EX-99 2 exhibit_99-1.htm 6-K

Exhibit 99.1

Silicom Ltd.

(An Israeli Corporation)
and its Consolidated Subsidiary

Unaudited Condensed Interim
Consolidated Financial Statements

June 30, 2008

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Financial Statements as of June 30, 2008

Contents

Page
 
Unaudited Condensed Interim Consolidated Financial Statements:  
Unaudited Condensed Interim Consolidated Balance Sheets 2-3
Unaudited Condensed Interim Consolidated Statements of Income 4
Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders' Equity 5
Unaudited Condensed Interim Consolidated Statements of Cash Flows 6
Notes to the Unaudited Condensed Interim Consolidated Financial Statements 7-8

1

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Balance Sheets at June 30, 2008

June 30,
2008
 December 31,
2007
U.S. dollars
in thousands
 U.S. dollars
in thousands
 
Assets            
   
Current assets   
Cash and cash equivalents    9,613    14,216  
Marketable Securities    6,129    3,516  
Accounts receivables:  
 Trade, net    4,201    6,545  
 Other    341    338  
Inventories    5,493    4,078  
Deferred taxes    262    73  
   
Total Current Assets     26,039    28,766  
   
Marketable Securities     21,799    15,210  
   
Assets held for employees' severance benefits     1,183    952  
   
Property, plant and equipment, net     931    675  
   
Other assets, net     35    39  
   
Total assets     49,987    45,642  

The accompanying notes are an integrated part of these unaudited condensed interim consolidated financial statements

2

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Balance Sheets at June 30, 2008

June 30,
2008
 December 31,
2007
U.S. dollars
in thousands
 U.S. dollars
in thousands
 
Liabilities and shareholder's equity            
   
Current liabilities   
Trade accounts payable    3,258    2,997  
Other accounts payable and accrued expenses    2,106    1,715  
   
Total current liabilities      5,364    4,712  
   
Long-term liability   
Liability for employees' severance benefits    2,120    1,596  
   
Total liabilities     7,484    6,308  
   
Shareholders' Equity   
Share capital and additional paid in capital    32,857    31,747  
Treasury shares    (38 )  (38 )
Retained earnings    9,684    7,625  
   
Total Shareholders' equity     42,503    39,334  
   
Total liabilities and shareholders equity     49,987    45,642  

The accompanying notes are an integrated part of these unaudited condensed interim consolidated financial statements.

3

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Statements of Income for the Six-month period Ended June 30, 2008

Three-month period
ended June 30,
 Six-month period
ended June 30,
2008
 2007
 2008
 2007
U.S dollars in thousands
(Except for share and
per-share data)
 U.S dollars in thousands
(Except for share and
per-share data)
 
Sales       5,172     6,617     12,875     12,666  
Cost of sales    3,196    3,983    7,641    7,634  
Gross profit     1,976    2,634    5,234    5,032  
Operating Expenses   
Research and development costs    827    524    1,684    1,063  
Selling and marketing expenses    629    382    1,173    782  
General and administrative expenses    382    289    791    542  
   
Total operating expenses    1,838    1,195    3,648    2,387  
   
Operating income     138    1,439    1,586    2,645  
Financial income, net    262    283    509    352  
   
Income before income taxes     400    1,722    2,095    2,997  
   
Income tax expenses    77    153    36    183  
   
Net income     323    1,569    2,059    2,814  
Income per share   
Basic income per ordinary share    0.05    0.26    0.31    0.49  
   
Weighted average number of ordinary  
shares used to compute basic income  
per-share (in thousands)    6,688    6,067    6,676    5,716  
   
Diluted income per ordinary share    0.05    0.25    0.30    0.47  
   
Weighted average number of ordinary  
shares used to compute diluted income  
per-share (in thousands)    6,770    6,328    6,777    5,951  

The accompanying notes are an integrated part of these unaudited consolidated condensed interim financial statements

4

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

Ordinary shares
 Additional
paid-in
capital
 Treasury
shares
 Retained
earnings
 Total
shareholders'
equity
Number
of shares (1)
US$ thousands
 
Balance at                            
 December 31, 2006     5,198,629    16    11,858    (38 )  1,345    13,181  
   
Changes during 2007   
Exercise of options    205,800    1    569    -    -    570  
Exercise of warrants    291,447    1    2,471    -    -    2,472  
Issuance of shares and warrants (2)    875,000    2    16,778    -    -    16,780  
Share-based compensation    -    -    51    -    -    51  
Net income    -    -    -    -    6,280    6,280  
   
Balance at   
 December 31, 2007     6,570,876    20    31,727    (38 )  7,625    39,334  
   
Changes during Six-month   
period Ended June 30, 2008   
Exercise of options      8,700     -     38     -     -     38  
Exercise of warrants       108,487     -     926     -     -     926  
Share-based compensation      -     -     146     -     -     146  
Net income    -    -    -    -    2,059    2,059  
Balance at   
 June 30, 2008       6,688,063     20     32,837     (38 )   9,684     42,503  

(1) Net of 14,971 shares held by the subsidiary
(2) Net of issuance cost of US$ 1,192 thousands

The accompanying notes are an integrated part of these unaudited condensed interim consolidated financial statements

5

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Six-month period Ended June 30, 2008

Six-month period
ended
June 30, 2008
 Six-month
period ended
June 30, 2007
U.S$ in thousands
 U.S$ in thousands
 
Cash flows from operating activities            
Net Income    2,059    2,814  
   
Adjustments required to reconcile net income to net cash   
 provided by operating activities:   
Depreciation and amortization    207    109  
Liability for Employees' severance benefits, net    293    126  
Expenses (income) from marketable securities    2    (131 )
Share based compensation expense    146    26  
Deferred tax assets    (189 )  (17 )
Accounts receivable - trade    2,344    (904 )
Accounts receivable - other    (3 )  (420 )
Inventories    (1,415 )  (2,327 )
Trade accounts payable    261    1,729  
Other accounts payable and accrued expenses    391    129  
Capital gains from sales of property, plant and equipment    (12 )  -  
Net cash provided by operating activities    4,084    1,134  
   
Cash flows from investing activities   
Purchase of property, plant and equipment    (460 )  (221 )
Proceeds from sales of property, plant and equipment    13    -  
Proceeds from maturity of marketable securities    3,200    1,000  
Purchase of marketable securities    (12,404 )  (11,933 )
Net cash used in investing activities    (9,651 )  (11,154 )
Cash flows from financing activities   
Issuance of shares and option certificates, net of issuance cost    -    16,763  
Exercise of options and warrants    964    2,509  
Net cash provided by financing activities    964    19,272  
   
Increase (decrease) in cash and cash equivalents     (4,603 )  9,252  
   
Cash and cash equivalents at beginning of period     14,216    4,513  
Cash and cash equivalents at end of period     9,613    13,765  
   
Supplementary disclosure of cash flow information:   
 Cash paid during the year for:  
 Financing expenses    48    19  
 Taxes on income    37    11  

The accompanying notes are an integrated part of these unaudited condensed interim consolidated financial statements

6

Silicom Ltd. and its Consolidated Subsidiary
Notes to the Unaudited Condensed Interim Consolidated Financial Statements

Note 1 – General

A. Description of Business

Silicom Ltd. is an Israeli corporation engaged in designing, manufacturing, marketing and supporting server networking solutions for a broad range of servers and server based systems. It also offers a broad range of its traditional PC cards, PCI cards and USB products.

The Company’s shares have been traded in the United States on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), since February 1994 and in Israel on the Tel Aviv Stock Exchange (“TASE”), since December 2005.

Silicom markets its products directly, through (i) Original Equipment Manufacturers (“OEMs”) which sell the Company’s connectivity products under their own private labels or incorporate the Company’s products into their products, (ii) a worldwide network of independent distributors and (iii) its US-based subsidiary.

In these Interim financial statements the terms “Company” or “Silicom” refer to Silicom Ltd. and its wholly owned subsidiary, Silicom Connectivity Solutions, Inc., whereas the term “subsidiary” refers to Silicom Connectivity Solutions, Inc., a wholly owned subsidiary of Silicom Ltd.

B. Basis of Presentation

The accompanying condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial information included therein. It is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2007. Results for the interim period presented are not necessarily indicative of the results to be expected for the full year.

Note 2 – Significant Accounting Policies

Use of Estimates and Assumptions

The preparation of the Condensed Interim Consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Interim Consolidated financial statements, and the reported amounts of revenue and expenses during the reporting years. Actual results may vary from these estimates.

7

Note 3 – Inventories

June 30, 2008
 December 31, 2007
US$ in thousands
 US$ in thousands
 
Raw materials and components     $ 3,129   $ 1,585  
Work in progress   $ 2,249   $ 2,402  
Finished goods   $ 115   $ 91  
    $ 5,493   $ 4,078  

Note 4 – Events in the current period

A. In January 2008, approximately 108 thousand stock option certificates (Series 1), which were due to expire on January 31, 2008, were exercised. As a result, net proceeds to the Company were approximately US$ 900 thousand.

B. On January 24, 2008 the Company granted, in the aggregate, 200,000 options to certain of its directors and employees under its Share Option Plan (2004) and US Share Option Plan (2000). In relation to this grant:

  1. The exercise price for the options (per ordinary share) was $US 11.20 and the Option Expiration Date was the earlier to occur of: (a) January 24, 2016; and (b) the closing price of the Shares falling below $US 5.60 at any time after the Date of Grant.

  2. The Company recognizes compensation expense based on estimated grant date fair value using the Monte Carlo option-pricing model with the following assumptions:

Average Risk-free interest rate (1) 3.36%
Expected dividend yield 0.0%
Average expected volatility (2) 116.24%
Weighted average expected life 2.5 Years

  (1) Risk-free interest rate represents risk free US$ zero coupon Government Bonds at time of grant.

  (2) Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.

  3. Expenses incurred during the six months ended June 30, 2008 in relation to this grant were approximately $140 thousand. As at June 30, 2008, there was approximately US$ 617 thousand of unrecognized compensation costs related to this grant to be recognized over a weighted average period of 2.06 years.

  4. All of these options expired by their terms on July 30, 2008 without exercise.

C. Since February 11, 2008, the Company’s shares have been traded on the NASDAQ Global Market (prior thereto they were traded on the NASDAQ Capital Market).

8