Exhibit 1
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2019
(Unaudited)
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2019
(Unaudited)
IN U.S. DOLLARS
INDEX
- - - - - - - - - - - - - - - - - - - - -
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATEDBALANCE SHEETS
(U.S. dollars in thousands)
| | | June 30, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | Unaudited | | | Audited | |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | | | 1,492 | | | | 1,639 | |
| Restricted bank deposits | | | 1,699 | | | | 1,162 | |
| Trade receivable, net | | | 17,508 | | | | 13,460 | |
| Other accounts receivable and prepaid expenses | | | 1,307 | | | | 951 | |
| Inventories, net (Note 3) | | | 3,201 | | | | 3,169 | |
| Patents | | | 5,283 | | | | 5,283 | |
| Total current assets | | | 30,490 | | | | 25,664 | |
| | | | | | | | | |
| LONG-TERM ASSETS | | | | | | | | |
| Severance pay funds | | | 375 | | | | 361 | |
| Deferred tax long term | | | 437 | | | | 385 | |
| Property and equipment, net | | | 859 | | | | 843 | |
| Other Intangible assets, net (Note 4) | | | 9,558 | | | | 10,070 | |
| Other non-current asset | | | 10 | | | | - | |
| Goodwill | | | 7,026 | | | | 7,026 | |
| Total non-current assets | | | 18,265 | | | | 18,685 | |
| | | | | | | | | |
| Total assets | | | 48,755 | | | | 44,349 | |
| | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Trade payables | | | 3,425 | | | | 3,488 | |
| Employees and payroll accruals | | | 3,150 | | | | 2,773 | |
| Related parties | | | 198 | | | | 171 | |
| Accrued expenses and other liabilities | | | 4,048 | | | | 4,475 | |
| Deferred revenue | | | 1,455 | | | | 1,665 | |
| Short-term liability for future earn-out | | | 351 | | | | 971 | |
| Total current liabilities | | | 12,627 | | | | 13,543 | |
| | | | | | | | | |
| LONG-TERM LIABILITIES | | | | | | | | |
| Long-term loan | | | 13,526 | | | | 9,624 | |
| Related parties | | | 1,655 | | | | 165 | |
| Deferred revenue | | | 748 | | | | 836 | |
| Long-term liability for future earn-out | | | 46 | | | | 46 | |
| Accrued severance pay | | | 549 | | | | 585 | |
| Total non-current liabilities | | | 16,524 | | | | 11,256 | |
| | | | | | | | | |
| SHAREHOLDERS' EQUITY: | | | | | | | | |
| Ordinary shares | | | 1,110 | | | | 1,110 | |
| Additional paid-in capital | | | 84,575 | | | | 84,399 | |
| Accumulated deficit | | | (66,082 | ) | | | (65,959 | ) |
| Total shareholders' equity | | | 19,604 | | | | 19,550 | |
| | | | | | | | | |
| Total Liabilities and Shareholders' Equity | | | 48,755 | | | | 44,349 | |
The accompanying notes are an integral part of these interim consolidated financial statements.
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATEDSTATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
| | | Six months ended June 30 | |
| | | 2019 | | | 2018 | |
| | | Unaudited | | | Unaudited | |
| REVENUES | | | 11,339 | | | | 13,775 | |
| | | | | | | | | |
| COST OF REVENUES | | | 5,004 | | | | 6,054 | |
| | | | | | | | | |
| GROSS PROFIT | | | 6,335 | | | | 7,721 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Research and development, net | | | 1,818 | | | | 2,544 | |
| Sales and marketing | | | 1,791 | | | | 3,182 | |
| General and administration | | | 2,015 | | | | 2,602 | |
| Other expenses (income) | | | 1 | | | | 183 | |
| Total operating expenses | | | 5,625 | | | | 8,511 | |
| | | | | | | | | |
| OPERATING (LOSS) INCOME | | | 710 | | | | (790 | ) |
| | | | | | | | | |
| FINANCIAL EXPENSES (INCOME), NET | | | 910 | | | | (278 | ) |
| | | | | | | | | |
| LOSS BEFORE INCOME TAX | | | (200 | ) | | | (512 | ) |
| | | | | | | | | |
| INCOME TAX BENEFIT | | | 78 | | | | 225 | |
| | | | | | | | | |
| NET LOSS FOR THE PERIOD | | | (122 | ) | | | (287 | ) |
| | | | | | | | | |
| NET LOSS PER SHARE | | | | | | | | |
| | | | | | | | | |
| Basic | | | (0.01 | ) | | | (0.02 | ) |
| | | | | | | | | |
| Diluted | | | (0.01 | ) | | | (0.02 | ) |
| | | | | | | | | |
| Weighted average number of ordinary shares used in computing basic net loss per share | | | 16,141,286 | | | | 14,958,339 | |
| | | | | | | | | |
| Weighted average number of ordinary shares used in computing diluted net loss per share | | | 16,141,286 | | | | 14,958,339 | |
The accompanying notes are an integral part of these interim consolidated financial statements.
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except share data)
| | | Ordinary shares | | | Additional | | | | | | Total | |
| | | Number of
Shares | | | Share
capital | | | paid-in
capital | | | Accumulated
deficit | | | shareholders'
equity | |
| Balance as of December 31, 2017 | | | 14,958,339 | | | | 1,026 | | | | 82,157 | | | | (50,476 | ) | | | 32,707 | |
| Changes during the six months ended June 30, 2018 (unaudited): | | | | | | | | | | | | | | | | | | | | |
| Stock- based compensation | | | - | | | | - | | | | 117 | | | | - | | | | 117 | |
| Net loss | | | - | | | | - | | | | - | | | | (287 | ) | | | (287 | ) |
| Balance as of June 30, 2018 (unaudited) | | | 14,958,339 | | | | 1,026 | | | | 82,274 | | | | (50,763 | ) | | | 32,537 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2018 | | | 16,126,237 | | | | 1,110 | | | | 84,399 | | | | (65,959 | ) | | | 19,550 | |
| Changes during the six months ended June 30, 2019 (unaudited): | | | | | | | | | | | | | | | | | | | | |
| Exercise of option | | | 35,145 | | | | - | | | | 17 | | | | - | | | | 17 | |
| Stock- based compensation | | | - | | | | - | | | | 159 | | | | - | | | | 159 | |
| Net loss | | | - | | | | - | | | | - | | | | (122 | ) | | | (122 | ) |
| Balance as of June 30, 2019 (unaudited) | | | 16,161,382 | | | | 1,110 | | | | 84,575 | | | | (66,081 | ) | | | 19,604 | |
The accompanying notes are an integral part of these interim consolidated financial statements.
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATEDSTATEMENTS OF CASH FLOW
(U.S. dollars in thousands)
| | | Six months ended June 30 | |
| | | 2019 | | | 2018 | |
| | | Unaudited | | | Unaudited | |
| Cash flows from operating activities: | | | | | | | | |
| | | | | | | | | |
| Net loss | | | (122 | ) | | | (287 | ) |
| | | | | | | | | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 1,020 | | | | 1,961 | |
| Stock-based compensation | | | 159 | | | | 117 | |
| Increase in deferred tax | | | (52 | ) | | | (96 | ) |
| Increase in trade receivables, net | | | (4,048 | ) | | | (3,177 | ) |
| Decrease (Increase) in other accounts receivable and prepaid expenses | | | (355 | ) | | | 2,167 | |
| Increase in inventories, net | | | (32 | ) | | | (13 | ) |
| Increase in other non-current assets | | | (10 | ) | | | (28 | ) |
| Increase (decrease) in trade payables | | | (64 | ) | | | (1,543 | ) |
| Increase in employees and payroll accruals | | | 377 | | | | 261 | |
| Increase (decrease) in accrued severance pay | | | (36 | ) | | | (27 | ) |
| Increase in accrued expenses and other liabilities, related parties and liability for earn-out | | | (1,258 | ) | | | 566 | |
| Net cash used in operating activities | | | (4,421 | ) | | | (99 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (74 | ) | | | (95 | ) |
| Purchase of Intangible assets | | | - | | | | (21 | ) |
| Decrease (Increase) in severance pay fund | | | (14 | ) | | | 16 | |
| Capitalization of software development costs | | | (450 | ) | | | (724 | ) |
| Net cash provided by (used in) investing activities | | | (538 | ) | | | *(824 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Short-term bank loan, net | | | - | | | | 375 | |
| Proceeds from exercise of options and warrants, net | | | 17 | | | | - | |
| Long-term debt, net | | | 3,902 | | | | - | |
| Related parties | | | 1,490 | | | | 1,778 | |
| Liability for future earn-out | | | (60 | ) | | | (96 | ) |
| Net cash provided by (used in) financing activities | | | 5,349 | | | | 2,057 | |
| | | | | | | | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | | | 390 | | | | *1,134 | |
| Cash, cash equivalents and restricted cash at the beginning of the year | | | 2,801 | | | | *2,100 | |
| | | | | | | | | |
| Cash, cash equivalents and restricted cash at the end of the period | | | 3,191 | | | | *3,234 | |
(*) See note 2(x) Reclassification under 2018 annual financials
The accompanying notes are an integral part of these interim consolidated financial statements.
SUPERCOM LTD
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
| a. | SuperCom Ltd. (the “Company”) is an Israeli resident company organized in 1988 in Israel. On January 24, 2013 the Company changed its name back to SuperCom Ltd, its original name, from Vuance Ltd. On September 12, 2013, the Company’s ordinary shares were approved for listing on the NASDAQ Capital Market and began trading under the ticker symbol “SPCB” on September 17, 2013. Previously, the Company’s ordinary shares traded on the OTCQB® electronic quotation service. |
The Company is a global provider of traditional and digital identity solutions, providing advanced safety, identification, tracking and security products to governments and organizations, both private and public, throughout the world. The Company provides cutting edge real-time positioning, tracking, monitoring and verification solutions enabled by its RFID &Mobile pure security advanced solutions suite of products and technologies, all connected to a web-based, secure, proprietary, interactive and user-friendly interface. The Company offers a wide range of solutions including, national ID registries, e-passports, biometric visas, automated fingerprint identification systems, digitized driver’s licenses, and electronic voter registration and election management using the common platform (“MAGNA”).
On January 1, 2016, the Company acquired Leaders in Community Alternatives, Inc., or LCA, a U.S. based company, including all contracts, software, other related technologies and IP assets. The Company paid approximately $2,900 at the closing and committed to certain contingent earn-out payments over the next three years that are structured as a single digit percentage of annual revenues in excess of standalone LCA management revenue projections. LCA is a California based, private criminal justice organization, providing community-based services and electronic monitoring programs to government agencies in the U.S. for more than 24 years. LCA offers a broad range of competitive solutions for governmental institutions across the U.S. in addressing realignment strategies and plans.
In addition to LCA, during the first half of 2016 the Company acquired Safend Ltd., Alvarion Technologies Ltd. and the assets and IP of PowaPOS. For additional information refer to Note 5. 2018 Annual Financial Report.
As of December 31, 2019, the Company’s principal activities were conducted mainly through SuperCom Ltd, Alvarion Ltd, Prevision Ltd, Safend Ltd, SuperCom Inc. and LCA Inc.
| c. | Concentration of risk that may have a significant impact on the Company: |
In the first half of year 2019, the Company derived 14% of its total revenue from 1 major customers.
In the first half of year 2018, the Company derived 23% of its total revenue from 3 major customers.
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.
| NOTE 2: | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
FinancialStatement preparation
These unaudited interim consolidated financial statements of the Company and its subsidiaries (collectively referred to in its report as "Company"), as of June 30, 2019 and for the six months then ended have been prepared, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). They do not include all information and notes required by U.S. GAAP in the preparation of annual consolidated financial statements.
The accounting policies used in the preparation of the unaudited interim consolidated financial statements is the same as those described in the Company's audited consolidated financial statements prepared in accordance with U.S. GAAP for the year ended December 31, 2018.
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated interim Financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
The Company believes all adjustments necessary for a fair statement of the results for the period presented have been made and all such adjustments were of a normal recurring nature unless otherwise disclosed. The financial results for the period are not necessarily indicative of financial results for the full year.
These financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2018 and the accompanying notes. There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2018 included in the 2018 Form 20-F.
| | | June 30, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | $ | | | $ | |
| Raw materials, parts and supplies | | | 1,060 | | | | 1,105 | |
| Finished products | | | 2,141 | | | | 2,064 | |
| | | | | | | | | |
| | | | 3,201 | | | | 3,169 | |
As of June 30, 2019 and December 31, 2018, inventory is presented net of write offs for slow inventory in the amount of approximately $1,527 and $1,527, respectively.
| NOTE 4: | OTHER INTANGIBLE ASSETS, NET |
| | | June 30, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | $ | | | $ | |
| Customer relationship & Other | | | 2,221 | | | | 2,617 | |
| IP & Technology | | | 3,892 | | | | 4,265 | |
| Capitalized software development costs | | | 3,445 | | | | 3,188 | |
| | | | | | | | | |
| | | | 9,558 | | | | 10,070 | |
| NOTE 5: | COMMITMENTS AND CONTINGENT LIABILITIES – LITIGIATION |
As part of the acquisition of the SmartID division of OTI, the Company assumed a dispute with Merwell Inc. (“Merwell”). Merwell has alleged that it has not received the full payment it is entitled to for its services in respect of a drivers’ license project. OTI alleged that Merwell breached its commitments under the service agreement and also acted in concert with third parties to damage OTI’s business activities. This matter is now subject to an arbitration proceeding. An appropriate provision is included in the financial statements. An appropriate provision is included in the financial statements
