edgar submission header summary - radcom ltd consolidated... · 2021. 1. 26. · on august 30,...

EDGAR Submission Header Summary

Submission Form Type 6-K

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Period of Report 08-22-2016

Filer RadCom Ltd

CIK 0001016838

CCC #apo7kxt

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Exchange NASD

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Co-Registrants

Submission Contact Yaron Kleiner

Contact Phone Number 972-54-2233-054

Documents 8

Emails [email protected]

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RADCOM LTD. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2016

UNAUDITED

INDEX

Page Consolidated Balance Sheets F - 2 - F - 3

Consolidated Statements of Operations F - 4

Consolidated Statement of Comprehensive Income (Loss) F - 5

Statements of Changes in Shareholders' Equity F - 6

Consolidated Statements of Cash Flows F - 7

Notes to Consolidated Financial Statements F - 8 - F - 17


CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

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

F - 2

June 30, December 31, 2016 2015

ASSETS Unaudited CURRENT ASSETS:

Cash and cash equivalents $ 46,468 $ 8,727 Restricted bank deposits 32 32 Trade receivables (net of allowances for doubtful accounts amounted to $28 as of June 30, 2016) 1,020 3,684 Inventories 1,850 1,532 Other account receivables and prepaid expenses 2,967 2,087

Total current assets 52,337 16,062 SEVERANCE PAY FUND 3,240 3,181 OTHER LONG -TERM RECEIVABLES 627 508 PROPERTY AND EQUIPMENT, NET 685 384 Total assets $ 56,889 $ 20,135


CONSOLIDATED BALANCE SHEETS

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


F - 3

June 30, December 31,

2016 2015 LIABILITIES AND SHAREHOLDERS' EQUITY Unaudited

CURRENT LIABILITIES:

Trade payables $ 1,825 $ 1,465 Employees and payroll accruals 3,628 2,533 Deferred revenues and advances from customers 8,110 931 Other accounts payable and accrued expenses 1,944 1,490

Total current liabilities 15,507 6,419

NON- CURRENT LIABILITIES:

Deferred revenues and advances from customers 129 197 Accrued severance pay 3,876 3,656

Total long-term liabilities 4,005 3,853

Total liabilities 19,512 10,272

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

Share capital: Ordinary shares of NIS 0.20 par value: Authorized: 20,000,000 shares at June 30, 2016 and December 31, 2015; 11,351,622 and 8,674,717 shares issued and 11,315,590 and 8,638,685 shares outstanding at June 30, 2016 and December 31, 2015, respectively 510 372

Additional paid-in capital 94,791 70,270 Accumulated other comprehensive loss (2,555 ) (2,760 ) Accumulated deficit (55,369 ) (58,019 )

Total shareholders' equity 37,377 9,863

Total liabilities and shareholders' equity $ 56,889 $ 20,135


CONSOLIDATED STATEMENTS OF OPERATIONS



F - 4

Six months ended

June 30,

2016 2015

Unaudited Revenues:

Products $ 12,247 $ 9,891 Services 1,500 1,300

13,747 11,191 Cost of revenues:

Products 3,692 2,213 Services 137 141

3,829 2,354 Gross profit 9,918 8,837 Operating expenses:

Research and development 3,468 3,071 Less - royalty-bearing participation 756 148

Research and development, net 2,712 2,923

Selling and marketing, net 3,259 3,587 General and administrative 2,027 1,206

Total operating expenses 7,998 7,716 Operating income 1,920 1,121

Financial income (expenses), net 736 (374 ) Income before taxes on income 2,656 747 Taxes on income (6 ) (107 )

Net income $ 2,650 $ 640

Basic net income per Ordinary Share $ 0.28 $ 0.08

Diluted net income per Ordinary Share $ 0.27 $ 0.07

Weighted average number of Ordinary Shares used in computing basic net income per Ordinary Share 9,322,930 8,501,254

Weighted average number of Ordinary Shares used in computing diluted net income per Ordinary Share 9,733,037 9,066,624

RADCOM LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



F - 5

Six months ended

June 30,

2016 2015

Unaudited Net income $ 2,650 $ 640 Other comprehensive income (loss):

Foreign currency translation adjustments 205 (696 ) Total other comprehensive income (loss) 205 (696 ) Comprehensive income (loss) $ 2,855 $ (56 )


STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share data)


F - 6

Ordinary Shares Additional paid-

in capital

Accumulated

other comprehensive

loss

Accumulated

deficit

Total shareholders’

equity

Number Amount

Balance as of December 31, 2015 8,638,685 $ 372 $ 70,270 $ (2,760 ) $ (58,019 ) $ 9,863 Exercise of options into Ordinary Shares 257,511 13 1,590 - - 1,603 Exercise of warrants into Ordinary Shares 310,985 16 1,069 - - 1,085 RSUs vested 17,500 1 (1 ) - - - Issuance of Ordinary Shares, net of issuance costs of $1.7 million, upon follow-on public offering 2,090,909 108 21,176 - - 21,284 Stock-based compensation and RSUs - - 687 - - 687 Net income - - - - 2,650 2,650 Other comprehensive income - - - 205 - 205 Balance as of June 30, 2016 (unaudited) 11,315,590 $ 510 $ 94,791 $ (2,555 ) $ (55,369 ) $ 37,377


CONSOLIDATED STATEMENTS OF CASH FLOWS



F - 7

Six months ended

June 30,

2016 2015 Unaudited Cash flows from operating activities: Net income $ 2,650 $ 640 Adjustments to reconcile net income to net cash used in operating activities:

Depreciation 106 44 Share-based compensation and RSUs 687 786 Change in: Severance pay, net 161 71 Trade receivables, net 3,106 1,798 Other account receivables and prepaid expenses (672 ) (448 ) Inventories (558 ) 980 Trade payables 304 (1,101 ) Employees and payroll accrued 1,082 (248 ) Other accounts payable and accrued expenses (121 ) 107 Deferred revenue and advances from customers 6,656 335

Net cash provided by operating activities 13,401 2,964 Cash flows used in investing activities: Purchase of property and equipment (107 ) (56 ) Net cash used in investing activities (107 ) (56 ) Cash flows from financing activities: Proceeds from issuance of Ordinary Shares, net of issuance costs upon follow-on public offering 21,284 - Exercise of options into Ordinary Shares 1,085 80 Exercise of warrants into Ordinary Shares 1,603 400 Net cash provided by financing activities 23,972 480 Foreign currency translation adjustments on cash and cash equivalents 475 (353 ) Increase in cash and cash equivalents 37,741 3,035 Cash and cash equivalents at beginning of the period 8,727 6,848 Cash and cash equivalents at end of the period $ 46,468 $ 9,883

(a) Non-cash investing activities: Purchase of property and equipment $ 293 $ 8

(b) Cash paid during the period for:

Taxes on income $ 6 $ 107

RADCOM LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In February 2014, the Company's MaveriQ solution, a software probe based solution, which replaced the OmniQ solution, a hardware-based solution, was officially launched and sales commenced. Since 2015, the Company invests in major R&D efforts, which will be continued in the future, to develop and adapt its NFV solutions.

In December 2015, the Company signed a multi-year sales agreement with Amdocs Software Systems Limited (“Amdocs”) for the resale of MaveriQ to AT&T, a leading North American Tier-1 telecom operator (the “AT&T Engagement”). During the six month period ended June 30, 2016, the Company recognized revenues in amount of $11,424 from such agreement (see also Note 8d). In March 2016, the company received from Amdocs an initial payment of $18,000 pursuant to this agreement.

The Company has wholly-owned subsidiaries in the United States and Brazil, that are primarily engaged in the sales, marketing, deployment and customer support of the Company's products in North America and Brazil, respectively. The Company has also a wholly owned subsidiary in India, which primarily provides marketing services and customer support worldwide.

F - 8

NOTE 1:- GENERAL

a. RADCOM Ltd. (the "Company") is an Israeli corporation which provides Service Assurance and Customer Experience Management solutions for Communication Service Providers (“CSP”). The Company's solutions support the CSPs’ ongoing needs to monitor their networks (fixed and mobile) and assure the delivery of a quality service to their subscribers; both on virtual networks (“NFV”) and non-virtual networks. The Company specializes in solutions for next-generation networks, including LTE, LTE-A, VoLTE, IMS, VoIP, UMTS/GSM and mobile broadband. The Company’s comprehensive, carrier-grade solutions support both mobile and fixed networks and scale to terabit data bandwidths to enable big data analytics, and are used to enhance customer care management, network operations, engineering capabilities, network service management, network planning and marketing. The Company’s shares are listed on the NASDAQ Capital Market under the symbol “RDCM”.

b. The Company has an accumulated deficit of $55,369 as of June 30, 2016. In addition, the Company's net cash provided by operating activities during the six months period ended June 30, 2016 was $13,401. The Company believes that its existing capital resources and expected cash flows from operations will be adequate to satisfy its expected liquidity requirements at least for the next 12 months.

c. In December 2014, one of the Company's customers (the "Customer") in Latin America sent a termination announcement to the agreement between the parties, claiming for the refund of all amounts previously paid and damages. On August 30, 2015, The Company sent a counter notice to the Customer and rejected completely all the Customer's claims. Currently, the Company concludes that no potential loss with respect to the claim to refund or damages is considered probable. See also Note 1c to the Company’s audited financial statements as of December 31, 2015.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data NOTE 1: - GENERAL (Cont.)

On May 4, 2016, a "shelf" registration statement covering the public sale of up to $ 50,000 of the Company’s Ordinary Shares was declared effective by the U.S. Securities and Exchange Commission ("SEC").

On May 25, 2016, the Company closed its follow-on public offering ("Offering") at a price of $11 per share. Following the closing of the Offering, the Company issued 2,090,909 Ordinary Shares, which includes 272,727 Ordinary Shares sold pursuant to the underwriters’ exercise of the overallotment option to purchase additional Ordinary Shares, for a total consideration of approximately $21.3 million, net of underwriting discounts and commissions and other offering expenses of $1.7 million payable by the Company (see also Note 8f).

NOTE 2: - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and the standards of the Public Company Accounting Oversight Board for interim financial information. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) considered necessary for a fair presentation of the Company’s consolidated financial position as of June 30, 2016. Consolidated results of operations and consolidated cash flows for the six months ended June 30, 2016 and 2015, have been included. The results for the six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ended on December 31, 2016.

F - 9

d. Follow-on Public Offering:

e. During the six months period ended June 30, 2016, 83% of the total consolidated revenues of the Company were derived from Amdocs under the AT&T Engagement.



U.S. dollars in thousands, except share and per share data NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual consolidated financial statements of the Company as disclosed in the Company's Annual Report on Form 20-F for the period ended December 31, 2015 filed with the SEC on March 29, 2016, are applied consistently in these unaudited interim consolidated financial statements, except:

Recently issued accounting standards:

NOTE 4: - INVENTORIES

F - 10

1. On March 30, 2016, the Financial Accounting Standards Board issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which affect all entities that issue share-based payment awards to their employees and involve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

2. In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)” ("ASU 2016-13"). ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 will become effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

June 30, December 31, 2016 2015 Unaudited Raw materials $ 32 $ 126 Finished products (*) 1,818 1,406 $ 1,850 $ 1,532

(*) Includes amounts of $350 and $373 at June 30, 2016 and December 31, 2015, respectively, with respect to inventory delivered to customers but for which revenue recognition criteria have not been met.


U.S. dollars in thousands, except share and per share data NOTE 5: - COMMITMENTS AND CONTINGENCIES

Royalty commitments:

The Company receives research and development grants from the Office of the Chief Scientist ("OCS"). Effective January 1, 2016, many of the functions of the OCS have been transferred to a new National Authority for Technological Innovation (“NATI”). In consideration for the research and development grants received from the OCS, the Company has undertaken to pay royalties as a percentage of revenues from products developed from research and development projects financed. If the Company will not generate sales of products developed with funds provided by the OCS, the Company is not obligated to pay royalties or repay the grants.

Royalties are payable at the rate of 3.5% from the time of commencement of sales of all of these products until the cumulative amount of the royalties paid equals 100% of the dollar-linked amounts of the grants received, plus interest at LIBOR rate.

As of June 30, 2016, the Company's total outstanding commitment with respect to royalty-bearing participation received or accrued, net of royalties paid or accrued, amounted to $42,405.

Royalty expenses relating to the OCS grants included in cost of revenues during the six months periods ended June 30, 2016 and 2015 were $481 and $392, respectively.

In May 2010, the Company received a notice from the OCS regarding alleged miscalculations of the amount of royalties paid by the Company to the OCS for the years 1992-2009 and the revenues basis of which the Company has to pay royalties. The Company believes that all royalties due to the OCS from the sale of products developed with funding provided by the OCS during such years were properly paid or were otherwise accrued. During 2011, the Company reviewed with the OCS alleged miscalculation differences. The Company assessed the merits of the aforesaid arguments raised by the OCS and recorded liability for an estimated loss respectively.

On May 19, 2016 ("Effective Date"), the Company entered into an Underwriting Agreement ("Agreement") related to a follow-on public offering of 1,818,182 Ordinary Shares, at an offering price of $11.00 per share for gross proceeds amounted to $20 Million, before underwriting discounts and commissions and other offering expenses amounted to $1.5 ("Offering").

Under the Agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 272,727 Ordinary Shares at the same price per share as of the Effective Date.

On May 25, 2016, following the closing of the Offering, the Company issued 2,090,909 Ordinary Shares, including 272,727 shares sold pursuant to full exercise by the underwriters' option to purchase additional shares, for a total consideration of approximately $21.3 Million, net of issuance costs. (see also Note 8f).

F - 11

NOTE 6:- SHAREHOLDERS' EQUITY

a. Follow-on public offering:



NOTE 6: - SHAREHOLDERS' EQUITY (Cont.)

On February 19, 2015, the Company's Board of Directors adopted an amendment to the 2013 Share Option Plan pursuant to which the Company may also grant restricted shares and restricted share units ("RSUs") to its employees, directors, consultants and contractors. The 2013 Share Option Plan expires on April 2, 2023.

On March 3, 2016, the Company's Board of Directors resolved to increase the number of outstanding Ordinary Shares reserved under the 2013 Share Option Plan, from 750,000 to 1,250,000.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price as of June 30, 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2016. This amount is impacted by the changes in the fair market value of the Ordinary Shares. (*) The fair value of the options granted during the six months period ended June 30, 2016 was estimated by using a Black-Scholes option-pricing model which requires the following assumptions: risk-free interest rates of 1.05% - 1.39% which is based on the yield from U.S. treasury zero-coupon bonds with an equivalent term to the options' expected term, expected volatility of 56.7% - 59.4% which is calculated based upon actual historical stock price movements over the most recent periods ending on the grant date and an expected term of 3.64 - 4.97 years which is generated by running Monte Carlo model pursuant to which historical post-vesting forfeitures and suboptimal exercise factor are estimated by using historical option exercise information of the options.

F - 12

b. Stock-based compensation:

1. On April 3, 2013, the Company approved a new Share Option Plan (the "2013 Share Option Plan"). The 2013 Share Option Plan provides for grants options to purchase Ordinary Shares. These options are granted for the purpose of providing incentives to employees, directors, consultants and contractors of the Company. In accordance with Section 102 of the Income Tax Ordinance (New Version) - 1961, the Company's Board of Directors (the "Board") elected the "Capital Gains Route".

2. The following is a summary of the Company's stock options activity for the six months period ended June 30, 2016:

Number of

options

Weighted-average

exercise price

Weighted- average

remaining contractual

term (in years)

Aggregate intrinsic value

Outstanding at December 31, 2015 856,986 $ 7.75 3.28 $ 6,157 Granted (*) 173,800 11.29 Exercised (257,511 ) 6.23 Expired & Forfeited (3,250 ) 9.94

Outstanding at June 30, 2016 770,025 $ 9.05 3.45 $ 2,179

Vested and expected to vest at June 30, 2016 770,025 $ 9.05 3.45 $ 2,179

Exercisable at June 30, 2016 513,475 $ 8.11 2.86 $ 1,922



U.S. dollars in thousands, except share and per share data NOTE 6: - SHAREHOLDERS' EQUITY (Cont.)

F - 13

3. RSUs under 2013 Share Option Plan are as follows for the six months period ended June 30, 2016:

Number of

RSUs

Weighted average

remaining contractual

term (in years) Aggregate

intrinsic value Outstanding at December 31, 2015 15,500 0.1 $ 231 Granted 111,300 Vested (17,500 ) Cancelled & forfeited -

Outstanding at June 30, 2016 109,300 2.35 $ 1,273

Vested and expected to vest at June 30, 2016 109,300 2.35 $ 1,273

4. As of June 30, 2016, stock options under the 2013 Share Option Plan are as follows for the periods indicated:

Options outstanding

at June 30, 2016 Options exercisable

at June 30, 2016

Exercise price Number

outstanding Weighted average

exercise price

Weighted average remaining

contractual life Number

exercisable Weighted average

exercise price

Weighted average remaining

contractual life $ $ In years $ In years

1.87 - 1.95 3,550 1.89 0.38 3,550 1.89 0.38 2.56 - 4.86 122,800 3.58 1.99 102,800 3.67 1.73 5.0 - 9.64 168,125 6.08 2.91 168,125 6.08 2.91 10.49 - 14.52 475,550 11.56 4.05 239,000 11.53 3.34 770,025 513,475

5. The weighted average fair value of Options and RSUs granted during the period of six months ended June 30, 2016 was $5.28 and $ 12.55, respectively.



U.S. dollars in thousands, except share and per share data NOTE 6: - SHAREHOLDERS' EQUITY (Cont.)

As of June 30, 2016, there are $2,185 of total unrecognized company cost related to non-vested share-based compensation and RSUs that are expected to be recognized over a weighted average period of 1.32 years.

F - 14

6. Share-based compensation and RSUs expenses:

7. The total compensation cost related to all of the Company’s equity-based awards, recognized during the six months periods ended June 30, 2016 and 2015 (unaudited) was comprised as follows:

Six months ended

June 30,

2016 2015

Unaudited Cost of revenue $ 42 $ 22 Research and development, net 239 324 Selling and marketing, net 51 224 General and administrative 355 216 $ 687 $ 786

NOTE 7:- SELECTED STATEMENTS OF OPERATIONS DATA

a. Financial expenses (income), net:

Six months ended

June 30,

2016 2015

Unaudited Financial income:

Foreign currency translation adjustments $ 629 $ 22 Interest from banks $ 216 $ 64

845 86 Financial expenses:

Interest and bank charges (13 ) (7 ) Foreign currency translation adjustments (96 ) (453 )

(109 ) (460 ) Financial income (expenses), net $ 736 $ (374 )



The following table sets forth the computation of basic and diluted net income per share:

F - 15

NOTE 7:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)

b. Net income per share:

Six months ended

June 30,

2016 2015

Unaudited Numerator:

Numerator for basic net income per share $ 2,650 $ 640 Denominator: Denominator for dilutive net income per share - weighted average number of ordinary shares 9,322,930 8,501,254 Effect of dilutive securities: Outstanding options RSU's and warrants 410,107 565,370 Denominator for diluted net income per share - adjusted weighted average number of ordinary shares 9,733,037 9,066,624

NOTE 8:- RELATED PARTY BALANCES AND TRANSACTIONS

a. The Company carries out transactions with related parties as detailed below. Certain principal shareholders of the Company are also principal shareholders of affiliates known as the RAD-BYNET Group. The Company's transactions with related parties are carried out on an arm's-length basis.

1. The Company was a party to a distribution agreement with Bynet Electronics Ltd. ("BYNET"), a related party, giving BYNET the exclusive right to distribute the Company's products in Israel. Revenues related to this distribution agreement are included in Note 8g below as "revenues". These revenues aggregated for a total amount of $0 and $62 for the six months periods ended June 30, 2016 and 2015, respectively.

2. Certain premises occupied by the Company and its U.S. subsidiary are rented from related parties. The U.S. subsidiary also sub-leases certain premises to a related party. The aggregate net amounts for lease payments for the six months periods ended June 30, 2016 and 2015 were $214 and $198, respectively.



F - 16

NOTE 8:- RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

b. In January 2012, the Company entered into a consulting agreement ("Agreement") with a consultant who is also the life partner of the Company's controlling shareholder and the Company's former Chairman of the Board. Pursuant to the Agreement, the consultant provided advisory services to the Company’s management with respect to business operations for a monthly amount which equaled the average monthly salary of employees in Israel, plus Israeli Value Added Tax. The Agreement’s initial term expired in January 2013 but was extended through September 10, 2015 (see also Note 8c). During the six months ended June 30, 2015, the Company recorded expenses incurred under this Agreement in the amount of $18. No expenses have been recorded during the six months ended June 30, 2016 under this Agreement (see also Note 8c).

c. On September 10, 2015, the Company's Board approved the replacement of the Company's Chairman of the Board with one of the Company's Directors who is also the life partner of the former Chairman and controlling shareholder to assume the position as an Active Chairwoman as of September 10, 2015 for a fixed monthly salary. During the six months period ended June 30, 2016, the Company recorded salary expenses for acting as an Active Chairwoman in the amount of $130.

d. In 2015, the Company entered into a material multi years contract for the sale of MaveriQ with subsidiaries of Amdocs Limited, a company with limited liability under the laws of the Island of Guernsey (“Amdocs”), pursuant to which the Company received an initial payment of $18,000 in March 2016. The Company’s controlling shareholder and director serves as Amdocs' director. During the six months period ended June 30, 2016, the Company recognized revenues amounted to $11,424 from such agreement (see Note 1a).

e. In June 2016, the Company signed a product expansion contract, as well as a multi-year maintenance contract with Amdocs in connection with the AT&T Engagement.

f. Following to Note 6a, on May 25, 2016, the Company closed its follow-on public offering at a price of $11 per share, where $ 21.3 million have been raised. The Company’s controlling shareholder and director invested $2.2 million for issuance of 200,000 Ordinary Shares.



F - 17

NOTE 8:- RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

g. Balances with related parties:

June 30, December 31, 2016 2015

Unaudited Assets:

Trade receivables $ 5 $ 2 Other account receivables and prepaid expenses $ 3 $ -

Liabilities:

Trade payables $ 143 $ 184 Other account payables and accrued expenses $ 107 $ 16 Advance from customer $ 6,785 $ -

h. Transactions with related parties:

Six months ended

June 30,

2016 2015

Unaudited Revenues $ 11,429 $ 62 Expenses: Cost of sales $ 84 $ 21 Operating expenses:

Research and development, net $ 75 $ 128 Sales and marketing, net $ 54 $ 59 General and administrative $ 159 $ 28

Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements

Except for the historical information contained in the following sections, the statements contained in the following sections are “forward-looking statements” within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Statements preceded by, followed by, or that otherwise include the words "believes", "expects", "anticipates", "intends", "estimates", "plans", and similar expressions or future or conditional verbs such as "will", "should", "would", "may" and "could" are generally forward-looking in nature and not historical facts. Because such statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from our current expectations. General You should read the following discussion and analysis in conjunction with our interim unaudited consolidated financial statements for the six months ended June 30, 2016 and notes thereto, and together with our audited consolidated financial statements for the year ended December 31, 2015 filed on March 29, 2016, with the Securities and Exchange Commission ("SEC") as part of the Company’s annual report on Form 20-F for the year ended December 31, 2015.

Unless indicated otherwise by the context, all references below to:

Overview

We provide service assurance and customer experience management solutions to communication service providers (CSPs). CSPs in 25 countries use our solutions to deliver high quality services, reduce churn, manage network performance, analyze traffic and enhance customer care. Our solutions incorporate cutting-edge technologies and a wealth of knowledge acquired by partnering with many of the industry’s leading CSPs for over two decades. Our carrier-grade solutions support both mobile and fixed networks and scale to terabit data bandwidths to enable big data analytics. We have a strong track record of innovation, and we were the first to market with a virtualized probe solution that supports NFV for next-generation networks. As new and existing customers seek to manage their existing networks while evaluating and deploying NFV-based architectures, we believe we are well positioned with our advanced software-based virtual solutions and industry track record.

Our solutions deliver specialized capabilities for virtualized infrastructure and next-generation networks, such as LTE, LTE-A, VoLTE, IMS, VoIP, UMTS/GSM and mobile broadband. The key benefits of our solutions are:

· "we", "us", "our", "Radcom", or the "Company" are to Radcom Ltd. and its subsidiaries;

· "dollars" or "$" are to United States dollars;

· "NIS" or "shekel" are to New Israeli Shekels; and

· “NFV” is to Network Function Virtualization. NFV is a software-centric design approach for building complex information technology (IT) networks and applications, particularly for use by communication service providers.

· advanced software-based architecture for rapid deployment and ease of management;· improved customer retention;· reduced subscriber churn rates;

· improved service availability;

Our software-based solutions enable CSPs to manage both next-generation and existing networks , NFV-based architectures. During 2015 and 2016, we saw increased interest

from CSPs in NFV-capable solutions for service assurance and customer experience management, and we enhanced our solutions to support NFV and remove dependencies from proprietary hardware-based devices.

In December 2015, our MaveriQ solution was selected by AT&T for its next-generation virtualized network environment. This deployment represents one of the first NFV networks of scale in the industry, and we were selected after a vigorous and lengthy validation process against several competing products. We are now in the process of deploying our software-based NFV solution with AT&T, and we are leveraging this success in discussions with other CSPs looking to manage existing networks while accelerating their roadmaps towards next-generation NFV architectures. Financial Highlights Total revenues in the first six months of 2016 increased by 23% to approximately $13.7 million from approximately $11.2 million in the first six months of 2015. The increase reflects the Company’s delivery of the engagement with Amdocs with respect to AT&T, for which an initial payment was received from Amdocs in March 2016 (the “AT&T Engagement”). Operating Income for the first six months of 2016 was approximately $1.9 million, compared to Operating Income of approximately $1.1 million for the same period of 2015. The positive increase in operating income is explained by growth in revenues, and due to approval of an OCS grant during the first six months of 2016, as opposed to 2015 when the OCS grant was approved during the second six months of the year. This was partially offset by higher G&A expenses during the first six months of 2016 compared to the same period of 2015, as further explained below. Net Income for the first six months of 2016 was approximately $2.6 million, or $0.27 per diluted share, compared to approximately $0.6 million, or $0.07 per diluted share, in the same period last year. Cash and cash equivalents were approximately $46.5 million as of June 30, 2016, compared to approximately $8.7 million as of December 31, 2015. The increase was mainly due to the initial payment of $18 million received from Amdocs under the AT&T Engagement in March 2016 and the net proceeds of $21.3 million received from our follow-on public offering completed in May 2016. Shareholders' equity increased to approximately $37.4 million as of June 30, 2016, compared to approximately $9.9 million as of December 31, 2015. Of this increase, $21.3 million was as a result of net funds received for the issuance of Ordinary Shares pursuant to the follow-on public offering; the balance is attributable to net income of approximately $2.6 million, the exercise of options and warrants in the amount of approximately $2.7 million, share-based compensation of approximately $0.7 million, and the changes in foreign currency translation capital fund of approximately $0.2 million.

· ability to install the solution as a virtual network function for seamless integration into all NFV infrastructures;· collection of all network packets for a complete and comprehensive view of the network and the customer experience;· support for multiple protocols for end-to-end network coverage;· both network-wide views and drilldown to an individual subscriber level; and· support for terabyte networks.

Revenues. Total revenues in the first six months of 2016 increased by 22.8% to approximately $13.7 million from approximately $11.2 million in the first six months of 2015,

reflecting the Company’s delivery of the AT&T Engagement for which an initial payment was received from Amdocs in March 2016.

Cost of revenues. Our cost of revenues increased by 62.7% to approximately $3.8 million in the first six months of 2016 from approximately $2.4 million in the first six months of 2015, reflecting mainly expenses associated with our AT&T Engagement. Gross margin decreased to 72.1% in the first six months of 2016 from 79.0% in the first six months of 2015, reflecting the higher cost of revenues.

Research and Development, net. Research and development expenses decreased by 7.2% to approximately $2.7 million in the first six months of 2016 from approximately $2.9 million in the first six months of 2015. This was mainly due to our receipt of approved OCS grants during the first six months of 2016, as opposed to the OCS grant for 2015 which was approved during the second six months of the year. The decrease was partially offset by an increase in the gross Research and Development cost.

Selling and Marketing, net. Selling and Marketing expenses, net, decreased by 9.1% to approximately $3.3 million in the first six months of 2016 from approximately $3.6 million in the first six months of 2015, mainly due to a decrease in third party commissions.

Six month periods ended June 30, (U.S. dollars in thousands)

UNAUDITED % Change

2016 vs. 2015

2016 2015 Revenues: Products $ 12,247 $ 9,891 23.8 % Services 1,500 1,300 15.4 %

13,747 11,191 22.8 %

Cost of Revenues-Products 3,692 2,213 66.8 % Cost of Revenues-Services 137 141 (2.8 )%

3,829 2,354 62.7 %

Gross Profit 9,918 8,837 12.2 %

Research and Development 3,468 3,071 12.9 % Less royalty-bearing participation 756 148 410.8 %

Research and Development, net 2,712 2,923 (7.2 )% Selling and Marketing, net 3,259 3,587 (9.1 )% General and Administrative 2,027 1,206 68.1 %

Total Operating Expenses 7,998 7,716 3.7 %

Operating Income 1,920 1,121 71.3 %

Financial Income (Expenses), net 736 (374 ) (296.8 )%

Income before taxes on income 2,656 747 255.6 %

Taxes on income (6 ) (107 ) (94.4 )%

Net Income $ 2,650 $ 640 314.1 %

General and Administrative. General and Administrative expenses increased by 68.1% to approximately $2 million in the first six months of 2016 from approximately $1.2 million in the first six months of 2015, mainly due to expenses accrued for options and restricted stock units to employees and directors during the first six months of 2016, an increase in salaries because of an increase in headcount, and the professional and legal services and other expenses related to the follow-on public offering. Financial Income (Expenses), Net. In the first six months of 2016 we recorded financial income of approximately $0.7 million, compared to financial expense of approximately $0.4 million in the first six months of 2015. This change is mainly due to exchange rate differences between the Brazilian Real and the U.S. Dollar.

Taxes on income. Taxes on income are comprised of withholding taxes that were deducted by several of our customers. LIQUIDITY AND CAPITAL RESOURCES In the past few years, we have financed our operations through cash generated by operations, private placements of equity securities, and short-term loans and credit facilities. In May 2016, we received proceeds from our follow-on public offering. Working Capital and Cash Flows Liquidity refers to liquid financial assets available to fund our business operations and pay for near-term obligations. These liquid financial assets mostly consist of cash and cash equivalents. As of June 30, 2016, we had approximately $46.5 million in cash and cash equivalents, compared to approximately $8.7 million as of December 31, 2015. Net cash provided by operating activities was approximately $13.4 million in the first six months of 2016 compared to approximately $3.0 million net cash provided by operating activities in the first six months of 2015. The positive cash flow in the first six months of 2016 was primarily due to net income of approximately $2.6 million, a decrease of approximately $3.1 million in trade receivables, an increase of approximately $6.7 million in deferred revenues and advances from customers, a decrease of approximately $0.3 million in trade payables, share-based compensation and RSUs of approximately $0.7 million and an increase of approximately $1.1 million in employees and payroll accrual, which was partially offset by an increase of approximately $0.6 million in inventory and increase of approximately $0.7 million in Other account receivables and prepaid expenses. The positive cash flow in the first six months of 2015 was primarily due to net income of approximately $0.6 million, a decrease of approximately $1.8 million in trade receivables, an increase of approximately $0.3 million in deferred revenues and advances from customers, share-based compensation and RSUs of approximately $0.8 million and a decrease of approximately $1.0 million in inventories, which was partially offset by a decrease of approximately $1.1 million in trade payables and a decrease of approximately $0.2 million in employees and payroll accrual. Net cash used in investing activities was approximately $0.1 million in the first six months of 2016 compared to net cash used in investing activities of approximately $0.1 million in the first six months of 2015. all the amount refers to purchase of property and equipment. Net cash provided by financing activities was approximately $24 million in the first six months of 2016 compared to approximately $0.5 million net cash used in the first six months of 2015. Cash provided in the first six months of 2016 was mainly due to proceeds from issuance of Ordinary Shares in our follow-on public offering completed in May 2016, net of issuance costs, in the amount of $21.3 million, an increase of $1 million in proceeds from the exercise of options into Ordinary Shares, and an increase of $1.2 million in proceeds from exercise of warrants into Ordinary Shares. The Company believes that its existing capital resources and expected cash flows from operations will be adequate to satisfy its expected liquidity requirements at least for the next 12 months.

CERTAIN CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of Consolidated Financial Statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements in our Annual Report on Form 20-F for the fiscal year ended December 31, 2015 filed with the SEC on March 29, 2016 describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. RISK FACTORS There are no material changes to the risk factors previously disclosed in our Annual Report on Form 20-F for the year ended December 31, 2015 filed with the SEC on March 29, 2016. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 20-F for the year ended December 31, 2015 filed with the SEC on March 29, 2016. LEGAL PROCEEDINGS Not applicable.