| GENERAL | NOTE 1:
GENERAL
a.
SuperCom Ltd. (the “Company”) is an Israeli resident company organized in 1988 in Israel. On January 24, 2013 the Company changed its name back to SuperCom Ltd, its original name, from Vuance Ltd. On September 12, 2013, the Company’s
ordinary shares were approved for listing on the NASDAQ Capital Market and began trading under the ticker symbol “SPCB” on September 17, 2013. Previously, the Company’s ordinary shares traded on the OTCQB® electronic quotation service. The Company is a global provider of e-GOV, IoT, Communication and Cyber Security solutions, to governments and organizations, both private and public, throughout the world;
(i) IoT products and solutions reliably identify, track and monitor people or objects in real time, enabling customers to detect unauthorized movement of people, vehicles and other monitored objects. The Company provide all-in-one field-proven
PureSecurity suite, accompanied with services specifically tailored to meet the requirements of an IoT customer; (ii) Proprietary e-Government platforms and innovative solutions for traditional and biometrics enrollment, personalization, issuance
and border control services, the Company have 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; (iii)
Solutions for carrier wi-fi, enterprise connectivity, smart city, smart hospitality, connected campuses and connected events. Carriers, local governments and hospitality sectors worldwide deploy The Company intelligent wi-fi networks to enhance
productivity and performance, as well as its legacy backhaul services and productsThe Company provide; (iv) 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, The Company maps sensitive information and controls data flow through email, web, external devices and additional channels.
b.
Liquidity Analysis
The Company has experienced net losses and significant cash outflows from cash used in operating activities over
the past 3 years. As of and for six months ended June 30, 2020, the Company had an accumulated deficit of $77,840, and net cash used in operating activities of $1,596 for the six months ended June 30, 2020, compared to $4,421 for the six months
ended June 30, 2019. Management has evaluated the significance of the conditions described above in relation to the Company’s ability
to meet its obligations and noted that as of June 30, 2020, the Company had cash, cash equivalent and restricted cash and positive working capital of $1,900 and $9,063, respectively. Further, during 2019 and 2020, the Company was undergoing an
optimization process to be a more efficient structure and to be in better position in the Covid-19 pandemic. During the optimization process, the Company has reduced its expenses through the reduction in its headcount and overhead costs, that
resulted in a reduction of operating expenses by 40%, between the first half of 2019 and first half of 2020. Additionally, the Company secured credit facility of $20,000 during 2018, of which, $6,000 remains available to the Company to draw at
least for the next 12 months as needed. During 2020 the Company secured in multiples transactions subordinates debt in the grous amount of $3.500 from Iliad R&D L.P, Additionally the Company raised a gross amount of approximately $3,200 in a
private equity placement in July 2020. The Company has used the proceeds from the credit financing and equity private placement (i) to satisfy certain indebtedness; (ii) for general corporate purposes and (iii) working capital needs for multiple
new government customer contracts with significant positive cash flow. As a result of above mentioned credit facilities, capital raise, management’s plans, current cash flow position, contracts with customers around the world, and current
favorable trends in improving cash flow, the Company concluded that the initial conditions which raised concerns regarding the ability to fund its operation for the next 12 months have been alleviated
c.
Senior Secured Credit Facility
On September 6, 2018 and October 26, 2018, through a two-stage closing process, the Company entered into a Senior
Secured Credit Facility with affiliates of Fortress Investment Group LLC("Fortress") with an aggregate principal amount of up to $20,000 (the "Credit Facility"). The Initial Term Loan which finalized on October 26, 2018 has an aggregate principal
of $10,000, and the Incremental Term Loan provides for up to an additional $10,000 in principal through Incremental Draws of at least $1,000 each. In 2019, a total of $4,000 gross was drawn on the Incremental Term Loan, and some of the terms of
the Credit Facility were amended to support the needs of the company. The Credit Facility is set to mature on September 6, 2021 (but expected to be amended to mature in the third quarter of 2022) and bears interest on the borrowed balance at a
rate per annum equal to LIBOR plus an applicable margin (the "Interest Margin") dependent on the EBITDA Leverage Ratio which is calculated and reset on a quarterly basis (8.0% for an EBITDA Leverage Ratio greater than or equal to 2.50x; 7.0% for
an EBITDA Leverage Ratio less than 2.50x). At the Company's election, interest is paid in cash or in-kind in the amount of 4% per annum of the Interest Margin. The balance of interest is payable in cash monthly in arrears. For amounts which
remain un-borrowed, the Company incurs interest at a rate of 0.50% per annum ("Unused Fee"). From closing and until today, the Company only paid monthly interest payments. On June 1st, 2021 the Company expects to start making partial monthly
amortization payments towards the principal balance, with the majority of the principal to be paid via a bullet payment at the maturity date, which the company expects to be amended to a date in the third quarter of 2022.
The Credit Facility is subject to an original issue discount equal to 2.5% of any drawn amounts, and amounts repaid cannot be
re-borrowed. At maturity, an end-of-term fee of 2.25% to 4.5% is owed by the Company for any amounts drawn. In connection with securing the Credit Facility, the Company incurred legal and due diligence fees, which are recorded together with the
original issue discount and end-of-term fee, and amortized into interest expense over the life of the Credit Facility. In connection with the Credit Facility, the Investor received 25,000 warrants initially and an additional 75,000 warrants for
amendments (the “Credit Facility Warrants”) and purchased 106,705 unregistered common shares at a share price of $1.87 from Company at a total of $200. The Credit Facility Warrants mature 7 years from the date of issuance, are were set to be
issued at a strike price at a premium to the then current market price.
d.
Covid-19 Affect and Risk In December 2019, a new strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, Hubei Province, China. During February until December of
2020, COVID-19 has spread globally, including in Israel, Asia, Europe, and America. In response to the COVID-19 virus, countries have taken different measures in relation to prevention and containment including lock-down and quarantine. The
COVID-19 virus continues to impact worldwide economic activity and pose the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting certain business activities for an indefinite
period of time, including due to lockdown that had been mandated by governmental authorities or otherwise elected by companies as a preventive measure. During the 6 months ended June 30, 2020 and for the remaining of 2020, The company’s business, trading and operations were impacted materially by the COVID-19 global. COVID-19
related imposed government restrictions in California and other geographies limited our ability to interact with our clients to provide full services as well as adding new clients to our monitoring programs given court systems shutdown. The
government imposed lockdowns and travel restrictions also hindered proper project deployment, productions, support, sales and R&D processes: (i) had prevented our sales teams to meet customers and demonstrate our products, (ii) had prevented
our support teams to travel and visit customers in order to provide the adequate support and upgrades to our products (iii) had prevented our customers to complete tenders, purchases, (iv) had prevented proper collection of our client debt due to
travel limitation or liquidity problems with our customers, (v) had prevented our customers and partners to complete the integrations and deployments of the Company current contacts. (vi) As the Company relies, on manufacturers our products in
China, Israel, and USA, such products had not produced and/or shipped to the Company or to its customers. COVID-19 continuous spread and protective measures taken by the authorities may continue to adversely affect our future results of operations, cash flows and financial condition. |
