6-K
SuperCom Ltd (SPCB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2020
SUPERCOM LTD.
(Translation of Registrant’s name into English)
20 Lincoln Street,
Tel Aviv,
Israel
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ⌧ Form 40-F ◻
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ◻
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ◻
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ◻ No ⌧
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
This Form 6-K is being incorporated by reference into the Registrant’s Registration Statements on S-8, File Nos. 333-121231 and 333-175785.
SUPERCOM LTD.
6-K Items
| 1. | Condensed<br> Interim Consolidated Financial Statements of Supercom Ltd. and its subsidiaries as of June 30, 2020. |
|---|---|
| 2. | Management's<br> Discussion and Analysis of Results Operations. |
| 101.1NS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SuperCom Ltd. |
|---|
| By: /s/ Arie Trabelsi |
| Name: Arie Trabelsi |
| Title: Chief Executive Officer |
Date: December 30, 2020
Exhibit 1
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2020
(Unaudited)
SUPERCOM LTD
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
as of June 30, 2020
(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 |
| Notes to Interim Consolidated Financial Statements | 7 – 10 |
2
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
| June 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Unaudited | Audited | |||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | 641 | 110 | ||||
| Restricted bank deposits | 1,259 | 1,100 | ||||
| Trade receivable, net | 13,160 | 13,047 | ||||
| Other accounts receivable and prepaid expenses | 1,132 | 961 | ||||
| Inventories, net (Note 3) | 3,035 | 2,646 | ||||
| Patents | 5,283 | 5,283 | ||||
| Total current assets | 24,510 | 23,147 | ||||
| LONG-TERM ASSETS | ||||||
| Severance pay funds | 343 | 362 | ||||
| Deferred tax long term | 148 | 510 | ||||
| Property and equipment, net | 655 | 894 | ||||
| Other Intangible assets, net (Note 4) | 7,632 | 8,065 | ||||
| Goodwill | 7,026 | 7,026 | ||||
| Total non-current assets | 15,804 | 16,857 | ||||
| TOTAL ASSETS | 40,314 | 40,004 | ||||
| CURRENT LIABILITIES | ||||||
| Trade payables | 3,476 | 3,541 | ||||
| Employees and payroll accruals | 2,592 | 3,229 | ||||
| Related parties | 321 | 305 | ||||
| Accrued expenses and other liabilities | 4,004 | 4,667 | ||||
| Deferred revenue | 792 | 1,332 | ||||
| Short-term loan and others | 3,325 | 445 | ||||
| Short-term liability for future earn-out | 938 | 794 | ||||
| Total current liabilities | 15,448 | 14,313 | ||||
| LONG-TERM LIABILITIES | ||||||
| Long-term loan | 14,568 | 14,187 | ||||
| Related parties | 1,707 | 2,383 | ||||
| Deferred revenue | 0 | 210 | ||||
| Long-term liability for future earn-out | 88 | 0 | ||||
| Accrued severance pay | 547 | 579 | ||||
| Total non-current liabilities | 16,910 | 17,359 | ||||
| SHAREHOLDERS' EQUITY: | ||||||
| Ordinary shares | 1,116 | 1,116 | ||||
| Additional paid-in capital | 84,680 | 84,680 | ||||
| Accumulated deficit | (77,840 | ) | (77,464 | ) | ||
| Total shareholders' equity | 7,956 | 8,332 | ||||
| Total Liabilities and Shareholders' Equity | 40,314 | 40,004 |
The accompanying notes are an integral part of these interim consolidated financial statements.
3
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
| Six months ended June 30 | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Unaudited | Unaudited | |||||
| REVENUES | 6,796 | 11,339 | ||||
| COST OF REVENUES | 2,573 | 5,004 | ||||
| GROSS PROFIT | 4,223 | 6,335 | ||||
| OPERATING EXPENSES | ||||||
| Research and development, net | 987 | 1,818 | ||||
| Sales and marketing | 973 | 1,791 | ||||
| General and administration | 1,453 | 2,015 | ||||
| Other expenses (income) | 45 | 1 | ||||
| Total operating expenses | 3,458 | 5,625 | ||||
| OPERATING (LOSS) INCOME | 765 | 710 | ||||
| FINANCIAL EXPENSES (INCOME), NET | 1,141 | 910 | ||||
| LOSS BEFORE INCOME TAX | (376 | ) | (200 | ) | ||
| INCOME TAX BENEFIT | - | 78 | ||||
| NET LOSS FOR THE PERIOD | (376 | ) | (122 | ) | ||
| NET LOSS PER SHARE | ||||||
| Basic | (0.02 | ) | (0.01 | ) | ||
| Diluted | (0.02 | ) | (0.01 | ) | ||
| Weighted average number of ordinary shares used in computing basic net loss per share | 16,214,228 | 16,141,286 | ||||
| Weighted average number of ordinary shares used in computing diluted net loss per share | 16,214,228 | 16,141,286 |
The accompanying notes are an integral part of these interim consolidated financial statements.
4
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(U.S. dollars in thousands, except share data)
| Ordinary shares | Additional | Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of<br><br> Shares | Share<br><br> capital | paid-in<br><br> capital | Accumulated<br><br> deficit | shareholders'<br><br> equity | ||||||||
| 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 | ||||||
| Balance as of December 31, 2019 | 16,214,228 | 1,116 | 84,680 | (77,464 | ) | 8,332 | ||||||
| Changes during the six months ended June 30, 2020 (unaudited): | ||||||||||||
| Stock- based compensation | - | - | - | - | - | |||||||
| Net loss | - | - | (376 | ) | (376 | ) | ||||||
| Balance as of June 30, 2020 (unaudited) | 16,214,228 | 1,116 | 84,680 | (77,840 | ) | 7,956 |
The accompanying notes are an integral part of these interim consolidated financial statements.
5
SUPERCOM LTD
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(U.S. dollars in thousands)
| Six months ended June 30 | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Unaudited | Unaudited | |||||
| Cash flows from operating activities: | ||||||
| Net loss | (376 | ) | (122 | ) | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||
| Depreciation and amortization | 1,251 | 1,020 | ||||
| Stock-based compensation | - | 159 | ||||
| Increase in deferred tax | 450 | (52 | ) | |||
| Increase in trade receivables, net | (113 | ) | (4,048 | ) | ||
| Decrease (Increase) in other accounts receivable and prepaid expenses | (171 | ) | (355 | ) | ||
| Increase in inventories, net | (389 | ) | (32 | ) | ||
| Increase in other non-current assets | - | (10 | ) | |||
| Increase (decrease) in trade payables | (65 | ) | (64 | ) | ||
| Increase in employees and payroll accruals | (637 | ) | 377 | |||
| Increase (decrease) in accrued severance pay | (32 | ) | (36 | ) | ||
| Increase in accrued expenses and other liabilities, related parties and liability for earn-out | (1,514 | ) | (1,258 | ) | ||
| Net cash used in operating activities | (1,596 | ) | (4,421 | ) | ||
| Cash flows from investing activities: | ||||||
| Purchase of property and equipment | - | (74 | ) | |||
| Purchase of Intangible assets | - | - | ||||
| Decrease (Increase) in severance pay fund | 19 | (14 | ) | |||
| Capitalization of software development costs | (405 | ) | (450 | ) | ||
| Net cash provided by (used in) investing activities | (386 | ) | (538 | ) | ||
| Cash flows from financing activities: | ||||||
| Short-term bank loan, net | - | - | ||||
| Proceeds from exercise of options and warrants, net | - | 17 | ||||
| Long-term debt, net | 3,086 | 3.902 | ||||
| Related parties | (384 | ) | 1,490 | |||
| Liability for future earn-out | (30 | ) | (60 | ) | ||
| Net cash provided by (used in) financing activities | 2,672 | 5,349 | ||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 690 | 390 | ||||
| Cash, cash equivalents and restricted cash at the beginning of the year | 1,210 | 2,801 | ||||
| Cash, cash equivalents and restricted cash at the end of the period | 1,900 | 3,191 |
The accompanying notes are an integral part of these interim consolidated financial statements.
6
SUPERCOM LTD
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
| 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<br> 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.
7
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.
8
| 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, 2020 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, 2019.
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, 2019 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, 2019 included in the 2019 Form 20-F.
9
| NOTE 3: | INVENTORIES, NET | |
|---|---|---|
| June 30, | December 31, | |
| --- | --- | --- |
| 2019 | 2018 | |
| Raw materials, parts and supplies | ||
| Finished products | ||
All values are in US Dollars.
As of June 30, 2020 and December 31, 2019, inventory is presented net of write offs for slow inventory in the amount of approximately $1,979 and $1,527, respectively.
| NOTE 4: | OTHER INTANGIBLE ASSETS, NET | |
|---|---|---|
| June 30, | December 31, | |
| --- | --- | --- |
| 2020 | 2019 | |
| Customer relationship & Other | ||
| IP & Technology | ||
| Capitalized software development costs | ||
All values are in US Dollars.
| 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
10
Exhibit 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OPERATIONS
The following discussion and analysis should be read together with our unaudited consolidated financial statements and the related notes as June 30, 2020, which appear elsewhere in this report.
Cautionary Note Regarding Forward-Looking Statements
The discussion and analysis in this section contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current views with respect to future events and financial results. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind readers that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (i) inability to realize benefits from acquisitions, (ii) our inability to manage our growth profitably, (iii) intense competition in our industry, (iv) acquisition of businesses disrupting our business and harming our financial condition and operations, (v) the need to obtain additional financing , (vi) our ability to respond promptly and effectively to market changes, (vii) our ability to obtain and maintain contracts with governments, (viii) our dependence on third-party representatives to generate revenues and supply components, (ix) unfavorable global economic conditions, (x) developments affecting international operations and foreign markets, (xi) breaches of network or information technology security, (xii) intellectual property litigation, and (xiii) such other factors discussed throughout Item 3. D. Risk Factors of our Annual Report on Form 20-F for the year ended December 31, 2019. . Any forward-looking statement made by us in this section is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Overview
Founded in 1988, we are a global provider of traditional and digital identity solutions, advanced IoT and connectivity solutions, and cyber security products and solutions, to governments and private and public organizations throughout the world.
We are comprised of three main Strategic Business Units(SBU) : e-Gov, IoT and Connectivity (or “IoT”), and Cyber Security:
e-Gov
Through our proprietary e-Government platforms and innovative solutions for traditional and biometrics enrollment, personalization, issuance and border control services, we 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
We have focused on expanding our activities in the traditional identification, or ID, and electronic identification, or e-Gov, market, including the design, development and marketing of identification technologies and solutions to governments in Europe, Asia, America and Africa using our e-Government platforms. Our activities include: (i) utilizing paper secured by different levels of security patterns (UV, holograms, etc.); and (ii) electronic identification secured by biometric data, principally in connection with the issuance of national Multi-ID documents (IDs, passports, driver’s licenses, vehicle permits, and visas, Secure Land Certificated) border control applications and Land Information System(LIS) .
On December 26, 2013 we acquired the SmartID division of On Track Innovations Ltd., or OTI, including all contracts, software, other related technologies and intellectual property, or IP, assets. The SmartID division has a strong international presence, with a broad range of competitive and well-known e-Gov solutions and technology. The acquisition significantly expanded the breadth of our e-Gov capabilities globally, while providing us with outstanding market and technological experts, together with leading ID software platforms and technologies.
IoT and Connectivity
IoT
Our IoT products and solutions reliably identify, track and monitor people or objects in real time, enabling our customers to detect unauthorized movement of people, vehicles and other monitored objects. We provide all-in-one field-proven IoT suite, accompanied with services specifically tailored to meet the requirements of an IoT solutions. Our proprietary IoT suite of hybrid hardware, connectivity and software components are the foundation of these solutions and services. Our IOT division has primarily focused on growing the following markets: (i) public safety; (ii) healthcare and homecare; (iii) Smart Cities (iv) Smart Campus and (iv) transportation.
During 2006, we identified the growing electronic tracking and monitoring vertical markets for public safety, real time healthcare and homecare, and transportation management. We have developed the PureRF Hybrid suit of wrist devices, connectivity, and controlling software, from 2012 we have developed the next generation IoT suite of devices, connectivity and Monitoring software; the PureSecurity Hybrid Suite of wrist band, tags, beacons, PureCom, Pure Monitors, PureTrack and other components.
2
On January 1, 2016 we acquired Leaders in Community Alternatives, Inc., or LCA. 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 25 years. LCA offers a broad range of competitive solutions for governmental institutions across the U.S. in addressing realignment strategies and plans.
Connectivity
In 2016, as part of our strategy to enhance and broaden our IoT connectivity products and solutions offerings for public safety, enterprises, hospitality and smart cities markets, on May 18, 2016, we acquired Alvarion Technologies Ltd., or Alvarion. Alvarion designs solutions for carrier wi-fi, enterprise connectivity, smart city, smart hospitality, connected campuses and connected events that are both complete and heterogeneous to ensure ease-of-use and optimize operational efficiency. Carriers, local governments and hospitality sectors worldwide deploy Alvarion’s intelligent wi-fi networks to enhance productivity and performance, as well as its legacy backhaul services and products.
Cyber Security
During 2015, we identified the cyber security market as a very fast growing market where we believe that SuperCom has major advantages due to synergic technologies and shared customer base to our e-Gov, IoT and connectivity SBUs. In 2015, we acquired Prevision Ltd., or Prevision, a company with a strong presence in the market and a broad range of competitive and well-known cyber security services. During the first quarter of 2016, we acquired Safend Ltd, or Safend, an international provider 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. Safend maps sensitive information and controls data flow through email, web, external devices and additional channels.
Both acquisitions significantly expanded the breadth of our cyber security capabilities globally, while providing us with outstanding market and technological experts and over 3,000 customers in the United States, Europe, and Asia, and more than three million software license seats deployed by multinational enterprises, government agencies and small to mid-size companies around the globe, together with leading data and cyber security platforms and technologies.
General
Our consolidated financial statements appearing in this report are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Transactions and balances originally denominated in dollars are presented at their original amounts. Transactions and balances in other currencies are re-measured into dollars in accordance with the principles set forth in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 830, “Foreign Currency Translation.” The majority of our sales are made outside Israel in U.S. dollars. In addition, substantial portions of our costs are incurred in U.S. dollars. Since the U.S. dollar is the primary currency of the economic environment in which we and certain of our subsidiaries operate, the U.S. dollar is our functional and reporting currency and, accordingly, monetary accounts maintained in currencies other than the U.S. dollar are re-measured using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the exchange rate in effect at the date of the transaction. The financial statements of certain subsidiaries, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the period. The resulting translation adjustments are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).
3
Results of Operations
Revenues
Our revenues for the six months ended June 30, 2020, decreased by $4.5 million or 40.1%, to $6.80 million compared to $11.34 million for the six-month period ended June 30, 2019. The decrease in our revenues in the first half of 2020 was attributable mainly to a decrease in revenue from our e-Gov, and from the material effect of the Covid-19 pandemic on the Company operation(see Note 1d).
Cost of Sales
Our cost of sales decreased in the first six months of 2020 to $2.6 million from $5.0 million in the first six months of 2019, a decrease of 48.6%. This decrease was primarily due to a decrease in cost of sales related to 40.1% decrease in our revenues.
Gross Profit
Our gross profit margin remains sustainable at 62.1% in the first half of 2020 compare to 55.9% in the first half of 2019.
Expenses
Our operating expenses decreased in the first six months of 2020 to $3.5 million, or by 38.7%, from $5.6 million in the first six months of 2019. This decrease in operating expenses in the first half of 2020 was primarily due to (i) a decrease of $0.9 million in research and development expenses (ii) a decrease of $0.8 million in sales and marketing expenses (ii) a decrease of $0.6 million in general and administration expenses.
Financial Expenses, net
We had financial expenses of $1,141 thousands in the first half of 2020 compared to financial income of $910 thousands in the first half of 2019. The increase in financial expenses was due to (i) changes in the exchange rate of the NIS against the U.S. dollar in 2020 compare to 2019, (ii) an interest fee on loan and credit line, and (iii) bank fees related to guarantees issued to our customers.
Income Tax Benefit
We recorded an income tax benefit in the amount of $0 during the first half of year 2020, compared to an income tax benefit in the amount of $78 thousands during the first half of year 2019.
Net Loss
As a result of the changes in our operational expenses, financial income (expenses) and the income tax benefit that we recorded in the first half of 2020, as described above, our net loss in first half of 2020 was $376 thousand compared to a net loss of $122 thousands in the first half of 2019.
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