☐
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
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☐
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
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Title of each class
|
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Trading Symbol(s)
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Name of each exchange on which registered
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Ordinary Shares, NIS 0.25 Par Value
|
|
SPCB
|
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The NASDAQ Capital Market
|
Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
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Emerging growth company ☐
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U.S. GAAP ☒
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International Financial Reporting
Standards as issued by the International Accounting Standards Board ☐ |
Other ☐
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1
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||
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1
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||
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|
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1
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||
|
|
|
A.
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Selected Financial Data
|
1
|
B.
|
Capitalization and Indebtedness
|
2
|
C.
|
Reasons for the Offer and Use of Proceeds
|
2
|
D.
|
Risk Factors
|
3
|
|
|
|
20 | ||
|
|
|
A.
|
History and Development of the Company
|
20
|
B.
|
Business Overview
|
22 |
C.
|
Organizational Structure
|
35 |
D.
|
Property, Plants and Equipment
|
35 |
|
|
|
36 | ||
|
|
|
36 | ||
|
|
|
A.
|
Operating Results
|
36
|
B.
|
Liquidity and Capital Resources
|
42 |
C.
|
Research and Development, Patents and Licenses, etc.
|
48
|
D.
|
Trend Information
|
49
|
E.
|
Off-Balance Sheet Arrangements
|
49
|
F.
|
Tabular Disclosure of Contractual Obligations
|
49
|
|
|
|
49
|
||
|
|
|
A.
|
Directors and Senior Management
|
49
|
B.
|
Compensation
|
51
|
C.
|
Board Practices
|
52
|
D.
|
Employees
|
60
|
E.
|
Share Ownership
|
61
|
|
|
|
64
|
||
|
|
|
A.
|
Major Shareholders
|
64
|
B.
|
Related Party Transactions
|
65
|
C.
|
Interests of Experts and Counsel
|
65
|
|
|
|
65
|
||
|
|
|
A.
|
Consolidated Statements and Other Financial Information
|
65
|
B.
|
Significant Changes
|
66
|
|
|
|
66
|
||
|
|
|
A.
|
Offer and Listing Details
|
66
|
B.
|
Plan of Distribution
|
67
|
C.
|
Markets
|
67
|
D.
|
Selling Shareholders
|
67
|
E.
|
Dilution
|
67
|
F.
|
Expenses of the Issue
|
67
|
|
|
|
68
|
||
|
|
|
A.
|
Share Capital
|
68
|
B.
|
Memorandum and Articles of Association
|
68
|
C.
|
Material Contracts
|
73 |
D.
|
Exchange Controls
|
73 |
E.
|
Taxation
|
74 |
F.
|
Dividends and Paying Agents
|
78
|
G.
|
Statement by Experts
|
78 |
H.
|
Documents on Display
|
78 |
I.
|
Subsidiary Information
|
79 |
|
|
|
79 | ||
|
|
|
79 | ||
|
|
|
79 | ||
|
|
|
79
|
||
|
|
|
79 | ||
|
|
|
80 | ||
|
|
|
80
|
||
|
|
|
80 | ||
|
|
|
80 | ||
|
|
|
81 | ||
|
|
|
81 | ||
|
|
|
81
|
||
|
|
|
81
|
||
|
|
|
81
|
||
|
|
|
82
|
||
|
|
|
82
|
||
|
|
|
83
|
||
|
|
|
85 |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
KEY INFORMATION
|
A.
|
Selected Financial Data
|
|
Year Ended December 31,
|
|||||||||||||||||||
|
2020
|
2019
|
2018
|
2017
|
2016
|
|||||||||||||||
|
(U.S. dollars in thousands, except per share data)
|
|||||||||||||||||||
Summary of Statement of Operations Data:
|
||||||||||||||||||||
Revenues
|
11,770
|
16,475
|
21,882
|
33,264
|
20,025
|
|||||||||||||||
Cost of revenues
|
6,189
|
10,127
|
13,743
|
20,351
|
17,461
|
|||||||||||||||
Gross profit
|
5,581
|
6,348
|
8,139
|
12,913
|
2,564
|
|||||||||||||||
Operating expenses:
|
||||||||||||||||||||
Research and development
|
2,386
|
3,971
|
4,790
|
7,238
|
6,718
|
|||||||||||||||
Selling and marketing
|
1,721
|
3,526
|
5,005
|
8,099
|
9,970
|
|||||||||||||||
General and administrative
|
4,073
|
5,389
|
5,748
|
6,113
|
7,277
|
|||||||||||||||
Other (income) expenses
|
1,150
|
1,635
|
2,271
|
(2,021
|
)
|
713
|
||||||||||||||
Gain on bargain acquisitions
|
-
|
-
|
-
|
-
|
(10,515
|
)
|
||||||||||||||
Total operating expenses
|
9,330
|
14,521
|
17,814
|
19,429
|
14,163
|
|||||||||||||||
Operating loss
|
(3,749
|
)
|
(8,173
|
)
|
(9,675
|
)
|
(6,516
|
)
|
(11,599
|
)
|
||||||||||
Financial expenses, net
|
(4,113
|
)
|
(3,289
|
)
|
(335
|
)
|
(538
|
)
|
(303
|
)
|
||||||||||
(loss before income tax)
|
(7,862
|
)
|
(11,462
|
)
|
(10,010
|
)
|
(7,054
|
)
|
(11,902
|
)
|
||||||||||
Income tax (expense) benefit
|
(5
|
)
|
(43
|
)
|
5,730
|
393
|
(2,091
|
)
|
||||||||||||
|
||||||||||||||||||||
Net (loss)
|
(7,867
|
)
|
(11,505
|
)
|
(15,740
|
)
|
(6,661
|
)
|
(13,993
|
)
|
||||||||||
|
||||||||||||||||||||
Per Share Data:
|
||||||||||||||||||||
Basic loss per share
|
(0.45
|
)
|
(0.71
|
)
|
(1.03
|
)
|
(0.45
|
)
|
(0.93
|
)
|
||||||||||
Diluted loss per share
|
(0.45
|
)
|
(0.71
|
)
|
(1.03
|
)
|
(0.45
|
)
|
(0.93
|
)
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
|||||||||||||||
|
(U.S. dollars in thousands, except per share data)
|
|||||||||||||||||||
Summary of Balance Sheet Data:
|
||||||||||||||||||||
Cash and cash equivalents and restricted cash
|
3,952
|
1,210
|
1,639
|
1,037
|
1,708
|
|||||||||||||||
Total Current Assets
|
24,942
|
23,147
|
25,664
|
27,413
|
21,120
|
|||||||||||||||
TOTAL ASSETS
|
40,344
|
40,004
|
44,349
|
54,198
|
53,473
|
|||||||||||||||
Total Current Liabilities
|
19,599
|
14,313
|
13,543
|
17,960
|
12,771
|
|||||||||||||||
Total Long-term Liabilities
|
15,827
|
17,359
|
11,256
|
3,531
|
1,978
|
|||||||||||||||
SHAREHOLDERS’ EQUITY
|
4,919
|
8,332
|
19,550
|
32,707
|
38,724
|
B.
|
Capitalization and Indebtedness
|
|
|
|
Not applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
|
|
|
Not applicable.
|
D.
|
Risk Factors
|
|
•
|
the frequent need to compete against companies or teams of companies with more financial and marketing resources and more experience than we have in bidding on and performing major contracts;
|
|
•
|
the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract we are competing for and which have, as a result, greater domain expertise and
established customer relations;
|
|
•
|
the substantial cost and managerial time and effort necessary to prepare bids and proposals for contracts that may not be awarded to us;
|
|
•
|
the need to accurately estimate the resources and cost structure that will be required to service any fixed-price contract that we are awarded; and
|
|
•
|
the expense and delay that may arise if our competitors protest or challenge new contract awards made to us pursuant to competitive bidding or subsequent contract modifications, and the risk that any of these
protests or challenges could result in the resubmission of bids on modified specifications, or in termination, reduction or modification of the awarded contract.
|
|
•
|
issue additional securities that would dilute our current shareholders’ percentage ownership;
|
|
•
|
incur debt and assume liabilities; and
|
|
•
|
incur large and immediate write-offs of intangible assets, accounts receivable or other assets.
|
|
•
|
we may not be successful in developing and marketing new products or product features that respond to technological change or evolving industry standards;
|
|
•
|
we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products and features; or
|
|
•
|
our new products and product features may not adequately meet the requirements of the marketplace and achieve market acceptance.
|
|
•
|
national ID and e-Government;
|
|
•
|
counties and municipals;
|
|
•
|
public safety;
|
|
•
|
safe and smart cities
|
|
•
|
educational campus;
|
|
•
|
healthcare and homecare; and
|
|
•
|
large enterprises
|
|
•
|
the cost, performance and reliability of our products and services compared to the products and services of our competitors;
|
|
•
|
customer perception of the benefits of our products and solutions;
|
|
•
|
public perception of the intrusiveness of these solutions and the manner in which organizations use the information collected;
|
|
•
|
public perception of the privacy protection for their personal information;
|
|
•
|
customer satisfaction with our products and services; and
|
|
•
|
marketing efforts and publicity for our products and services.
|
•
|
Increased price competition for our products, not only from our competitors but also as a consequence of customers disposing of
unutilized products
|
•
|
Risk of excess and obsolete inventories
|
•
|
Risk of supply constraints
|
•
|
Risk of excess facilities and manufacturing capacity
|
•
|
Higher overhead costs as a percentage of revenue and higher interest expense
|
|
•
|
increased collection risks;
|
|
•
|
trade restrictions;
|
|
•
|
export duties and tariffs;
|
|
•
|
uncertain political, regulatory and economic developments;
|
|
•
|
inability to protect our intellectual property rights;
|
|
•
|
highly aggressive competitors;
|
|
•
|
currency issues;
|
|
•
|
difficulties in staffing, managing and supporting foreign operations;
|
|
•
|
longer payment cycles; and
|
|
•
|
difficulties in collecting accounts receivable.
|
|
•
|
long customer sales cycles;
|
|
•
|
reduced demand for our products and services;
|
|
•
|
price reductions;
|
|
•
|
new competitors, or the introduction of enhanced products or services from new or existing competitors;
|
|
•
|
changes in the mix of products and services we or our customers and representatives sell;
|
|
•
|
contract cancellations, delays or amendments by customers;
|
|
•
|
the lack of government demand for our products and services or the lack of government funds appropriated to purchasing our products and services;
|
|
•
|
unforeseen legal expenses, including litigation costs;
|
|
•
|
expenses related to acquisitions;
|
|
•
|
other non-recurring financial charges;
|
|
•
|
the lack of availability, or increased cost, of key components and subassemblies; and
|
|
•
|
the inability to successfully manufacture in volume, and reduce the price of, certain of our products;
|
|
•
|
actual or anticipated variations in our quarterly operating results or those of our competitors;
|
|
•
|
announcements by us or our competitors of technological innovations or new and enhanced products;
|
|
•
|
developments or disputes concerning proprietary rights;
|
|
•
|
introduction and adoption of new industry standards;
|
|
•
|
changes in financial estimates by securities analysts;
|
|
•
|
market conditions or trends in our industry;
|
|
•
|
changes in the market valuations of our competitors;
|
|
•
|
announcements by us or our competitors of significant acquisitions;
|
|
•
|
entry into strategic partnerships or joint ventures by us or our competitors;
|
|
•
|
failing to meet in the financial projection or guidance;
|
|
•
|
Actual and anticipated market volatility due to the Covid-19.
|
|
•
|
political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events; and
|
|
•
|
other events or factors in any of the countries in which we do business, including those resulting from war, incidents of terrorism, natural disasters or responses to such events.
|
|
•
|
the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission of quarterly reports on Form 10-Q and current reports on Form 8-K;
|
|
•
|
the sections of the Exchange Act regulating the solicitation of proxies in connection with shareholder meetings;
|
|
•
|
the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
|
|
•
|
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading
transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).
|
INFORMATION ON THE COMPANY
|
A.
|
History and Development of the Company
|
B.
|
BUSINESS OVERVIEW
|
|
•
|
Develop strong strategic relationships with our business partners, including the systems integrators and representatives that introduce our products and solutions into their respective markets.
|
|
•
|
Employ dedicated sales personnel to work closely with our business partners. Our sales personnel will customize and adapt solutions that can then be installed and supported by these business partners.
|
|
•
|
Expand our IoT and Cyber Security activities globally, particularly in the Americas, Europe, and the Far East.
|
|
•
|
Leverage our customer base, superior PureSecurity hybrid suite of IoT solutions, and Cyber Security capabilities to secure additional long-term contracts with governments and communities in the public
safety markets.
|
|
•
|
Leverage our reputation, talented personnel, and project management capabilities in the e-Gov market to secure additional projects and solutions in the growing e-Government market.
|
|
•
|
Leverage our customer base, Connectivity solutions, and Cyber Security capabilities to secure additional long-term contracts with governments and communities in the Communication Infrastructure market.
|
|
•
|
Develop strong strategic relationships with business partners that will introduce our solutions into the healthcare, homecare, Safe City and Smart Campus markets.
|
|
•
|
Develop strong strategic relationships with business partners in the financial services industry, and un-banked and mobile payments markets.
|
|
•
|
Identify and acquire synergistic contracts or businesses in order to reduce time to market, obtain complementary technologies and secure required references for international bids.
|
|
•
|
Grow our business in emerging markets with perceived significant growth opportunities.
|
|
•
|
Multiple radios provide concurrent 802.11a/n/ac and 802.11b/g/n connections
|
|
•
|
Up to 1300 Mbps combined data rate
|
|
•
|
Dual concurrent MIMO, Dual-polarized antennas
|
|
•
|
Self-configuring, plug-and-play deployment
|
|
•
|
Smart MESH supported
|
|
•
|
Gigabit outdoor Wi-Fi support up to 450 Mbps, (per band) 900 Mbps for both bands, and maximum aggregated capacity of up to one Gigabit per unit
|
|
•
|
Built in Access Controller, for flexible service planning
|
|
•
|
Self-configuring, plug-and-play deployment
|
|
•
|
Optimized for high capacity applications
|
|
•
|
Available in the Licensed Exempt frequencies: 5.1-5.9 GHz
|
|
•
|
High Performance - supporting up to 500 Mbps net throughput and distances of up to 50km/32 miles (w/high-gain antenna)
|
|
•
|
Dynamic up-link /down-link bandwidth allocation
|
|
•
|
Optimized performance of voice, video and data using four priorities of service
|
|
•
|
Optimized interference mitigation and NLOS performance
|
|
•
|
Ease of ordering, installation and configuration
|
|
•
|
Cost effective and scalable network architecture with centralized control plane and distributed
|
|
•
|
data plane
|
|
•
|
Supporting up to 5000 AP’s and 50,000 users per controller
|
|
•
|
Control and manage AP and backhaul radio, including statistic and reporting
|
|
•
|
Automatic AP units detection, configuration and firmware distribution
|
|
•
|
Secured control layer management
|
|
•
|
Hotspots/Hotzones and cellular offloading services
|
|
•
|
Providing a single peer to the AAA
|
|
•
|
High capacity, point-to-point, robust outdoor wireless solution
|
|
•
|
Flexible rate capacity options: B10, B14, B28, B100 reaching up to 100 Mbps gross
|
|
•
|
Long reach: over 60 km
|
|
•
|
Optimized uplink/downlink configuration to support different business applications such as public safety and video surveillance
|
|
•
|
Robust performance in Non-Line-of-Sight (NLOS) environments
|
|
•
|
Simple deployment, management and maintenance
|
|
2020
|
2019
|
||||||
Africa
|
$
|
1,791
|
1,468
|
|||||
Europe
|
3,037
|
3,948
|
||||||
South and center America
|
21
|
30
|
||||||
United States
|
5,856
|
9,059
|
||||||
Israel
|
746
|
1,401
|
||||||
Asia Pacific
|
319
|
569
|
||||||
Total
|
$
|
11,770
|
16,475
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
e-Gov
|
$
|
1,911
|
1,925
|
|||||
IoT
|
7,656
|
11,664
|
||||||
Cyber Security
|
2,203
|
2,886
|
||||||
Total
|
$
|
11,770
|
16,475
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
Revenues
|
||||||||
Products
|
$
|
4,528
|
4,455
|
|||||
Services
|
7,242
|
12,020
|
||||||
|
||||||||
Total revenues
|
$
|
11,770
|
16,475
|
C.
|
Organizational Structure
|
D.
|
Property, Plants and Equipment
|
UNRESOLVED STAFF COMMENTS
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
A.
|
Operating Results
|
|
2020
|
2019
|
||||||
Revenues
|
100
|
%
|
100
|
%
|
||||
Cost of revenues
|
52.6
|
61.5
|
||||||
Gross profit
|
47.4
|
38.5
|
||||||
Operating expenses:
|
||||||||
Research and development
|
20.3
|
24.1
|
||||||
Selling and marketing
|
14.6
|
21.4
|
||||||
General and administrative
|
34.6
|
32.7
|
||||||
Other expenses (income)
|
9.8
|
9.9
|
||||||
Total operating expenses
|
79.3
|
88.1
|
||||||
Operating income (loss)
|
(31.8
|
)
|
(49.6
|
)
|
||||
Financial (expenses) income, net
|
(34.9
|
)
|
(20.0
|
)
|
||||
Income (loss) before income tax
|
(66.8
|
)
|
(69.6
|
)
|
||||
Income tax (expense) benefit
|
(0.0
|
)
|
(0.3
|
)
|
||||
Net income (Loss)
|
(66.8
|
)
|
(69.8
|
)
|
Year ended
December 31, |
Israeli inflation
rate % |
NIS devaluation
(appreciation) rate % |
Israeli
inflation adjusted for devaluation (appreciation) % |
|||||||||
2019
|
0.6
|
(5.0
|
)
|
5.6
|
||||||||
2020
|
(0.7
|
)
|
(7.0
|
)
|
6.3
|
B.
|
Liquidity and Capital Resources
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
(in thousands)
|
|||||||
Net cash used in operating activities
|
(6,514
|
)
|
(7,660
|
)
|
||||
Net cash used in investing activities
|
(1,571
|
)
|
(1,175
|
)
|
||||
Net cash provided by (used in) financing activities
|
10,827
|
7,244
|
||||||
Net increase(decrease) in cash and cash equivalents
|
2,742
|
(1,591
|
)
|
|||||
Cash, cash equivalents and restricted cash at beginning of period
|
1,210
|
2,801
|
||||||
Cash, cash equivalents and restricted cash at end of period
|
3,952
|
1,210
|
|
Year ended December 31, 2020
|
|||||||||||||||
|
Cyber
Security |
IoT
|
e-Gov
|
Total
|
||||||||||||
Major geographic areas
|
||||||||||||||||
Africa
|
$
|
-
|
$
|
-
|
$
|
1,791
|
$
|
1,791
|
||||||||
European countries
|
762
|
2,155
|
120
|
3,037
|
||||||||||||
South America
|
-
|
21
|
-
|
21
|
||||||||||||
United States
|
544
|
5,312
|
-
|
5,856
|
||||||||||||
Israel
|
677
|
69
|
-
|
746
|
||||||||||||
APAC
|
220
|
99
|
-
|
319
|
||||||||||||
Total revenue
|
$
|
2,203
|
$
|
7,656
|
$
|
1,911
|
$
|
11,770
|
||||||||
|
||||||||||||||||
Timing of revenue recognition
|
||||||||||||||||
Products and services transferred over time
|
$
|
92
|
$
|
6,020
|
$
|
1,466
|
$
|
7,578
|
||||||||
Products transferred at a point in time
|
2,111
|
1,636
|
445
|
4,192
|
||||||||||||
Total revenue
|
$
|
2,203
|
$
|
7,656
|
$
|
1,911
|
$
|
11,770
|
C.
|
Research and Development
|
D.
|
Trend Information
|
E.
|
Off-Balance Sheet Arrangements
|
F.
|
Tabular Disclosure of Contractual Obligations
|
|
Total
|
Less than 1
year |
1-3 years
|
3-5 years
|
More than
5 years |
|||||||||||||||
Purchase obligations
|
32
|
32
|
-
|
-
|
-
|
|||||||||||||||
Operating lease obligations
|
600
|
285
|
315
|
-
|
-
|
|||||||||||||||
Total contractual cash obligations
|
$
|
632
|
317
|
315
|
-
|
-
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and Senior Management
|
Name
|
|
Age
|
|
Position
|
Arie Trabelsi
|
|
63
|
|
Director& CEO
|
Menachem Mirski
|
|
64
|
|
Independent Director (1) (2)(3)
|
Oren Raoul De Lange
|
|
43
|
|
Independent Director (1)(2)(3)
|
Shoshana Cohen Shapira
|
|
63
|
|
Independent Director (1)(2)(3)
|
|
(1)
|
“Independent Director
|
|
(2)
|
Member of the Audit Committee
|
|
(3)
|
Member of the Compensation Committee
|
Name
|
|
Age
|
|
Position
|
Ordan Trabelsi*
|
|
36
|
|
President, Chief Executive Officer
|
Barak Trabelsi*
|
|
35
|
|
Chief Operating Officer
|
Gil Alfi
|
|
50
|
|
Vice President Sales, Safend Ltd
|
Jason Gilbert
|
54 | Vice President Sales, Public Sector, |
B.
|
Compensation
|
|
Salaries, fees,
commissions and bonuses |
Pension,
retirement and similar benefits |
||||||
All directors and executive officers as a group (8 persons)
|
$
|
806,039
|
$
|
52,107
|
Name and Position
|
Salary(1)
|
Bonus and
commissions |
Equity-Based
Compensation (2) |
Total
|
||||||||||||
Igor Merling
CTO, e-Gov |
184,752
|
-
|
-
|
184,752
|
||||||||||||
Arkady Tachman
R&D director, e-Gov |
165,893
|
-
|
-
|
165,893
|
||||||||||||
Barak Trabelsi
GM &Vice President, IoT |
207,711
|
28,571
|
-
|
236.283
|
||||||||||||
Billy Gurevich
Commercial Director |
196,501
|
-
|
-
|
196,501
|
||||||||||||
Gil Alfi
Vice President Sales, Cyber |
210,010
|
57,194
|
-
|
267,205
|
(1)
|
Amounts reported in this column include salary, social benefits, including those mandated by applicable law.
|
(2)
|
Amounts reported in this column represent the expense recorded in our audited consolidated financial statements for the year ended December 31, 2020 based on the grant date fair value in accordance with
accounting guidance for stock-based compensation. See Note 12c to our audited consolidated financial statements for the year ended December 31, 2020.
|
C.
|
Board Practices
|
Name
|
|
Position
|
|
Date Service Began
|
|
Date of Expiration
of Current Term |
Arie Trabelsi
|
|
Director
|
|
February 24, 2019
|
|
Annual general meeting
|
Oren Raoul De Lange
|
|
Independent Director
|
|
March 28, 2020
|
|
March 28, 2023
|
Shoshana Cohen Shapira
|
|
Independent Director
|
|
February 24, 2019
|
|
February 23, 2022
|
Menachem Mirski
|
|
Independent Director
|
|
July 25, 2010
|
|
Annual general meeting
|
|
•
|
Monitoring deficiencies in the management of the company, including in consultation with the independent auditors or the internal auditor, and advising the board of directors on how to correct such
deficiencies. If the audit committee finds a material deficiency, it will hold at least one meeting regarding such material deficiency, with the presence of the internal auditor or the independent auditors but without the presence of the
senior management of the company. However, a member of the company’s senior management can participate in the meeting in order to present an issue which is under his or her responsibility.
|
|
•
|
Determining, on the basis of detailed arguments, whether to classify certain engagements or transactions as material or extraordinary, as applicable, and therefore as requiring special approval under the
Companies Law. The audit committee must make such determination according to principles and guidelines predetermined on an annual basis.
|
|
•
|
Determining if transactions (excluding extraordinary transactions) with a controlling shareholder, or in which a controlling shareholder has a personal interest, are required to be rendered pursuant to a
competitive procedure.
|
|
•
|
Deciding whether to approve engagements or transactions that require the audit committee approval under the Companies Law.
|
|
•
|
Determining the approval procedure of non-extraordinary transactions, following classification as such by the audit committee, including whether such specific non-extraordinary transactions require the approval
of the audit committee.
|
|
•
|
Examining and approving the annual and periodic working plans of the internal auditor.
|
|
•
|
Overseeing the company’s internal auditing and the performance of the internal auditor and confirming that the internal auditor has sufficient tools and resources at his disposal, taking into account, among
other factors, the special requirements of the company and its size;
|
|
•
|
Examining the scope of work of the independent auditor and its pay, and bringing such recommendations on these issue before the board.
|
|
•
|
Determining the procedure for addressing complaints of employees regarding shortcomings in the management of the company and ensuring the protection of employees who have filed such complaints.
|
|
•
|
Determining, with respect to transactions with the controlling shareholder or in which such controlling shareholder has a personal interest, whether such transactions are extraordinary or not, whether there is
an obligation to conduct a competitive process under the supervision of the audit committee and whether, prior to entering into such transaction, the company should conduct any other process that the audit committee may deem fit, all taking
into account the type of the company. The audit committee may set such qualifications up to one year in advance.
|
|
•
|
Determining the manner of approval of transactions with the controlling shareholder or in which the controlling shareholder has a personal interest which (i) are not negligible transactions (pursuant to the
committee’s determination) and (ii) are not qualified by the committee as extraordinary transactions.
|
|
•
|
an amendment to the company’s articles of association;
|
|
•
|
an increase in the company’s authorized share capital;
|
|
•
|
a merger; and
|
|
•
|
the approval of related party transactions and acts of office holders that require shareholder approval.
|
|
•
|
a breach of duty of care towards us or any other person;
|
|
•
|
a breach of fiduciary obligations towards us, provided that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not be to our detriment;
|
|
•
|
a financial liability imposed on him or her in favor of another person; or
|
|
•
|
any other event for which insurance of an office holder is or may be permitted.
|
|
•
|
financial liability imposed upon said office holder in favor of another person by virtue of a decision by a court of law, including a decision by way of settlement or a decision in arbitration which has been
confirmed by a court of law;
|
|
•
|
reasonable expenses of the proceedings, including lawyers’ fees, expended by the office holder or imposed on him by the court for:
|
|
(1)
|
proceedings issued against him by or on behalf of our company or by a third party;
|
|
(2)
|
criminal proceedings in which the office holder was acquitted;
|
|
(3)
|
criminal proceedings in which he was convicted in an offense, which did not require proof of criminal intent; or
|
|
(4)
|
any other liability or expense for which the indemnification of an officer holder is not precluded by law.
|
|
•
|
a breach by the office holder of his or her duty of loyalty towards the company unless, with respect to insurance coverage, the office holder acted in good faith and had a reasonable basis to believe that the
act would not prejudice the company;
|
|
•
|
a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly;
|
|
•
|
any act or omission done with the intent to derive an illegal personal benefit; or
|
|
•
|
any fine levied against the office holder.
|
D.
|
Employees
|
|
Dec. 31,
2020 |
Dec. 31,
2019 |
||||||
Research, Development & Operations
|
76
|
87
|
||||||
Marketing and Sales
|
7
|
12
|
||||||
Administration
|
11
|
10
|
||||||
Total
|
94
|
109
|
|
Dec. 31,
2020 |
Dec. 31,
2019 |
||||||
Israel & Europe
|
44
|
48
|
||||||
United States
|
50
|
61
|
||||||
Total
|
94
|
109
|
E.
|
Share Ownership
|
Name
|
Number of
Ordinary Shares Beneficially Owned (1) |
Percentage
of Outstanding Ordinary Shares (2) |
||||||
Arie Trabelsi(3)
|
4,596,212
|
22.98
|
%
|
|||||
|
||||||||
Menachem Mirski
|
—
|
—
|
||||||
|
||||||||
Shoshana Cohen Shapira
|
—
|
—
|
||||||
|
||||||||
Oren Raoul De Lange
|
—
|
—
|
||||||
|
||||||||
All executive officers and directors as a group (8 persons)
|
4,604,462
|
23.14
|
%
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable
or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
(2)
|
The percentages shown are based on 19,998.745 ordinary shares issued and outstanding.
|
(3)
|
Sigma Wave Ltd. is controlled by Mrs. Tsviya Trabelsi, and by her husband, Mr. Arie Trabelsi. As such, Mr. Trabelsi may be deemed to beneficially own the 4,596,212 ordinary shares beneficially held by Sigma
Wave Ltd.
|
|
Year ended December 31,
|
|||||||||||||||
|
2020
|
2019
|
||||||||||||||
|
Number of
options |
Weighted
average exercise price |
Number of
options |
Weighted
average exercise price |
||||||||||||
|
$
|
$
|
||||||||||||||
Outstanding at Beginning of year
|
564,197
|
2.64
|
854,656
|
2.53
|
||||||||||||
Granted
|
-
|
-
|
-
|
-
|
||||||||||||
Exercised
|
(123,545
|
)
|
0.1
|
(47,644
|
)
|
0.1
|
||||||||||
Canceled and forfeited
|
(105,813
|
)
|
2.94
|
(242,815
|
)
|
1.93
|
||||||||||
Outstanding at end of year
|
334,839
|
2.31
|
564,197
|
2.64
|
||||||||||||
Exercisable at end of year
|
193,089
|
1.73
|
315,822
|
3.32
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Cost of revenues
|
84
|
66
|
||||||
Research and development expenses
|
48
|
31
|
||||||
Selling and marketing expenses
|
77
|
29
|
||||||
General and administrative expenses
|
2
|
18
|
||||||
|
211
|
144
|
|
|
Options outstanding
|
|
|
Options Exercisable
|
|
||||||||||||||||||||||||||
Range of
exercise price |
|
Number
outstanding as of December 31, 2020 |
|
|
Weighted
average remaining contractual life (years) |
|
|
Weighted
average exercise price |
|
|
Aggregate
intrinsic value |
|
|
Number
outstanding as of December 31, 2020 |
|
|
Weighted
average remaining contractual life (years) |
|
|
Weighted
average exercise price |
|
|
Aggregate
intrinsic value |
|
||||||||
$
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
||||||||
0.00-2.00
|
|
|
316,839
|
|
|
|
7.71
|
|
|
|
1.10
|
|
|
|
-
|
|
|
|
175,089
|
|
|
|
7.69
|
|
|
|
1.02
|
|
|
|
-
|
|
3.00-5.00
|
|
|
18,000
|
|
|
|
8.05
|
|
|
|
4.88
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
8.05
|
|
|
|
4.88
|
|
|
|
-
|
|
|
|
|
334,839
|
|
|
|
7.73
|
|
|
|
2.16
|
|
|
|
-
|
|
|
|
193,089
|
|
|
|
7.73
|
|
|
|
1.41
|
|
|
|
-
|
|
|
Options
|
Weighted–
average grant-date fair value |
||||||
Non-vested at January 1, 2020
|
248,375
|
$
|
1.90
|
|||||
Granted
|
-
|
$
|
-
|
|||||
Vested
|
(48,426
|
)
|
$
|
2.00
|
||||
Forfeited and canceled
|
(58,199
|
)
|
$
|
2.45
|
||||
Non-vested at December 31, 2020
|
141,750
|
$
|
1.64
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
A.
|
Major Shareholders
|
Name of Beneficial Owner
|
Number of
Shares Beneficially Owned |
Percentage of
Shares Outstanding |
||||||
Sigma Wave Ltd
|
4,588,212
|
22.83
|
||||||
Ibex Investors
|
1,989,068
|
9.90
|
|
Sabby Volatility Warrant Master Fund
|
1,480,000
|
7.36
|
B.
|
Related Party Transactions
|
C.
|
Interests of Experts and Counsel
|
FINANCIAL INFORMATION
|
A.
|
Consolidated Statements and Other Financial Information
|
B.
|
Significant Changes
|
THE OFFER AND LISTING
|
A.
|
Offer and Listing Details
|
Year
|
High
|
Low
|
||||||
2012
|
$
|
0.85
|
$
|
0.04
|
||||
2013
|
$
|
5.65
|
$
|
0.30
|
||||
2014
|
$
|
13.78
|
$
|
4.85
|
||||
2015
|
$
|
13.84
|
$
|
4.46
|
||||
2016
|
$
|
5.25
|
$
|
2.62
|
||||
2017
|
$
|
4.36
|
$
|
2.17
|
||||
2018
|
$
|
3.92
|
$
|
1.32
|
||||
2019
|
$
|
1.75
|
$
|
0.59
|
||||
2020
|
$
|
3.09
|
$ |
0.37
|
|
High
|
Low
|
||||||
|
||||||||
2018
|
||||||||
First Quarter
|
$
|
3.92
|
$
|
2.73
|
||||
Second Quarter
|
$
|
2.88
|
$
|
1.55
|
||||
Third Quarter
|
$
|
2.14
|
$
|
1.71
|
||||
Fourth Quarter
|
$
|
1.81
|
$
|
1.31
|
||||
|
||||||||
2019
|
||||||||
First Quarter
|
$
|
1.75
|
$
|
1.38
|
||||
Second Quarter
|
$
|
1.49
|
$
|
0.98
|
||||
Third Quarter
|
$
|
1.24
|
$
|
0.59
|
||||
Fourth Quarter
|
$
|
0.80
|
$
|
0.59
|
||||
2020
|
||||||||
First Quarter
|
$
|
0.92
|
$
|
0.37
|
||||
Second Quarter
|
$
|
3.09
|
$
|
0.66
|
||||
Third Quarter
|
$
|
1.72
|
$
|
0.72
|
||||
Fourth Quarter
|
$
|
1.10
|
$
|
0.78
|
Month
|
High
|
Low
|
||||||
December 2020
|
$
|
1.31
|
$
|
1.05
|
||||
January 2021
|
$
|
1.38
|
$
|
1.08
|
||||
February 2021
|
$
|
2.21
|
$
|
1.18
|
||||
March 2021
|
$
|
2.24
|
$
|
1.14
|
||||
Through April 30, 2021
|
$
|
1.68
|
$
|
1.34
|
B.
|
Plan of Distribution
|
C.
|
Markets
|
D.
|
Selling Shareholders
|
E.
|
Dilution
|
F.
|
Expenses of the Issue
|
ADDITIONAL INFORMATION
|
A.
|
Share Capital
|
B.
|
Memorandum and Articles of Association
|
|
•
|
any amendment to the articles of association;
|
|
•
|
an increase of the company’s authorized share capital;
|
|
•
|
a merger; or
|
|
•
|
approval of interested party transactions which require shareholder approval.
|
|
•
|
a breach of duty of care towards us or any other person,
|
|
•
|
a breach of fiduciary obligations towards us, provided that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not be to our detriment,
|
|
•
|
a financial liability imposed on him or her in favor of another person, or
|
|
•
|
any other event for which insurance of an office holder is or may be permitted.
|
|
•
|
financial liability imposed upon said office holder in favor of another person by virtue of a decision by a court of law, including a decision by way of settlement or a decision in arbitration which has been
confirmed by a court of law;
|
|
•
|
reasonable expenses of the proceedings, including lawyers’ fees, expended by the office holder or imposed on him by the court for:
|
|
(1)
|
proceedings issued against him by or on behalf of the Company or by a third party;
|
|
(2)
|
criminal proceedings in which the office holder was acquitted; or
|
|
(3)
|
criminal proceedings in which he was convicted in an offense, which did not require proof of criminal intent; or
|
|
•
|
any other liability or expense for which the indemnification of an officer holder is not precluded by law.
|
|
•
|
a breach by the office holder of his or her duty of loyalty towards the company unless, with respect to insurance coverage, the office holder acted in good faith and had a reasonable basis to believe that the
act would not prejudice the company;
|
|
•
|
a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly;
|
|
•
|
any act or omission done with the intent to derive an illegal personal benefit; or
|
|
•
|
any fine levied against the office holder.
|
C.
|
Material Contracts
|
D.
|
Exchange Controls
|
E.
|
Taxation
|
|
•
|
banks, financial institutions or insurance companies;
|
|
•
|
real estate investment trusts, regulated investment companies or grantor trusts;
|
|
•
|
dealers or traders in securities, commodities or currencies;
|
|
•
|
tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code;
|
|
•
|
certain former citizens or long-term residents of the United States;
|
|
•
|
persons that received our shares as compensation for the performance of services;
|
|
•
|
persons that will hold our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes;
|
|
•
|
partnerships or other pass-through, or holders that will hold our shares through such an entity;
|
|
•
|
S corporations;
|
|
•
|
holders whose functional currency is not the U.S. Dollar; or
|
|
•
|
holders that actually or constructively own 10 percent or more of our voting shares.
|
|
•
|
an individual and either a citizen or, for U.S. federal income tax purposes, a resident of the United States;
|
|
•
|
a corporation (or other entity treated 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 whose income is subject to U.S. federal income tax regardless of its source; or
|
|
•
|
a trust that (a) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons or (b) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
|
F.
|
Dividends and Paying Agents
|
G.
|
Statement by Experts
|
H.
|
Documents on Display
|
I.
|
Subsidiary Information
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
CONTROLS AND PROCEDURES
|
[RESERVED]
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
CODE OF ETHICS
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
|
Year Ended December 31,
|
|||||||
Services Rendered
|
2020
|
2019
|
||||||
Audit fees
|
$
|
155,000
|
$
|
155,000
|
||||
Audit-related fees
|
$
|
-
|
$
|
65,000
|
*
|
|||
Tax fees
|
$
|
-
|
$
|
-
|
||||
Total
|
$
|
155,000
|
$
|
215,000
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
CORPORATE GOVERNANCE
|
|
•
|
The requirements regarding the directors’ nominations process. Instead, we follow Israeli law and practice in accordance with which our directors are recommended by our board of directors for election by our
shareholders. See Item 6C. “Directors, Senior Management and Employees - Board Practices - Election of Directors.
|
|
•
|
The requirement to obtain shareholder approval for the establishment or amendment of certain equity based compensation plans, 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. Under Israeli law and practice, the approval of the board of
directors is required for the establishment or amendment of equity based compensation plans and private placements. Under Israeli regulations, Israeli companies whose shares have been publicly offered only outside of Israel or are listed
for trade only on an exchange outside of Israel, such as our company, are exempt from the Israeli law requirement to obtain shareholder approval for private placements of a 20% or more interest in the company. For the approvals and
procedures required under Israeli law and practice for an issuance that will result in a change of control of the company and acquisitions of the stock or assets of another company, see Item 6.C. “Directors, Senior Management and Employee -
Board Practices - Approval of Certain Transactions Under Israeli Law-Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders” and Item 10.B. “Additional Information — Memorandum
and Articles of Association”
|
MINE SAFETY DISCLOSURE
|
FINANCIAL STATEMENTS
|
FINANCIAL STATEMENTS
|
Index to Financial Statements
|
|
|
|
84 | |
|
|
F-1
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5 – F-32
|
EXHIBITS
|
*
|
Filed herewith.
|
|
|
**
|
Furnished herewith.
|
†
|
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item 601(b)(10). Such omitted information is not material and would likely cause competitive harm to the
registrant if publicly disclosed.
|
(1)
|
Filed as Exhibit 1.1 to the Registrant’s Registration Statement on Form F-1, registration number 333-189910, filed with the Securities and Exchange Commission on July 3, 2013, and incorporated herein by
reference.
|
(2)
|
Filed as Exhibit 2 to the Registrant’s Report on Form 6-K filed with the Securities and Exchange Commission on August 22, 2013, and incorporated herein by reference.
|
(3)
|
Filed as Exhibit 2.1 to the Registrant’s Registration Statement on Form F-1, registration number 333-189810, filed with the Securities and Exchange Commission on July 3, 2013, and incorporated herein by
reference.
|
(4)
|
Filed as Exhibit 4.2(a) to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2011, filed with the Securities and Exchange Commission on May 9, 2012, and incorporated herein by
reference.
|
(5)
|
Filed as Exhibit 4.2(b) to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2011, filed with the Securities and Exchange Commission on May 9, 2012, and incorporated herein by
reference.
|
(6)
|
Filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form F-1, registration number 333-189810, filed with the Securities and Exchange Commission on July 3, 2013, and incorporated herein by
reference.
|
(7)
|
Filed as Exhibit 11.1 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2007, filed with the Securities and Exchange Commission on June 30, 2008, and incorporated herein by
reference.
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SuperCom Ltd.
Opinion on the Financial Statements
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 Public Company Accounting Oversight Board (United States) (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 the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Halperin Ilanit |
|
HALPERIN Ilanit, Certified Public Accountant |
|
|
|
We have served as the Company’s auditor since 2020. |
|
Tel Aviv, Israel |
|
|
|
April 30, 2021 |
SUPERCOM LTD.
|
CONSOLIDATED BALANCE SHEETS
|
(U.S. dollars in thousands, except share data)
|
|
As of December 31,
|
|||||||
|
2020
|
2019
|
||||||
CURRENT ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
3,137
|
$
|
110
|
||||
Restricted bank deposit
|
815
|
1,100
|
||||||
Accounts receivable, net of allowance for doubtful accounts of $8,667 and $6,667 as of December
31, 2020 and 2019, respectively (Note 14)
|
12,427
|
13,047
|
||||||
Other current assets (Note 3)
|
876
|
961
|
||||||
Inventories, net (Note 4)
|
2,404
|
2,646
|
||||||
Patents held for sale
|
5,283
|
5,283
|
||||||
TOTAL CURRENT ASSETS
|
24,942
|
23,147
|
||||||
|
||||||||
LONG-TERM ASSETS
|
||||||||
Severance pay funds
|
531
|
362
|
||||||
Deferred tax long term
|
204
|
510
|
||||||
Property and equipment, net (Note 5)
|
1,371
|
894
|
||||||
Other Intangible assets, net (Note 6)
|
6,270
|
8,065
|
||||||
Goodwill
|
7,026
|
7,026
|
||||||
TOTAL LONG-TERM ASSETS
|
15,402
|
16,857
|
||||||
|
||||||||
TOTAL ASSETS
|
40,344
|
40,004
|
||||||
|
||||||||
CURRENT LIABILITIES
|
||||||||
Short-term loans and other
|
7,204
|
445
|
||||||
Accounts payable
|
2,860
|
3,541
|
||||||
Employees and payroll accruals
|
2,627
|
3,229
|
||||||
Related parties (Note 12.c)
|
1,749
|
305
|
||||||
Accrued expenses and other liabilities (Note 7)
|
4,393
|
4,667
|
||||||
Deferred revenue
|
766
|
1,332
|
||||||
Short-term liability for future earn-out
|
-
|
794
|
||||||
TOTAL CURRENT LIABILITIES
|
19,598
|
14,313
|
||||||
|
||||||||
LONG-TERM LIABILITIES
|
||||||||
Long-term loan (Note 1c)
|
14,952
|
14,187
|
||||||
Related parties (Note 12.c)
|
-
|
2,383
|
||||||
Deferred revenues
|
49
|
210
|
||||||
Deferred tax liability LT
|
170
|
-
|
||||||
Accrued severance pay
|
656
|
579
|
||||||
TOTAL LONG TERM LIABILITIES
|
15,827
|
17,359
|
||||||
|
||||||||
TOTAL LIABILITIES
|
35,425
|
31,672
|
||||||
|
||||||||
Commitments and contingent liabilities (Note 8)
|
||||||||
|
||||||||
SHAREHOLDERS’ EQUITY (Note 11)
|
||||||||
Ordinary shares, NIS 0.25 par value - authorized 28,000,000 shares, 19,998.745 shares issued and
outstanding at December 31, 2020 and 16,214,228 shares issued and outstanding at December 31, 2019
|
1,397
|
1,116
|
||||||
Additional paid-in capital
|
88,853
|
84,680
|
||||||
Accumulated deficit
|
(85,331
|
)
|
(77,464
|
)
|
||||
Total shareholders’ equity
|
$
|
4,919
|
$
|
8,332
|
||||
|
||||||||
Total liabilities and shareholders’ equity
|
40,344
|
40,004
|
The accompanying notes are an integral part of the consolidated financial statements.
SUPERCOM LTD.
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
(U.S. dollars in thousands, except share and per share data)
|
Year Ended December 31
|
||||||||
|
2020
|
2019
|
||||||
Revenues
|
||||||||
Products
|
4,528
|
4,455
|
||||||
Services
|
7,242
|
12,020
|
||||||
Total revenues
|
11,770
|
16,475
|
||||||
|
||||||||
Cost of revenues
|
||||||||
Cost of products
|
2,178
|
2,425
|
||||||
Cost of services
|
4,011
|
7,702
|
||||||
Total cost of revenues
|
6,189
|
10,127
|
||||||
|
||||||||
Gross profit
|
5,581
|
6,348
|
||||||
|
||||||||
Operating expenses:
|
||||||||
Research and development
|
2,386
|
3,971
|
||||||
Sales and marketing
|
1,721
|
3,526
|
||||||
General and administrative
|
4,074
|
5,389
|
||||||
Other expense, net
|
1,149
|
1,635
|
||||||
Total operating expenses
|
9,330
|
14,521
|
||||||
|
||||||||
Operating loss
|
(3,749
|
)
|
(8,173
|
)
|
||||
|
||||||||
Financial expenses, net
|
(4,113
|
)
|
(3,289
|
)
|
||||
|
||||||||
Loss before income taxes
|
(7,862
|
)
|
(11,462
|
)
|
||||
|
||||||||
Income tax expense
|
(5
|
)
|
(43
|
)
|
||||
|
||||||||
Net loss
|
$
|
(7,867
|
)
|
$
|
(11,505
|
)
|
||
|
||||||||
Net loss per share:
|
||||||||
Basic and Diluted
|
$
|
(0.45
|
)
|
$
|
(0.71
|
)
|
||
|
||||||||
Shares used in calculation of net income per share:
|
||||||||
Basic and Diluted
|
17,386,369
|
16,149,597
|
The accompanying notes are an integral part of the consolidated financial statements.
|
Ordinary Shares
|
|||||||||||||||||||
|
Number of
Shares |
Share
capital |
Additional
Paid-in Capital |
Accumulated
deficit |
Total
Shareholders’ Equity |
|||||||||||||||
|
||||||||||||||||||||
Balance as of December 31, 2018
|
16,126,237
|
1,110
|
84,399
|
(65,959
|
)
|
19,550
|
||||||||||||||
Exercise of options and warrants
|
87,991
|
6
|
14
|
-
|
20
|
|||||||||||||||
Stock based compensation
|
-
|
-
|
144
|
-
|
144
|
|||||||||||||||
Receivable on account of share purchase
|
-
|
-
|
58
|
-
|
58
|
|||||||||||||||
Detachable warrants
|
-
|
-
|
65
|
-
|
65
|
|||||||||||||||
Net loss
|
-
|
-
|
-
|
(11,505
|
)
|
(11,505
|
)
|
|||||||||||||
Balance as of December 31, 2019
|
16,214,228
|
1,116
|
84,680
|
(77,464
|
)
|
8,332
|
||||||||||||||
Exercise of options and Convertible loans
|
1,414,517
|
109
|
1,248
|
-
|
1,357
|
|||||||||||||||
Stock based compensation
|
-
|
-
|
211
|
-
|
211
|
|||||||||||||||
Share Issuance
|
2,370,000
|
172
|
2,772
|
-
|
2,944
|
|||||||||||||||
Cancellation of Receivable on share purchase
|
-
|
-
|
(58
|
)
|
-
|
(58
|
)
|
|||||||||||||
Net loss
|
-
|
-
|
-
|
(7,867
|
)
|
(7,867
|
)
|
|||||||||||||
|
||||||||||||||||||||
Balance as of December 31, 2020
|
19,998,745
|
1,397
|
88,853
|
(85,331
|
)
|
4,919
|
The accompanying notes are an integral part of the consolidated financial statements.
|
Year Ended
|
December 31
|
||||||
2020
|
2019
|
|||||||
CASH FLOWS - OPERATING ACTIVITIES
|
||||||||
Net loss
|
(7,867
|
)
|
(11,505
|
) | ||||
|
||||||||
Adjustments to reconcile net income to net cash from operations:
|
||||||||
Depreciation and amortization
|
2,720
|
3,128
|
||||||
Stock-based compensation
|
211
|
144
|
||||||
Decrease (increase) in deferred tax
|
384
|
(125
|
)
|
|||||
Decrease (increase) in accounts receivables, net
|
620
|
413
|
||||||
Decrease (increase) in other current assets
|
177
|
(10
|
)
|
|||||
Decrease in inventories, net
|
242
|
523
|
||||||
Increase (decrease) in accounts payables
|
(681
|
)
|
53
|
|||||
Increase(decrease) in employees and payroll accruals
|
(602
|
)
|
456
|
|||||
Decrease in accrued severance pay
|
77
|
(6
|
)
|
|||||
Increase (decrease) in accrued expenses and other liabilities, related parties & liability for earn out
|
(1,794
|
)
|
(731
|
)
|
||||
|
||||||||
Net cash used in operating activities
|
(6,514
|
)
|
(7,660
|
) | ||||
|
||||||||
CASH FLOWS - INVESTING ACTIVITIES
|
||||||||
Purchase of property and equipment
|
(812
|
)
|
(414
|
) | ||||
Capitalization of software development costs
|
(590
|
)
|
(760
|
) | ||||
Increase in severance pay fund
|
(169
|
)
|
(1
|
) | ||||
|
||||||||
Net cash used in investing activities
|
(1,571
|
)
|
(1,175
|
) | ||||
|
||||||||
CASH FLOWS - FINANCING ACTIVITIES
|
||||||||
Related parties
|
(939
|
)
|
2,218
|
|||||
Long-term Debt, Net
|
7,523
|
5,008
|
||||||
Receivable on account of share purchase
|
(58
|
)
|
58
|
|||||
Capital Investment
|
2,945
|
-
|
||||||
Payment of liability for future earn-out in business combination
|
-
|
(60
|
) | |||||
Proceeds from exercise of options and warrants, net
|
1,356
|
20
|
||||||
Net cash provided by (used in) financing activities
|
10,827
|
7,244
|
||||||
|
||||||||
Increase (decrease) in cash, cash equivalents, and restricted cash
|
2,742
|
(1,591
|
)
|
|||||
Cash, cash equivalents, and restricted cash - beginning of year
|
1,210
|
2,801
|
||||||
|
||||||||
Cash, cash equivalents, and restricted cash - end of year
|
3,952
|
1,210
|
The accompanying notes are an integral part of the consolidated financial statements.
SUPERCOM LTD. AND SUBSIDIARIES
|
U.S. dollars in thousands (except per share data)
|
NOTE 1: |
GENERAL |
|
a. |
SuperCom Ltd. (the “Company”) is an Israeli resident company organized in 1988 in Israel. On January 24, 2013 the Company changed its name back to SuperCom Ltd, its original name, from Vuance Ltd. On September 12, 2013, the Company’s ordinary shares were approved for listing on the NASDAQ Capital Market and began trading under the ticker symbol “SPCB” on September 17, 2013. Previously, the Company’s ordinary shares traded on the OTCQB® electronic quotation service. |
b. |
In December 2019, a new strain of coronavirus (“COVID-19”) was reported to have surfaced in
Wuhan, Hubei Province, China. During February until November of 2020, COVID-19 has spread globally, including in Israel, Asia, Europe, and America. In response to the COVID-19 virus, countries have taken different measures in relation
to prevention and containment including lock-down and quarantine. The COVID-19 virus continues to impact worldwide economic activity and pose the risk that we or our employees, contractors, suppliers, customers and other business
partners may be prevented from conducting certain business activities for an indefinite period of time, including due to lockdown that had been mandated by governmental authorities or otherwise elected by companies as a preventive
measure.
|
|
c. |
Liquidity Analysis
|
|
d. |
Senior Secured Credit Facility and Subordinated Debt
|
The Credit Facility is subject to an original issue discount equal to 2.5% of any drawn amounts, and amounts repaid cannot be re-borrowed. At maturity, an end-of-term fee of 2.25% to 4.5% is owed by the Company for any amounts drawn. In connection with securing the Credit Facility, the Company incurred legal and due diligence fees, which are recorded together with the original issue discount and end-of-term fee, and amortized into interest expense over the life of the Credit Facility.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES |
The Company purchases certain services and products used by it to generate revenues in its projects and sales from several sole suppliers. Although there are only a limited number of manufacturers of those particular services and products, management believe that other suppliers could provide similar services and products on comparable terms without affecting operating results.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”).
|
a. |
Use of estimates: |
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
|
b. |
Financial statements in U.S. dollars: |
Most of the revenues of the Company and its subsidiaries are received in U.S. dollars. In addition, a substantial portion of the costs of the Company and its subsidiaries are incurred in U.S. dollars. Therefore, management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the U.S. dollar.
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar are re-measured into dollars in accordance with ASC No. 830, "Foreign Currency Matters". All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or financial expenses as appropriate.
|
c. |
Principles of consolidation: |
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances were eliminated upon consolidation. Profits from intercompany sales, not yet realized outside the group, were also eliminated.
|
d. |
Cash and cash equivalents: |
The Company considers unrestricted short-term highly liquid investments originally purchased with maturities of three months or less to be cash equivalents. The Company has not held any cash equivalents during 2020 and 2019.
|
e. |
Restricted Cash: |
Restricted cash held in interest bearing saving accounts which are used as a security for the Company's Israeli facility leasehold bank guarantee, and as a security for ongoing terms of the contracts with existing customers and commercial tenders guarantees.
|
f. |
Allowance for doubtful accounts: |
The allowance for doubtful accounts is determined with respect to specific amounts the Company has determined to be doubtful of collection. In determining the allowance for doubtful accounts, the Company considers, among other things, its past experience with such customers and the information available regarding such customers.
|
g. |
Inventories: |
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are mainly provided to cover risks arising from slow-moving items or technological obsolescence. Cost is determined for all types of inventory using the moving average cost method.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
h. |
Property and equipment: |
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method, over the estimated useful lives, at the following annual rates:
|
|
years
|
Computers and peripheral equipment
|
|
3
|
Leased Products to Customers
|
|
5
|
Office furniture and equipment
|
|
5 - 17
|
Leasehold improvements
|
|
Over the shorter of the term of the lease or the life of the asset
|
|
i. |
Intangible assets: |
Intangible assets that are not considered to have an indefinite useful life are amortized using units of production and the straight-line basis over their estimated useful lives, as noted below. Recoverability of these assets is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the assets. If the assets are considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired assets.
Intangible assets and their useful lives are as follows:
|
|
Useful Life (in Years)
|
|
|
|
Customers relationships & Other
|
|
Between 4.5-13 (mainly 13)
|
IP & Technology
|
|
Between 4-15 (mainly 15)
|
Capitalized software development costs
|
|
Between 4-5
|
As of December 31, 2020, and 2019 no impairment losses were identified.
Acquisition-related intangible assets:
The Company accounts for its business combinations in accordance with ASC 805 “Business Combinations” and with ASC 350-20 “Goodwill and Other Intangible Assets” (“ASC 350-20”). ASC 805-10 specifies the accounting for business combinations and the criteria for recognizing and reporting intangible assets apart from goodwill.
Acquisition-related intangible assets result from the Company’s acquisitions of businesses accounted for under the purchase method and consist of the value of identifiable intangible assets including developed software products, brand and patents, as well as goodwill. Goodwill is the amount by which the acquisition cost exceeds the fair values of identifiable acquired net assets on the date of purchase. Acquisition-related definite lived intangible assets are reported at cost, net of accumulated amortization.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
j. |
Goodwill: |
The Company’s goodwill reflects the excess of the consideration paid or transferred including the fair value of contingent consideration over the fair values of the identifiable net assets acquired. The goodwill impairment test is performed by evaluating an initial qualitative assessment of the likelihood of impairment. If this step indicates that the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the impairment test is performed.
In step one of the impairment test, the Company compares the fair value of the reporting unit to the carrying value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the net assets allocated to that unit, goodwill is not impaired, and no further testing is required. If the fair value is less than the carrying value of the reporting unit, then the second step of the impairment test is performed to measure the amount of the impairment.
In the second step, the reporting unit’s fair value is allocated to all the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that simulates the business combination principles to derive an implied goodwill value. If the implied fair value of the reporting unit’s goodwill is less than its carrying value, the difference is recorded as impairment.
For the years ended December 31, 2020 and 2019 the Company performed an annual impairment analysis and no impairment losses have been identified.
|
k. |
Impairment of long-lived assets and intangible assets: |
The Company’s long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.
|
l. |
Long lived assets held for sale: |
The company accounted for its long lived assets held for sale under ASC 360-10 ("Impairment or disposal of Long-lived Assets").
Under management decision, the patents acquired under Alvarion Ltd. and Safend Ltd. acquisitions during 2016, were not intended for internal use by the Company, and thus accounted for as Long lived assets held for sale. During 2019 and 2020, following management decision, the Company elected to enter into engagements with several brokers for the purpose of marketing and sale of those patents. Realization costs of the patents are immaterial.
For the years ended December 31, 2020 and 2019 the Company did not identify any triggers for impairment.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
m. |
Accrued severance pay and severance pay fund: |
The liabilities of the Company for severance pay of its Israeli employees are calculated pursuant to Israel’s Severance Pay Law. Employees are entitled to one month’s salary for each year of employment, or portion thereof. The Company’s liability for all its employees is presented under “accrued severance pay”. The Company deposits on a monthly basis to severance pay funds and insurance policies. The value of these policies is presented as an asset on the Company’s balance sheet.
The deposited funds include accrued income up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the Company’s obligation pursuant to Israel’s Severance Pay Law or labor agreements.
Severance expenses for the years ended December 31, 2020 and 2019 amounted to $304 and $756, respectively.
|
n. |
Revenue recognition: |
The Company and its subsidiaries generate their revenues from the sale of products, licensing, maintenance, royalties and long term contracts (including training and installation).
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 was applied using the modified retrospective method, therefore the cumulative effect of initially applying the revenue standard is recognized as an adjustment to opening retained earnings at January 1, 2018. Accordingly, comparative periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition (“ASC 605”).
Upon adoption of ASC 606, the Company identified a change in the Company’s revenue recognition policies related to combined license and maintenance sales, as noted within the Company’s Safend contracts. Under ASC 605, revenue for these contracts was recognized over the life of the contract. In accordance with ASC 606, license revenue is recognized upon delivery while maintenance is recognized over the life of the contract. As a result of applying the new standard, the Company had recognized a cumulative effect adjustment to Retained Earnings as of January 1, 2018 in the amount of $257.
Aside from its combined license and maintenance sales, no other changes were identified to the characteristics of the Company’s other revenue recognition policies, other than the enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the related judgments and estimates necessary to apply the new standard.
The Company measures revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration the Company expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:
1) Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer.
The Company evaluates whether a significant financing component exists when the Company recognizes revenue in advance of customer payments that occur over time. For example, some of the Company contracts include payment terms greater than one year from when we transfer control of goods and services to the Company customers and the receipt of the final payment for those goods and services. If a significant financing component exists, the Company classifies a portion of the transaction price as interest income, instead of recognizing all of the transaction price as revenue. The Company does not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price based on management’s judgement.
5) Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Nature of goods and services
The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:
Software Maintenance and Support Services Revenue
Software maintenance and support services contracts are sold in conjunction with the Company’s software products for its e-Govt, IoT and Connectivity, and Cyber Security revenue streams. The contract terms for software maintenance and support span one to five years in length and provide customers with the rights to unspecified software product updates if and when available, online and telephone access to technical support personnel.
The Company recognizes revenue from fixed-price service and maintenance contracts using the input method of accounting. Under the input method, revenue is recognized on the basis of an entity’s efforts toward satisfying a performance obligation. The Company recognizes revenue from maintenance and support services provided pursuant to the time elapsed under such contracts, as that is when the performance obligation to the Company customers under such arrangements is fulfilled.
Perpetual Software License Revenue
The Company generates revenue from the sales of perpetual software licenses for its Cyber Security and e-Gov segments, including sales for its Magna_DL, Magna_VL, Magna_Passport, and Magna_ID software products. The intellectual property rights for usage of these products are transferred to the customer at the time of purchase and the software does not require implementation services, ongoing maintenance and support, or other adaptions in order to maintain utility.
In arrangements where ongoing services are not essential to the functionality of the delivered software, the Company recognizes perpetual software license revenue when the license agreement has been approved and the software has been delivered. The Company can identify each party’s rights, payment terms, and commercial substance of the content. Where applicable, the Company identifies multiple performance obligations and record as revenue as the performance obligations are fulfilled based on the adjusted market assessment approach.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
Annual Software License Revenue
The Company generates revenue from the sales of time-based software licenses for certain of its software products. The intellectual property rights for access to these products are transferred to the customer for contract terms of one year and the software requires ongoing maintenance, support, or other adaptions in order to maintain utility.
The Company recognizes revenue over time using the input method for its annual software licenses when ongoing services are determined to be essential to the functionality of the delivered software. The license along with the any customization services are transferred to the Company customers pursuant to the time elapsed under such contracts, as that is when the Company performance obligation to its customers under such arrangements is fulfilled.
System Design Revenue
System design revenue relate to services provided to governments and national agencies in the early stages of a new project including incumbent system data information extraction, customer interviewing and specification mapping, architecture and software design, secure credential design, project management and planning, data migration design, project operation planning, training, assimilation, and operational processes optimization for the Company’s e-Gov and IoT solutions.
The Company recognizes revenue from its system design services using the input method of accounting. Under the input method, revenue is recognized on the basis of an entity’s efforts or inputs toward satisfying a performance obligation. The Company recognizes revenue from system design services provided pursuant to time-and-materials based contracts as the services are performed, as that is when the Company performance obligation to its customers under such arrangements is fulfilled. Where applicable, the Company identifies multiple performance obligations and record as revenue as the performance obligations are fulfilled based on the using the expected cost plus a margin approach.
Implementation and System Deployment Revenue
Implementation and system deployment revenue relate to services provided to governments and national agencies typically after the design stage is concluded including infrastructure setup and deployment, software and chip design development, software customizations, purchase, and deployment of hardware and necessary system components, system integration and implementation, process engineering, customer training, system quality assurance testing, load balancing and local environment optimizations, and operational system launch for the Company’s e-Gov and IoT solutions.
The Company recognizes revenue from its implementation and system deployment revenue using the input method of accounting. Under the input method, revenue is recognized on the basis of an entity’s efforts or inputs toward satisfying a performance obligation. The Company recognizes revenue from implementation and system deployment services provided pursuant to time-and-materials based contracts as the services are performed, as that is when the Company performance obligation to its customers under such arrangements is fulfilled. Where applicable, the Company identifies multiple performance obligations and record as revenue as the performance obligations are fulfilled based on the using the residual approach.
Procurement of Secure Document Consumables Revenue
The Company procures secure document consumables for its e-Gov government customers which are needed to issue secure documents after a project deployment is complete and a system in actively running and operational. These consumables are manufactured generally at secure printing facilities utilizing proprietary and customized designs, which the Company has developed during the project design stage, to provide multiple layers of security preventing falsification of documents. These consumables include base card stock, security laminates, holograms, passive RFID chip inlays, passport booklets, secure chip cards, and various other secure credentialing necessities.
The Company recognizes revenue on procurement of secure document consumables products when the customer has control of the product, which is determined to be at the point in time when the products are delivered. Where applicable, the Company identifies multiple performance obligations and record as revenue as the performance obligations are fulfilled based on their stated prices within the contract.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
Wireless & RFID Products Revenue
The Company’s wireless products include solutions for carrier wi-fi, enterprise connectivity, smart city, smart hospitality, connected campuses and connected events which enhance productivity and performance. The Company’s RFID products include asset tags which provide real-time asset loss prevention, inventory management, and personnel/asset tracking and vehicle tags which provide long-range vehicle ID for parking and fleet management, access control, asset loss prevention at airports, gated communities, truck and bus terminals, employee parking lots, hospitals, industrial facilities, railroads, mines and military installations.
The Company recognizes revenue on wireless and RFID products when the customer has control of the equipment, which is determined to be at the point in time when the products are shipped. Where applicable, the Company identifies multiple performance obligations and record as revenue as the performance obligations are fulfilled based on their stated prices within the contract.
Electronic Monitoring Services Revenue
Electronic monitoring services represent fees the Company collects through the sale or rental of its PureSecurity Suite of products, which include the PureMonitor, PureTrack, PureTag, PureCom, PureBeacon, and SCRAM devices. These devices identify, track, and monitor people or objects in real time through the Company’s GPS monitoring, home monitoring, and alcohol tracking solutions.
The Company recognizes revenue on the sale of electronic monitoring products when the customer has control of the equipment, which is determined to be at the point in time when the products are shipped. For devices which are rented and for electronic monitoring services provided, the Company recognizes revenue pursuant to the time elapsed for such contracts, as that is when the Company performance obligation to its customers under such arrangements is fulfilled. The Company customers typically pay for these services based on a net rate per day per individual or on a fixed monthly rate.
Treatment Services Revenue
Treatment services revenue is an extension of the Company’s electronic monitoring services. The Company provides individuals who have completed or are near the end of their sentence with the resources necessary to productively transition back into society. Through the Company daily reporting centers, we provide criminal justice programs and reentry services to help reduce recidivism which include case management, substance abuse education, vocational training, parental support, employment readiness and job placement. These activities are considered to be a bundle of services which are a part of a series of distinct services recognized over time.
The Company recognizes revenue from its treatment services using the input method of accounting. Under the input method, revenue is recognized revenue on the basis of an entity’s efforts or inputs toward satisfying a performance obligation. The Company recognizes revenue from implementation and system deployment services provided pursuant to time-and-materials based contracts as the services are performed, as that is when the Company performance obligation to its customers under such arrangements is fulfilled. Where applicable, the Company identify multiple performance obligations and record as revenue as the performance obligations are fulfilled based on the using the expected cost plus a margin approach.
Professional Services Revenue
The Company offers professional services for the Company’s Cyber Security software products, which includes an on-site / remote visit by a specialist technician to assist with installation, deployment and configuration.
The Company recognizes revenue from professional services upon completion of the service performed for the customer. As these services are completed during a single onsite visit, revenue is recognized at a point in time of such onsite visit.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
Disaggregation of revenue
In the following table, revenue is disaggregated by major geographic region and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:
|
Year ended December 31, 2020
|
|||||||||||||||
|
Cyber
Security |
IoT
|
e-Gov
|
Total
|
||||||||||||
Major geographic areas
|
||||||||||||||||
Africa
|
$
|
-
|
$
|
-
|
$
|
1,791
|
$
|
1,791
|
||||||||
European countries
|
762
|
2,155
|
120
|
3,037
|
||||||||||||
South America
|
-
|
21
|
-
|
21
|
||||||||||||
United States
|
544
|
5,312
|
-
|
5,856
|
||||||||||||
Israel
|
677
|
69
|
-
|
746
|
||||||||||||
APAC
|
220
|
99
|
-
|
319
|
||||||||||||
Total revenue
|
$
|
2,203
|
$
|
7,656
|
$
|
1,911
|
$
|
11,770
|
||||||||
|
||||||||||||||||
Timing of revenue recognition
|
||||||||||||||||
Products and services transferred over time
|
$
|
92
|
$
|
6,020
|
$
|
1,466
|
$
|
7,578
|
||||||||
Products transferred at a point in time
|
2,111
|
1,636
|
445
|
4,192
|
||||||||||||
Total revenue
|
$
|
2,203
|
$
|
7,656
|
$
|
1,911
|
$
|
11,770
|
|
Year ended December 31, 2019 |
|||||||||||||||
|
Cyber
|
IoT |
e-Gov |
Total |
||||||||||||
Major geographic areas |
||||||||||||||||
Africa |
$ |
- |
$ |
- |
$ |
1,468 |
$ |
1,468 |
||||||||
European countries |
690 |
2,801 |
457 |
3,948 |
||||||||||||
South America |
- |
30 |
- |
30 |
||||||||||||
United States |
753 |
8,306 |
- |
9,059 |
||||||||||||
Israel |
1,271 |
130 |
- |
1,401 |
||||||||||||
APAC |
172 |
397 |
- |
569 |
||||||||||||
Total revenue |
$ |
2,886 |
$ |
11,664 |
$ |
1,925 |
$ |
16,475 |
||||||||
|
||||||||||||||||
Timing of revenue recognition |
||||||||||||||||
Products and services transferred over time |
$ |
1,124 |
$ |
9,982 |
$ |
1,089 |
$ |
12,195 |
||||||||
Products transferred at a point in time |
1,762 |
1,682 |
836 |
4,280 |
||||||||||||
Total revenue |
$ |
2,886 |
$ |
11,664 |
$ |
1,925 |
$ |
16,475 |
Transaction price allocated to the remaining performance obligations
Remaining performance obligations represent the transaction price of system deployment, service and maintenance contracts for which work has not been performed as of the period end date. As of December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance totals $9.75 million. The Company expects approximately 35% of remaining performance obligations to be recognized into revenue within the next 12 months, with the remaining 65% recognized thereafter.
The Company applies the practical expedient in paragraph ASC 606-10-50-14 and do not disclose information about remaining performance obligations that have original expected durations of one-year or less. We apply the transition practical expedient in paragraph ASC 606-10-65-1(f)(3) and do not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Company expects to recognize that amount as revenue. Additionally, applying the practical expedient in paragraph ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts (i.e., commissions) as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one-year or less.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
o. |
Research and development costs and software development costs: |
Research and development costs are expensed as incurred. Software development costs eligible for capitalization are accounted for in accordance with 985-20 Software — Costs of Software to be Sold, Leased or Marketed. Capitalization of software development costs for products to be sold to third parties begins upon the establishment of technological feasibility and ceases when the product is available for general release. Amortization is calculated and provided over the estimated economic life of the software, using the greater of (i) straight-line method or if applicable (ii) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product. Amortization commences when developed software is available for general release to clients.
The estimated useful life of capitalized software development costs is 5 years.
|
p. |
Income taxes: |
The Company and its subsidiaries account for income taxes in accordance with ASC Topic 740, “Income Taxes”. This Statement 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 are measured using the enacted tax rates and laws, that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
The Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition and measurement threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2020 and 2019 financial statements.
ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, requires a reporting entity to classify all deferred tax assets and liabilities as noncurrent in a classified balance sheet. As of December 31, 2018, the Company adopted in a retrospective method the new Income Tax guidelines, stating all deferred tax assets and liabilities need be presented as non-current in the balance sheet.
|
q. |
Concentrations of credit risk: |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash deposits and trade receivables. The Company’s trade receivables are derived from sales to customers located primarily in Eastern Europe, Africa, the United States and South America. The Company performs ongoing credit evaluations of its customers’ financial condition. The allowance for doubtful accounts is determined with respect to specific debts that the Company has determined to be doubtful of collection.
Cash and cash equivalents and restricted cash deposits are deposited with major banks in Israel and the United States. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company has no significant off-balance-sheet concentration of credit risk.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
r. |
Basic and diluted 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 the dilutive potential of stock options and warrants outstanding during the year using the treasury stock method.
The numbers of potential shares from the conversion of options and warrants that have been excluded from the calculation were 334,839 and 564,597 for the years ended December 31, 2020 and 2019, respectively.
|
s. |
Fair value of financial instruments: |
The Company applies ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), pursuant to which fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
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.
The carrying amounts of cash and cash equivalents, restricted cash, short-term bank deposits, other accounts receivable, trade payable, and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
The Company measures its earn-out liability at fair value (see also Note 10).
|
t. |
Accounting for stock-based compensation: |
Stock-based compensation, including grants of stock options, is recognized in the consolidated statement of operations over the requisite service period as an operating expense, based on the fair value of the award on the date of grant. The fair value of stock-based compensation is estimated using an option-pricing model.
The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method and to value the awards based on the single-option award approach.
The Company accounts for forfeitures as they occur.
|
u. |
Treasury Shares: |
Treasury shares are recorded at cost and presented as a reduction of shareholders' equity.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 2: |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
|
v.
|
Recent accounting pronouncements
|
ASU 2016-13, “Financial Instruments – Credit Losses on Financial Instruments”,
In January 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses on Financial Instruments”, which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available for sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available for sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective for interim and annual periods beginning after January 1, 2020, and early adoption was permitted.
The Company had elected to not to early adopt this standard and the potential effect on its consolidated financial statements.
ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination.
The guidance is effective for interim and annual periods beginning after January 1, 2020, and early adoption was permitted.
The Company had elected to not to early adopt this standard and the potential effect on its consolidated financial statements.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 3: |
OTHER CURRENT ASSETS |
|
December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Prepaid expenses
|
157
|
310
|
||||||
Advances to suppliers
|
308
|
343
|
||||||
Government institutions
|
124
|
20
|
||||||
Other
|
287 |
288
|
||||||
|
876 |
961
|
NOTE 4:
|
INVENTORIES, NET
|
|
December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Raw materials, parts and supplies
|
1,256
|
1,414
|
||||||
Finished products
|
1,148
|
1,232
|
||||||
|
||||||||
|
2,404
|
2,646
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 5: |
PROPERTY AND EQUIPMENT, NET |
|
December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Cost:
|
||||||||
|
||||||||
Computers and peripheral equipment
|
2,770
|
2,732
|
||||||
Office furniture and equipment
|
824
|
819
|
||||||
Trade Equipment
|
42
|
42
|
||||||
Leasehold improvements
|
196
|
196
|
||||||
Equipment in lease
|
1,899
|
1,125
|
||||||
|
5,730
|
4,914
|
||||||
Accumulated depreciation:
|
||||||||
Computers and peripheral equipment
|
2,650
|
2,631
|
||||||
Office furniture and equipment
|
735
|
728
|
||||||
Trade Equipment
|
33
|
25
|
||||||
Leasehold improvements
|
196
|
179
|
||||||
Equipment in lease
|
745
|
457
|
||||||
|
4,359
|
4,020
|
||||||
Depreciated cost
|
1,371
|
894
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 6: |
OTHER INTANGIBLE ASSETS, NET |
Other intangible assets consisted of the following:
|
December 31, 2020
|
December 31, 2019
|
||||||||||||||||||||||
|
Carrying
Amount |
Accumulated
Amortization |
Net Book
Value |
Carrying
Amount |
Accumulated
Amortization |
Net Book
Value |
||||||||||||||||||
Customers relationships & Other
|
8,734
|
7,484
|
1,250
|
8,734
|
6,910
|
1,824
|
||||||||||||||||||
IP & Technology
|
7,019
|
3,959
|
3,060
|
7,019
|
3,389
|
3,630
|
||||||||||||||||||
Capitalized software development costs
|
7,265
|
5,305
|
1,960
|
6,675
|
4,064
|
2,611
|
||||||||||||||||||
|
23,018
|
16,748
|
6,270
|
22,428
|
14,363
|
8,065
|
NOTE 7: |
ACCRUED EXPENSES AND OTHER LIABILITIES |
|
December 31
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Liabilities related with the Smart ID acquisition (see note 8 c1)
|
805
|
805
|
||||||
Accrued marketing expenses
|
125
|
240
|
||||||
Professional services
|
155
|
283
|
||||||
Facilities
|
39
|
466
|
||||||
Legal contingent liability
|
60
|
60
|
||||||
Legal service providers
|
39
|
76
|
||||||
Authorities
|
382
|
-
|
||||||
Other accrued expenses
|
2,788
|
2,737
|
||||||
|
4,393
|
4,667
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 8: |
COMMITMENTS AND CONTINGENT LIABILITIES |
|
a. |
Lease commitments: |
2021
|
$
|
285
|
||
2022
|
237
|
|||
2023
|
78
|
|||
|
$
|
600
|
Rent expenses amounted to $753 and $1,133 for the years ended December 31, 2020 and 2019, respectively.
|
b. |
Guarantees, indemnity and liens: |
|
1. |
The Company and its subsidiaries issued bank guaranties in the total amount of approximately $800 as a part of the ongoing terms of the contracts with existing customers and for tenders. |
|
2. |
Under the Fortress Agreement, the Company recorded a fix floating charge on all of the Company’s assets in favor of the Fortress, limited in amount, in order to secure long-term loan granted by them in favor of the Company. |
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 8: |
COMMITMENTS AND CONTINGENT LIABILITIES (cont.) |
|
c. |
Litigation: |
|
(1) |
As part of the acquisition of the SmartID division of OTI, the Company assumed a dispute with Merwell Inc. (“Merwell”). Merwell has alleged that it has not received the full payment it is entitled to for its services in respect of a drivers’ license project. OTI alleged that Merwell breached its commitments under the service agreement and also acted in concert with third parties to damage OTI’s business activities. This matter is now subject to an arbitration proceeding. An appropriate provision is included in the financial statements. |
NOTE 9: |
INCOME TAX |
|
a. |
Changes in Israeli corporate tax rates: |
The regular corporate tax rate in Israel in 2020 and 2019 is 23%.
|
b. |
Non-Israeli subsidiaries are taxed according to the tax laws of the countries in which they are located. |
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 9: |
INCOME TAX (cont.) |
|
c. |
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 deferred tax assets of the Company and its subsidiaries are as follows:
|
December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Operating loss carry forwards
|
18,658
|
17,391
|
||||||
Reserves and allowances
|
2,589
|
1,599
|
||||||
|
||||||||
Net deferred tax assets before valuation allowance
|
21,247
|
18,990
|
||||||
Valuation allowance
|
(21,121
|
)
|
(18,480
|
)
|
||||
|
||||||||
Net deferred tax assets
|
126
|
510
|
||||||
|
||||||||
Deferred income taxes consist of the following:
|
||||||||
Domestic
|
16,285
|
14,339
|
||||||
Valuation allowance
|
(16,159
|
)
|
(13,829
|
)
|
||||
Net deferred tax assets
|
126
|
510
|
||||||
|
||||||||
Foreign
|
4,962
|
4,651
|
||||||
Valuation allowance
|
(4,962
|
)
|
(4,651
|
)
|
||||
|
-
|
-
|
|
d. |
Carryforward tax losses: |
SuperCom Ltd has assessments which are considered as final until the tax year ended December 31, 2014.
SuperCom’s subsidiaries in the United States and Israel have not received final assessments since their incorporation.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 9: |
INCOME TAX (cont.) |
|
e. |
loss before income tax consists of the following: |
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Domestic
|
(6,301
|
)
|
(9,349
|
)
|
||||
Foreign
|
(1,561
|
)
|
(2,113
|
)
|
||||
|
(7,862
|
)
|
(11,462
|
)
|
Substantially, all tax expenses are as a result of changes in deferred taxes.
|
f. |
Reconciliation of the theoretical tax benefit to the actual tax benefit: |
A reconciliation of theoretical tax expense, assuming all income is taxed at the statutory rate applicable to the income of companies in Israel, and the actual tax expense (benefit), is as follows:
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Loss before income tax, as reported in the consolidated statements of operations
|
(7,862
|
)
|
(11,462
|
)
|
||||
Statutory tax rate in Israel
|
23
|
%
|
23
|
%
|
||||
|
||||||||
Theoretical tax benefit
|
(1,808
|
)
|
(2,636
|
)
|
||||
Current year carryforward losses and other differences for which a valuation allowance was recorded
|
1,278
|
2,101
|
||||||
Changes in valuation allowance
|
48
|
104
|
||||||
Offset of Other non-current assets (accounted for as DTA element)
|
(56
|
)
|
(56
|
)
|
||||
Changes in foreign currency exchange rate and other differences
|
5
|
|
(12
|
)
|
||||
Non-deductible expenses and other differences
|
538
|
542
|
||||||
|
||||||||
Actual income tax expense (benefit)
|
5
|
43
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 10: |
FAIR VALUE MEASUREMENTS |
In accordance with ASC 820 "Fair Value Measurements and Disclosures", the Company measures its earn-out liability at fair value. Earn-out liability is classified within Level 3 as the valuation inputs are based on inputs that are unobservable.
The Company'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, 2020
|
|
|||||||||||||
Description
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
||||
Earn-out liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total financial liability
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
December 31, 2019
|
|
|||||||||||||
Description
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
||||
Earn-out liability
|
|
|
349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
349
|
|
Total financial liability
|
|
$
|
349
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
349
|
|
NOTE 11: |
SHARE CAPITAL |
|
a. |
The Company’s ordinary shares are quoted under the symbol “SPCB” on the NASDAQ Capital Market in the United States. |
|
b. |
Shareholders’ rights: |
|
|
|
|
|
The ordinary shares confer upon the holders the right to receive notice to participate and vote in the general meetings of the Company, and the right to receive dividends, if declared. |
|
c. |
Stock options: |
|
1. |
In 2003, the Company adopted a stock option plan under which the Company issues stock options (the “Option Plan”). The Option Plan is intended to provide incentives to the Company’s employees, officers, directors and/or consultants by providing them with the opportunity to purchase ordinary shares of the Company. Subject to the provisions of the Israeli Companies Law, the Option Plan is administered by the Compensation Committee, and is designed: (i) to comply with Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and the rules promulgated thereunder and to enable the Company and grantees thereunder to benefit from Section 102 of the Israeli Tax Ordinance and the Commissioner’s Rules; and (ii) to enable the Company to grant options and issue shares outside the context of Section 102 of the Israeli Tax Ordinance. Options granted under the Option Plan will become exercisable ratably over a period of three to five years or immediately in certain circumstances, commencing with the date of grant. The options generally expire no later than 10 years from the date of grant. Any options which are forfeited or canceled before expiration become available for future grants. |
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 11: |
SHARE CAPITAL (Cont.) |
As a result of an amendment to Section 102 of the Israeli Tax Ordinance as part of the 2003 Israeli tax reform, and pursuant to an election made by the Company thereunder, capital gains derived by grantees arising from the sale of shares issued pursuant to the exercise of options granted to them under Section 102 after January 1, 2003, will generally be subject to a flat capital gains tax rate of 25%. However, as a result of this election, the Company will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as the Company had previously been entitled to do under Section 102.
On June 27, 2007, the Compensation Committee and board of directors of the Company approved a new option plan under which the Company may grant stock options to the U.S. employees of the Company and its subsidiaries. Under this new option plan, the Company may grant both qualified (for preferential tax treatment) and non-qualified stock options. On August 15, 2007, the new option plan was approved by the shareholders of the Company at the general shareholders meeting.
In June 2013, the Option plan was extended for another period of ten years, until December, 31, 2023.
During the year 2018, the Company issued options to purchase up to 568,500 shares to several employees of the Company. The options (fair value of which was estimated at $1061) have a weighted average exercise price of $2.00.
During the year 2020, the Company did not grant any option to purchase shares.
|
2. |
A summary of the Company’s stock option activity and related information is as follows: |
|
Year ended December 31
|
|||||||||||||||
|
2020
|
2019
|
||||||||||||||
|
Number of
options |
Weighted
average exercise price |
Number of
options |
Weighted
average exercise price |
||||||||||||
|
$ |
|
|
$
|
||||||||||||
Outstanding at Beginning of year
|
564,197
|
2.64
|
854,656
|
2.53
|
||||||||||||
Granted
|
-
|
-
|
-
|
-
|
||||||||||||
Exercised
|
(123,545
|
)
|
0.1
|
(47,644
|
)
|
0.1
|
||||||||||
Canceled and forfeited
|
(105,813
|
)
|
2.94
|
(242,815
|
)
|
1.93
|
||||||||||
Outstanding at end of year
|
334,839
|
2.31
|
564,197
|
2.64
|
||||||||||||
Exercisable at end of year
|
193,089
|
1.73
|
315,822
|
3.32
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 11: |
SHARE CAPITAL (Cont.) |
The fair value of these options was estimated on the date of grant using the Black & Scholes option pricing model. The following weighted average assumptions were used for the 2018 grants: risk-free rate of 2.89% and 3.04%, dividend yield of 0%, expected volatility factor of 238% and 240% and expected term of 6.25 years.
The expected volatility was based on the historical volatility of the Company’s stock. The expected term was based on the historical experience and based on Management estimate.
Compensation expenses recognized by the Company related to its stock-based employee compensation awards were $211 and $144 for the years ended December 31, 2020 and 2019, respectively.
The following table summarizes the allocation of the stock-based compensation and warrants charge
|
Year Ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Cost of revenues
|
84
|
66
|
||||||
Research and development expenses
|
48
|
31
|
||||||
Selling and marketing expenses
|
77
|
29
|
||||||
General and administrative expenses
|
2
|
18
|
||||||
|
||||||||
|
211
|
144
|
The options outstanding and exercisable as of December 31, 2020, have been separated into ranges of exercise prices as follows:
Options outstanding |
Options Exercisable |
||||||||||||||||||||||||||||||||
Range of
|
Number
|
Weighted
|
Weighted
|
Aggregate
|
Number
|
Weighted
|
Weighted
|
Aggregate
|
|||||||||||||||||||||||||
$ |
|
$ | $ |
|
$ |
$ |
|||||||||||||||||||||||||||
0.00-2.00 |
316,839 |
7.71 |
1.10 |
- |
175,089 |
7.69 |
1.02 |
- |
|||||||||||||||||||||||||
3.00-5.00 |
18,000 |
8.05 |
4.88 |
- |
18,000 |
8.05 |
4.88 |
- |
|||||||||||||||||||||||||
7.00-10.00 |
- |
- |
- |
- |
- |
- |
- |
- |
|||||||||||||||||||||||||
334,839 |
7.73 |
1.34 |
- |
193,089 |
7.73 |
1.41 |
- |
The total intrinsic value of options exercised for the years ended December 31, 2020 and 2019 was $0 and $0, respectively, based on the Company’s average stock price of $1.04 and $1.01, during the years ended on those dates, respectively.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 11: |
SHARE CAPITAL (Cont.) |
A summary of the status of the Company’s non-vested options granted to employees as of December 31, 2020 and changes during the year ended December 31, 2020 is presented below:
|
Options
|
Weighted–
average grant-date fair value |
||||||
Non-vested as of December 31, 2019
|
248,375
|
1.92
|
||||||
Granted
|
-
|
-
|
||||||
Vested
|
(48,426
|
)
|
2.00
|
|||||
Forfeited and canceled
|
(58,199
|
)
|
2.45
|
|||||
Non-vested as of December 31, 2020
|
141,750
|
1.64
|
As of December 31, 2020, there was $174 of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the stock option plans, to be recognized over a weighted average period of approximately 1.64 years.
|
d. |
Private placements and warrants: |
|
e. |
Dividends: |
No dividends were declared in the reported periods. In the event that cash dividends are declared in the future, such dividends will be paid in NIS. The Company does not intend to distribute cash dividends in the foreseeable future.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 12: |
RELATED PARTY TRANSACTIONS |
|
a. |
On July 25, 2010, the board of directors of the Company elected Mrs. Tsviya Trabelsi to serve as Chairman. Mrs. Trabelsi is an officer at Sigma Wave Ltd., which is the controlling shareholder of the Company and is also the wife of the Company’s chief executive officer. On May 12, 2011, the special general meeting approved a service agreement with Mrs. Trabelsi whereby she will receive a monthly fee equal to 60% of the Company’s chief executive officer’s monthly cost. In addition to the above consideration, the Company will bear all reasonable costs and expenses incurred by the Chairman in connection with her services and provide her with an automobile. On December 12, 2011, Mrs. Tsviya Trabelsi resigned effective immediately and the board of directors of the Company approved the appointment of Mr. Arie Trabelsi as its new Chairman, effective December 12, 2011. On December 27, 2012, the company’s shareholders at a general meeting of shareholders approved the reappointment of Mrs. Trabelsi as Chairman. On May 9, 2013, the general meeting of shareholders of the Company approved the same management services compensation for Mrs. Trabelsi as those approved in May 2011. |
|
b. |
Mr. Trabelsi has served as the chief executive officer of the Company since June 1, 2012. Mr. Trabelsi is the sole director of Sigma Wave, which is the controlling shareholder of the Company. On May 9, 2013, the general meeting of shareholders of the Company approved the payment of management fees to Mr. Trabelsi of $10.6 per month plus social benefits and an annual bonus of the greater of 2% of the Company’s annual net profit or 0.5% of annual revenues, but in no event greater than Mr. Trabelsi’s annual salary. |
|
c. |
As of December 31, 2020 and 2019, the Company accrued $391 and $305, respectively as expenses arising from related party management services. |
|
d. |
On April 29, 2012, the board of directors approved the recording of a floating charge on all of the Company’s assets in favor of the chairman of the board and
the CEO, unlimited in amount, in order to secure personal guarantees granted by them in favor of the Company to a bank and in order to secure loans that are given by them from time to time to the Company. As of December 31,2020, total
loans were $1,358. These loans bear no interest and are not attached to any price index.
.
During the year 2020, Mr. Ordan Trabelsi had provided, from time to time, loans to the Company. As of December
31,2020, the total was $0. These loans bear no interest and are not attached to any price index
|
NOTE 13: |
SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION |
|
a. |
Summary information about segments: |
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.
As part of the Company decision to switch from one technology segment, the e-government, into 3 separate technologies segments or Strategic business units; e-Gov, IoT, and Cyber Security, the Company acquired during 2016, 4 different companies with various technologies and customers base which enrich and strengthen the capacities and offering of each of the 3 segments:
e-Gov: Through the Company proprietary e-Government platforms and innovative solutions for traditional and biometrics enrollment, personalization, issuance and border control services, the Company has helped governments and national agencies design and issue secured multi-identification, or Multi-ID, documents and robust digital identity solutions to their citizens, visitors and Lands.
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 13: |
SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.) |
Cyber Security: The Company operates in the fields of cutting edge endpoint data protection guarding against corporate data loss and theft through content discovery and inspection, encryption methodologies, and comprehensive device and port control and cyber security services.
As a result, all prior period information has been recast to reflect the new segment composition.
|
Year ended December 31, 2020
|
|||||||||||||||
|
Cyber
Security |
IoT
|
e-Gov
|
Total
|
||||||||||||
Revenues
|
2,203
|
7,656
|
1,911
|
11.770
|
||||||||||||
|
||||||||||||||||
Operating loss
|
581
|
(1,373
|
)
|
(2,957
|
)
|
(3,749
|
)
|
|||||||||
|
||||||||||||||||
Goodwill
|
1,075
|
2,229
|
3,722
|
7,026
|
||||||||||||
|
||||||||||||||||
Total Property and Equipment, net
|
109
|
1,016
|
246
|
1,371
|
|
Year ended December 31, 2019
|
|||||||||||||||
|
Cyber
Security |
IoT
|
e-Gov
|
Total
|
||||||||||||
Revenues
|
2,886
|
11,664
|
1,925
|
16,475
|
||||||||||||
|
||||||||||||||||
Operating loss
|
(443
|
)
|
(3,743
|
)
|
(3,987
|
)
|
(8,173
|
)
|
||||||||
|
||||||||||||||||
Goodwill
|
1,075
|
2,229
|
3,722
|
7,026
|
||||||||||||
|
||||||||||||||||
Total Property and Equipment, net
|
109
|
539
|
246
|
894
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 13: |
SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.) |
Following is a reconciliation of the operating income (loss) of the reportable segments to the data included in the statements of operations:
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
Operating loss
|
||||||||
Total operating loss of reportable segments
|
(3,749
|
)
|
(8,173
|
)
|
||||
Financial expenses, net
|
(4,113
|
)
|
(3,289
|
)
|
||||
Loss before income taxes
|
(7,862
|
)
|
(11,462
|
)
|
|
b.
|
Summary information about geographic areas:
|
|
Year ended December 31,
|
|||||||||||||||
|
2020
|
2019
|
||||||||||||||
|
Total
Revenues
|
Property and
Equipment, net
|
Total
revenues
|
Property and
Equipment, net
|
||||||||||||
|
||||||||||||||||
|
$
|
$
|
$
|
$
|
||||||||||||
Africa
|
1,791
|
-
|
1,468
|
-
|
||||||||||||
European countries
|
3,037
|
-
|
3,948
|
-
|
||||||||||||
South America
|
21
|
-
|
30
|
-
|
||||||||||||
United States
|
5,856
|
89
|
9,059
|
147
|
||||||||||||
Israel
|
746
|
1,282
|
1,401
|
747
|
||||||||||||
APAC
|
319
|
-
|
569
|
-
|
||||||||||||
|
11,770
|
1,371
|
16,475
|
894
|
|
-
|
Revenues were attributed to countries based on the customer’s location.
|
|
-
|
Property and equipment were classified based on geographic areas in which such property and equipment items are held.
|
|
c.
|
Summary of revenues from external customers based on products and services:
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Raw materials and equipment
|
2,926
|
4,225
|
||||||
Electronic monitoring
|
6,019
|
7,110
|
||||||
Treatment programs
|
1,640
|
2,731
|
||||||
Maintenance, royalties and project management
|
1,185
|
2,409
|
||||||
|
||||||||
|
11,770
|
16,475
|
|
d.
|
Major customer data as a percentage of total sales:
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
Customer A
|
11
|
%
|
7
|
%
|
||||
Customer B
|
13
|
%
|
-
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 14:
|
OTHER EXPENSE, NET
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Doubtful debt provision
|
2,000
|
1,920
|
||||||
Change in liability for future earn-out
|
(59
|
)
|
(202
|
)
|
||||
Other
|
(792
|
)
|
(83
|
)
|
||||
Total other expense, net
|
1,149
|
1,635
|
|
Year ended December 31,
|
|||||||
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Balance at beginning of period
|
6,667
|
4,747
|
||||||
Provision during the period
|
2,000
|
1,920
|
||||||
Balance at end of period
|
8,667
|
6,667
|
NOTE 15:
|
FINANCIAL EXPENSES, NET
|
|
2020
|
2019
|
||||||
|
$
|
$
|
||||||
Financial expenses:
|
||||||||
|
||||||||
Interest, bank charges and fees
|
(3,812
|
)
|
(1,946
|
)
|
||||
Exchange differences, net
|
(316
|
)
|
(1,531
|
)
|
||||
Total financial expenses
|
(4,128
|
)
|
(3,477
|
)
|
||||
Financial income:
|
||||||||
Interest income
|
15
|
188
|
||||||
|
||||||||
Total financial income
|
15
|
188
|
||||||
|
||||||||
Total financial expenses, net
|
(4,113
|
)
|
(3,289
|
)
|
SUPERCOM LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
|
U.S. dollars in thousands (except per share data)
|
NOTE 16:
|
Subsequent Events
|
|
b. |
In February 2021, the Company secured through the issuance of a new subordinated note, additional gross proceeds of $7,000. For
the consideration of $7,000in gross proceeds, SuperCom issued a 2-year unsecured, subordinated promissory note to a certain institutional investor. The note has a 5% annual coupon and a built-in increase to the balance of the note
by 5% every 6 months, for any portion of the note which has not been paid down prior to maturity. All principal and interest accrued is required to be paid in only one-bullet payment at maturity, and the company has the right to
pre-pay any portion of the note at any time without a pre-payment penalty. The company has an option at its discretion only, at any time after 12 months to pay down all or a portion of the note using its ordinary shares, subject to
certain conditions being met.
|
|
SUPERCOM LTD.
|
||
|
|
|
|
|
By:
|
/s/ Ordan Trabelsi
|
|
|
Name:
|
Ordan Trabelsi
|
|
|
Title:
|
Chief Executive Officer
|
Name of active Subsidiary
|
|
Jurisdiction of
Organization |
|
Percent Owned
|
|
||
|
|
|
|
|
|
||
S.B.C. Aviation Ltd.
|
|
Israel
|
|
|
100
|
%
|
|
SuperCom Inc.
|
|
United States
|
|
|
100
|
%
|
|
SuperCom IP LLC.
|
|
United States
|
|
|
99.98
|
%
|
|
SuperCom Slovakia A.S.
|
|
Slovakia
|
|
|
66
|
%
|
|
Prevision Ltd.
|
|
Israel
|
|
|
100
|
%
|
|
Safend Ltd.
|
|
Israel
|
|
|
100
|
%
|
|
Leaders in Community Alternatives, Inc.
|
|
United States
|
|
|
100
|
%
|
|
Alvarion Technologies Ltd
|
|
Israel
|
|
|
100
|
%
|
|
/s/ Ordan Trabelsi
|
|
Ordan Trabelsi*
|
|
Chief Executive Officer
|
|
/s/ Arie Trabelsi
|
|
Arie Trabelsi*
|
|
Acting Chief Financial Officer
|
|
/s/ Ordan Trabelsi
|
|
Ordan Trabelsi*
|
|
Chief Executive Officer
|
|
/s/ Arie Trabelsi
|
|
Arie Trabelsi*
|
|
Acting Chief Financial Officer
|
Tel Aviv, Israel
|
/s/ Halperin
|
|
April 30, 2021
|
Certified Public Accountants
|