VOCL Vocaltec Communications Ltd (MM)

VocalTec Communications Ltd. (NasdaqCM:VOCL) (the “Company” or “VocalTec”), a global provider of carrier-class multimedia and voice-over-IP solutions for communication service providers, today reported results for the third quarter ended September 30, 2009.

Revenues for the third quarter of 2009 were $1.9 million, an increase of 30% over the $1.5 million reported in the second quarter of 2009. The improved revenue level in the quarter was due to continued growth in product sales.

Gross margin for the third quarter of 2009 was 64% compared with 67% for the second quarter of 2009, above the Company’s normal expected level of 60%.

On a non-GAAP basis, excluding amortization of intangible assets and share based compensation expenses, the operating expenses in the third quarter were $1.6 million compared with $1.7 in the prior quarter. Non-GAAP operating loss in the third quarter of 2009 was reduced to $0.4 million compared with $0.7 million in the prior quarter.

On a non-GAAP basis, net loss for the third quarter was $0.4 million or $0.07 per share, compared with a net loss of $0.7 million, or $0.12 per share, in the second quarter of 2009. Net loss on a GAAP basis for the third quarter of 2009 was $0.7 million or $0.12 per share, compared with a net loss of $1.0 million, or $0.17 per share, in the second quarter of 2009.

As of September 30, 2009, the Company had net cash and cash equivalents, short-term bank deposits and restricted cash, in the amount of $11.1 million, or $1.93 per share, compared with $11.4 million, or $1.99 per share as of June 30, 2009.

Commenting on the results, Ido Gur, the VocalTec’s President and CEO, said, “Our results represent another quarter of improved parameters, both on the top and bottom line, and we are pleased with our performance. We also achieved a milestone by surpassing 100 customers further broadening our customer-base and providing us a solid basis for our long-term performance and growth.”

Mr. Gur further commented, “Our results testify that the efforts we have put in place over the past year have borne fruit. Given that our fourth quarter is seasonally strong, we are in a comfortable position to achieve our target of revenue growth in 2009 over that of 2008. In addition, our cash position, standing at over $11 million, places us in a position to take advantage of opportunities that will provide us with additional future growth engines in the medium to long-term, which we are very much focused on pursuing.”

Conference Call

Mr. Ido Gur, President and CEO of VocalTec, invites investors to participate in a conference call scheduled for later today, Thursday, November 5, 2009. The conference call will be held at 9:00am ET. On the call, VocalTec's management will review and discuss the third quarter results of operations and will be available to answer questions.

To participate, please call one of the following teleconferencing numbers, 5 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Number: 1 888 407 2553

ISRAEL Dial-in Number: 03 918 0664

INTERNATIONAL Dial-in Number: +972 3 918 0664

For those unable to listen to the live call, a replay of the call will be available from a link in the investor relations section of VocalTec’s website, at: www.vocaltec.com

About VocalTec

VocalTec Communications (NasdaqCM:VOCL) is a global provider of carrier-class multimedia and voice-over-IP solutions for communication service providers. A pioneer in VoIP technology since 1994, VocalTec provides proven trunking, peering and residential/enterprise VoIP application solutions that enable flexible deployment of next-generation networks (NGNs). Partnering with prominent system integrators and equipment manufacturers, VocalTec serves an installed base of dozens of leading carriers. VocalTec is led by a management team comprised of respected industry veterans.

www.vocaltec.com

Forward Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business, financial condition and results of operations of VocalTec. The words "believe," "expect," "intend," "plan," "should" and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views, assumptions and expectations of the Company with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in the telecommunications and VoIP markets and in general economic and business conditions, loss of key customers and unpredictable sales cycles, competitive pressures, market acceptance of new products, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, both referenced and not referenced in this press release. Various risks and uncertainties may affect the Company and its results of operations, as described in reports filed by the Company with the Securities and Exchange Commission from time to time. Should one or more of these or other risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. The Company does not intend or assume any obligation to update these forward-looking statements.

** Tables to follow **

        VOCALTEC COMMUNICATIONS LTD. CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars except share data)   Sep 30 December 31 2009 2008 Current Assets Cash and Cash equivalents 3,129 5,090 Short term bank deposits 6,000 9,900 Restricted cash 1,940 554 Trade receivables, net 414 214 Other receivables 485 483 Severance pay funds 9 489 Inventories 19 38 Work in progress 167   -   Total Current Assets 12,163 16,768   Severance pay funds 766   618   Equipment, net 439   614   Intangible assets, net 142   160   Total Assets 13,510   18,160       Current Liabilities Trade payable 1,197 1,707 Accrued expenses 2,713 3,300 Accrued severance pay 11 756 Deferred revenues 807   885   Total Current Liabilities 4,728   6,648   Long Term Liabilities Accrued severance pay 1,024   870   Total Long Term 1,024   870   Total Liabilities 5,752   7,518     Shareholders Equity Share capital 214 213 Other comprehensive income 14 76 Additional paid-in capital 95,758 94,761 Treasury stock (669 ) - Accumulated deficit (87,559 ) (84,408 ) Total Shareholders Equity 7,758   10,642   Total Liabilities and Shareholders Equity 13,510   18,160             VOCALTEC COMMUNICATIONS LTD. CONSOLIDATED STATEMENT OF OPERATIONS Reconciliation of GAAP to non GAAP results * All data in thousands of U.S. dollars   Three months ended September 30, June 30, 2009 2009

GAAP results(as reported)

GAAP results(as reported)

  Sales Product 1,270 834 Services 644   640   1,914   1,474   Cost of sales Product 552 316 Services 142   166   694   482   Gross profit 1,220   992     Operating Expenses

Research and development, net

624 697 Selling and marketing 778 767 General and administrative 535 508 Amortization of intangible assets 6   6   Total Operating Expenses 1,943   1,978     Operating loss (723 ) (986 )   Financial Income (expense), net 27   (5 ) Net loss (696 ) (991 )     GAAP net loss (696 ) (991 ) Adjustments   Amortization of intangible assets included in operating expenses 6 6   Equity based compensation expense included in cost of sales 5 5 included in research and development 94 93 included in sales and marketing 62 62 included in general and administrative 158   167   Non-GAAP net loss (371 ) (658 )  

* To supplement our consolidated financial statement presented in accordance with generally accepted accounting principles (GAAP), we use NON-GAAP measures of operating results, net income, which are adjusted from results based on GAAP to exclude the expense we recorded for share-based compensation and amortization of intangible assets. These NON-GAAP financial measures are provided to enhance overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the NON-GAAP results provide useful information to both management and investors as these NON-GAAP results exclude matters that we believe are not indicative of our core operating results. Further, these NON-GAAP results are one of the primary indicators management uses for assessing our performance, allocating resources and planning and forecasting future periods. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. These NON-GAAP measures may be different than the NON-GAAP measures used by other companies.