SuperCom (SPCB) 6-K Current report (foreign)

 

SUPERCOM LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2014

(Unaudited)

SUPERCOM LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2014

(Unaudited)

IN U.S. DOLLARS

INDEX

	Page
Interim Consolidated Balance Sheets	3
Interim Consolidated Statements of Operations	4
Interim Statements of Changes in Shareholders' equity	5
Interim Consolidated Statements of Cash Flows	6 – 7
Notes to Interim Consolidated Financial Statements	8 – 9

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SUPERCOM LTD.

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

	June 30,			December 31,
	2014			2013
	Unaudited			Audited
CURRENT ASSETS
Cash and cash equivalents		2,059			2,673
Restricted bank deposits		563			85
Trade receivable, net		10,430			3,096
Deferred tax short term		1,480			2,183
Other accounts receivable and prepaid expenses		1,999			3,365
Inventories, net		1,049			707
Total current assets		17,580			12,109
LONG-TERM ASSETS
Severance pay funds		349			294
Deferred tax long term		4,633			3,930
Customer Contracts		7,620			8,100
Software and other IP		5,900			6,210
Goodwill		889			889
Property and equipment, net		317			176
Total assets		37,288			31,708
CURRENT LIABILITIES
Short-term bank credit		26			1
Trade payables		2,470			1,689
Employees and payroll accruals		961			419
Related parties		404			434
Accrued expenses and other liabilities		1,999			3,636
Short-term liability for future earn-out		1,748			1,978
Total current liabilities		7,608			8,157
LONG-TERM LIABILITIES
Long-term liability for future earn-out		3,760			3,760
Accrued severance pay		567			399
Total long-term liabilities		4,327			4,159
SHAREHOLDERS' EQUITY:
Ordinary shares		934			904
Additional paid-in capital		58,011			55,530
Accumulated deficit		(33,592	)		(37,042	)
Total shareholders' equity		25,353			19,392
Total Liabilities and Shareholders' Equity		37,288			31,708

3

SUPERCOM LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

	Six months ended June 30
	2014			2013
REVENUES		12,364			3,903
COST OF REVENUES		(2,696	)		(541	)
GROSS PROFIT		9,668			3,362
OPERATING EXPENSES
Research and development, net		1,802			349
Sales and marketing		3,222			1,410
General and administration		1,094			435
Total operating expenses		6,118			2,194
OPERATING INCOME		3,550			1,168
FINANCIAL EXPENSES, NET		100			42
INCOME BEFORE INCOME TAX		3,450			1,126
INCOME TAX BENEFIT		-			3,001
NET INCOME		3,450			4,127
NET INCOME PER SHARE
Basic		0.26			0.47
Diluted		0.26			0.43
Weighted average number of ordinary shares used in computing basic income per share		13,391,037			8,740,001
Weighted average number of ordinary shares used in computing diluted income per share		13,471,288			9,553,082

4

SUPERCOM LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(U.S. dollars in thousands, except share data)

	Ordinary shares
	Number of Shares		Share capital		Additional paid-in capital		Amount of liability extinguished on account of shares			Accumulated deficit			Total shareholders' equity
Balance as of December 31, 2012		8,651,703		574		43,518		127			(43,508	)		711
Changes during the six months ended June 30, 2013 (unaudited):
Shares issued in connection with extinguishments of liabilities		429,600		29		98		(127	)		-			-
Net income		-		-		-		-			4,127			4,127
Balance as of June 30, 2013		9,081,303		603		43,616		-			(39,381	)		4,838
Balance as of December 31, 2013		13,284,144		904		55,530		-			(37,042	)		19,392
Changes during the six months ended June 30, 2014 (unaudited):
Exercise of options and issuance of restricted  share capital, net of issuance costs		414,911		30		2,464		-			-			2,494
Stock- based compensation		-		-		17		-			-			17
Net income		-		-		-		-			3,450			3,450
Balance as of June 30, 2014		13,699,055		934		58,011		-			(33,592	)		25,353

5

SUPERCOM LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

(U.S. dollars in thousands)

	Six months ended June 30
	2014			2013
Cash flows from operating activities:
Net income		3,450			4,127
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		817			21
Accrued severance pay		168			20
Stock-based compensation		17			-
Deferred tax		-			(3,010	)
Increase in trade receivables, net		(7,334	)		(860	)
Decrease (increase) in other accounts receivable and prepaid expenses		1,366			(361	)
Increase in inventories, net		(342	)		(49	)
Increase (decrease) in trade payables		781			(4	)
Increase in employees and payroll accruals		542			186
Increase (decrease ) in accrued expenses and other liabilities		(1,667	)		176
Net cash provided by (used in) operating activities		(2,202	)		246
Cash flows from investing activities:
Purchase of property and equipment		(168	)		(76	)
Decrease in severance pay fund		(55	)		(7	)
Liability for future earn-out		(230	)		-
Restricted bank deposits, net		(478	)		-
Net cash used in investing activities		(931	)		(83	)
Cash flows from financing activities:
Short-term bank credit, net		25			(20	)
Proceeds from issuance of  restricted share capital, net of issuance costs		2,449			-
Proceeds from exercise of options, net		45			-
Net cash (used in) provided by financing activities		2,519			(20	)
Increase (decrease) in cash and cash equivalents		(614	)		143
Cash and cash equivalents at the beginning of the year		2,673			225
Cash and cash equivalents at the end of the year		2,059			368

6

SUPERCOM LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

(U.S. dollars in thousands)

	Six months
	Ended June 30,
	2014			2013
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest		-	*		-	*
Income taxes, net		-			9

*Less than $1.

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SUPERCOM LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: GENERAL

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 private and public organizations. The Company provides cutting edge real-time positioning, tracking, monitoring and verification solutions enabled by its PureRF wireless hybrid 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"). The Company sells its products through sales offices in the U.S, Tanzania, Panama, Ecuador and Israel.

On December 26, 2013 the Company acquired the SmartID Division of On Track Innovations Ltd. (NASDAQ: OTIV) (“OTI”), consisting of customer contracts, software, other related technologies and IP assets. The Company paid OTI $8.8 million ($10 million less certain price adjustments) at the closing and agreed to make contingent payments of up to $12.5 million pursuant to an earn-out mechanism based on certain performance and other milestones. The SmartID Division has a strong international presence, with a broad range of competitive and well-known e-ID solutions and technology. The acquisition significantly expanded the breadth of the Company’s e-ID capabilities globally, while providing it with market and technological experts, together with its ID software platforms and technologies.

NOTE 2: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Financial Statement 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, 2014 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, 2013.

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.

8

SUPERCOM LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

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, 2013 and the accompanying notes.

NOTE 3: COMMITMENTS AND CONTINGENT LIABILITIES – LITIGIATION

1. According to a success based consulting agreement from November 29, 2009, Periscope Finance Ltd. (“Periscope”), committed to assist the Company in finding an investor, With the following payments terms: (i) for any investment of up to $2 million, an amount equal to 6% of the investment amount and (ii) options for 3% of the Company’s share capital. (iii) for any amount over $2 million, an additional $25 for any $1 million and an additional options for 1% of the Company’s share capital. Periscope claims that they are responsible for an investment by Sigma Wave, the Company’s current controlling shareholder. The Company believes that Periscope is not entitled to any payment, since the agreement with Periscope was never approved by the Company’s authorized organs and since the acquisition of the Company’s convertible bond from a bondholder by Sigma Wave was not "an investment in the company" (the Company was not part of the transaction). In addition, the Company position is that even if the agreement was enforceable, it terminated prior to November 28, 2010, and as such the Sigma transaction (not an investment), occurred after the term of the agreement with Periscope terminated.  In April, 2013, Periscope proposed a settlement agreement, which was presented at the Company’s general assembly for approval but this agreement was rejected by the general assembly in its annual meeting on May 9, 2013. Both parties agreed to go into a mediation process, which was ended with no agreement between the parties. In August 2014, Periscope proposed a new settlement agreement, which is currently under evaluation.

2. As part of the acquisition of the SmartID division of OTI in December 2013, 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.

9

SUPERCOM LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OPERATIONS

Our revenues for the six months ended June 2014, increased by $8.5 million or 217%, to $12.4 million compare to $4 million for the six months period ended June 30, 2013. The increase in our revenues in the first half of 2014, was attributed mainly to the strength of our relationships with current and new customers which are represented by both the our ongoing contracts ,transferred contracts from OTI, as well as new orders that we have secured during this period, some of them very significant, providing us with revenue streams well beyond what we had in 2013 and by realizing the anticipated benefits of the acquisition of the Smart ID Division in December 2013.

The gross profit margin decreased from 86% in the first half of 2013 to 78% in the first half of 2014. The decrease in gross profit margin is attributable to new contracts received in the first half of 2014, which represent a different mix of revenue, with a lower gross profit margin in comparison to ongoing recurring revenue, which represent most of the revenue generated in the first half of 2013.

Our operating expenses increased in first six months of 2014 to $6.1 million from $2.2 million in first six months of 2013, an increase of 177%. This increase in operating expenses in the first half of 2014, was primarily due to an increase of: (i) $1.5 million aroused from R&D capitalization cost released from previous years and increase in additional R&D investments, and (ii) $0.8 million in salaries and expenses related to the increase of our S&M department, as part of the acquisition of the SmartID division of OTI.

We had financial expenses, net of $100,000 in first half of 2014 compared to, net of $45,000 in 2013. Financial expenses consist primarily of guaranties cost related to new contracts received, bank fees and exchange rate expenses. In 2013 we did not received any new contracts.

We recorded an income tax benefit of $3 million for the first half of 2013. These benefit resulted from tax loss carry forwards that we estimated that we will be able to offset against current and future taxable income. In the first half of 2014, we did not recognize any additional tax asset, However, we still have remaining NOLs and during the coming quarters we will reevaluate our profitability expectations and as a result, our tax benefit realization going forward.

As a result of the factors described above, ourNet income before Income tax in first half of 2014 was $3.5 million, compared to net income of $1.1 million in first half of 2013, an increase of 218%.

OurNet Income in First Half of 2014 was $3.5 million compare with $4.1 million in the first six months of 2013.

10

SUPERCOM LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Liquidity

Net cash used in operating activities for the first six months of 2014, was $2.2 million , compared to net cash provided by operating activities of $0.2 million during the first six months period of 2013, a decrease of $2.4 million. This decrease was primarily, due to the significant increase of $7 million in our trade receivables balance, as of the end of the first half of 2014, reflecting the significant growth in revenues in this period. Since the end of the second quarter of 2014, we had collected the majority of June 30^th receivables balance.

Net cash used by investing activities during the first half of 2014 was $1 million, compared to $0.1 million used during the first six months of 2013. This increase was primarily due to earn-out payments of $0.23 million according to the acquisition agreement of the SmartID division of OTI and from an increase of $0.5 million in our restricted bank deposits related to bank guaranties toward transferred contract from OTI as part of the SmartID division acquisition.

Net cash provided by financing activities during the first six months of 2014 was $2.5 million reflecting proceeds received in this period from issuance of restricted share capital and exercise of options.

As of Today, Our Cash and cash equivalents balance is increased by $3.9 million, to$6 million, compared to $2.1 million as of the end of the second quarter of 2014.

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