketable securities during the

six

months ended

June 30, 2017

and

2016

were

$9,388

and

$21,500,

respectively. Proceeds from sales of available-for-sale marketable securities during the

six

months ended

June 30, 2017

and

2016

were

$8,578

and

$7,987,

respectively. Net realized losses from the sale of available-for-sale securities for the

six

months ended

June 30, 2017

were

$58

compared to net realized losses for the

six

months ended

June 30, 2016

of

$33.

The Company determines realized gains or losses on the sale of marketable securities based on a specific identification method.

Marketable securities are periodically reviewed for impairment. If management concludes that any marketable security is impaired, management determines whether such impairment is other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period, and the Company’s intent to sell, or whether it is more likely than

not

that the Company will be required to sell the marketable security before recovery of cost basis. If any impairment is considered other-than-temporary, the marketable security is written down to its fair value through a corresponding charge to financial income, net.

XML

Note E - Taxes on Income

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE e—TAXES ON Income

The effective tax rate used in computing the provision for income taxes is based on projected fiscal year income before taxes, including estimated income by tax jurisdiction.

The total amount of net unrecognized tax benefits was

$927

and

$1,023

at

June 

30,

2017

and

December 31, 2016,

respectively. The Company accrues interest and penalties, relating to unrecognized tax benefits, in its provision for income taxes. At

June 30, 2017

and

December 31, 2016,

the Company had accrued interest and penalties relating to unrecognized tax benefits of

$46

for both periods.

The Company intends to permanently reinvest earnings of its foreign operations and its current operating plans do

not

demonstrate a need to repatriate foreign earnings to fund the Company’s U.S. operations. However, if these funds were needed for the Company’s operations in the United States, the Company would be required to accrue and pay U.S. taxes as well as taxes in other countries to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is

not

practicable, as it

may

vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated.

XML

Note F - Significant Customers

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Significant Customers Disclosure [Text Block]

NOTE f—SIGNIFICANT CUSTOMERS

The Company sells its products primarily through distributors and directly to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who incorporate the Company’s products into consumer products. The Company’s future performance will depend, in part, on the continued success of its distributors in marketing and selling its products. The loss of the Company’s distributors and the Company’s inability to obtain satisfactory replacements in a timely manner

may

harm the Company’s sales and results of operations. In addition, the Company expects that a limited number of customers, varying in identity from period-to-period, will account for a substantial portion of its revenues in any period. The loss of, or reduced demand for products from, any of the Company’s major customers could have a material adverse effect on the Company’s business, financial condition and results of operations.

The following table represents the Company’s sales, as a percentage of the Company’s total revenues, for the

three

and

six

month periods ended

June 30, 2017

and

2016,

of the Company’s significant customers:

	Three months ended June 30,						Six months ended June 30,
				Unaudited
Major customers/ distributors	2017			2016			2017			2016
VTech Holdings Ltd.		29	%		29	%		30	%		30	%
Tomen Electronics Corporation ¹ ²		9	%		12	%		10	%		10	%
Ascend Technology Inc. ¹ ³		20	%		17	%		21	%		16	%
Samsung Electronics Ltd.		2	%		13	%		1	%		13	%

¹ Distributor.

² Tomen Electronics sells the Company’s products to a limited number of customers; however

none

of those customers accounted for more than

10%

of the Company’s total revenues for the

three

and

six

month periods ended

June 30, 2017

and

2016

.

³ Ascend Technology sells the Company’s products to a limited number of customers; however

none

of those customers accounted for more than

10%

of the Company’s total revenues for the

three

and

six

months ended

June 30, 2017

and

2016

.

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Note G - Derivative Instruments

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE G—DERIVATIVE INSTRUMENTS

The Company accounts for derivative instruments in accordance with FASB. ASC

No.

815

"Derivatives and Hedging" ("ASC 

815"

). Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward contracts and put options (collectively, "hedging contracts"). The policy, however, prohibits the Company from speculating on hedging contracts for profit.

To protect against the increase in value of forecasted foreign currency cash flows resulting from salary and lease payments of its Israeli facilities denominated in the Israeli currency, the New Israeli Shekels ("NIS"), during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll and lease payments denominated in NIS for a period of

one

to

twelve

months with hedging contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the hedging contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by gains in the fair value of the hedging contracts. These hedging contracts are designated as cash flow hedges, as defined by ASC 

815

and are all effective hedges of these expenses.

In accordance with ASC 

815,

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

June 30, 2017,

the Company had outstanding option contracts in the amount of

$750

and

no

outstanding foreign exchange forward contracts. These hedging contracts do

not

contain any credit-risk-related contingency features. See Note K for information on the fair value of these hedging contracts.

The fair value of derivative assets and derivative liabilities were

$48

and

$0,

respectively, at

June 30, 2017.

The Company recorded a net amount of

$48

in other accounts receivable and prepaid expenses in the condensed consolidated balance sheet at

June 30, 2017.

The amount recorded as an income in research and development expenses, sales and marketing expenses and general and administrative expenses in the condensed consolidated statements of income for the

six

months ended

June 30, 2017

that resulted from the above referenced hedging transactions was

$120,

$12

and

$21,

respectively.

The fair value of the outstanding derivative instruments at

June 30, 2017

and

December 

31,

2016

is summarized below (unaudited):

:

		Fair value of derivative instruments
Derivative Assets (Liabilities)	Balance Sheet Location	June 30, 2017		December 31, 2016
		Unaudited
Foreign exchange put and -call options	Other accounts receivable and prepaid expenses	$	48	$	9

The effect of derivative instruments in cash flow hedging transactions on income and other comprehensive income (“OCI”) for the

three

and

six

months ended

June 30, 2017

and

2016

is summarized below (unaudited):

	Gains (Losses) on Derivatives Recognized in OCI
	for the three months ended June 30,					for the six months ended June 30,
			Unaudited
	2017		2016			2017		2016
Foreign exchange forward and option contracts	$	49	$	(110	)	$	192	$	58

	Gains (Losses) Reclassified from OCI into income
		for the three months ended June 30				for the six months ended June 30,
				Unaudited
	Location	2017		2016		2017		2016
Foreign exchange forward and option contracts	Operating expenses	$	78	$	14	$	153	$	(15	)

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Note H - Contingencies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE h—CONTINGENCIES

From time to time, the Company

may

become involved in litigation relating to claims arising from its ordinary course of business. In addition, as is typical in the semiconductor industry, the Company has been and

may

from time to time be notified of claims that the Company

may

be infringing patents or intellectual property rights owned by

third

parties. The Company currently believes that there are

no

claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on the Company.

XML

Note I - Equity-based Compensation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE i—EQUITY-BASED COMPENSATION

Grants for the

three

months ended

June 30, 2017

and

June 30, 2016:

The weighted average estimated fair value of employee restricted stock units (“RSUs”) granted during the

three

months ended

June 30, 2017

and

2016

was

$11.12

and

$9.40

per share, respectively (using the weighted average pre vest cancellation rate of

4.31%

and

4.32%

for the

three

months ended

June 30, 2017

and

2016,

respectively, on an annual basis).

The weighted-average estimated fair value of stock appreciation rights (

"SARs

")

granted during the

three

months ended

June 30, 2017

was

$2.76

per SARs

, using the binomial model with the following weighted-average assumptions (annualized percentages):

	Three months ended June 30,
	2017
Volatility		34.96%
Risk-free interest rate		2.14%
Dividend yield		0%
Pre-vest cancellation rate		4.31%
Post-vest cancellation rate		3.37%
Suboptimal exercise factor		1.117

The expected life of employee SARs

is impacted by all of the underlying assumptions used in the Company’s model. The binomial model assumes that employees’ exercise behavior is a function of the remaining contractual life of the SAR and the extent to which the SAR is in-the-money (

i.e.

, the average stock price during the period is above the exercise price of the SAR). The binomial model estimates the probability of exercise as a function of these

two

variables based on the history of exercises and cancellations on past award grants made by the Company. The expected life for SARs granted during the

three

months ended

June 

30,

2017

derived from the binomial model was

3.99

years.

No

SARs were granted during the

three

months ended

June 30, 2016.

Employee stock benefit plans

As of

June 30, 2017,

the Company had

two

equity incentive plans from which the Company

may

grant future equity awards and

three

expired equity incentive plans from which

no

future equity awards

may

be granted but had outstanding equity awards granted prior to expiration. The Company also had

one

employee stock purchase plan. As of

June 30, 2017,

approximately

829,000

shares of common stock remain available for grant under the Company’s employee stock purchase plan and approximately

691,000

shares of common stock remain available for grant under the Company’s equity incentive plans.

The table below presents a summary of information relating to the Company’s stock option, RSU and SAR grants pursuant to its equity incentive plans:

	Number of Options/SARs/RSUs			Weighted average exercise price		Weighted average remaining contractual term (years) (3)		Aggregate value (*)
	in thousands							in thousands
Outstanding at March 31, 2017		2,507		$	4.93
RSUs granted		29			-
SARs granted		22			12.30
Options / SARs / RSUs cancelled/forfeited/expired		(9	)		-
Options / SARs exercised and RSUs vested		(149	)	$	3.78
Outstanding at June 30, 2017 (1)		2,400		$	5.03		4.30	$	15,915
Exercisable at June 30, 2017 (2)		1,041		$	8.09		3.56	$	3,716

(*) Calculation of aggregate intrinsic value is based on the share price of the Company’s common stock on

June 30, 2017 (

$11.60

per share).

(

1

) Due to the ceiling imposed on the stock appreciation right (

"SAR

") grants, the outstanding amount above can be exercised for a maximum of

2,230,000

shares of the Company’s common stock as of

June 30, 2017.

SAR grants made on or after

January 1, 2010

and before

January 1, 2012

are convertible for a maximum number of shares of the Company’s common stock equal to

66.67%

of the SARs subject to the grant. SAR grants made on or after

January 1, 2012

are convertible for a maximum number of shares of the Company’s common stock equal to

50%

of the SARs subject to the grant.

(

2

) Due to the ceiling imposed on the SAR grants, the exercisable amount above can be exercised for a maximum of

966,000

shares of the Company’s common stock as of

June 30, 2017.

(

3

) Calculation of weighted average remaining contractual term does

not

include the RSUs that were granted, which have indefinite contractual term.

Additional information about stock options, SARs and RSUs outstanding and exercisable at

June 30, 2017

with exercise prices above

$11.60

per share (the closing price of the Company’s common stock on

June 30, 2017)

is as follows:

	Exercisable				Unexercisable				Total
Exercise prices	Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price
Less than $11.60		1,001	$	7.89		1,289	$	2.13		2,290	$	4.65
Above $11.60		40	$	13.10		70	$	12.81		110	$	12.92
Total		1,041	$	8.09		1,359	$	2.68		2,400	$	5.03

The Company’s aggregate equity-based compensation expense for the

three

 months ended

June 30, 2017

and

2016

totaled

$1,557

and

$1,259,

respectively.

As of

June 30, 2017,

there was

$6,426

of total unrecognized equity-based compensation expense related to unvested equity-based compensation awards granted under the Company’s equity incentive plans. This amount is expected to be recognized during the period from

2017

through

2021.

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Note J - Pension Liability

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

NOTE j—Pension Liability

The information in this note represents the net periodic pension and post-retirement benefit costs and related components in accordance with FASB ASC

No.

715

"Employers’ Disclosures about Pensions and Other Post-Retirement Benefits." The components of net pension and post-retirement periodic benefit cost (income) for the

six

months ended

June 30, 2017

and

2016

are as follows

:

	Six months ended June 30,
	2017		2016
Components of net periodic benefit cost:
Service cost and amortization of loss	$	13	$	10
Interest cost		7		9
Expected return on plan assets		-		(1	)
Net periodic benefit cost	$	20	$	18

The net pension liability as of

June 30, 2017

amounted to

$862.

XML

Note K - Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

NOTE k—FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis:

The Company measures its cash equivalents, short-term deposits, marketable securities and foreign currency derivative contracts at fair value. Cash equivalents, short-term deposits and marketable securities are classified within Level

1

or Level

2

value hierarchies as they 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

value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The following table provides information by value level for assets and liabilities that are measured at fair value on a recurring basis as of

June 30, 2017:

	Balance as of		Fair value measurements
	June 30, 2017		Level 1		Level 2		Level 3
Description
Assets :
Cash equivalents :
Money market mutual funds	$	3,121	$	3,121		-		-
Short-term marketable securities and cash deposits:
U.S. GSE securities	$	787		-	$	787
Corporate debt securities	$	21,770		-	$	21,770		-
Long-term marketable securities:
U.S. GSE securities	$	19,948		-	$	19,948		-
Corporate debt securities	$	54,409		-	$	54,409		-
Derivative Assets	$	48		-	$	48		-

The following table provides information by value level for assets and liabilities that are measured at fair value on a recurring basis as of

December 

31,

2016.

	Balance as of		Fair value measurements
Description	December 31, 2016		Level 1		Level 2		Level 3
Assets
Cash equivalents
Money market mutual funds	$	1,370	$	1,370		-		-
Short-term marketable securities and time deposits
U.S. GSE securities	$	376		-	$	376		-
Corporate debt securities	$	21,045		-	$	21,045		-
Long-term marketable securities
U.S. GSE securities	$	23,686		-	$	23,686		-
Corporate debt securities	$	54,406		-	$	54,406		-
Derivative assets	$	9		-	$	9		-

In addition to the assets and liabilities described above, the Company’s financial instruments also include cash and cash equivalents, restricted and short-term deposits, trade receivables, other accounts receivable, trade payables, accrued expenses and other payables. The fair value of these financial instruments was

not

materially different from their carrying values at

June 30, 2017

due to the short-term maturity of these instruments.

XML

Note L - Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE l—STOCKHOLDERS’ EQUITY

During the

first

six

months of

2017,

the Company repurchased

248,376

shares of common stock at an average purchase price of

$11.28

per share for an aggregate purchase price of

$2,802.

As of

June 

30,

2017,

71,844

shares of common stock remained authorized for repurchase under the Company's board-authorized share repurchase program.

Repurchases of common stock are accounted for as treasury stock, and result in a reduction of stockholders’ equity. The Company reissues treasury shares pursuant to its stock purchase plan, upon exercise of options and upon vesting of restricted stock units. Reissuance of treasury shares is accounted for in accordance with ASC

No.

505

-

30

whereby gains are credited to additional paid-in capital and losses are charged to additional paid-in capital to the extent that previous net gains are included therein; otherwise losses are charged to retained earnings.

During the

first

six

months of

2017,

the Company issued approximately

468,000

shares of common stock out of treasury stock to employees who exercised their stock options, SARs or RSUs, or purchased shares from the Company’s

1993

Employee Stock Purchase Plan.

XML

Note M - Segment Information

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE M

—

SEGMENT INFORMATION

Description of segments:

The Company operates under

three

reportable segments.

The Company's segment information has been prepared in accordance with ASC

280,

"Segment Reporting." Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is available that is evaluated regularly by the Company's chief operating decision-maker ("CODM") in deciding how to allocate resources and assess performance. The Company's CODM is its Chief Executive Officer, who evaluates the Company's performance and allocates resources based on segment revenues and operating income.

The Company's operating segments are as follows: Home, Office and Mobile. The classification of the Company’s business segments is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are

not

limited to, customer base, homogeneity of products and technology.

A description of the types of products provided by each business segment is as follows:

Home - Wireless chipset solutions for converged communication at home. Such solutions include integrated circuits targeted for cordless phones sold in retail or supplied by telecommunication service providers, home gateway devices supplied by telecommunication service providers which integrate the DECT/CAT-iq functionality, integrated circuits addressing home automation applications, as well as fixed-mobile convergence solutions. In this segment, revenues from cordless telephony products exceeded

10%

of the Company’s total revenues and amounted to

56%

and

55%

of the Company’s total revenues for the

first

half of

2017

and

2016,

respectively, and

53%

and

56%

of the Company’s total revenues for the

second

quarter of

2017

and

2016,

respectively,

Office - Comprehensive solution for Voice-over-IP (VoIP) office products, including office solutions that offer businesses of all sizes low-cost VoIP terminals with converged voice and data applications. Revenues from the Company’s VoIP products represented

26%

and

20%

of its total revenues for the

first

six

months of

2017

and

2016,

respectively. Revenues from the Company’s VoIP products represented

28%

and

20%

of its total revenues for the

second

quarter of

2017

and

2016,

respectively.

No

revenues derived from other products in the office segment exceeded

10%

of the Company’s total revenues for the

first

six

months of

2017

and

2016.

SmartVoice (formerly called “Mobile”) - Products for the SmartVoice market that provides voice enhancement, always-on and far-end noise elimination targeted for mobile phone, mobile headsets and other devices that incorporate the Company’s noise suppression and voice quality enhancement HDClear technology. Revenues derived from products in the SmartVoice segment represented

2%

and

13%

of the Company’s total revenues for the

first

half of

2017

and

2016,

respectively, and

3%

and

13%

of the Company’s total revenues for the

second

quarter of

2017

and

2016,

respectively.

No

revenues derived from other products in the SmartVoice segment exceeded

10%

of the Company’s total consolidated revenues for both the

first

six

months of

2017

and

2016.

The SmartVoice segment was previously named the Mobile segment. However, the Company believes that the designation - SmartVoice - is a better reflection of the diverse end markets that the Company’s HDClear products target. The addressable market relating to voice user interface in applications extends beyond smartphones and therefore a broader name like SmartVoice better reflects the current design pipeline for the products in this segment.

Segment data:

The Company derives the results of its business segments directly from its internal management reporting system and by using certain allocation methods. The accounting policies the Company uses to derive business segment results are substantially the same as those the Company uses for consolidation of its financial statements. The CODM measures the performance of each business segment based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. The Company does

not

allocate to its business segments certain operating expenses, which it manages separately at the corporate level. These unallocated costs include primarily amortization of purchased intangible assets, equity-based compensation expenses, and certain corporate governance costs.

Selected operating results information for each business segment was as follows for the

three

months ended

June 

30,

2017

and

2016

(unaudited):

:

	Three months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	21,789	$	24,211	$	4,564		$	4,843
Office	$	8,620	$	7,392	$	2,429		$	(475	)
SmartVoice	$	892	$	4,561	$	(5,461	)	$	(1,408	)
Total	$	31,301	$	36,164	$	1,532		$	2,960

Selected operating results information for each business segment was as follows for the

six

months ended

June 30, 2017

and

2016

(unaudited):

:

	Six months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	42,744	$	42,866	$	7,909		$	6,321
Office	$	15,219	$	12,470	$	3,044		$	(2,498	)
SmartVoice	$	1,271	$	8,487	$	(10,482	)	$	(2,225	)
Total	$	59,234	$	63,823	$	471		$	1,598

The reconciliation of segment operating results information to the Company’s consolidated financial information was as follows for the

three

and

six

months periods ended

June 30, 2017:

	Three months			Six months
Income from operations	$	1,532		$	471
Unallocated corporate, general and administrative expenses		(441	)		(854	)
Equity-based compensation expenses		(1,557	)		(3,088	)
Intangible assets amortization expenses		(425	)		(850	)
Financial income, net		418			834
Total consolidated income before taxes	$	(473	)	$	(3,487	)

The reconciliation of segment operating results information to the Company’s consolidated financial information was as follows for the

three

and

six

months ended

June 30, 2016:

	Three months			Six months
Income from operations	$	2,960		$	1,598
Unallocated corporate, general and administrative expenses		(450	)		(950	)
Equity-based compensation expenses		(1,259	)		(2,244	)
Intangible assets amortization expenses		(321	)		(642	)
Financial income, net		273			565
Total consolidated income before taxes	$	1,203		$	(1,673	)

XML

Note N - Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

NOTE

N —ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income for the

three

months ended

June 30, 2017:

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(850	)	$	77		$	(450	)	$	(314	)	$	(1,537	)
Other comprehensive income before reclassifications		156			49			-			3			208
Losses (gains) reclassified from accumulated other comprehensive income (loss)		11			(78	)		5			-			(62	)
Net current period other comprehensive income (loss)		167			(29	)		5			3			146
Ending balance	$	(683	)	$	48		$	(445	)	$	(311	)	$	(1,391	)

The following table provides details about reclassifications out of accumulated other comprehensive income for the

three

months ended

June 30, 2017:

Details about a ccumulated o ther c omprehensive i ncome ( l oss) c omponents	Amount r eclassified from a ccumulated o ther c omprehensive i ncome ( l oss)			Affected l ine i tem in the s tatement of i ncome
Losses on available-for-sale marketable securities	$	11		Financial income, net
		-		Provision for income taxes
		11		Total, net of income taxes
Gains on cash flow hedges
		(61	)	Research and development
		(6	)	Sales and marketing
		(11	)	General and administrative
		(78	)	Total, before income taxes
		-		Provision for income taxes
		(78	)	Total, net of income taxes
Losses on components of defined benefit plans		3		Research and development
		2		Sales and marketing
		5		Total, before income taxes
		-		Provision for income taxes
		5		Total, net of income taxes
Total reclassifications for the period	$	(62	)	Total, net of income taxes

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the

six

months ended

June 30, 2017:

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on Cash Flow Hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(1,101	)	$	9		$	(455	)	$	(305	)	$	(1,852	)
Other comprehensive income (loss) before reclassifications		360			192			-			(6	)		546
Losses reclassified from accumulated other comprehensive income (loss)		58			(153	)		10			-			(85	)
Net current period other comprehensive income		418			39			10			(6	)		461
Ending balance	$	(683	)	$	48		$	(445	)		(311	)	$	(1,391	)

The following table provides details about reclassifications out of accumulated other comprehensive income for the

six

months ended

June 30, 2017:

Details about a ccumulated o ther c omprehensive i ncome ( l oss) c omponents	Amount r eclassified from a ccumulated o ther c omprehensive i ncome ( l oss)			Affected l ine i tem in the s tatement of i ncome
Losses on available-for-sale marketable securities	$	58		Financial income, net
		-		Provision for income taxes
		58		Total, net of income taxes
Losses on cash flow hedges
		(120	)	Research and development
		(12	)	Sales and marketing
		(21	)	General and administrative
		(153	)	Total, before income taxes
		-		Provision for income taxes
		(153	)	Total, net of income taxes
Losses on components of defined benefit plans		7		Research and development
		3		Sales and marketing
		10		Total, before income taxes
		-		Provision for income taxes
		10		Total, net of income taxes
Total reclassifications for the period	$	(85	)	Total, net of income taxes

XML

Note O - Government Grants

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Government Grants [Text Block]

NOTE O

—

GOVERNMENT GRANTS

Government grants received by the Company’s Israeli subsidiary relating to categories of operating expenditures are credited to the consolidated statements of income during the period during which the expenditure to which they relate is charged. Royalty and non-royalty-bearing grants from the Israeli Innovation Authority ("IIA") (formerly known as Office of the Chief Scientist for funding certain approved research and development projects are recognized at the time when the Company’s Israeli subsidiary is entitled to such grants, on the basis of the related costs incurred, and are included as a deduction from research and development expenses, net.

The Company recorded grants in the amount of

$0.8

and

$1.0

million for the

three

month periods ended

June 30, 2017

and

2016,

respectively.

The Company recorded grants in the amount of

$0.9

and

$1.6

million for the

six

month periods ended

June 30, 2017

and

2016,

respectively.

The Company’s Israeli subsidiary is obligated to pay royalties amounting to

5%

of the sales of certain products, the development of which benefited from grants received from the IIA in previous years. The obligation to pay these royalties is contingent on actual sales of such products. Grants received from the IIA

may

become repayable if certain criteria under the grants are

not

met. In addition, the grants

may

be required to be repaid with a multiple of up to

six

times the initial grant amount in case the technology that was developed using these grants are transferred, directly or indirectly, to a

third

party.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the interim condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

.

In

March 2016,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updates (“ASU”)

2016

-

09,

Compensation - Stock Compensation (Topic

718

), Improvements to Employee Share-Based Payment Accounting (“ASU

2016

-

09”

). The ASU

2016

-

09

simplifies several aspects of the accounting for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. For public companies, ASU

2016

-

09

is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016.

The Company adopted ASU

2016

-

09

during the quarter ended

June 30, 2017.

The Company will continue to use the current method of estimated forfeitures each period rather than accounting for forfeitures as they occur.

In

May 2014,

FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

) (“ASU

2014

-

09”

), which amends the existing accounting standards for revenue recognition. In

August 2015,

the FASB issued ASU

No.

2015

-

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date, which delays the effective date of ASU

2014

-

09

by

one

year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.  The new revenue recognition standard will be effective in the

first

quarter of

2018,

with the option to adopt it in the

first

quarter of

2017.

The Company currently anticipates adopting the new standard effective

January 1, 2018.

The new standard also permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized on the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. While the Company is still in the process of completing its assessment on the impact this guidance will have on its consolidated financial statements and related disclosures, the Company does

not

expect the adoption of this standard will have a material impact on its consolidated financial statements.

In

May 2017,

FASB issued ASU

2017

-

09,

Compensation-Stock Compensation (Topic

718

) Scope of Modification Accounting (“ASU

2017

-

09”

). ASU

2017

-

09

provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does

not

change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would

not

be required if the changes are considered non-substantive. The Company is evaluating the impact of ASU

2017

-

09.

XML

Note B - Inventories (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)
Work-in-process	$	5,374	$	5,784
Finished goods		5,267		3,964
	$	10,641	$	9,748

XML

Note C - Net Earnings (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended June 30,					Six months ended June 30,
	2017			2016		2017			2016
	Unaudited
Net income (loss)	$	(586	)	$	1,080	$	(3,452	)	$	(1,833	)
Earnings (loss) per share:
Basic	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Diluted	$	(0.03	)	$	0.05	$	(0.16	)	$	(0.08	)
Weighted average number of shares of common stock outstanding during the period used to compute basic net earnings (loss) per share (in thousands)		22,180			21,739		22,141			21,725
Incremental shares attributable to exercise of outstanding options, stock appreciation rights and restricted stock units (assuming proceeds would be used to purchase treasury stock) (in thousands)		-			1,106		-			-
Weighted average number of shares of common stock used to compute diluted net earnings (loss) per share (in thousands)		22,180			22,845		22,141			21,725

XML

Note D - Marketable Securities and Time Deposits (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Available-for-sale Securities [Table Text Block]

	Amortized cost				Unrealized losses, net						Fair value
	June 30, 2017		December 31, 2016		June 30, 2017			December 31, 2016			June 30, 2017		December 31, 2016
	(Unaudited)		(Audited)		(Unaudited)			(Audited)			(Unaudited)		(Audited)
Short-term deposits		10,919	$	7,610	$	-		$	-		$	10,919	$	7,610
U.S. GSE securities		20,952		24,351		(217	)		(289	)		20,735		24,062
Corporate obligations		76,645		76,264		(466	)		(813	)		76,179		75,451
	$	108,516	$	108,225	$	(683	)	$	(1,102	)	$	107,833	$	107,123

Investments Classified by Contractual Maturity Date [Table Text Block]

			Unrealized gains (losses) (unaudited)
	Amortized cost		Gains		Losses			Fair value
Due in one year or less	$	33,495	$	9	$	(28	)	$	33,476
Due after one year to five years		75,021		45		(709	)		74,357
	$	108,516	$	54	$	(737	)	$	107,833

XML

Note F - Significant Customers (Tables)

6 Months Ended

Jun. 30, 2017

Customer Concentration Risk [Member]

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three months ended June 30,						Six months ended June 30,
				Unaudited
Major customers/ distributors	2017			2016			2017			2016
VTech Holdings Ltd.		29	%		29	%		30	%		30	%
Tomen Electronics Corporation ¹ ²		9	%		12	%		10	%		10	%
Ascend Technology Inc. ¹ ³		20	%		17	%		21	%		16	%
Samsung Electronics Ltd.		2	%		13	%		1	%		13	%

XML

Note G - Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

		Fair value of derivative instruments
Derivative Assets (Liabilities)	Balance Sheet Location	June 30, 2017		December 31, 2016
		Unaudited
Foreign exchange put and -call options	Other accounts receivable and prepaid expenses	$	48	$	9

Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) [Table Text Block]

	Gains (Losses) on Derivatives Recognized in OCI
	for the three months ended June 30,					for the six months ended June 30,
			Unaudited
	2017		2016			2017		2016
Foreign exchange forward and option contracts	$	49	$	(110	)	$	192	$	58

Derivative Instruments, Gain (Loss) [Table Text Block]

	Gains (Losses) Reclassified from OCI into income
		for the three months ended June 30				for the six months ended June 30,
				Unaudited
	Location	2017		2016		2017		2016
Foreign exchange forward and option contracts	Operating expenses	$	78	$	14	$	153	$	(15	)

XML

Note I - Equity-based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three months ended June 30,
	2017
Volatility		34.96%
Risk-free interest rate		2.14%
Dividend yield		0%
Pre-vest cancellation rate		4.31%
Post-vest cancellation rate		3.37%
Suboptimal exercise factor		1.117

Share-based Compensation, Activity [Table Text Block]

	Number of Options/SARs/RSUs			Weighted average exercise price		Weighted average remaining contractual term (years) (3)		Aggregate value (*)
	in thousands							in thousands
Outstanding at March 31, 2017		2,507		$	4.93
RSUs granted		29			-
SARs granted		22			12.30
Options / SARs / RSUs cancelled/forfeited/expired		(9	)		-
Options / SARs exercised and RSUs vested		(149	)	$	3.78
Outstanding at June 30, 2017 (1)		2,400		$	5.03		4.30	$	15,915
Exercisable at June 30, 2017 (2)		1,041		$	8.09		3.56	$	3,716

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

	Exercisable				Unexercisable				Total
Exercise prices	Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price		Number of Options/ SARs / RSUs (in thousands)		Weighted average exercise price
Less than $11.60		1,001	$	7.89		1,289	$	2.13		2,290	$	4.65
Above $11.60		40	$	13.10		70	$	12.81		110	$	12.92
Total		1,041	$	8.09		1,359	$	2.68		2,400	$	5.03

XML

Note J - Pension Liability (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Six months ended June 30,
	2017		2016
Components of net periodic benefit cost:
Service cost and amortization of loss	$	13	$	10
Interest cost		7		9
Expected return on plan assets		-		(1	)
Net periodic benefit cost	$	20	$	18

XML

Note K - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Balance as of		Fair value measurements
	June 30, 2017		Level 1		Level 2		Level 3
Description
Assets :
Cash equivalents :
Money market mutual funds	$	3,121	$	3,121		-		-
Short-term marketable securities and cash deposits:
U.S. GSE securities	$	787		-	$	787
Corporate debt securities	$	21,770		-	$	21,770		-
Long-term marketable securities:
U.S. GSE securities	$	19,948		-	$	19,948		-
Corporate debt securities	$	54,409		-	$	54,409		-
Derivative Assets	$	48		-	$	48		-

	Balance as of		Fair value measurements
Description	December 31, 2016		Level 1		Level 2		Level 3
Assets
Cash equivalents
Money market mutual funds	$	1,370	$	1,370		-		-
Short-term marketable securities and time deposits
U.S. GSE securities	$	376		-	$	376		-
Corporate debt securities	$	21,045		-	$	21,045		-
Long-term marketable securities
U.S. GSE securities	$	23,686		-	$	23,686		-
Corporate debt securities	$	54,406		-	$	54,406		-
Derivative assets	$	9		-	$	9		-

XML

Note M - Segment Information (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	21,789	$	24,211	$	4,564		$	4,843
Office	$	8,620	$	7,392	$	2,429		$	(475	)
SmartVoice	$	892	$	4,561	$	(5,461	)	$	(1,408	)
Total	$	31,301	$	36,164	$	1,532		$	2,960

	Six months ended June 30,
	Revenues				Income (loss) from operations
	2017		2016		2017			2016
Home	$	42,744	$	42,866	$	7,909		$	6,321
Office	$	15,219	$	12,470	$	3,044		$	(2,498	)
SmartVoice	$	1,271	$	8,487	$	(10,482	)	$	(2,225	)
Total	$	59,234	$	63,823	$	471		$	1,598

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]

	Three months			Six months
Income from operations	$	1,532		$	471
Unallocated corporate, general and administrative expenses		(441	)		(854	)
Equity-based compensation expenses		(1,557	)		(3,088	)
Intangible assets amortization expenses		(425	)		(850	)
Financial income, net		418			834
Total consolidated income before taxes	$	(473	)	$	(3,487	)

	Three months			Six months
Income from operations	$	2,960		$	1,598
Unallocated corporate, general and administrative expenses		(450	)		(950	)
Equity-based compensation expenses		(1,259	)		(2,244	)
Intangible assets amortization expenses		(321	)		(642	)
Financial income, net		273			565
Total consolidated income before taxes	$	1,203		$	(1,673	)

XML

Note N - Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on cash flow hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(850	)	$	77		$	(450	)	$	(314	)	$	(1,537	)
Other comprehensive income before reclassifications		156			49			-			3			208
Losses (gains) reclassified from accumulated other comprehensive income (loss)		11			(78	)		5			-			(62	)
Net current period other comprehensive income (loss)		167			(29	)		5			3			146
Ending balance	$	(683	)	$	48		$	(445	)	$	(311	)	$	(1,391	)

	Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) on Cash Flow Hedges			Unrealized gains (losses) on components of defined benefit plans			Unrealized gains (losses) on foreign currency translation			Total
Beginning balance	$	(1,101	)	$	9		$	(455	)	$	(305	)	$	(1,852	)
Other comprehensive income (loss) before reclassifications		360			192			-			(6	)		546
Losses reclassified from accumulated other comprehensive income (loss)		58			(153	)		10			-			(85	)
Net current period other comprehensive income		418			39			10			(6	)		461
Ending balance	$	(683	)	$	48		$	(445	)		(311	)	$	(1,391	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

Details about a ccumulated o ther c omprehensive i ncome ( l oss) c omponents	Amount r eclassified from a ccumulated o ther c omprehensive i ncome ( l oss)			Affected l ine i tem in the s tatement of i ncome
Losses on available-for-sale marketable securities	$	11		Financial income, net
		-		Provision for income taxes
		11		Total, net of income taxes
Gains on cash flow hedges
		(61	)	Research and development
		(6	)	Sales and marketing
		(11	)	General and administrative
		(78	)	Total, before income taxes
		-		Provision for income taxes
		(78	)	Total, net of income taxes
Losses on components of defined benefit plans		3		Research and development
		2		Sales and marketing
		5		Total, before income taxes
		-		Provision for income taxes
		5		Total, net of income taxes
Total reclassifications for the period	$	(62	)	Total, net of income taxes

Details about a ccumulated o ther c omprehensive i ncome ( l oss) c omponents	Amount r eclassified from a ccumulated o ther c omprehensive i ncome ( l oss)			Affected l ine i tem in the s tatement of i ncome
Losses on available-for-sale marketable securities	$	58		Financial income, net
		-		Provision for income taxes
		58		Total, net of income taxes
Losses on cash flow hedges
		(120	)	Research and development
		(12	)	Sales and marketing
		(21	)	General and administrative
		(153	)	Total, before income taxes
		-		Provision for income taxes
		(153	)	Total, net of income taxes
Losses on components of defined benefit plans		7		Research and development
		3		Sales and marketing
		10		Total, before income taxes
		-		Provision for income taxes
		10		Total, net of income taxes
Total reclassifications for the period	$	(85	)	Total, net of income taxes

XML

Note B - Inventories (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Inventory Write-down	$ 20	$ 151

XML

Note B - Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Work-in-process	$ 5,374	$ 5,784
Finished goods	5,267	3,964
	$ 10,641	$ 9,748

XML

Note C - Net Earnings (Loss) Per Share - Net Earnings (Loss) Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income (loss)	$ (586)	$ 1,080	$ (3,452)	$ (1,833)
Net earnings (loss) per share:
Basic (in dollars per share)	$ (0.03)	$ 0.05	$ (0.16)	$ (0.08)
Diluted (in dollars per share)	$ (0.03)	$ 0.05	$ (0.16)	$ (0.08)
Weighted average number of shares of common stock outstanding during the period used to compute basic net earnings (loss) per share (in thousands) (in shares)	22,180	21,739	22,141	21,725
Incremental shares attributable to exercise of outstanding options, stock appreciation rights and restricted stock units (assuming proceeds would be used to purchase treasury stock) (in thousands) (in shares)		1,106
Weighted average number of shares of common stock used to compute diluted net earnings (loss) per share (in thousands) (in shares)	22,180	22,845	22,141	21,725

XML

Note D - Marketable Securities and Time Deposits (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 75,788
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	737
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	183
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	554
Proceeds from Maturities, Prepayments and Calls of Available-for-sale Securities	9,388	$ 21,500
Proceeds from Sale of Available-for-sale Securities	8,578	7,987
Gain (Loss) on Sale of Securities, Net	(58)	$ (33)
Corporate Debt Securities [Member]
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities	$ 0

XML

Note D - Marketable Securities and Time Deposits - Marketable Securities and Time Deposits (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Marketable securities and time deposits, amortized cost	$ 108,516	$ 108,225
Marketable securities and time deposits, unrealized gains (losses), net	(683)	(1,102)
Marketable securities and time deposits, estimated fair value	107,833	107,123
Short-term Deposits [Member]
Marketable securities and time deposits, amortized cost	10,919	7,610
Marketable securities and time deposits, unrealized gains (losses), net
Marketable securities and time deposits, estimated fair value	10,919	7,610
US Government-sponsored Enterprises Debt Securities [Member]
Marketable securities and time deposits, amortized cost	20,952	24,351
Marketable securities and time deposits, unrealized gains (losses), net	(217)	(289)
Marketable securities and time deposits, estimated fair value	20,735	24,062
Corporate Debt Securities [Member]
Marketable securities and time deposits, amortized cost	76,645	76,264
Marketable securities and time deposits, unrealized gains (losses), net	(466)	(813)
Marketable securities and time deposits, estimated fair value	$ 76,179	$ 75,451

XML

Note D - Marketable Securities and Time Deposits - Marketable Debt Securities by Contractual Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Marketable debt securities, amortized cost	$ 108,516	$ 108,225
Marketable debt securities, estimated fair value	107,833	$ 107,123
Debt Securities [Member]
Marketable debt securities, amortized cost	108,516
Marketable debt securities, unrealized gains	54
Marketable debt securities, unrealized losses	(737)
Marketable debt securities, estimated fair value	107,833
Debt Securities [Member] | Due in One Year or Less [Member]
Marketable debt securities, amortized cost	33,495
Marketable debt securities, unrealized gains	9
Marketable debt securities, unrealized losses	(28)
Marketable debt securities, estimated fair value	33,476
Debt Securities [Member] | Due after One Year to Five Years [Member]
Marketable debt securities, amortized cost	75,021
Marketable debt securities, unrealized gains	45
Marketable debt securities, unrealized losses	(709)
Marketable debt securities, estimated fair value	$ 74,357

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Note E - Taxes on Income (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Unrecognized Tax Benefits	$ 927	$ 1,023
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	$ 46	$ 46

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Note F - Significant Customers (Details Textual) - Customer Concentration Risk [Member] - Sales Revenue, Net [Member] xbrli-pure in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Customers to Which the Company’s Products Are Sold Through Tomen Electronics [Member]
Number of Major Customers	0	0	0	0
Customers to Which the Company's Products Are Sold Through Ascend Technology [Member]
Number of Major Customers	0	0	0	0

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Note F - Significant Customers - Sales to Major Customers (Distributors) as a Percentage of Total Revenues (Details) - Customer Concentration Risk [Member] - Sales Revenue, Net [Member]		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
VTech Holdings Ltd [Member]
Concentration risk, percentage		29.00%	29.00%	30.00%	30.00%
Tomen Electronics Corporation [Member]
Concentration risk, percentage	[1],[2]	9.00%	12.00%	10.00%	10.00%
Ascend Technology Inc [Member]
Concentration risk, percentage	[1],[3]	20.00%	17.00%	21.00%	16.00%
Samsung Mobile [Member]
Concentration risk, percentage		2.00%	13.00%	1.00%	13.00%

[1] Distributor

[2] Tomen Electronics sells the Company's products to a limited number of customers; however none of those customers accounted for more than 10% of the Company's total revenues for the three and six month periods ended June 30, 2017 and 2016 .

[3] Ascend Technology sells the Company's products to a limited number of customers; however none of those customers accounted for more than 10% of the Company's total revenues for the three and six months ended June 30, 2017 and 2016 .

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Note G - Derivative Instruments (Details Textual)	6 Months Ended
	Jun. 30, 2017 USD ($)
Derivative Asset	$ 48,000
Derivative Liability	0
Research and Development Expense [Member]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	120,000
Selling and Marketing Expense [Member]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	12,000
General and Administrative Expense [Member]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	21,000
Foreign Exchange Option [Member]
Price Risk Cash Flow Hedge Asset, at Fair Value	750,000
Foreign Exchange Contract [Member]
Price Risk Cash Flow Hedge Asset, at Fair Value	0
Derivative Assets (Liabilities), at Fair Value, Net	$ 48,000

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Note G - Derivative Instruments - The Fair Value of the Derivative Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Foreign Exchange Forward Contracts and Put Options [Member] | Accounts Payable and Accrued Liabilities [Member]
Derivative Assets (Liabilities), at Fair Value, Net	$ 48	$ 9

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Note G - Derivative Instruments - Effect of Derivative Instruments in Cash Flow Hedging Transactions on Income and Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Foreign exchange forward and option contracts	$ 78	$ 14	$ 153	$ (15)
Gains Losses on Derivatives Recognized in OCI [Member]
Foreign exchange forward and option contracts	$ 49	$ (110)	$ 192	$ 58

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Note G - Derivative Instruments - Gains (Losses) on Derivatives Reclassified from OCI to Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Foreign exchange forward and option contracts	$ 78	$ 14	$ 153	$ (15)

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Note I - Equity-based Compensation (Details Textual) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		24 Months Ended	66 Months Ended
	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 30, 2016 USD ($) $ / shares shares	Jun. 30, 2017 USD ($) $ / shares shares	Jun. 30, 2016 USD ($)	Dec. 31, 2011	Jun. 30, 2017 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Number of Equity Incentive Plans from Which Future Equity Awards May Be Granted	2		2			2
Share-based Compensation Arrangement by Share-based Payment Award Number of Expired Equity Incentive Plans	3		3			3
Allocated Share-based Compensation Expense | $	$ 1,557	$ 1,259	$ 3,088	$ 2,244
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $	$ 6,426		$ 6,426			$ 6,426
Share-based Compensation Arrangement by Share-based Payment Award Number of Employee Purchase Plans	1		1			1
Common Stock [Member]
Share Price | $ / shares	$ 11.60		$ 11.60			$ 11.60
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	829,000		829,000			829,000
Equity Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	691,000		691,000			691,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Weighted Average Pre Vest Cancel Rate	4.31%	4.32%
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 11.12	$ 9.40
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			29,000
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 2.76
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term	3 years 361 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		0	22,000
Stock Appreciation Rights (SARs) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares to be Issued Upon Exercise of Outstanding Awards	2,230,000		2,230,000			2,230,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant as Percentage of Company Outstanding Common Stock					66.67%	50.00%
Share-based Compensation Arrangement by Share-based Payment Award Options and Stock Appreciation Rights, Exercisable Number	966,000		966,000			966,000

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Note I - Equity-based Compensation - Weighted-average Fair Value Assumptions (Details)	3 Months Ended
	Jun. 30, 2017
Volatility	34.96%
Risk-free interest rate	2.14%
Dividend yield	0.00%
Pre-vest cancellation rate	4.31%
Post-vest cancellation rate	3.37%
Suboptimal exercise factor	1.117%

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Note I - Equity-based Compensation - Stock Options, SARs and RSUs Activity (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	6 Months Ended
		Jun. 30, 2016	Jun. 30, 2017
Outstanding (in shares)			2,507,000
Outstanding, weighted average exercise price (in dollars per share)			$ 4.93
Outstanding, weighted average exercise price (in dollars per share)	[1]		$ 5.03
Outstanding, weighted average remaining contractual term (Year)	[1],[2]		4 years 109 days
Outstanding, aggregate value	[1],[3]		$ 15,915
Exercisable (in shares)	[4]		1,041,000
Exercisable, weighted average exercise price (in dollars per share)	[4]		$ 8.09
Exercisable, weighted average remaining contractual term (Year)	[2],[4]		3 years 204 days
Options / SARs / RSUs cancelled/forfeited/expired (in shares)			(9,000)
Options / SARs / RSUs cancelled/forfeited/expired, weighted average exercise price (in dollars per share)
Options / SARs exercised and RSUs vested (in shares)			(149,000)
Options / SARs exercised and RSUs vested, weighted average exercise price (in dollars per share)			$ 3.78
Outstanding (in shares)	[1]		2,400,000
Exercisable, aggregate value	[3],[4]		$ 3,716
Restricted Stock Units (RSUs) [Member]
Non-option instruments granted (in shares)			29,000
Stock Appreciation Rights (SARs) [Member]
Non-option instruments granted (in shares)		0	22,000
SARs granted, weighted average exercise price (in dollars per share)			$ 12.30

[1] Due to the ceiling imposed on the stock appreciation right ("SAR") grants, the outstanding amount above can be exercised for a maximum of 2,230,000 shares of the Company's common stock as of June 30, 2017. SAR grants made on or after January 1, 2010 and before January 1, 2012 are convertible for a maximum number of shares of the Company's common stock equal to 66.67% of the SARs subject to the grant. SAR grants made on or after January 1, 2012 are convertible for a maximum number of shares of the Company's common stock equal to 50% of the SARs subject to the grant.

[2] Calculation of weighted average remaining contractual term does not include the RSUs that were granted, which have indefinite contractual term.

[3] Calculation of aggregate intrinsic value is based on the share price of the Company's common stock on June 30, 2017 ($11.60 per share).

[4] Due to the ceiling imposed on the SAR grants, the exercisable amount above can be exercised for a maximum of 966,000 shares of the Company's common stock as of June 30, 2017.

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Note I - Equity-based Compensation - Company's Stock Options and SAR Units Outstanding and Exercisable (Details) shares in Thousands	Jun. 30, 2017 $ / shares shares
Weighted Average Exercise Price - Unexercisable (in dollars per share) | $ / shares	$ 2.68
Number of Options/ SARs / RSUs (in shares) | shares	2,400
Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 5.03
Number of Options/ SARs / RSUs - Exercisable (in shares) | shares	1,041
Weighted Average Exercise Price - Exercisable (in dollars per share) | $ / shares	$ 8.09
Number of Options/ SARs / RSUs - Unexercisable (in shares) | shares	1,359
Range 1 [Member]
Weighted Average Exercise Price - Unexercisable (in dollars per share) | $ / shares	$ 2.13
Number of Options/ SARs / RSUs (in shares) | shares	2,290
Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 4.65
Number of Options/ SARs / RSUs - Exercisable (in shares) | shares	1,001
Weighted Average Exercise Price - Exercisable (in dollars per share) | $ / shares	$ 7.89
Number of Options/ SARs / RSUs - Unexercisable (in shares) | shares	1,289
Range 2 [Member]
Weighted Average Exercise Price - Unexercisable (in dollars per share) | $ / shares	$ 12.81
Number of Options/ SARs / RSUs (in shares) | shares	110
Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 12.92
Number of Options/ SARs / RSUs - Exercisable (in shares) | shares	40
Weighted Average Exercise Price - Exercisable (in dollars per share) | $ / shares	$ 13.10
Number of Options/ SARs / RSUs - Unexercisable (in shares) | shares	70

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Note J - Pension Liability (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Liability, Defined Benefit Pension Plan, Noncurrent	$ 862	$ 803

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Note J - Pension Liability - Components of Net Periodic Benefit Costs (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Components of net periodic benefit cost:
Service cost and amortization of loss	$ 13	$ 10
Interest cost	7	9
Expected return on plan assets		(1)
Net periodic benefit cost	$ 20	$ 18

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Note K - Fair Value Measurements - Fair Value Measurements of Assets and Liabilities on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Money Market Funds [Member]
Money market mutual funds	$ 3,121	$ 1,370
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Money market mutual funds	3,121	1,370
Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Money market mutual funds
Money Market Funds [Member] | Fair Value, Inputs, Level 3 [Member]
Money market mutual funds
US Government-sponsored Enterprises Debt Securities [Member]
Short-term securities	787	376
Long-term securities	19,948	23,686
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Short-term securities
Long-term securities
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Short-term securities	787	376
Long-term securities	19,948	23,686
US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Short-term securities
Long-term securities
Corporate Debt Securities [Member]
Short-term securities	21,770	21,045
Long-term securities	54,409	54,406
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Short-term securities
Long-term securities
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Short-term securities	21,770	21,045
Long-term securities	54,409	54,406
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Short-term securities
Long-term securities
Derivative Financial Instruments, Assets [Member]
Derivative Assets	48	9
Derivative Financial Instruments, Assets [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative Assets
Derivative Financial Instruments, Assets [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative Assets	48	9
Derivative Financial Instruments, Assets [Member] | Fair Value, Inputs, Level 3 [Member]
Derivative Assets

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Note L - Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Treasury Stock, Shares, Acquired			248,376
Treasury Stock Acquired, Average Cost Per Share			$ 11.28
Treasury Stock, Value, Acquired, Cost Method	$ 1,490	$ 1,270	$ 2,802	$ 3,676
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased	71,844		71,844
Stock Issued During Period, Shares, Employee Stock Ownership Plan			468,000

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Note M - Segment Information (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Number of Reportable Segments			3
Product Concentration Risk [Member] | Sales Revenue, Segment [Member] | Home [Member] | Telephony [Member]
Concentration Risk, Percentage	53.00%	56.00%	56.00%	55.00%
Product Concentration Risk [Member] | Sales Revenue, Segment [Member] | Office [Member] | VoIP [Member]
Concentration Risk, Percentage	28.00%	20.00%	26.00%	20.00%
Product Concentration Risk [Member] | Sales Revenue, Segment [Member] | SmartVoice [Member]
Concentration Risk, Percentage	3.00%	13.00%	2.00%	13.00%

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Note M - Segment Information - Selected Operating Results (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income from operations	$ 1,532	$ 2,960	$ 471	$ 1,598
Revenues	31,301	36,164	59,234	63,823
Home [Member]
Income from operations	4,564	4,843	7,909	6,321
Revenues	21,789	24,211	42,744	42,866
Office [Member]
Income from operations	2,429	(475)	3,044	(2,498)
Revenues	8,620	7,392	15,219	12,470
SmartVoice [Member]
Income from operations	(5,461)	(1,408)	(10,482)	(2,225)
Revenues	$ 892	$ 4,561	$ 1,271	$ 8,487

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Note M - Segment Information - Reconciliation of Segment Operating Results (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income from operations	$ 1,532	$ 2,960	$ 471	$ 1,598
Unallocated corporate, general and administrative expenses	(441)	(450)	(854)	(950)
Equity-based compensation expenses	(1,557)	(1,259)	(3,088)	(2,244)
Intangible assets amortization expenses	(425)	(321)	(850)	(642)
Financial income, net	418	273	834	565
Total consolidated income before taxes	$ (473)	$ 1,203	$ (3,487)	$ (1,673)

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Note N - Accumulated Other Comprehensive Income - Changes in Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Losses (gains) reclassified from accumulated other comprehensive income (loss)	$ (62)		$ (85)
Net current period other comprehensive income (loss)	146	$ 110	461	$ 793
Ending balance	(1,391)		(1,391)
Beginning balance	(1,537)		(1,852)
Other comprehensive income before reclassifications	208		546
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Losses (gains) reclassified from accumulated other comprehensive income (loss)	11		58
Net current period other comprehensive income (loss)	167		418
Ending balance	(683)		(683)
Beginning balance	(850)		(1,101)
Other comprehensive income before reclassifications	156		360
Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Parent [Member]
Losses (gains) reclassified from accumulated other comprehensive income (loss)	(78)		(153)
Net current period other comprehensive income (loss)	(29)		39
Ending balance	48		48
Beginning balance	77		9
Other comprehensive income before reclassifications	49		192
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Losses (gains) reclassified from accumulated other comprehensive income (loss)	5		10
Net current period other comprehensive income (loss)	5		10
Ending balance	(445)		(445)
Beginning balance	(450)		(455)
Other comprehensive income before reclassifications
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Losses (gains) reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive income (loss)	3		(6)
Ending balance	(311)		(311)
Beginning balance	(314)		(305)
Other comprehensive income before reclassifications	$ 3		$ (6)

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Note N - Accumulated Other Comprehensive Income - Reclassifications Out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Research and development	[1]	$ 9,161	$ 9,036	$ 18,351	$ 17,925
Sales and marketing	[2]	3,430	3,323	7,005	6,715
General and administrative	[3]	2,372	2,275	4,859	4,558
Losses on available-for-sale marketable securities		418	273	834	565
Net income (loss)		(586)	1,080	(3,452)	(1,833)
Research and development	[1]	9,161	9,036	18,351	17,925
Sales and marketing	[2]	3,430	$ 3,323	7,005	$ 6,715
Reclassification out of Accumulated Other Comprehensive Income [Member]
Net income (loss)		(62)		(85)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Losses on available-for-sale marketable securities		11		58
Net income (loss)		11		58
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Parent [Member]
Research and development		(61)		(120)
Sales and marketing		(6)		(12)
General and administrative		(11)		(21)
Net income (loss)		(78)		(153)
Research and development		(61)		(120)
Sales and marketing		(6)		(12)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Research and development		3		7
Sales and marketing		2		3
General and administrative		5		10
Net income (loss)		5		10
Research and development		3		7
Sales and marketing		$ 2		$ 3

[1] Includes equity-based compensation expense in the amount of $623 and $521 for the three months ended June 30, 2017 and 2016, respectively; and $1,239 and $947 for the six months ended June 30, 2017 and 2016, respectively.

[2] Includes equity-based compensation expense in the amount of $297 and $194 for the three months ended June 30, 2017 and 2016, respectively; and $597 and $325 for the six months ended June 30, 2017 and 2016, respectively.

[3] Includes equity-based compensation expense in the amount of $543 and $461 for the three months ended June 30, 2017 and 2016, respectively; and $1,061 and $828 for the six months ended June 30, 2017 and 2016, respectively.

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Note O - Government Grants (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Financial Grants in Support of Research and Development	$ 0.8	$ 1.0	$ 0.9	$ 1.6
Financial Grants in Support of Research and Development, Royalty Obligation	5.00%		5.00%