SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
| In 2021, the Company secured through the issuance of subordinated notes, gross proceeds of $12,000. For the consideration of $12,000 in gross proceeds, SuperCom issued to a certain institutional investor in February 2021 and June 2021, two-year unsecured, subordinated promissory notes in the amounts of $7,000 and $5,000, respectively, both with similar structures and terms. Given the subordination agreement between the senior secured loan investor, the subordinated debt investor and the Company, the subordinated investor may request that the balance of the subordinated debt be paid only after the senior secured Fortress debt is paid in full. The notes have a 5% annual coupon and a built-in increase to the balance of the notes by 5% every 6 months for the first 24 months, for any portion of the notes 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 either 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 either note using its ordinary shares, subject to certain conditions being met. During 2023 the Company converted $500 of the remaining principal and accrued interest of subordinated notes issued in 2021 into the Company’s ordinary shares. The outstanding principal and accrued interest of the Subordinated Debt was $16,290. |
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES 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 the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions include (i) Revenue Recognition; (ii) Allowance for Doubtful Accounts; (iii) Deferred Income Taxes and (iv) measurement of the fair value of intangible assets and goodwill. |
| b. | Financial statements in U.S. dollars: Most of the revenues of the Company are received in U.S. dollars. In addition, a substantial portion of the costs of the Company are incurred in U.S. dollars. Therefore, management believes that the dollar is the currency of the primary economic environment in which the Company operate. Thus, the functional and reporting currency of the Company 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 2023 and 2022. |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| h.
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 credit losses: The allowance for credit losses is determined with respect to specific amounts the Company has determined to be doubtful of collection. In determining the allowance for credit losses, 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. |
| 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: |
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: | 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 4-55 |
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.
| As of December 31, 2023, and 2022 no impairment losses were identified. |
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.) |
| 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. |
| 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, 2023 and 2022 the Company performed an annual impairment analysis and no impairment losses have been identified. |
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:assets with definite useful life: The Company’s long-lived assets and intangible assets with definite useful life 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. |
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. Management entered into engagements with several brokers for the purpose of marketing and sale of those patents. The Company classifies an asset group (an “asset”) as held for sale in the period during which (i) the Company has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be abandoned. |
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.) |
| The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in operating loss for the period in which the held for sale criteria are met. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale. Realization costs of the patents are immaterial. For the years ended December 31, 2023 and 2022 the Company did not identify any triggers for impairment |
| 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 defined contribution plans. A defined contribution plan is a program that benefits an employee after termination of employment, under which the Company regularly makes fixed payments to a fund administered by a separate and independent entity so that the Company has no legal or constructive obligation to pay additional contributions if such fund does not contain sufficient assets to pay all employees the benefits to which they may be entitled relating to employee service in the current and prior periods. The fund assets are not included in the Company’s consolidated balance sheets. |
| 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). The Company recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expect to receive in exchange for those goods or services. 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 principle, 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. |
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.
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
| 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. 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-Gov, 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 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.) |
| 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. 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. |
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.) |
| 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. 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. |
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.) |
| 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. |
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 Security | | | 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.) |
| 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, 2023 | | | | Cyber Security | | | IoT | | | e-Gov | | | Total | | Major geographic areas | | | | | | | | | | | | | Africa | | $ | - | | | $ | - | | | $ | 1,455 | | | $ | 1,455 | | European countries | | | 328 | | | | 17,256 | | | | 89 | | | | 17,673 | | South America | | | 12 | | | | - | | | | - | | | | 12 | | United States | | | 279 | | | | 6,487 | | | | - | | | | 6,766 | | Israel | | | 562 | | | | 23 | | | | - | | | | 585 | | APAC | | | 79 | | | | - | | | | - | | | | 79 | | Total revenue | | $ | 1,260 | | | $ | 23,766 | | | $ | 1544 | | | $ | 26,570 | | | | | | | | | | | | | | | | | | | Timing of revenue recognition | | | | | | | | | | | | | | | | | Products and services transferred over time | | $ | 343 | | | $ | 8,262 | | | $ | 1455 | | | $ | 10,060 | | Products transferred at a point in time | | | 917 | | | | 15,504 | | | | 89 | | | | 16,510 | | Total revenue | | $ | 1,260 | | | $ | 23,766 | | | $ | 1544 | | | $ | 26,570 | |
| | Year ended December 31, 2022 | | | | Cyber Security | | | IoT | | | e-Gov | | | Total | | Major geographic areas | | | | | | | | | | | | | Africa | | $ | - | | | $ | - | | | $ | 374 | | | $ | 374 | | European countries | | | 273 | | | | 9,023 | | | | 263 | | | | 9,559 | | South America | | | - | | | | - | | | | - | | | | - | | United States | | | 351 | | | | 6,526 | | | | - | | | | 6,877 | | Israel | | | 614 | | | | 79 | | | | - | | | | 693 | | APAC | | | 146 | | | | - | | | | - | | | | 146 | | Total revenue | | $ | 1,384 | | | $ | 15,628 | | | $ | 637 | | | $ | 17,649 | | | | | | | | | | | | | | | | | | | Timing of revenue recognition | | | | | | | | | | | | | | | | | Products and services transferred over time | | $ | 498 | | | $ | 11,697 | | | $ | 335 | | | $ | 12,530 | | Products transferred at a point in time | | | 886 | | | | 3,931 | | | | 302 | | | | 5,119 | | Total revenue | | $ | 1,384 | | | $ | 15,628 | | | $ | 637 | | | $ | 17,649 | |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| | 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, 2023, the aggregate amount of the transaction price allocated to remaining performance totals $19.56 million. The Company expects approximately 68% of remaining performance obligations to be recognized into revenue within the next 12 months, with the remaining 32% recognized thereafter.
The Company applies the practical expedient in paragraph ASC 606-10-50-14 and does 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. |
| 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. |
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 2023 and 2022 financial statements. |
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 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. |
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. | Concentrations of suppliers: 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 |
| s. | 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 10.575 million and 1.713 million for the years ended December 31, 2023 and 2022, respectively |
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.
t. | 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 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.
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.u. | Recent accounting pronouncementsAccounting for stock-based compensation: The Company accounts for stock-based compensation arrangements using a fair value method which requires the recognition of compensation expenses for costs related to all stock-based payments including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions. Changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free interest rate, expected dividend yield, expected volatility and the expected life of the award. |
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.
| v. | Treasury Shares: Treasury shares are recorded at cost and presented as a reduction of shareholders' equity. |
| w. | Leases: The Company adopted ASU 2016-02, Leases (“Topic 842” or “ASC 842”) on January 1, 2022, using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Leases with a term of 12 months or less can be accounted for in a manner similar to the accounting for operating leases under ASC 840. The ASC 842 requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 for sales-type leases, direct financing leases and operating leases. The Company leases real estate and storage areas, which are all classified as operating leases. In addition to rent payments, the leases may require the Company to pay for insurance, maintenance, and other operating expenses. The Company determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC 842-10-25-2. If any of these five criteria is met, the Company classifies the lease as a finance lease. Otherwise, the Company classifies the lease as an operating lease. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments. Operating lease expenses are recognized on a straight-line basis over the lease term. Exchange rate differences related to lease liabilities are recognized as finance income or expense. Several of the Company’s leases include options to extend the lease. For purposes of calculating lease liabilities, lease terms include options to extend the lease when it is reasonably certain that the Company will exercise such options. The Company's ROU assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" ("ASC 360"), whenever events in circumstances indicate that the carrying amount of an asset may not be recoverable. The ASC 842 provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means that for those leases, the Company does not recognize ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis. See Note 9 for further information on leases. Upon adoption as of January 1, 2021, the Company recorded right-of-use leased assets and corresponding liabilities of $1200. See Note 8 for further information on leases. |
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.) |
| x. | Allocation of proceeds and related issuance costs: When multiple instruments are issued in a single transaction (package issuance), the total net proceeds from the transaction are allocated among the individual freestanding instruments identified. The allocation occurs after identifying all the freestanding instruments and the subsequent measurement basis for those instruments. Financial instruments that are required to be subsequently measured at fair value (i.e. derivative warrants liability and derivative liability related to bifurcated embedded conversion feature) are measured at fair value and the remaining consideration is allocated to other financial instruments that are not required to be subsequently measured at fair value (i.e. certain convertible bridge loans, warrants eligible for equity classification) and common stock, based on the relative fair value basis for such instruments. The allocation of issuance costs to freestanding instruments was based on an approach that is consistent with the allocation of the proceeds, as described above. Issuance costs allocated to the derivative warrant liabilities were immediately expensed, as discussed above. Issuance costs allocated to warrants stock classified as equity component were recorded as a reduction of additional paid-in capital. |
| y. | Stock Warrants Certain warrants that were granted by the Company to investors are classified as a component of permanent equity since they are freestanding financial instruments that are legally detachable and separately exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of shares of common stock upon exercise for a fixed exercise price and thus, are considered as indexed to the Company’s own stock. In addition, the warrants must require physical settlement and may not provide any guarantee of value or return. Such warrants were initially recognized based on the allocation method described in Note 2x above as an increase to additional paid-in capital. When applicable, direct issuance expenses that were allocated to the above warrants were deducted from additional paid-in capital. |
| z. | Derivative Warrants Liability: The Company accounts for certain warrants to purchase Ordinary Shares in connection with certain transactions, held by investors, that include a fundamental transaction feature pursuant to which such warrants could be required to be settled in cash upon certain events, as current liability according to the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for these warrants as a financial liability measured upon initial recognition and on subsequent periods at fair value by using the Black-Scholes Option Pricing Model. |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| Certain warrants that were granted by the Company in connection with certain transactions (see also Notes 10&14) entitle the investors to exercise the warrants for a variable number of shares and/or for a variable exercise price, accordingly, the warrants were classified as a current liability according to the provisions of ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” (“ASC 815-40”). The Company accounted for these warrants as a financial derivative liability measured upon initial recognition and on subsequent periods at fair value by using the Black-Scholes Option Pricing Model. The fair value of the aforesaid warrants derivative liability is estimated using the Black-Scholes Model which requires inputs such as the expected term of the warrants, share price volatility and risk-free interest rate. These assumptions are reviewed on a regular basis and changes in the estimated fair value of the outstanding warrants are recognized each reporting period as part of in the “Financing (income) expenses, net” line in operations in the accompanying consolidated statement of net loss, until such warrants are exercised or expired. When applicable, direct issuance expenses that were allocated to the above warrants were expensed as incurred. |
| aa. | Reclassification Certain comparative figures have been reclassified to conform to the current year presentation. Such reclassifications did not have any significant impact on the Company's equity, net loss or cash flows. |
| bb. | Recently Adopted Accounting Standards In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which replaces the current incurred loss methodology with an expected loss methodology which is referred to as the current expected credit loss (“CECL”) methodology. The measurement of credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivables and trade accounts receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investment in leases recognized by a lessor in accordance with Accounting Standards Codification (“ASC”) Topic 842 – Leases. ASU 2016-13 also made changes to the accounting for available-for-sale debt securities and requires credit losses to be presented as an allowance rather than as a write-down on such securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The adoption of ASU 2016-13 on January 1, 2023 did not have a material impact on the Company’s consolidated financial statements and disclosures In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which addresses issues identified as a result of the complexities associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. This update addresses, among other things, the number of accounting models for convertible debt instruments and convertible preferred stock, targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”) guidance and amendments to the guidance for the derivatives scope exception for contracts in an entity’s own equity, as well as the related EPS guidance. This update applies to all entities that issue convertible instruments and/or contracts in an entity’s own equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2020-06 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40); Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the FASB Emerging Issues Task Force (“ASU 2021-04”), which aims to clarify and reduce diversity in issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. This update applies to all entities that issue freestanding written call options that are classified in equity. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s consolidated financial statements and disclosures. |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
| NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| cc. | Recently Issued Accounting Standards Not Yet Effective On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Improvements to Income Tax Disclosures”, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU will be effective for the Company's annual report for fiscal year 2026 and allows adoption on a prospective basis, with a retrospective option. This ASU will only have an impact on the Company's income tax disclosures. The Company is currently evaluating the impact of the adoption on its consolidated financial statements. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), “Improvements to Reportable Segment Disclosures,” which enhances the disclosures required for operating segments in the annual and interim consolidated financial statements. This ASU will be effective for the Company's annual report for fiscal year 2025 and for interim period reporting beginning in fiscal year 2026 on a retrospective basis with early adoption permitted. The Company is currently evaluating the impact of the adoption on its consolidated financial statements. Other new pronouncements issued but not effective as of December 31, 2023 are not expected to have a material impact on the Company’s consolidated financial statements. |
NOTE 3: | OTHER CURRENT ASSETS |
| | December 31, | | | | | 2020 | | | 2019 | | | December 31, | | | | $ | | $ | | | 2023 | | 2022 | | Prepaid expenses | | | 157 | | | | 310 | | | $ | 133 | | | $ | 224 | | Advances to suppliers | | | 308 | | | | 343 | | | 337 | | | 337 | | Government institutions | | | 124 | | | | 20 | | | | 479 | | | | 740 | | Guaranty held by customer | | | 662 | | | 621 | | Other | | | 287 | | | | 288 | | | | 131 | | | | 317 | | | | | 876 | | | | 961 | | | $ | 1,742 | | | $ | 2,239 | |
| | December 31, | | | | 2020 | | | 2019 | | | | $ | | | $ | | Raw materials, parts and supplies | | | 1,256 | | | | 1,414 | | Finished products | | | 1,148 | | | | 1,232 | | | | | | | | | | | | | | 2,404 | | | | 2,646 | |
As of December 31, 2020 and 2019, inventory is presented net of write offs for slow inventory in the amount of approximately $2,129 and $1,979, respectively. | | December 31, | | | | 2023 | | | 2022 | | Raw materials, parts and supplies | | $ | 1,380 | | | $ | 1,726 | | Finished products | | | 1,123 | | | | 1,685 | | | | | | | | | | | | | $ | 2,503 | | | $ | 3,411 | |
| As of December 31, 2023 and 2022, inventory is presented net of write offs for slow inventory in the amount of approximately $2,395 and $2,215, respectively. |
| SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
NOTE 5: 5: | PROPERTY AND EQUIPMENT, NET |
| | December 31, | | | | 2023 | | | 2022 | | Cost: | | | | | | | | | | | | | | Computers and peripheral equipment | | $ | 3,390 | | | $ | 3,206 | | Office furniture and equipment | | | 852 | | | | 852 | | Trade Equipment | | | 42 | | | | 42 | | Leasehold improvements | | | 210 | | | | 210 | | Equipment held by customer | | | 4,420 | | | | 2,890 | | | | | | | | | | | | | | 8,914 | | | | 7,200 | | Accumulated depreciation: | | | | | | | | | Computers and peripheral equipment | | | 2,990 | | | | 2,855 | | Office furniture and equipment | | | 785 | | | | 760 | | Trade Equipment | | | 42 | | | | 39 | | Leasehold improvements | | | 206 | | | | 198 | | Equipment held by customer | | | 2,190 | | | | 1,708 | | | | | | | | | | | | | | 6,213 | | | | 5,560 | | Depreciated cost | | $ | 2,701 | | | $ | 1,640 | |
| Purchasing of Equipment for the years ended December 31, 2023 and 2022, were $1,714 and $524, respectively. Depreciation expenses for the years ended December 31, 2023 and 2022, were $653 and $688, respectively. |
| | 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 | |
NOTE 6: | INTANGIBLE ASSETS, NET Other intangible assets consisted of the following: |
| | December 31, 2023 | | | December 31, 2022 | | | | Carrying Amount | | | Accumulated Amortization | | | Net Book Value | | | Carrying Amount | | | Accumulated Amortization | | | Net Book Value | | Customers relationships & Other | | $ | 8,734 | | | $ | 8,427 | | | $ | 307 | | | $ | 8,734 | | | $ | 8,112 | | | $ | 622 | | IP & Technology | | | 7,019 | | | | 5,252 | | | | 1,767 | | | | 7,019 | | | | 4,898 | | | | 2,121 | | Capitalized software development costs | | | 11,266 | | | | 7,764 | | | | 3,502 | | | | 9,614 | | | | 6,740 | | | | 2,874 | | | | $ | 27,019 | | | $ | 21,443 | | | $ | 5,576 | | | $ | 25,367 | | | $ | 19,750 | | | $ | 5,617 | |
| | | Amortization expenses amounted to $1,693 and $1,607 for the years ended December 31, 2023 and 2022, respectively. |
NOTE 7: | OTHER LONG-TERM ASSETS, NET |
| | December 31, | | | | 2023 | | | 2022 | | Severance pay funds | | $ | - | | | $ | 482 | | Deferred tax long term | | | 501 | | | | 501 | | Operating lease right-of-use asset | | | 487 | | | | 484 | | | | | | | | | | | | | $ | 988 | | | $ | 1,467 | |
Purchasing of Equipment for the years ended December 31, 2020 and 2019, were $812 and $414, respectively.
Depreciation expenses for the years ended December 31, 2020 and 2019, were $335 and $363, respectively.
| 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 | |
Amortization expenses amounted to $2,385 and $2,161 for the years ended December 31, 2020 and 2019, respectively.
| 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
|
The Company’s facilities and those of certain subsidiaries are rented under several operating lease agreements for periods ending 2020. | | December 31, | | | | 2023 | | | 2022 | | Accrued management services | | $ | 86 | | | $ | 86 | | Professional services | | | 207 | | | | 202 | | Other accrued expenses | | | 192 | | | | 181 | | | | | | | | | | | | | $ | 485 | | | $ | 469 | |
| We do not own any real estate. We lease approximately 1,139 square meters of office and warehousing premises in Tel Aviv and Herzliya, Israel, under a new lease which started on April l1, 2021 and expires on March 30, 2026. According to the lease agreements, the monthly fee is approximately $35. We lease approximately 1,701 square meters of office premises in California, Kentucky and Miami for our U.S. subsidiaries, which under the current lease contracts expire gradually by 2025, with a monthly fee of approximately $27 for 2023. |
| | Year ended December 31, | | | | 2023 | | | 2022 | | The components of lease expense were as follows: | | | | | | | | | Operating leases expenses | | $ | 701 | | | $ | 475 | | | | | | | | | | | Cash flow information related to operating leases: | | | | | | | | | Cash used in operating activities | | $ | 694 | | | $ | 502 | | | | | | | | | | | Non-cash activity - Right of use assets obtained in exchange for new operating lease liabilities | | $ | 652 | | | $ | - | |
| | December 31, | | | | 2023 | | | 2022 | | | | | | | | | Supplemental information related to operating leases, including location of amounts reported in the accompanying consolidated balance sheets, follows: | | | | | | | Other assets - Right-of-Use assets | | $ | 1,824 | | | $ | 1,200 | | Accumulated amortization | | | 1,337 | | | | 716 | | Operating lease Right-of-Use assets, net | | $ | 487 | | | $ | 484 | | | | | | | | | | | Lease liabilities – current - accrued expenses and other liabilities | | $ | 401 | | | $ | 381 | | Lease liabilities – noncurrent | | | 108 | | | | 108 | | Total operating lease liabilities | | $ | 509 | | | $ | 489 | | | | | | | | | | | Weighted average remaining lease term in years | | | 2.25 | | | | | | Weighted average annual discount rate | | | 9 | % | | | | |
Future minimum lease commitments under non-cancelable operating leases for the years ended December 31, 2020,2023, are as follows: 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.
2024 | | | 437 | | 2025 | | | 110 | | Total operating lease payments | | | 547 | | Less: imputed interest | | | (38 | ) | Present value of lease Liabilities | | $ | 509 | |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 10: | b.
WARRANTS LIABILITY |
Issued to investors | | December 31, | | | | 2023 | | | 2022 | | Outstanding at January 1 | | $ | - | | | $ | - | | Issued to investors | | | 3,786 | | | | - | | Exercised | | | (1,473 | ) | | | - | | Changes in fair value | | | (2,313 | ) | | | - | | | | | | | | | | | Outstanding at December 31 | | $ | - | | | $ | - | |
See note 14 for additional information. NOTE 11: | OTHER LONG-TERM LIABILITIES |
| | December 31, | | | | 2023 | | | 2022 | | Deferred revenues | | $ | 305 | | | $ | 269 | | Deferred tax liability | | | 170 | | | | 170 | | Accrued severance pay | | | - | | | | 523 | | Long- term operating lease liabilities | | | 108 | | | | 108 | | | | | | | | | | | | | $ | 583 | | | $ | 1,070 | |
NOTE 12: | COMMITMENTS AND CONTINGENT LIABILITIES |
| a. | Guarantees, indemnity and liens: |
| 1. | The Company and its subsidiaries issued bank guaranties in the total amount of approximately $800$350 as a part of the ongoing terms of thelease contracts, 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. |
| b. | The Company is party to legal proceedings in the normal course of our business. There are no material pending legal proceedings to which the Company is a party or of which our property is subject. Although the outcome of claims and lawsuits against the Company cannot be accurately predicted, we do not believe that any of the claims and lawsuits, will have a material adverse effect on the Company business, financial condition, results of operations or cash flows for any quarterly or annual period. |
| c. | On January 19, 2024, pursuant to an agreement with Sabby to fully settle the actions between the parties, which were pending in the Supreme Court of New York, New York County, the Company issued to Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”) 1,475,142 of the Company’s ordinary shares (the “Shares”), par value NIS 2.5 per share (the “Ordinary Shares”), 4,250,000 two-year warrants to purchase Ordinary Shares with an exercise price of $0.45 per share (the “Warrants”), and 5,524,858 pre-funded warrants to purchase Ordinary Shares with an exercise price of $0.00001 per share (the “Pre-Funded Warrants” and collectively with the Shares. |
| 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.) a. | The Corporate tax rate in Israel in 2023 and 2022 was 23%. |
| c. b. | Litigation: Our USA subsidiaries were subject to federal tax rate of 21% in 2023 and 2022, state tax of 8.84% in CA and 6.5% in NY, and city tax of 6.5% in New York City |
| (1) c. | As part
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 acquisitiondeferred tax assets of the SmartID divisionCompany and its subsidiaries are as follows: |
| | December 31, | | | | 2023 | | | 2022 | | Operating loss carry forwards | | $ | 24,106 | | | $ | 21,362 | | Reserves and allowances | | | 4,939 | | | | 4,475 | | | | | | | | | | | Net deferred tax assets before valuation allowance | | | 29,045 | | | | 25,837 | | Valuation allowance | | | (28,622 | ) | | | (25,414 | ) | | | | | | | | | | Net deferred tax assets | | | 423 | | | | 423 | | | | | | | | | | | Deferred income taxes consist of the following: | | | | | | | | | Domestic | | | 21,234 | | | | 20,867 | | Valuation allowance | | | (20,811 | ) | | | (20,444 | ) | Net deferred tax assets | | | 423 | | | | 423 | | | | | | | | | | | Foreign | | | 7,811 | | | | 4,970 | | Valuation allowance | | | (7,811 | ) | | | (4,970 | ) | | | $ | - | | | $ | - | |
| As of OTI,December 31, 2023, the Company assumedand its subsidiaries, have provided a dispute with Merwell Inc. (“Merwell”). Merwell has alleged that it has not received the full payment it is entitled to for its servicesvaluation allowance of $24,106 in respect of a drivers’ license project. OTI alleged that Merwell breached its commitments under the service agreementdeferred tax assets resulting from tax loss carryforwards 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 includedother temporary differences. Other tax loss carryforwards and temporary differences in the financial statements.amount of $423 were not provided with valuation allowance as the Company’s management currently believes that these tax assets are more likely than not to be recovered. |
| d. | Carryforward tax losses: As of December 31, 2023, SuperCom Ltd and its subsidiaries in Israel have accumulated losses for tax purposes of approximately $74,569, which may be carried forward and offset against taxable income in the future for an indefinite period. SuperCom Ltd. also has a capital loss of approximately $14,651, which may be carried forward and offset against capital gains for an indefinite period. Loss carryforwards in Israel are measured in NIS. |
| 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.)
|
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 | | | | ) | | | (18,480 | ) | | | | | | | | | | Net deferred tax assets | | | | | | | 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 | ) | | | | - | | | | - | |
As of December 31, 2020, the Company and its subsidiaries, have provided a valuation allowance of $20,689 in respect of deferred tax assets resulting from tax loss carryforwards and other temporary differences. Other tax loss carryforwards and temporary differences in the amount of $565 were not provided with valuation allowance as the Company’s management currently believes that these tax assets are more likely than not to be recovered.
| d.
| Carryforward tax losses:
|
As of December 31, 2020, SuperCom Ltd and its subsidiaries in Israel have accumulated losses for tax purposes of approximately $43,104, which may be carried forward and offset against taxable income in the future for an indefinite period. SuperCom Ltd. also has a capital loss of approximately $15,436, which may be carried forward and offset against capital gains for an indefinite period. Loss carryforwards in Israel are measured in NIS.
As of December 31, 2020, SuperCom’ s subsidiaries in the United States have estimated total available carryforward tax losses of approximately $19,165 which expires in the years 2028 to 2037. Utilization of the U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
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.)
|
NOTE 13: | e. INCOME TAX (cont.) |
| As of December 31, 2023, SuperCom’ s subsidiaries in the United States have estimated total available carryforward tax losses of approximately $25,734. Utilization of the U.S. net operating losses may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. SuperCom Ltd has assessments which are considered as final until the tax year ended December 31, 2018. SuperCom’s subsidiaries in the United States and Israel have not received final assessments since their incorporation. |
| | | | e. | loss before income tax consists of the following: |
| | Year ended December 31, | | | | | 2020 | | 2019 | | | Year ended December 31, | | | | $ | | | $ | | | 2023 | | 2022 | | Domestic | | | (6,301 | ) | | | (9,349 | ) | | $ | (1,880 | ) | | $ | (7,013 | ) | Foreign | | | | ) | | | (2,113 | ) | | | (2,142 | ) | | | (743 | | | | | | ) | | | (11,462 | ) | | $ | (4,022 | ) | | $ | (7,756 | ) |
Substantially, all tax expenses are as a result of changes in deferred taxes.
| 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, | | | | 2023 | | | 2022 | | Loss before income tax, as reported in the consolidated statements of operations | | $ | (4,022 | ) | | $ | (7,756 | ) | Statutory tax rate in Israel | | | 23 | % | | | 23 | % | | | | | | | | | | Theoretical tax benefit | | | (925 | ) | | | (1,784 | ) | Changes in valuation allowance | | | 943 | | | | 1185 | | Changes in foreign currency exchange rate and other differences | | | 576 | | | | 481 | | Non-deductible expenses and other differences | | | (594 | ) | | | (181 | ) | | | | | | | | | | Actual income tax expense (benefit) | | $ | - | | | $ | (299 | ) |
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 measurement of earn-out liability is based on of the revenues derived from two businesses acquired: Alvarion and OTI, over a period of two and seven years following the acquisition dates, respectively. During the year ended December 31, 2019, the Company had an adjustment through the statement of operations of $349. As of December 31, 2020, both earn-out programs are expired.
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:
| a. | 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 | |
| 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. | On March 30, 2023, the Company raised approximately $2.4 million in gross proceeds in a registered direct offering with a single accredited institutional investor through the sale of an aggregate of 485,000 of its ordinary shares, and 1,032,615 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00001 per share, and concurrent private placement to such Purchaser of the Company’s private warrants to purchase an aggregate of 1,517,615 of its ordinary shares at an exercise price of $1.66 per share.
On June 06, 2023, 440,615 prefunded warrants were converted into 440,615 ordinary shares. On July 28, 2023, 435,000 prefunded warrants were converted into 435,000 ordinary shares.
On August 3, 2023 the exercise price of the Company’s private warrants was reduced to $0.85. On August 1, 2023, 157,000 prefunded warrants were converted into 157,000 ordinary shares. |
| | The Company’s private warrants issue on March 30,2023, were classified as a financial liability because of the repurchase provisions of such warrants that permitted the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 10). The Company used the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company made certain assumptions about risk-free interest rates, dividend yields, expected stock price volatility, expected term of the warrants and other assumptions. Expected volatility was calculated based upon historical volatility of the Company. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on historical dividend payments, which have been zero to date. The expected term of the warrants is based on the time to expiration of the warrants from the measurement date. Issuance expenses totaled $188, of which $126 were allocated to the derivative warrant liabilities and were immediately expensed, and $62 were allocated to the ordinary shares and to the prefunded warrants that were classified as equity and accordingly were reduced from additional paid-in capital. The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities issued on March 30,2023 on issuance date and on exercise date: |
| | March 30, | | | November 15, | | | | 2023 | | | 2023 | | Risk-free interest rate | | | 3.60 | % | | | 4.57 | % | Dividend yield | | | 0 | % | | | 0 | % | Volatility factor | | | 100 | % | | | 116 | % | Expected life of the options | | | 5.00 | | | | 4.38 | |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 14: | c.
| Stock options:
SHARE CAPITAL (cont.) |
| d. | On August 3, 2023, the Company raised approximately $2.75 million in gross proceeds in a registered direct offering with a single accredited institutional investor through the sale of an aggregate of 661,000 of its ordinary shares, and 2,574,295 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00001 per share, and concurrent private placement to such Purchaser of the Company’s private warrants to purchase an aggregate of 3,235,295 of its ordinary shares at an exercise price of $0.85 per share.
On September 15, 2023, 765,295 prefunded warrants were converted into 765,295 ordinary shares. On October 10, 2023, 1,809,000 prefunded warrants were converted into 1,809,000 ordinary shares.
The Company’s private warrants issue on August 3, 2023, were classified as a financial liability because of the repurchase provisions of such warrants that permitted the holders of such warrants, in the event of a fundamental transaction, to receive a cash consideration that is not the same as the consideration payable to the common stockholders (see also Note 10).
Issuance expenses totaled $235, of which $185 were allocated to the derivative warrant liabilities and were immediately expensed, and $50 were allocated to the ordinary shares and to the prefunded warrants that were classified as equity and accordingly were reduced from additional paid-in capital.
The Company used the Black-Scholes valuation model to estimate fair value of these warrants. |
| | The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities issued on August 3, 2023 on issuance date and on exercise date: |
| | August 3, | | | November 15, | | | | 2023 | | | 2023 | | Risk-free interest rate | | | 4.30 | % | | | 4.54 | % | Dividend yield | | | 0 | % | | | 0 | % | Volatility factor | | | 98 | % | | | 113 | % | Expected life of the options | | | 5.00 | | | | 4.72 | |
| e. | On November 15, 2023, the exercise price of all private warrants issued on March 30,2023 and August 3, 2023, a total of 4,752,910 private warrants, was reduced to $0.42. Subsequently all 4,752,910 private warrants were exercised into 1,081,000 ordinary shares and 3,671,910 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00001 per share. Upon conversion of all 4,752,910 private warrants at $0.42 by the holders, the holders were entitled to receive private warrants to purchase an aggregate of 9,505,820 of its ordinary shares (200% warrants) for 5.5 years at an exercise price of $0.5. The total consideration of approximately $2.0 million in gross proceeds was classified to equity, accordingly $177 of issuance expenses were allocated to equity and reduced from additional paid-in capital.
On November 20, 2023, 2,731,910 prefunded warrants, out of the 3,671,910 issued, were converted into 2,731,910 ordinary shares.
The remaining 940,000 prefunded warrants remained outstanding as of December 31, 2023. |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
| 1.
f. | During 2023 the Company converted $500 of the remaining principal and accrued interest of short-term loans issued in 2022 into 518,644 of the Company’s ordinary shares. |
| 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. 1 million Ordinary Shares are authorized for issuance under the 2003 Option Plan, of which 171,250 shares were available for future grant as of December 31, 2023. In 2007 a new option plan was approved under which the Company may grant stock options to the U.S. employees of the Company and its subsidiaries (the “2007 Option Plan”). Under the 2007 Option Plan, the Company may grant both qualified (for preferential tax treatment) and non-qualified stock options. In June 2013, the Option Plan was extended for another period of ten years, until December 31, 2023. In April 2023, the Option Plan was extended for another period of ten years, until December 31, 2033. During the years 2019, 2020 and 2021, the Company did not grant any option to purchase shares. During the year 2022, the Company granted 800,937 option to purchase ordinary shares to certain officers and employees of the Company. During the year 2023, the Company granted 22,000 option to purchase ordinary shares to certain employees of the Company. |
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. | 2.
| A summary of the Company’s stock option activity and related information is as follows:
The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the periods indicated: |
| | 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, | | | 2023 | | | 2022 | | Weighted Average Risk-free interest rate | | | 3.84 | % | | | 2.84 | % | Dividend yield | | | 0 | % | | | 0 | % | Weighted Average Volatility factor | | | 91 | % | | | 74 | % | Weighted Average Expected life of the options | | | 4.53 | | | | 6.64 | |
| SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
NOTE 11: 14: | SHARE CAPITAL (Cont.) |
| 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.
The following table contains additional information concerning options granted under the existing stock--option plan: |
| | Year ended December 31 | | | | 2023 | | | 2022 | | | | Number of options | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | Outstanding at Beginning of year | | | 811,050 | | | $ | 3.58 | | | | 21,388 | | | $ | 12.3 | | Granted | | | 22,000 | | | $ | 1.23 | | | | 800,937 | | | $ | 3.25 | | Exercised | | | (250 | ) | | $ | 1.00 | | | | (1,650 | ) | | $ | 1.00 | | Canceled and forfeited | | | (10,625 | ) | | $ | 4.17 | | | | (9,625 | ) | | $ | 3.79 | | Outstanding at end of year | | | 822,175 | | | $ | 3.51 | | | | 811,050 | | | $ | 3.58 | | Exercisable at end of year | | | 416,975 | | | $ | 3.80 | | | | 213,597 | | | $ | 4.15 | |
| A summary of the Company’s non-vested options granted to employees is presented below: |
| | Year ended December 31 | | | | 2023 | | | 2022 | | | | Number of options | | | Weighted average exercise price | | | Number of options | | | Weighted average exercise price | | Outstanding at Beginning of year | | | 597,453 | | | $ | 3.51 | | | | 5,438 | | | $ | 10.7 | | Granted | | | 22,000 | | | $ | 1.23 | | | | 800,937 | | | $ | 3.25 | | Vested | | | (204,978 | ) | | $ | 3.46 | | | | (199,297 | ) | | $ | 3.94 | | Canceled and forfeited | | | (9,275 | ) | | $ | 3.68 | | | | (9,625 | ) | | $ | 3.79 | | Non-vested as of December 31, 2023 | | | 405,200 | | | $ | 3.20 | | | | 597,453 | | | $ | 3.51 | |
| As of December 31, 2023, there was $539 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 2.66 years. | | | | The following table summarizes the allocation of the stock-based compensation: |
The weighted average fair value of options granted during the year ended December 31, 2018 was $1.87 per option.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 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 | | | | - | | 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.
| | Year ended December 31, | | | | 2023 | | | 2022 | | Cost of revenues | | $ | 13 | | | $ | 17 | | Research and development expenses | | | 95 | | | | 67 | | Selling and marketing expenses | | | 7 | | | | 7 | | General and administrative expenses | | | 128 | | | | 47 | | | | | | | | | | | | | $ | 243 | | | $ | 138 | |
SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
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:
|
During 2019, the Company issued 348,132 warrants to purchase the Company ordinary shares at an exercise price of $0.76 per share, no warrants were issued during the year 2018.
| e.
| Dividends:
The options outstanding and exercisable as of December 31, 2023, have been separated into ranges of exercise prices as follows: |
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.
Options outstanding | | | Options Exercisable | | Number outstanding | | | Weighted average remaining contractual life (years) | | | Exercise price | | | Aggregate intrinsic value | | | Number outstanding | | | Weighted average remaining contractual life (years) | | | Aggregate intrinsic value | | | 8,188 | | | | 5.26 | | | $ | 1.00 | | | $ | - | | | | 8,188 | | | | 5.26 | | | $ | - | | | 16,350 | | | | 7.32 | | | $ | 1.23 | | | $ | - | | | | 2,700 | | | | 6.55 | | | $ | - | | | 763,000 | | | | 5.68 | | | $ | 3.25 | | | $ | - | | | | 373,500 | | | | 5.66 | | | $ | - | | | 25,387 | | | | 5.22 | | | $ | 7.50 | | | $ | - | | | | 23,337 | | | | 5.16 | | | $ | - | | | 9,250 | | | | 5.07 | | | $ | 20.00 | | | $ | - | | | | 9,250 | | | | 5.07 | | | $ | - | | | 822,175 | | | | | | | | | | | $ | - | | | | 416,975 | | | | | | | $ | - | |
| The total intrinsic value of options exercised for the years ended December 31, 2023 and 2022 was $1 and $7, respectively. |
| SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
NOTE 12:
| RELATED PARTY TRANSACTIONS
|
NOTE 14: | a.
SHARE CAPITAL (Cont.) |
| On July 25, 2010, the board of directors
h. | Warrants: Each of the Company's warrants entitles the holder to exercise such warrant for one ordinary share and does not confer upon such holder any rights as an ordinary shareholder until such holder exercises such holder’s warrants and acquires the Ordinary Shares. All Company elected Mrs. Tsviya Trabelsi to servewarrants outstanding as Chairman. Mrs. Trabelsi isof December 31, 2023 are classified as a component of shareholders’ equity because such warrants are free standing financial instruments that are legally detachable, separately exercisable, do not embody an officer at Sigma Wave Ltd., which is the controlling shareholder ofobligation for the Company to repurchase its own shares, and is alsopermit 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 willholders to receive a monthly fee equalfixed number of Ordinary Shares upon exercise, requires physical settlement and do not provide any guarantee of value or return. The following table contains additional information concerning warrants activity for the years 2023 and 2022: |
| | Year ended December 31 | | | | 2023 | | | 2022 | | | | Number of warrants | | | Weighted average exercise price | | | Number of warrants | | | Weighted average exercise price | | Outstanding at Beginning of year | | | 901,869 | | | $ | 10.06 | | | | 247,000 | | | $ | 17.07 | | Issued | | | 9,505,820 | | | $ | 0.5 | | | | 1,219,738 | | | $ | 4.96 | | Exercised | | | 654,869 | | | $ | 3.20 | | | | 564,869 | | | $ | 3.08 | | Expired | | | - | | | $ | - | | | | - | | | $ | - | | Outstanding at end of year | | | 9,752,830 | | | $ | 0.91 | | | | 901,869 | | | $ | 10.06 | |
| Set forth below is data regarding the range of exercise prices and expiration date for warrants outstanding at December 31, 2023: |
Exercise Price | | | Number of warrants Outstanding | | | Exercisable until | | $ | 18.70 | | | | 2,500 | | | | 2025 | | $ | 7.50 | | | | 7,500 | | | | 2026 | | $ | 17.07 | | | | 237,000 | | | | 2027 | | $ | 0.50 | | | | 9,505,820 | | | | 2029 | | | | | | | 9,752,820 | | | | | |
| i. | 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 60% ofdistribute cash dividends in 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.foreseeable future. |
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 15: | b. RELATED PARTY TRANSACTIONS |
| a. | Mr. Trabelsi has served as the chief executive officer of the Company since June 1, 2012.2012 until February 21, 2022. 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. b. | As of December 31, 20202023 and 2019,2022, the Company accrued $391$86 and $305,$86, respectively as expenses arising from related party management services. |
| d. c. | On April 29, 2012, the boardBoard of directorsDirectors approved the recording of a floating charge on all of the Company’s assets in favor of the chairman of the boardMr. and the CEO,Mrs. Trabelsi, 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 31,2020,31,2023, total loans were $1,358.$100. 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: 16: | 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. The company operates in three technologies segments or Strategic business units; e-Gov, IoT, and Cyber Security: 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. IoT: The Company’s IoT products and solutions reliably identify, track and monitor people or objects in real time, enabling the customers to detect unauthorized movement of people, vehicles and other monitored objects. The Company provides all-in-one field proven IoT suite, accompanied with services specifically tailored to meet the requirements of an IoT solutions. The Company’s proprietary IoT suite of hybrid hardware, connectivity and software components are the foundation of these solutions and services. 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. |
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.
IoT: The Company’s IoT products and solutions reliably identify, track and monitor people or objects in real time, enabling the customers to detect unauthorized movement of people, vehicles and other monitored objects. The Company provides all-in-one field proven IoT suite, accompanied with services specifically tailored to meet the requirements of an IoT solutions. The Company’s proprietary IoT suite of hybrid hardware, connectivity and software components are the foundation of these solutions and services.
SUPERCOM LTD. AND SUBSIDIARIES | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) | U.S. dollars in thousands (except per share data) |
NOTE 13:16:
| 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 | | | Year ended December 31, 2023 | | | | Cyber Security | | IoT | | e-Gov | | Total | | | Cyber Security | | IoT | | e-Gov | | Total | | Revenues | | | 2,203 | | | | 7,656 | | | | 1,911 | | | | 11.770 | | | $ | 1,260 | | | $ | 23,766 | | | $ | 1,544 | | | $ | 26,570 | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating loss | | | 581 | | | | (1,373 | ) | | | (2,957 | ) | | | (3,749 | ) | | Operating Income (Loss) | | | | 524 | | | | (99 | ) | | | (3,676 | ) | | | (3,359 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Goodwill | | | 1,075 | | | | 2,229 | | | | 3,722 | | | | 7,026 | | | | 1,075 | | | | 2,229 | | | | 3,722 | | | | 7,026 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Property and Equipment, net | | | 109 | | | | 1,016 | | | | 246 | | | | 1,371 | | | $ | 8 | | | $ | 2,519 | | | $ | 174 | | | $ | 2,701 | |
| | 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 | |
F - 29 | | Year ended December 31, 2022 | | | | Cyber Security | | | IoT | | | e-Gov | | | Total | | Revenues | | $ | 1,384 | | | $ | 15,628 | | | $ | 637 | | | $ | 17,649 | | | | | | | | | | | | | | | | | | | Operating loss | | | 680 | | | | (3,993 | ) | | | (2,692 | ) | | | (6,005 | ) | | | | | | | | | | | | | | | | | | Goodwill | | | 1,075 | | | | 2,229 | | | | 3,722 | | | | 7,026 | | | | | | | | | | | | | | | | | | | Total Property and Equipment, net | | $ | 30 | | | $ | 1,590 | | | $ | 50 | | | $ | 1,640 | |
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.)
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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, | | | | 2023 | | | 2022 | | Operating loss | | | | | | | Total operating loss of reportable segments | | $ | (3,359 | ) | | $ | (6,005 | ) | Financial expenses, net | | | (663 | ) | | | (1,751 | ) | Loss before income taxes | | $ | (4,022 | ) | | $ | (7,756 | ) |
| | 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 | ) |
F - 34
| SUPERCOM LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | U.S. dollars in thousands (except per share data) |
NOTE 16: | SEGMENTS, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.) |
| b. | Summary information about geographic areas:The following is a summary of revenues from external customers of the continued operations within geographic areas and data regarding property and equipment, net: |
The following is a summary of revenues from external customers of the continued operations within geographic areas and data regarding property and equipment, net:
| | Year ended December 31, | | | | | 2020 | | | 2019 | | | Year ended December 31, | | | | Total Revenues | | | Property and Equipment, net | | | Total revenues | | | Property and Equipment, net | | | 2023 | | | 2022 | | | | Total Revenues | | | Property and Equipment, net | | | Total revenues | | | Property and Equipment, net | | | | $ | | $ | | $ | | $ | | | | | | | | | | Africa | | | 1,791 | | | | - | | | | 1,468 | | | | - | | | $ | 1,455 | | | $ | - | | | $ | 374 | | | $ | - | | European countries | | | 3,037 | | | | - | | | | 3,948 | | | | - | | | | 17,673 | | | | - | | | | 9,559 | | | | - | | South America | | | 21 | | | | - | | | | 30 | | | | - | | | | 12 | | | | - | | | | - | | | | - | | United States | | | 5,856 | | | | 89 | | | | 9,059 | | | | 147 | | | | 6,766 | | | | 21 | | | | 6,877 | | | | 38 | | Israel | | | 746 | | | | 1,282 | | | | 1,401 | | | | 747 | | | | 585 | | | | 2,680 | | | | 693 | | | | 1,602 | | APAC | | | 319 | | | | - | | | | 569 | | | | - | | | | 79 | | | | - | | | | 146 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,770 | | | | 1,371 | | | | 16,475 | | | | 894 | | | $ | 26,570 | | | $ | 2,701 | | | $ | 17,649 | | | $ | 1,640 | |
| - | 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 | | | Year ended December 31, | | | | $ | | | $ | | | 2023 | | 2022 | | Raw materials and equipment | | | 2,926 | | | | 4,225 | | | $ | 2,841 | | | $ | 302 | | Electronic monitoring | | 6,019 | | | 7,110 | | | 17,819 | | | 11,614 | | Treatment programs | | | 1,640 | | | | 2,731 | | | | 4,538 | | | | 3,998 | | Maintenance, royalties and project management | | | 1,185 | | | | 2,409 | | | | 1,372 | | | | 1,735 | | | | | | | | | | | | | | | | | | | | | | 11,770 | | | | 16,475 | | | $ | 26,570 | | | $ | 17,649 | |
| d. | Major customer data as a percentage of total sales: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | Customer A | | | 50 | % | | | 36 | % | Customer B | | | 9 | % | | | - | | | | | 59 | % | | | 36 | % |
| | 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 17: | OTHER EXPENSE, NET |
| | Year ended December 31, | | | | 2023 | | | 2022 | | Credit losses | | $ | 1,457 | | | $ | 1,000 | | Other | | | 1,355 | | | | 138 | | Total other expense, net | | $ | 2,812 | | | $ | 1,138 | |
| Credit losses provision The following is a summary of the accounts receivables allowance for credit losses for the years ended December 31: |
| | Year ended December 31, | | | | 2023 | | | 2022 | | Balance at beginning of period | | $ | 12,667 | | | $ | 11,667 | | Provision during the period | | | 1,457 | | | | 1,000 | | Balance at end of period | | $ | 14,124 | | | $ | 12,667 | |
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 | |
Bad debt
The following is a summary of the accounts receivables allowance for doubtful accounts for the years ended December 31:
| | 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 15:18: | FINANCIAL EXPENSES, NET |
| | Year ended December 31, | | | | 2023 | | | 2022 | | Interest, bank charges and fees | | $ | (2,512 | ) | | $ | (1,770 | ) | Change in Fair value of derivative warrants liabilities | | | 2,313 | | | | - | | Exchange differences, net | | | (464 | ) | | | 19 | | Total financial expenses, net | | $ | (663 | ) | | $ | (1,751 | ) |
| | 2020 | | | 2019 | | | | $ | | | $ | | Financial expenses: | | | | | | | | | | | | | | | | | | Interest, bank charges and fees | | | | ) | | | (1,946 | ) | Exchange differences, net | | | (316 | ) | | | (1,531 | ) | | | | | | | | | | Total financial expenses | | | | ) | | | (3,477 | ) | Financial income: | | | | | | | | | Interest income | | | 15 | | | | 188 | | | | | | | | | | | Total financial income | | | 15 | | | | 188 | | | | | | | | | | | Total financial expenses, net | | | (4,113 | ) | | | (3,289 | ) |
SUPERCOM LTD. AND SUBSIDIARIESNOTE 19: | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.SUBSEQUENT EVENTS. On January 8, 2024, 940,000 prefunded warrants were converted into ordinary shares. On January 19, 2024, the Company issued to Sabby Volatility Warrant Master Fund, Ltd. (“Sabby”) | U.S. dollars in thousands (except 1,475,142 of the Company’s ordinary shares (the “Shares”), par value NIS 2.5 per share data) |
(the “Ordinary Shares”), 4,250,000 two-year warrants to purchase Ordinary Shares with an exercise price of $0.45 per share (the “Warrants”), and 5,524,858 pre-funded warrants to purchase Ordinary Shares with an exercise price of $0.00001 per share (the “Pre-Funded Warrants” and collectively with the Shares, the Warrants and the Ordinary Shares underlying the Warrants and the Pre-Funded Warrants, the “Securities”) pursuant to an agreement with Sabby to fully settle the actions between the parties, which were pending in the Supreme Court of New York, New York County.
NOTE 16: | Subsequent Events |
| b. | In February 2021,On April 19, 2024, the Company securedraised approximately $2.9 million in gross proceeds in a registered direct offering with a single accredited institutional investor through the issuancesale of a new subordinated note, additional gross proceedsan aggregate of $7,000. For the consideration 2,873,885of $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, subjectand 5,242,270 pre-funded warrants to certain conditions being met.purchase ordinary shares with an exercise price of $0.00001 per share, and concurrent private placement to such Purchaser of the Company’s private warrants to purchase an aggregate of 8,116,155 of its ordinary shares at an exercise price of $0.38 per share.
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SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | SUPERCOM LTD. | | | | | | | By: | /s/ Ordan Trabelsi | | | Name: | | | | Title: | Chief Executive Officer | |
Dated: April 30, 202122, 2024 85 78
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