A. HISTORY AND DEVELOPMENT OF THE COMPANY AudioCodes is a provider of voice communications solutions for enterprises, contact centers and service providers. Our offerings span voice infrastructure, cloud-based platforms and Voice AI applications and services designed to support communication and customer engagement use cases across unified communications and contact center environments. Our solutions are organized across three primary layers: (i) voice networking infrastructure and devices, which provide connectivity and endpoints for communication environments; (ii) cloud-based platforms and management solutions, which enable provisioning, orchestration and operation of voice and AI-based voice services; and (iii) Voice AI applications, which deliver contact center, compliance and productivity capabilities. These layers are designed to operate together to support enterprise and service provider communication environments. AudioCodes Ltd. was incorporated in 1992 as a company limited by shares organized under the laws of the State of Israel. The Company initially concentrated on low-bit-rate speech compression technology, subsequently expanding into voice over packet (VoP) chips, VoIP communication modules, blades and boards. In 2001, AudioCodes released an analog media gateway based on blade and chip technologies, followed by a family of VoIP media gateways combining analog and digital telephony interfaces. The Company then developed high-density VoIP media gateways and media servers. AudioCodes further expanded its product portfolio with the introduction of session border controllers (2006), multi-service business routers and gateways (2008) and IP phones (2011). Beginning in 2020, AudioCodes added Microsoft Teams meeting room solutions to complement its communications device portfolio. Since approximately 2015, AudioCodes has developed a range of software-based voice productivity solutions through our Voice AI business line. These include the Voca CIC, an AI-first, contact center solution for Microsoft Teams, Interaction Insights, an intelligent, secure enterprise compliance recording solution, Meeting Insights, an AI-powered enterprise solution that enables users to record any meeting generated content (audio and video) and automatically creates meeting minutes for Microsoft Teams, Zoom and Google Meet meetings. In addition, AudioCodes provides platforms, including VoiceAI Connect and Live Hub, that enable integration between conversational AI platforms, telephony systems, large language models and speech services, supporting the development and deployment of voice-based AI applications with existing voice communication infrastructure. AudioCodes also offers voice network and service management tools, including the One Voice Operations Center (OVOC) for network and device configuration, monitoring and management; Device Manager for administering and monitoring business phones and meeting room solutions; and AudioCodes Routing Manager (ARM) for call routing management in complex VoIP networks. To accelerate and simplify the delivery of its solutions, AudioCodes developed Live Platform, a cloud-based service delivery platform that provides certified PSTN connectivity for leading UCaaS environments, including Microsoft Teams, Webex Calling and Zoom Phone. Live Platform combines voice connectivity for unified communications and contact center environments with AI-powered voice applications, supported by automated onboarding and management tools. Live Platform is used by AudioCodes and its global network of channel partners to deliver managed services to enterprise and service provider customers. Our principal executive offices are located at 6 Ofra Haza Street, Park Naimi Building A, Or Yehuda 6032303, Israel. Our registration number with the Israeli Registrar of Companies is 520044132. Our telephone number is +972-3-976-4099. Our U.S. subsidiary, AudioCodes Inc., 80 Kingsbridge Road, Piscataway, New Jersey 08854, serves as our agent in the United States. Our website address is www.audiocodes.com. The information contained on or available through our website is not incorporated by reference into and should not be considered a part of this Annual Report. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at www.sec.gov. - 37 - Table of Contents MAJOR DEVELOPMENTS SINCE JANUARY 1, 2025 Live Platform - Cloud and Managed Services Delivery Platform AudioCodes Live Platform is a cloud-based service delivery platform that enables the provisioning, management and operation of voice connectivity and AI-based communication services across unified communications and contact center environments. The platform provides a centralized framework for supporting UCaaS voice enablement, including PSTN connectivity, as well as the deployment of voice and AI-based applications. Live Platform includes capabilities for automated onboarding, configuration and lifecycle management of services. The platform supports integration with unified communications services such as Microsoft Teams, Webex Calling and Zoom Phone, and is used by enterprises and service providers to deploy and manage voice and related services. In 2025, we continued to enhance our cloud and managed services delivery platform - Live Platform - across North America, Europe and Asia Pacific. During 2025, we announced that we had achieved certification as an approved provider of Teams Operator Connect and Webex Cloud Connect. We are certified as a Microsoft Operator Connect Accelerator, Webex Cloud Connect Enablement Partner, and Zoom Provider Exchange Accelerator, allowing service providers to become official providers of these services. In 2025, we also launched a global private peering data network that enables partners, including public broadband operators, channel partners and service providers, to directly interconnect their data networks and local telephony services with the AudioCodes cloud. This private peering infrastructure is designed to support a smooth and scalable migration of enterprise voice and contact center workloads to the cloud, while maintaining local connectivity, performance and regulatory compliance. The network provides the foundation for delivering Webex Cloud Connect and Microsoft Teams Operator Connect services on a global basis and supports our newly introduced offerings of Webex Cloud Connect and Microsoft Operator Connect for resellers. During 2025, we also expanded our portfolio of voice AI services delivered via Live Platform, helping partners and service providers grow their business with upsell opportunities, including the Meeting Insights meeting intelligence solution, the Voca CIC Microsoft Teams contact center and Interaction Insights interaction recording. In addition, we introduced real-time analytics and AI-based insights capabilities within Live Platform, focused primarily on the contact center market. These capabilities provide service providers and partners with enhanced visibility into service usage, quality and performance, enabling data-driven optimization, proactive monitoring and the delivery of differentiated, value-added services. Live Platform incorporates AudioCodes products and technology such as our virtualized session border controller, AudioCodes Routing Manager, network management and monitoring tools, device management and Microsoft Teams user management. It also integrates internally developed and third-party solutions that together enable network connectivity, service automation, service monitoring, customer premises equipment management, high availability and other capabilities required for seamless service delivery. With its advanced management and automation tools, Live Platform enables operators and other hosting partners to onboard customers rapidly and with minimal upfront investment. VoiceAI Business Line Our VoiceAI business line is designed to enhance employee and customer experience and improve business outcomes through automatic content gathering and generating insights and predictions using conversational AI and machine learning. Meeting Insights Meeting Insights is an AI-powered enterprise solution that enables users to record any meeting generated content (audio and video) and automatically creates meeting minutes for Microsoft Teams, Zoom and Google Meet meetings. In 2025 we introduced support for face-to-face meetings using a mobile app, which is available for both iOS and Android devices. It provides a centralized company platform for all meeting recordings, webinars and conference calls, making them readily shareable across the organization. The solution also offers the ability to define templates tailored to the needs of the organization, enabling them to define the structure of summaries by use case. - 38 - Table of Contents In 2025, we launched Meeting Insights On-Prem, a fully on-premises version of the Meeting Insights product family. Meeting Insights On-Prem is aimed at industries with strict regulation and security standards, e.g., government, security, health and financial organizations, as it runs entirely on local servers with no connection to the internet. The solution provides seamless voice connectivity with telephony systems and contact centers using AudioCodes session border controller (SBC) technology. Interaction Insights In early 2025, we launched Interaction Insights, a new SaaS-based, multitenant application, including new GUI and platform that offers seamless updates, scalable architecture and tailored feature deployment per tenant. It is suitable for a range of recording use cases (e.g., compliance, quality assurance, training, etc.) and industries (including finance, healthcare, government and energy). It ensures data segregation and localization, with options for customers to bring their own media storage. Developed with data privacy and Security by Design, Interaction Insights supports GDPR compliance and encryption. Interaction Insights supports recording of all voice calls, video conferences, instant messaging conversations and screen-sharing sessions with powerful retrieval capabilities, flexible retention policies and advanced AI-based analytics. Interaction Insights has superseded our former call recording solution, SmartTAP, which is no longer being sold. Voca CIC AudioCodes Voca CIC is an AI-first, one-screen, omnichannel contact center solution for Microsoft Teams with built-in conversational AI. Voca is certified for Microsoft Teams and scales to every Teams user across the enterprise, whether main service desk or department beyond the contact center. During 2025, Voca CIC added multiple capabilities, including: LLM integrations, Microsoft Unify certification, integration with AudioCodes Live Platform, addition of multi-tier license management capabilities and AI summarization. VoiceAI Connect and Live Hub AudioCodes’ VoiceAI Connect and Live Hub function as communication hubs between conversational AI platforms (CAIP), telephony systems and channels, large language models (LLMs) and cognitive speech services, enabling building and integrating voice conversational AI solutions with existing voice communication infrastructure. These solutions are available as a fully managed service (Voice AI Connect Enterprise Edition) and as a self-service SaaS solution (LiveHub) to support any deployment, integration or regulatory needs. During 2025, we further extended the integration and support of leading CAIPs and cognitive speech services solutions as well as support for LLM engines to enable best-of-breed Gen-AI based voice conversational AI. Additionally, we introduced a new AI Agents module in Live Hub, enabling users to develop LLM-based voice bots within the Live Hub portal without the need for an external CAIP. Product and Technology Developments SBC Developments During 2025, we continued to enhance our SBCs’ security and support for the latest technology developments in virtual and public cloud environments. - 39 - Table of Contents IP Phones and Meeting Room Solutions During 2025, we continued developing our range of IP phone devices and Room Experience (RX) meeting room suite offering for Microsoft Teams and other UCaaS environments. In 2025, we announced the AudioCodes Intelligent Meeting Room solution, which combines AI technology and our innovative RX series of meeting room devices to deliver seamless collaboration and productivity to any space in the hybrid workplace. The solution includes visual AI that combines video streams from multiple cameras to deliver an immersive video conferencing experience for all participants, as well as automatic, conversational AI generated meeting summaries that enable participants to focus on the meeting and not on note taking. Furthermore, during 2025, we achieved Webex Calling certification for three of our IP phones models, giving customers the ability to enjoy a familiar calling experience in multiple UCaaS environments (in addition to Teams and Zoom). Management Solutions During 2025, we continued to develop management functionalities for AudioCodes Live and Live Platform. These include enhanced onboarding, reporting and tools for our professional services staff to be able to provide and support managed solutions for our customers, as well as self-service management capabilities for our service provider customers and partners. Multi-Service Business Routers and Universal CPE During 2025, we updated our analog gateways with new technology, due to the end of life of major components. New products were launched to replace the obsolete ones. - 40 - Table of Contents PRINCIPAL CAPITAL EXPENDITURES We have made and expect to continue to make capital expenditures in connection with the expansion of our operation and production capacity. In 2025, we also made capital expenditures primarily related to the implementation of a new ERP system. The table below sets forth our principal capital expenditures incurred for the periods indicated (amounts in thousands): Year Ended December 31, 2025 2024 2023 Computers and peripheral equipment $ 4,971 $ 3,157 $ 2,462 Office furniture and equipment 176 326 737 Leasehold improvements 430 16,082 5,572 Total $ 5,577 $ 19,565 $ 8,771 B. BUSINESS OVERVIEW INDUSTRY BACKGROUND AND MARKET TRENDS Impact of Macroeconomic and Geopolitical Trends on Our Markets Inflationary Pressures Impacting Technology Consumption Models - in many global markets, inflationary pressures resulted, and have continued to result, in rising interest rates, impacting demand for borrowing to fund capital expense projects. As a result, more organizations sought to deploy technology on a “pay per use” subscription model, leveraging advances in cloud-based technologies (such as Unified Communications as a Service and Contact Center as a Service). See Item 3.D, “Key Information - Risk Factors - High rates of global inflation and the occurrence of a recession could have a material and adverse impact on our business, results of operations and financial condition.” Increased and Ongoing Geopolitical Uncertainty and Tensions - there was an increase in global geopolitical uncertainty during 2023, which continued into 2025. The ongoing conflict between Russia and Ukraine continued to cause economic challenges and inertia, especially in Europe. On October 7, 2023 the Hamas terror attack on Israel led to a subsequent and ongoing conflict, impacting AudioCodes’ resources (such as R&D) and the economy in Israel more broadly, resulting in supply chain challenges in the Red Sea, a key global shipping route. The assaults launched by Hamas and its supporters, including Iran, Lebanon (with the Hezbollah terror organization) and Syria, have caused substantial regional instability and extreme volatility in the global markets at large. It is not possible at this time to predict or determine the ultimate consequences of the conflict in Ukraine and the ongoing war with Hamas and its supporters, which could include, among other things, greater regional instability, geopolitical shifts and other material and adverse effects on macroeconomic conditions, currency exchange rates, supply chains and financial markets. See Item 3.D, “Key Information - Risk Factors - Political, economic and military instability in Israel or the Middle East may adversely affect our business” and “-- Macroeconomic changes, including political disturbances, geopolitical instability, and trade wars, may adversely impact our business and operations.” The Emergence and Evolution of AI – In recent years, AI has evolved from a potential and theoretical future technology to a requirement now being demanded by many organizations to help them improve employee productivity and enhance their customer engagement experience, including through intelligent automation, natural language understanding and integration with other IT frameworks. Applications have emerged for the practical use of AI, including those that form the basis for AudioCodes’ voice AI solution portfolio: recording meetings as a key source of business intelligence, connecting chatbots to voice and simplifying the automation of customer journeys through a contact center. This rapidly growing and evolving trend to adopt AI as a core business communications tool is likely to continue in the near-term. See Item 3.D, “Key Information - Risk Factors - Our results of operations could be materially and adversely affected if we cannot keep pace with technological changes impacting the development of our products and implementation of our business needs, including with respect to automation and the use of AI.” Enterprise Unified Communications In 2025, the demand for cloud UC services continued to grow and there was a continued slowdown in the on-premises UC and PBX markets. With the transition to unified communications as a service (UCaaS), UC functions are easily deployed via cloud services, along with access to continual updates and improvements and with native support for work-from-anywhere and hybrid workplaces. The shift to UCaaS has been driven by companies like Microsoft, Zoom and Cisco (Webex). - 41 - Table of Contents Contact Centers and Customer Service Voice industry state and market transition The contact center voice market continues to evolve as enterprises transition voice services from legacy on-premises environments to cloud and hybrid architectures. While initial migration efforts were primarily focused on replacing infrastructure and reducing operational complexity, customers are increasingly emphasizing voice service quality, reliability, security, regulatory compliance and operational visibility across distributed and multi-vendor environments. In parallel, the growing use of Voice AI and real-time automation in contact center operations is increasing dependency on high-quality, low-latency and securely managed voice connectivity. As a result, voice infrastructure is becoming a critical enabling layer for both cloud adoption and emerging AI-driven use cases, with enterprises seeking solutions that support these transitions in a controlled, efficient and predictable manner. Opportunities and positioning for AudioCodes These market trends demand voice infrastructure solutions that facilitate cloud migration while maintaining service continuity and enterprise-grade controls. AudioCodes addresses this demand by providing services focused on voice connectivity, session management, interoperability, security and service assurance across on-premises, cloud and hybrid environments. As customers adopt Voice AI capabilities alongside existing contact center platforms, they increasingly require voice architectures that can integrate with multiple platforms, support secure handling of voice traffic and data, and enable operational visibility and cost management. AudioCodes’ experience in voice networking and lifecycle management enable us to support customers in reducing migration risk, improving operational efficiency and establishing a scalable foundation for future voice and AI-enabled contact center initiatives Cloud and AI Driven Convergence of Unified Communications and Contact Center Markets While UC and Contact Center (CC) markets have unique attributes and trends, the broader IT trend towards deploying cloud-based applications and services, plus the emergence of conversational AI, are accelerating the convergence of UC and CC technologies. As more enterprises adopt cloud-based platforms, such as Microsoft Teams, for collaboration and communication, they find that the same platform can also be used to deploy fully integrated Contact Center capabilities, with automation benefits delivered by conversational AI applications. This convergence can drive cost-savings, reduce IT overhead to support both UC and CC, and enables enterprises to offer superior customer service via a single platform. In addition, as cloud-based services, these combined UC and CC capabilities, along with AI, can be consumed as a service on a subscription basis, reducing the need for capital expense and enabling the enterprise to scale users up and down as required during peak periods. Service Provider All-IP Transition In 2025, we saw an increase in the demand for analog gateways in North America, due to the PSTN shutdown imposed by the FCC. Operators such as AT&T are raising their landline prices and forcing customers to migrate to IP. This opens up an opportunity for us when migrating sensitive systems like fire alarms and elevator intercoms that have to remain analog. Other factors that have caused telecom operators to replace legacy networks are the traditional TDM switches reaching end-of-life, the need to free-up the real estate occupied by these switches, energy savings and the importance of competing with the growing numbers of alternative service providers. During 2025, we also observed an increase in the demand for speed in CPEs, driving the need to support fiber connectivity (up to 1GB), as well as 5G cellular backup connections. Remote locations require 5G even as their main form of WAN connectivity, thus increasing the overall demand for our respective CPEs and 5G adapter. - 42 - Table of Contents BUSINESS STRATEGY AudioCodes’ business strategy is focused on strengthening its position as a communications software vendor of Unified Communications (UC/UCaaS) and Contact Center (CC/CCaaS) voice solutions and services, voice networking, all-IP voice network migration and Voice AI solutions. We seek to offer solutions that support enterprise communication across voice infrastructure, cloud-based platforms and applications, with the goal of enabling both human and AI-driven interactions. Our voice expertise and voice AI services support enterprises in connecting, collaborating and delivering employee and customer experiences. We aim to deliver value to our customers in four main areas: Unlocking the strategic value of voice with AI: By continuing to develop AI-driven solutions for business insights, agent automation and analytics focused on enhancing the customer and employee experience. Empowering the future-ready workplace: Through a comprehensive and diverse end-to-end portfolio of voice solutions, from connectivity to collaboration, contact center, business intelligence and AI - all under one roof. Enabling collaboration anywhere: Helping enterprises to achieve high quality, secure and reliable voice and voice AI migration to all leading UCaaS and CCaaS providers. Scaling globally with confidence: Leveraging our voice and voice AI domain expertise, R&D capabilities and professional services experience to support customers globally. The following are key elements of our strategy: Maintain and extend technological leadership. AudioCodes is recognized as a global leader in voice technologies. We intend to continue to capitalize on our voice expertise to drive new business opportunities, including through the application of AI, to add value to the employee and customer experience. We continually seek to upgrade our product lines with additional functionalities, interfaces, densities and compatibility with the leading UC, CC and SIP solutions in the market, providing agnostic voice and AI expertise to multi-vendor platforms. Our voice solutions have evolved to be software-based and run natively in cloud environments, to comply with the industry trend of migrating to private and public clouds. We continue to invest heavily in voice and AI across our products and platforms offerings. Strengthen and expand strategic relationships with key partners and customers. We sell our products and solutions to service providers and enterprises worldwide, including through enterprise channels, system integrators, global equipment manufacturers and value-added resellers. We work closely with our customers to deliver products, solutions and services that meet their requirements. By focusing on leading solution vendors, system integrators and channels with large volume potential, we believe that we reach a substantial segment of our potential customer base while managing the cost and complexity of our marketing efforts. We continue to invest in local operations in key regions to support our partners and customers. Develop a network of strategic solution partners. We sell our products through, or in cooperation with, partners that can offer or certify our products as part of a complete solution to their customers. We expect to further develop our strategic partner relationships with solution providers in order to increase our customer base. Our strategic partners include companies such as Microsoft, Cisco, Zoom and Genesys. Engage enterprise customers in direct touch sales effort. We are pursuing a strategy of engaging large enterprise customers on a global level, as part of the AudioCodes product fit within leading enterprise solutions, mainly with Microsoft and Genesys. Our ability to engage with these enterprises directly enhances our ability to influence solution design and procurement decisions. This, in turn, is designed to increase demand, which we expect our business partners to fulfill based on their relationship with AudioCodes and the enterprise customers. Expand and enhance the development of highly integrated products and services. We plan to continue designing, developing and introducing new product lines, product features and services that address evolving customer requirements and incorporate new technologies, including AI. We focus on combining voice infrastructure, cloud-based platforms and applications to deliver integrated solutions and believe that our knowledge of core technologies and our ability to provide such integrated offerings enables us to offer better solutions that (i) are more comprehensive, (ii) are easier to consume (via subscription) and (iii) contain more features than those available in competitive alternatives. We believe there are notable growth opportunities for our development and profitability with respect to the offering of a broad range of highly integrated services that leverage our voice expertise with AI and drive the convergence of unified communications and contact center as a service for our enterprise customers. - 43 - Table of Contents Expand and enhance our solution offering. While the market is constantly looking for advanced, open communications and collaboration solutions, integration of multi-vendor products into a working solution is a complex task that enterprises, system integrators, service and cloud providers are challenged with. Over the years, we have developed a broad portfolio of products and invested in lifecycle management platforms (day 1 and day 2 operations) for our products that form a comprehensive solution, considerably simplifying the integration efforts required for setting up working unified communications, contact center or hosted business solutions. Customers and partners realize and appreciate the advantages our solutions offer, and we plan to keep expanding them with more products, management applications and enterprise productivity solutions. Build upon existing technologies to penetrate new markets. We continue to leverage our expertise in voice and conversational AI to enter additional markets, including the Microsoft Teams contact center segment. With Voca CIC, we offer a Microsoft Teams-based contact center solution, expanding our role from enabling connectivity to providing application-level functionality. We believe this represents a potential growth area that builds on our existing presence in the Microsoft ecosystem. Develop and expand professional services and managed services offering. We continue to expand our product-led services offering in line with our new products and solutions across voice, conversational AI and contact center categories. AudioCodes has a rich portfolio of managed services. We offer our customers expert professional services to assist them with design, implementation, support and management of our products. System integrators, VARs and service providers are able to leverage AudioCodes professional and managed services to complement their own offerings, and are able to offer them under their own brand to the end customers. Expand our investments in conversational AI. As AI emerges as a key business tool, AudioCodes is investing heavily in conversational AI to deliver practical benefits that leverage the combination of AI and our deep voice expertise to deliver unique benefits that improve both the employee and customer experience. From automated recording and analytics of meetings to improve business intelligence and productivity, to compliance interaction recording and AI automation that simplifies the customer journey and improves customer service, AudioCodes is committed to helping enterprises gain practical benefits from AI. The applications and services that we deliver leveraging AI will seek to provide beneficial upsell and cross-sell opportunities to add value to, and extend our relationship with, our global customer base. Acquire complementary businesses and technologies. We may pursue the acquisition of complementary businesses and technologies or the establishment of joint ventures to broaden our product offerings, enhance the features and functionality of our systems, increase our penetration in targeted markets and expand our marketing and distribution capabilities. AUDIOCODES SOLUTIONS, PRODUCTS, APPLICATIONS, PLATFORMS AND SERVICES Our solutions are organized across three primary layers: (i) voice networking infrastructure and devices, which provide connectivity and endpoints for voice communication environments; (ii) cloud-based platforms and management solutions, which enable provisioning, orchestration and operation of voice and AI-based services; and (iii) applications, which deliver contact center, compliance and productivity capabilities. These layers are designed to operate together to support enterprise, contact center and service provider voice communication environments. Solutions Enterprise Business Unified Communications Our enterprise business is driven primarily by our solutions for UC and UCaaS environments. Beginning in 2020, we noted a clear shift towards UCaaS solutions as enterprises continue to migrate their IT infrastructure, in general, and UC solutions, in particular, to the cloud. We expect such trend to continue in 2026 and beyond, and consequently we plan to (a) focus on providing services and applications that add value to UCaaS solutions, and (b) ensure a smooth migration to cloud-based UC while offering operational simplicity, high quality and reliability. Our efforts in the UCaaS arena are focused on a number of key partnerships, predominantly with Microsoft, who continue to report substantial growth in the active users of their Teams UC and collaboration solution through 2025. We expect our certified support for UCaaS PSTN connectivity (including Microsoft Teams Direct Routing and Operator Connect, Webex Calling Cloud Connect and Zoom Phone Provider Exchange), our voice AI communications solutions (Voca Conversational Interaction Center, Interaction Insights call recording and Meeting Insights productivity solution), and our growing offering of audio and video devices and meeting room solutions to continue to be focus areas for us as enterprises migrate to Microsoft Teams Phone, Webex Calling and Zoom Phone. - 44 - Table of Contents We anticipate that our AudioCodes Live managed solution will continue to gain traction as enterprises look to streamline their UC operations. Consumed on a monthly subscription basis, AudioCodes Live enables enterprises to benefit from UCaaS voice calling services and add-on applications without having to make capital investments in hardware and software, and without the need for specialized, in-house technical expertise. Contact Centers The contact center industry is accelerating migration from on-premises to cloud-based Contact Center as a Service, or CCaaS. AudioCodes helps enterprises to migrate and modernize their voice infrastructure to the cloud, especially when such enterprises use a large and distributed Contact Center. We provide managed voice managed solutions and add-on voice applications that complement the CCaaS OPEX model, including Bring Your Own Carrier (BYOC) connectivity for CCaaS platforms and AI-based voice solutions. VoiceAI Business Line In the last few years, dramatic leaps forward in machine learning and AI have driven a revolution in the way enterprises boost engagement with their customers. These significant advances mean that businesses can now utilize conversational AI technologies offered by various providers to automate their customer service departments and deploy Voice AI Agents to give callers a high level of service whenever they get in touch. As voice is the most fundamental and intuitive method of conversation, we are focusing on enabling engagement of voice and telephony to various AI-based applications and implementing voice-based use cases, leveraging the investment made in AI and voice applications. We began investing in these applications in 2018, and are now seeing significant opportunities developing across various products. Accordingly, we anticipate that these applications will become a new growth engine for our business in the near- and long-term. Service Provider Business In the service provider market, our go-to-market strategy concentrates on outreach to small and medium-sized businesses (SOHO, SMB, SME) with our VoIP gateways, SBCs, Multi-Service Business Routers as well as Live Platform multi-UCaaS voice connectivity. We engage directly with service providers worldwide and supply them with our versatile range of products to suit different business scenarios. This includes support for all-IP migration (also known as POTS replacement), allowing Service Providers to migrate to IP voice communications while maintaining critical, legacy devices and systems at their customers’ premises. Additionally, Live Platform empowers service providers worldwide with scalable, secure and certified voice infrastructure, enabling seamless delivery of voice services across UCaaS solutions like Microsoft Teams, Cisco Webex and Zoom Phone. Live Platform is a multi-tenant, white-label managed SaaS solution, designed to simplify UCaaS onboarding, automate service delivery and reduce operational costs, while enabling rapid time-to-revenue and enabling new revenue streams with innovative, voice AI-enhanced services such as Voca CIC Teams contact center, Interaction Insights call recording and Meeting Insights for meeting intelligence. For service providers who wish to become certified providers of UCaaS PSTN connectivity in their own right, AudioCodes is a certified Operator Connect Accelerator partner, Webex Cloud Connect Enablement provider and a Zoom Phone Provider Exchange Accelerator, simplifying the qualification process based on Live Platform. Products Networking Our Mediant family of SBCs, media gateways (MGWs), and multi-service business routers (MSBRs) includes a range of versatile IP communications platforms that deliver seamless VoIP connectivity. Our Mediant SBCs include hardware and software platforms that offer cost-efficient, scalable SBC and hybrid SBC-MGW functionality (SIP to TDM, SIP to SIP) for enterprises, service providers and cloud deployments. Our software SBCs are cloud-native and deliver elasticity and high scale on all current major cloud platforms. SBCs are deployed at the border between the enterprise and the service provider, as well as between the networks of different service providers. Our media gateways serve as an efficient junction between VoIP networks, legacy TDM equipment and the PSTN. - 45 - Table of Contents AudioCodes MediaPack 1xx and MediaPack 5xx analog VoIP gateways are cost-effective, stand-alone VoIP devices for connecting legacy telephones, fax machines and PBX systems with IP telephony networks and IP-based PBX systems. The MediaPack 1288 is a high-density analog media gateway for organizations that need to integrate large numbers of analog devices into their new all-IP infrastructure. Our family of MSBRs offers service providers a range of all-in-one SOHO, SMB and SME routers that combine access, data, voice and security in a single device. These platforms are designed for managed data, SIP trunking, hosted PBX, and cloud-based communications services, and allow service providers to deploy flexible and cost-effective solutions. Devices AudioCodes offers a portfolio of IP phones and meeting room solutions designed to support enterprise unified communications environments. These devices are intended to provide reliable voice and collaboration capabilities across a range of deployment scenarios, including integration with cloud-based UCaaS platforms and on-premises systems. Certain devices incorporate AI-based capabilities intended to enhance audio quality, meeting experiences and device operation. AudioCodes’ 400HD series of IP phones includes a range of desktop devices designed for enterprise use across different user profiles and environments, including common areas, knowledge workers and executive users. The devices support high-definition voice communications and are designed to integrate with enterprise telephony and unified communications platforms. The IP phone portfolio includes models certified for Microsoft Teams, providing native Teams user interfaces and functionality. In addition, certain devices are certified for other unified communications platforms, including Cisco Webex Calling and Zoom Phone, enabling interoperability across multi-vendor environments. AudioCodes’ RX suite includes a combination of audio/video appliances and software components designed to support meeting room communications and collaboration. The solution supports both audio conferencing and video-enabled collaboration use cases across a range of room sizes. The RX suite includes devices and applications that integrate with unified communications platforms and is designed to support hybrid work environments where participants may join meetings from multiple locations. Certain RX devices incorporate AI-based capabilities, such as speaker tracking, noise reduction and meeting experience enhancements. Several RX products are certified under the Microsoft Teams Rooms (MTR) program, enabling integration with Microsoft Teams meeting room environments and providing access to Teams-based collaboration features. Management and Operations AudioCodes’ management and operational solutions are designed to support the deployment, monitoring and operation of enterprise voice and unified communications environments across cloud, hybrid and on-premises infrastructures. These solutions provide centralized lifecycle management and visibility across AudioCodes’ product portfolio, including SBCs, media gateways, Microsoft-certified appliances and IP phones. AudioCodes OVOC is a centralized management platform for voice network devices and services. OVOC combines device lifecycle management with voice quality monitoring and analytics, enabling administrators to configure, monitor and troubleshoot voice infrastructure from a single interface. OVOC supports ongoing network operations, including provisioning, configuration management, fault detection and performance monitoring, and is designed to assist enterprises in maintaining service quality across distributed and hybrid voice environments. - 46 - Table of Contents AudioCodes Device Manager is a lifecycle management solution for AudioCodes’ enterprise IP phones and meeting room devices. The solution enables centralized provisioning, configuration, monitoring and software updates for supported devices. Device Manager is designed to simplify the management of large-scale device deployments and assist organizations in maintaining service continuity and operational efficiency across enterprise endpoints. AudioCodes Routing Manager (ARM) is a centralized call routing management solution for multi-site and multi-vendor enterprise voice networks. ARM enables administrators to define and manage dial plans and routing policies across the network through a graphical user interface. The solution is designed to simplify the configuration and modification of routing rules, including the addition of new sites, trunks or services, and to provide consistent policy enforcement across distributed voice environments. Platforms Our platforms are built on top of our voice networking infrastructure and provide a control and orchestration layer between telephony infrastructure, unified communications platforms and AI-based applications. AudioCodes Live Platform AudioCodes Live Platform is a SaaS solution that enables service providers and partners to deliver a range of essential voice connectivity and value-added voice AI services to their business customers simply and seamlessly from the cloud. With Live Platform, service providers and partners can accelerate their enterprise customers’ migration to UCaaS solutions, such as Microsoft Teams, Cisco Webex and Zoom Phone. AudioCodes Live Platform offers certified voice connectivity for Microsoft Teams (Direct Routing and Operator Connect), Webex Calling Cloud Connect and Zoom Phone, as well as value-added voice AI applications to boost employee productivity and offer excellent customer experience. AudioCodes Live Platform provides the voice connectivity infrastructure, customer onboarding automation, user lifecycle management and tools for monitoring, reporting and analytics, to help service providers and partners to get services up and running rapidly and efficiently, with the service provider supplying the data connectivity and SIP trunk minutes. VoiceAI Connect and Live Hub AudioCodes’ VoiceAI Connect and Live Hub are designed to enable integration and orchestration of voice and AI workflows across enterprise systems. They function as communication hubs between CAIP, enterprise telephony systems and channels, LLMs and cognitive speech services (such as Speech-to-Text and Text-to-Speech), enabling building and integrating voice conversational AI solutions with existing voice communication infrastructure. Such solutions include voice virtual agents, agent assistants, conversational IVR and real time language translations. These platforms allow AudioCodes customers the flexibility to select and update the voice AI technology stack and providers and leverage its SBC expertise for seamless telephony integration. In addition, Live Hub includes native capabilities for developing and deploying AI-based agents leveraging large language models. These solutions are available as a fully managed service (VoiceAI Connect Enterprise Edition) and as a self-service multi-tenant SaaS solution (LiveHub) to support any deployment, integration or regulatory needs. Applications AudioCodes offers a wide range of value-added voice AI applications to boost productivity and ensure a superior user experience. Our applications are built on top of our platform layer and leverage voice and AI capabilities to deliver business functionality and automation. - 47 - Table of Contents Interaction Insights Interaction Insights is a SaaS-based, multitenant interaction recording solution that offers seamless updates, scalable architecture and tailored feature deployment per tenant. It is suitable for a range of recording use cases (e.g., compliance, quality assurance, training, etc.) and industries (including finance, healthcare, government and energy). It promotes data segregation and localization, with options for customers to bring their own media storage. Developed with data privacy and Security by Design, Interaction Insights supports GDPR compliance and encryption. Interaction Insights supports recording of all voice calls, video conferences, instant messaging conversations and screen-sharing sessions with powerful retrieval capabilities, AI analytics and flexible retention policies. Voca CIC AudioCodes Voca Conversational Interaction Center (CIC) is a cloud-based contact center solution designed for Microsoft Teams environments. The solution is built on Microsoft Azure Communication Services, Microsoft calling and messaging APIs and Microsoft Teams Phone extensibility, and is intended to provide integrated voice and digital customer engagement capabilities. Voca CIC enables agents to manage multiple interaction types, including voice, email, web chat and messaging channels, through a unified user interface. The solution includes capabilities such as call routing, interactive voice response (IVR), queue and workforce management, reporting and integration with third-party customer relationship management systems. The platform incorporates AI-based capabilities, including conversational IVR, virtual agents, transcription, summarization and sentiment analysis, which are designed to assist in automating interactions and providing operational insights. Supervisors can configure and manage contact center operations, including agents, queues and workflows, through administrative tools with role-based access controls. Voca CIC is offered as a cloud-based solution and may be deployed as a managed service or within a customer’s Microsoft Azure environment. The platform supports multi-tenant configurations and is designed to provide high availability and geographic redundancy. We market Voca CIC globally, with a focus on enterprises seeking to extend Microsoft Teams with contact center functionality. Meeting Insights Meeting Insights is an AI-powered enterprise solution that records, transcribes, and analyzes meetings across virtual, hybrid and in-person environments. It supports leading collaboration platforms including Microsoft Teams, Zoom and Google Meet, and is accessible via web and mobile, enabling users to capture and review meetings anytime, anywhere. The solution automatically transforms meetings into actionable outputs, including summaries, tasks, follow-up items, questions and answers, key discussion points and business insights covering meeting context, decisions and next-step guidance, as well as a “prepare-me” capability for recurring meetings. Furthermore, it supports workflows, helping teams track actions and drive execution beyond the meeting. Meeting Insights provides a centralized repository for meeting recordings and related artifacts, enabling consistent documentation, advanced search and controlled sharing across the organization. - 48 - Table of Contents The platform leverages large language models, including Azure OpenAI GPT and Anthropic Claude, to analyze meeting data and generate accurate, structured insights. It integrates with organizational systems and tools to embed meeting intelligence into existing business processes and workflows. Offered as a SaaS, multi-tenant platform, Meeting Insights is designed for scalability, data segregation, localization and optional customer-managed media storage. The platform incorporates enterprise-grade security and compliance, following a secure-by-design approach with encryption and alignment with applicable data protection regulations such as GDPR. Introduced in 2025, Meeting Insights On-Prem is a fully on-premises version of the Meeting Insights product family. Meeting Insights On-Prem is aimed at industries with strict regulation and security standards, e.g., government, security, health and financial organizations, as it runs entirely on local servers with no connection to the internet. The solution provides seamless voice connectivity with telephony systems and contact centers using AudioCodes SBC technology. Services Professional Services We provide a modular portfolio of professional services to our partners and customers around the world by delivering a complete voice network lifecycle model that is based on the three basic phases of Plan, Implement and Operate. Our professional services portfolio delivers seamless integration, high availability, and vast scalability to meet business and network demands. AudioCodes Live – Managed Service Solutions We offer a range of managed services enabling our customers to deploy complex solutions solely by relying on the knowledge of our voice experts. AudioCodes Live is a comprehensive portfolio of managed service solutions, consumed on a monthly subscription basis, that removes complexity from the deployment and operation of enterprise voice and AI communications. The portfolio includes managed SBCs as well as a broad set of UCaaS-focused services centered on Microsoft Teams Phone (including Direct Routing for BYOC, business phones and meeting room devices, Teams-certified contact center, compliance recording, and meetings productivity and intelligence) and extends to Zoom Phone and Webex Calling environments. In addition, AudioCodes Live CX provides managed services for Contact Center innovation, encompassing voice connectivity, voice conversational AI and WebRTC-based solutions. AudioCodes Live is available directly and through our global network of telecom and technology partners. - 49 - Table of Contents Sales and Marketing Our sales and marketing strategy is based on a dual go-to market approach that combines direct engagement with enterprise customers and broad reach through a global channel ecosystem. This approach is designed to drive adoption of our solutions across unified communications, contact center and voice AI environments, while enabling scalable geographic coverage. We engage directly with selected enterprise end customers, particularly for larger or more complex deployments, to identify customer requirements, support solution design and generate opportunities for new business, as well as for the expansion of existing customer relationships. Direct engagement enables us to better understand customer operational challenges and to position our solutions and services accordingly, including managed and subscription-based offerings. In parallel, we work closely with a broad channel community in our core markets, including service providers, managed service providers, system integrators and ICT resellers. Channel partners play a central role in our sales model by providing local market access, customer relationships, implementation capabilities and ongoing support. Many enterprise customers prefer or are required to procure solutions through established channel relationships, including as part of framework agreements or regulatory procurement processes, particularly in the public sector. We encourage partners to join our global partner program which offers them tools, incentives, training and content with access to a dedicated partner web portal. We select channel partners based on their market coverage, technical capabilities and ability to support sales execution, customer engagement, marketing activities and post-sales support. Our channel strategy is aligned with prevailing enterprise buying models and is designed to complement our direct sales efforts rather than replace them. For larger enterprise deployments, prospective customers and channel partners typically undertake proof-of-concept testing and technical evaluation to validate product functionality, interoperability, security and service-level requirements. As a result, sales cycles for new customers can be extended, averaging approximately six to twelve months following a design win, and in some cases longer, depending on customer approval processes, compliance requirements or customization requests. Increasing adoption of cloud-based and managed service delivery models, including through AudioCodes Live and Live Platform, has contributed to more agile and streamlined deployment processes in certain customer segments. We market our products globally, including in North America, Europe, Asia, Latin America and Israel, through a combination of direct sales resources and partner-managed sales coverage. We have invested notable resources in setting up local field sales forces to give us a strong presence in relevant markets. We generally enter into non-exclusive sales representation/distribution agreements with channel partners in each of the major countries in which we do business. Typical product agreements are for renewable 12-month terms or are terminable at will by us upon 90 days’ notice, and do not commit the customer to inventory or to any minimum sales of our products to third parties. Some of our customers have the ability to return some of the products they have previously purchased and purchase more up-to-date models. To support the cloud-based “as a service” model increasingly deployed by our customers and channel partners, we also have subscription agreements, which typically run from 12 to 36 months, delivering reliable recurring revenue on a “per user per month” basis as an increasing proportion of our business. Our marketing activities are focused on supporting demand generation and sales execution, both directly and through our channel partners. These activities include digital marketing programs, participation in industry events and conferences, media engagement and targeted campaigns aligned with our core solution areas, primarily unified communications, AI services and contact center solutions. In addition, our field marketing teams support partner-focused initiatives, including joint marketing activities, partner recruitment and enablement. Customers Our customers consist of enterprises (with direct and indirect relationships), service providers (with direct and indirect relationships), and a small percentage of OEM customers. - 50 - Table of Contents Our enterprise customers include a range of Fortune 1000 organizations, Public Sector organizations (central and local government, healthcare and education) and smaller enterprises that use our solutions to support their unified communications and contact center environments and boost customer and employee experience with our voice AI services. Our solutions are sold to enterprise customers through a wide network of resellers, integrators and distributors, and the bulk of our business is carried out in a two-tier model in over 100 countries. AudioCodes solutions and subscription services enable enterprises to smoothly migrate their communications infrastructure to cloud-based UC solutions, such as Microsoft Teams, Cisco Webex and Zoom, as well as cloud-based contact center as a service offerings (e.g., Genesys Cloud). Our sales in this segment are based on two major business offerings: (i) the traditional model, including equipment, maintenance contracts and, optionally, day-1 professional services; and (ii) a full “as-a-service” solution or managed service that includes the equipment, maintenance, day-1 and day-2 professional services. The latter offering is generally growing year-on-year as a proportion of our revenues and is designed to generate recurring revenues and profits over time. Our service provider customers include a range of tier 1, 2 and 3 service providers that deploy our solution as part of their voice, UC, SIP trunk or other offerings for their business customers. Our solutions are deployed either at the customer’s premises or at the service provider core as a white-labelled cloud-based subscription service leveraging the AudioCodes Live Platform. Typically, these services allow the service provider to provide their customers with voice connectivity and integration with UC platforms, such as Microsoft Teams, Zoom Phone, Cisco Webex, contact center as a service, conversational AI, call recording and analytics. AudioCodes’ broad range of products, advanced functionality and wide-ranging interoperability allow service providers to deploy our solutions in practically any third-party solution environment and for a wide range of customers. Our solutions have been sold to service provider customers in 100 countries. AudioCodes’ OEM customers include vendors that leverage AudioCodes’ technology and quality to deliver VoIP products and solutions. Manufacturing Some of our components are obtained from single suppliers. For example, Texas Instruments Incorporated supplies all of our DSP components, while Motorola, Intel and Cavium Networks provide embedded CPU and network processors. Other components are generic in nature, and we believe they can be obtained from multiple suppliers. We have not entered into any long-term supply agreements. However, we have worked for years in several countries with established global manufacturing leaders such as Flex and have had significant experience with their level of commitment and ability to deliver. To date, we have been able to obtain sufficient amounts of these components to meet our needs and do not foresee any supply difficulty in obtaining timely delivery of any parts or components. However, an interruption in supply from any of these sources, especially with regard to DSP components from Texas Instruments Incorporated and CPU and network processors from Cavium Networks, Intel and Motorola, or an unexpected termination of the manufacture of certain electronic components, could disrupt production, thereby adversely affecting our results. We generally maintain an inventory of critical components used in the manufacture and assembly of our products although our inventory of signal processor chips would likely not be sufficient in the event that we had to engage an alternate supplier for these components. We utilize contract manufacturing for virtually all our manufacturing processes. Most of our manufacturing is carried out by third-party subcontractors in China and Israel. Our internal manufacturing activities consist primarily of the production of prototypes, test engineering, materials purchasing and inspection, final product configuration and quality control and assurance. In addition, we have engaged several ODMs based in Asia to design and manufacture some of our products. We may engage additional ODMs in the future. Termination of our commercial relationship with an ODM or the discontinuance of manufacturing of products by an ODM would negatively affect our business operations. We are obligated under certain agreements with our suppliers to purchase goods and to purchase excess inventory. Aggregate non-cancellable obligations under these agreements as of December 31, 2025 were approximately $15 million. - 51 - Table of Contents Industry Standards and Government Regulations Our products must comply with industry standards relating to telecommunications equipment. Before completing sales in a country, our products must comply with local telecommunications standards, recommendations of quasi-regulatory authorities and recommendations of standards-setting committees. In addition, public carriers require that equipment connected to their networks comply with their own standards. Telecommunication-related policies and regulations are continuously reviewed by governmental and industry standards-setting organizations and are always subject to amendments or changes. Although we believe that our products currently meet applicable industry and government standards, we cannot be sure that our products will comply with future standards. We are subject to telecommunication industry regulations and requirements set by telecommunication carriers that address a wide range of areas including quality, final testing, safety, packaging and use of environmentally friendly components. We comply with ISO9001, ISO14001, ISO45001, ISO27001 and the European Union’s Restriction of Hazardous Substances Directive (under certain exemptions) that requires telecommunication equipment suppliers to not use some materials that are not environmentally friendly. These materials include Cadmium, Hexavalent chromium, Lead, Mercury, Polybrominated biphenyls, Polybrominatel diphenyl ethers Bis (2-ethylhexyl) phthalate, benzyl butyl phthalate, Dibutyl phthalate and Diisobutyl phthalate. We expect that other countries, including countries we operate in, will adopt similar directives or other additional directives and regulations. Competition Competition in our industry is intense and we expect competition to increase in the future. Our competitors currently sell products that provide similar benefits to those that we sell. There has been a significant amount of merger and acquisition activity, frequently involving major telecommunications equipment manufacturers acquiring smaller companies, as well as strategic alliances entered into by competitors. We expect that these activities will result in an increasing concentration of market share among these companies, many of whom are our customers. See Item 3.D, “Key Information - Risk Factors - The markets we serve are highly competitive and several of our competitors have competitive advantages over us, which may make it difficult for us to maintain profitability.” The following sets forth a list of competing vendors and providers in each of our main product and service categories: Networking Solutions In the area of enterprise session border controllers, we compete with Oracle, Ribbon Communications, and Cisco. In the area of analog, low and mid-density digital gateways, we face competition from companies such as Ribbon Communications,Cisco, Grandstream and Sangoma . Our competitors in the area of multi-service business routers are companies such as Cisco, Juniper, Adtran and One-Access (acquired by Ekinops). Our competitors in the area of call recording, compliance recording and convenience include companies such as Verint, NICE, ACS, Red Box (acquired by Uniphore), Teleware and Dubber. Our competitors in the area of VoiceAI Connect (connectivity solutions for Voice Conversational AI) include CPaaS companies, such as Twilio, open-source projects, such as Jambonz, and integrated voice gateways from Conversational AI and Contact Center vendors, such as Cognigy (acquired by NICE), Genesys and Verint. Live Hub’s competitors include CPaaS companies such as Twilio, Vonage and Telnyx, voice AI Agent platforms such as Vapi.ai, Retell.ai and Bland ai, as well as open-source projects such as Pipecat.ai and Livekit.io. Applications Our competitors in the area of Contact Center as a Service (CCaaS) include, but are not limited to, Anywhere365, Luware, Landis, ComputerTalk, Tendfor and other contact center vendors, primarily focused on the Microsoft Teams product. Our competitors in the area of applications leveraging speech recognition and conversational AI technology include companies such as Twilio, Nuance (acquired by Microsoft) and IBM, as well as Contact Center vendors such as Genesys, NICE and Five9. Some public cloud providers offer technology and services that partially overlap with ours and several smaller startup companies are also developing competing solutions. - 52 - Table of Contents Our competitors in the area of Interaction Insights, which focus mainly on compliance and quality recording in Microsoft Teams environments, include, among others, ASC, Red Box (acquired by Uniphore), Dubber, CallCabinet, Numonix, NICE and Verint. Our competitors in the area of Meeting Insights, which is focused on productivity enhancement, organization repository and sharing for meetings in Microsoft Teams, Zoom and Google Meet, include, but are not limited to, Microsoft Copilot for Teams, Zoom AI Companion and third party solutions such as Avoma, Otter, Fireflies.AI and timeOS. Devices Our principal competitors in the area of IP phones and meeting room devices are “best-of-breed” IP phone vendors and end-to-end IP telephony vendors. “Best of breed” IP phone vendors sell standards-based SIP phones that can be integrated into any standards-based IP-PBX or hosted IP telephony system. These competitors include HP Poly, Yealink, Logitech, Crestron, Neat and others. AudioCodes Live for Microsoft Teams and CCaaS Managed Services Our main competitor in the area of Live is the in-house implementation of projects (after buying products either directly or through an integrator). Competition is also exhibited in the form of system integrators, such as Converge One, NTT, OBS and BT, among several others, in various sizes, locations and specialties. Some of our competitors have the ability to offer vendor-sponsored financing programs to customers. Those with broad product portfolios may also be able to offer lower prices on products that compete with ours because of their ability to recoup a loss of margin through sales of other products or services. Additionally, voice, audio and other communications alternatives that compete with our products are constantly being introduced. Our competitors in content delivery or connectivity platforms, as well as Operator Connect Accelerator, Zoom Exchange providers and WebEx Cloud Connect Enablement, include: (i) SIPPIO; (ii) DSTNY Group; (iii) Nuwave; and (iv) CallTower. Some of our competitors are also customers of our products and technologies. In the future, we may also develop and introduce other products or services with new or additional telecommunications capabilities or services. As a result, we may compete directly with VoIP companies, system integrators, VARs and other telecommunications infrastructure and solution providers, some of which may be our current customers. Additional competitors may include companies that currently provide communication software products and services. The ability of some of our competitors to bundle other enhanced services or complete solutions with VoIP products could give these competitors an advantage over us. Intellectual Property and Proprietary Rights Our success is dependent in part upon proprietary technology. We rely primarily on a combination of patent, copyright and trade secret laws, as well as confidentiality procedures and contractual provisions, to protect our proprietary rights. We also rely on trademark protection concerning various names and marks that serve to identify us and our products. While our ability to compete may be affected by our ability to protect our intellectual property, we believe that because of the rapid pace of technological change in our industry, maintaining our technological leadership and our comprehensive familiarity with all aspects of the technology contained in our signal processors and communication boards is also significant to our success. We own U.S. patents that relate to our technologies. We also actively pursue patent protection in selected other countries of interest to us. In addition to patent protection, we seek to protect our proprietary rights through unregistered copyright protection and through restrictions on access to our trade secrets and other proprietary information which we impose through confidentiality agreements with our customers, suppliers, employees and consultants. - 53 - Table of Contents There are a number of companies besides us who hold or may acquire patents for various aspects of the technology incorporated in the ITU’s standards or other industry standards or proprietary standards, for example, in the fields of wireless and cable. While we have obtained cross-licenses from some of the holders of these other patents, we have not obtained a license from all of the holders. The holders of these other patents from whom we have not obtained licenses may take the position that we are required to obtain a license from them. Companies that have submitted their technology to the ITU (and generally other industry standards making bodies) for adoption as an industry standard are required by the ITU to undertake to agree to provide licenses to that technology on reasonable terms. Accordingly, we believe that even if we were required to negotiate a license for the use of such technology, we would be able to do so at an acceptable price. Similarly, third parties who also participate with respect to the same standards-setting organizations as do we may be able to negotiate a license for use of our proprietary technology at a price acceptable to them, but which may be lower than the price we would otherwise charge. Third parties have claimed, and from time to time in the future may claim, that our past, current or future products infringe their intellectual property rights. Intellectual property litigation is complex and there can be no assurance of a favorable outcome of any litigation. Any future intellectual property litigation, regardless of outcome, could result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Litigation could also disrupt or otherwise severely impact our relationships with current and potential customers as well as our manufacturing, distribution and sales operations in countries where relevant third-party rights are held and where we may be subject to jurisdiction. An adverse determination in any proceeding could subject us to significant liabilities to third parties, require disputed rights to be licensed from such parties, assuming licenses to such rights could be obtained, or require us to cease using such technology and expend significant resources to develop non-infringing technology. We may not be able to obtain a license at an acceptable price. In the past, we have entered into technology licensing fee agreements with third parties. Under these agreements, we agreed to pay these third parties royalties, based on sales of relevant products. C. ORGANIZATIONAL STRUCTURE AudioCodes Ltd. is the parent company of a group that consists of AudioCodes Ltd. and 19 subsidiaries worldwide. AudioCodes Inc., our wholly-owned U.S. subsidiary incorporated in Delaware, is a significant subsidiary based in Piscataway, New Jersey. D. PROPERTY, PLANTS AND EQUIPMENT In November 2022, we entered into a new lease agreement in Park Naimi, which is located in Or Yehuda near Messubim Junction in Israel, or the New Lease Agreement. The New Lease Agreement replaced the previous lease agreement of our main offices in Israel. Pursuant to the New Lease Agreement, we lease from the landlord an approximately 10,500 square meters facility, or the Premises. The lease of the Premises commenced in July 2023. The initial lease term under the New Lease Agreement is for seven years. Additionally, we hold options under the New Lease Agreement to extend the lease term for additional periods of five years. In June 2023, we entered into a new lease agreement in Or Yehuda, or the Or Yehuda Warehouse Lease, which commenced in 2023. The Or Yehuda Warehouse Lease replaces the previous lease agreement of our warehouse in Israel. Pursuant to the Or Yehuda Warehouse Lease, we leased from the landlord an approximately 1,128 square meter facility. The initial lease term under the Or Yehuda Warehouse Lease is for six years, commencing upon the transfer of possession of the Premises (as defined in the Or Yehuda Warehouse Lease). We additionally hold options under the Or Yehuda Warehouse Lease to extend the lease term for two additional periods of up to 10 years. We also lease offices in Beer Sheva, Israel, or the Beer Sheva Lease. The annual lease payments in 2025 (including management fees) for the Beer Sheva Lease was approximately $0.4 million. - 54 - Table of Contents Our U.S. subsidiary, AudioCodes Inc., leased an approximately 14,706 square foot facility in Piscataway, New Jersey, or the New Jersey Lease, on May 13, 2022. AudioCodes Inc. also leases offices in Morrisville, North Carolina, or the North Carolina Lease. The annual lease payments in 2025 (including management fees) for all our offices in the United States were approximately $0.5 million. We lease additional offices for our international offices; however, we do not believe the lease agreements for these offices are material. We believe that these properties are sufficient to meet our current needs. However, we may need to increase the size of our current facilities, seek new facilities, close certain facilities or sublease portions of our existing facilities in order to address our needs in the future. ITEM 4.A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. These accounting principles require management to make certain estimates, judgments and assumptions, based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the years presented. Our management has reviewed our critical accounting policies and related disclosures with our Audit Committee. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report, which contains additional information regarding our accounting policies and other disclosures required by U.S. GAAP. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management believes the significant accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements and are the most critical to aid in fully understanding and evaluating our reported financial results include the following: ● Revenue recognition; ● Inventories; - 55 - Table of Contents The extent of the impact of current macroeconomic conditions, including, but not limited to, rising inflation, an overall global economic slowdown and the ongoing conflicts in Ukraine, the Middle East and Iran, on our business, financial condition and results of operations will depend on future developments, which are highly uncertain at this time. Accordingly, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply certain of our significant accounting policies. Revenue Recognition We generate our revenues primarily from the sale of software licenses, equipment, and related services through a direct sales force and sales representatives. Our products are delivered to our customers, which include original equipment manufacturers, or OEMs, network equipment providers, systems integrators, enterprises, carriers and distributors in the telecommunications and networking industries, all of whom are considered end-users. Revenues are recognized in accordance with Accounting Standards Codification, or ASC, 606, “Revenue from Contracts with Customers.” As such, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when (or as) we satisfy its performance obligations. We enter into contracts that can include combinations of products and services that are capable of being distinct and accounted for as separate performance obligations. The software licenses and equipment are distinct as the customer can derive the economic benefit of it without any additional services. We also provide professional services, support and maintenance services, which are accounted for as separate performance obligations. We allocate the transaction price to each performance obligation, based on its relative standalone selling price out of the total consideration of the contract. To the extent the transaction price includes usage-based fees, variable fees are generally recognized when the subsequent usage occurs or using the variable consideration allocation exception. Software license and equipment revenues are recognized at the point of time when control is transferred. Revenues from maintenance and support services are generally recognized ratably over the term of the contract, as the services have a consistent pattern of transfer to the customer during the contract period. Revenues from professional services are recognized over time based on the method that best depicts the transfer of services to the customer, generally using an input method, based on labor hours consumed or ratably, when professional services have a consistent pattern of transfer to the customer. If the standalone selling price is not observable, we estimate the standalone selling price taking into account reasonably available information. The estimated selling price is established considering multiple factors such as historical selling prices, internal pricing practices, gross margin objectives and discount policy. We typically bill customers based on actual delivery. The payment terms vary, mainly with terms of 60 days or fewer. Revenue is recognized net of any taxes collected from customers which are subsequently remitted to the tax authorities. We elected to account for shipping and handling activities as fulfillment activities. Shipping and handling activities are classified as part of the cost of revenues. We grant certain customers a right of return or the ability over a limited period to exchange for other products a specific percentage of the total price paid for products they have purchased. We maintain a provision for product returns and exchanges and other incentives, based on our experience with historical sales returns, analysis of credit memo data and other known factors, all in accordance with ASC 606. This provision is deducted from revenues and amounted to approximately $2.2 million and $1.7 million as of December 31, 2025 and 2024, respectively. This provision was recorded as part of other payables and accrued expenses. In instances of contracts where revenue recognition differs from the timing of invoicing, we generally determined that those contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive or provide financing. We use the practical expedient and do not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less. Deferred revenues include amounts invoiced to customers for which revenue has not yet been recognized. Deferred revenues are recognized as (or when) we perform the performance obligations under the contract. - 56 - Table of Contents Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the “weighted average cost” method for raw materials and finished products with the addition of direct manufacturing cost. We periodically evaluate the quantities on hand relative to current and historical selling prices and historical and projected sales volume and technological obsolescence. Based on these evaluations, inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued product lines and market prices lower than cost. During the years ended December 31, 2025, 2024 and 2023, we wrote off inventory in the aggregate amount of approximately $3.3 million, $4.8 million and $1.1 million, respectively. Recently Issued and Adopted Accounting Pronouncements See Note 2ab to our consolidated financial statements included elsewhere in this Annual Report. New Accounting Pronouncements Not Yet Effective See Note 2ac to our consolidated financial statements included elsewhere in this Annual Report. A. OPERATING RESULTS You should read this discussion with the consolidated financial statements and other financial information included in this Annual Report. Overview AudioCodes is a leading vendor of advanced communications software, products and productivity solutions for the digital workplace. Our products are deployed on-premises or delivered from the cloud. Providing software communications, cloud-based platforms, customer premise equipment and software applications, our solutions and products are geared to meet the growing needs of enterprises and service providers realigning their operations towards the transition to all-IP networks and hosted unified communications and collaboration business services. In addition, we offer a complete suite of professional and managed services that allow our partners and customers to choose a service package (or complement their own offering) from a modular portfolio of professional services. Our products are deployed globally in enterprise and service provider cloud networks. Our products include session border controllers, or SBC, life cycle management solutions, VoIP network routing solutions, media gateways, multi-service business routers, IP phones, value-added applications (such as Voca CIC and Meeting Insights) and professional services. Our high-definition VoIP technologies and products provide enhanced intelligibility and a better end user experience in emerging voice communications services. We have tens of millions of SBC, media gateway and media server sessions deployed in over 100 countries across the globe. Our high availability platforms cover the spectrum of low, mid and high-density applications for service providers and large enterprises. With over 25 years in the telecommunications market, we offer a broad range of solutions and services for both enterprise and service provider deployments. These solutions are built around our field-proven VoIP product range. Our VoIP technology contains voice quality enhancements and best-of-breed VoIP network elements and applications and has a proven track record in product and network interoperability with the industry’s leading companies. With full support for industry standard protocols such as SIP, and proven interoperability with industry leading soft switches, private branch exchanges, or PBXs, IP-PBXs, unified communications and contact center platforms, we deliver innovative solutions for virtually any voice communications environment, offering reduced total cost of ownership, enhanced features, and superior voice quality. We have invested significant development resources in complying with Microsoft’s requirements for the purpose of becoming a Microsoft recognized partner for their unified communication solutions for the enterprise market, which are known as Microsoft Skype for business and Microsoft Teams. We have adapted some of our gateway products, IP phones, session border controllers, survivable branch applications, value-added applications and professional services to operate in the Microsoft Skype for business and Microsoft Teams environment. Our products to the Skype for Business and Microsoft Teams Unified Communications market are sold primarily to our channel partners. We offer a comprehensive professional services program intended to provide responsive, preventive, and consultative support of our networking products. Our professional services support networking devices, applications and infrastructures, allowing large organizations and service providers to realize the potential of a high-performance multi-service network. Our headquarters and research and development facilities are located in Israel with research and development extensions in the U.S. and China. We have other offices located in Europe, Asia, Latin America and Australia. - 57 - Table of Contents Historically, a substantial portion of our revenue has been derived from large purchases by a limited number of OEMs, NEPs, systems integrators and distributors. Westcon Group, our largest customer, accounted for approximately 13.8%, 13.3% and 16.3% of our revenues in the years ended December 31, 2025, 2024 and 2023, respectively. In addition, ScanSource Communications Group accounted for approximately 9.3%, 11.7% and 10.3%, of our revenues in the years ended December 31, 2025, 2024 and 2023, respectively. Our top five customers accounted for approximately 36.1%, 38.2%, 39.2% of our revenues in the years ended December 31, 2025, 2024 and 2023, respectively. If we lose a large customer and fail to add new customers to replace the associated lost revenue, or the revenue derived from any such customers materially decreases, our operating results may be materially adversely affected. Revenues, based on the location of our customers for the last three fiscal years, are as follows: Year Ended December 31, 2025 2024 2023 Americas, principally the United States 52.1 % 51.7 % 51.7 % Eastern Asia 13.9 13.5 14.5 Europe 31.8 31.6 32.3 Israel 2.2 3.2 1.5 Total 100.0 % 100.0 % 100.0 % Beyond repeated business from distributors and service providers, we believe that prospective customers are generally required to make a significant commitment of resources to test and evaluate our products and to integrate them into their larger systems. Our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new communications equipment. For these reasons, the sales cycles of our products to new customers are often lengthy, averaging approximately six to twelve months. As a result, we may incur significant selling and product development expenses prior to generating revenues from sales. The currency of the primary economic environment in which our operations are conducted is the dollar and, as such, we use the dollar as our functional currency. Transactions and balances originally denominated in dollars are presented at their original amounts. All transaction gains and losses from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate. The demand for VoIP technology has increased during recent years. In recent years, the shift from traditional circuit-switched networks to next generation packet-switched networks continued to gain momentum. As data traffic becomes the dominant factor in communications, service providers are building and maintaining converged networks for integrated voice and data services. In developed countries, traditional and alternative service providers have adopted bundled triple play (voice, video and data) and quadruple play (voice, video, data and mobile) offerings. This trend, enabled by voice and multimedia over IP, has fueled competition among cable, wireline, ISP and mobile operators, increasing the pressure for adopting and deploying VoIP networks. In addition, underdeveloped markets without basic wire line service in countries such as China and India and certain countries in Eastern Europe are adopting the use of VoIP technology to deliver voice and data services that were previously unavailable. The general economic uncertainty, including disruptions in the world credit and equity markets, has had and continues to have a negative impact on business around the world. This economic environment has had an adverse impact on the technology industry and our major customers. Conditions may continue to be uncertain or may be subject to deterioration which could lead to a reduction in consumer and customer spending overall, which could have an adverse impact on sales of our products. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in their orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity. In addition, any disruption in the ability of customers to access liquidity could lead customers to request longer payment terms from us or long-term financing of their purchases from us. Granting extended payment terms or a significant adverse change in a customer’s financial and/or credit position could also require us to assume greater credit risk relating to that customer’s receivables or could limit our ability to collect receivables related to purchases by that customer. As a result, our allowance for credit losses and write-offs of accounts receivable could increase. - 58 - Table of Contents Ongoing Conflict in Ukraine In February 2022, Russia launched a large-scale invasion of Ukraine, and Russia and Ukraine continue to engage in active and armed conflict. The extensive sanctions against Russia, established by the United States, the European Union, the United Kingdom, and other allied nations in response to the conflict in Ukraine, continue to create significant compliance obligations and geopolitical uncertainty. Any failure to comply with these complex and changing regulations could result in fines, civil, and criminal sanctions or investigations against us or our employees, prohibitions on the conduct of our business, and damage to our reputation, which could have an adverse effect on our business, financial condition, and results of operations. While it is not possible to predict or determine the ultimate consequences and impact of the conflict in Ukraine, such conflict could result in, among other things, significant regional instability and geopolitical shifts, and material and adverse effects on global macroeconomic conditions, financial markets, exchange rates, and supply chains. To the extent negotiations between Russia and Ukraine are ultimately unsuccessful, the conflict in Ukraine could have a lasting impact in the near- and long-term on the financial condition, business, and operations of our business (and the businesses of the counterparties with whom we engage), and the global economy at large. See Item 3.D, “Key Information - Risk Factors - The ongoing conflict in Ukraine, including the actual (or perceived threat of an) expansion or exacerbation of such conflict, and the actions undertaken by western nations (and their allies) in response to Russia’s actions, has resulted, and could continue to result in, significant impacts on the global markets for the foreseeable future.” Ongoing Wars and Regional Hostilities Since October 2023, Israel has been engaged in a series of wars with Hamas, Hezbollah and Houthi terrorists and with Iran. Iran and the terrorist organizations it sponsors have utilized, and are continuing to use, terror, rocket and drone attacks, which target locations throughout Israel and cause substantial disruption and damage. Such attacks could have a material and adverse impact on our business, operations and financial condition. Additionally, both Iran and the Houthis have launched attacks on marine vessels traversing international waterways, affecting international shipping. In 2025, sales to customers in Israel accounted for less than 3% of our total revenues. To date, none of our main facilities or infrastructure in Israel have been damaged nor has our supply chains been significantly impacted since October 2023. However, we cannot predict the ultimate effect that the ongoing war and hostilities will have on us, including our supply chain and our ability to ship products from Israel, and any increase in these hostilities or any future armed conflict, political instability or violence in the region. Additionally, some of our officers and employees in Israel have been called up to military reserve duty, and some of our employees live within conflict areas and may be forced to stay at home instead of reporting to work. If many of our employees are called for active duty, or forced to stay at home, our operations in Israel and our business may be materially and adversely affected. We cannot predict the full impact of the various wars in which Israeli is engaged on us in the future, particularly if emergency circumstances or geopolitical tensions continue, any aspect of which could have a material adverse effect on our business, financial position, operating results and cash flows. To the extent that the ongoing wars materially and adversely affect our business and financial results, such may also have the effect of heightening many of the other risks described in Item 3.D, “Key Information - Risk Factors.” - 59 - Table of Contents Results of Operations The following table sets forth the results of operations in dollars and as a percentage of total revenues for the periods indicated: Year ended December 31, 2025 2024 % of % of Amount Revenues Amount Revenues Revenues: Products $ 114,911 46.8 % $ 111,966 46.2 % Services 130,693 53.2 130,210 53.8 Total revenues 245,604 100.0 242,176 100.0 ​ ​ Cost of revenues: ​ ​ Products 44,197 18.0 44,448 18.4 Services 41,775 17.0 39,567 16.3 Total cost of revenues 85,972 35.0 84,015 34.7 Gross profit 159,632 65.0 158,161 65.3 Operating expenses: ​ ​ Research and development, net 52,591 21.4 52,125 21.5 Selling and marketing 77,242 31.4 71,167 29.4 General and administrative 15,760 6.4 17,678 7.3 Total operating expenses 145,593 59.3 140,970 58.2 Operating income 14,039 5.7 17,191 7.1 ​ ​ Financial expenses, net (461 ) (0.19 ) (2,095 ) (0.9 ) Income before taxes on income 13,578 5.5 15,096 6.2 ​ ​ Tax benefits (Taxes on income) (4,623 ) 1.9 215 0.1 Net income $ 8,955 3.6 % $ 15,311 6.3 % Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Revenues. Revenues increase by 1.4% to $245.6 million in the year ended December 31, 2025, from $242.2 million in the year ended December 31, 2024. Our revenues from sales of products in the year ended December 31, 2025 increased by 2.6% to $114.9 million, or 46.8% of total revenues, from $112.0 million, or 46.2% of total revenues, in the year ended December 31, 2024. The increase in revenue from product sales was primarily attributable to a stable demand for our core connectivity products, including gateways, SBCs, and IP phones. In addition, certain managed services engagements generated incremental demand for our products. Our revenues from sales of services in the year ended December 31, 2025 increased by 0.4% to $130.7 million, or 53.2% of total revenues, from $130.2 million, or 53.8% of total revenues, in the year ended December 31, 2024. The increase in revenues from sales of services was primarily driven by the growth of our professional and managed services offerings. Product support services revenues decreased by approximately 5%, primarily due to reduced reliance on legacy telephony equipment as customers shift to alternative technologies, as well as a transition by customers to cloud-based subscription models that provide end-to-end services rather than ongoing maintenance of on-premises equipment. The growth in sales of professional services was attributable to offering more managed services with larger contract value as part of our AudioCodes Live offering and a broader portfolio of professional services offered by us and an increase in demand for such services in the Enterprise UC market, mainly Microsoft Teams. - 60 - Table of Contents Cost of Revenues and Gross Profit. Cost of revenues includes the cost of hardware and associated tariff costs, quality assurance, rent, overhead related to professional and support customer services, overhead related to manufacturing activity, technology licensing and royalty fees payable to third parties. Gross profit increased to $159.6 million in the year ended December 31, 2025, from $158.2 million in the year ended December 31, 2024. Gross profit as a percentage of total revenues was 65.0% in the year ended December 31, 2025, compared to 65.3% in the year ended December 31, 2024. Expenses included in cost of revenues related to share-based compensation were $0.4 million in each of the years ended December 31, 2025 and 2024. Cost of revenues related to sales of products decreased by 0.6% to $44.2 million in the year ended December 31, 2025, from $44.4 million in the year ended December 31, 2024. Gross margin percentage from products was 61.5% in the year ended December 31, 2025, compared to 60.3% in the year ended December 31, 2024. The higher product gross margin in 2025 was driven by more favorable product mix, partially offset by higher tariff expenses incurred. Cost of revenues related to sales of services in the year ended December 31, 2025 increased by 5.6% to $41.8 million, from $39.6 million in the year ended December 31, 2024. This increase is primarily attributable to higher support personnel expenses associated with providing services and implementation of our products with service providers as well as enterprise customers. In the year ended December 31, 2025, the gross margin percentage from sales of services decreased to 68.0%, from 69.6% in the year ended December 31, 2024. Research and Development Expenses, Net. Research and development expenses, net, consist primarily of salaries and related costs of employees engaged in ongoing research and development activities, development-related raw materials, cost of subcontractors and rent, less grants from the IIA. Research and development expenses increased by 0.9% in the year ended December 31, 2025 to $52.6 million, from $52.1 million in the year ended December 31, 2024. As a percentage of total revenues, research and development expenses, net decreased to 21.4% in the year ended December 31, 2025, from 21.5% in the year ended December 31, 2024. The increase on an absolute basis is primarily due to an increase in cloud expenses. In the year ended December 31, 2025, expenses included in research and development expenses related to share-based compensation were $1.5 million, compared to $2.1 million in the year ended December 31, 2024. IIA grants recognized were $0.0 million in the year ended December 31, 2025, compared to $0.1 million in the year ended December 31, 2024. Selling and Marketing Expenses. Selling and marketing expenses consist primarily of salaries and related costs (including sales commissions) of sales and marketing personnel, as well as exhibition, rent, travel and related expenses. Selling and marketing expenses increased by 8.5% in the year ended December 31, 2025 to $77.2 million, from $71.2 million in the year ended December 31, 2024. As a percentage of total revenues, selling and marketing expenses increased to 31.4% in the year ended December 31, 2025, from 29.4% in the year ended December 31, 2024. The increase on an absolute basis is primarily due to an increase in payroll expenses. In the year ended December 31, 2025, expenses included in selling and marketing expenses related to share-based compensation were $2.3 million, compared to $3.0 million in the year ended December 31, 2024. General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related costs of finance, human resources and general management personnel, rent, network and allowance for credit losses, as well as insurance and consultant services expenses. General and administrative expenses decreased by 10.8% to $15.8 million in the year ended December 31, 2025, from $17.7 million in the year ended December 31, 2024. As a percentage of total revenues, general and administrative expenses decreased to 6.4% in the year ended December 31, 2024, from 7.3% in the year ended December 31, 2024. The decrease on an absolute basis is primarily due to a one-time, non-recurring expense attributable to a settlement agreement entered into with the landlord of our prior headquarters in the year ended December 31, 2024 in connection with the termination of the related lease agreement. In addition, in the year ended December 31, 2025, expenses included in general and administrative expenses related to share-based compensation were $2.3 million compared to $2.8 million in the year ended December 31, 2024. Financial Expenses, Net. Financial expenses, net consists primarily of bank charges, exchange rate differences, and amortization of marketable securities premiums and accretion of discounts, net, net of interest earned on cash and cash equivalents, marketable securities and bank deposits and gains from financial investments. Financial expense, net, in the year ended December 31, 2025 was $0.5 million, compared to $2.1 million in the year ended December 31, 2024. The decrease in financial expenses, net in the year ended December 31, 2025 was primarily due to exchange rate fluctuations. (Taxes on Income) Tax Benefit. Taxes on income in the year ended December 31, 2025 were $4.6 million, compared to tax benefit of $0.2 million in the year ended December 31, 2024. The income tax expenses in 2025 were primarily driven by a decrease in deferred tax assets, as well as an increase in taxable income of certain subsidiaries. The tax benefit reflected the release of a valuation allowance in 2024, resulting in a significantly lower income tax expense in 2024 compared to 2025. - 61 - Table of Contents A discussion with respect to a comparison of the results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023 is contained under the heading “Results of Operations” in Item 5 of our Annual Report on Form 20-F for the year ended December 31, 2024, or the 2024 Form 20-F, filed with the SEC on March 26, 2025. Impact of Inflation, Devaluation and Fluctuation of Currencies on Results of Operations, Liabilities and Assets Since the majority of our revenues are denominated in or linked to the dollar, we believe that inflation and fluctuations in the NIS/dollar exchange rate have no material impact on our revenues. However, most of the costs of our Israeli operations, mainly personnel and facility-related, is incurred in NIS. Inflation in Israel and dollar exchange rate fluctuations have some influence on our expenses and, as a result, on our net income. Our NIS costs, as expressed in dollars, are influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation or appreciation of the NIS in relation to the dollar. To protect against the changes in value of forecasted foreign currency cash flows resulting from payments in NIS, we maintain a foreign currency cash flow hedging program. We hedge portions of our forecasted expenses denominated in foreign currencies with forward contracts. These measures may not adequately protect us from material adverse effects due to the impact of inflation in Israel. Rising inflation in the United States and other markets in which we operate (or derive revenue) may impact the economy and ultimately the demand for our products and services. See Item 3.D, “Key Information - Risk Factors - High rates of global inflation and the occurrence of a recession could have a material and adverse impact on our business, results of operations and financial condition” for further information regarding the risks associated with such inflation. The following table presents information about the rate of inflation in Israel, the rate of devaluation of the NIS against the dollar, and the rate of inflation in Israel adjusted for the devaluation: Israeli inflation NIS devaluation or (appreciation) Israeli inflation adjusted for devaluation or rate rate (appreciation) Year Ended December 31, % % % 2025 2.6 (12.5 ) (15.2 ) 2024 3.2 0.6 (2.7 ) 2023 3.0 3.1 0.1 B. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations for the last three years primarily from our cash and cash equivalents, bank deposits and cash generated by operating activities. Our cash requirements have principally been for working capital and capital expenditures. Historically, we have financed our working capital requirements, primarily from sales of our products and services. We plan to continue to finance our working capital in the future primarily through sales of our products and services. Our future capital requirements will depend on many factors, including our growth rate, continuing market acceptance of our products and services, customer retention, our ability to gain new customers, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities and personnel, the introduction of new and enhanced offerings, and the impact of changes to the global economy, among other factors. As of December 31, 2025, we had $72.9 million in cash and cash equivalents, short-term bank deposits, short-term marketable securities, a decrease of $18.0 million from $90.9 million as of December 31, 2024. As compared to December 31, 2024, the overall decrease in our cash and cash equivalents, short-term bank deposits, short-term and long-term marketable securities in the year ended December 31, 2025, was principally driven by repurchases of our ordinary shares in the aggregate amount of $30.6 million, cash dividends paid in the aggregate amount of $10.9 million, which was partially offset by cash generated by operating activities in the amount of $29.4 million. - 62 - Table of Contents Our material cash requirements from known contractual and other obligations include our lease commitments and purchase commitments. For additional information on the foregoing lease commitments and purchase commitments, see Note 9 and Note 10a to our consolidated financial statements included elsewhere in this Annual Report. Share Repurchase Program and Cash Dividends In July 2024, December 2024, July 2025 and October 2025, we received court approval to purchase up to $20.0 million, $20.0 million, $20.0 million and $25.0 million of our ordinary shares, respectively. The most recent court approvals allowed us to use the approved amounts for share repurchases or cash dividends. The Israeli court generally limits its approval to six months from the date of application. As a result, although the program does not have a set end date, it requires renewal every six months by submitting a new court application, based on the then prevailing facts. Share purchases have and will take place in open market transactions or in privately negotiated transactions and may be made, from time to time, depending on market conditions, share price, trading volume or other factors. The repurchase program does not require us to purchase a specific number of shares and may be suspended from time to time or discontinued. During the year ended December 31, 2025, we acquired an aggregate of 3,150,361 of our ordinary shares for approximately $30.6 million, and declared and paid cash dividends in the aggregate amount of $10.9 million. During the year ended December 31, 2024, we acquired an aggregate of 1,385,632 of our ordinary shares for approximately $14.3 million, and declared and paid a cash dividend in the aggregate amount of $10.9 million. In February 2026, we declared a cash dividend in the aggregate amount of approximately $5.3 million which was paid on March 6, 2026. As of March 10, 2026, we had approximately $5.5 million available for share repurchases or dividends under the most recent court approval granted in October 2025. The current approval is valid through April 27, 2026. Cash Flows from Operating Activities Our operating activities are driven by sales of our products and services, less costs and expenses, primarily payroll and related expenses, and adjusted for certain non-cash items, mainly depreciation and amortization, share-based compensation, amortization of deferred commissions, non-cash operating lease costs, amortization of premium and accretion of discount on marketable securities, and changes in operating assets and liabilities. Our operating activities provided cash in the amount of $29.4 million in the year ended December 31, 2025, as compared to the amount of $35.3 million in the year ended December 31, 2024. The changes to cash provided by our operating activities in the year ended December 31, 2025, as compared to the year ended December 31, 2024, were principally the result of (i) the period-over-period change in the amount of inventory, which decreased by $9.3 million in the year ended December 31, 2025, as compared to a decrease of $12.3 million in the year ended December 31, 2024, mainly attributable to inventory allowance related to obsolete inventory; however, the level of write-downs recorded in the year ended December 31, 2025 was lower than those recognized in the year ended December 31, 2024; (ii) the year-over-year change in trade receivables, which increased by $8.7 million in the year ended December 31, 2025, as compared to $3.8 million in the year ended December 31, 2024, which was the result of entering into several contracts with customers close to the date of the reporting year; (iii) net income in the amount of $9.0 million in the year ended December 31, 2025, as compared to $15.3 million in the year ended December 31, 2024, due in large part to the factors listed in “Operating Activities” above; and (iv) the year-over-year change in other receivables and prepaid expenses, which increased overall by $6.1 million in the year ended December 31, 2025, as compared to $3.6 million in the year ended December 31, 2024, due to the changes in the fair value of derivative instruments, which was offset by (x) the year-over-year change in other payables and accrued expenses which increased overall by $9.5 million in the year ended December 31, 2025, as compared to $3.2 million in the year ended December 31, 2024, due to a reduction in outstanding liabilities in the year ended December 31, 2024 and (y) the year-over-year change in deferred tax assets, net which decreased overall by of $1.7 million in the year ended December 31, 2025, as compared to an increase of $4.5 million in the year ended December 31, 2024, mainly due to the utilization of net operating loss carryforwards and changes in temporary differences. There were no changes to our overall strategy with respect to our customer collections, vendor payments, and inventory management for the years discussed. Our collections are dependent on the magnitude of our revenues and the payment terms we grant to our customers from time to time. Our purchase of inventory is dependent on our expected revenue volume and overall product mix. In accordance with our overall strategy, where our service revenue increases, our inventory purchases will generally decrease. In addition, our inventory purchases are generally dependent upon global supply and demand trends with respect to the components we need for our products. - 63 - Table of Contents Our operating activities provided cash in the amount of $35.3 million in the year ended December 31, 2024, as compared to the amount of $14.9 million in the year ended December 31, 2023 The changes to cash provided by our operating activities in the year ended December 31, 2024, as compared to the year ended December 31, 2023, were principally the result of (i) the year-over-year change in the amount of inventory, which decreased by $12.3 million in the year ended December 31, 2024, as compared to an increase of $7.8 million in the year ended December 31, 2023, which was the result of less inventory purchases undertaken by us due to an easing in supply chain conditions during the year ended December 31, 2024; (ii) the year-over-year change in other payables and accrued expenses which increased overall by $3.2 million in the year ended December 31, 2024, as compared to a decrease of $6.2 million in the year ended December 31, 2023, due to a reduction in outstanding liabilities in the year ended December 31, 2024; and (iii) net income in the amount of $15.3 million in the year ended December 31, 2024, as compared to $8.8 million in the year ended December 31, 2023, due in large part to the factors listed in “Operating Activities” above, which was offset by (x) the year-over-year change in trade receivables, which increased by $3.8 million in the year ended December 31, 2024, as compared to a decrease of $1.6 million in the year ended December 31, 2023, which was the result of entering into several contracts with customers close to the date of the reporting year, (y) the year-over-year change in deferred tax assets, net which increased overall by $4.5 million in the year ended December 31, 2024, as compared to a decrease of $1.4 million in the year ended December 31, 2023, due to the creation of deferred tax assets, and (z) the year-over-year change in other receivables and prepaid expenses which increased overall by of $3.6 million in the year ended December 31, 2024, as compared to a decrease of $0.6 million in the year ended December 31, 2023, due to the changes in the fair value of derivative instruments. There were no changes to our overall strategy with respect to our customer collections, vendor payments and inventory management for the years discussed. Cash Flows from Investing Activities Our investing activities consist primarily of the purchase of property and equipment, including leasehold improvements, purchase and sale of deposits and changes in our marketable securities. In the future, we expect to continue to incur capital expenditures to support our expanding operations. In the year ended December 31, 2025, our investing activities used cash in the amount of $1.5 million, as compared to the cash provided by investing activities in the amount of $17.8 million in the year ended December 31, 2024. The amounts used by investing activities in the year ended December 31, 2025 were primarily as a result of purchase of property and equipment in the amount of $6.5 million, which was partially offset by a proceeds of $5.5 million derived from the redemption of marketable securities and of financial investments. More specifically, the change to cash used by our investing activities in the year ended December 31, 2025, as compared to the year ended December 31, 2024, was principally the result of decrease in sale of marketable securities in the year ended December 31, 2025 compared to the prior year, partially offset by decrease in purchase of property and equipment compared to the year ended December 31, 2024. In the year ended December 31, 2024, our investing activities provided cash in the amount of $17.8 million, as compared to the cash provided by investing activities in the amount of $20.0 million in the year ended December 31, 2023. The amounts provided by investing activities in the year ended December 31, 2024, were primarily as a result of proceeds of $42.6 million derived from the sale and redemption of marketable securities, which was partially offset by a $24.3 million purchase of property and equipment. More specifically, the change to cash provided by our investing activities in the year ended December 31, 2024, as compared to the year ended December 31, 2023, were principally the result of proceeds from sale of marketable securities, partially offset by an increase of purchase of property and equipment related to the transition to our new headquarters and production facility and decrease of financial investments. - 64 - Table of Contents Financing Activities In the year ended December 31, 2025, we used $41.3 million of cash in financing activities, as compared to $24.9 million in the year ended December 31, 2024, primarily as a result of $30.6 million used to repurchase our ordinary shares and $10.9 million used to pay cash dividends to our shareholders, partially offset by $0.3 million of proceeds from the issuance of our ordinary shares upon exercise of stock options (which stock options were exercised in the ordinary course by our option holders). More specifically, the changes to cash used in our financing activities in the year ended December 31, 2025, as compared to the year ended December 31, 2024, was principally the result of notably higher repurchases of our ordinary shares in terms of overall cash spent. In the year ended December 31, 2024, we used $24.9 million of cash in financing activities, as compared to $28.9 million in the year ended December 31, 2023, primarily as a result of $14.3 million used to repurchase our ordinary shares and $10.9 million used to pay cash dividends to our shareholders, partially offset by $0.4 million of proceeds from the issuance of our ordinary shares upon exercise of stock options (which stock options were exercised in the ordinary course by our option holders). More specifically, the changes to cash used in our financing activities in the year ended December 31, 2024, as compared to the year ended December 31, 2023, was principally the result of notably lower repurchases of our ordinary shares in terms of overall cash spent. Financing Needs We anticipate that our operating expenses will be a material use of our cash resources for the foreseeable future. We believe that our current working capital is sufficient to meet our operating cash requirements for at least the next twelve months and beyond. Part of our strategy is to pursue acquisition opportunities. If we do not have sufficient cash available to finance our operations and the completion of additional acquisitions, we may be required to obtain additional debt or equity financing. We cannot be certain that we will be able to obtain, if required, additional financing on acceptable terms or at all. See Item 3.D, “Key Information - Risk Factors” with respect to risks, conditions and circumstances that could adversely impact our liquidity and capital resources. Information with respect to Liquidity and Capital Resources as of December 31, 2024 and for the year then ended is contained under the heading “Liquidity and Capital Resources” in Item 5 of our 2024 Form 20-F. - 65 - Table of Contents C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. Research and Development To accommodate the rapidly changing needs of our markets, we place considerable emphasis on research and development projects designed to improve our existing products and to develop new ones. We invest in cloud and virtualization technologies, making sure our product and technology suites are optimized for cloud and hosted services environments. We are also further developing our SaaS offers with solutions like SmartTAP, Meeting Insights, VoiceAI Connect, Live platform and Voca. We are developing productivity solutions, and specialized appliances and applications for Microsoft Teams such as Direct Routing Survivable Branch Appliances (SBA). We are constantly enhancing our session border controllers and digital media gateways for carrier and enterprise deployments, multi-service business routers, IP phones and meeting room devices, and management applications with increased capacity, new functionalities and compliance with the latest relevant standards and protocols. In addition, we continue to maintain our analog and digital media gateways for carrier and enterprise applications, multi-service business routers and develop further our session border controllers, IP phones, management routing and productivity applications, as well as specialized appliances for Microsoft Skype/Teams for Business such as SBA, CCE and CloudBond 365. Our platforms are expected to feature increased session capacity, new functionalities, enhanced signaling software and compliance with new protocols, as well as new management and productivity applications. As of December 31, 2025, 331 of our employees were engaged primarily in research and development on a full-time basis. Our net research and development expenses were approximately $52.6 million in the year ended December 31, 2025, compared to $52.1 million in the year ended December 31, 2024, and $57.2 million in the year ended December 31, 2023. From time to time, we have received grants from the IIA. As a recipient of grants from the IIA, we are obligated to perform all manufacturing activities for projects subject to the grants in Israel, unless we receive an exemption (except for up to 10% of our manufacturing activities, which requires only a notice to be made to the IIA). Know-how arising out of research and development which is used to produce products may not be transferred to third parties without the approval of the IIA and may require significant payments if such transfer is to any entity or person outside of Israel. The IIA approval is not required for the export of any products resulting from such research or development. Through December 31, 2025, we had obtained grants from the IIA aggregating approximately $7.3 million for certain of our research and development projects related to our Israeli subsidiaries. We are obligated to pay royalties to the IIA, amounting to 3% to 5% of the revenues from the sales of the products and other related revenues generated from such projects, up to 100% of the grants received, if no additional payments are required, linked to the dollar and bearing interest at the rate of the higher of SOFR + 1% and 4%. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales no payment is required. If we transfer our manufacturing outside of Israel, the rate of royalties will increase. As of December 31, 2025, our Israeli subsidiaries have a contingent obligation to pay royalties in the amount of approximately $23.8 million. D. TREND INFORMATION There is a growing global trend of use of AI and machine learning, and we have started implementing these capabilities in our VoiceAI products. The VoiceAI product suite is focusing on content gathering and providing insights and predictions based on the content by using AI and machine learning. Using content gathering within organizations for AI analysis has several benefits, including: ● Improved decision-making; ● Cost savings; ● Increased accuracy; ● Scalability; and ● Competitive advantage. - 66 - Table of Contents Some of the latest trends in conversational AI include: ● Multimodal Conversational AI: Conversational AI is moving beyond text and voice to include other forms of interactions, such as images, videos and augmented reality. This allows for more natural and intuitive conversations. ● Personalized Conversational AI: Personalized conversational AI systems are becoming more prevalent, leveraging user data and machine learning algorithms to provide more personalized and relevant responses. ● Increased Adoption of Conversational AI: As conversational AI technology becomes more advanced and accessible, it is being adopted across a range of industries and use cases, including customer service, healthcare and education. Another ongoing trend is the global migration to All-IP, which continues to impact our business and has resulted in a decline in our revenues from our media gateway products as it has done for several years, with the shift from traditional communications systems to IP communications and unified communications. The COVID-19 pandemic expedited this trend, as many organizations accelerated their plans for migration and moved their employees to a Work from Home environment or Hybrid Workplace environment. The continued growth of private and public cloud-based services in the telecommunications industry has continued to impact our business. Adopting cloud services, such as Microsoft Teams, is an attractive proposition for enterprises and service providers, with the potential to deliver significant operational and capital cost savings, as well as increased productivity and flexibility. We offer a range of software-based products and solutions designed with the cloud in mind. While we predict sales of these software-based solutions to increase, this may result in lower revenues from our hardware-based session border controller products. As data traffic becomes the dominant factor in communications, service providers are building and maintaining converged networks for integrated voice and data services. This is driving integration of new data networking technologies, such as SD-WAN and the adoption of integrated devices supporting these capabilities. Additionally, aging legacy TDM switches, high-cost maintenance contracts and regulatory guidelines are driving service providers worldwide to announce “PSTN shutdown” and migrate their telephony services to IP communication. We are experiencing decreasing demand for our technology products from customers who previously manufactured network equipment products based on our enabling technology. These customers are migrating from our enabling technology products to diverse integrated comprehensive solutions and, as a result, the demand for our technology products is being adversely affected. - 67 - Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT The following table sets forth certain information with respect to our directors, senior executive officers and key employees at March 30, 2026: Name Age Position Doron Nevo (1)(2)(3) 70 Chairman of the Board of Directors Shabtai Adlersberg 73 President, Chief Executive Officer and Director Niran Baruch 55 Vice President Finance and Chief Financial Officer Lior Aldema 60 Chief Business Officer Ofer Nimtsovich 57 Chief Operating Officer Yair Hevdeli 60 Vice President, Research and Development Eyal Frishberg 67 Vice President, Operations Yehuda Herscovici 58 Vice President, Products Tal Dor 56 Vice President, Human Resources Shaul Weissman 59 Vice President, Business Development Hilit Fishman 51 Vice President, Marketing Joseph Tenne(1)(2)(3) 70 Director Itay Makov 58 Director Stanley B. Stern 68 Director Zehava Simon (2)(3) 67 Director Shira Fayans Birenbaum (1) 61 Director (1) Member of Audit Committee (2) Member of Nominating Committee (3) Member of Compensation Committee Doron Nevo has served as one of our directors since 2000 and as Chairman of the Board since April 2025. Mr. Nevo was co-Founder and CEO of MultiVu, a 3D imaging company, from 2019 to 2023. From 2001 to 2018, Mr. Nevo was co-Founder, President and CEO of KiloLambda Technologies. From 1999 to 2001, Mr. Nevo was involved in fundraising activities for Israeli-based startup companies. From 1996 to 1999, Mr. Nevo served as President and CEO of NKO, Inc. Mr. Nevo established NKO in early 1995 as a startup subsidiary of Clalcom Ltd. NKO designed and developed a full-scale, carrier-grade, IP telephony system platform and established its own IP network. From 1992 to 1996, Mr. Nevo was President and CEO of Clalcom Ltd. Mr. Nevo established Clalcom in 1992 as a telecom service provider in Israel. He also serves as a director of Hadasit Bio-Holdings (TASE: HBL) and of several private companies. Mr. Nevo holds a B.Sc. in Electrical Engineering from the Technion - Israel Institute of Technology and an M.Sc. in Telecommunications Management from Brooklyn Polytechnic. Shabtai Adlersberg co-founded AudioCodes in 1993, and has served as our President, Chief Executive Officer and a director since inception. Until December 2012, Mr. Adlersberg also served as the Chairman of our Board of Directors. Mr. Adlersberg co-founded DSP Group, a semiconductor company, in 1987. From 1987 to 1990, Mr. Adlersberg served as the Vice President of Engineering of DSP Group, and from 1990 to 1992, he served as Vice President of Advanced Technology. As Vice President of Engineering, Mr. Adlersberg established a research and development team for digital cellular communication which was spun-off in 1992 as DSP Communications. Mr. Adlersberg holds an M.Sc. in Electronics and Computer Engineering from Tel Aviv University and a B.Sc. in Electrical Engineering from the Technion-Israel Institute of Technology, or the Technion. Niran Baruch has served as our Vice President Finance and Chief Financial Officer since July 2016 after serving as our Vice President Finance and Chief Accounting Officer since May 2015. He joined AudioCodes in 2005 as Director of Finance and became Vice President Finance in 2011, responsible for the management of the finance department. Mr. Baruch has 25 years of experience with Nasdaq-traded public companies, and is a Certified Public Accountant (CPA) with a B.A. in Business Management and Accounting. - 68 - Table of Contents Lior Aldema has served as our Chief Business Officer since January 2018. He previously served as one of our directors from July 2018 through September 2022 and as our Chief Operating Officer and Head of Global Sales from April 2012 to December 2017. Before that, he served as our Vice President, Product Management from 2002 until 2009, as well as our Vice President Marketing from February 2003 until 2009. He has been employed by us since 1998, when he was a team leader and later headed our System Software Group in our research and development department. Prior to 1998, Mr. Aldema served as an officer in the Technical Unit of the Intelligence Corps of the Israeli Defense Forces (Major), heading both operational units and large development groups related to various technologies. Mr. Aldema holds an M.B.A. from Tel Aviv University and a B.Sc. from the Technion. Ofer Nimtsovich has served as our Chief Operating Officer since January 2018 and as Vice President, Global Services from March 2013 to December 2018. From 2000 until February 2013, Mr. Nimtsovich served in various executive positions at Retalix, including Chief Information Officer, Executive Vice President of Global Services and, most recently, as the head of the Software as a Service division of Retalix. From 1994 until 2000, Mr. Nimtsovich worked for Scitex Corporation Ltd., where he held various technical and management positions, including as the Global Microsoft Infrastructure manager for Scitex. Mr. Nimtsovich graduated from the Business Administration College in Israel in 1997 with a B.A. in Business Administration and Marketing, and also holds an M.B.A. degree from the University of Texas. Yair Hevdeli joined AudioCodes in July 2013 as Vice President, Research and Development. From 2003 until 2013, Mr. Hevdeli served in various executive positions at Veraz/Dialogic, including Global Vice President, Research and Development and, most recently, as Senior Vice President, Research and Development and General Manager, Bandwidth Optimization BU. From 1998 until 2003, Mr. Hevdeli worked for ECI Ltd., where he held various technical and management positions. Mr. Hevdeli has over 20 years of experience leading large multidisciplinary global research and development teams in the telecom industry. Mr. Hevdeli graduated in 1995 with an M.B.A. in Business Management from Bar-Ilan University, Israel and in 1992 received his B.A. in Computer Science and Economics from Bar-Ilan University. Eyal Frishberg has served as our Vice President, Operations since October 2000. From 1997 to 2000, Mr. Frishberg served as Associate Vice President, SDH Operations in ECI Telecom Ltd., a major telecommunication company. From 1987 to 1997, Mr. Frishberg worked in various operational positions in ECI Telecom including as manager of ECI production facility and production control. Mr. Frishberg worked from 1994 until 1997 for ELTA, part of Israel Aerospace Industries, in the planning and control department. Mr. Frishberg holds a B.Sc. in Industrial Engineering from Tel Aviv University and an M.B.A. from Ben-Gurion University of the Negev. Yehuda Herscovici has served as our Vice President, Products, overseeing Product Management and Product Marketing since 2010. From 2003 to 2010, Mr. Herscovici served as our Vice President, Systems Group. From 2001 to 2003, Mr. Herscovici served as our Vice President, Advanced Products. From 2000 to 2001, Mr. Herscovici served as our Director of Advanced Technologies. From 1994 to 1998 and during 1999, Mr. Herscovici held a variety of research and development positions at Advanced Recognition Technologies, Ltd., a voice and handwriting recognition company, heading its research and development from 1999 to 2000 as Vice President, Research and Development. From 1998 to 1999, Mr. Herscovici was engaged in developing various wireless communication algorithms at Comsys, a telecommunications company. Mr. Herscovici holds an M.Sc. and a B.Sc. from the Technion, both in the area of Telecommunications. Tal Dor has served as our Vice President of Human Resources since March 2000. Prior to March 2000, Ms. Dor acted for several years as a consultant in Israel to, among others, telephone and cable businesses, as well as health and social service organizations. Ms. Dor holds a B.A. in Psychology from Ben-Gurion University of the Negev and an M.A. in Psychology from Tel Aviv University. - 69 - Table of Contents Shaul Weissman has served as our Vice President, Business Development since January 2014. Mr. Weissman has been with AudioCodes since 1994, serving in various positions. From 2007 until 2014, Mr. Weissman served as our Residential Business Line Manager. In addition, Mr. Weissman has served as our Vice President and Manager of our chip business line since 2006. From 2001 until 2005, Mr. Weissman served as our Support and Professional Services Manager for our chip business line; and from 1994 until 2000 he served as a digital signal processing engineer. Prior to joining AudioCodes, Mr. Weissman served as Captain in the Israeli Air Force. Mr. Weissman holds an M.Sc. and a B.Sc., from the Technion, both in the area of Telecommunications. Hilit Fishman has served as our Vice President, Marketing since January 2025. Prior to joining AudioCodes, Ms. Fishman held senior marketing leadership roles at leading global technology companies, including Amdocs, Microsoft Israel, and Check Point Software Technologies, where she built and led high-impact marketing organizations across enterprise, cloud, and telecommunications markets. Ms. Fishman holds an M.B.A. in Marketing and a B.A. in Business Administration from Ono Academic College. Joseph Tenne has served as one of our directors since June 2003. Mr. Tenne serves as a director of MIND CTI Ltd. (NASDAQ: MNDO), OPC Energy Ltd. (TASE: OPCE), Electreon Wireless Ltd. (TASE: ELWS),Luzon Credit and Finance Ltd. (formerly known as Tarya Israel Ltd.) (TASE: LUZC) and Gauzy Ltd. (NASDAQ: GAUZ). Mr. Tenne served as a financial executive at Itamar Medical Ltd. (NASDAQ and TASE: ITMR, (until December 2021)) from May 2017 until August 2023. From August 2014 until April 2017, Mr. Tenne served as the Vice President Finance and Chief Financial Officer of Itamar Medical Ltd. From March 2005 to April 2013, Mr. Tenne served as the Chief Financial Officer of Ormat Technologies, Inc. (NYSE and TASE: ORA). From 2003 to 2005, Mr. Tenne was the Chief Financial Officer of Treofan Germany GmbH & Co. KG, a German company. From 1997 until 2003, Mr. Tenne was a partner in Kesselman & Kesselman, Certified Public Accountants in Israel (PwC Israel) and a member of PricewaterhouseCoopers International Limited. Mr. Tenne holds a B.A. in Accounting and Economics and an M.B.A. from Tel Aviv University. Mr. Tenne is also a Certified Public Accountant in Israel. Itay Makov has served as one of our directors since September 2025. Until September 2025, Mr. Makov served as Head of Investment Banking at Citigroup Israel, a position he has held since 2006. He joined Citigroup in 1995 and had held various senior roles over his 30-year career with the bank. Mr. Makov has advised Israeli and international companies and investors on mergers and acquisitions, equity transactions, and debt issuances across a wide range of industries. From 2009 to 2021, Mr. Makov also led Citigroup’s Corporate Banking business in Israel, managing key client relationships. He began his career at Citigroup as an Equity Research Analyst in London before transitioning to Investment Banking. Mr. Makov is the vice chairman of Electreon Wireless (TASE: ELWS) and serves on the boards of Michpal Technologies (TASE: MCPL) as well as OPC Energy (TASE: OPCE). Mr. Makov holds an M.B.A. from Columbia Business School and a B.A. in Accounting and Economics from Tel Aviv University. Mr. Makov is also a Certified Public Accountant in Israel. Stanley Stern has served as one of our directors since 2012 and served as our Chairman of the Board from December 2012 to April 2025. Mr. Stern is the Managing Partner of Alnitak Capital, which he founded in 2013 to provide board level strategic advisory services and merchant banking services, primarily to companies in technology-related industries. From 1981 to 2000 and from 2004 to 2013, he was a Managing Director at Oppenheimer & Co, where, among other positions, he was head of the investment banking department and technology investment banking group. He also held positions at Salomon Brothers, STI Ventures and C.E. Unterberg. Mr. Stern has served as a member of the board of directors of the following U.S. public and private companies: Ormat Technologies, Inc. (NYSE: ORA) since 2015, Tigo Energy, Inc. (Nasdaq: TIGO) since 2015 and Radware Ltd. (Nasdaq: RDWR) since September 2020. Mr. Stern previously served from 2015 to 2018 as the chairman of the board of directors of SodaStream International Ltd., a U.S. public company until its sale to PepsiCo in 2018, and as a member of the board of directors of the following public and private companies, for which he no longer serves as a director: Given Imaging Ltd., Fundtech Inc., Tucows, Inc. (chairman), Polypid Ltd., Odimo, Inc., and Ekso Bionics Holdings, Inc. (lead Independent director). Zehava Simon has served as one of our directors since February 2014. Ms. Simon served as a Vice President of BMC Software Inc. from 2000 until September 2013, most recently as Vice President, Corporate Development. From 2002 to 2011, Ms. Simon served as Vice President and General Manager of BMC Software in Israel. Prior to joining BMC Software, Ms. Simon held a number of executive positions at Intel Corporation. In her last position at Intel, she led Finance and Operations and Business Development for Intel in Israel. Ms. Simon has served as a board member of various companies, including Tower Semiconductor from 1999-2004, M-Systems from 2005-2006, InSightec from 2005-2012 and Amiad Water System Ltd. from 2014-2020. Ms. Simon is also a board member at Nova Ltd. (NASDAQ: NVMI) and NICE Ltd. (NASDAQ: NICE). Ms. Simon holds a bachelor’s degree in Social Sciences from the Hebrew University, a law degree (LL.B.) from the Interdisciplinary Center in Herzlia and a master’s degree in Business and Management from Boston University. - 70 - Table of Contents Shira Fayans Birenbaum has served as one of our directors since March 2022. Ms. Fayans Birenbaum currently serves as a board member at several publicly traded and private international companies including Marriott Vacation Club International Thailand. Ms. Fayans Birenbaum has 25 years of experience as a Board Member and Chairwoman serving in all committees in publicly traded companies such as technology, investment houses, banks, insurance, real estate, manufacturers, semiconductor and educational institutions, in companies such as DSGP, POMVOM, ION Acquisition Corp and Anan Datacenters. From 2014 to the end of 2019, Ms. Fayans Birenbaum held the position of COO and CMO of Microsoft Israel (NASDAQ: MSTF), leading Digital Transformation, and from 2021 to 2022 held the position of President Global of CYMPIRE LTD. Ms. Fayans Birenbaum has extensive experience in Executive C Level positions in her previous roles. Ms. Fayans Birenbaum holds an M.B.A. and B.A. both from Tel Aviv University and marketing management certification studies from The College of Management Academic Studies. B. COMPENSATION The table and summary below outline the compensation granted to our five most highly compensated office holders during or with respect to the year ended December 31, 2025. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.” For purposes of the table and the summary below, “compensation” includes base salary, discretionary and non-equity incentive bonuses, share-based compensation, payments accrued or paid in connection with retirement or termination of employment, and personal benefits and perquisites such as car, phone and social benefits paid to or earned by each Covered Executive during the year ended December 31, 2025. Share-Based All Other Compensation Compensation Name and Principal Position Salary Bonus (1) (2) (3) Total Shabtai Adlersberg - President and CEO $ 385,083 $ 454,630 $ 944,156 $ 197,941 $ 1,981,810 Lior Aldema - CBO $ 270,433 $ 130,782 $ 503,265 $ 109,209 $ 1,013,689 Ofer Nimtsovich - COO $ 231,050 $ 99,687 $ 373,581 $ 104,009 $ 808,327 Niran Baruch - VP Finance and CFO $ 212,752 $ 105,095 $ 373,449 $ 103,324 $ 794,620 Yair Hevdeli- VP R&D $ 215,880 $ 47,091 $ 326,235 $ 97,112 $ 686,318 (1) Amounts reported in this column represent annual incentive bonuses granted to the Covered Executives based on performance-metric formulas set forth in their respective employment agreements. (2) Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2025, with respect to share-based compensation granted to the Covered Executives. (3) Amounts reported in this column include personal benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the respective Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers Life Insurance Policy), education funds (referred to in Hebrew as “Keren Hishtalmut”), pension, severance, vacation, car or car allowance, medical insurance and benefits, risk insurance (e.g., life insurance or work disability insurance), telephone expense reimbursement, convalescence or recreation pay, relocation reimbursement, payments for social security, and other personal benefits and perquisites consistent with our guidelines. All amounts reported in the table represent incremental cost to us. The aggregate direct remuneration paid during the year ended December 31, 2025 to the 17 persons who served in the capacity of director, senior executive officer or key employee during 2025 was approximately $4.8 million, including approximately $0.6 million which was set aside for pension and retirement benefits. The compensation amounts do not include amounts expended by us for automobiles made available to our officers, expenses (including business, travel, professional and business association dues and expenses) reimbursed to officers and other fringe benefits commonly reimbursed or paid by companies in Israel. - 71 - Table of Contents We currently pay each of our non-employee directors an annual fee of approximately $48,000 and a fee of $1,440 for each board meeting or committee meeting attended. In the event that a director attends a meeting by phone, or a resolution is adopted by written consent, then the fee is reduced to 60% and 50% of the regular meeting fee, respectively. Only directors who are not officers receive compensation for serving as directors. Our director, Mr. Adlersberg, who also serves as our President and Chief Executive Officer do not receive board meeting fees. Instead, Mr. Shabtai Adlersberg receives compensation in accordance with the terms of his respective employment agreement. Upon election or reelection to the Board of Directors for a term of three years, each non-employee director is granted 10,000 restricted share units, or RSUs, each year that vest over a three-year period from the grant date. Options to purchase our ordinary shares granted under our 2008 Equity Incentive Plan, as amended (the “2008 Equity Incentive Plan”), to persons who served in the capacity of director or executive officer are generally exercisable at the fair market value at the date of grant and expire seven years from the date of grant. The options generally vest in four equal annual installments, commencing one year from the date of grant. A summary of our stock option and RSU activity and related information for the years ended December 31, 2025, 2024 and 2023 for the persons who served in the capacity of director, senior executive or key employee officer during those years is as follows: Year Ended December 31, 2025 2024 2023 Number Weighted Number Weighted Number Weighted of Average of Average of Average Options and Exercise Options and Exercise Options and Exercise RSUs Price RSUs Price RSUs Price Outstanding at the beginning of the year 787,501 $ 1.77 814,510 $ 2.09 894,897 $ 2.69 Granted 370,000 $ 0.00 310,000 $ 0.88 287,500 $ 0.00 Cancelled - Options exercised / RSUs vested (320,625 ) $ 0.46 (337,009 ) $ 1.73 (367,887 ) $ 1.91 Outstanding at the end of the year 836,876 $ 1.91 787,501 $ 1.77 814,510 $ 2.09 As of December 31, 2025, options to purchase 63,123 ordinary shares were exercisable by the 16 persons who served as an officer or director during the year ended December 31, 2025 at an average exercise price of $14.00 per share. As of December 31, 2025, the 16 persons who served as an officer, director or key employee during the year ended December 31, 2025 held an aggregate of 716,877 RSUs. C. BOARD PRACTICES Corporate Governance Practices We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as the composition of our Board of Directors, audit committee and compensation committee. For example, the Companies Law requires every Israeli public company to elect two “external directors”, who meet strict standards of independence and are elected for three-year terms. In accordance with applicable regulations under the Companies Law, however, we have opted out of the external director requirements, and instead comply with the requirements under the Exchange Act and the Nasdaq Listing Rules regarding the composition of our Board of Directors and its committees. The Companies Law also prescribes requirements relating to the appointment of an internal auditor, and approvals of interested party transactions and compensation of officers and directors. These matters are in addition to the ongoing listing conditions of the Nasdaq Global Select Market and other relevant provisions of U.S. securities laws. Under the Nasdaq rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. For further information, see Item 16.G, “Corporate Governance.” Independent Directors Under the requirements for listing on the Nasdaq Global Select Market, a majority of our directors are required to be independent as defined by Nasdaq rules. Doron Nevo, Itay Makov, Zehava Simon, Stanley Stern, Joseph Tenne and Shira Fayans Birenbaum qualify as independent directors under the applicable SEC and Nasdaq rules, as well as under the Companies Law. - 72 - Table of Contents Pursuant to the SEC’s and Nasdaq’s requirements, at least one of the independent directors appointed by a publicly traded company must have “financial and accounting expertise.” Joseph Tenne is designated as the “audit committee financial expert” as that term is defined in the rules promulgated by the SEC and Nasdaq. Audit Committee Under the applicable SEC and Nasdaq requirements, our Board of Directors is required to appoint an audit committee. Our audit committee must be comprised of at least three directors, and the committee members must comply with specified director independence requirements and knowledge of financial matters. The audit committee consists of: Joseph Tenne, Doron Nevo, and Shira Fayans Birenbaum with Joseph Tenne serving as the chairman of the audit committee. Our Board of Directors has determined that Joseph Tenne is an “audit committee financial expert” as defined in SEC rules and that all members of the audit committee are independent under the applicable SEC and Nasdaq rules. The Companies Law contains additional provisions as to who must, and who may not, serve on the audit committee. However, these rules apply only to companies that are required to elect “external directors” to their board of directors. In accordance with applicable regulations under the Companies Law, we have opted out of the external director requirements, and instead comply with the requirements under the Exchange Act and the Nasdaq Listing Rules regarding the composition of our Board of Directors and its committees. Therefore, we are not subject to the Companies Law rules regarding audit committees. Under the Companies Law, a meeting of the audit committee is properly convened if a majority of the committee members attend the meeting, and in addition a majority of the attending committee members are independent directors within the meaning of the Companies Law. We have adopted an audit committee charter as required by Nasdaq rules. The audit committee’s duties include providing assistance to the Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the fees of, and services performed by, our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee also is required to monitor deficiencies in the administration of our company, including by consulting with the internal auditor and independent accountants, to review, classify and approve related party transactions and extraordinary transactions, to review the internal auditor’s audit plan and to establish and monitor whistleblower procedures. - 73 - Table of Contents Nominating Committee Nasdaq rules require that director nominees be selected or recommended for the board’s selection either by a committee composed solely of independent directors or by a majority of independent directors in a vote in which only independent directors participate. Our nominating committee assists the Board of Directors in its selection of individuals as nominees for election to the Board of Directors and/or to fill any vacancies or newly created directorships on the Board of Directors. The nominating committee consists of Doron Nevo, Joseph Tenne and Zehava Simon, with Doron Nevo serving as the chairman of the nominating committee. All members of the nominating committee are independent under the applicable Nasdaq rules and provisions of the Companies Law. Compensation Committee Under the applicable Nasdaq requirements, our Board of Directors is required to appoint a compensation committee. Our compensation committee must be comprised of at least three directors under the committee’s charter (even though Nasdaq requires only two members), and the committee members must comply with specified director independence requirements. The compensation committee consists of Doron Nevo, Joseph Tenne and Zehava Simon, with Doron Nevo serving as the chairman of the compensation committee All members of the compensation committee are independent under the applicable Nasdaq rules. The Companies Law contains additional provisions as to who must, and who may not, serve on the compensation committee. However, these rules apply only to companies that are required to elect “external directors” to their board of directors. In accordance with applicable regulations under the Companies Law, we have opted out of the external director requirements, and instead comply with the requirements under the Exchange Act and the Nasdaq Listing Rules regarding the composition of our Board of Directors and its committees. Therefore, we are not subject to the Companies Law rules regarding the compensation committee. The compensation committee’s duties include recommending to the Board of Directors a compensation policy for executives and monitor its implementation, approve compensation terms of executive officers, directors and employees affiliated with controlling shareholders, make recommendations to the Board of Directors regarding the issuance of equity incentive awards under our equity incentive plan and exempt certain compensation arrangements from the requirement to obtain shareholder approval under the Companies Law. The compensation committee meets at least twice a year, with further meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the committee or its chairperson. For information regarding the compensation policy for executives, see Item 10.B, “Additional Information - Memorandum and Articles of Association - Compensation of Executive Officers and Directors; Executive Compensation Policy.” Internal Auditor Under the Companies Law, our Board of Directors is also required to appoint an internal auditor proposed by the audit committee. The internal auditor may be our employee, but may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of our independent accounting firm. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. Mr. Oren Grupi of KPMG Somekh Chaikin, Israel has been our internal auditor since July 2018. - 74 - Table of Contents Board Classes Pursuant to our articles of association, our directors are classified into three classes (classes I, II and III). The members of each class of directors and the expiration of his or her current term of office are as follows: Zehava Simon Class I 2028 Itay Makov Class I 2028 Shira Fayans Birenbaum Class II 2026 Joseph Tenne Class II 2026 Shabtai Adlersberg Class III 2027 Stanley B. Stern Class III 2027 Doron Nevo Class III 2027 Chairman of the Board Under the Companies Law, the chief executive officer of a company (or a relative of the chief executive officer) may not serve as the chairman of the board of directors, and the chairman of the board of directors (or a relative of the chairman of the board of directors) may not serve as the chief executive officer, unless approved by the shareholders by a special majority vote prescribed by the Companies Law. The shareholder vote cannot authorize the appointment for a period of longer than three years, which period may be extended from time to time by the shareholders with a similar special majority vote. The chairman of the board of directors shall not hold any other position with the company (except as chief executive officer if approved in accordance with the above procedure) or in any entity controlled by the company, other than as chairman of the board of directors of a controlled entity, and the company shall not delegate to the chairman duties that, directly or indirectly, make him or her subordinate to the chief executive officer. Doron Nevo is our Chairman of the Board and Shabtai Adlersberg is our President and Chief Executive Officer. D. EMPLOYEES We had the following number of employees as of December 31, 2025, 2024 and 2023 in the departments set forth in the table below: As of December 31, 2025 2024 2023 Research and development 331 320 330 Sales and marketing, technical service and support 514 494 489 Operations 88 84 86 Management and administration 48 48 45 981 946 950 Our employees were located in the following areas as of December 31, 2025, 2024 and 2023. As of December 31, 2025 2024 2023 Israel 511 494 489 United States 190 182 188 Europe 110 108 103 Eastern Asia 148 140 140 Latin America 22 22 30 981 946 950 - 75 - Table of Contents Israeli labor laws and regulations are applicable to our employees in Israel. These laws principally concern matters such as paid annual vacation, paid sick days, length of the workday, pay for overtime, insurance for work-related accidents, severance pay and other conditions of employment. Israeli law generally requires severance pay, which may be funded by Manager’s Insurance, described below, upon the retirement or death of an employee or termination of employment without cause (as defined under Israeli law). Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which include payments for national health insurance. The payments to the National Insurance Institute currently range from approximately 7.05% to 19.6% of wages up to specified wage levels, of which the employee contributes approximately 60% and the employer contributes approximately 40%. Our employees in Israel are subject to certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists Associations) by order of the Israeli Minister of Labor. These provisions principally concern cost of living increases, recreation pay and other conditions of employment. We generally provide our employees with benefits and working conditions above the required minimums. Our employees, as a group, are not currently represented by a labor union. To date, we have not experienced any work stoppages. Pursuant to an order issued by the Israeli Minister of Labor, provisions relating to pension arrangements in the collective bargaining agreements between the Histadrut and the Coordination Bureau of Economic Organizations apply to all employees in Israel, including our employees in Israel. We regularly contribute to a “Manager’s Insurance Fund” or to a privately managed pension fund on behalf of our employees located in Israel. These funds provide employees with a lump sum payment upon retirement (or a pension, in case of a pension fund) and severance pay, if legally entitled thereto, upon termination of employment. We provide for payments to a Manager’s Insurance Fund and pension fund contributions in the amount of 14.83% of an employee’s salary on account of severance pay and provident payment or pension, with the employee contributing 6.0% of his salary. We also pay an additional amount of up to 2.5% of certain of our employees’ salaries in connection with disability payments. In addition, we administer an Education Fund for our Israeli employees and pay 7.5% of these employees’ salaries thereto, with the employees contributing 2.5% of their salary. E. SHARE OWNERSHIP The following table sets forth the share ownership of our directors and officers as of March 10, 2026, and the outstanding number of options and RSUs held by them that vest within 60 days of March 10, 2026. Name Total Shares Beneficially Owned Percentage of Ordinary Shares Number of Options and RSUs Shabtai Adlersberg 4,762,253 18.4 % 30,000 Doron Nevo * * * Niran Baruch * * * Lior Aldema * * * Ofer Nimtsovich * * * Yair Hevdeli * * * Eyal Frishberg * * * Yehuda Herscovici * * * Tal Dor * * * Shaul Weissman * * * Hilit Fishman * * * Joseph Tenne * * * Itay Makov * * * Stanley B. Stern * * * Zehava Simon * * * Shira Fayans Birenbaum * * * * Represented less than one percent. Our officers and directors have the same voting rights as our other shareholders. - 76 - Table of Contents The following table sets forth information with respect to the options to purchase our ordinary shares held by Mr. Adlersberg as of March 10, 2026. Number of Exercise Options Grant Date Price Exercised Cancelled Vesting Expiration Date 15,000 June 14, 2019 $ 15.93 - - 4 years June 14, 2026 The following table sets forth information with respect to the RSUs granted to Mr. Adlersberg as of March 10, 2026. These RSUs vest quarterly over a four-year period from the date of grant, subject to his continuing service to us. Number of RSUs Grant Date Issued 80,000 September 14, 2022 70,000 80,000 September 14, 2023 50,000 80,000 September 14, 2024 30,000 80,000 September 14, 2025 10,000 Employee Share Plans We have an equity incentive plan for the granting of options, RSUs and restricted shares to our employees, officers, directors and consultants. Our 2008 Equity Incentive Plan is pursuant to Israeli Income Tax Ordinance (New Version), 1961, or the Israeli Income Tax Ordinance, entitling the beneficiaries who are our employees to tax benefits under Israeli law. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee for each of the beneficiaries who is granted options. For tax benefits each option, and any ordinary shares acquired upon the exercise of the option, must be held by the trustee at least for a period commencing on the date of grant and ending no later than 24 months after the date of grant, in accordance with the period of time specified by Section 102 of the Israeli Income Tax Ordinance, or Section 102, and deposited in trust with the trustee. 2008 Equity Incentive Plan We adopted an equity incentive plan under Section 102, which provides certain tax benefits in connection with share-based compensation to employees, officers and directors. This plan, our 2008 Equity Incentive Plan, was approved by the Israel Tax Authority. Under our equity incentive plan, we may grant our directors, officers and employees restricted shares, restricted share units and options to purchase our ordinary shares under Section 102. We may also grant other persons awards under our equity incentive plan. However, such other persons (controlling shareholders and consultants) will not enjoy the tax benefits provided by Section 102. The total number of ordinary shares that were originally available for grant under the 2008 Equity Incentive Plan was 2,009,122, which was increased to 4,009,122 in 2010, 6,009,122 in 2013, 8,009,122 in 2016, 10,009,122 in 2019 and 12,009,122 in 2022. This number is reduced by one share for each equity grant we make under the 2008 Equity Incentive Plan. During 2025, options to purchase 11,750 ordinary shares and 562,435 restricted share units were granted under the 2008 Equity Incentive Plan. As of December 31, 2025, 639,574 ordinary shares remained available for grant under the 2008 Equity Incentive Plan. As of December 31, 2025, there are 228,213 options to purchase ordinary shares and 1,221,063 restricted share units outstanding under the plan. - 77 - Table of Contents The Israel Tax Authority approved the 2008 Equity Incentive Plan under the capital gains tax track of Section 102. Based on Israeli law currently in effect and the election of the capital gains tax track, and provided that options, restricted shares and restricted shares units granted or, upon their exercise or vesting, the underlying shares, issued under the plan are held by a trustee for the two years following the date in which such awards are granted, our employees, officers and directors will be (i) entitled to defer any taxable event with respect to the awards until the underlying ordinary shares are sold, and (ii) subject to capital gains tax of 25% on the sale of the shares. However, if we grant awards at a value below the underlying shares’ market value at the date of grant, the 25% capital gains tax rate will apply only with respect to capital gains in excess of the underlying shares’ market value at the date of grant and the remaining capital gains will be taxed at the grantee’s regular tax rate. We may not recognize a tax benefit pertaining to the employees’ restricted shares, restricted share units and options for tax purposes except in the events described above under which the gain is taxed at the grantee’s regular tax rate. Restricted shares, restricted share units and options granted under the 2008 Equity Incentive Plan will vest over four years from the grant date or in accordance with the alternative vesting schedule applicable to the specific grant. If the employment of an employee is terminated for any reason, the employee (or in the case of death, the designated beneficiary) may exercise his or her vested options within ninety days of the date of termination (or within twelve months of the date of termination in the case of death or disability) and shall be entitled to any rights upon vested restricted shares and vested restricted share units to be delivered to the employee to the extent that they were vested prior to the date his or her employment terminates. Directors are generally eligible to exercise his or her vested options within twelve months from the date the director ceases to serve on the Board of Directors. The holders of options are responsible for all personal tax consequences relating to the options. The exercise prices of the options are based on the fair value of the ordinary shares at the time of grant, as determined by our Board of Directors. The current practice of our Board of Directors is to grant options with exercise prices that equal 100% of the closing price of our ordinary shares on the applicable date of grant. F. DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION Not applicable. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS To our knowledge, (A) we are not directly or indirectly owned or controlled (i) by another corporation or (ii) by any foreign government and (B) there are no arrangements, the operation of which may at a subsequent date result in a change in control of AudioCodes. The following table sets forth, as of March 10, 2026, the number of our ordinary shares, which constitute our only outstanding voting securities, beneficially owned by (i) all shareholders known to us to own more than 5% of our outstanding ordinary shares, and (ii) all of our directors and senior executive officers as a group. Identity of Person or Amount Percent of Group Owned Class(7) Shabtai Adlersberg(1) 4,762,253 18.4 % Value Base Ltd.(2) 2,790,432 10.8 % Leon Bialik(3) 2,263,019 8.7 % Copeland Capital Management, LLC(4) 1,653,376 6.4 % William Blair Investment Management, LLC(5) 1,536,371 5.9 % All directors and senior executive officers as a group (16 persons)(6) 5,198,932 20.1 % (1) The information is derived from a statement on Schedule 13G/A of Shabtai Adlersberg filed with the SEC on February 12, 2026. Includes restricted share units and options to purchase 50,000 ordinary shares exercisable within 60 days of December 31, 2025. (2) The information is derived from a statement on Schedule 13G/A of Value Base, Ltd., Victor Shamrich, Ido Nouberger and Value Base Fund Management Ltd. for Value Base Fund General Partner Ltd., acting as the general partner to Value Base Fund Limited Partnership (“Value Base Fund Management”) filed with the SEC on February 5, 2026. Pursuant to the Schedule 13G/A, each of Value Base Ltd., Victor Shamrich, Ido Nouberger and Value Base Fund Management has shared voting power over 2,790,432 shares and shared dispositive power over 2,790,432 shares. (3) The information is derived from a statement on Schedule 13G/A of Leon Bialik filed with the SEC on February 10, 2026. (4) The information is derived from a statement on Schedule 13G of Copeland Capital Management, LLC filed with the SEC on January 26, 2022. (5) The information is derived from a statement on Schedule 13G/A of William Blair Investment Management, LLC filed with the SEC on February 12, 2024. (6) Includes 61,248 ordinary shares which may be purchased pursuant to options exercisable within 60 days following March 10, 2026, and 55,931 ordinary shares issuable pursuant to restricted share units that vest within 60 days of March 10, 2026. (7) This percentage calculation is rounded to the nearest tenth and based on 25,887,104 outstanding ordinary shares as of March 10, 2026 (which does not include treasury shares outstanding as of March 10, 2026). - 78 - Table of Contents Mr. Adlersberg held approximately 17.5% of our ordinary shares as of December 31, 2025, as compared to 15.8% of our ordinary shares as of December 31, 2024, and 15.0% of our ordinary shares as of December 31, 2023. Value Base Ltd. held approximately 10.3% of our ordinary shares as of December 31, 2025, as compared to 8.3% of our ordinary shares as of December 31, 2024. Value Base Ltd. did not file a statement on Schedule 13G (with respect to its ownership in the Company) for the year ended December 31, 2023. Mr. Bialik held approximately 8.4% of our ordinary shares as of December 31, 2025, as compared to 7.7% of our ordinary shares as of December 31, 2024, and 7.6% of our ordinary shares as of December 31, 2023. Copeland Capital Management, LLC did not file a statement on Schedule 13G/A (with respect to its ownership in the Company) for the years ended December 31, 2025, December 31, 2024, and December 31, 2023. William Blair Investment Management, LLC held approximately 5.7% of our ordinary shares as of December 31, 2025, as compared to 5.2% of our ordinary shares as of December 31, 2024, and 5.0% of our ordinary shares as of December 31, 2023. William Blair did not file a statement on Schedule 13G (with respect to its ownership in the Company) for the years ended December 31, 2025 and December 31, 2024. As of March 10, 2026, there were approximately three holders of record of our ordinary shares in the United States, although we believe that the number of beneficial owners of the ordinary shares is significantly greater. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held of record by brokers or other nominees. The major shareholders have the same voting rights as the other shareholders. B. RELATED PARTY TRANSACTIONS None. C. INTERESTS OF EXPERTS AND COUNSEL Not applicable. ITEM 8. FINANCIAL INFORMATION A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Item 18. Export Sales For information on our revenues breakdown for the past three years, see Item 5 - “Operating and Financial Review and Prospects” - 79 - Table of Contents Legal Proceedings From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are currently not involved in any pending or contemplated legal proceedings that could reasonably be expected to have a significant effect on our financial position, or profitability. We may become involved in material legal proceedings in the future. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Dividend Policy For a discussion of our dividend policy, please see Item 10.B, “Additional Information-Memorandum and Articles of Association-Dividends.” B. SIGNIFICANT CHANGES No significant change has occurred since December 31, 2025, except as otherwise disclosed in this Annual Report. ITEM 9. THE OFFER AND LISTING A. OFFER AND LISTING DETAILS Our ordinary shares are listed on the Nasdaq Global Select Market and the TASE under the symbol “AUDC.” B. PLAN OF DISTRIBUTION Not applicable. C. MARKETS Our ordinary shares are listed for trading on the Nasdaq Global Select Market under the symbol “AUDC.” Our ordinary shares are also listed for trading on the Tel-Aviv Stock Exchange under the symbol “AUDC.” In addition, we are aware of our ordinary shares being traded on the following markets: Frankfurt Stock Exchange, Dusseldorf Stock Exchange, Munich Stock Exchange, and Stuttgart Stock Exchange. D. SELLING SHAREHOLDERS Not applicable. E. DILUTION Not applicable. F. EXPENSES OF THE ISSUE Not applicable. ITEM 10. ADDITIONAL INFORMATION A. SHARE CAPITAL Not applicable. - 80 - Table of Contents B. MEMORANDUM AND ARTICLES OF ASSOCIATION Objectives Our objectives, set forth in our articles of association, are to engage in any legal occupation or business. Share Capital Our authorized share capital consists of NIS 2,025,000 divided into 200,000,000 ordinary shares, nominal value NIS 0.01 per share, and 2,500,000 preferred shares, nominal value NIS 0.01 per share. As of March 10, 2026, we had 25,887,104 ordinary shares outstanding (which does not include 39,916,600 treasury shares) and no preferred shares outstanding. Borrowing Powers The Board of Directors has the power to cause us to borrow money and to secure the payment of borrowed money. The Board of Directors specifically has the power to issue bonds or debentures, and to impose mortgages or other security interests on all or any part of our property. Amendment of Articles of Association In general, shareholders may amend our Articles of Association by a resolution adopted at a shareholders’ meeting by the holders of a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon. The amendment of certain provisions of our Articles of Association requires an increased voting threshold. For example, the approval of amendments to the provisions concerning business combinations with certain shareholders requires the approval of holders of 85% of our outstanding voting shares. Additionally, the amendment of the provisions concerning (i) the procedure according to which shareholders may propose items to include in the agenda of a general meeting of the shareholders and (ii) the role and composition of the Board of Directors, including the method of appointment of its members, require the approval sixty-six and two-thirds percent (66 2/3)% of the voting power represented at the meeting in person or by proxy and voting thereon. Qualification of Directors No person shall be disqualified to serve as a director by reason of his not holding AudioCodes shares or by reason of his having served as a director in the past. Dividends Under the Companies Law, a company may make “distributions”, as such term is defined in the Companies Law (which definition includes the payment of dividends and a company’s repurchase of its outstanding shares) only out of its profits as determined for statutory purposes, unless court approval is granted for such despite the lack of statutory profits. There is a unified statutory test for the payment of dividends and a company’s repurchase of its outstanding shares. In 2025, we received court approval to pay dividends (and repurchase our ordinary shares) up to certain ceilings, despite the lack of statutory profits. The current approval is valid until April 27, 2026. We may seek further approvals to repurchase our ordinary shares and to continue to pay dividends. As we are a Nasdaq-listed company, court approval is not required for our repurchase of our ordinary shares, provided that we notify our creditors of the proposed repurchase and allow such creditors an opportunity to initiate a court proceeding to review the repurchase. If within 30 days such creditors do not file an objection, then we may proceed with the repurchase. In each case, we are only permitted to make the distribution if our Board of Directors and, if applicable, the court, determines there is no reasonable concern that such distribution will prevent us from satisfying our existing and foreseeable obligations as they become due. Any dividend will be distributed among shareholders based on the nominal value of their shares. - 81 - Table of Contents Voting Rights and Powers Unless any shares have special rights as to voting, every shareholder has one vote for each share held of record. Under our Articles of Association, we may issue preferred shares from time to time, in one or more series. However, in connection with our listing on the Tel Aviv Stock Exchange in 2001, we agreed that for such time as our ordinary shares are traded on the Tel Aviv Stock Exchange, we will not issue any of the 2,500,000 preferred shares, nominal value NIS 0.01, authorized in our Articles of Association. Notwithstanding the foregoing, we may issue preferred shares if the preference of those shares is limited to a preference in the distribution of dividends and such preferred shares have no voting rights. Business Combinations Our Articles of Association impose restrictions on our ability to engage in any merger, asset or share sale or other similar transaction with a shareholder holding 15% or more of our voting shares. Winding Up Upon our liquidation, our assets available for distribution to shareholders will be distributed to them in proportion to the nominal value of their shares. Redeemable Shares Subject to our undertaking to the Tel Aviv Stock Exchange as described above, we may issue and redeem redeemable shares. Modification of Rights Subject to the provisions of our articles of association, we may, from time to time, by a resolution approved by the holders of a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon, provide for shares with such preference rights, deferred rights or conversion rights, or any other special rights or limitations as may be stipulated in such resolution. If at any time our share capital is divided into different classes of shares, we may modify or abrogate the rights attached to any class, unless otherwise provided by the Articles of Association, by a resolution approved by the holders of a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon, subject to the consent in writing of the holders of a simple majority of the issued shares of that class (unless otherwise provided by law or by the terms of issue of the shares of that class). The provisions of our Articles of Association relating to general meetings also apply, mutatis mutandis, to any separate general meeting of the holders of the shares of a particular class. The creation or issuance of shares of any class, including a new class, shall not be deemed to alter the rights and privileges attached to previously issued shares of that class or of any other class (unless otherwise provided by our Articles of Association, including the terms of issue of the shares of any class). Shareholder Meetings An annual meeting of shareholders is to be held once in each calendar year, within 15 months after the previous annual meeting. The annual meeting may be held in Israel or outside of Israel, as determined by the Board of Directors. The Board of Directors may, whenever it thinks fit, convene a special shareholders meeting. The Board of Directors must convene a special shareholders’ meeting at the request of: ● at least two directors; ● at least one-quarter of the directors in office; or - 82 - Table of Contents ● one or more shareholders who hold at least 10% of the outstanding share capital and at least 1% of the voting rights, or one or more shareholders who hold at least 10% of the outstanding voting rights. Notice of General Meetings; Omission to Give Notice A special shareholders meeting may be held in Israel or outside of Israel, as determined by the Board of Directors. The provisions of the Companies Law and the related regulations override the provisions of our Articles of Association, and provide for notice of a meeting of shareholders to be sent to each registered shareholder at least 21 days or 35 days in advance of the meeting, depending on the items included in the meeting agenda. Notice of a meeting of shareholders must also be published in two Israeli newspapers or on our website. Notice of a meeting of shareholders must specify the type of meeting, the place and time of the meeting, the agenda, a summary of the proposed resolutions, the majority required to adopt the proposed resolutions, and the record date for the meeting. The notice must also include the address and telephone number of our registered office, and a list of times at which the full text of the proposed resolutions may be examined at the registered office. The accidental omission to give notice of a meeting to any shareholder, or the non-receipt of notice sent to such shareholder, does not invalidate the proceedings at the meeting. Limitations on Foreign Shareholders to Hold or Exercise Voting Rights There are no limitations on foreign shareholders in our Articles of Association. Israeli law restricts the ability of citizens of countries that are in a state of war with Israel to hold shares of Israeli companies. Fiduciary Duties; Approval of Transactions under Israeli Law Fiduciary duties. The Companies Law codifies the fiduciary duties that office holders, which under the Companies Law includes our directors and executive officers, owe to a company. An office holder’s fiduciary duties consist of a duty of loyalty and a duty of care. The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, including to avoid any conflict of interest between the office holder’s position in the company and personal affairs, and prohibits any competition with the company or the exploitation of any business opportunity of the company in order to receive a personal advantage for himself or herself or for others. This duty also requires an office holder to reveal to the company any information or documents relating to the company’s affairs that the office holder has received due to his or her position as an office holder. A company may approve any of the acts mentioned above provided that all the following conditions apply: the office holder acted in good faith and neither the act nor the approval of the act prejudices the good of the company and, the office holder disclosed the essence of his personal interest in the act, including any substantial fact or document, a reasonable time before the date for discussion of the approval. A director is required to exercise independent discretion in fulfilling his or her duties and may not be party to a voting agreement with respect to his or her vote as a director. A violation of these requirements is deemed a breach of the director’s duty of loyalty. The duty of care requires an office holder to act with a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to use reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information material to these actions. Disclosure of personal interest. The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents known to him or her, in connection with any existing or proposed transaction by the company. “Personal interest,” as defined by the Companies Law, includes a personal interest of any person in an act or transaction of the company, including a personal interest of his relative or of a corporation in which that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or more of the voting rights, a director or general manager, or in which he or she has the right to appoint at least one director or the general manager, and includes shares for which the person has the right to vote pursuant to a power-of-attorney. “Personal interest” does not apply to a personal interest stemming merely from holding shares in the company. - 83 - Table of Contents The office holder must make the disclosure of his personal interest no later than the first meeting of the company’s board of directors that discusses the particular transaction. This duty does not apply to the personal interest of a relative of the office holder in a transaction unless it is an “extraordinary transaction.” The Companies Law defines an “extraordinary transaction” as a transaction that is not in the ordinary course of business, not on market terms or that is likely to have a material impact on the company’s profitability, assets or liabilities. Approvals. The Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal interest requires Board of Directors approval, unless the transaction is an extraordinary transaction, or the articles of association provide otherwise. Our Articles of Association do not provide otherwise. The transaction may be approved only if it is in our best interest. If the transaction is an extraordinary transaction, then the approvals of the company’s audit committee and the board of directors are required. If the transaction concerns exculpation, indemnification, insurance or compensation of an office holder, then the approvals of the company’s compensation committee and the board of directors are required, except if the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, in which case the approval of the compensation committee is sufficient. Exculpation, indemnification, insurance or compensation of a director or the Chief Executive Officer also requires shareholder approval. A person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee generally may not attend that meeting or vote on that matter, unless a majority of the Board of Directors or the audit committee has a personal interest in the matter or if such person is invited by the chairman of the Board of Directors or audit committee, as applicable, to present the matter being considered. If a majority of the Board of Directors or the audit committee has a personal interest in the transaction, shareholder approval also would be required. Shareholders The Companies Law imposes on a controlling shareholder of a public company the same disclosure requirements described above as it imposes on an office holder. For this purpose, a “controlling shareholder” is any shareholder who has the ability to direct the company’s actions, including any shareholder holding 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder. Approval of the audit committee, the Board of Directors and our shareholders, in that order, is required for extraordinary transactions, including a private placement, with a controlling shareholder or in which a controlling shareholder has a personal interest. Approval of the compensation committee, the Board of Directors and our shareholders, in that order, is required for the terms of compensation or employment of a controlling shareholder or his or her relative, as an officer holder or employee of our company or as a service provider to the company, including through a company controlled by a controlling shareholder. Shareholder approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests: ● the majority includes at least a majority of the shares voted by shareholders who have no personal interest in the transaction; or ● the total number of shares held by disinterested shareholders that voted against the approval of the transaction does not exceed 2% of the aggregate voting rights of our company. Generally, the approval of such a transaction may not extend for more than three years, except that in the case of an extraordinary transaction, including a private placement, with a controlling shareholder or in which a controlling shareholder has a personal interest that does not concern compensation for employment or service, the transaction may be approved for a longer period if the audit committee determines that the approval of the transaction for a period longer than three years is reasonable under the circumstances. - 84 - Table of Contents Compensation of Executive Officers and Directors; Executive Compensation Policy In accordance with the Companies Law, we have adopted a compensation policy for our executive officers and directors. The purpose of the policy is to describe our overall compensation strategy for our executive officers and directors and to provide guidelines for setting their compensation, as prescribed by the Companies Law. In accordance with the Companies Law, the policy must be reviewed and readopted at least once every three years. Approval of the compensation committee, the Board of Directors and our shareholders, in that order, is required for the adoption of the compensation policy. The shareholders’ approval must include the majority of shares voted at the meeting. In addition to the majority vote, the shareholder approval must satisfy either of two additional tests: ● the majority includes at least a majority of the shares voted by shareholders other than our controlling shareholders or shareholders who have a personal interest in the adoption of the compensation policy; or ● the total number of shares held by non-controlling shareholders and disinterested shareholders that voted against the adoption of the compensation policy does not exceed 2% of the aggregate voting rights of our company. Under the Companies Law, the compensation arrangements for officers (other than the Chief Executive Officer) who are not directors require the approval of the compensation committee and the board of directors; provided, however, that if the compensation arrangement is not in compliance with our executive compensation policy, the arrangement may only be approved by the compensation committee and the board of directors for special reasons to be noted, and the compensation arrangement shall also require a special shareholder approval. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director and is in compliance with our executive compensation policy, the approval of the compensation committee is sufficient. Arrangements regarding the compensation of the Chief Executive Officer and of directors require the approval of the compensation committee, the board and the shareholders, in that order. In certain limited cases, the compensation of a new Chief Executive Officer who is not a director may be approved without the approval of the shareholders. In August 2023, our Board of Directors approved certain amendments to our compensation policy in order to adopt a clawback policy, or the Clawback Policy, which is administered by our compensation committee and was adopted in compliance with Section 10D of the Exchange Act and applicable rules of the Nasdaq Global Select Market. The Clawback Policy, which was additionally approved by our shareholders on October 24, 2023 in connection with our 2023 Annual General Meeting of Shareholders, requires the return of incentive compensation paid to our executive officers in the case of certain restatements of our financial statements under the rules of the Nasdaq Global Select Market. A copy of the Clawback Policy is included as Exhibit 97.1 to our Annual Report. We have adopted an insider trading policy which applies to all of the Company’s directors, officers and employees as well as certain related parties, and sets forth procedures governing the purchase, sale and other disposition of our securities by such parties. Our insider trading policy is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of our insider trading policy has been filed as Exhibit 11.1 to this Annual Report. Duties of Shareholders Under the Companies Law, a shareholder also has a duty to act in good faith towards the company and other shareholders and refrain from abusing his or her power in the company, including, among other things, voting in the general meeting of shareholders on the following matters: ● any amendment to the Articles of Association; ● an increase of the company’s authorized share capital; ● a merger; or - 85 - Table of Contents ● approval of related party transactions that require shareholder approval. In addition, any controlling shareholder, any shareholder who can determine the outcome of a shareholder vote and any shareholder who, under our Articles of Association, can appoint or prevent the appointment of an office holder, is under a duty to act with fairness towards the company. The Companies Law also provides that a breach of the duty of fairness will be governed by the laws governing breach of contract; however, the Companies Law does not describe the substance of this duty. Anti-Takeover Provisions under Israeli Law The Companies Law provides that an acquisition of shares in a public company (other than by means of a statutory merger) must be made by means of a tender offer if as a result of the acquisition the purchaser would hold 25% or more of the voting rights in the company, unless there is already another shareholder of the company with 25% or more of the voting rights. Similarly, the Companies Law provides that an acquisition of shares in a public company (other than by means of a statutory merger) must be made by means of a tender offer if as a result of the acquisition the purchaser would hold more than 45% of the voting rights in the company, unless there is already another shareholder with more than 45% of the voting rights in the company. The Companies Law requires the parties to a proposed merger to file a merger proposal with the Israeli Registrar of Companies, specifying certain terms of the transaction. Each merging company’s board of directors and shareholders must approve the merger. Shares in one of the merging companies held by the other merging company or certain of its affiliates are disenfranchised for purposes of voting on the merger. A merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 50 days have passed from the time that the merger proposal was filed with the Israeli Registrar of Companies and at least 30 days have passed from the approval of the shareholders of each of the merging companies. Finally, in general, Israeli tax law treats stock-for-stock acquisitions less favorably than does U.S. tax law. Israeli tax law provides for tax deferral in specified acquisitions, including transactions where the consideration for the sale of shares is the receipt of shares of the acquiring company. Nevertheless, Israeli tax law may subject a shareholder who exchanges his ordinary shares for shares in a foreign corporation to immediate taxation or to taxation before his investment in the foreign corporation becomes liquid, although in the case of shares of a foreign corporation that are traded on a stock exchange, the tax may be postponed subject to certain conditions. Insurance, Indemnification and Exculpation of Directors and Officers; Limitations on Liability Insurance of Office Holders The Companies Law permits a company, if permitted by its articles of association, to insure an office holder in respect of liabilities incurred by the office holder as a result of: ● breach of the duty of care owed to the company or a third party; ● breach of the fiduciary duty owed to the company, provided that the office holder acted in good faith and had reasonable grounds to believe that his action would not harm the company’s interests; ● monetary liability imposed on the office holder in favor of a third party; and ● reasonable litigation expenses, including attorney fees, incurred by the office holder as a result of an administrative enforcement proceeding instituted against him (without limiting from the generality of the foregoing, such expenses will include a payment imposed on the office holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended, or the Israeli Securities Law, and expenses that the office holder incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Israeli Securities Law, including reasonable legal expenses, which term includes attorney fees). - 86 - Table of Contents Indemnification of Office Holders Under the Companies Law, a company can, if permitted by its articles of association, indemnify an office holder for any of the following obligations or expenses incurred in connection with his or her acts or omissions as an office holder: ● monetary liability imposed on an office holder in favor of a third party in a judgment, including a settlement or an arbitral award confirmed by a court; ● reasonable legal costs, including attorney’s fees, expended by an office holder as a result of: - an investigation or proceeding instituted against the office holder by a competent authority, provided that such investigation or proceeding concludes without the filing of an indictment against the office holder, and either: o no financial liability was imposed on the office holder in lieu of criminal proceedings, or o financial liability was imposed on the office holder in lieu of criminal proceedings but the alleged criminal offense does not require proof of criminal intent; and in connection with an administrative enforcement proceeding or a financial sanction (without derogating from the generality of the foregoing, such expenses will include a payment imposed on the Office Holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, and expenses that the Office Holder incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Israeli Securities Law, including reasonable legal expenses, which term includes attorney fees); and ● reasonable legal costs, including attorneys’ fees, expended by the office holder or for which the office holder is charged by a court: - in an action brought against the office holder by or on behalf of the company or a third party, or - in a criminal action in which the office holder is found innocent, or - in a criminal action in which the office holder is convicted and in which a proof of criminal intent is not required. o A company may indemnify an office holder in respect of these liabilities either in advance of an event or following an event. If a company undertakes to indemnify an office holder in advance of an event, the indemnification, other than legal costs, must be limited to foreseeable events in light of the company’s actual activities when the company undertook such indemnification, and reasonable amounts or standards, as determined by the board of directors. Exculpation of Office Holders Under the Companies Law, a company may, if permitted by its articles of association, also exculpate an office holder in advance, in whole or in part, from liability for damages sustained by a breach of duty of care to the company, other than in connection with distributions. - 87 - Table of Contents Limitations on Exculpation, Insurance and Indemnification Under the Companies Law, a company may indemnify or insure an office holder against a breach of duty of loyalty only to the extent that the office holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the company. In addition, a company may not indemnify, insure or exculpate an office holder against a breach of duty of care if committed intentionally or recklessly (excluding mere negligence), or committed with the intent to derive an unlawful personal gain, or for a fine or forfeit levied against the office holder in connection with a criminal offense. Our articles of association allow us to insure, indemnify and exculpate office holders to the fullest extent permitted by law, provided such insurance or indemnification is approved in accordance with law. Pursuant to the Companies Law, exculpation of, procurement of insurance coverage for, and an undertaking to indemnify or indemnification of, our office holders must be approved by our audit committee and our Board of Directors and, if the office holder is a director, also by our shareholders. We have entered into agreements with each of our directors and senior officers to insure, indemnify and exculpate them to the full extent permitted by law against some types of claims, subject to dollar limits and other limitations. These agreements have been ratified by our audit committee, Board of Directors and shareholders. We have acquired directors’ and officers’ liability insurance covering our officers and directors and the officers and directors of our subsidiaries against certain claims. C. MATERIAL CONTRACTS None. D. EXCHANGE CONTROLS Non-residents of Israel who own our ordinary shares may freely convert all amounts received in Israeli currency in respect of such ordinary shares, whether as a dividend, liquidation distribution or as proceeds from the sale of the ordinary shares, into freely-repatriable non-Israeli currencies at the rate of exchange prevailing at the time of conversion (provided in each case that the applicable Israeli income tax, if any, is paid or withheld). Since January 1, 2003, all exchange control restrictions on transactions in foreign currency in Israel have been eliminated, although there are still reporting requirements for foreign currency transactions. Legislation remains in effect, however, pursuant to which currency controls may be imposed by administrative action at any time. The State of Israel does not restrict in any way the ownership or voting of our ordinary shares by non-residents of Israel, except with respect to subjects of countries that are in a state of war with Israel. E. TAXATION The following is a summary of the material Israeli and United States federal tax consequences, Israeli foreign exchange regulations and certain Israeli government programs affecting us. To the extent that the discussion is based on new tax or other legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax or other authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice, is not exhaustive of all possible tax considerations and should not be relied upon for tax planning purposes. Potential investors are urged to consult their own tax advisors as to the Israeli tax, United States federal income tax and other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes. - 88 - Table of Contents Israeli Tax Considerations and Government Programs The following is a brief summary of the material Israeli income tax laws applicable to us, and certain Israeli Government programs that benefit us. This section also contains a discussion of material Israeli income tax consequences concerning the ownership and disposition of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Several parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation. Each investor should consult its own tax or legal advisor as to the Israeli tax consequences of the purchase, ownership and disposition of our ordinary shares. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income. Taxable income of a company is subject to a corporate tax rate of 23% effective from January 1, 2018. However, the effective tax rate payable by a company that qualifies as an Industrial Company that derives income from a Preferred Technological Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are subject to the prevailing corporate tax rate. Law for the Encouragement of Capital Investments, 1959, or the Investment Law The Investment Law provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law). The Investment Law was significantly amended effective April 1, 2005, or the 2005 Amendment, and further amended as of January 1, 2011, or the 2011 Amendment, and January 1, 2017, or the 2017 Amendment. The 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011, were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment was designed to accommodate the implementation of the “Nexus Principles” (based on OECD guidelines published as part of the Base Erosion and Profit Shifting, or BEPS, project). Tax Benefits Prior to the 2005 Amendment An investment program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred to as an “Approved Enterprise,” is entitled to certain benefits. A company that wished to receive benefits as an Approved Enterprise must have received approval from the Investment Center of the Israeli Ministry of Economy and Industry, or the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific Approved Enterprise. Income derived from activity that is not approved by the Investment Center or not integral to the activity of the Approved Enterprise does not enjoy tax benefits. Tax Benefits Subsequent to the 2005 Amendment The 2005 Amendment changed certain provisions of the Investment Law. As a result of the 2005 Amendment, a company referred to as a “Beneficiary Enterprise”, was no longer obligated to obtain Approved Enterprise status in order to receive the tax benefits previously available under the Alternative Track, and therefore generally there was no need to apply to the Investment Center for this purpose (Approved Enterprise status remains mandatory for companies seeking cash grants). - 89 - Table of Contents Trapped Earnings On November 15, 2021, a new amendment to the Investment Law, or the Investment Law Amendment, was approved, introducing a new dividend distribution ordering rule to cause the distribution of earnings that were tax exempt under the historical Approved or Beneficial Enterprise regimes, or Trapped Earnings, to be on a pro-rata basis from any dividend distribution. The Investment Law Amendment is applicable to distributions from August 15, 2021 onwards. Therefore, the corporate income tax, or CIT, claw-back will apply upon any dividend distribution, as long as the Company has Trapped Earnings. Tax Benefits under the 2011 and 2017 Amendments The 2011 Amendment canceled the availability of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. A Preferred Company is an industrial company owning a Preferred Enterprise which meets certain conditions (including a minimum threshold of 25% export). However, under this new legislation the requirement for a minimum investment in productive assets was cancelled. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 16% in 2014, unless the Preferred Company is located in a certain development zone, in which case the rate will be 9%. Pursuant to the 2017 Amendment, in 2017 and thereafter, a Preferred Company is entitled to a reduced corporate tax rate of 16% and 7.5%, respectively. Dividends paid out of income attributed to a Preferred Enterprise during 2014 and thereafter are generally subject to withholding tax at the rate of 20% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed to individuals or non-Israeli company a withholding of 20% or such lower rate as may be provided in an applicable tax treaty, will apply). The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which chose to receive grants and certain tax benefits under the Grant Track before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain conditions; (ii) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise under the Alternative Track before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met. The 2017 Amendment provides new tax tracks for a “Preferred Technological Enterprise”- an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion for a tax year. Under the law, a Preferred Technological Enterprise, which is located in the center of Israel will be subject to tax at a rate of 12% on profits being derived from eligible intellectual property, or the Preferred Technological Income, and “Preferred Technological Enterprise” which is located in development area A will be subject to tax rate of 7.5%. In addition, a “Preferred Technological Enterprise” will receive a reduced corporate tax rate of 12% on capital gains derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if (i) the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and (ii) such sale receives prior approval from the IIA. However, the proportion of income that may be considered Preferred Technological Income and receive the tax benefits described immediately above is calculated according to a nexus formula, which is based on the proportion of qualifying expenditures on intellectual property compared to overall expenditures. - 90 - Table of Contents The 2017 Amendment further provides that a Preferred Company with group consolidated revenues of at least NIS 10 billion will qualify as a “Special Preferred Technological Enterprise” and will receive a reduced corporate tax rate of 6% on “Preferred Technological Income” regardless of the company’s geographic location within Israel. In addition, a “Special Preferred Technological Enterprise” will receive a reduced corporate tax rate of 6% on capital gains derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if (i) the Benefitted Intangible Assets were either developed by the Special Preferred Enterprise or acquired from a foreign company on or after January 1, 2017, and (ii) such sale received prior approval from the IIA. A “Special Preferred Technological Enterprise” that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least 10 years, subject to the receipt of certain approvals as specified in the Investment Law. Dividends paid out of Preferred Technological Income, which are distributed by a Preferred Technological Enterprise or a “Special Preferred Technological Enterprise,” are generally subject to tax at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed to individuals or non-Israeli company a withholding of 20% or such lower rate as may be provided in an applicable tax treaty, will apply). If such dividends are distributed to a foreign company that holds solely or together with other foreign companies 90% or more of the Israeli company and other conditions are satisfied, the tax rate will be 4%. In May 2019, we notified the Israel Tax Authority that we waived our Beneficiary Enterprise status starting from the 2019 tax year and thereafter. We are eligible for tax benefits as a Preferred Technological Enterprise from the 2019 tax year and thereafter as mentioned above and the changes in the tax rates relating to Preferred Technological Enterprises were taken into account in the computation of deferred taxes as of December 31, 2025. Tax Benefits and Funding for Research and Development Israeli tax law allows, under specific conditions, a tax deduction for expenditures, including capital expenditures, relating to scientific research and development projects, for the year in which they are incurred if: ● the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; ● the research and development is for the promotion or development of the company; and ● the research and development is carried out by or on behalf of the company seeking the deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. Under these research and development deduction rules, no deduction is allowed for any expense invested in an asset depreciable under the general depreciation rules of the Israeli Income Tax Ordinance. Expenditures not so approved are deductible over a three-year period in equal amounts if the research and development is for the promotion or development of the company. Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law The Industry Encouragement Law, provides several tax benefits for “Industrial Companies.” We currently qualify as an Industrial Company within the meaning of the Industry Encouragement Law. The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned by it and located in Israel. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrial production. - 91 - Table of Contents The following corporate tax benefits, among others, are available to Industrial Companies: ● amortization over an eight-year period of the cost of purchased know-how and patents and rights to use a patent and know-how which are used for the development or advancement of the company; ● under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and ● expenses related to a public offering are deductible in equal amounts over a three-year period. Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority. The Israeli tax authorities may determine that we do not qualify as an Industrial Company, which could entail our loss of the benefits that relate to this status. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future. Taxation of our Shareholders Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders. Generally, the tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “substantial shareholder” at any time during the 12-month period preceding such sale, i.e., such shareholder holds directly or indirectly, including with others, at least 10% of any “means of control” in the company, the tax rate will be 30%. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Companies are subject to the corporate tax rate (23% in 2025) on capital gains derived from the sale of listed shares. A non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel will be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Additionally, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. Furthermore, a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the United States-Israel Tax Treaty, the disposition of shares by a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset is generally exempt from Israeli capital gains tax unless, among other things, (i) the capital gain arising from the disposition is attributed to business income derived by a permanent establishment of the shareholder in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12-month period preceding the disposition; or (iii) such U.S. resident is an individual and was present in Israel for 183 days or more in the aggregate during the relevant taxable year. In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, the Israel Tax Authority may require shareholders who are not liable for Israeli capital gains tax on such a sale to sign a declaration on a form specified by the Israel Tax Authority, provide documents (including, for example, a certificate of residency) or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli residents. In the absence of such declarations or exemptions, the Israel Tax Authority may require the purchaser of the shares to withhold tax at source. A detailed return, including a computation of the tax due, must be filed and an advance payment must be paid on January 31st and July 31st of each tax year for sales of securities traded on a stock exchange made within the previous six months. However, if all tax due was withheld at the source according to applicable provisions of the Israeli Income Tax Ordinance and the regulations promulgated thereunder, the return does not need to be filed, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and an advance payment does not need to be made, and (iii) the taxpayer is not obligated to pay surtax (as further explained below). Capital gains are also reportable on an annual income tax return. - 92 - Table of Contents Taxation of Non-Israeli Shareholders on Receipt of Dividends. Non-Israeli residents (whether individuals or corporations) generally will be subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether the recipient is a substantial shareholder or not). However, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an Approved Enterprise or Beneficiary Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. If the dividend is being paid out of certain income attributable to a Preferred Technological Enterprise, the dividend will be subject to tax at the rate of 20% (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). A different rate may be provided in a treaty between Israel and the shareholder’s country of residence, as mentioned below. In this regard, under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a United States resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by an Approved Enterprise, or Beneficiary Enterprise or a Preferred Technological Enterprise, that are paid to a United States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. If the above conditions are met and the dividends are generated by an Approved Enterprise, or Beneficiary Enterprise or a Preferred Technological Enterprise, the maximum rate of withholding tax on such dividends is 15%. Application to the Israel Tax Authority for this reduced tax rate requires appropriate documentation presented to, and specific instruction received from, the Israel Tax Authority. If the dividend is attributable partly to income derived from Approved Enterprise, Beneficiary Enterprise or a Preferred Technological Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability. A non-Israeli resident who receives dividends from which tax was duly withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer; (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii) the taxpayer is not liable to surtax (as further explained below). Surtax Individuals who are subject to tax in Israel (whether or not Israeli residents) are subject to a surtax at a rate of 3% of annual taxable income in excess of NIS 721,560 (for the 2026 tax year, which amount is linked to the annual change in the Israeli consumer price index, with the exception that based on Israeli legislation such amount will not be linked to the Israeli consumer price index for the years 2025-2027), including, but not limited to, dividends, interest and capital gain. In addition, effective as of January 1, 2025, an additional 2% surtax will be imposed on Capital-Sourced Income (defined as income from any source other than employment income, business income or income from “personal effort”), provided that the individual’s Capital Sourced Income exceeds the specified threshold of NIS 721,560. This additional surtax applies, among other things, to income from capital gains, dividends, interest, rental income, or the sale of real property. - 93 - Table of Contents U.S. Federal Income Tax Considerations The following summary describes the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) arising from the acquisition, ownership and disposition of our ordinary shares. This summary is based on the Internal Revenue Code of 1986, as amended, or the “Code,” the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change (possibly with retroactive effect) or different interpretations. For purposes of this summary, a “U.S. Holder” will be deemed to refer only to any of the following beneficial owners of our ordinary shares: ● an individual who is either a U.S. citizen or a resident of the United States for U.S. federal income tax purposes; ● a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States or any political subdivision thereof; ● an estate the income of which is subject to U.S. federal income tax regardless of the source of its income; and ● a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. This summary does not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their particular circumstances, and does not consider the potential application of the U.S. federal estate, gift or alternative minimum tax, or any aspect of state, local or non-U.S. federal tax laws or U.S. federal tax laws other than U.S. federal income tax laws. In addition, this summary is directed only to U.S. Holders that hold our ordinary shares as “capital assets” within the meaning of Section 1221 of the Code and does not address the considerations that may be applicable to particular classes of U.S. Holders, including U.S. expatriates, banks, financial institutions, regulated investment companies, real estate investment trusts, pension funds, insurance companies, broker-dealers or traders in securities, commodities or currencies, tax-exempt organizations, grantor trusts, partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, persons that will hold our ordinary shares in partnerships or other pass-through entities, holders whose functional currency is not the dollar, holders who have elected mark-to-market accounting, holders who acquired our ordinary shares through the exercise of options or otherwise as compensation for the performance of services, holders who hold our ordinary shares as part of a “straddle,” “hedge” or “conversion transaction,” holders selling our ordinary shares short, holders deemed to have sold our ordinary shares in a “constructive sale,” holders required to accelerate the recognition of any item of gross income with respect to our ordinary shares as a result of such income being recognized on an applicable financial statement, holders that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; and holders, directly, indirectly or through attribution, of 10% or more (by vote or value) of our outstanding ordinary shares. If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the U.S. federal income tax consequences relating to an investment in our ordinary shares will depend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax consequences of acquiring, owning and disposing of our ordinary shares in its particular circumstances. Each U.S. Holder should consult with its own tax advisor as to the particular tax consequences to it of the acquisition, ownership and disposition of our ordinary shares, including the effects of applicable tax treaties, state, local, foreign or other tax laws and possible changes in the tax laws. Distributions With Respect to Our Ordinary Shares In the event we make a distribution with respect to our ordinary shares, subject to the discussion below under “Passive Foreign Investment Company Status,” for U.S. federal income tax purposes, the amount of the distribution will equal the dollar value of the gross amount of cash and/or the fair market value of any property distributed, including the amount of any Israeli taxes withheld on such distribution as described above under “Israeli Tax Considerations - Taxation of Non-Israeli Shareholders on Receipt of Dividends.” Other than distributions in liquidation or in redemption of our ordinary shares that are treated as exchanges, a distribution with respect to our ordinary shares to a U.S. Holder generally will be treated as a dividend to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of any distribution that exceeds these earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis in its ordinary shares (but not below zero), and then generally as capital gain from a deemed sale or exchange of such ordinary shares. However, because we do not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported to them as dividends. Corporate U.S. Holders generally will not be allowed a deduction under Section 243 of the Code for dividends received on our ordinary shares and thus will be subject to tax at the rate applicable to their taxable income. Currently, a non-corporate U.S. Holder’s “qualified dividend income” generally is subject to tax at lower long-term capital gains rates. For this purpose, “qualified dividend income” generally includes dividends paid by a foreign corporation if, among other things, the non-corporate U.S. Holder meets certain minimum holding period requirements, is not under an obligation to make related payments with respect to positions in substantially similar or related property, and either (a) the stock of such corporation is readily tradable on an established securities market in the U.S., including the Nasdaq Global Select Market, or (b) such corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has indicated that the income tax treaty between the United States and Israel is satisfactory for this purpose. Dividends paid by us will not be treated as qualified dividend income, however, if we are treated, for the tax year in which the dividends are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal income tax purposes. See the discussion below under the heading “Passive Foreign Investment Company Status.” A non-corporate U.S. Holder may be subject to an additional tax based on its “net investment income,” which generally is computed as gross income from interest, dividends, annuities, royalties and rents and gain from the sale of property (other than property held in the active conduct of a trade or business that does not regularly trade financial instruments or commodities), less the amount of deductions properly allocable to such income or gain. Such tax is equal to 3.8% of the lesser of an individual U.S. Holder’s (i) net investment income or (ii) the excess of such U.S. Holder’s “modified adjusted gross income” (adjusted gross income plus the amount of any foreign earned income excluded from income under Section 911(a)(1) of the Code, net of deductions and exclusions disallowed with respect to such foreign earned income) over a specified threshold amount ($250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return and $200,000 in any other case). In the case of a U.S. Holder which is an estate or trust, the tax is equal to 3.8% of the lesser of (i) undistributed net investment income or (ii) the excess of adjusted gross income (as defined in Section 67(e) of the Code) over the dollar amount at which the highest tax bracket applicable to an estate or trust begins. U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of their receipt of any distributions with respect to our ordinary shares. A dividend paid by us in NIS will be included in the income of U.S. Holders at the dollar amount of the dividend, based on the “spot rate” of exchange in effect on the date of receipt or deemed receipt of the dividend, regardless of whether the payment is in fact converted into dollars. U.S. Holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar value. Any gain or loss upon the subsequent conversion of the NIS into dollars or other disposition of the NIS will constitute foreign currency gain or loss taxable as ordinary income or loss and will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes. - 94 - Table of Contents Dividends received with respect to our ordinary shares will constitute “portfolio income” for purposes of the limitation on the deductibility of passive activity losses and, therefore, generally may not be offset by passive activity losses. Dividends received with respect to our ordinary shares also generally will be treated as “investment income” for purposes of the investment interest deduction limitation contained in Section 163(d) of the Code, and generally as foreign-source passive income for U.S. foreign tax credit purposes. Subject to certain limitations, U.S. Holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability for any Israeli income tax withheld from distributions with respect to our ordinary shares which constitute dividends under U.S. income tax law. A U.S. Holder that does not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only if the U.S. Holder elects to do so with respect to all foreign income taxes in such year. Certain U.S. Treasury regulations have imposed additional requirements that must be met for a foreign tax to be creditable. However, subsequent notice from the IRS has indicated that the U.S. Department of the Treasury and the IRS are considering proposing amendments to such regulations and allows, subject to certain conditions, taxpayers to defer the application of many aspects of such regulations for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If a refund of the tax withheld is available under the applicable laws of Israel or under the Israel-U.S. income tax treaty, the amount of tax withheld that is refundable will not be eligible for such credit against your U.S. federal income tax liability (and will not be eligible for the deduction against your U.S. federal taxable income). In addition, special rules may apply to the computation of foreign tax credits relating to “qualified dividend income,” as defined above. The calculation of foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign income taxes, the availability of deductions involves the application of complex rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders are urged to consult their own tax advisors regarding the availability to them of foreign tax credits or deductions in respect of any Israeli tax withheld or paid with respect to any dividends which may be paid with respect to our ordinary shares, including limitations pursuant to the U.S.-Israel income tax treaty. However, if we are a “United States-owned foreign corporation,” solely for foreign tax credit purposes, a portion of the dividends allocable to our U.S. source earnings and profits may be recharacterized as U.S. source. A “United States-owned foreign corporation” is any foreign corporation in which United States persons own, directly or indirectly, 50% or more (by vote or by value) of the stock. In general, United States-owned foreign corporations with less than 10% of earnings and profits attributable to sources within the United States are excepted from these rules. In such case, if 10% or more of our earnings and profits are attributable to sources within the United States, a portion of the dividends paid on our ordinary shares allocable to our U.S. source earnings and profits will be treated as U.S. source, and, as such, a U.S. Holder may not offset any foreign tax withheld as a credit against U.S. federal income tax imposed on that portion of dividends. The rules governing the treatment of foreign taxes imposed on a U.S. Holder and foreign tax credits are complex, and each U.S. Holder should consult their respective tax advisor about the impact of these rules in their particular situation. Disposition of Our Ordinary Shares Subject to the discussion below under “Passive Foreign Investment Company Status,” a U.S. Holder’s sale, exchange or other taxable disposition of our ordinary shares generally will result in the recognition by such U.S. Holder of capital gain or loss in an amount equal to the difference between the dollar value of the amount realized and the U.S. Holder’s tax basis in the ordinary shares disposed of (measured in dollars). This gain or loss will be long-term capital gain or loss if such ordinary shares have been held or are deemed to have been held for more than one year at the time of the disposition. Non-corporate U.S. Holders currently are subject to a maximum tax rate of 20% on long-term capital gains, also may be subject to the additional tax on “net investment income” described above in “Distributions With Respect to Our Ordinary Shares.” If the U.S. Holder’s holding period on the date of the taxable disposition is one year or less, such gain or loss will be a short-term capital gain or loss. Short-term capital gains generally are taxed at the same rates applicable to ordinary income. See “Israeli Tax Considerations - Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders” for a discussion of taxation by Israel of capital gains realized on sales of our ordinary shares. Any capital loss realized upon the taxable disposition of our ordinary shares generally will be deductible only against capital gains and not against ordinary income, except that non-corporate U.S. Holders generally may deduct annually from ordinary income up to $3,000 of net capital losses. In general, any capital gain or loss recognized by a U.S. Holder upon the taxable disposition of our ordinary shares will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes, although the tax treaty between the United States and Israel may permit gain derived from the taxable disposition of ordinary shares by a U.S. Holder to be treated as foreign-source income for U.S. foreign tax credit purposes under certain circumstances. In addition, certain U.S. Treasury regulations have imposed additional requirements that must be met for a foreign tax to be creditable. However, subsequent notice from the IRS has indicated that the U.S. Department of the Treasury and the IRS are considering proposing amendments to such regulations and allows, subject to certain conditions, taxpayers to defer the application of many aspects of such regulations for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). The rules governing the treatment of foreign taxes imposed on a U.S. Holder and foreign tax credits are very complex, and U.S. Holders are urged to consult their own tax advisors regarding the availability to them of foreign tax credits or deductions in respect of any Israeli tax withheld or paid with respect to a taxable disposition of our ordinary shares, including limitations pursuant to the U.S.-Israel income tax treaty. A U.S. Holder’s tax basis in its ordinary shares generally will be equal to the dollar purchase price paid by such U.S. Holder to acquire such ordinary shares. The dollar cost of ordinary shares purchased with foreign currency generally will be equal to the dollar value of the purchase price on the date of purchase or, in the case of ordinary shares that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase. Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue Service. The holding period of each ordinary share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder’s purchase of such ordinary share and will include the day on which the ordinary share is sold by such U.S. Holder. - 95 - Table of Contents In the case of a U.S. Holder who uses the cash basis method of accounting and who receives NIS in connection with a taxable disposition of ordinary shares, the amount realized will be based on the “spot rate” of exchange on the settlement date of such taxable disposition. If such U.S. Holder subsequently converts NIS into dollars at a conversion rate other than the spot rate in effect on the settlement date, such U.S. Holder may have a foreign currency exchange gain or loss treated as ordinary income or loss for U.S. federal income tax purposes. A U.S. Holder who uses the accrual method of accounting may elect the same treatment required of cash method taxpayers with respect to a taxable disposition of ordinary shares, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the U.S. Internal Revenue Service. If an accrual method U.S. Holder does not (or is not eligible to) elect to be treated as a cash method taxpayer (pursuant to U.S. Treasury Regulations applicable to foreign currency transactions), such U.S. Holder may be deemed to have realized an immediate foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the dollar value of the NIS on the date of the taxable disposition and the settlement date. Any such currency gain or loss generally would be treated as U.S.-source ordinary income or loss and would be subject to tax in addition to any gain or loss recognized by such U.S. Holder on the taxable disposition of ordinary shares. Passive Foreign Investment Company Status Generally, a foreign corporation is treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any tax year if, in such tax year, either (i) 75% or more of its gross income (including its pro rata share of the gross income of any company in which it is considered to own 25% or more of the shares by value) is passive in nature, or the Income Test, or (ii) the average percentage of its assets during such tax year (including its pro rata share of the assets of any company in which it is considered to own 25% or more of the shares by value) which produce, or are held for the production of, passive income (determined by averaging the percentage of the fair market value of its total assets which are passive assets as of the end of each quarter of such year) is 50% or more, or the Asset Test. Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions. Cash is treated as generating passive income. There is no definitive method prescribed in the Code, U.S. Treasury Regulations or relevant administrative or judicial interpretations for determining the value of a publicly traded foreign corporation’s assets for purposes of the Asset Test. The legislative history of the U.S. Taxpayer Relief Act of 1997, or the 1997 Act, indicates that for purposes of the Asset Test, “the total value of a publicly traded foreign corporation’s assets generally will be treated as equal to the sum of the aggregate value of its outstanding stock plus its liabilities.” It is unclear whether other valuation methods could be employed to determine the value of a publicly traded foreign corporation’s assets for purposes of the Asset Test. We must make a separate determination each taxable year as to whether we are a PFIC. As a result, our PFIC status may change from year to year. Based on the composition of our gross income and the composition and value of our gross assets, we expect not to be a PFIC for the current taxable year. There can be no assurance that we will not be deemed a PFIC for the current tax year or any future tax year in which, for example, the value of our assets, as measured by the public market valuation of our ordinary shares, declines in relation to the value of our passive assets (generally, cash, cash equivalents and marketable securities). If we are treated as a PFIC with respect to a U.S. Holder for any tax year, the U.S. Holder will be deemed to own ordinary shares in any of our subsidiaries that are also PFICs. - 96 - Table of Contents If we are treated as a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder’s holding period of our ordinary shares and the U.S. Holder does not make a QEF Election or a “mark-to-market” election (both as described below), the U.S. Holder would be subject to the following rules: (i) the U.S. Holder would be required to (a) report as ordinary income any “excess distributions” (as defined below) allocated to the current tax year and any period prior to the first day of the first tax year in which we were a PFIC, (b) pay tax on amounts allocated to each prior tax year in which we were a PFIC at the highest rate for individuals or corporations as appropriate in effect for such prior year, and (c) pay an interest charge on the tax due for prior tax years in which we were a PFIC at the rate applicable to deficiencies of U.S. federal income tax. “Excess distributions” with respect to any U.S. Holder are amounts received by such U.S. Holder with respect to our ordinary shares in any tax year that exceed 125% of the average distributions received by such U.S. Holder from us during the shorter of (i) the three previous years, or (ii) such U.S. Holder’s holding period of our ordinary shares before the then-current tax year. Excess distributions must be allocated ratably to each day that a U.S. Holder has held our ordinary shares; and (ii) the entire amount of any gain realized by the U.S. Holder upon the sale or other disposition of our ordinary shares also would be treated as an “excess distribution” subject to tax as described above. If we are a PFIC for any tax year in which a U.S. Holder holds our ordinary shares, we generally will continue to be treated as a PFIC as to such U.S. Holder for all subsequent years during the U.S. Holder’s holding period unless we cease to be a PFIC and the U.S. Holder elects to recognize gain based on the unrealized appreciation in such U.S. Holder’s ordinary shares through the close of the tax year in which we cease to be a PFIC. Thereafter, so long as we do not again become a PFIC, such U.S. Holder’s ordinary shares for which an election was made will not be treated as shares in a PFIC. A U.S. Holder who beneficially owns shares of a PFIC must file U.S. Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with the U.S. Internal Revenue Service annually. For any tax year in which we are treated as a PFIC, a U.S. Holder may elect to treat its ordinary shares as an interest in a qualified electing fund, or a QEF Election, in which case the U.S. Holder would be required to include in income currently its proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of our earnings and profits are actually made to the U.S. Holder. Any gain subsequently recognized by the U.S. Holder upon the sale or other disposition of its ordinary shares, however, generally would be taxed as capital gain. A U.S. Holder may make a QEF Election with respect to a PFIC for any tax year. The election is effective for the tax year for which it is made and all subsequent tax years of the U.S. Holder. Procedures exist for both retroactive elections and the filing of protective statements. A QEF Election is made by completing U.S. Internal Revenue Service Form 8621 and attaching it to a timely filed (including extensions) U.S. federal income tax return for the first tax year to which the election will apply. A U.S. Holder must satisfy additional filing requirements each year the election remains in effect. Upon a U.S. Holder’s request, we will provide to such U.S. Holder the information required to make a QEF Election and to make subsequent annual filings. As an alternative to a QEF Election, a U.S. Holder generally may elect to mark its ordinary shares to market annually, recognizing ordinary income or loss (subject to certain limitations) equal to the difference, as of the close of each tax year, between the fair market value of its ordinary shares and the adjusted tax basis of such shares. A U.S. Holder will be allowed a deduction for the excess, if any, of the adjusted basis of its ordinary shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on our ordinary shares included in the U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on ordinary shares, as well as to any loss realized on the actual sale or disposition of ordinary shares, to the extent the amount of such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income. A U.S. Holder’s basis in our ordinary shares will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a mark-to-market election, any distributions we make would generally be subject to the rules discussed above under “-Distributions With Respect to Our Ordinary Shares,” except the lower rates applicable to qualified dividend income would not apply. Once made, a mark-to-market election generally continues unless revoked with the consent of the U.S. Internal Revenue Service. - 97 - Table of Contents The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Our ordinary shares are traded on Nasdaq and TASE. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs we own, a U.S. Holder generally will continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. Nasdaq is a qualified exchange, and we believe TASE should be treated as a qualified exchange but there can be no assurance that the trading in our ordinary shares will be sufficiently regular to qualify our ordinary shares as marketable stock. U.S. Holders should consult their own tax advisor as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs. Each U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax. Due to the complexity of the PFIC rules and the uncertainty of their application in many circumstances, U.S. Holders should consult their own tax advisors with respect to the U.S. federal income tax risks related to owning and disposing of our ordinary shares, the consequence of our status as a PFIC and, if we are treated as a PFIC, compliance with the applicable reporting requirements and the eligibility, manner and advisability of making a QEF Election or a mark-to-market election. Information Reporting and Backup Withholding Payments in respect of our ordinary shares that are made in the United States or by certain U.S.-related financial intermediaries may be subject to information reporting requirements and U.S. backup withholding tax, currently at a rate of 24%. The information reporting requirements will not apply, however, to payments to certain exempt U.S. Holders, including corporations and tax-exempt organizations. In addition, backup withholding will not apply to a U.S. Holder that furnishes a correct taxpayer identification number on U.S. Internal Revenue Service Form W-9 (or substitute form) or establishes an exemption. The backup withholding tax is not an additional tax. Amounts withheld under the backup withholding tax rules may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding tax rules by timely filing the appropriate claim for refund with the U.S. Internal Revenue Service. U.S. Holders should consult their own tax advisors regarding their qualification for an exemption from the backup withholding tax and the procedures for obtaining such an exemption, if applicable. Foreign Asset Reporting A U.S. Holder with interests in “specified foreign financial assets” (including, among other assets, our ordinary shares, unless such ordinary shares are held on such U.S. Holder’s behalf through a financial institution) may be required to file an information report with the U.S. Internal Revenue Service if the aggregate value of all such assets exceeds $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable U.S. Internal Revenue Service guidance). Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. A U.S. Holder that fails to report the required information could be subject to substantial penalties. Each U.S. Holders should consult with its own tax advisor regarding its obligation to file such information reports in light of its own particular circumstances. The foregoing discussion of certain U.S. federal income tax considerations is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Accordingly, each U.S. Holder should consult with its own tax advisor regarding U.S. federal, state, local and non-U.S. income and other tax consequences of the acquisition, ownership and disposition of our ordinary shares. F. DIVIDENDS AND PAYING AGENTS Not applicable. G. STATEMENT BY EXPERTS Not applicable. - 98 - Table of Contents H. DOCUMENTS ON DISPLAY Our website is http://www.audiocodes.com. We are subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations with respect to such requirements by filing reports with the SEC. We make available, free of charge, on our website (under the heading “Investor Relations”) our Annual Reports on Form 20-F, Reports on Form 6-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report. The SEC maintains an Internet site that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov. I. SUBSIDIARY INFORMATION Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risk associated with changes in foreign currency exchange rates. To mitigate these risks, we use derivative financial instruments. The majority of our revenues and expenses are generated in dollars. A portion of our expenses, however, is denominated in NIS. In order to protect ourselves against the volatility of future cash flows caused by changes in foreign exchange rates, we use currency forward contracts and currency options. We usually hedge the part of our forecasted expenses denominated in NIS. If our currency forward contracts and currency options meet the definition of a hedge, and are so designated, changes in the fair value of the contracts will be offset against changes in the fair value of the hedged assets or liabilities through earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Our hedging program reduces, but does not eliminate, the impact of foreign currency rate movements and due to the general economic slowdown along with the devaluation of the dollar, our results of operations may be adversely affected. Without taking into account the mitigating effect of our hedging activity, a 10% decrease in the dollar exchange rates in effect for the year ending December 31, 2025, would cause a decrease in net income of approximately $8.1 million. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. - 99 - Table of Contents PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Our original Articles of Association and Memorandum of Association were adopted prior to the enactment of the Companies Law and were only amended on limited occasions since adoption. In light of changes in the business and legal environment that occurred since such time, in August 2020, our Board of Directors approved, and in September 2020 our shareholders approved, our Amended and Restated Articles of Association and Amended and Restated Memorandum of Association, which amended and restated our prior Articles of Association and Memorandum of Association in their entirety. The description of those amendments, set forth in our proxy statement filed as Exhibit 99.1 to our Form 6-K filed with the SEC on August 13, 2020, is incorporated herein by reference, and the Amended and Restated Articles of Association and Amended and Restated Memorandum of Association are incorporated by reference as Exhibit 1.2 to our Form 6-K filed with the SEC on September 15, 2020 and Exhibit 1.1 to this Annual Report. In September 2024, our shareholders approved further amendments to our Amended and Restated Articles of Association, which increased our authorized share capital by NIS 1,000,000 such that our authorized share capital now consists of NIS 2,025,000, divided into 200,000,000 ordinary shares and 2,500,000 preferred shares. This increase is designed to maintain our current flexibility to conduct future issuances of our ordinary shares, in the ordinary course from time to time to fund our operations and to perform equity-based acquisitions or licensing transactions. The description of the amendment, set forth in our proxy statement filed as Exhibit 99.1 to our Form 6-K filed with the SEC on August 13, 2024, is incorporated herein by reference, and the Amended and Restated Articles of Association, as amended by the foregoing, is incorporated by reference as Exhibit 1.2 to this Annual Report. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our President and Chief Executive Officer and our Vice President Finance and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2025. Based on this evaluation, our President and Chief Executive Officer and Vice President Finance and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were (i) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our management, including our President and Chief Executive Officer and Vice President Finance and Chief Financial Officer, by others within those entities, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this report was being prepared and (ii) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. - 100 - Table of Contents Management’s Annual Report on Internal Control Over Financial Reporting Our management, under the supervision of our President and Chief Executive Officer and our Vice President Finance and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: ● pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; ● provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; ● provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and ● provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2025 based on the framework for Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment under that framework and the criteria established therein, our management concluded that the company’s internal control over financial reporting was effective as of December 31, 2025. Attestation Report of the Registered Public Accounting Firm This Annual Report includes an attestation report of our registered public accounting firm regarding internal control over financial reporting on page F-4 of our audited consolidated financial statements set forth in Item 18, “Financial Statements,” and is incorporated herein by reference. Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 16. [RESERVED] ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT Our Board of Directors has determined that Joseph Tenne is an “audit committee financial expert” (as defined in Item 16.A of Form 20-F) and is “independent” (as defined in the applicable regulations). ITEM 16.B. CODE OF ETHICS We have adopted a Code of Conduct and Business Ethics, which was updated in 2019, that applies to our President and Chief Executive Officer, Vice President Finance and Chief Financial Officer and other senior financial officers. This Code has been posted on our website, www.audiocodes.com. Any substantive amendments or waivers of this code for our President and Chief Executive Officer, Vice President Finance and Chief Financial Officer and other senior financial officers will be disclosed within five business days following the date of such amendment or waiver on our website. - 101 - Table of Contents ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Kost Forer Gabbay & Kasierer, a member of EY Global, has served as our independent public accountants for each of the years in the three-year period ended December 31, 2025. The following table presents the aggregate fees for professional audit services and other services rendered by Kost Forer Gabbay & Kasierer in 2025 and 2024. Year Ended December 31, (Amounts in thousands) 2025 2024 Audit Fees $ 648 $ 709 Audit-Related Fees - - Tax Fees 36 103 All Other Fees - - Total $ 684 $ 812 Audit Fees consist of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements of the company. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include services rendered for the integrated audit over internal controls as required under Section 404 of the Sarbanes-Oxley Act applicable in 2025 and 2024, the provision of consents and the review of documents filed with the SEC. Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, transfer pricing, and requests for rulings or technical advice from taxing authorities; tax planning services; and expatriate tax compliance, consultation and planning services. Audit Committee Pre-approval Policies and Procedures The audit committee of AudioCodes’ Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Israeli law. The audit committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent auditors, or the Policy. Under the Policy, proposed services either (i) may be pre-approved by the audit committee without consideration of specific case-by-case services as general pre-approval or (ii) require the specific pre-approval of the audit committee as specific pre-approval. The audit committee may delegate either type of pre-approval authority to one or more of its members. The appendices to the Policy set out the audit, audit-related, tax and other services that have received the general pre-approval of the audit committee, including those described in the footnotes to the table, above; these services are subject to annual review by the audit committee. All other audit, audit-related, tax and other services must receive a specific pre-approval from the audit committee. The audit committee pre-approves fee levels annually for the audit services. Non-audit services are pre-approved as required. The chairman of the audit committee may approve non-audit services of up to $25,000 and then request the audit committee to ratify his decision. During 2025 and 2024, no services provided to AudioCodes by Kost Forer Gabbay & Kasierer were approved by the audit committee pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 201 of Regulation S-X. We approve all such compensation by the audit committee. ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. - 102 - Table of Contents ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS In 2025, we repurchased an aggregate of 3,150,361 of our ordinary shares for an aggregate consideration of approximately $30.6 million, as set forth below: Period (a) Total Number of Ordinary Shares Purchased (1) (b) Average Price Paid per Ordinary Share ($) (2) (c) Total Number of Ordinary Shares Purchased as Part of Publicly Announced Program (d) Approximate dollar Value of Shares That May Yet be Purchased under the Program ($) January 1 - January 31, 2025 163,476 1,678,661 1,683,566 17,358,374 February 1 - February 28, 2025 61,050 685,373 687,205 16,671,170 March 1 - March 31, 2025(3) 275,474 2,828,789 2,837,053 8,507,666 April 1 - April 30, 2025 460,638 4,200,759 4,214,578 4,293,089 May 1 - May 31, 2025 140,070 1,302,192 1,306,394 2,986,695 June 1 - June 30, 2025 115,024 1,085,813 1,089,263 1,897,431 July 1 - July 31, 2025 373,376 3,817,976 3,829,178 16,170,822 August 1 - August 31, 2025(4) 511,253 5,030,042 5,045,379 5,517,426 September 1 - September 30, 2025 382,807 3,809,836 3,821,320 1,696,105 October 1 - October 31, 2025 167,193 1,618,110 1,623,125 72,980 November 1 - November 30, 2025 139,008 1,222,835 1,227,005 23,772,995 December 1 - December 31, 2025 360,992 3,223,542 3,234,371 20,538,624 Total in 2025 3,150,361 30,503,927 30,598,438 20,538,624 (1) In each of July 2025 and October 2025, we received court approvals in Israel to repurchase up to $20.0 and $25.0 million of our ordinary shares, respectively. Each of the foregoing approvals received in 2025 allowed us to use the approved amounts for share repurchases or cash dividends. The Israeli court generally limits its approval to six months from the date of application. Consequently, although the program does not have a set end date, it requires renewal each six months by submitting new court application based on the then prevailing facts. No shares were repurchased during the year ended December 31, 2025, other than through the repurchase program. (2) Excluding commissions. (3) In March 2025, we paid a cash dividend in the aggregate amount of $5.3 million. (4) In August 2025, we paid a cash dividend in the aggregate amount of $5.6 million. ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFIED ACCOUNTANT Not applicable. ITEM 16.G. CORPORATE GOVERNANCE As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq Marketplace Rules. We do not comply with the Nasdaq requirement that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain share-based compensation plans (including amendments to increase the number of shares available for grant under our existing equity incentive plan). Instead, we follow Israeli law and practice which permits the establishment or amendment of certain share-based compensation plans to be approved by our Board of Directors without the need for a shareholder vote, unless such arrangements are for the compensation of directors or the chief executive officer, in which case they also require compensation committee and shareholder approval. We may elect in the future to follow Israeli practice with regard to, among other things, director nomination, composition of the board of directors and quorum at shareholders’ meetings. In addition, we may follow Israeli law, instead of the Nasdaq Marketplace Rules, which require that we obtain shareholder approval for an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home country practice instead of Nasdaq requirements must submit to Nasdaq in advance a written statement from an independent counsel in its home country certifying that its practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC or on its website each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s corporate governance rules. For a discussion of the requirements of Israeli law with respect to these matters, see Item 6.C, “Directors, Senior Management and Employees- Board Practices,” and Item 10.B, “Additional Information-Memorandum and Articles of Association.” - 103 - Table of Contents ITEM 16.H. MINE SAFETY DISCLOSURE Not applicable. ITEM 16.I.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. ITEM 16.J. INSIDER TRADING POLICIES We have adopted an insider trading policy which applies to all of the Company’s directors, officers and employees as well as certain related parties, and sets forth procedures governing the purchase, sale and other disposition of our securities by such parties. Our insider trading policy is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of our insider trading policy has been filed as Exhibit 11.1 to this Annual Report. ITEM 16.K. CYBERSECURITY Risk management and strategy We have a cybersecurity program for assessing, identifying, and managing risks from cybersecurity threats, and we monitor the prevention, detection, mitigation and remediation of cybersecurity incidents, as applicable. Our policies and procedures address security governance, security awareness and training, access management, vulnerability management, penetration testing, security monitoring, incident response, and third-party access. In addition, our employees regularly undergo continuing cybersecurity training, and employees in higher-risk functions receive additional training and cybersecurity awareness education. We also conduct periodic audits, cybersecurity simulations and employee testing, as deemed appropriate, and we engage with third parties, as appropriate, to evaluate the strength of our program through penetration testing, vulnerability testing and mock phishing campaigns. AudioCodes’ risk management and strategy is based on the following principles: ● Risk management is a continuous, cyclical process that involves six steps: (1) establishing context; (2) identifying and describing risks; (3) quantifying and assessing risks; (4) taking action to control risks; (5) monitoring and reviewing risks; (6), and communicating and consulting about risks. ● Risk management is a key organizational responsibility that aims to identify and control risks that might have an impact on the organization’s objectives, its employees, and the people it interacts with. ● Risk management is a good management practice and central to the effective running of the organization. AudioCodes will seek to ensure that any decisions made on behalf of the organization are taken with due consideration of the effective management of risks. ● Risk management is supported by an annual external audit and review of governance, risk management, and internal controls, as well as regular internal audits and reports. ● AudioCodes shall seek to implement the information security controls as detailed in its work plan and risk assessment table. ● AudioCodes has assigned clear roles and responsibilities for risk management to its senior management, the Chief Information Security Officer, its employees and its contractors. Our systems face cybersecurity risks, and although such risks have not to date materially affected, and we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, we may, from time to time, experience threats to and security incidents related to our data and systems. We can provide no assurance that we will not experience any material cybersecurity threats or incidents in the future. See Item 3.D, “Key Information - Risk Factors - We and our third-party providers are exposed to cybersecurity risks and incidents, which may result in damage to our brand and reputation, material financial penalties, and legal liability, which could in turn materially adversely affect our business, results of operations, and financial condition.” Corporate governance Our Chief Information Officer, or the CIO, has primary responsibility for day-to-day management of our cybersecurity risk management program, including leading a dedicated team of technology professionals to monitor cybersecurity risks on behalf of AudioCodes. Our IT department, led by our CIO, is responsible for assessing potential vulnerabilities and exposures to cybersecurity threats, implementing controls and measures designed to mitigate these risks, and regularly monitoring and updating these measures as appropriate to adapt to evolving cybersecurity threats. Our current CIO possesses approximately 11 years of experience with information technology and cybersecurity risk management. As part of our Board of Directors’ enterprise risk management process, our Board of Directors has responsibility for oversight of cybersecurity risk management. Our Board of Directors has delegated to the audit committee oversight of our cybersecurity risk management program. Our internal auditor provides periodic reports to the audit committee covering cybersecurity and other information technology risks affecting us. We have implemented a process in which management would report cybersecurity incidents that it determines to present critical risk to us. AudioCodes’ senior management has the ultimate responsibility for the implementation of its risk management policy and risk management process on a day-to-day basis. Senior management is accountable for ensuring that the risk management policy is established, implemented, maintained and reviewed in accordance with the ISO 27001 standard and the organizational objectives. Senior management is also responsible for determining resources, supporting and guiding the effective execution of the risk management process. The senior management team takes steps to stay informed about and monitor efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include: briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT environment. - 104 - Table of Contents PART III ITEM 17. FINANCIAL STATEMENTS Not applicable. ITEM 18. FINANCIAL STATEMENTS Reference is made to pages F-1 to F-45 of the financial statements attached hereto. ITEM 19. EXHIBITS The following exhibits are filed as part of this Annual Report: Exhibit Incorporated by Reference No. Document Form File No. Date Filed 1.1 Amended and Restated Memorandum of Association of Registrant. 6-K 000-30070 9/15/2020 1.2* Amended and Restated Articles of Association of Registrant. 2.1* Description of Securities. 4.1 License Agreement between AudioCodes Ltd. and DSP Group, Inc., dated as of May 6, 1999. F-1 333-10352 5/22/1999 4.2 Employment Agreement between AudioCodes Ltd. and Shabtai Adlersberg. 6-K 000-30070 11/12/2009 4.3 Amendment No. 1 to Employment Agreement between AudioCodes Ltd. and Shabtai Adlersberg. 6-K 000-30070 8/8/2013 4.4 Amendment No. 2 to Employment Agreement between AudioCodes Ltd. and Shabtai Adlersberg. 6-K 000-30070 8/8/2017 4.5 Amendment No. 3 to Employment Agreement between AudioCodes Ltd. and Shabtai Adlersberg. 6-K 000-30070 8/14/2019 4.6† English Summary of Terms of Employment of Lior Aldema, as of March 2019. 20-F (2019) 000-30070 3/19/2019 4.7 AudioCodes Ltd. 2008 Equity Incentive Plan. 20-F (2008) 000-30070 6/30/2009 4.8 Amendment to AudioCodes Ltd. 2008 Equity Incentive Plan. S-8 333-170676 11/18/2010 4.9 Amendment No. 2 to AudioCodes Ltd. 2008 Equity Incentive Plan. S-8 333-190437 8/7/2013 4.10 Amendment No. 3 to AudioCodes Ltd. 2008 Equity Incentive Plan. S-8 333-210438 3/29/2016 4.11 Amendment No. 4 to AudioCodes Ltd. 2008 Equity Incentive Plan. S-8 333-230388 3/19/2019 4.12 Form of Insurance, Indemnification and Exculpation Agreement between the Registrant and each of its directors and executive officers. 6-K 000-30070 11/10/2011 - 105 - Table of Contents 4.13 Amendment No. 5 to AudioCodes Ltd. 2008 Equity Incentive Plan. S-8 333-264535 4/28/2022 4.14 Lease Agreement, dated May 13, 2022, by and between Kingsbridge 2005 LLC and AudioCodes Ltd. 20-F (2022) 000-30070 4/24/2023 4.15† English Summary of Building and Tenancy Lease Agreement, dated November 16, 2022, by and between Naimi Towers Ltd. and AudioCodes Ltd. 20-F (2022) 000-30070 4/24/2023 4.16† English Summary Translation of Building and Tenancy Lease Agreement, dated June 14, 2023, by and between MAY A.B. NADLAN LTD, Migdal Group Insurance & Finance Migdal Makefet Pension Funds and Provident Funds Ltd, PEL-HAMAGEN HOUSE LTD (sides 2-4: “Migdal”), and AudioCodes Ltd. 20-F (2023) 000-30070 3/27/2024 8.1 Subsidiaries of the Registrant. 20-F (2024) 000-30070 3/26/2025 11.1 Insider Trading Policies for AudioCodes Ltd. 20-F (2024) 000-30070 3/26/2025 12.1* Certification of Shabtai Adlersberg, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 12.2* Certification of Niran Baruch, Vice President Finance and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 13.1* Certification by President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 13.2* Certification by Vice President Finance and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 15.1* Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. 97.1 Clawback Policy 20-F (2023) 000-30070 3/27/2024 101.1* Interactive Data Files (XBRL-Related Documents). † English summary of Hebrew original. * Filed herewith. - 106 - Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf. AUDIOCODES LTD. By: /s/ SHABTAI ADLERSBERG Shabtai Adlersberg President and Chief Executive Officer Date: March 30, 2026 - 107 - Table of Contents AUDIOCODES LTD. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2025 IN U.S. DOLLARS INDEX Page Reports of Independent Registered Public Accounting Firm (PCAOB ID No.1281) F-2 Consolidated Balance Sheets F-5 Consolidated Statements of Operations F-7 Consolidated Statements of Comprehensive Income F-8 Consolidated Statements of Changes in Shareholders’ Equity F-9 Consolidated Statements of Cash Flows F-10 Notes to Consolidated Financial Statements F-12 - - - - - - - - - - - F-1 Table of Contents Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of AUDIOCODES LTD. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of AudioCodes Ltd. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 30, 2026 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F-2 Table of Contents Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition Description of the Matter As described in Note 2 to the consolidated financial statements, the Company generates revenues mainly from sales of products and services. The Company’s contracts with customers often contain multiple goods and services that are accounted for separately if they are distinct performance obligations. In such contracts, the transaction price is then allocated to the distinct performance obligations on a relative standalone selling price basis and revenue is recognized when control of the distinct performance obligation is transferred. Auditing the Company’s revenue recognition involved a high degree of auditor judgment due to the effort to evaluate (a) the identification and determination of whether products and services are considered distinct performance obligations that should be accounted for separately, and (b) the determination of standalone selling prices for each distinct performance obligation that is not sold separately. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls related to the identification of distinct performance obligations, and the determination of stand-alone selling prices for each distinct performance obligation. Our audit procedures also included, selecting a sample of contracts with customers and reading contract source documents for each selection, including the executed contracts and purchase orders. We tested management’s identification of significant contract terms, including the identification and determination of distinct performance obligations. We also evaluated the methodology and reasonableness of management’s assumptions used for the estimate of stand-alone selling prices for products and services that are not sold separately. Finally, we assessed the appropriateness of the related disclosures in the consolidated financial statements. /s/ KOST FORER GABBAY & KASIERER a Member of EY Global We have served as the Company’s auditor since 1997. Tel-Aviv, Israel March 30, 2026 F-3 Table of Contents Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of AUDIOCODES LTD. Opinion on Internal Control Over Financial Reporting We have audited AudioCodes Ltd. internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AudioCodes Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated March 30, 2026 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KOST FORER GABBAY & KASIERER a Member of EY Global Tel-Aviv, Israel March 30, 2026 F-4 Table of Contents AUDIOCODES LTD. CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, 2025 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 45,282 $ 58,749 Short-term bank deposits 239 210 Short-term marketable securities 27,350 3,426 Trade receivables 67,358 56,016 Other receivables and prepaid expenses 19,064 13,012 Inventories 22,032 31,463 Total current assets 181,325 162,876 LONG-TERM ASSETS: Long-term trade receivables 13,065 15,753 Long-term marketable securities - 28,518 Long-term financial investments 2,790 3,008 Deferred tax assets 7,773 9,838 Operating lease right-of-use assets 30,077 32,534 Severance pay funds 21,163 18,004 Total long-term assets 74,868 107,655 PROPERTY AND EQUIPMENT, NET 29,248 27,321 INTANGIBLE ASSETS, NET 19 489 GOODWILL 37,560 37,560 Total assets $ 323,020 $ 335,901 The accompanying notes are an integral part of the consolidated financial statements. F-5 Table of Contents AUDIOCODES LTD. CONSOLIDATED BALANCE SHEETS (Cont.) U.S. dollars in thousands, except share and per share data December 31, 2025 2024 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables 6,416 7,543 Other payables and accrued expenses 30,284 25,823 Deferred revenues 38,243 38,438 Short-term operating lease liabilities 6,635 5,954 Total current liabilities 81,578 77,758 LONG-TERM LIABILITIES: Accrued severance pay $ 18,278 $ 16,387 Deferred revenues and other liabilities 20,517 19,434 Long-term operating lease liabilities 31,348 30,508 Total long-term liabilities 70,143 66,329 COMMITMENTS AND CONTINGENT LIABILITIES (Note 10) Total liabilities 151,721 144,087 SHAREHOLDERS’ EQUITY: Share capital: Ordinary shares of NIS 0.01 par value - Authorized: 200,000,000 and 200,000,000 shares as of December 31, 2025 and 2024, respectively; Issued: 65,730,082 and 65,170,217 shares as of December 31, 2025 and 2024, respectively; Outstanding: 27,089,259 and 29,679,755 shares as of December 31, 2025 and 2024, respectively 112 112 Additional paid-in capital 422,477 415,716 Treasury stock at cost – 38,640,823 and 35,490,462 shares as of December 31, 2025 and 2024, respectively (280,930 ) (250,331 ) Accumulated other comprehensive income 6,416 1,114 Retained earnings 23,224 25,203 Total shareholders’ equity 171,299 191,814 Total liabilities and shareholders’ equity $ 323,020 $ 335,901 The accompanying notes are an integral part of the consolidated financial statements. F-6 Table of Contents AUDIOCODES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Year Ended December 31, 2025 2024 2023 Revenues: Products $ 114,911 $ 111,966 $ 123,991 Services 130,693 130,210 120,392 Total revenues 245,604 242,176 244,383 Cost of revenues: Products 44,197 44,448 47,964 Services 41,775 39,567 38,070 Total cost of revenues 85,972 84,015 86,034 Gross profit 159,632 158,161 158,349 Operating expenses: Research and development, net 52,591 52,125 57,169 Selling and marketing 77,242 71,167 70,243 General and administrative 15,760 17,678 16,513 Total operating expenses 145,593 140,970 143,925 Operating income 14,039 17,191 14,424 Financial expenses, net (461 ) (2,095 ) (52 ) Income before taxes on income 13,578 15,096 14,372 Taxes on income (tax benefits) 4,623 (215 ) 5,592 Net income 8,955 $ 15,311 $ 8,780 Earnings per share: Basic $ 0.31 $ 0.51 $ 0.28 Diluted $ 0.31 $ 0.50 $ 0.28 Weighted average number of shares used in computations of earnings per share: Basic 28,497,801 30,200,210 31,400,900 Diluted 28,984,336 30,636,088 31,578,713 The accompanying notes are an integral part of the consolidated financial statements. F-7 Table of Contents AUDIOCODES LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME U.S. dollars in thousands Year Ended December 31, 2025 2024 2023 Net income $ 8,955 $ 15,311 $ 8,780 Other comprehensive income (loss) related to: Change in unrealized gains (losses) on marketable securities available-for-sale, net of tax: Gain (loss) on marketable securities recognized in other comprehensive income 817 1,798 2,859 Gain (loss) on marketable securities reclassified to net income - 882 (213 ) Other comprehensive income (loss) related to unrealized gains (losses) on marketable securities available-for-sale 817 2,680 2,646 Change in unrealized gains (losses) on cash flow hedges, net of tax: Gain (loss) on derivative instruments recognized in other comprehensive income, 10,662 (306 ) (2,165 ) Gain (loss) on derivative instruments reclassified to net income (6,177 ) 2,645 6,567 Other comprehensive income (loss), related to unrealized gains (losses) on cash flow hedges, net of tax 4,485 2,339 4,402 Other comprehensive income (loss), net of tax of $(792), $(1,061) and $(1,303) for 2025, 2024 and 2023, respectively 5,302 5,019 7,048 Total comprehensive income $ 14,257 $ 20,330 $ 15,828 The accompanying notes are an integral part of the consolidated financial statements. F-8 Table of Contents AUDIOCODES LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY U.S. dollars in thousands, except share and per share data Share capital Additional paid-in capital Treasury stock Accumulated other comprehensive income (loss) Retained earnings Total equity Balance as of January 1, 2023 $ 109 $ 394,941 $ (217,744 ) $ (10,953 ) $ 23,407 $ 189,760 Purchase of treasury stock - - (18,259 ) - - (18,259 ) Issuance of shares upon exercise of options and vesting of RSUs 1 801 - - - 802 Share-based compensation related to options and RSUs granted to employees and non-employees - 11,380 - - - 11,380 Cash dividends paid - - - - (11,399 ) (11,399 ) Net income - - - - 8,780 8,780 Other comprehensive income - - - 7,048 - 7,048 Balance as of December 31, 2023 110 407,122 (236,003 ) (3,905 ) 20,788 188,112 Purchase of treasury stock - - (14,328 ) - - (14,328 ) Issuance of shares upon exercise of options and vesting of RSUs 2 366 - - - 368 Share-based compensation related to options and RSUs granted to employees and non-employees - 8,228 - - - 8,228 Cash dividends paid - - - - (10,896 ) (10,896 ) Net income - - - - 15,311 15,311 Other comprehensive income - - - 5,019 - 5,019 Balance as of December 31, 2024 112 415,716 (250,331 ) 1,114 25,203 191,814 Purchase of treasury stock - - (30,599 ) - - (30,599 ) Issuance of shares upon exercise of options and vesting of RSUs * 251 - - - 251 Share-based compensation related to options and RSUs granted to employees and non-employees - 6,510 - - - 6,510 Cash dividends paid - - - - (10,934 ) (10,934 ) Net income - - - - 8,955 8,955 Other comprehensive income - - - 5,302 - 5,302 Balance as of December 31, 2025 $ 112 $ 422,477 $ (280,930 ) $ 6,416 $ 23,224 $ 171,299 * Represents an amount lower than $1 thousands. The accompanying notes are an integral part of the consolidated financial statements. F-9 Table of Contents AUDIOCODES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year Ended December 31, 2025 2024 2023 Cash flows from operating activities: Net income $ 8,955 $ 15,311 $ 8,780 Adjustments required to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,235 3,883 2,596 Net loss from sale of marketable securities - 882 218 Amortization of marketable securities premiums and accretion of discounts, net 400 1,120 1,130 Share-based compensation related to options and RSUs granted to employees and non-employees 6,510 8,228 11,380 Financial expenses (income), net 574 313 (218 ) Decrease (increase) in deferred tax assets, net 1,719 (4,548 ) 1,437 Decrease (increase) in trade receivables, net (8,654 ) (3,846 ) 1,600 Decrease (increase) in other receivables and prepaid expenses (6,052 ) (3,631 ) 625 Decrease (increase) in inventories 9,251 12,283 (7,791 ) Decrease in operating lease right-of-use assets 3,682 6,009 9,281 Decrease (increase) in operating lease liabilities 296 (4,651 ) (6,914 ) Increase (decrease) in trade payables (232 ) (13 ) (3,782 ) Increase (decrease) in other payables and accrued expenses 9,502 3,223 (6,233 ) Increase (decrease) in deferred revenues 443 1,767 3,144 Decrease in accrued severance pay, net (1,268 ) (1,077 ) (362 ) Net cash provided by operating activities 29,361 35,253 14,891 Cash flows from investing activities: Purchase of property and equipment (6,472 ) (24,280 ) (5,965 ) Purchase of financial investments (523 ) (675 ) (81 ) Proceeds from maturity of marketable securities 5,200 7,450 3,084 Proceeds from redemption of financial investments 278 132 14,094 Proceeds from sale of marketable securities - 35,177 3,846 Proceeds (investments) from short-term bank deposits, net (29 ) 2 4,998 Net cash provided by (used in) investing activities $ (1,546 ) $ 17,806 $ 19,976 The accompanying notes are an integral part of the consolidated financial statements. F-10 Table of Contents AUDIOCODES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.) U.S. dollars in thousands Year Ended December 31, 2025 2024 2023 Cash flows from financing activities: Purchase of treasury stock $ (30,599 ) $ (14,328 ) $ (18,259 ) Cash dividends paid (10,934 ) (10,896 ) (11,399 ) Proceeds from issuance of shares upon exercise of options 251 368 802 Net cash used in financing activities (41,282 ) (24,856 ) (28,856 ) Increase (decrease) in cash, cash equivalents (13,467 ) 28,203 6,011 Cash, cash equivalents at the beginning of the year 58,749 30,546 24,535 Cash, cash equivalents at the end of the year $ 45,282 $ 58,749 $ 30,546 Supplemental disclosure of cash flow activities: Cash paid during the year for income taxes $ 3,790 $ 5,784 $ 4,196 Significant non-cash transactions: Inventory transferred to be used as property and equipment $ 180 $ 213 $ 209 Non-cash purchase of property and equipment $ - $ - $ 2,805 Operating lease right-of-use asset recognized with corresponding lease liability $ 1,225 $ 1,831 $ 32,476 The accompanying notes are an integral part of the consolidated financial statements. F-11 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 1:- GENERAL a. Business overview: AudioCodes Ltd. (the “Company”) and its subsidiaries (together with the Company, the “Group” or the “Company”) is a leading vendor of advanced communication, software, products and productivity solutions for the digital workplace. The Company’s products are deployed on-premises or delivered from the cloud. Providing software communications, cloud-based platforms, customer premise equipment and software applications, the Company’s solutions and products are geared to meet the growing needs of enterprises and service providers realigning their operations towards the transition to all-IP networks for unified communications, contact centers, and hosted business services. In addition, the Company offers a complete suite of professional and managed services that allow the Company’s partners and customers to choose a service package (or complement their own offering) from a modular portfolio of professional services. The Company operates through its wholly-owned subsidiaries in the United States, Europe, Asia, Latin America, Australia and Israel. b. Material customers and suppliers: The Group is dependent upon sole source suppliers for certain key components used in its products, including certain digital signal processing chips. Although there are a limited number of manufacturers for these particular components, management believes that other suppliers could provide similar components on comparable terms to the extent needed. Any change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which could materially and adversely affect the operating results and financial position of the Group. During the years ended December 31, 2025, 2024 and 2023, the Group had a major customer which accounted for 13.8%, 13.3% and 16.3%, respectively, of total revenues in those years. In addition, during the years ended December 31, 2025, 2024 and 2023, the Group had an additional major customer which accounted for 9.3%, 11.7% and 10.3%, respectively, of total revenues in those years. No other customer accounted for more than 10% of the Group’s revenues in the years ended December 31, 2025, 2024 and 2023. F-12 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), applied on a consistent basis as follows: a. Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they were made. As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to revenue recognition and allowance for sales returns, allowance for credit losses, inventories write-off, intangible assets, goodwill, income taxes and valuation allowance, share-based compensation and contingent liabilities. Actual results could differ from those estimates. b. Financial statements in U.S. dollars (“dollars”): A majority of the Group’s revenues is generated in dollars. In addition, most of the Group’s costs are denominated and determined in dollars and in new Israeli shekels (“NIS”). Management believes that the dollar is the currency in the primary economic environment in which the Group operates. Thus, the functional and the reporting currency of the Group is the dollar. Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign Currency Matters”. All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate. c. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated upon consolidation. d. Cash equivalents: Cash equivalents represent short-term highly liquid investments that are readily convertible into cash with original maturities of three months or less on the date acquired. e. Short-term bank deposits: Short-term bank deposits are deposits with maturities of more than three months, but less than one year. The deposits are denominated mainly in dollars and bear interest at an average annual rate of 2.9% and 2.99% for the years ended December 31, 2025 and 2024, respectively. Short-term bank deposits are presented at cost. Any accrued interest on these deposits is included in other receivables and prepaid expenses. F-13 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) f. Trade receivables: The Group records trade receivables when it has unconditional right to consideration for amounts invoiced and yet unbilled invoices. The Group’s allowance for credit losses for trade receivables is based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions and other factors. The estimated allowance for credit losses is recorded as general and administrative expenses in the consolidated statements of operations. As of December 2025, and 2024, the allowance for credit loss was $800 and $647, respectively. The Company elected to apply the practical expedient for current trade receivables and assumed that current conditions as of the balance sheet date would not change for the remaining life of the assets. The Company writes off receivables when they are deemed uncollectible and after all collection efforts have been exhausted. Trade receivables also include the Group’s short-term and long-term net investment in a lease receivable (see Note 9). g. Marketable securities: The Group accounts for investments in debt securities in accordance with ASC 320, “Investments - Debt Securities”. Management determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. As of December 31, 2025, the Group classified all of its marketable securities as available-for-sale (“AFS”). AFS securities are carried out at fair value, with the unrealized gains and losses, net of related tax, reported in “accumulated other comprehensive loss” in shareholders’ equity. Realized gains and losses on sale of investments are included in “financial income (expenses), net” and are derived using the specific identification method for determining the cost of securities. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, together with interest on such securities, is included in “financial income (expenses), net”. The Group periodically evaluates its AFS debt securities for impairment. If the amortized cost of an individual security exceeds its fair value, the Group considers its intent to sell the security or whether it is more likely than not that it will be required to sell the security before recovery of its amortized basis. If either of these criteria are met, the Group writes down the security to its fair value and records the impairment charge in the consolidated statements of operations. If neither of these criteria are met, the Group assesses whether credit loss exists. In making this assessment, the Group considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive income or loss. During the years ended December 31, 2025, 2024 and 2023, the Group’s credit losses were immaterial. The Group classifies its debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date as well as the intended time of realization. Marketable debt securities with maturities of 12 months or less are classified as short-term, and marketable debt securities with maturities greater than 12 months are classified as long-term. F-14 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) h. Long-term and restricted bank deposits: Bank deposits and the related accrued interest with maturities of more than one year are included in long-term investments and presented at their cost. Accrued interest that is payable within a one-year period is included in other receivables and prepaid expenses. i. Inventories: Inventories are stated at the lower of cost and net realizable value. Cost is determined using the “weighted average cost” method for raw materials and finished products with the addition of direct manufacturing cost. The Group periodically evaluates the quantities on hand relative to current and historical selling prices and historical and projected sales volume and technological obsolescence. Based on these evaluations, inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued product lines and market prices lower than cost. j. Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates: Computers and peripheral equipment 33% Office furniture and equipment 6% to 20% (mainly 15%) Leasehold improvements Over the shorter of the term of the lease, or the useful life of the assets The Group’s long-lived assets (asset group) to be held and used, including right-of-use assets and intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment” whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. If such assets are considered to be impaired, recoverability of assets (asset group) to be held and used is measured by a comparison of the carrying amount of an asset (asset group) to the future undiscounted cash flows expected to be generated by the asset. The impairment to be recognized is measured by the amount by which the carrying amount of the assets (asset groups) exceeds the fair value of the assets (asset groups). During the years ended December 31, 2025, 2024 and 2023, no impairment losses have been identified. k. Intangible assets: Intangible assets are comprised of acquired technology, customer relations and licenses. The Group’s intangible assets are not considered to have an indefinite useful life and are amortized using the straight-line basis over their estimated useful lives, which range from four to ten years. F-15 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) l. Leases: The Group evaluates the contracts it enters into to determine whether such contracts contain leases. A contract contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Group determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for the lessee’s use. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms. As the Group’s lease arrangements as a lessee do not provide an implicit rate, thus, the Group uses its incremental estimated borrowing rate at lease commencement to measure the right-of-use (“ROU”) assets and lease liabilities. Operating lease expense is generally recognized on a straight-line basis over the lease term. The Group elected to not recognize a lease liability or ROU asset for leases with a term of twelve months or less. The Group also elected the practical expedient to not separate lease and non-lease components for its leases. A portion of the Group’s sales of equipment to customers are made through bundled lease arrangements which typically include software license, equipment and services. Revenues under these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease components included in the bundled arrangement. The primary accounting provisions the Group uses to classify transactions as sales-type or operating leases is a review of the present value of the lease payments to determine if they are equal to or greater than substantially all of the fair market value of the equipment at the inception of the lease. Equipment included in arrangements meeting these conditions are accounted for as sales-type leases and revenue is recognized at lease commencement. Equipment included in arrangements that do not meet these conditions are generally accounted for as operating leases and revenue is recognized over the term of the lease. For the years ended December 31, 2025, 2024 and 2023, equipment leases that were classified as operating leases were immaterial. m. Goodwill: Goodwill and certain other purchased intangible assets have been recorded in the Group’s financial statements as a result of acquisitions. Goodwill represents the excess of the purchase price and related costs over the estimated fair value of net assets of a business acquired in a business combination. In accordance with ASC 350, “Intangibles - Goodwill and Other”, goodwill is not amortized but rather is subject to an impairment test at least annually. F-16 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Group performs an annual impairment test of goodwill in the fourth quarter of each fiscal year, or more frequently, if events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level, by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the reporting unit does not pass the qualitative assessment, the Group carries out a quantitative test for impairment of goodwill, by comparing the fair value of the reporting unit with the carrying amount of the reporting unit that includes goodwill. The Group may bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test. The Group operates as one segment, and this segment comprises its only reporting unit. Therefore, goodwill is tested for impairment at that level. The Group did not record goodwill impairment charges during the years ended December 31, 2025, 2024 and 2023. n. Revenue recognition: The Group generates its revenues primarily from the sale of software licenses, equipment, and related services through a direct sales force and sales representatives. A portion of the Group’s sales of equipment to customers are made through bundled lease arrangements (see l above and Note 9). The Group’s products are delivered to its customers, which include original equipment manufacturers, network equipment providers, systems integrators, enterprises, carriers and distributors in the telecommunications and networking industries, all of whom are considered end-users. Revenues are recognized in accordance with ASC 606, “Revenue from Contracts with Customers”. As such, the Group identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Group satisfies its performance obligations. The Group enters into contracts that can include combinations of products and services that are capable of being distinct and accounted for as separate performance obligations. The software licenses and equipment are generally distinct as the customer can derive the economic benefit of it without any additional services. The Group also provides professional services, support and maintenance services, which are accounted for as separate performance obligations, as these services are distinct. The Group allocates the transaction price to each performance obligation, based on its relative standalone selling price out of the total consideration of the contract. For SaaS subscriptions, the Company provides access to its cloud-based software, without providing the customer with the right to take possession of its software, which the Company considers to be a single performance obligation. SaaS subscriptions revenue is included as part of service revenue. Software license and equipment revenues are recognized at the point of time when control is transferred, usually upon delivery. F-17 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Revenues from SaaS, maintenance and support services are generally recognized ratably over the term of the contract, as the services have a consistent pattern of transfer to the customer during the contract period. Revenues from professional services are recognized over time based on the method that best depicts the transfer of services to the customer, generally using an input method, based on labor hours consumed or ratably, when professional services have a consistent pattern of transfer to the customer. If the standalone selling price is not observable, the Group estimates the standalone selling price taking into account reasonably available information. The estimated selling price is established considering multiple factors such as historical selling prices, internal pricing practices, gross margin objectives and discount policy. The Group typically bills customers based on actual delivery. The payment terms vary, mainly with terms of 60 days or less. Revenue is recognized net of any taxes collected from customers which are subsequently remitted to the tax authorities. The Group elected to account for shipping and handling activities as fulfillment activities. Shipping and handling activities are classified as part of the cost of revenues. The Group grants to certain customers a right of return or the ability over a limited period of time to exchange for other products a specific percentage of the total price paid for products they have purchased. The Group maintains a provision for product returns, based on its experience with historical sales returns, analysis of credit memo data and other known factors, all in accordance with ASC 606. This provision is deducted from revenues and amounted to $2,155 and $1,675 as of December 31, 2025 and 2024, respectively. This provision was recorded as part of other payables and accrued expenses. In instances of contracts where revenue recognition differs from the timing of invoicing, the Group generally determined that those contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing the Group’s products and services, not to receive or provide financing. The Group uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less. Deferred revenues include amounts invoiced to customers for which revenue has not yet been recognized. Deferred revenues are recognized as (or when) the Group performs the performance obligations under the contract. The Group pays sales commissions to selling and marketing personnel, based on their attainment of certain predetermined sales goals. Amortization of sales commissions are consistent with the pattern of revenue recognition of each performance obligation and are included in selling and marketing expenses in the consolidated statements of operations. The Group has included as part of other receivables and prepaid expenses in its consolidated balance sheet, costs to obtain a contract in the amount of $1,092 and $689, as of December 31, 2025 and 2024, respectively. The amortization expenses for the years ended December 31, 2025, 2024 and 2023 amounted to $307, $288 and $604, respectively. No impairment losses recognized for the years ended December 31, 2025, 2024 and 2023. F-18 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Remaining performance obligations represents contracted revenues that have not yet been recognized, which includes deferred revenues and non-cancelable contracts that will be recognized as revenue in future periods. The following table represents the remaining performance obligations as of December 31, 2025, which are expected to be satisfied and recognized in future periods: Year Ending December 31, 2026 2027 2028 and thereafter Products $ 152 $ - $ - Services 38,091 9,768 9,930 $ 38,243 $ 9,768 $ 9,930 Significant changes in the balances of deferred revenues during the years are as follows: Year Ended December 31, 2025 2024 Balance at the beginning of the year $ 57,497 $ 55,730 Revenue recognized (42,691 ) (26,586 ) Increase in deferred revenues 43,134 28,353 Balance at the end of the year 57,940 57,497 Less - current portion at the end of the year (38,243 ) (38,438 ) Long-term portion at the end of the year $ 19,697 $ 19,059 o. Warranty costs: The Group usually provides an assurance-type warranty for a period of 12 months at no extra charge. The Group estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Group’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Group periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. As of December 31, 2025 and 2024, the provision for warranty amounted to $139 and $132, respectively. F-19 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) p. Research and development costs: ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed”, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Group’s product development process, technological feasibility is established upon the completion of a working model. The Group does not incur material costs between the completion of a working model and the point at which the product is ready for general release. Therefore, research and development costs are charged to the consolidated statement of operations, as incurred. Participation grants from the Israel Innovation Authority (the “IIA”) for research and development activity are recognized at the time the Group is entitled to such grants based on the costs incurred and included as a deduction from research and development costs. Research and development grants recognized during the years ended December 31, 2025, 2024 and 2023 were $0, $55 and $665, respectively. q. Income taxes: The Group accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carryforward tax losses. Deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Group records a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion of or the entire amount of the deferred tax asset will not be realized. In addition, ASC 740 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The first step is to evaluate the tax position taken or expected to be taken in a tax return. This is done by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Interest and penalties assessed by taxing authorities on an underpayment of income taxes are included as a component of income tax expense in the consolidated statements of operations. As of December 31, 2025, 2024 and 2023, the Company’s provision for uncertain tax benefits was immaterial. F-20 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) r. Accumulated other comprehensive income (loss) (“AOCI”): The Group accounts for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”, which establishes standards for the reporting and presentation of comprehensive income (loss) and its components in a full set of general-purpose financial statements. Comprehensive income (loss) generally represents all the changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. The components of AOCI were as follows: Gains (losses) on AFS marketable securities Gains (losses) on cash flow hedges Total Balance as of January 1, 2025 $ (1,050 ) $ 2,164 $ 1,114 Other comprehensive gains (loss) before reclassifications, net of tax 817 10,662 11,479 Amounts reclassified from AOCI - (6,177 ) (6,177 ) Other comprehensive income, net of tax 817 4,485 5,302 Balance as of December 31, 2025 $ (233 ) $ 6,649 $ 6,416 Year Ended December 31, 2025 2024 2023 Amounts reclassified from AOCI Cost of revenues $ (1,482 ) $ 634 $ 1,400 Research and development expenses, net (2,841 ) 1,217 2,983 Selling and marketing expenses (1,359 ) 582 1,217 General and administrative expenses (495 ) 212 967 Financial expenses - 882 - Total operating expenses (income), before income taxes $ (6,177 ) $ 3,527 $ 6,567 The effects on net income of amounts reclassified from AOCI in the years ended December 31, 2025, 2024 and 2023 derive from realized losses on cash flow hedges recorded in operating expenses and from realized losses on AFS marketable securities recorded in financial income or expenses. F-21 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) s. Concentrations of credit risk: Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, trade receivables, marketable securities and foreign currency derivative contracts. The majority of the Group’s cash and cash equivalents, bank deposits and foreign currency derivative contracts are invested in dollar denominated instruments with major banks in Israel and in the United States. The Group is exposed to credit risk in the event of default by financial institutions to the extent of the amounts recorded on the accompanying consolidated balance sheets exceed federally insured limits. Management believes that the financial institutions that hold the Group’s investments are corporations with high credit standing. Accordingly, management believes that low credit risk exists with respect to these financial investments. Marketable securities include investments in dollar-denominated corporate bonds. The Company’s investment policy, approved by the Board of Directors, limits the amount the Group may invest in any one type of investment or issuer, thereby reducing credit risk concentrations. Management believes that the Group’s portfolio is well diversified and, accordingly, minimal credit risk exists with respect to these marketable debt securities. The trade receivables of the Group are derived from sales to customers located primarily in the Americas, Europe, Eastern Asia and Israel. Under certain circumstances, the Group may require letters of credit, other collateral, additional guarantees or advance payments. The Company’s derivatives expose it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions with high credit standing in Israel. Regarding certain credit balances, the Group is covered by foreign trade risk insurance. The Group performs ongoing credit evaluations of its customers and establishes an allowance for credit losses. t. Earnings per share: Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year, plus potential dilutive ordinary shares considered outstanding during the year, in accordance with ASC 260, “Earnings per Share”. Certain outstanding options and restricted share units (“RSUs”) have been excluded from the calculation of the diluted earnings per share since such securities are anti-dilutive for all years presented. The total weighted average number of shares related to the outstanding options and RSUs that have been excluded from the calculation of diluted earnings per share were 318,411, 284,903 and 710,761 for the years ended December 31, 2025, 2024 and 2023, respectively. F-22 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) u. Accounting for share-based compensation: The Company accounts for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award is recognized as an expense over the requisite service periods in the Company’s consolidated statement of operations. The Company recognizes compensation expenses for the value of its awards, which have graded vesting, based on the accelerated attribution method over the requisite service period of each of the awards. The Company accounts for forfeitures as they occur. The Group selected the Black-Scholes option pricing model as the most appropriate fair value method for the Group’s option awards. The fair value of RSUs is based on the market value of the underlying shares at the date of grant. The following table sets forth the parameters used in computation of the options compensation to employees: Year Ended December 31, 2025 2024 2023 Dividend yield 3.80% 1.13% 1.13% Expected volatility 41.55%-42.02% 40.19%-48.11% 46.24% Risk-free interest 4.03%-4.30% 3.98%-4.23% 4.57% Expected life 3.58-3.59 years 3.59-4.86 years 3.60 years The Company used its historical volatility in accordance with ASC 718. The computation of volatility uses historical volatility derived from the Company’s exchange traded shares. The expected term of options granted is estimated based on historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate assumption is the implied yield currently available on U.S. treasury zero-coupon issues with a remaining term equal to the expected life of the Company’s options. The dividend yield assumption is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to substantial change in the future. The Company paid its first cash dividend during the third quarter of 2018 and has been paying cash dividends on a bi-annual basis since then. See also Note 11. F-23 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The total share-based compensation expenses relating to all of the Company’s share-based awards recognized for the years ended December 31, 2025, 2024 and 2023 were included in items of the consolidated statements of operations, as follows: Year Ended December 31, 2025 2024 2023 Cost of revenues $ 396 $ 369 $ 388 Research and development expenses, net 1,489 2,108 2,685 Selling and marketing expenses 2,317 2,959 4,297 General and administrative expenses 2,308 2,792 4,010 Total share-based compensation expenses $ 6,510 $ 8,228 $ 11,380 v. Treasury stock: The Company repurchases its ordinary shares from time to time in the open market and holds such repurchased shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders’ equity. See also Note 11a. w. Severance pay: The liability for severance pay for Israeli employees is calculated pursuant to the Israeli Severance Pay Law, 1963 (the “Severance Pay Law”), based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date for all employees in Israel. Employees who have been employed for more than a one-year period are entitled to one month’s salary for each year of employment or a portion thereof. The Group’s liability for all of its Israeli employees is fully provided for by monthly deposits with severance pay funds, pension funds, insurance policies and by an accrual. The value of these deposits is recorded as an asset in the Company’s consolidated balance sheet. The deposited funds include profits accumulated up to the consolidated balance sheets date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Severance Pay Law or labor agreements. Since March 2011, the Group’s agreements with new Israeli employees are under Section 14 of the Severance Pay Law. The Group’s contributions for severance pay have replaced its severance pay obligation. Upon contribution of the full amount of the employee’s monthly salary for each year of service, no additional calculations are conducted between the parties regarding the matter of severance pay and no additional payments are made by the Group to the employee upon termination. The Group is legally released from the obligations to employees once the deposit amounts have been paid, and therefore the severance pay liability is not reflected in the balance sheet. Severance pay expenses for the years ended December 31, 2025, 2024 and 2023, amounted to $2,592, $2,342 and $2,995, respectively. F-24 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) x. Employee benefit plan: The Group has 401(k) defined contribution plans covering employees in the United States. All eligible employees may elect to contribute a portion of their annual compensation to the plan through salary deferrals, subject to the Internal Revenue Service limit of $23.5, $23 and $20.5 during the years ended December 31, 2025, 2024 and 2023, plus a catch-up contribution of $7.5 for participants aged 50 or over. The Group matches 50% of employees’ contributions, up to a maximum of 6% of the employees’ annual pay. In the years ended December 31, 2025, 2024 and 2023, the Group matched contributions in the amount of $525, $506 and $524, respectively. y. Advertising expenses: Advertising expenses are charged to the consolidated statements of operations as incurred. Advertising expenses for the years ended December 31, 2025, 2024 and 2023 amounted to $2,561, $2,433 and $1,942, respectively. z. Fair value of financial instruments: Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820, “Fair Value Measurements and Disclosures” establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs which are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. See also Note 7. The estimated fair value of financial instruments has been determined by the Group using available market information and valuation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Group could realize in a current market exchange. The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments: The carrying amounts of cash and cash equivalents, bank deposits, trade receivables, trade payables, other receivables and other payables and accrued expenses approximate their fair value due to the short- or long-term maturity of such instruments. The Group measures its investments in marketable securities and foreign currency derivative contracts at fair value. Marketable securities and foreign currency derivative contracts are classified within Level 2 as these instruments are valued using alternative pricing sources utilizing market observable inputs. The fair value of financial investments consists of investments in limited partnerships, that are valued at the net asset value (“NAV”) which is a practical expedient to their estimate fair value. The NAV is provided by the fund administrator and is based on the value of the underlying assets owned less its liabilities. F-25 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) aa. Derivative instruments and hedging: The Group accounts for derivative instruments and hedging based on ASC 815, “Derivatives and Hedging”. The Group accounts for its derivative instruments as either assets or liabilities and carries them at fair value. Derivative instruments that are not designated and qualified as hedging instruments must be adjusted to fair value through earnings. The changes in the fair value of such instruments are included as gain or loss in “financial income (expenses), net” at each reporting period. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive loss in equity and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is classified as payroll and rent expenses. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. ab. Recently adopted accounting pronouncement: In December 2023, the Financial Accounting Standards Borad (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 (the year ended December 31, 2025, for the Company), with early adoption permitted. The Company adopted ASU 2023-09 during the year ended December 31, 2025, on a prospective basis, which resulted in updated income tax disclosures. See Note 12 for further details. In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient to measure credit losses on current accounts receivable and contract assets under ASC No. 606, “Revenue from Contracts with Customers.” The practical expedient assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. For public business entities, ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025 (the year ending December 31, 2026, for the Company), and interim reporting periods within those annual reporting periods. Early adoption of ASU 2025-05 is permitted. The Company adopted ASU 2025-05 during the year ended December 31, 2025, on a prospective basis, which did not have a material impact on the consolidated financial statements. ac. Recently issued accounting pronouncement not yet adopted: In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 (the year ending December 31, 2027, for the Company), and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03. In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Targeted Improvements to the Accounting for Internal-Use Software. The ASU was updated to consider different methods of software development and requires internal use software costs to be capitalized when management has authorized and committed to funding the software project and when significant uncertainty associated with the development of the software has been resolved. The amendments in this ASU are required to be adopted for annual and interim reporting periods beginning after December 15, 2027 (the year ending December 31, 2028, for the Company), with early adoption permitted, and may be applied either through a prospective, retrospective or a modified transition approach. The Company is currently evaluating the effect of adopting the ASU on its consolidated financial statements. In December 2025, the FASB issued ASU 2025-10 Accounting for Government Grants Received by Business Entities, to establish guidance on the recognition, measurement, presentation and disclosure requirements for government grants received by business entities, including guidance for grants related to an asset and grants related to income. ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, and interim reporting periods within those annual reporting periods. Early adoption is permitted, and may be applied using a modified prospective, modified retrospective, or under a retrospective approach. The Company is currently evaluating the timing of adoption and impact of this amendment on its Consolidated Financial Statements and related disclosures. F-26 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 3:- MARKETABLE SECURITIES The following is a summary of AFS marketable securities: December 31, 2025 Amortized cost Gross unrealized losses Fair value Maturing within one year: Corporate bonds $ 25,966 $ (281 ) $ 25,685 Governmental bonds 1,689 (24 ) 1,665 Balance as of December 31, 2025 $ 27,655 $ (305 ) $ 27,350 December 31, 2024 Amortized cost Gross unrealized losses Fair value Maturing within one year: Corporate bonds $ 3,241 $ (22 ) $ 3,219 Governmental bonds - - - Maturing between one to five years: Corporate bonds 28,343 (1,250 ) 27,093 Governmental bonds 1,715 (83 ) 1,632 Balance as of December 31, 2024 $ 33,299 $ (1,355 ) $ 31,944 The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2025, and the length of time that those investments have been in a continuous loss position: Less than 12 months 12 months and greater Fair value Gross unrealized loss Fair value Gross unrealized loss As of December 31, 2025 $ - $ - $ 27,350 $ (305 ) F-27 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 3:- MARKETABLE SECURITIES (Cont.) Less than 12 months 12 months and greater Fair value Gross unrealized loss Fair value Gross unrealized loss As of December 31, 2024 $ - $ - $ 31,944 $ (1,355 ) NOTE 4:- INVENTORIES December 31, 2025 2024 Raw materials $ 8,816 $ 14,028 Finished products 13,216 17,435 $ 22,032 $ 31,463 During the years ended December 31, 2025 and 2024 and 2023, the Group wrote off inventory in a total amount of approximately $3.3 million, $4.8 million and $1.1 million, respectively. NOTE 5:- PROPERTY AND EQUIPMENT, NET December 31, 2025 2024 Cost: Computers and peripheral equipment $ 17,922 $ 15,644 Office furniture and equipment 3,490 4,367 Leasehold improvements 22,449 22,040 43,861 42,051 Accumulated depreciation: Computers and peripheral equipment 9,093 9,745 Office furniture and equipment 2,368 2,734 Leasehold improvements 3,152 2,251 14,613 14,730 Depreciated cost $ 29,248 $ 27,321 Depreciation expenses amounted to $3,765, $3,351 and $2,051 for the years ended December 31, 2025, 2024 and 2023, respectively. NOTE 6:- INTANGIBLE ASSETS, NET Useful life December 31, (years) 2025 2024 a. Cost: Acquired technology and license 4 - 10 $ 21,815 $ 21,815 Customer relationship 4.5 - 9 4,951 4,951 26,766 26,766 Accumulated amortization: Acquired technology and license 21,814 21,388 Customer relationship 4,933 4,889 26,747 26,277 Amortized cost $ 19 $ 489 b. Amortization expenses related to intangible assets amounted to $470, $532 and $545 for the years ended December 31, 2025, 2024 and 2023, respectively. c. The remaining amortized cost of $19 is expected to be recognized during 2026. F-28 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 7:- FAIR VALUE MEASUREMENTS In accordance with ASC 820, the Group measures its foreign currency derivative instruments and marketable securities, at fair value. Investments in foreign currency derivative instruments and marketable securities are classified within Level 2 of the fair value hierarchy. This is because these assets (liabilities) are valued using alternative pricing sources and models utilizing market observable inputs. The Group’s financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of the following dates: December 31, 2025 Fair value measurements using input type Level 2 NAV Marketable securities $ 27,350 $ - Financial investments (see also Note 10d) - 2,790 Financial assets related to foreign currency derivative hedging contracts 7,470 - Total financial net assets as of December 31, 2025 $ 34,820 $ 2,790 December 31, 2024 Fair value measurements using input type Level 2 NAV Marketable securities $ 31,944 $ - Financial investments (see also Note 10d) - 3,008 Financial assets related to foreign currency derivative hedging contracts 2,430 - Total financial net assets as of December 31, 2024 $ 34,374 $ 3,008 F-29 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 7:- FAIR VALUE MEASUREMENTS (Cont.) As of December 31, 2025, and 2024 the financial investments measured using NAV included two Secured Bridge Loans Funds that offer short-term loans to various consumers, which are secured by real-estate assets and vehicles. One investment fund can be redeemed by the investees during the next five years. The fair value of this investment in this class has been estimated using the net asset value (“NAV”) of the Group’s ownership interest in partners’ capital. The carrying amount of this investment was $833 and $1,329 as of December 31, 2025, and 2024, respectively. The second investment in an equity fund is locked up until its maturity after five years from the investment date. The fair value of this investment in this class has been estimated using the NAV of the Group’s ownership interest in partners’ capital. The carrying amount of this investment was $1,957 and $1,679 as of December 31, 2025, and 2024, respectively. Gains (losses) from the financial investments amounted to $(462), $(265) and $336 for the years ended December 31, 2025, 2024 and 2023 respectively. NOTE 8:- OTHER PAYABLES AND ACCRUED EXPENSES December 31, 2025 2024 Payroll and other employee related accruals $ 14,344 $ 16,227 Accrued expenses 12,232 6,829 Government authorities 1,545 1,082 Provision for returns 2,155 1,675 Other 8 10 $ 30,284 $ 25,823 NOTE 9:- LEASES Lease agreements: The Group as a lessee: The Group’s facilities are leased under several lease agreements for periods ending up to 2033, with options to extend the leases ending up to 2038. In addition, the Group has various operating lease agreements with respect to motor vehicles. F-30 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 9:- LEASES (Cont.) The components of operating lease costs were as follows: Year Ended December 31, 2025 2024 2023 Fixed lease cost $ 5,237 $ 9,850 $ 10,979 Variable lease cost 332 393 477 Sublease income - (173 ) (1,167 ) Total net lease costs $ 5,569 $ 10,070 $ 10,289 The Group’s operating lease agreements have remaining lease terms ranging from one year to 12.46 years, including agreements with options to extend the leases for up to six years. The following table represents the weighted-average remaining lease term and discount rate: Year Ended December 31, 2025 Weighted average remaining lease term 8 years Weighted average discount rate 5.05 % The following table presents supplemental cash flows information related to the lease costs for operating leases: Year Ended December 31, 2025 Cash paid for amounts included in measurement of lease liabilities: Operating cash flows for operating leases $ 7,122 The discount rate was determined based on the estimated incremental borrowing rate of the Group. Maturities of operating lease liabilities were as follows: Year ending December 31, 2026 $ 6,658 2027 5,547 2028 4,953 2029 4,714 2030 4,826 2031 and thereafter 20,780 Total lease payments $ 47,478 Less - imputed interest $ (9,495 ) Present value of lease liabilities $ 37,983 F-31 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 9:- LEASES (Cont.) In November 2022, the Company entered into a new lease agreement in Park Naimi, which is located near Messubim Junction in Israel (the “New Lease Agreement”). The New Lease Agreement replaced the previous lease agreement in Israel which was originally scheduled to expire in January 2024 and was extended until April 2024. Pursuant to the New Lease Agreement, the Company leases from the landlord an approximately 10,500 square foot facility (the “Premises”). The lease of the Premises commenced in July 2023. The initial lease term under the New Lease Agreement is for seven years. The Company additionally holds options under the New Lease Agreement to extend the lease term for additional periods of five years. At the commencement date, the Company recognized ROU assets and lease liabilities related to the New Lease Agreement in the amount of $25,810. The Group as a lessor: Revenue from sales-type leases is presented on a gross basis when the Group enters into a lease to realize value from a product that it would otherwise sell in its ordinary course of business. The Group’s leases generally do not provide for a residual value guarantee. The Group’s lease arrangements are generally comprised of fixed lease payments and do not include options to purchase the underlying assets and to extend or terminate the lease. Interest income for the years ended December 31, 2025, 2024 and 2023 were $406, $390 and $266, respectively, and were included in financial income (expenses), net in the consolidated statement of operations. At the commencement date of sales-type leases for the years ended December 31, 2025, 2024 and 2023, the Group recognized $16,082, $15,707 and $15,937 of product revenue, respectively. As of the commencement date of sales-type leases for the year ended December 31, 2025, 2024 and 2023, the Group recognized $823, $1,406 and $4,178 cost of product revenue, respectively. The Group’s short-term net investment in a lease receivable as of December 31, 2025 and 2024, were $12,985 and $11,682, respectively and are presented within trade receivables in the consolidated balance sheets. The Group’s long-term net investment in a lease receivable as of December 31, 2025 and 2024, were $13,065 and $15,753, respectively, and are presented within long-term trade receivables in the consolidated balance sheets. The following table illustrates the Group’s future sales-type lease receipts as of December 31, 2025: Year ending December 31, 2026 $ 9,035 2027 6,306 2028 3,426 2029 750 2030 257 2031 and thereafter 5,255 Total future minimum receipts $ 25,029 Less - unearned interest income $ (518 ) Total $ 24,511 F-32 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES a. Purchases commitments: 1. The Group is obligated under certain agreements with its suppliers to purchase specified items of excess inventory which are expected to be utilized in the following two years, mainly in 2026. As of December 31, 2025, non-cancelable purchase obligations were approximately $16,237. 2. In addition, the Group is obligated under certain agreements with its suppliers to purchase software as a service (SaaS) subscription services which are expected to be utilized during 2026 until 2027. As of December 31, 2025, non-cancelable purchase obligations were approximately $4,800. b. Royalty commitment to the IIA: Under the research and development agreements of the Company and its Israeli subsidiaries with the IIA and pursuant to applicable laws, the Company and its Israeli subsidiaries were required to pay royalties at the rate of 3%-5% on sales to end customers of products developed with funds provided by the IIA, up to an amount equal to 100% of the IIA research and development grants received, linked to the dollar plus interest on the unpaid amount received based on the 12-month SOFR rate (from the year the grant was approved) applicable to dollar deposits. The Company and its Israeli subsidiaries were obligated to repay the IIA for the grants received only to the extent that there are sales of the funded products. As of December 31, 2025, and 2024, the Company’s Israeli subsidiaries have a contingent obligation to pay royalties to the IIA in the amount of approximately $23,837 and $22,084, respectively. c. Royalty commitments to third parties: The Group has entered into technology licensing fee agreements with third parties. Under the agreements, the Group has incorporated third parties’ technology into its products and agreed to pay the third parties’ royalties, based on sales of relevant products. Royalties are calculated on a quarterly basis. Such royalties being payable either quarterly or through a pre-buy of production licenses when necessary. During the years ended December 31, 2025, 2024 and 2023, the Group’s royalties to third parties were immaterial. d. Contingent investments commitments: The Group may be obligated under certain agreements with respect to Secured Bridge Loan Fund to invest an additional amount. As of December 31, 2025, the maximum additional amounts to be invested if called upon by the fund were $189. During the year ended December 31, 2025, the Group invested an additional amount of $523 in the fund (see also Note 7). F-33 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 11:- SHAREHOLDERS’ EQUITY a. Treasury stock: During the year ended December 31, 2014, the Company’s Board of Directors approved a share repurchase program to repurchase up to $3,000 of its ordinary shares (the “Share Repurchase Program”), which is the amount that the Company could repurchase under Israeli law without further approval from an Israeli court. During the eleven years ended December 31, 2024, the Company received Israeli court approvals to repurchase up to an additional $421,000 of its ordinary shares. In addition, in each of July 2025 and October 2025, the Company received court approval to repurchase up to an additional $20,000 and $25,000, respectively of its ordinary shares (the “Permitted Amount”). The most recent court approvals also permit the Company to declare a dividend of any part of the Permitted Amount during the approved validity period. The current approval is valid through April 27, 2026. As of December 31, 2025, pursuant to the Company’s Share Repurchase Program, the Company had repurchased a total of 38,640,823 of its ordinary shares at a total cost of $280,930 (of which 3,150,361 of its ordinary shares were repurchased during the year ended December 31, 2025, for aggregate consideration of $30,599). b. Cash Dividends: On February 4, 2025, the Company declared a cash dividend of $0.18 per share. The dividend, in the aggregate amount of approximately $5.3 million, was paid on March 6, 2025 to all of the Company’s shareholders of record on February 20, 2025. On July 29, 2025, the Company declared a cash dividend of $0.20 cents per share. The dividend, in the aggregate amount of approximately $5.6 million, was paid on August 28, 2025 to all of the Company’s shareholders of record on August 15, 2025. See Note 17 for cash dividends declared and paid subsequent to December 31, 2025. c. Employee and Non-Employee Share Option Plan: In 2008, the Company’s Board of Directors approved the 2008 Equity Incentive Plan (as amended, the “Plan”) that became effective in January 2009. Under the Plan, options and RSUs may be granted to employees, officers, non-employee consultants and directors of the Company. As of December 31, 2025, the total number of shares authorized for future grants under the Plan is 639,574. Options granted under the Plan expire seven years from the date of grant, and options that are forfeited or cancelled before expiration, become available for future grants. F-34 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 11:- SHAREHOLDERS’ EQUITY (Cont.) The following is a summary of the Company’s stock option activity and related information for the year ended December 31, 2025: Number of options Weighted average exercise price Weighted average remaining contractual term (in years) Aggregate intrinsic value Options outstanding at the beginning of the year 306,200 $ 12.64 3.30 $ 80 Changes during the year: Granted 11,750 $ 10.05 Exercised (32,437 ) $ 7.76 Forfeited (57,300 ) $ 10.61 Options outstanding at the end of the year 228,213 $ 13.71 3.16 $ - Options exercisable at the end of the year 141,359 $ 15.31 1.71 $ - The weighted average grant-date fair value of options granted during the years ended December 31, 2025, 2024 and 2023 were $2.74, $4.50 and $3.98, per option, respectively. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing share price on the last trading day of the fiscal year 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 the last trading day of the fiscal year. This amount changes based on the fair market value of the Company’s ordinary shares. The total fair value of Company’s options vested during the year ended December 31, 2025, 2024, and 2023 were $274, $141 and $515, respectively. The total intrinsic value of options exercised in the years ended December 31, 2025, 2024 and 2023 were $53, $97 and $378, respectively. The outstanding options for employees as of December 31, 2025 have been separated into ranges of exercise prices, as follows: Range of exercise price Number of options outstanding as of December 31, 2025 Weighted average remaining contractual life (in years) Weighted average exercise price Number of options exercisable as of December 31, 2025 Weighted average exercise price of exercisable options $ 9.13-10.12 22,213 6.00 $ 9.62 2,472 $ 9.13 $ 10.90-30.76 206,000 2.85 $ 14.15 138,887 $ 15.42 228,213 3.16 $ 13.71 141,359 $ 15.31 The following is a summary of the Company’s RSUs’ activity and related information for the year ended December 31, 2025: Number of shares Weighted average grant date fair value RSUs outstanding at the beginning of the year 1,206,444 $ 14.96 Changes during the year: Granted 562,435 $ 10.06 Vested (527,428 ) $ 17.87 Forfeited (20,388 ) $ 16.26 RSUs outstanding at the end of the year 1,221,063 $ 11.42 As of December 31, 2025, there was a total of $6,690 unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.81 years. The total fair value of the Company’s RSUs vested during the years ended December 31, 2025, 2024 and 2023 was $9,426, $12,053 and $13,363, respectively. F-35 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME a. Israeli taxation: 1. Measurement of taxable income in dollars: The Company has elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Accordingly, results for tax purposes are measured in terms of earnings in dollars. The tax liability, as calculated in dollars is translated into NIS according to the exchange rate as of December 31 of each year. 2. Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”): The Company’s production facilities in Israel have been granted the status of an “Approved Enterprise” in accordance with the Investment Law under four separate investment programs. In January 2011, an amendment to the Investment Law came into effect (the “Amendment”). According to the Amendment, the benefit tracks in the Investment Law were modified, and a flat tax rate applies to the Company’s income subject to the Amendment (the “Preferred Income”). Once an election is made, the Company’s income will be subject to the amended tax rate of 16% from 2015 and thereafter (or 9% for a preferred enterprise located in development area A). In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2016 and 2017 Budget Years), 2016, which includes Amendment 73 to the Investment Law (“Amendment 73”) was published. According to Amendment 73, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2016 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%). Amendment 73 also prescribes special tax tracks for technological enterprises, which are subject to regulations that were issued by the Minister of Finance in May 2017. The new tax tracks under Amendment 73 are as follows: Preferred Technological Enterprise (“PTE”) - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A PTE, as defined in the Investment Law, which is located in the center of Israel, will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%). Beginning in January 2020 and with respect to the Company’s taxable income from 2020 onwards, the Company elected to apply the terms of the PTE status under the Investments Law. 3. Tax benefits under the law for the Encouragement of Industry (Taxes), 1969 (the “Encouragement Law”): The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, that at least 90% of the income of which in a given tax year exclusive of income from specified government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity. F-36 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME (Cont.) Management believes that the Company is currently qualified as an “industrial company” under the Encouragement Law and, as such, is entitled to tax benefits, including: (i) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (ii) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (iii) accelerated depreciation rates on equipment and buildings; and (iv) expenses related to a public offering on the Tel Aviv Stock Exchange Ltd. and on recognized stock markets outside of Israel, such as Nasdaq, are deductible in equal amounts over three years. Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any governmental authority. The Company believes that the Israel Tax Authority will agree that the Company qualifies and will continue to qualify as an industrial company, or that the benefits described above will be available to the Company in the future. 4. Tax Benefits for Research and Development: Section 20a to the Israeli Tax Ordinance allows, under certain conditions, a tax deduction for research and development expenses, including capital expenses, for the year in which they are paid. Such expenses must relate to scientific research in industry, agriculture, transportation, or energy, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company’s business and carried out by or on behalf of the company seeking such tax deduction. However, the amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenses incurred in scientific research that is not approved by the relevant Israeli government ministry will be deductible over a three-year period starting from the tax year in which they are paid. The Company believes that it is eligible for the abovementioned benefit for the majority of its research and development expenses. 5. Tax rates: Taxable income of the Israeli companies is subject to a corporate tax rate of 23% in each of the years ended December 31, 2025, 2024 and 2023. The Company is eligible for tax benefits as a PTE as mentioned in 2 above. The deferred tax balances, as of December 31, 2025, have been calculated based on the PTE effective tax rate (see also 2 above). b. U.S. taxation: On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) (H.R. 1) was signed into law. This Act includes, among other things, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings. The TCJA also enacted new tax provisions beginning in 2018, including, but not limited to: (i) creating a new provision designed to tax global intangible low tax income (“GILTI”); (ii) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (iii) eliminating the corporate alternative minimum tax (“AMT”); (iv) creating the base erosion anti-abuse tax (“BEAT”); (v) establishing a deduction for foreign derived intangible income (“FDII”); (vi) repealing domestic production activity deduction; and (vii) establishing new limitations on deductible interest expense and certain executive compensation. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740 requires the effects of change in tax rates and laws to be recognized in the period in which the legislation is enacted. The effects of the OBBBA were immaterial. F-37 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME (Cont.) c. Net operating loss carryforward and deferred taxes in respect thereto: As of December 31, 2020, the Company has realized all of its carryforward tax losses in Israel, which can be offset against taxable income. As of December 31, 2025, the Company’s Israeli subsidiaries have $81,815 in net operating loss carryforwards in Israel, which can be carried forward indefinitely. The Company’s U.S. subsidiary has total available carryforward tax losses of approximately $3,703 to offset against future U.S. federal taxable gains. These carryforward tax losses expire between 2027 and 2032. As of December 31, 2025, the Company’s U.S. subsidiary recorded a deferred tax asset of $1,059 in respect of such carryforward tax losses. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. d. Income before taxes on income is comprised as follows: Year Ended December 31, 2025 2024 2023 Domestic $ 4,006 $ 7,618 $ 5,110 Foreign 9,572 7,478 9,262 $ 13,578 $ 15,096 $ 14,372 F-38 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME (Cont.) e. Taxes on income (tax benefits) are comprised as follows: Year Ended December 31, 2025 2024 2023 Current taxes: Domestic $ 1,191 $ 3,328 $ 2,030 Foreign 1,659 1,005 2,013 2,849 4,333 4,043 Deferred tax expense (benefit): Domestic 383 (85 ) (14 ) Foreign 1,390 (4,463 ) 1,563 1,773 (4,548 ) 1,549 $ 4,623 $ (215 ) $ 5,592 f. Deferred income taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax liabilities and assets are as follows: December 31, 2025 2024 Deferred tax assets: Net operating loss carryforward $ 19,922 $ 17,982 Operating lease liabilities 4,178 4,011 Research and development 1,069 1,888 Deferred revenues 2,260 2,472 Share-based compensation 830 1,192 Marketable Securities 93 404 Reserves and allowances 1,911 2,306 Net deferred tax assets before valuation allowance 30,263 29,429 Less - valuation allowance (18,818 ) (15,629 ) Deferred tax asset $ 11,445 $ 13,800 Deferred tax liability: Operating lease ROU assets $ (3,672 ) $ (3,961 ) Derivatives (820 ) (267 ) Other - (108 ) Deferred tax liability $ (4,492 ) $ (4,336 ) F-39 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME (Cont.) A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Group has established a valuation allowance to offset certain deferred tax assets as of December 31, 2025 and 2024 due to the uncertainty of realizing future tax benefits from its deferred tax assets. g. Reconciliation of the theoretical tax expenses: A reconciliation between the theoretical tax expense, assuming all income is taxed at the Israeli statutory corporate tax rate applicable to the income of the Company, and the actual tax expense (benefit) after the adoption of ASU 2023-09, as reported in the statement of operations is as follows: Year Ended December 31, 2025 Amount Precent Income before taxes on income $ 13,578 100 % Theoretical tax expense, based on the Israeli statutory corporate tax rate 3,123 23 % Foreign tax effect: 851 2.85 % United States Statutory rate differences 115 (2.57 %) Other foreign jurisdictions 736 5.42 % Tax Credits (134 ) (0.99 %) Non-taxable or non-deductible items 1,804 13.28 % Share-based compensation 1,508 11.10 % Other 296 2.18 % Change in unrecognized tax benefits 564 4.15 % Impact of PTE status in Israel (1,893 ) (10.53 %) Other 308 2.27 % Actual tax and effective tax rate $ 4,623 34.04 % F-40 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 12:- TAXES ON INCOME (Cont.) A reconciliation between the theoretical tax expense, assuming all income is taxed at the Israeli statutory corporate tax rate applicable to the income of the Company, and the actual tax expense (benefit) before the adoption of ASU 2023-09, as reported in the statement of operations is as follows: Year Ended December 31, 2024 2023 Income before taxes, as reported in the consolidated statements of operations $ 15,096 $ 14,372 Israeli statutory corporate tax rate 23.0 % 23.0 % Theoretical tax expense on the above amount at the Israeli statutory corporate tax rate $ 3,472 $ 3,304 Impact of Preferred Technological Enterprise status (3,077 ) (608 ) Changes in tax reserve for uncertain tax positions (67 ) 47 Adjustments for previous years’ taxes 2,536 486 Impact of income tax at rates other than the Israeli statutory corporate tax rate 2,131 749 Share-based compensation expenses see Note 11c 1,914 1,289 Losses and temporary differences for which valuation allowance was provided (7,363 ) 198 Impact of tax rate change - - Other 239 127 Actual tax expense (benefit) $ (215 ) $ 5,592 h. Income taxes paid: The following table presents cash paid for income taxes, net of refunds received, for the year ended December 31, 2025, pursuant to the disclosure requirements of ASU 2023-09: Year Ended December 31, 2025 Domestic (Israel) $ 1,857 Foreign: United States 707 Brazil 637 Other 589 Total $ 3,790 i. Tax assessments: The Company received final tax assessments through the 2022 tax year. The statute of limitations related to tax returns of the Company’s U.S. subsidiary for all tax years up to and including 2020 has lapsed. F-41 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 13:- FINANCIAL INCOME (EXPENSES), NET Year Ended December 31, 2025 2024 2023 Financial expenses: Loss related to non-hedging derivative instruments $ (27 ) $ (1,949 ) $ (1,565 ) Amortization of marketable securities premiums and accretion of discounts, net (400 ) (1,120 ) (1,348 ) Exchange rate differences (2,191 ) (506 ) (205 ) Loss from financial investments (465 ) (1,147 ) - Other (188 ) (296 ) (327 ) (3,271 ) (5,018 ) (3,445 ) Financial income: Gain related to non-hedging derivative instruments - 16 24 Gain from financial investments - - 333 Interest income, net 2,810 2,907 3,036 2,810 2,923 3,393 Financial income (expenses), net $ (461 ) $ (2,095 ) $ (52 ) NOTE 14:- EARNINGS PER SHARE Year Ended December 31, 2025 2024 2023 Numerator: Net income $ 8,955 $ 15,311 $ 8,780 Denominator: Denominator for basic earnings per share - weighted average number of ordinary shares, net of treasury stock 28,497,801 30,200,210 31,400,900 Effect of dilutive securities: Employee stock options and RSUs 486,535 435,878 177,813 Denominator for diluted earnings per share - adjusted weighted average number of shares 28,984,336 30,636,088 31,578,713 F-42 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 15:- SEGMENT AND GEOGRAPHIC INFORMATION The Group operates in one operating and reportable segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker. The Group’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated net income to assess financial performance and allocate resources. The following table summarizes the Group’s segment revenue, significant segment expenses, and segment net income: Year Ended December 31, 2025 2024 2023 Revenue $ 245,604 $ 242,176 $ 244,383 Less: Payroll expenses – included in cost of revenues (1) 8,215 7,328 7,339 Payroll expenses – included in operating expenses (1) 119,113 108,424 110,680 Office rent and maintenance 8,704 11,974 11,445 Other segment items (2) 100,617 106,468 113,478 Net income $ 8,955 $ 15,311 $ 8,780 (1) Payroll expenses exclude share-based compensation expenses. (2) Other segment items include other cost of revenues, depreciation and amortization, share based compensation, other research and development, other selling and marketing, other general and administrative, financial income, and taxes on income. Revenues in the table below are attributed to geographical areas, based on the location of the end customers. The following presents total revenues for the years ended December 31, 2025, 2024 and 2023 and long-lived assets (including ROU assets) as of December 31, 2025, 2024 and 2023. Year Ended and as of December 31, 2025 2024 2023 Total Long- lived Total Long- lived Total Long- lived revenues assets revenues assets revenues assets The Americas, principally the United States $ 127,992 $ 4,130 $ 125,204 $ 4,684 $ 126,419 $ 5,026 Europe 77,986 119 76,624 180 78,939 277 Eastern Asia 34,057 964 32,745 829 35,352 859 Israel 5,569 54,112 7,603 54,162 3,673 41,443 $ 245,604 $ 59,325 $ 242,176 $ 59,855 $ 244,383 $ 47,605 The Group has derived approximately 52% of its revenues for the year ended December 31, 2025 from sales in the United States. F-43 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 16:- DERIVATIVE INSTRUMENTS The Group enters into hedging transactions with a major financial institution, using derivative instruments, primarily forward contracts and options to purchase and sell foreign currencies, in order to reduce the net currency exposure associated with anticipated expenses (primarily salaries and rent expenses) in currencies other than the dollar. The Group currently hedges such future exposures for a maximum period of two years. However, the Group may choose not to hedge certain foreign currency exchange exposures for a variety of reasons. As of December 31, 2025 and 2024, the Group had a net unrealized loss associated with cash flow hedges of $6,649 and $2,164, respectively, recorded in other comprehensive income (loss). As of December 31, 2025 and 2024, the par value of the Group’s outstanding forward and options contracts in the amount of $45,000 and $60,000, respectively, which were designated as cash flow hedges. In addition, as of December 31, 2025 and 2024, the Group had no outstanding forward and options contracts which are not designated as hedging contracts. The fair value of the Group’s outstanding derivative instruments and the effect of derivative instruments in cash flow hedging relationship on other comprehensive income for the years ended December 31, 2025 and December 31, 2024, are summarized below: December 31, Foreign exchange forward and options contracts Balance sheet 2025 2024 Fair value of foreign exchange forward and options collar (cylinder) contracts “Other receivables and prepaid expenses” $ 7,470 $ 2,430 Loss recognized in other comprehensive income “Other comprehensive income (loss)” $ 6,649 $ 2,164 F-44 Table of Contents AUDIOCODES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands, except share and per share data NOTE 16:- DERIVATIVE INSTRUMENTS (Cont.) The effect of derivative instruments in cash flow hedging relationship on income for the years ended December 31, 2025 and 2024, is summarized below: Comprehensive Year Ended December 31, Foreign exchange forward and options contracts Income (loss) 2025 2024 Comprehensive income (loss) from derivatives before reclassifications “Other comprehensive income (loss)” $ 10,662 $ (306 ) Income (loss) reclassified from accumulated other comprehensive income (loss) “Operating expenses (income)” $ (6,177 ) $ 2,645 NOTE 17:- SUBSEQUENT EVENTS a. On February 3, 2026, the Company declared a cash dividend of $0.20 per share. The dividend, which was in the aggregate amount of approximately $5.3 million, was paid on March 6, 2026 to all of the Company’s shareholders of record as of February 20, 2026. b. 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